Belt and Road Page 2
Since President Xi Jinping had announced the plans a little less than two years before, everyone had set to work. Books were being published, think tanks devoted to the initiative had been created, course curricula had been redesigned, exhibitions were organized in hundreds of cities and an entrepreneurial soul had created a matchmaking service introducing Ukrainian women to Chinese men “as part of the Belt and Road.” The initiative was fast on its way to becoming a household name. It connected old Taoist wisdom with shiny postmodern tech cities, linking past and future in an unbroken chain of historical development. Generals had been put in charge of tactics and strategy. Soldiers and missionaries were being regimented to take the new gospel to the four corners of the earth. The world would never be the same again.
Three more years have passed and the Belt and Road has continued to grow in our imagination. In Europe and the United States it is no longer viewed as a quaint revival of the ancient Silk Road. Discussions of the initiative are now much more often about the future. China has emerged as a threat to a Western rules-based global order and the Belt and Road is now often described as a dagger aimed at the heart of our economies and societies. The German and French governments have—after a period of silence and then apprehension—come out against the project’s hegemonic intentions. In the United States, other, more pressing issues remain at the center of the White House’s China policy, but in several statements the former Secretary of State Rex Tillerson described the Belt and Road as a Faustian pact by which countries sacrificed their independence for cheap loans. In India a large segment of the foreign policy establishment frets about Chinese encirclement. For many commentators in South and Southeast Asia, the Belt and Road is a project of Chinese expansionism with a thinly disguised military element, as China builds dual-use ports that berth its cargo ships and military vessels, and opens its first overseas bases in places such as Djibouti and—soon enough, surely—Pakistan and Sri Lanka. Tanks, not trains.
In May 2017 China brought together thirty or so national leaders at an inaugural summit devoted to presenting the Belt and Road concept to the wider world. The initiative was promoted abroad via a blitz of television programs and interviews, comprehensive newspaper coverage, music videos and even bedtime stories for children. The Belt and Road was the lead story in most international media outlets and many in Europe and the United States became aware of it for the first time.
Perhaps unsurprisingly, these initial moments of international fame were also marked by a very public display of the difficulties and opposition faced by the project. India announced just one day before the event that it would not be participating, explaining that in its current form the Belt and Road will create unsustainable burdens of debt, while ignoring India’s core concerns relating to sovereignty and territorial integrity. Several European countries stated their general support for the initiative, but in a surprising move declined to sign a key trade statement that the Chinese leadership had hoped to produce during the forum. This reluctance was said to stem from concerns over transparency of public procurement—always a priority for the European Union in its external relations—but was also connected to Chinese attempts to increase its influence in parts of Europe.
China is quickly assuming a central role in world politics. Suddenly, every global story has a China angle, whether it is the growing instability in the Balkans, the coup in Zimbabwe, domestic politics in Australia or the midterm elections in the United States. The traditional opaqueness of Chinese politics and of the Chinese state was once a useful shield, a means of staying out of the limelight. Now it is a way to magnify Beijing’s reach: that we know so little about what China is doing seems to show that it is present everywhere. As Howard French puts it in his recent book, East Asia and the Western Pacific are starting to look less and less like a place configured for the needs and ends of the West and, in a return to the past, ever more like the world briefly dominated by China from the late twelfth century until the early sixteenth. China is already the largest trading partner for almost every country in the region and—short of total war with the United States—its military is quickly acquiring superiority across the region.2
New clashes, new stories, new mental maps. The world after the Belt and Road will never be the same as it was before. More than any other project, it has come to symbolize a new phase in China’s rise, the moment when Beijing embraces its role as a new superpower, capable of remaking the world economy and attracting other countries to its own economic orbit and ideological model. As such, the Belt and Road offers a concrete and vivid introduction to the new China. But its logic and structure are also a natural—almost inevitable—development of the recent trajectory in China’s development and cannot be understood in isolation from that context. The Belt and Road did not spring from the earth fully formed, ready to take on the world. It has a history or, better put, a story. That must be the starting point for our exploration.
