How Trump gave China’s ‘Belt and Road’ scheme a boost

Beijing initiative helps Chinese companies explore markets along ancient Silk Road trade route.

By Cary Huang
(Read article in PDF format or Read article at South China Morning Post)

Chinese President Xi Jinping’s ‘Belt and Road’ trade development initiative, always ambitious, has been given a boost by American counterpart Donald Trump’s protectionist trade agenda and isolationist diplomacy.

In just a few months, the US leader’s populist policy prescription has helped turn something originally envisaged as a scheme to export Chinese overcapacity into a standard-bearer for globalisation.

Professor Shanjun Li, a Cornell University economist, said Trump’s protectionism could help the belt and road scheme gain legitimacy as a countervailing force promoting international trade in the region.

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“China could develop a role as an economic leader, and fill the void left by US protectionism in the international market,” he said.

That could also increase China’s soft power, Li said, and mark a turning point in its international influence.

Sinologist Kerry Brown, the director of the Lau China Institute at King’s College, London, described the belt and road initiative as “China’s first real attempt to spell out more proactively what its vision of its regional and global role is”, but cautioned that concrete achievements had so far been hard to spot.

The idea has certainly gained the interest and engaged with the emotions of those outside China as never before,” Brown said. “In that sense, it can be called a success.”

The belt and road idea was first raised by Xu Shanda, a former deputy director of the State Administration of Taxation, who proposed in 2009 that China invest in neighbouring countries as a way to promote demand for the country’s exports.

Xi gave the plan his blessing in a speech to the Indonesian parliament during a state visit in October 2013, and just over a year later announced the creation of a US$40 billion development fund to help finance belt and road projects.

The whole initiative, officially known as the Silk Road Economic Belt and the 21st Century Maritime Silk Road, comprises a network of ports and naval bases connected by bridges, canals, roads and railway lines – all built and operated with Chinese participation.

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The ancient silk road, dating back to the Han dynasty (206BC-AD220), was an East-West trade and cultural exchange network, stretching from Japan to the countries surrounding the Mediterranean Sea, that linked China with Eurasia. But earliest overland routes for that exchanged went unnamed until the mid-19th century, when German geologist Baron Ferdinand von Richthofen dubbed them Die Seidenstrasse (the Silk Road).

China plans not just to revive the overland trade route, but also a maritime one, befitting its ambition to transform itself from a big continental country to a strong maritime power. That route will encompass more than 20 countries, stretching from the Pacific to the Mediterranean, via the Indian Ocean, Persian Gulf and Red Sea.

The shadow of a participant is seen on a map illustrating the ‘Belt and Road Initiative’ at the Asian Financial Forum in Hong Kong in January 2016. Photo: Reuters

Analysts said Xi’s plan aimed to kill three birds – economic, political and diplomatic – with one stone.

Economically speaking, the plan is seen as promoting free trade, investment and economic globalisation by reducing trade barriers and increasing opportunities for investors. Policymakers in Beijing want it to help Chinese companies explore overseas markets along the ancient trade route, promote development of the country’s underdeveloped west, export China’s industrial overcapacity and unearth new sources of economic growth amid a slowdown that started in 2010.

Politically, as the world’s last major communist-ruled nation, China needs friends and political allies to offset its post-cold-war ideological isolation following the collapse of the Soviet Union and Soviet client states in Central and Eastern Europe in the early 1990s. Beijing also wants to restore its leadership status in the developing world by reviving the non-aligned movement.

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Diplomatically, China aims to use its rising economic clout to expand its regional and global influence so that it rivals that of the United States, the world’s sole superpower, thus restoring China’s historic position as a global centre of trade, culture and politics.

In concrete terms, the plan aims to create a network of improved infrastructure spanning 65 countries and encompassing 60 per cent of the world’s population and about a third of its economic output.

Li said Chinese policymakers viewed the initiative as a way of facilitating and speeding up economic growth in the country’s less-developed western region, which would benefit the whole country.

