By Aileen Torres-Bennett
Uploaded on June 29, 2017
Uploaded on June 29, 2017
In 2013, China introduced the Belt and Road Initiative (BRI), a grand vision of regional connectivity through infrastructure projects that would have global reach.
At its base, BRI is an economic framework. But it is also President Xi Jinping’s signature foreign policy vision, aimed at building and strengthening ties with neighboring countries and increasing China’s role in Asia and its stature as a world leader.
The massive endeavor would finance the construction of roads, high-speed rail, bridges, power plants, pipelines, ports and other infrastructure projects in over 60 nations spanning Asia to Europe — to the tune of more than $1 trillion in investment. Just as the ancient Silk Road trade routes spread Chinese influence over a millennium ago, BRI (previously known as “One Belt, One Road”) would cement China’s rise as a global economic power at a time when the U.S. is turning inward.
It is an ambitious undertaking, one with enormous risks and rewards. It could offer China new markets and friends while promoting its brand of state-sponsored, no-strings-attached investment over the traditional Western development model that links aid to human rights and governance. But the investments could go down the drain in conflict-plagued, corruption-riddled nations, and not all governments have bought into the idea of a modern-day Silk Road that could strengthen China’s regional dominance.
BRI Basics
BRI’s objective is to build what China terms a land-based Silk Road Economic Belt and an ocean-based 21st-century Maritime Silk Road. The initial focus areas are Asia, Europe and Africa, but the initiative is open to all countries. By 2050, BRI aims to contribute 80 percent of global GDP growth, according to the McKinsey Global Institute.
China will act as a lender to finance BRI projects, but it has also invited other countries to work as partners in financing, as well as multilateral institutions, such as the Asian Infrastructure Investment Bank. Germany’s Deutsche Bank has come on board with China Development Bank by agreeing to finance $3 billion in BRI projects.
“Functionally, the initiative aims to improve hard infrastructure, soft infrastructure, and even cultural ties,” wrote Christopher Johnson, Matthew Goodman and Jonathan Hillman of the Center for Strategic and International Studies in a May 9 brief. “Geographically, it includes roughly 65 countries comprising about 70 percent of the world’s population. Economically, it could involve Chinese investments approaching $4 trillion. The scope and scale of the initiative are somewhat elastic, but all signs point to an ambitious and consequential endeavor: a future where all roads lead to Beijing.”
Economic Drivers
There are several drivers behind Belt and Road. One is the economic divide between western and eastern China. The western part of China has lagged behind in economic development compared to eastern China, where there is much higher GDP per capita and extensive infrastructure, explained Sean Miner to The Diplomat. Miner was previously the China program manager at the Peterson Institute for International Economics and is currently the associate director of the China – Latin America Initiative at the Atlantic Council. China also seeks to facilitate economic development in western China to try to stabilize the troubled autonomous region of Xinjiang in the northwest, where there are disaffected minority groups, Miner said.
Despite uneven domestic development, China’s economy is among the largest in the world. The World Bank named China as the largest contributor to world growth since the global financial crisis of 2008.
With China’s rise as an economic power has come the problem of overcapacity.
“On the supply side, financing overseas infrastructure makes sense for China because the country has excess savings,” David Dollar, a senior fellow in the John L. Thornton China Center at the Brookings Institution, wrote in an email. “China has over-invested at home and created problems of excess capacity in infrastructure, housing and industry. There are fewer good investment opportunities in China now, so it makes sense for them to invest more abroad.”
BRI serves as a vehicle for China to export its excess industrial capacity (in the form of steel, cement, aluminum, etc.), while channeling investment to its poorer western provinces.
Alongside China’s internal economic drivers for BRI is the very real, very large need for infrastructure in Asia. The Asian Development Bank reports that Asia will need to invest $26 trillion from 2016 to 2030, or $1.7 trillion per year, if the region is to maintain its growth, lift more people out of poverty and deal with climate change. Without climate change mitigation and adaptation costs, $22.6 trillion will be needed. Of the total climate-adjusted investment needs from 2016 to 2030, $14.7 trillion will be for power and $8.4 trillion for transport.
