International Trade

In the early fall of 2013, China’s President Xi Jinping announced the launch of a new initiative aimed at fostering regional integration within the Asian continent and strengthening the economic cooperation with other regions of the world. Shortly after, this project was given the official denomination “One Belt, One Road”, which was then substituted by the formula “Belt and Road Initiative” in 2015. To most observers, the concept immediately sounded highly familiar. In fact, the initiative proposed by Xi was a clear reference to the ancient Silk Road, which had been the main connecting artery between Asia and Europe for centuries. Established during the western expansion of the Han Dynasty (206 BC–220 AD), it quickly became a crucial platform for economic and cultural exchange between East and West, until it gradually disappeared around the 13^th century. 

As soon as the Chinese leadership started outlining the details of this majestic project, many analysts and politicians in the West began to express their concerns about the possibility of Beijing using the initiative as a tool to consolidate its hegemonic claims in Asia and expand its influence abroad. During an APEC-Summit in 2018 Vice President Mike Pence even labeled the BRI as a “constricting belt” and a “one-way road.” But apart from political biases and the anti-Chinese rhetoric that has marked the Trump administration’s approach toward Beijing, what are the possible threats emanating from the Initiative? And could the BRI have a positive impact on the participating countries?  

Although many observers have linked the Initiative primarily to China’s expansionist ambitions, the main motivations behind Beijing’s project are strictly related to internal economic issues. In fact, after nearly three decades of unrelenting economic growth, the Chinese leadership now faces enormous challenges with regard to the future of the country’s economic development. Determined to avoid the so-called “middle income trap,” a scenario in which long periods of growth are followed by a phase of stagnation, Beijing is looking for new ways to stimulate the country’s economy. In this regard, the BRI represents an excellent tool to strengthen China’s economic condition.

Through this Initiative, the Chinese leadership intends to gain access to new markets, especially in Central and South East Asia. Additionally, Chinese leaders want an outlet to offshore some of the industrial overcapacity which Chinese companies have accumulated since the 2008 financial crisis. During that recession, the central government launched massive investments in the transport, infrastructure and real estate sectors in order to compensate the receding demand for manufacturing goods. Indeed, those companies are the real protagonists in the Initiative’s implementation, since most of the projects already underway in the various BRI-countries are being developed by Chinese firms, only seldom in cooperation with local partners. 

It has been exactly this aspect, which has given many critics of the Initiative reason to believe that Beijing’s efforts are exclusively serving its own national interests. More specifically, skeptics have often pointed to the sometimes controversial methods of realization of the various BRI-projects. The most quoted example for China’s alleged utilitarian approach is the so-called “debt trap”. This formula describes those situations where Chinese banks lend exorbitant amounts of money in form of generous loans to the countries participating in the Initiative in order to secure the development of infrastructural projects crucial to strengthening connectivity in Eurasia. Nevertheless, critics have argued that these mechanisms are ultimately going to turn against the countries receiving the loans, given their already fragile economic conditions and inability to pay pre-existing debts. This has been the case in a number of BRI-partners, including Pakistan and Sri Lanka. While Islamabad owes China $6.7 Billion in commercial debt through 2022, but hasn’t yet suffered any significant coercions by Beijing, in 2015 Sri Lanka was forced to agree to a 99-year lease on its second biggest Port (Hambantota), given the unsustainability of its debt. By creating these conditions, China could in the long term generate unbalanced dependences and therefore exploit a country’s financial weaknesses to gain access to strategic facilities and control its internal affairs. Many observers have already recognized the phantom of Chinese imperialism looming over the less stable and most vulnerable BRI-countries. 

Another questionable aspect related to the implementation of the BRI is the “strings attached”- mechanisms China has employed in its effort to bring the countries pivotal to the Initiative on board. This process has become known as “tied-lending.” Through this method, while Chinese banks have been lending large sums to target countries, Beijing has set constraining conditions for future cooperation. In Nigeria, for example, the China Development Bank granted a $200 million loan, yet the country’s government had to bindingly commit to buying digital infrastructure from Chinese tech giant Huawei. This rather unfair practice has also been deployed elsewhere and been considered by critics as proof of Beijing’s egoism and neo-colonialist ambitions. 