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As China embarked on its watershed “reform and opening up” under Deng Xiaoping, Chinese foreign policy had to adapt to the new focus on economic development. The possibility—always present with Mao—of a coming war with the Soviet Union or the United States receded from view. Deng’s main political achievement was to convince the Chinese Communist Party that the country’s national interest now lay in developing peaceful and even friendly relations with the capitalist world. Mao had sought revolution at home and abroad. Deng set his eyes on more earthly goals: making China powerful, prosperous and respected. As he explained in 1978 after Mao died, China had to overcome its reluctance to learn from the developed countries. To achieve the fullest modernization of its economy and society, the Chinese had to draw on inputs of science, technology, managerial skills and physical capital to be found in advanced capitalist economies. This consideration ultimately explains why China’s partnership with the United States against the Soviet Union would continue throughout the Cold War and beyond. An entente of sorts—never very deep, but one offering the perpetual promise of future convergence—created a favorable environment for the explosive growth of the Chinese economy during these decades.3
At one point in his early efforts to modernize the Chinese economy, Deng had supported the Ministry of Transportation’s conclusion that China was not yet up to building large commercial ships and that, in the short run, in order to boost trade, it would have to purchase such vessels overseas. Jiang Qing—Mao’s last wife and the leading figure of the Gang of Four—was herself plotting to concentrate power in her own hands and saw an opportunity to weaken Deng, arguing publicly that he was wasting the country’s money buying ships and that his actions showed that he had a comprador mentality and worshipped things foreign. Domestic vessels, she wrote, are just as good.4 The episode offers a good example of the internal resistance Deng was forced to confront and overcome in order to implement an ambitious modernization program. His decision to normalize relations with the United States while Washington continued to sell arms to Taiwan was one of the most difficult and important of his political life, a decision dictated by his longstanding conviction that the only way to speed up China’s modernization was to gain access to the West’s vast reservoirs of capital and technology. The strategy started to pay off. In 1980 China was admitted to the World Bank and the International Monetary Fund. In the same year, Chinese exports were granted Most Favored Nation status, something that continued to be denied to the Soviet Union and is at the root of the boom in Chinese exports to the United States and, ultimately, the diverging paths taken by China and Russia since that time.
In his 2002 report to the National Congress, General Secretary Jiang Zemin foresaw a “twenty year period of strategic opportunity,” during which China would benefit from good relations with the United States, allowing it to concentrate on economic growth and full-scale modernization. During this era, Deng’s teaching of “tao guang yang hui”, or keeping a low profile, remained a guiding principle, but none of the senior figures in China�
�s leadership ever entertained any illusions that such a favorable environment could last forever. China was growing too big and too powerful to avoid raising new suspicions among the major global powers, jealous of their position and naturally unhappy to see a new rival arriving on the scene. Nor could it expect the international political and economic system to continue to satisfy its domestic needs, now that these were becoming increasingly more demanding.5
The Belt and Road reflects the change towards a more active foreign policy strategy, one aimed at shaping China’s external environment rather than merely adapting to it. It is anchored in the realization that this environment will become more hostile, as the United States once again perceives China a major strategic rival and—perhaps even more decisively—as China’s growth and importance in the international system places greater demands on other countries.
By increasing investments abroad, China may hope to find more profitable outlets for its foreign exchange reserves—most of which are in low-interest-bearing American government securities—while creating new markets for Chinese companies. Take the example of steel production in China. Over the last decade, heavy investment in the steel industry led to a severe problem of overcapacity. How could Beijing deal with it? The response favored by Western advisors would be to allow market mechanisms to dictate the fate of the industry’s most outdated segments, but this is an outcome the Chinese Communist Party could never countenance. On the one hand, the social impact would adversely affect the main variable of legitimation for the Party: economic and social development. A steep drop in profits, rising debt, bankruptcies and unemployment—overcapacity was quickly becoming a threat to the state’s financial and political stability. In 2016 Guangxi Nonferrous Metals Group, the Chinese state-owned metal producer, was declared bankrupt, the first ever issuer in China’s interbank bond market to be placed in formal bankruptcy. The company blamed its default on consecutive losses. Steel and nonferrous metals smelters had been among the hardest hit of China’s industrial firms following an extended real estate downturn. Its creditors included China Development Bank, Minmetals International Trust Co, Shenwan Hongyuan Securities and Shanghai Pudong Development Bank.
Even if viable, a market-based solution would mean that the main economic decisions would no longer be taken by the state and therefore that the reach of the market would have to be expanded, so that it could be relied upon to steer economic processes. The alternative was obvious. If the domestic market could no longer absorb China’s steel production, exports would have to fill the gap. In retrospect, the overcapacity problem was a result of the 2008 global economic crisis. Predominantly affecting Western economies, it reduced demand for Chinese steel. The differential between the West’s rates of economic growth and those China needed for its own charted path of economic development was becoming unsustainable. In 2012—the year before the inauguration of the Belt and Road—China’s production-to-capacity ratios in iron and steel, cement, aluminum, sheet glass and shipbuilding were 72 per cent, 73.7 per cent, 71.9 per cent, 73.1 per cent and 75 per cent respectively.