Geopolitical Strategy
Beyond basic economics, BRI is a statement by China on global leadership. China seeks to pave the way for greater regional connectivity and position itself as a world power that rivals the U.S.
“China became increasingly frustrated with U.S. leadership of the international economic system,” Carla Freeman, director of the Foreign Policy Institute and a professor of China studies at Johns Hopkins, told The Diplomat. “Principally, we can look at the Asian financial crisis in the late ’90s, then followed by the crisis in 2007, 2008, and that really, for the Chinese, signaled that the U.S. was demanding from China to be a responsible power, but the U.S. was irresponsible because our financial policies were not designed with global financial stability in mind. China has been looking for ways to secure its interests by designing resilience into the international system.”
Belt and Road is also a counterpoint to President Barack Obama’s “pivot” to Asia strategy, which included the Trans-Pacific Partnership, a trade agreement that left out China. BRI is China’s way of asserting itself, but with a soft edge, offering financial and economic support around the world.
Now that Donald Trump is president, BRI is a way for China to step forward as the U.S. steps back from international commitments.
“I’m struck by the fact that traditional leaders of globalization since World War II, the U.S. and the U.K., are consumed by their own domestic challenges right now. China sees its opportunity,” Jonathan Hillman, director of the Reconnecting Asia project at the Center for Strategic and International Studies, told The Diplomat. “It’s filling a void. You see that in Xi’s comments at Davos earlier this year, talking about an open system and the importance of free trade.” Belt and Road is China’s idea of globalization 2.0., he said.
The Role of Pakistan
The most prominent manifestation of BRI is the China-Pakistan Economic Corridor, which comprises infrastructure projects throughout Pakistan such as power plants, roads and ports. Deloitte reports that the corridor is valued at $45 billion, and experts say the total continues to rise.
“This is very much a strategic relationship in that China wants to maintain Pakistan as its very good ally. But, also, Pakistan can help strategically because of its location,” said Miner. “It’s connected to the western part of China, and it can help facilitate development of the western part of China. Facilitating this corridor through Pakistan helps the western region export more and helps have access to energy. Using a port in Pakistan cuts off shipping time.”
The corridor will pass through the Gilgit-Baltistan province in north Pakistan, which will connect Kashgar in Xinjiang to the rest of the world through the Gwadar Port in south Pakistan. China has naval security interests in Gwadar, and the port could be a bulwark against instability in the South China Sea, where China is in dispute with several countries over territory. The South China Sea is also where the narrow Strait of Malacca is located, a critical shipping lane for Chinese oil that in theory could be blockaded by India, the U.S. or other nations during a conflict.
“A lot of China’s trade goes through the South China Sea. They see that as a vulnerable area. That’s why the Pakistan Corridor comes in handy. It gives them a way to ship out through Pakistan if there’s trouble in the South China Sea,” said Miner.
But Pakistan comes with its own set of headaches for the Chinese, including warring political and military factions, instability and rampant corruption.
Moreover, India is unnerved by the China-Pakistan Economic Corridor because it worries that it will involve Kashmir, the contested territory between India and Pakistan. India’s disapproval, however, is not enough to stop the infrastructure projects that are well underway.
Political, Practical Challenges
India is not the only country skeptical of the initiative — and China’s underlying intentions. “While countries welcome Beijing’s generosity, they are simultaneously wary of its largesse,” wrote Paul Haenle, director of the Carnegie-Tsinghua Center for Global Policy based in Beijing, in a May 9 Carnegie brief. “As was made clear in Xi’s speech inaugurating the initiative, countries along its routes should be connected not just by roads and rails but by political aims. China’s growing influence is a concern for nations whose political interests do not always align with Beijing’s.”