Moreover, by closely monitoring the realization of several BRI-projects, the Initiative also appears to be of fundamental importance in China’s effort to secure energy supplies and find alternative routes, which could reduce its dependence on US-controlled chokepoints, above all the Strait of Malacca. In fact, despite its immense territory, the PRC heavily relies on oil and gas imports from other countries. Amongst China’s most prominent suppliers are the Gulf monarchies as well as Iraq, Libya and several other OPEC states. According to the International Energy Agency, Beijing imported 8.7 Billion barrels per day in 2017 and, given its enormous demand, will have to keep securing 6.6 Billion barrels daily through 2040. 90% of these supplies get to the Chinese mainland by sea, usually passing across the Indo-Pacific and thus depending on the US Navy’s presence in the region. Through the BRI, China has already built several gas and oil pipelines connecting Central Asia to its mainland as well as undertaken the construction of deep-water ports in Southeast Asia, which will allow Chinese vessels to avoid traditional sea lines presided over by American forces.    

Given all the elements illustrated above, at first glance the BRI might seem a mere attempt to facilitate China’s westward economic and political expansion as well as a useful tool in finding new solutions to internal economic needs and challenges. Therefore, as realist scholars would argue, Beijing is doing nothing else than protecting its economy and weakening its neighbors in order to pave the way for the consolidation of its hegemonic claims. However, by following this interpretation of the project a fundamental aspect remains undiscussed: the positive effects on the participating countries. While many experts have discarded the Initiative as a “trap” or a “blunder,” some participating nations are expected to significantly benefit from it. In Central Asia for example, many infrastructure projects financed by Beijing, such as the Kashgar-Tashkent and the Samarkand-Mashhad railroads, will ultimately boost connectivity in the region and induce both economic and demographic growth in cities like Astana and Almaty in Kazakhstan and beyond. Furthermore, various South- and South East Asian countries are also going to draw great benefits from the BRI. According to a World Bank report, Pakistan will experience a 10.5% increase in its national real income value, whereas Thailand’s, Malaysia’s and Cambodia’s rates will go up to respectively 8.2%, 7.7% and 5.0%. Moreover, also based on predictions of the World Bank, the Initiative has the potential of globally lifting 7.6 Million people from extreme poverty; as a consequence, until 2030 poverty rates could drop from 9.5% (2015) to 3.9%. 

Furthermore, it is worth mentioning that there already are tangible examples of how a BRI-partner can get major advantages by cooperating with China. In this regard, Greece’s experience constitutes a highly illustrative case. In 2009, right in the midst of the European financial crisis, COSCO (China Ocean Shipping Company) decided to invest, despite the country’s enormous debt and dramatic economic conditions, large sums in Athens’ Piraeus Port. In 2016 COSCO finally bought a 51% share of the Piraeus Port Authority, automatically acquiring far-reaching rights over the port’s administration and management. Despite initial criticism about Greece “selling out” key facilities and the possibility of a “debt-trap” scenario, the Chinese investments were able to create 10.000 new local jobs as well as help Piraeus jump from position 93 (2010) to 32 (2019) in the global ranking of ports with the largest container capacities. Yet Beijing’s ambitions with regard to Piraeus have not stopped. In fact, when Xi Jinping arrived in Athens on a state visit in late fall 2019 and inspected the Port along with Greek Prime Minister Kyriakos Mitsotakis, COSCO announced that it would invest another $600 Million with the goal of turning Athens’ port into Europe’s largest. In addition to the enormous sums allocated by the Chinese company, that same year the European Investment Bank decided to get on board too by emitting a $140 Million loan with a duration of 20 years and secured by CEXIM (China Export-Import Bank). 

Notwithstanding the dangerous potential of too-generous loans and unsustainable debt, these numbers show how the BRI can certainly have positive externalities on the countries receiving Chinese investment. Moreover, Greece’s case represents an example worth using as a benchmark for other countries with regard to their cooperation with China. As many analysts point out, Beijing’s increasing influence over crucial infrastructure in Europe and elsewhere could ultimately lead to political interference and sovereignty limitation. Yet if Chinese investments are complemented by the participation of “neutral” institutions, such as the EIB in Europe or development banks on a global scale, that might address concerns about the possibility of Beijing gradually penetrating into the countries’ internal affairs through economic coercion. This modus operandi could indeed prove of great utility both to China and lendee countries. By doing this, Beijing could boost its reputation in the eyes of the West, while the participating countries will have solid guarantees on their cooperation with the Red Dragon. Furthermore, over the past years, China has also demonstrated its financial flexibility toward BRI-countries. Following initial concerns about the elevated cost of a new railroad for example, in 2019 Malaysian Prime Minister Mahathir Mohamad managed to negotiate a $10 billion price reduction (1/3 of the original) on the project and was even able to get Beijing to agree to a joint venture between a Chinese firm and a local partner in the initiative’s realization. 

