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The Real Trouble With China’s Belt and Road

 
 

Next week, China will hold the highest-level international forum to date to promote its ambitious, cross-continental development strategy known as the Belt and Road Initiative (BRI). Ahead of the so-called Belt and Road Forum for International Cooperation (BRF), Chinese state media has been predictably parroting selective statistics that illustrate BRI’s successes, while other skeptical accounts have repeated the same litany of complaints about it, from the lack of funding to issues with specific projects.

Reality, as it often does, lies somewhere in between these two extremes. But more fundamentally, this always-full, mostly-empty-so-far discussion also misses the central point about the BRI so far: though China has made some inroads in addressing some concerns raised by naysayers since it was launched back in 2013, resolving the structural challenges that have dogged it have so far been nowhere in sight.

The Belt and Road Initiative, a signature foreign policy priority of Chinese President Xi Jinping, is often referred to as the largest initiative of its kind launched by a single country. And its scale  certainly is intimidating. It comprises two large segments: the Silk Road Economic Belt, a land route starting in western China that goes through Central Asia and on to the Middle East; and the 21st Century Maritime Silk Road, a maritime route that goes around Southeast Asia, the Persian Gulf, and the Horn of Africa. All in all, it includes more than two thirds of world population and more than one third of global economic output, and could involve Chinese investments that total up to $4 trillion.

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Despite the overwhelming focus on the geopolitical logic of the initiative, it is designed to meet Chinese objectives both at home and abroad. At home, China’s leaders hope it will help ease overcapacity in the country and spur growth in its underdeveloped border regions, boosting economic growth that underpins the survival of the Chinese Communist Party (CCP). Abroad, BRI is one means through which Beijing can use its economic power to advance diplomatic and strategic objectives, consolidating China’s position in Eurasia and, for some, ultimately undermining Washington’s relative position as well (See: “Can China Reshape Asia’s Security Architecture?”).

The BRF next week will be an opportunity for Xi to highlight the achievements of BRI and China’s growing economic prowess, particularly amid uncertainty about the role of the United States following the demise of the Trans-Pacific Partnership (TPP) and with the 19th Party Congress coming up in the fall. With leaders from 28 countries attending and delegates from 110 countries, highlights include a leaders’ roundtable summit as well as the signing of cooperation documents and action plans amid the bilateral engagements that will occur on the sidelines.

But for all the hype that BRI will generate, the reality is much more mixed. On the one hand, the initiative has certainly gained much more steam than critics had initially foreseen. Dozens of countries have already supported the initiative to varying degrees, even if their enthusiasm often varies depending on whether they are speaking publicly or privately. And some projects have already gotten underway, even though many of them were previously mulled and subsequently folded in under the BRI banner. For most Asian countries, the interest in BRI is motivated less by some ideological shift towards China and more by a practical recognition of its relevance for advancing their own economic goals, be it promoting foreign investment or building infrastructure (See: “The Truth About China’s ‘Big, Bad’ Infrastructure Bank”). The reality is that demand for infrastructure, which the Asian Development Bank (ADB) forecasts at around $1.7 trillion per year, far outstrips its supply, and China is one of the few countries willing to pour money into addressing that gap.

China, to its credit, has also begun trying to address some of the concerns that critics had at the outset. Beijing’s efforts to stress the open, inclusive, and collaborative nature of the initiative, its shifting posture towards some controversial infrastructure projects, and attempts to address questions regarding standards and transparency, have not gone unrecognized in regional capitals. Even questions like financing have seen some incremental progress despite the long road ahead. The birth of the Asian Infrastructure Investment Bank (AIIB) – which was hardly assured at its outset – along with other funding sources like the Silk Road Fund and the New Development Bank at least begin to answer the question of how to fund such a mammoth task, even if this is so far just a drop in the bucket of what is required.