Many less-developed countries in the region are also likely to welcome China’s offer to help solve their infrastructure woes. Countries covered by the initiative include Mongolia, Laos, Cambodia, Kyrgyzstan, Pakistan, Tajikistan, Bangladesh, Nepal and Myanmar – all of which rank among the bottom 40 countries for infrastructure quality, according to the World Economic Forum. India, the second-most-populous nation in the world, is also known for its infamously inadequate infrastructure.

Armed with about US$3 trillion in foreign exchange reserves, Beijing has dramatically scaled up its loan book to developing economies that have been largely ignored by international investors and Western lenders. Besides the US$40 billion Silk Road Fund, China has also played a leading role in the launch of the Beijing-based, US$100 billion Asian Infrastructure Investment Bank (AIIB) in October 2014 and the Shanghai-based, US$50 billion New Development Bank in July 2015, which was jointly funded by the five big developing economies – Brazil, Russia, India, China, and South Africa – collectively known as the BRICS.

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Some economists said China’s initiative might help spur other lenders into action, with borrowers speaking approvingly of growing competition in both bilateral and multilateral financing. But Alicia Garcia-Herrero, chief Asia-Pacific economist at Natixis, who will be speaking at next week’s Belt and Road Forum for International Cooperation in Beijing, expressed doubts about the huge amount of investment financing required, especially given the AIIB’s relatively small size. The World Bank borrows US$40 billion to US$50 billion a year, which it then lends out.

“The key issue about the belt and road is not really whether it makes sense – it does – but rather whether such a massive project can be financed easily,” Garcia-Herrero said, noting that US$5 trillion was needed in next five years and more after that.

Louis Kuijs, head of Asia economics at consultancy Oxford Economics, said that while the impact on short-term economic growth in other countries was likely to be small, the belt and road initiative could have a significant impact on their growth and development in the longer term if the projects were well run.

However, Kuijs said, “in countries with relatively weak governance and accountability, the risk of projects going bad is substantial”.

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By the end of last year, more than 100 countries and international organisations were supporting the initiative, according to the Communist Party mouthpiece People’s Daily. China has now signed memoranda with more than 40 countries, cooperation agreements with more than 40 countries in the belt and road region and industrial capacity cooperation agreements with more than 30. Construction of the China-Pakistan Economic Corridor is in full swing, guidelines for the China-Mongolia-Russia Economic Corridor have been signed and the building of the rail links that will comprise the New Eurasian Land Bridge is being steadily promoted.

Some diplomatic observers also view the belt and road initiative as a new, China-led mechanism for land-based and maritime security cooperation.

China, eager to secure the energy supplies needed to fuel its manufacturing-based economy, gets more than half its crude oil from belt and road in countries. It views better land transport connections with Central Asia and the Middle East as a way to secure a stable, long-term supply of energy.

Unlike other current and former great powers, such the US and Britain, which relied heavily on control of maritime sea lanes for global clout, China’s geographic position means its supply network will be largely land-based.

Professor John Ciorciari, director of the International Policy Centre at the University of Michigan, said

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China needed to “avoid undue reliance on trade by sea, where China’s major rivals will likely enjoy superior military capabilities for some time”.

Some also see the plan as part of Beijing’s efforts to combat terrorism and separatism, because boosting the economic development of underdeveloped western China, where most of the country’s Muslims live, would help address conditions that can fuel social and political unrest. In Xinjiang, where Turkic-speaking Uygurs are the biggest ethnic group, the East Turkestan Islamic Movement is seeking independence from China. Xinjiang borders eight belt and road countries: Mongolia, Russia, Kazakhstan, Kyrgyzstan, Tajikistan, Afghanistan, Pakistan and India.

But Ciorciari cautioned there would be winners and losers from trade and investment, and the increased movement of goods and services would also create many more links between people, including some opposed to the government in Beijing.

He said the main value of the initiative to China was that it was laying the foundation – quite literally – for expanded Chinese economic and political influence across the Eurasian landmass.