By Zhang Yifan
According to the Chinese government, China’s Belt and Road Initiative (BRI) is the symbolic revival of historical Eurasian trade routes to, “Maintain an open world economic system … achieve diversified, independent, balanced, and sustainable development … advance regional cooperation, strengthen communications between civilizations, and safeguard world peace and stability.”[i] Moreover, “it showcases the fact that China, as the largest developing country and the world’s second largest economy, shoulders its wider responsibilities in promoting international economic governance to a fair, just, and rational system.”
The BRI is commonly known as a series of infrastructure projects, but it comprises much more than that: it is a framework for China’s development of a Sino-centric global economy through investments in connectivity, including policy coordination, trade facilitation, infrastructure connectivity, financial integration and people-to-people exchange. Moreover, the BRI supports China’s efforts to move up global supply chains and develop greater trade ties with both developing and developed economies. The BRI is also an initiative to create a more China-friendly and Sino-centric political environment on China’s periphery and beyond. Domestically, the BRI encompasses efforts to create jobs, integrate underdeveloped provinces into the regional economy, and direct resources to support other Chinese policy priorities. Additionally, the massive resources Beijing has promised for the BRI could make it an engine for global growth; with as much as trillions of dollars devoted to the project, the BRI carries immense political, economic, and environmental consequences, amounting to one of the most expensive policy programs ever attempted.
Economic and Strategic Motives behind the Initiative
- Exporting China’s development model of state-led investment to “make globalization an equal process for sharing benefits among all nations,” as an alternative to neoliberal capitalism, which, as claimed by China’s former Vice Minister of Foreign Affairs He Yafei, has fostered drastically unequal global economic development in the West.[ii].
- Addressing inequality among regions of China and among BRI partner countries.
- Creating demand for the products of Chinese industrial overcapacity.
- Creating jobs for domestic workers through Chinese companies contracted for BRI projects.
- Further internationalization of the Renminbi (RMB) as a global currency.
- Increasing China’s energy security by developing energy import routes away from the Strait of Malacca and the South China Sea.
- Enhancing China’s overseas security presence to best protect its overseas populations and economic interests.
- Using debt to gain concessions from partner countries to further China’s core political and strategic interests – a prominent example is China’s agreement with Sri Lanka in July 2017 of a debt-for-equity swap accompanied by a 99-year lease for managing the Port of Hambantota to cover $1.12 billion of its total $8 billion debt to Chinese State Owned Eterpresises (SOEs).[iii]
Potential Impact of the BRI
- Filling Asian infrastructure gaps: Infrastructure gaps are serious obstacles to growth in many countries along the Belt and Road. If BRI infrastructure project are successful, the economic benefits to these countries could be significant and lasting.
- Boosting lagging global growth: BRI investment could drive global growth by facilitating international trade and investment and creating demand for products and services. China’s success at this level, and at the project level, will depend on how China weighs policy choices against market forces.
- Creating unsustainable debt: Many Chinese loans for BRI projects have commercial rates, and unsuccessful projects may load partner countries with significant debt.
- Exporting low labor and environmental standards: Chinese contractors (often employed for BRI projects) tend to replicate China’s poor working conditions and environmental practices abroad.
- Reorienting the global economy toward China: A successful BRI would integrate Chinese companies into global supply chains, export Chinese business practices and technical standards, as well as link BRI countries to China economically and strategically through trade and investment patterns.
Key Challenges Ahead for the BRI
China has invested huge amounts of money and political capital in the BRI, thus careful and effective management of BRI resources will be necessary to overcome the many complex challenges the initiative faces.
- Financial and political risk: The BRI runs through some of the most politically unstable parts of the world. The sovereign debt of about one-third of BRI countries is below investment grade. China will find that some of its partners cannot or will not repay the debts they incur through BRI projects.
- Geopolitical challenges: India is resisting the BRI, and Western powers are skeptical of China’s strategic intentions. China also risks entangling itself in the tension between Saudi Arabia and Iran as it pursues collaboration with both through the BRI. International resistance or cooperation could have a significant impact on the BRI’s performance.
- Policy coherence: The BRI lacks clear goals and metrics for success. China does not publish a list of its BRI projects. The opacity and ambiguity Beijing is projecting exacerbates its other challenges with the BRI.
- Soft power challenges: Engaging 138 countries and 30 international organizations , with their diverse languages, cultures, and legal systems, is a massive task that China is poorly equipped for. Chinese firms have bad reputation for alienating local populations with abusive labor practices and employing Chinese workers to the exclusion of locals.[iv]
Recommendations for the BRI
- Multilateralization: Including BRI partner countries and multilateral institutions in BRI policy decisions would change the image of the BRI as a parochial Chinese project; additionally, multilateralization could encourage third party investment in the BRI and other compatible projects.
- Improve capacity for risk control: China needs to improve its fledgling risk assessment and control capabilities of its firms. It should look to the private sector in the short term, but in the long term, it needs to develop its own competencies. Many BRI countries pose significant risks to Chinese investment with political instability and poor security climates.
- Clarify the BRI’s goals and progress: Chinese statements on the BRI are vague. A public list of BRI projects and clear statements of China’s strategic policy and project-level goals would improve trust and understanding abroad.
- Increase transparency and create a code of conduct: China needs to earn the support of local communities. Making its projects transparent and publishing a code of conduct of BRI project execution could improve its relationship with locals and rein in the destructive practices of Chinese companies.
[i] Office of the Leading Group for the Belt and Road Initiative, Building the Belt and Road: Concept, Practice, and China’s Contribution, May 2017.
[ii] He Yafei, “Belt & Road vs. Liberal Order,” China-US Focus, May 22, 2017. https://www.chinausfocus.com/foreign-policy/-belt–road-vs-liberal-order.
[iii] Lim, D. and R. Mukherjee, “Does Debt Pay? China and the Politics of Investment in Sri Lanka. What are the sources and impact of China’s economic leverage over Sri Lanka?” The Diplomat, January 20, 2018. https://thediplomat.com/2018/01/does-debt-pay-china-and-the-politics-of-investment-in-sri-lanka/; “Chinese firm pays $584 million in Sri Lanka port debt-to-equity deal” Reuters, June 21, 2018. https://www.reuters.com/article/us-sri-lanka-china-ports/chinese-firm-pays-584-million-in-sri-lanka-port-debt-to-equity-deal-idUSKBN1JG2Z6.
[iv] “已同中国签订共建‘一带一路’合作文件的国家一览 ”(A List of Countries Signing Up Co-operation Agreements under the Belt and Road Initiative), Belt and Road Portal, Updated in January, 2020. https://www.yidaiyilu.gov.cn/xwzx/roll/77298.htm.