The Belt and Road Isn’t Dead. It’s Evolving.

Chinese President Xi Jinping visits Peru this week for the Asia-Pacific Economic Cooperation (APEC) summit, during which he will inaugurate the deep-water port of Chancay, about 45 miles north of Lima. It’s a $3.6 billion project—one of China’s largest infrastructure investments in the region in the past two decades.

It also may be one of the last of its kind.

Upon becoming president in 2013, in an attempt to deepen the so-called going out strategy and find new markets for booming Chinese production, Xi initiated a reform agenda that intensified diplomatic outreach and boosted overseas investment, the capstone of which was the Belt and Road Initiative (BRI).

Big infrastructure contracts were a win-win move: They allowed China to offload excess capacity of steel, labor, and other inputs while providing urgently needed infrastructure to Latin America. Since 2017, 22 countries in Latin America and the Caribbean have formally joined the BRI, utterly transforming China’s relationship with the continent. China is now Latin America’s second-largest trading partner, after only the United States.

But after two decades of growing sway in the region, Beijing is taking a new approach. As it struggles to manage an economic slowdown, a mounting debt burden, and a broken real estate market, Beijing is bringing an end to the era of high-risk, high-cost mega-infrastructure projects in favor of smaller, new frontier investments in cloud computing, 5G technology, renewable energy, artificial intelligence, and electric vehicles.

China has pitched its new strategy to the world as visionary and forward-looking. Its Latin American partners, however, are less convinced.

The significant, long-standing infrastructure gap in Latin America has made leaders hungry for external investment. Whereas the United States and the European Union have been reluctant to put up large sums, China was happy to get involved.

BRI money has funded roads through the jungles of Costa Rica; railways in Bolivia and Argentina; industrial parks and a container port in Trinidad and Tobago; the biggest hydroelectric plant in Ecuador; and the first transoceanic fiber-optic cable directly connecting Asia to South America, stretching from China to Chile, among other projects.

These big infrastructure projects have paralleled increased Chinese investments in soft power and diplomacy. The United States used to be very adept with its Latin American partners, but China has overtaken it, said Benjamin Creutzfeldt, a China scholar.

“The Chinese have become better at engaging through charm offensives with their charismatic ambassadors,” he said. “They learned how to deal with their counterparts effectively.”

But China’s expansion in the region—particularly in hard infrastructure—has come at a cost for Latin America. Chinese companies have been accused of substandard construction practices and corruption in prior big-item investments.

For instance, the Coca Codo Sinclair dam, a hydroelectric rock-fill dam in the jungles of Ecuador, has not stopped making negative headlines since being inaugurated in November 2016. The estimated $3.4 billion project—the largest in Ecuador’s history—was built and financed by China as a flagship BRI project. But by July 2022, more than 17,000 cracks had already splintered across the dam, and many of the top Ecuadorian officials involved in the construction have been imprisoned or sentenced on bribery charges related to the project.

Not only is Ecuador now left with faulty infrastructure, it’s also stuck with crushing amounts of debt. The BRI has shifted China from being Latin America’s ATM to its biggest debt collector. China rivals the World Bank and the Inter-American Development Bank as the biggest creditor in the region and has left Latin America with the highest level of debt service payments in the world, at an estimated 4 percent of regional GDP. According to the research from the Center for Economic Policy Research, the share of Chinese loans to countries in financial distress increased from about 5 percent in 2010 to about 60 percent in 2022.

For its part, Ecuador is attempting to pay back its debt by exporting oil to China at almost an 80 percent discount. But this arrangement could cause problems for China, too, in the long run.

“Supporting these mega-projects, which do not have big returns, in indebted countries, isn’t necessarily a good business strategy,” said Leland Lazarus, the associate director of national security at Florida International University’s Jack D. Gordon Institute for Public Policy.

“China is at the risk of not getting their money back,” said Axel Dreher, a professor at Germany’s Heidelberg University.

After more than two decades of big, ambitious physical infrastructure projects, China has begun to face the music.

Strained economic and political situations on the domestic front have increased pressure to spend less abroad and focus on the country’s internal development needs. Just last week, the Chinese government approved a $1.4 trillion plan to boost the economy by allowing local government to refinance debts.

China is also increasingly wary of infrastructure projects after being criticized for its subpar BRI implementation. AidData, an international development research lab, analyzed more than 13,427 of the initiative’s projects across 165 countries, worth $843 billion, and found that 35 percent had “major implementation problems,” such as scandals, protests, corruption, labor violations, and environmental degradation.

China is still finishing up certain hard infrastructure projects, including the Bogotá Metro rapid transit system in Colombia, but will pursue fewer moving forward. Instead, hungry for cash and eager to de-risk investments while remaining relevant overseas, China has shifted its focus toward new frontier projects—already to great effect.

