China’s Belt and Road Initiative
Economic Analysis & Application
An Essay onChina’s Belt and Road Initiative
Name: Stewart Miles
Submitted To: Dr. Edison XY
Submitted Date: 4 June 2020
Capital Normal University
China’s Belt and Road Initiative
Abstract
China’s Belt and Road Initiative (BRI) (一带一路) is an ambitious programme to connect Asia with Africa and Europe via land and maritime networks along six corridors with the aim of improving regional integration, increasing trade and stimulating economic growth. The name was coined in 2013 by China’s President Xi Jinping, who drew inspiration from the concept of the Silk Road established during the Han Dynasty 2,000 years ago – an ancient network of trade routes that connected China to the Mediterranean via Eurasia for centuries. The BRI has also been referred to in the past as 'One Belt One Road'. The BRI comprises a Silk Road Economic Belt – a trans-continental passage that links China with south east Asia, south Asia, Central Asia, Russia and Europe by land – and a 21st century Maritime Silk Road, a sea route connecting China’s coastal regions with south east and south Asia, the South Pacific, the Middle East and Eastern Africa, all the way to Europe. The programme is expected to involve over US$1 trillion in investments, largely in infrastructure development for ports, roads, railways and airports, as well as power plants and telecommunications networks. The BRI’s geographical scope is constantly expanding. So far it covers over 70 countries, accounting for about 65 per cent of the world’s population and around one-third of the world’s Gross Domestic Product (GDP).
Introduction
China’s Belt and Road Initiative (BRI), sometimes referred to as the New Silk Road, is one of the most ambitious infrastructure projects ever conceived. Launched in 2013 by President Xi Jinping, the vast collection of development and investment initiatives would stretch from East Asia to Europe, significantly expanding China’s economic and political influence. The goal of this and the future connected blog posts is to help U.S. and international companies understand what China is doing in target international markets so that they can benefit from utilizing Chinese-funded or Chinese-built infrastructure. As mentioned here, “Increased traffic using those facilities is in the national government’s interest, and those facilities are ready doors to enter into many regions. Why aren’t companies looking at opportunities where they’re using Chinese infrastructure in these foreign markets? China’s economy currently shifts its development pattern from investment/export-led to consumption/domestic demand-led growth. In a new stage of domestic-oriented development, what role is expected of China’s opening-up policy? It is no longer just a means to obtain foreign currency and technology but for China as an economic superpower to enhance its role in global governance. The Belt and Road Initiative (BRI) proposed by General Secretary Xi Jinping in 2013 is regarded as a new grand strategy in a new stage of China’s opening-up policy. This paper attempts to position the BRI in China’s opening-up policy focusing on its growing role in global governance of major international economic regimes. As far as the development aid/finance in the BRI is concerned, China’s behavior to form an economic area led by it is a new challenge to existing international economic regimes. As the largest beneficiary of free trade system, however, China does not seek for fundamental restructuring of current international economic regimes. It must be the most favorable scenario for China to taste the fruits of free trade system and to form its dominant economic area in the backyard.
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| ‘’Many of these
BRI countries will need increased economic activities to pay back their Chinese
debt and will welcome U.S. and foreign companies that want to use their new infrastructure in both import and export ventures’’ |
As of May 2019, over 60 countries have agreed to or expressed interest in BRI projects, and those countries encompass about 2/3 of the world’s population
What was the original Silk Road? The original Silk Road arose during the westward expansion of China’s Han Dynasty (206 BCE–220 CE), which forged trade networks throughout what are today the Central Asian countries of Afghanistan, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan, as well as modern-day India and Pakistan to the south. Those routes extended more than four thousand miles to Europe. Central Asia was thus the epicenter of one of the first waves of globalization, connecting eastern and western markets, spurring immense wealth, and intermixing cultural and religious traditions. Valuable Chinese silk, spices, jade, and other goods moved west while China received gold and other precious metals, ivory, and glass products. Use of the route peaked during the first millennium, under the leadership of first the Roman and then Byzantine Empires, and the Tang Dynasty (618–907 CE) in China. But the Crusades, as well as advances by the Mongols in Central Asia, dampened trade, and today Central Asian countries are economically isolated from each other, with intra-regional trade making up just 6.2 percent of all cross-border commerce. They are also heavily dependent on Russia, particularly for remittances—they make up one-third of the gross domestic product (GDP) of Kyrgyzstan and Tajikistan. By 2018, remittances had dipped from their 2013 highs due to Russia’s economic woes.
