China's new world order Fraser Cameron is the Director of the EU-Asia Centre and attended President Xi’s Belt and Road Forum Introduction China certainly knows how to put on a good show. After the Beijing Olympics, the Shanghai Expo and the Hangzhou G20, President Xi’s Belt and Road Forum on 14-15 May brought together a staggering array of world leaders including Vladimir Putin, Recep Erdogan, Michelle Bachelet, Christine Lagarde and Antonio Gutteres. Speaker after speaker lined up to laud President Xi’s vision for a new Silk Road. It was a ‘win-win project’ that would bring economic prosperity and ‘mutual benefit’ for all countries involved. The project would build roads, railways, ports, pipelines, energy and telecommunications infrastructure linking China to Central and South-east Asia, Europe and Africa by land and sea. What is the Belt and Road Initiative (BRI)? Since its announcement in 2013, the BRI has become the core of China’s economic diplomacy and can be regarded as the country’s new opening-up strategy, developed in response to changing domestic and international circumstances. Some view it as a means for China to deal with its over-production capacities, to reduce regional imbalances by promoting economic development in the Western part of the country, and to utilize its vast, albeit declining, foreign exchange reserves to secure access to new sources of raw materials and promote new markets for Chinese goods. Some consider it will improve China’s energy security while others see it as a master-plan to increase Chinese influence at a time when American leadership in Asia is questioned. China should also gain more influence in Central Asia, often viewed as Russia’s backyard. Some see it as a clever attempt to divert attention from Chinese activities in the disputed South China Sea. Others take a more altruistic view comparing it to the Marshall Plan launched by the US after the Second World War to help restore the battered economies of Europe. Risks China launched BRI with little examination of possible risks and threats. This was strange as many of the countries along the route are politically volatile and economically vulnerable. 26 out of 66 are Muslim countries and some have serious problems with jihadist elements. They vary enormously in size, development, history, religion, language and culture. While financial assistance will be provided to countries of the BRI through AIIB and other mechanisms, capital cannot provide the stability or security necessary to see these projects through, nor guarantee that counterparts will hold on to their end of the bargain. Moreover, it cannot control public opinion. Chinese companies using Chinese labour are not always welcomed with open arms, and the flooding of Chinese goods and exports likewise can become a source of local disgruntlement and resentment. Developing countries are littered with cases of failed, stalled, or at least troubled Chinese projects due to local opposition, corruption, regulatory issues, and legal problems. Domestic concerns So far, the vast majority of China’s foreign investment has been done through state owned enterprises (SOEs). Since SOEs answer to government shareholders and enjoy state financial support, there has been little incentive for these Chinese companies to carefully assess cost, benefits, and risks. As a result, investment returns have been low. For instance, the head of China’s mining association in 2013 estimated that up to 80 percent of China’s mining ventures overseas had failed. China has stated that the BRI will ‘give play to the decisive role of the market.’ In reality, it is more likely that projects will continue to go to big players and state-affiliated enterprises. Overcapacity of course is just one among a plethora of economic and geopolitical motives for China, some of which include the internationalization of the yuan, creating alternative options in the international financial system in need of reform, shaping a more pliable regional security and political environment for itself, and finding alternatives shipping routes. In these aims, the BRI could very well prove to very successful in enhancing China’s regional and geopolitical clout. But as far as direct economic gains go, the benefits may be ironically both too shortsighted with regards to shedding capacity, and too long-sighted in terms of investment return. Much will also depend on whether Xi’s successor will remain committed to BRI. While the world has so far experienced rule-based regional integration arrangements, the Chinese way to regional integration tends to be less rule-based and more coalition-based along country-specific interests. As such, the BRI could have profound implications on global governance and more specifically for the EU, as the latter is the ultimate destination of the vast network of land routes and sea-lanes starting from various Chinese provinces. It will also impinge on Russia’s Eurasian Economic Union (EEU) and it is little wonder that Moscow has been suspicious of China’s motives in what it regards as their backyard. Until the May summit, there had been very little detail about the BRI from the Chinese side and Chinese officials and experts were struggling to define the concept and to come up with concrete projects. There is no deadline and there seems to be no exact geographical confines with projects in Africa, Australia and even Latin America all being placed under the BRI umbrella. There is also an attempt to include free trade agreements that were started long before the BRI initiative. The summit At the summit, President