New Zealand has an infrastructure deficit of at least $100 billion, a significant drag on productivity and economic growth. Not all this deficit can be financed from within New Zealand, meaning we will need overseas investment.

China’s Belt and Road Initiative (BRI) has been touted as a potential source of overseas investment. The BRI aims to increase trade volumes between participating countries by improving infrastructure and lowering trade costs.

The New Zealand Initiative’s latest research note makes a case for a cautious approach, given China’s increasingly assertive foreign policy stance and recent changes in the BRI’s focus.
 
The BRI aims to promote economic cooperation, infrastructure development, and cultural exchange among participating countries. It seeks to create a vast network of trade routes and economic corridors spanning Asia, Europe, and Africa. Potential benefits of engaging with it, including infrastructure development and increased trade, are superficially attractive.

However, the BRI has recently shifted away from large infrastructure projects towards "small but beautiful" endeavours. This raises questions about its value proposition for New Zealand’s infrastructure needs, given the high cost of construction in this country.
 
Furthermore, deeper engagement could compromise New Zealand's independent foreign policy. As a small nation heavily reliant on international trade and multilateralism, New Zealand must carefully navigate any participation. We must avoid being unduly influenced by China's economic and strategic priorities, which have become much more assertive since 2017.
 
Italy, the only G7 country to join the BRI, withdrew last year. Meanwhile. the experiences of countries like Pakistan, Laos, and Sri Lanka serve as cautionary tales. BRI participation has contributed to unsustainable debt, reduced sovereignty, and economic policies favouring Chinese interests in these countries. Their experiences underscore the potential pitfalls of high-stakes engagement with the BRI, notwithstanding the allure of infrastructure development.
 
For New Zealand, the prudent path is one of caution and measured engagement. Addressing domestic barriers to investment would foster a more conducive environment for infrastructure development without incurring risks associated with the BRI. This approach should include reforming our restrictive overseas investment screening regime and streamlining resource management laws.
 
Ultimately, the risks associated with BRI participation, including potentially compromising our foreign policy independence, may outweigh its benefits. As a small, open economy dependent on global stability, New Zealand's interests are best served by defending the liberal order. That means working with like-minded countries to strengthen the rules-based international system.

Nick Clark and Dr Oliver Hartwich's report, Belt and Road Initiative: Implications for New Zealand, was published on 2 May.