What are China’s plans for its New Silk Road? President Xi announced the initiative during official visits to Kazakhstan and Indonesia in 2013. The plan was two-pronged: the overland Silk Road Economic Belt and the Maritime Silk Road. The two were collectively referred to first as the One Belt, One Road initiative but eventually became the Belt and Road Initiative. Xi’s vision included creating a vast network of railways, energy pipelines, highways, and streamlined border crossings, both westward—through the mountainous former Soviet republics—and southward, to Pakistan, India, and the rest of Southeast Asia. Such a network would expand the international use of Chinese currency, the renminbi, and “break the bottleneck in Asian connectivity,” according to Xi. (The Asian Development Bank estimated that the region faces a yearly infrastructure financing shortfall of nearly $800 billion.) In addition to physical infrastructure, China plans to build fifty special economic zones, modeled after the Shenzhen Special Economic Zone, which China launched in 1980 during its economic reforms under leader Deng Xiaoping. Xi subsequently announced plans for the 21st Century Maritime Silk Road at the 2013 summit of the Association of Southeast Asian Nations (ASEAN) in Indonesia. To accommodate expanding maritime trade traffic, China would invest in port development along the Indian Ocean, from Southeast Asia all the way to East Africa and parts of Europe. China’s overall ambition for the BRI is staggering. To date, more than sixty countries—accounting for two-thirds of the world’s population—have signed on to projects or indicated an interest in doing so. Analysts estimate the largest so far to be the $68 billion China-Pakistan Economic Corridor, a collection of projects connecting China to Pakistan’s Gwadar Port on the Arabian Sea. In total, China has already spent an estimated $200 billion on such efforts. Morgan Stanley has predicted China’s overall expenses over the life of the BRI could reach $1.2–1.3 trillion by 2027, though estimates on total investments vary.
What does China hopes to achieve? China has both geopolitical and economic motivations behind the initiative. Xi has promoted a vision of a more assertive China, while slowing growth and rocky trade relations with the United States have pressured the country’s leadership to open new markets for its goods. Experts see the BRI as one of the main planks of a bolder Chinese statecraft under Xi, alongside the Made in China 2025 economic development strategy. For Xi, the BRI serves as pushback against the much-touted U.S. “pivot to Asia,” as well as a way for China to develop new investment opportunities, cultivate export markets, and boost Chinese incomes and domestic consumption. “Under Xi, China now actively seeks to shape international norms and institutions and forcefully asserts its presence on the global stage,” writes CFR’s Elizabeth C. Economy. At the same time, China is motivated to boost global economic links to its western regions, which historically have been neglected. Promoting economic development in the western province of Xinjiang, where separatist violence has been on the upswing, is a major priority, as is securing long-term energy supplies from Central Asia and the Middle East, especially via routes the U.S. military cannot disrupt. More broadly, Chinese leaders are determined to restructure the economy to avoid the so-called middle-income trap.
What are the potential roadblocks? The Belt and Road Initiative has also stoked opposition. For some countries that take on large amounts of debt to fund infrastructure upgrades, BRI money is seen as a potential poisoned chalice. BRI projects are built using low-interest loans as opposed to aid grants. Some BRI investments have involved opaque bidding processes and required the use of Chinese firms. As a result, contractors have inflated costs, leading to canceled projects and political backlash. Examples of such criticisms abound. In Malaysia, Mahathir bin Mohamad, elected prime minister in 2018, campaigned against overpriced BRI initiatives, which he claimed were partially redirected to funds controlled by his predecessor. Once in office, he canceled $22 billion worth of BRI projects, although he later announced his “full support” for the initiative in 2019. In Kazakhstan, mass protests against the construction of Chinese factories swept the country in 2019, driven by concerns about costs as well as anger over the Chinese government’s treatment of Uighurs in Xinjiang Province. More such stories are likely, according to a 2018 report by the Center for Global Development, which notes that eight BRI countries are vulnerable to debt crises. CFR’s Belt and Road Tracker shows overall debt to China has soared since 2013, surpassing 20 percent of GDP in some countries.
‘’To date, more than sixty countries—accounting for two-thirds of the world’s population—have signed on to projects or indicated an interest in doing so’’
Commitment to multilateral international regimes China has taken different responses of “exit, voice, loyalty” to current major multilateral regimes, according to the “hardness” and adjustment cost of each regime. As for relatively hard multilateral regimes such as trade and currency, considering the tremendous costs of order reconstruction, it is practically impossible for China to construct a new multilateral regime and restructure the existing regime by itself. So, China currently seems to seek to reduce the obligations expected under new rules, while trying to preserve and expand influence in the formation process of new international norms and rules.
Relationship between China and the BRI countries In September 2011, U. S. Secretary of State Hillary Clinton rolled out the “New Silk Road Initiative” to stabilize Central Asia after the U.S. withdrawal from Afghanistan. Two years later, in September and October 2013, Xi Jinping proposed the BRI or the “Silk Road Economic Belt” and the “21st Century Maritime Silk Road,” respectively, during his visits to Kazakhstan and Indonesia. The BRI was regarded as a countermeasure to U.S. “rebalancing strategy.” Meanwhile, in China, there was an argument over the “westward” strategy, which was an extension of domestic “western development.” Conflicts with the United States are unavoidable if strengthening the advance to the Asia-Pacific region. It is a concept to enter the Eurasian area and to develop new markets, which would lead to cooperative relations with the United States. After the British exit from the EU or Brexit, and a birth of the Trump administration, there is also a big change in China’s perception against the United States and the universal values represented by western democracy. In the early stages of opening to the outside world, the U.S. market was of great importance to the export-oriented Chinese economy.15 It is true that the U.S. market is still important, but it is less easy than ever to enter the U.S. market, and Chinese products are sometimes repulsed by rising protectionism in the United States. Considering increasing difficulties in the U.S. market, the BRI targeting the Eurasian area is also a refreshing new proposal to China’s economic diplomacy.