He added that for developed nations, “it is impossible not to view the BRI through a geopolitical lens — a Chinese effort to build a sphere of influence. There is an inherent duality in many BRI infrastructure projects, from foreign ports to dams. While ostensibly a commercial or soft power venture, the resulting infrastructure could have dual-use applications that would allow China to enhance its hard power projection.”
Beyond its lofty political aims, however, China’s vision of One Belt, One Road may have problems even getting off the ground. BRI is incredibly ambitious in its goal of interconnectedness in Asia and beyond, but it is a loose network of sprawling projects still in its infancy. Whether BRI will be successful depends on the implementation of those projects.
“It’s up to the countries themselves what will happen,” Yukon Huang, a senior fellow with the Asia Program at the Carnegie Endowment for International Peace, told The Diplomat. “If they know exactly what they want, then they can move very quickly.”
In general, infrastructure projects are problematic anywhere in the world. “They’re usually over cost, delayed and don’t deliver what’s promised,” said Hillman. “This happens in the best business environment. Those challenges are even bigger in the developing world. Implementation is going to depend on the ability to address those risks. It depends on the partners.”
Beijing is no doubt aware that it is taking a huge gamble in places such as Pakistan, where the Chinese expect to lose 80 percent of their money, according to one estimate by the consultancy firm Gavekal cited by The Economist. But the government appears willing — and financially able — to absorb short-term losses to achieve long-term gains.
Conversely, the need is deep for infrastructure projects in developing countries, making Chinese offers of financing very attractive. The problem of unpayable debt, however, could loom large down the line.
“When the numbers start to get big, that’s when it’s concerning. For example, Laos is pursuing a railway more than half its GDP with China’s financing,” said Hillman.
“Very likely, a percentage of these projects will not work out. What happens with the debt? The larger the numbers, the more concerning it is,” he said.
Development of the China-Pakistan Corridor is moving quickly, which has set off alarm bells within the IMF as Pakistan racks up debt to finance projects, Hillman added.
Chinese financing often also requires that Chinese construction companies do the work using Chinese goods. “Most of these companies are state-owned enterprises in China. They’re plagued with overcapacity in steel and aluminum,” said Miner. One way to increase the demand for steel is to build railroads. “These projects will help to get some of these companies in a better position financially. A lot of them took on a lot of debt in the last 10 years, and revenues are now stagnating, if not going down.”
Because of the high probability of Chinese companies taking over BRI projects, Europe wants transparency in the bidding process for construction projects.
“I think you’ll see pushback from European countries that have different standards on this,” said Freeman. “If they’re engaging and competing, there are going to be strains between the Chinese and these countries insisting on high standards like transparency.”
This clash of standards has become evident in the controversial BRI railway that was to be built between Belgrade, Serbia, and Budapest, Hungary. The European Commission put the plans on hold to investigate whether the finances and bidding process hold up to EU law.
On top of the transparency issue are questions on the political and environmental ramifications of projects. For instance, it’s possible that China could partner with an authoritarian regime to build and protect infrastructure. As for environmental practices, Chinese firms generally do not have good reputations. If BRI is to go beyond China’s yard and be a win-win for all involved, as China is saying it would like BRI to be, then Chinese interests will have to be tempered by high standards for infrastructure and industry best practices.
Competing interests between countries, and between businesses interested in participating in BRI, will require coordination, which ultimately is the biggest challenge facing the Belt and Road Initiative. It’s a behemoth concept that will be fleshed out one project at a time, potentially involving 65 countries, in China’s estimate. There is no governing structure for BRI projects, so there is a lack of coordination from the start.
This lack may lead to overlapping efficiency, Miner pointed out. “There’s not much grand coordination. If you’re building a train in Southeast Asia, there may be other companies doing other projects that may overlap,” he said. “Coordination is uncertain. What’s the grand scheme of things?”
It’s early days for BRI, so the world has yet to see what Xi’s grand idea will yield.