Yet challenges remain. Some of these are familiar, such as misleading official statistics that make it difficult to analyze the true state of the initiative. For instance, though state media outlets ahead of the summit continue to emphasize the massive investment, jobs, and taxes generated by China’s economic presence in the existing Belt and Road countries, only some of that is directly tied to specific BRI projects as opposed to general cooperation with governments. This makes it hard to assess whether most of Chinese investment is actually in fact going to these countries or not today relative to previous years, which would constitute quantitative evidence of BRI’s centrality in practice. This rosy picture also notably does not include the social and environmental costs of the initiative.

More troubling, though, are the structural challenges that confront BRI, which dwarf any progress being made and show few signs of being addressed in any meaningful way. Of these, three are notable: coordination, calibration, and credibility.

Domestically, the issue is one of coordination. Though it is true that BRI is a priority for Xi, such prominence has in fact proven to be both a blessing and a curse so far within China. While organizations are clamoring to be part of such an important initiative, it has almost inevitably complicated efforts to coordinate efforts between them. That can affect how things play out on various fronts – from the emphasis on certain aspects of the initiative over others to evolving regulatory requirements on Chinese outbound investments – leading to confusion and speculation about who or what is driving or inhibiting things.

The magnitude of the coordination problem internally is matched by the calibration challenge externally with countries along the Belt and Road. It is not just the fact that BRI is uneven in terms of where it is taking off, whether it be by subregion or by sector – or that the list of problems inherent in some of the individual projects remains long, from ethnic and religious tensions to the lack of legal protection for investors to uncertainties regarding local regulations. These results are well-known, recognized, and even acknowledged in some official accounts, with a report on the initiative co-authored by the Chinese Academy of Social Sciences and China Bond Rating Co. Ltd being one example.

The real structural issue is getting the calibration right on these projects, which gets to the cost-benefit distribution in high(er)-risk projects and the inherent asymmetry of capabilities between China and neighboring states. Some of the projects Chinese companies have taken on or are contemplating are overly risky, and the pursuit of them can either lead to failure or limited success built on everything from unsustainable debt to lax social and environmental standards allegedly required to get them off the ground in the first place. Indeed, a number of BRI projects have already experienced this, from the China-Laos railway deal to Beijing’s investments in the Sri Lankan port of Hambantota. And particularly in cases where Chinese-led consortiums are the only real entities backing otherwise unrealizable projects, that increases the odds of them being accused of bullying smaller countries, undermining the “win-win” formulation Chinese policymakers are fond of touting.

Of the three, the credibility challenge is where work is most needed but could prove toughest to address. Chinese officials have paid close attention to how the initiative itself is marketed and perceived in the region and have adjusted their approach accordingly. But one wishes that they would also change China’s worrying actions on other fronts regionally and internationally – whether it be its assertiveness on the South China Sea or criticism of states for alignments perceived to be against Beijing’s interests. These actions turn China into exactly the boogeyman that its critics warn of, undercutting its message, raising doubts about its overall intentions, and affecting the receptivity of countries and their populations to initiatives like BRI.

This is not just a hypothetical concern. For governments already within the BRI that have already had to deal with popular discontent related to China – from Kazakhstan down to Malaysia – such an image of China further complicates their management of these incidents and could forestall future economic opportunities. This also fans existing fears among some in the region that signing on to Chinese economic activities merely increases China’s leverage on these countries which Beijing can then exploit to force concessions at the expense of their autonomy and prosperity. For countries currently out of BRI, like India, Australia, and the United States, it confirms suspicions that this is really a fig leaf for Chinese regional hegemony, which means less buy-in and potential financing for the initiative. It also encourages other actors like Japan to further develop their own economic strategies independently instead of major Asian players trying to work together to reduce potential duplication.

Keep this in mind as you get flooded with headlines with impressive statistics and shiny new deals as the Belt and Road Forum gets underway next week. The real trouble with the Belt and Road Initiatives is not simply a question of perception management or scale, but underlying structural challenges that will need to be addressed if it intends to truly succeed.

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