China’s Belt and Road could have been great but now threatens to be disastrous

Is it too late to salvage something good from Beijing’s monumental development project?

April 19, 2019
Chinese President Xi Jinping. Photo:  Hamilton/Pool/ABACA/ABACA/PA Images
Chinese President Xi Jinping. Photo: Hamilton/Pool/ABACA/ABACA/PA Images

Chinese President Xi Jinping first announced the Belt and Road project in 2013; in May 2017, he invited the world to Beijing for the first BRI summit; in October of that year, the BRI was enshrined in the Chinese Communist Party’s constitution, and in a few days, Xi will host the second BRI conference. The trillion dollar development project envisages new networks of transport and energy corridors, digital infrastructure, ports and industrial parks from which all roads will lead to China. The number of countries involved, China says, is now 123.

According to the official narrative, the project will “promote the economic prosperity of the countries along the Belt and Road, promote regional economic cooperation, strengthen exchanges and mutual learning between civilisations, and promote world peace and development,” helping to build a “shared future for humanity.”

Who could possibly object? Quite a few people, it turns out: at that first Belt and Road Forum in 2017, EU member states declined to sign Beijing’s prepared statement of support; a year later, all EU ambassadors to China with the exception of Hungary, signed a letter highly critical of a project designed to favour Chinese interests at the expense of partners, competitors and sustainability. In early April this year, the EU High Representative for Foreign Affairs and Security, Federica Mogherini, published a highly critical report on China’s relationship with the EU that described Beijing as both a partner and a strategic competitor, followed by the UK House of Commons Foreign Affairs Committee, which, in a review of Britain’s relationship with China, supported Theresa May’s refusal to give BRI a blank cheque and reaffirmed concerns about its lack of transparency, its poor risk assessment, its creation of unsustainable debt in partner countries and the fact that the benefits overwhelmingly accrue to Chinese operators.

To that list, we might add an even more serious charge: the projects that Chinese banks and state-owned enterprises have been building, in particular a series of new coal fired power stations in third countries, threaten global efforts to combat climate change, which China is pledged to support. The Trump administration’s view, meanwhile, is so toxic that US officials have been strong-arming multilateral institutions to discourage any form of cooperation.

BRI critics do not deny the need for investment: the Asian Development Bank puts the infrastructure investment gap in Asia at $26trn up to 2030, but the domestic optimism of 2017 has dissipated. In China there are concerns about wasted funds, vanity projects and misguided investment, and Xi has been criticised for the hubris of a project that has provoked negative reactions.

China’s partners, neighbours and competitors worry that Beijing’s strategic purpose is to achieve a degree of economic dominance and political leverage that will allow it to remake the global rules in its favour. As one Japanese ambassador put it, “...when China says win-win it means China wins twice.” A number of countries cancelled or revised contracts and several multilateral institutions, including the IMF, have warned that worries over  unsustainable debt are real. That was reinforced when Pakistan, a key Belt and Road partner, was forced to ask the IMF for a multi-billion dollar three-year bailout package, currently being negotiated. The head of the Central Bank has complained that he does not fully understand the scale of Pakistan’s BRI commitment.

Mogherini’s report stressed the importance of a common EU policy on China, but days before her report was to be discussed at the European Council meeting in Brussels, the populist Italian government became the first OECD country to sign up to BRI, giving Xi a much needed flag to wave. One prime minister wryly observed that Italy should remember that China might be acting in its own interest.

“As one Japanese ambassador put it, ‘when China says win-win it means China wins twice’”
How did it all go wrong? There would seem to be much to gain from building infrastructure, even if the purpose is to create new markets for Chinese goods and an economic dependency that can be leveraged into greater strategic influence. After all, the world’s second largest economy deserves a voice. But as the Foreign Affairs Committee report put it:

“…the Belt and Road Initiative, in the form it is currently being pursued, raises concerns regarding UK interests. These include the risk that Chinese investment will encourage countries to strike deals that undermine international standards the UK seeks to promote, or that leave countries with unsustainable debt that undermines development and political stability.”

The BRI is a hybrid initiative that has much in common with Japan’s attempts to stimulate its slowing economic by building infrastructure abroad in the 1990s. Like China now, Japan was an ageing society and its domestic infrastructure needs were saturated. Like Japan then, China hopes to create new markets for its debt burdened economy to avoid politically dangerous stagnation. China’s second objective is to bind partner countries into a Chinese dominated sphere of influence, in which Chinese technological, economic and social standards prevail, and finally to keep some of China’s large but inefficient state-owned enterprises alive by exporting surplus capacity in steel, cement, dam building—and, most problematically, coal.

Japan did not arouse the same suspicions: it did not seek to re-make global rules in its favour, its decision making was more transparent, the benefits more equitably shared and it was not seen as a potential security threat. China is redrawing the geo-strategic map through BRI—the notorious case of Hambatoto port in Sri Lanka, ceded to China after the debt burden became intolerable, gave Beijing a strategically located Indian Ocean port, to add to the new port in Gwadar, Pakistan, the military base in Djibouti, a series of ports across the Pacific and, in the Mediterranean, Piraeus and now, it seems Trieste.

It is reasonable to interrogate what China’s “shared future for humanity” means. If China, for example, sought to advance the UN Sustainable Development Goals, if China’s lenders and state-owned enterprises observed international standards of risk assessment, rather than transferring the risk to partners or Chinese savers, criticism might be more muted. But the Communist Party’s renewed authoritarianism and its determination to maintain exclusive power at home, is forcing it to try to create a global environment in which its domestic repression will escape scrutiny, and the most damaging elements of its economic model—including corruption and climate risk—are replicated overseas. The Party enforces ever-increasing levels of censorship both of the press and of history, and given that citizens now travel, do business and study abroad, it must also try to control international perspectives to create, in the words of one international critic, a world safe for authoritarianism.

Could it have been otherwise? Counterfactuals are tempting. In his last years in power, the former prime minister Wen Jiabao spoke repeatedly of the urgency of political reform in China, warning against a return to the damaging ideological straitjacket of the Mao years. Had his advice been followed, we might have been looking at a China that furthered its climate commitments by prioritising the delivery of cheap renewable energy to its partners; that offered real opportunities for economic participation; that supported all the UN principles, including human rights; that conducted responsible and transparent environmental and risk assessments; that did not resort to coercion or illicit inducement to push projects with high risks of debt or poor returns. That China would reap the benefits of trust instead of suspicion.

Is it too late? Perhaps, but China is not in a position to finance its BRI ambitions alone. Most  of its projects will need capital from elsewhere. That is an opportunity to shape BRI into something closer to the ambitions that China claims for it. That would be a win-win.