“I think as it moves ahead, it will create as many strains in bilateral relations as it brings countries together,” said Freeman. “It’s a very complex, very difficult vision.”
At its base, BRI is an economic framework. But it is also President Xi Jinping’s signature foreign policy vision, aimed at building and strengthening ties with neighboring countries and increasing China’s role in Asia and its stature as a world leader.
The massive endeavor would finance the construction of roads, high-speed rail, bridges, power plants, pipelines, ports and other infrastructure projects in over 60 nations spanning Asia to Europe — to the tune of more than $1 trillion in investment. Just as the ancient Silk Road trade routes spread Chinese influence over a millennium ago, BRI (previously known as “One Belt, One Road”) would cement China’s rise as a global economic power at a time when the U.S. is turning inward.It is an ambitious undertaking, one with enormous risks and rewards. It could offer China new markets and friends while promoting its brand of state-sponsored, no-strings-attached investment over the traditional Western development model that links aid to human rights and governance. But the investments could go down the drain in conflict-plagued, corruption-riddled nations, and not all governments have bought into the idea of a modern-day Silk Road that could strengthen China’s regional dominance.
BRI Basics
BRI’s objective is to build what China terms a land-based Silk Road Economic Belt and an ocean-based 21st-century Maritime Silk Road. The initial focus areas are Asia, Europe and Africa, but the initiative is open to all countries. By 2050, BRI aims to contribute 80 percent of global GDP growth, according to the McKinsey Global Institute.
China will act as a lender to finance BRI projects, but it has also invited other countries to work as partners in financing, as well as multilateral institutions, such as the Asian Infrastructure Investment Bank. Germany’s Deutsche Bank has come on board with China Development Bank by agreeing to finance $3 billion in BRI projects.
“Functionally, the initiative aims to improve hard infrastructure, soft infrastructure, and even cultural ties,” wrote Christopher Johnson, Matthew Goodman and Jonathan Hillman of the Center for Strategic and International Studies in a May 9 brief. “Geographically, it includes roughly 65 countries comprising about 70 percent of the world’s population. Economically, it could involve Chinese investments approaching $4 trillion. The scope and scale of the initiative are somewhat elastic, but all signs point to an ambitious and consequential endeavor: a future where all roads lead to Beijing.”
Economic Drivers
There are several drivers behind Belt and Road. One is the economic divide between western and eastern China. The western part of China has lagged behind in economic development compared to eastern China, where there is much higher GDP per capita and extensive infrastructure, explained Sean Miner to The Diplomat. Miner was previously the China program manager at the Peterson Institute for International Economics and is currently the associate director of the China – Latin America Initiative at the Atlantic Council. China also seeks to facilitate economic development in western China to try to stabilize the troubled autonomous region of Xinjiang in the northwest, where there are disaffected minority groups, Miner said.
Despite uneven domestic development, China’s economy is among the largest in the world. The World Bank named China as the largest contributor to world growth since the global financial crisis of 2008.
With China’s rise as an economic power has come the problem of overcapacity.
“On the supply side, financing overseas infrastructure makes sense for China because the country has excess savings,” David Dollar, a senior fellow in the John L. Thornton China Center at the Brookings Institution, wrote in an email. “China has over-invested at home and created problems of excess capacity in infrastructure, housing and industry. There are fewer good investment opportunities in China now, so it makes sense for them to invest more abroad.”
BRI serves as a vehicle for China to export its excess industrial capacity (in the form of steel, cement, aluminum, etc.), while channeling investment to its poorer western provinces.
Alongside China’s internal economic drivers for BRI is the very real, very large need for infrastructure in Asia. The Asian Development Bank reports that Asia will need to invest $26 trillion from 2016 to 2030, or $1.7 trillion per year, if the region is to maintain its growth, lift more people out of poverty and deal with climate change. Without climate change mitigation and adaptation costs, $22.6 trillion will be needed. Of the total climate-adjusted investment needs from 2016 to 2030, $14.7 trillion will be for power and $8.4 trillion for transport.