But like all friendships That come with strings attached, many countries have started to feel uneasy about chammying up too close with their lender. In China’s BRI, in which China shows up with a checkbook, an open handshake, and a Xi Jinping-worthy smile (especially when that relationship sometimes mandates Chinese firms be included in the bidding process) those strings can feel more like chains. Debt trap diplomacy is a term that has been used to describe China’s BRI projects because China has been willing to extend loans on outwardly favorable terms with plenty of recourse for China if the borrowing nation defaults. Due in part to this type of heavy-handed diplomacy, U.S. and foreign companies have opportunities to make inroads into these countries and markets. The Chinese are building ports, roads, rails, and power plants, along with cables and pipelines, but they do not control who uses the infrastructure. And because China’s BRI investments often bring additional cultural and political baggage, some target countries are loathe to fully engage with China. China’s “big brother” oversight through both technology and individuals on the ground and Chinese information (and disinformation) networks disguised as cultural enrichment programs, together with the prospect of Chinese colonization by leaving its workers in-country are just some of the concerns of BRI partner countries. Many of these BRI countries will need increased economic activities to pay back their Chinese debt and will welcome U.S. and foreign companies that want to use their new infrastructure in both import and export ventures. Those countries with ports, energy infrastructure, and a willing (trained or trainable) labor force will be most attractive to companies in maritime countries like the U.S. who know that maritime transport is a fraction of the cost of overland transport. In sum, China is looking at the long game, and so should your company. (For instance, China’s state-owned Chinese Overseas Ports Holding Company has a long-term lease on Pakistan’s Gwadar Port through 2059, but in Chinese consciousness, anything less than 1,000 years is short-term planning.) If your company does not have a 40- or 50-year plan, it should start to think in those terms. China’s long-term BRI infrastructure development is a boon to companies who are looking to engage with new international markets for raw materials, a deeper labor pool, and potential consumers. In our future posts, we’ll do our best to help you recognize and utilize the most promising BRI markets, including identifying the best enabling environments and potential legal issues.
Conclusion In the Political Report at the 19th Party Congress in October 2017, General Secretary Xi Jinping set a new target for China to become “great modern socialist country” by the middle of the twenty-first century, and proposed to promote the building of a “community of shared future for mankind.” Furthermore, the Central Work Conference on Foreign Affairs, which set out the basic policy of Chinese diplomacy, was held in June 2018 after four years’ interval. During the Conference, Xi Jinping announced that “standing firm on national sovereignty, security, and development interests, we will actively get involved in and lead the reform of global governance and open up a new phase of great power diplomacy with Chinese characteristics.” In this context, the BRI is regarded as a practice to build a community of shared future for mankind. China’s opening-up policy under the Xi Jinping administration no longer means the development of specific bilateral relations and the specific requirements to introduce foreign currency and technology but represents the response to multilateral international relations as an economic superpower. China’s involvement in global governance tends to be inevitably reinforced in the foreseeable future. In major multilateral relations, at present, China is likely to be reform oriented by taking a leadership position within the regime rather than challenging the existing international regime. The impression that China poses a “threat” is on the rise around the globe. It is a threat that China as an economic superpower would form an exclusive economic area based on the BRI and become a new global rule maker instead of G7. Looking at the relationship with the BRI countries and considering the existing development aid/finance regime, I have come to the conclusion that China’s capacity and intention to create new global norms and rules are really limited (even if China continues to go its own way). In this sense, China is likely to remain what Schambaugh calls a “partial power.” By pursuing the opening-up policy, China has benefited from trade and FDI by taking an almost “free ride” on the global free trade system. China is likely to enjoy these benefits in future with burdening minimum costs of becoming a rule maker. Ironically, current trends of undermining free trade system with rising protectionism are not necessarily favorable for China. It is the most favorable scenario for China to continue reaping the fruits of free trade system, while forming a China-led economic area with the BRI countries in the backyard.
Reference- https://www.cfr.org/backgrounder/chinas-massive-belt-and-road-initiative
- https://www.chinalawblog.com/2019/09/how-your-company-can-benefit-from-chinas-belt-and-road-initiative part-1.html
- https://www.cfr.org
- https://www.tandfonline.com
- Blog Post by Guest Blogger for Net Politics September 26, 2019 Net Politics
- Event with Reuben E. Brigety II, Elizabeth C. Economy and Suzanne Maloney April 11, 2019 College and University Educators Workshops
- www.ebrd.com/what-we-do/belt-and-road/overview.html
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