Xi announced a massive boost in financial support (nearly €20 billion) for the initiative and more than 30 cooperation agreements were signed during the forum. But he also said it was not a mere development project but rather should be viewed as a stimulus to trade in a world challenged by rising protectionism. The final statement included a list of major outcomes with 76 projects approved under the initiative. There was a strong commitment to fighting protectionism, defending the multilateral trading system, supporting plans for innovation, e commerce and supply chain connectivity. To the surprise of some there was even a mention of the importance of democracy, the rule of law, good governance and human rights. The EU’s traditional mention of the need for ‘a level playing field’ was also included. More than 300 Chinese and over 50 foreign think tanks were present for a parallel meeting aimed at injecting some intellectual capital into the project. Many have joined a Silk Road network to carry out research on the project. A follow up summit is planned in Beijing in 2019. Some of China’s big neighbours including India, Japan and Korea remain sceptical about the Belt and Road Initiative. But President Moon of Korea and Premier Abe of Japan both sent high-level envoys. At the last minute, following the surprise trade deal between China and the US, President Trump sent the Asia Director from the National Security Council. EU reactions On the European side there has been a cautious welcome for the BRI but political and business leaders have been waiting for evidence of concrete projects, which they could support. Speaking at the summit, Commission Vice President Jyrki Katainen emphasised it was important to ensure that the initiative was embedded in and supportive of the multilateral system. He called for greater transparency as regards procurement and financing as well as more attention to social and environmental sustainability. The EU, he stressed, ‘was in the business of building bridges, not walls.’ The EU-China Connectivity Platform is the main institutional arrangement where dialogues currently occur between the EU and China about how to coordinate large and long-term infrastructure projects, so that the Trans-European Transport Network (TEN-T) develops in a way consistent with the aims of the BRI to reach Europe from Asia. The Platform will promote cooperation in areas such as infrastructure, equipment, technologies and standards, and it will be done in cooperation with the EIB. China also plans to contribute to the Commission’s €315 billion Investment Plan for Europe and has recently joined the EBRD. Conclusion Although the geographical limits of BRI have never been defined, the initiative has a domestic as much as an international context. It aims to close development gaps within China, provide an outlet for surplus capacity, and also improve connectivity between China and Europe. It is part of the overall Going Global strategy. BRI enjoys strong support at the highest levels in China whereas European opinion is more cautious and waiting to see whether concrete projects materialize. No one doubts the need for massive infrastructure investment in the many countries between China and the EU but the BRI initiative could face many potential pitfalls including political instability, terrorism, corruption, high costs, harsh terrain, long distances to the market, and tensions with other great powers. It is clear that far greater attention should be paid to political risk analysis for the successful implementation of the BRI. The Chinese should be wary of over-selling the BRI. Some official commentaries have tended to exaggerate the achievements to date. Certainly the vision for BRI is ambitious, and if well implemented, it has the potential to benefit the various countries and societies along the road, not least in promoting sustainable development. The popularity and success of the BRI initiative, however, will depend not only on the economic gains and benefits, but also on successful cooperation on issues such as culture, tourism and people to people exchanges. The BRI is thus an ambiguous tool of Chinese domestic and foreign policy. It is powerful example of Chinese soft power. How China develops the BRI will help define the very nature of China as an actor in the 21st century. Another important aspect is whether the BRI will outlive President Xi as it is very much his baby. There is some disaffection in China, especially in the more prosperous coastal cities, that the BRI is distracting time and effort that should be focused more on how China can move up the value chain. Most experts agree that this will require a more open and liberal education system if China is to develop the innovation and creative industries it will need to jump to the next level of development. In the last twenty years the rise of China has been the most significant geo-political and geo-economic development. It has brought over half a billion people out of poverty and been the engine of global growth. It now faces further challenges in reforming its economy while paying more attention to its damaged environment. Whether it can manage these internal transformations and at the same time provide the leadership to transform the countries between China and the EU is an open question. But one cannot criticise China for lack of ambition.
The popularity and success of the BRI initiative... will depend not only on the economic gains and benefits, but also on successful cooperation on issues such as culture, tourism and people to people exchanges