Geopolitical Strategy
Beyond basic economics, BRI is a statement by China on global leadership. China seeks to pave the way for greater regional connectivity and position itself as a world power that rivals the U.S.
“China became increasingly frustrated with U.S. leadership of the international economic system,” Carla Freeman, director of the Foreign Policy Institute and a professor of China studies at Johns Hopkins, told The Diplomat. “Principally, we can look at the Asian financial crisis in the late ’90s, then followed by the crisis in 2007, 2008, and that really, for the Chinese, signaled that the U.S. was demanding from China to be a responsible power, but the U.S. was irresponsible because our financial policies were not designed with global financial stability in mind. China has been looking for ways to secure its interests by designing resilience into the international system.”
Belt and Road is also a counterpoint to President Barack Obama’s “pivot” to Asia strategy, which included the Trans-Pacific Partnership, a trade agreement that left out China. BRI is China’s way of asserting itself, but with a soft edge, offering financial and economic support around the world.
Now that Donald Trump is president, BRI is a way for China to step forward as the U.S. steps back from international commitments.
“I’m struck by the fact that traditional leaders of globalization since World War II, the U.S. and the U.K., are consumed by their own domestic challenges right now. China sees its opportunity,” Jonathan Hillman, director of the Reconnecting Asia project at the Center for Strategic and International Studies, told The Diplomat. “It’s filling a void. You see that in Xi’s comments at Davos earlier this year, talking about an open system and the importance of free trade.” Belt and Road is China’s idea of globalization 2.0., he said.
The Role of Pakistan
The most prominent manifestation of BRI is the China-Pakistan Economic Corridor, which comprises infrastructure projects throughout Pakistan such as power plants, roads and ports. Deloitte reports that the corridor is valued at $45 billion, and experts say the total continues to rise.
“This is very much a strategic relationship in that China wants to maintain Pakistan as its very good ally. But, also, Pakistan can help strategically because of its location,” said Miner. “It’s connected to the western part of China, and it can help facilitate development of the western part of China. Facilitating this corridor through Pakistan helps the western region export more and helps have access to energy. Using a port in Pakistan cuts off shipping time.”
The corridor will pass through the Gilgit-Baltistan province in north Pakistan, which will connect Kashgar in Xinjiang to the rest of the world through the Gwadar Port in south Pakistan. China has naval security interests in Gwadar, and the port could be a bulwark against instability in the South China Sea, where China is in dispute with several countries over territory. The South China Sea is also where the narrow Strait of Malacca is located, a critical shipping lane for Chinese oil that in theory could be blockaded by India, the U.S. or other nations during a conflict.“A lot of China’s trade goes through the South China Sea. They see that as a vulnerable area. That’s why the Pakistan Corridor comes in handy. It gives them a way to ship out through Pakistan if there’s trouble in the South China Sea,” said Miner.
But Pakistan comes with its own set of headaches for the Chinese, including warring political and military factions, instability and rampant corruption.
Moreover, India is unnerved by the China-Pakistan Economic Corridor because it worries that it will involve Kashmir, the contested territory between India and Pakistan. India’s disapproval, however, is not enough to stop the infrastructure projects that are well underway.
Political, Practical Challenges
India is not the only country skeptical of the initiative — and China’s underlying intentions. “While countries welcome Beijing’s generosity, they are simultaneously wary of its largesse,” wrote Paul Haenle, director of the Carnegie-Tsinghua Center for Global Policy based in Beijing, in a May 9 Carnegie brief. “As was made clear in Xi’s speech inaugurating the initiative, countries along its routes should be connected not just by roads and rails but by political aims. China’s growing influence is a concern for nations whose political interests do not always align with Beijing’s.”
He added that for developed nations, “it is impossible not to view the BRI through a geopolitical lens — a Chinese effort to build a sphere of influence. There is an inherent duality in many BRI infrastructure projects, from foreign ports to dams. While ostensibly a commercial or soft power venture, the resulting infrastructure could have dual-use applications that would allow China to enhance its hard power projection.”