Therefore, by considering both each country’s concerns as well as the BRI’s overall impact, it is certainly possible to say that under the right conditions, the cooperation with Beijing could turn out to be of enormous benefit to the participating states. Practically, this requires a dynamic but resolute approach by the West, which will both challenge Beijing when needed but at the same time seek, not dread, opportunities to cooperate with China in a joint effort to globally generate growth and foster development. In other words, from a Western perspective, the smartest policy to pursue toward the BRI would be to “multilateralize” the Initiative by increasing its share in it instead of merely condemning it. This strategy is absolutely feasible since the Chinese leadership has always been highlighting the “openness” of the projects and its multilateral features. 

Indeed, several aspects of the Initiative have been characterized by such an approach, such as the Asian Infrastructure Investment Bank (AIIB), a Beijing-based development bank founded in 2015 as a response to the ineffectiveness of other similar global institutions and a fundamental financing source for several BRI-projects. Although China holds the position of majority partner with 30.7% of the total subscriptions and 26.6% of the overall voting power, other countries, which are not necessarily an integral part of Beijing’s sphere of influence, have a significant say in the Institution as well. This is the case of India and Germany for example. Whereas New Delhi disposes of 7.6% of the votes and contributes with a capital of roughly $8 Million, Germany detains the largest non-Asian subscription with 4.6% of the shares and 4.1% of the voting rights. Noteworthy is also the membership of several other nations traditionally embedded in the US alliance system, such as the Philippines, Saudi Arabia, Italy, Israel, which have not hesitated to join the AIIB, despite Washington’s repeated warnings about the risks of getting involved in a Chinese-led Institution. Striking was also the United Kingdom’s entry into the Bank in 2015 as the first European founding member. Even in the West, many experts have already recognized the great potential of the AIIB’s consolidation as a truly multilateral and balanced institution. In fact, some have argued that the Bank could not only avoid the mistakes and flaws of the World Bank, but also develop itself holding high the principles of fair representativeness and sustainability. As to Beijing’s status as majority partner and the accusations about the Bank being a tool in the hands of the Chinese state, a look at the structure of other existing development banks around the World would already suffice to become aware of a feature inherent to every such institution. The World Bank for example, without questioning the organization’s integrity, could theoretically be defined as a US-controlled Bank, since Washington detains 16.7% of the shares as well as 15.8% of the overall voting power. The same applies to the ADB (Asian Development Bank), where Japan holds the highest number of shares and votes. Moreover, the idea that Beijing could potentially use its power within the AIIB to individual ends isn’t a novelty either. It might be useful to reminisce how during the Cold War the United States systematically used its influence on multilateral Institutions to direct resources to controversial strongmen in developing countries, which functioned as anti-communist forces and were useful to U.S. foreign policy; one of the most blatant examples was Washington’s support for General Mobutu in the Congo, whom an American diplomat once called “a son of a bitch, but our son a bitch.” 

Through this overview, several aspects, both positive and negative, have emerged with regard to the BRI’s implications. On the one hand, Beijing has shown that it certainly is willing to use its economic influence over specific countries to pursue political objectives and gain access to strategic regions and infrastructure. Having said that, there is also enough evidence to underscore the positive potential of the Initiative, especially in terms of connectivity and economic growth. As summed up above, various countries have already benefited from BRI-projects and others are expected to enjoy the positive impact of the Initiative in the future as well. Furthermore, since many Western nations and US allies have already joined either the Initiative or the AIIB, it would be particularly wise if the West would adjust its approach toward Beijing’s initiative. This would by no means imply a capitulation before China’s expansion and ambitions, but a more structured and determined cooperation with the PRC could break the current bottleneck in the relations between China and the West. In fact, by recurring to this strategy, Western countries could not only demonstrate more interest in working with China in matters of development and economic improvement, but also implement Beijing’s plea for broad participation within the BRI and therefore gain more leverage in the Initiative. At the same time, if there still should be underlying doubts about China’s real intentions, broader cooperation with Beijing could result of fundamental importance in assessing how far the PRC intends to go and if the Initiative is really designed to be a multilateral, comprehensive and peaceful project. In other words, the West could follow China’s plea for global cooperation and use this very tool to look into Beijing’s cards. A first step in this direction could be a more far-reaching collaboration within the AIIB, which already has several features that could facilitate such an endeavor, as well as a more active and collegial implementation of the projects tied to the BRI. A sign that this sort of framework has the chance to succeed is the already existing cooperation between the United Nations Development Program and Beijing, sealed through a joint action plan on the BRI signed in 2017. 

In view of the various aspects concerning the BRI, it is finally possible to state that the Initiative represents both a threat and an opportunity. However, while the potential menaces of the Belt and Road Initiative could be contained by the greater involvement of Western countries, not considering the major economic benefits of Beijing’s projects would be wasting  significant resources merely out of ideological prejudice.