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Since 1978, China has been rising as one of the fastest developing countries in the world. As always, economics can hardly be separated from politics. As China’s immense economic capacity grows, it starts to assume a more influential role on the stage of world politics.
Many speculate that China will replace the fallen Soviet Union as the most threatening “foe” of the United States and the broader West. However, except for a couple of regional and political issues, no fierce direct conflict has emerged. Yet it is notable how China is changing to adopt a more aggressive economic policy in recent times.
What is Belt and Road?
In 2013, President Xi Jinping launched the “One Belt One Road” initiative, later known as the Belt and Road Initiative (BRI). The stated objective of the BRI is to connect economies in Europe, Africa, and Asia through infrastructure improvement, trade, and investment. BRI consists of the Silk Road Economic Belt and the Maritime Silk Road.
BRI covers 68 countries in total and costs China $196 billion a year (2018) in combined investments, loans, and infrastructure improvement subsidies to member countries, courtesy of the Asian Infrastructure Investment Bank (AIIB), China Development Bank, and many investing State-owned Enterprises (SOEs)
The Chinese Perspective
BRI is heavily advertised by the Chinese government on the Internet. Baidu, the leading search engine in China, describes BRI as an economic initiative echoing the trends of multi-polarization, globalization, and digitalization.
It frames BRI as promoting the free flow of economic elements, efficient resource allocation, in-depth market integration, and better overall economies for member countries.
The BRI is portrayed and recognized by Chinese people as a friendly, mutually beneficial, and harmless initiative for a better exchange with foreign countries. However, the Chinese government does admit the enormous benefits China would receive through this initiative.
The West Theory of Threat
The United States and the majority of the western countries share great concerns over the cost for countries to join and the political intention behind the BRI.
BRI, of course, has strong economic-political implications for China and the US. The US had been dominating the global economic system since the end of WWII and the establishment of the Bretton Woods System.
In 2016, Donald Trump was elected as the President of the United States and embraced an isolationist strategy in trade. China is thought to be utilizing this economic power vacuum to gain more allies and reliable trade partners to combat US influence in global trade.
This economic vacuum has existed for decades as the US and the West developed strict standards for borrowing. Requiring countries be evaluated on their morality, business practices, and the likelihood of default.
Through BRI, China aided allegedly corrupt countries like Iraq, which is experiencing heavy instability and has no ability for repayment. The threat of defecting the high standard system the West has built is no doubt a concern for many western countries.
Since many countries China lent to do not have the capacity for repayment, why does China lend? Where economic theory falls short in explaining China’s actions, potential geopolitical agenda picks up the slack.
According to Vox Media and the Council of Foreign Relations, China planned for defaults to occur, creating leverage over smaller countries for geopolitical advantage.
In 2018, Sri Lanka, a country that owed China $13 billion with an expected total government revenue of just $14 billion defaulted on a seaport project. China subsequently asked for a 99-year lease controlling the seaport.
The similar maneuver, the String of Pearls Theory, has been used or attempted in Pakistan, Djibouti, and Myanmar.
China is predicted to be establishing a series of seaport or naval bases along the northern coastline of the Indian Ocean to provide protection for shipping routes. It would also have great military implications as China gains de facto naval control over a vast region.
Lastly, it is postulated that China would gain more bargaining chips in contentious issues as it gains more “allies” through BRI. Though China uses the term “allies”, it alludes to less of a voluntary relationship and more of an imperative relationship.
According to The Wall Street Journal, China has been accused by the West for building “debts traps” for small countries with a high debt-to-GDP ratio. De facto, China gains great control over the behavior of those countries on the international stage.
Such a high ratio of debts to GDP have already made some countries, especially those in Africa, to change diplomatic tones and produce an influenced pattern of voting in the UN General Assembly.
Lessons to Learn
The Belt and Road will stay contentious, especially after the turmoil of trade war and elimination of constitutional limitations on the presidential term of President Xi.
We can see that for China, a country where the government has a large role in business activities, political agenda tends to be involved with economic activities.
China’s enormous market and its manufacturing capacity still provide great opportunities for people all over the world. But it is certainly a thing to keep in mind when conducting business in China or with Chinese enterprises, especially SOEs.
Moreover, we can observe the great risks involved when political agendas, especially geopolitical ones, are concealed under economic exchanges.
This problem does not have a great short-term solution other than the long-term implementation of a better rule of law and a more effective and transparent government system over economic activities.
Many overseas firms have been intimidated and stopped from doing business in China by this lack of transparency and reliable platforms. This may be a great motive for China to reform.
The Belt and Road of 21st century goes along some of the same routes of the original Silk Roads centuries ago, but the journey is destined to be less silky and smooth.
By Yixin Zhao