Beyond its lofty political aims, however, China’s vision of One Belt, One Road may have problems even getting off the ground. BRI is incredibly ambitious in its goal of interconnectedness in Asia and beyond, but it is a loose network of sprawling projects still in its infancy. Whether BRI will be successful depends on the implementation of those projects.
“It’s up to the countries themselves what will happen,” Yukon Huang, a senior fellow with the Asia Program at the Carnegie Endowment for International Peace, told The Diplomat. “If they know exactly what they want, then they can move very quickly.”In general, infrastructure projects are problematic anywhere in the world. “They’re usually over cost, delayed and don’t deliver what’s promised,” said Hillman. “This happens in the best business environment. Those challenges are even bigger in the developing world. Implementation is going to depend on the ability to address those risks. It depends on the partners.”
Beijing is no doubt aware that it is taking a huge gamble in places such as Pakistan, where the Chinese expect to lose 80 percent of their money, according to one estimate by the consultancy firm Gavekal cited by The Economist. But the government appears willing — and financially able — to absorb short-term losses to achieve long-term gains.
Conversely, the need is deep for infrastructure projects in developing countries, making Chinese offers of financing very attractive. The problem of unpayable debt, however, could loom large down the line.
“When the numbers start to get big, that’s when it’s concerning. For example, Laos is pursuing a railway more than half its GDP with China’s financing,” said Hillman.
“Very likely, a percentage of these projects will not work out. What happens with the debt? The larger the numbers, the more concerning it is,” he said.
Development of the China-Pakistan Corridor is moving quickly, which has set off alarm bells within the IMF as Pakistan racks up debt to finance projects, Hillman added.
Chinese financing often also requires that Chinese construction companies do the work using Chinese goods. “Most of these companies are state-owned enterprises in China. They’re plagued with overcapacity in steel and aluminum,” said Miner. One way to increase the demand for steel is to build railroads. “These projects will help to get some of these companies in a better position financially. A lot of them took on a lot of debt in the last 10 years, and revenues are now stagnating, if not going down.”
Because of the high probability of Chinese companies taking over BRI projects, Europe wants transparency in the bidding process for construction projects.
“I think you’ll see pushback from European countries that have different standards on this,” said Freeman. “If they’re engaging and competing, there are going to be strains between the Chinese and these countries insisting on high standards like transparency.”This clash of standards has become evident in the controversial BRI railway that was to be built between Belgrade, Serbia, and Budapest, Hungary. The European Commission put the plans on hold to investigate whether the finances and bidding process hold up to EU law.
On top of the transparency issue are questions on the political and environmental ramifications of projects. For instance, it’s possible that China could partner with an authoritarian regime to build and protect infrastructure. As for environmental practices, Chinese firms generally do not have good reputations. If BRI is to go beyond China’s yard and be a win-win for all involved, as China is saying it would like BRI to be, then Chinese interests will have to be tempered by high standards for infrastructure and industry best practices.
Competing interests between countries, and between businesses interested in participating in BRI, will require coordination, which ultimately is the biggest challenge facing the Belt and Road Initiative. It’s a behemoth concept that will be fleshed out one project at a time, potentially involving 65 countries, in China’s estimate. There is no governing structure for BRI projects, so there is a lack of coordination from the start.
This lack may lead to overlapping efficiency, Miner pointed out. “There’s not much grand coordination. If you’re building a train in Southeast Asia, there may be other companies doing other projects that may overlap,” he said. “Coordination is uncertain. What’s the grand scheme of things?”
It’s early days for BRI, so the world has yet to see what Xi’s grand idea will yield.
“I think as it moves ahead, it will create as many strains in bilateral relations as it brings countries together,” said Freeman. “It’s a very complex, very difficult vision.”
No comments:
Post a Comment