Wenyi Cai, a Chinese investor and the CEO of Polymath Ventures, a venture studio in Latin America, said that she has seen overwhelming Chinese interest in digital investments, particularly in Mexico and Brazil. Just in 2022, 58 percent of Chinese investments in Latin America and the Caribbean were in these new infrastructure industries, up from about 25 percent in the previous year.

This shift is particularly notable in the telecoms industry. Already, up to 70 percent of Latin America’s 4G-LTE cellular networks are supported by infrastructure from the Chinese tech giant Huawei, which grew by 9 percent in the region in 2022, according to a report from the University of Navarra. The company is also rolling out 5G networks in several countries in the region.

China is also making waves in the electric vehicle industry. In 2022, Chinese firms invested $2.2 billion in the industry—35 percent of all Chinese foreign direct investment in the region that year, according to an Inter-American Dialogue report. In 2023, China emerged as Mexico’s top car supplier, exporting $4.6 billion worth of vehicles, and the Chinese electric vehicle manufacturer BYD is actively exploring factory locations in the country.

Undoubtedly, China’s interest in this supposed technical revolution is economical. For China, the new frontier sectors present less risk, lower operating costs, and faster returns than traditional infrastructure projects in a retrenched post-pandemic world.

“As China has less overall capital to allocate, it tries to do so in a more strategic way,” said Margaret Myers, the director of the Asia and Latin America program at the Inter-American Dialogue.

This, however, has resulted in a huge decrease in funds for Latin America. From 2010 to 2019, China invested an average of $14.2 billion per year in the region. By 2022, however, this amount had dropped to less than half—just $6.4 billion. A similar trend can be observed in loans from China’s top development finance institutions: At its peak in 2010, China lent more than $25 billion in the region, but this dropped to a little more than $1.3 billion per year between 2019 and 2023.

Though infrastructure is no longer the smartest investment strategy, that doesn’t mean the region’s need for it is going anywhere. Luis Alberto Moreno, the former president of the Inter-American Development Bank, told Foreign Policy that there continues to be a large infrastructure deficit in Latin America that is only growing bigger as the region becomes richer and demands more energy, goods, and services.

Non-Chinese development banks, including the World Bank and the Inter-American Development Bank, have already started filling the gap since Chinese lending first dropped in 2015. This includes significant new financing from the Inter-American Development Bank for road improvements last year, with $600 million allocated to Mexico, $480 million to Brazil, and $345 million to Argentina.

But Moreno said that he doubts that the World Bank and the Inter-American Development Bank will be able to fill the void alone. China seems to be the only other option, but it’s not playing ball.

Despite the region finding itself trapped in domestic debt and having been burned by infrastructure projects that did not fulfill time, cost, and quality expectations, a fear nevertheless lingers in Latin America about what it will do without massive inflows of Chinese money.

“There is this sense that it [infrastructure] needs to be done, whether China is the one to do it or not,” Myers said.

Yet, China’s increased focus on new frontier investments could enable Latin American countries to enhance their much-needed digital infrastructure, positioning them to capitalize on automation and the adoption of artificial intelligence. It could also facilitate the region’s participation in a global green transition.

Jesús Seade, Mexico’s ambassador to China, sees the shifting focus toward more innovation-led investment as an opportunity for his country. “It means development—it means helping Mexico climb the value chain,” he told Foreign Policy.

But some worry that the region will become over-reliant on China in these new sectors, just as it did for the big physical infrastructure projects, without improving its own competitiveness in the process. Although some welcome cheap green technologies from China in order to ease the region’s transition to cleaner energy use, concerns remain about Latin American countries not doing enough to bolster their capacity to produce high-value manufacturing goods, harness Chinese technology transfers, and implement robust security measures to safeguard against the misuse of citizens’ data.

The new frontier investments could also pose security threats to Latin American governments and their citizens, including through surveillance, cybersecurity, and intellectual property risks that the region is unprepared to deal with, according to Robert Evan Ellis, a professor of Latin American studies at the U.S. Army War College. He is also concerned about China’s ability to misuse its access and knowledge about operations in key logistics hubs—such as the Panama Canal or the Chancay port—to disrupt access or launch attacks if a conflict were to emerge.

Another concern is the power balance between China and its Latin American partners. According to Marisela Connelly, a professor at the Center for Asian and African Studies at the College of Mexico, China is the one determining the conditions for trade and investment in the region.

“China simply wants Latin American countries to adapt to China’s needs,” Connelly said. She criticized the Mexican government for having “no strategy” and “no clear objectives” in its relationship to China.

Ultimately, the situation raises an important question about what infrastructure Latin America really needs.

“I’m not sure this [less investment in hard infrastructure] is a bad thing,” Evan Ellis said. Ultimately, Latin America has to pay for its infrastructure projects, and China’s shift may save the region from more unviable and expensive infrastructure projects moving forward.