Facing a trade war and bumps along the belt and road, China may have to revisit the cost of its grand plan

Anu Anwar says China’s ambitious international infrastructure investment plan goes beyond funding roads and railways by transforming the global geopolitical landscape, but as it faces resistance, its true costs are becoming evident

PUBLISHED : Monday, 10 September, 2018, 3:01am
UPDATED : Monday, 10 September, 2018, 2:55pm

This autumn marks the fifth anniversary of the launch of the Belt and Road Initiative. Five years on, the jury is still out on the plan’s nature and actual outcomes, but Beijing’s promises of investments in infrastructure projects across Eurasia and beyond have undoubtedly managed to capture the world’s attention.

The plan’s true objectives and multilayered ambitions have been analysed from a wide range of perspectives, but there is an emerging awareness that its impact is already being felt far beyond the realm of infrastructure construction.

What is clear is the initiative’s importance to the top Chinese leadership. After the Belt and Road Initiative was enshrined in the Communist Party charter in 2017, and its offshoot, “a community with a shared destiny for humanity” was included in China’s constitution in April, it is harder for sceptics to continue to claim that the initiative is an empty slogan that will soon fade.

In fact, the Belt and Road Initiative will remain the master concept of Chinese foreign policy for the foreseeable future, all the way to 2049, the 100th anniversary of the founding of the People’s Republic of China.

In the past five years, the plan has materialised into concrete action, with its impact being felt beyond the Pacific Ocean. Experts expect the project to play a pivotal role in transforming the geopolitical landscape of the Asia-Pacific as well as globally.

The initiative is being promoted based on three principles: mutual consultation, joint construction and shared benefits. China has fully executed 101 agreements with 86 countries, with total investment in the 24 countries in the belt and road region amounting to US$50 billion, resulting in 75 industrial and trade zones and 200,000 jobs. Trade with belt and road countries contributed to the 14.2 per cent year-on-year growth in China’s foreign trade in 2017.

 Also, in 2017, China’s imports from these countries were worth over US$666 billion, accounting for 39 per cent of China's total import value.

American strategist Parag Khanna argued in his book, Connectography: Mapping the Future of Global Civilization, that the investment in infrastructure in the next 40 years would exceed that of the past 4,000 years. A McKinsey report notes that “increasing infrastructure investment by one percentage point of GDP could generate an additional 3.4 million direct and indirect jobs in India, 1.5 million in the United States, 1.3 million in Brazil, and 700,000 in Indonesia” and could boost gross domestic product in countries with infrastructure gaps.  

Given that private capital is not interested in investing in infrastructure and private investors do not link up easily, developing countries are constrained by their weak infrastructure.

Thus, there is appetite for the Belt and Road Initiative, which largely targets developing countries where the economy is booming, urbanisation is at its peak and the demands for infrastructure are skyrocketing. For example, the Mombasa-Nairobi Railway, a flagship belt and road project, which opened last year and was hailed as the road to connectivity in East Africa, is estimated to have boosted Kenya’s economy by 1.5 per cent.

However, despite President Xi Jinping saying that the initiative “is an open and inclusive process, and not about creating exclusive circles or a China club”, this epic project has been viewed in the West as an extension of Beijing’s global ambitions and the centrepiece of its economic foreign policy. Besides, questions have been raised about the sheer scale of this venture amid allegations that it is nothing more than “debt-book diplomacy”.

“China is facing enormous challenges with these reactions from the international community,” Pang Zhongying, a foreign affairs specialist at the Ocean University of China, told the Post. “Xi’s speech shows that [the leadership] has reflected on these developments and has made adjustments … and is trying to tone down its rhetoric.”

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Recently, Malaysian Prime Minister Mahathir Mohamad said some belt and road-related projects – the US$20-billion East Coast Rail Link and two pipelines worth over US$2 billion – are under review because of the costs. This followed Myanmar’s decision to scale back plans for Kyauk Pyu port due to debt risks.

Meanwhile, the fate of two hydropower projects in Nepal is unclear, while a rail link through Laos could end up being worth half of its GDP. Pakistan’s new Prime Minister Imran Khan was critical of the China-Pakistan Economic Corridor negotiated by his predecessor but pledged to support it on taking office. Then, there’s Sri Lanka’s Hambantota port, which was handed over to a Chinese company to run after the country failed to service its debts.

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Moreover, it is evident that Chinese projects are less open to local and international participation. Out of all contractors participating in Chinese-funded projects within the Reconnecting Asia database, 89 per cent are Chinese companies, 7.6 per cent are local companies (companies headquartered in the same country the project was taking place in), and 3.4 per cent are foreign companies (non-Chinese companies from a country other than the one the project was taking place in).

In comparison, out of the contractors participating in projects funded by the multilateral development banks, 29 per cent are Chinese, 40.8 per cent are local, and 30.2 per cent are foreign.

There are economic challenges at home, and if things go belly-up domestically, it could strain President Xi Jinping’s ambitions

The US has been cynical about this initiative since its genesis, but it took Washington – under the Barack Obama and Donald Trump administrations – almost five years to come up with a response to it. In many experts’ view, that response is the trade war. However, the most substantial countermeasure from Washington to date is its declaration of its “Indo-Pacific strategy” which allocates US$113 million to investments in new technology, energy and infrastructure initiatives in emerging Asia, among other measures.  

Whether the Belt and Road Initiative is a win-win or win-lose proposition is yet to be seen, but it is evident that China is keen to extend its influence beyond its own backyard in Asia. The more China extends itself around the globe, the heavier its burden will be.

While the country has deep pockets, there are economic challenges at home, and if things go belly-up domestically, it could strain President Xi Jinping’s ambitions. As the Chinese general Sun Tzu wrote in The Art of War over 2,000 years ago, “first count the cost”.

Anu Anwar is a visiting fellow at Kobe Gakuin University, Japan, and a geopolitical analyst with a special focus on the Belt and Road Initiative. He is a Masters’ candidate at Tsinghua University