Some Chinese commentators speak of China’s predicament as having “two heads abroad” (“liangtou zai haiwai”). Critically dependent on accessing commodities, energy and raw materials while needing to find constantly growing markets for its exports, China is as deeply integrated in the global economy as the United States or Europe, but it still lacks the tools to project its power abroad.6 Its situation could be compared to that of Victorian Britain, which was also dependent on imported commodities and export markets. Yet the British had a vast empire and the most powerful navy in the world. Can China develop a functional equivalent?
If the imbalances arise from the dynamics of global interdependence, they can be solved only within the same sphere. But how could this be done at a time when mature markets like the United States or the European Union were also struggling to preserve their steel industries, often by contemplating imposing tariffs against Chinese steel? The realization that China was now highly dependent on foreign markets made it clear that some level of political influence over the latter would have to be developed. European countries in the nineteenth century and then America in the twentieth had been pushed in that direction. China might be forced to do the same.
A watershed moment arrived at the convening of the Working Conference on Neighborhood Policy in October 2013, where President Xi Jinping announced that China should be more proactive in promoting diplomacy with its neighbors, should strive for a sound environment around China, and should make China’s development more beneficial to neighboring states for purposes of common development. It was a bold break with the deliberate modesty of Deng’s foreign policy, a forerunner of sharper breaks to come and a powerful early manifestation of Xi’s stature. It was the moment when “striving for achievement” replaced “keeping a low profile” as the fundamental tenet of Chinese foreign policy. The former is appropriate to a rising power, the latter to a weak state, incapable of influencing events outside its borders. Xi argued that “our diplomacy must keep with the times and be more proactive.” Guiding other states will replace the policy of “never taking the lead”, which is a policy suitable for weak states, or one that signals weakness. That old guideline had been proposed against the background of the collapse of the Soviet Union when many hoped that China would take the lead in the struggle against the capitalist world. It was an appropriate response then, but has lost relevance, given China’s new international position.7 As Xi argued in that programatic speech, “our international objectives are to strive for favorable external conditions for China’s reform, development and stability, to safeguard state sovereignty, security and development interests, and to maintain world peace and stability, and promote common development.”
Some countries, of course, could be influenced more easily than others. This was particularly the case with developing countries. With their economies still relatively pliable, they could be helped along a path allowing them to fit as seamlessly as possible with Chinese needs. It seemed obvious, to return to our example, that a country could become a major importer of steel only if investment in infrastructure and construction were significantly increased—and Chinese capital could contribute to this. The next few years will see an infrastructure construction boom in Southeast Asia, with Indonesia, Thailand and others having announced ambitious mid-to-long-term plans. Needless to say, Chinese companies enjoy advantages in high-speed railways, highways, ports construction and energy production. According to a study published by the Center for Strategic and International Studies in early 2018, of the contractors working on China-funded transport infrastructure projects in thirty-four Asian and European countries, 89 per cent were Chinese, leaving 11 per cent from elsewhere.
Take another example: fertilizers. China produces too much fertilizer for domestic consumption, but countries such as Vietnam and the Philippines have well-identified needs for a reliable supply of phosphate. This overcapacity can be absorbed at one stroke, to the benefit of all. As He Yafei, vice minister of the Overseas Chinese Affairs Office of the State Council, pointed out in 2014, “one country’s overcapacity can meet another country’s needs.”8 Huang Libin, an official with the Ministry of Industry and Information Technology, explained: “For us there is overcapacity, but for the countries along the Belt and Road, or for other BRIC nations, they don’t have enough and if we shift it out, it will be a win-win situation.”
The success of Chinese industry in leading the country’s modernization could be expanded to other parts of the world—starting with infrastructure but moving to manufacturing. China would get new markets for its exports, but in due time it could also import at favorable terms those goods which could no longer be profitably produced at home. What is more, by controlling the pace and structure of its investments in developing countries, China could transition much more smoothly to higher-value manufacture and services. In the last stages of its modernization, the country should no longer rely excl
usively on Western economies to provide a favorable environment. It had to create that environment by its own actions. This was the initial impetus for the Belt and Road. “Therefore, it symbolizes that China is transforming from a participant to a shaper of globalization, and the situation is changing from one where China opens up to the outside world to one where the world opens itself to China.”9 Overcapacity was less the motivation for the Belt and Road than an example of the fundamental problem the initiative was meant to address: China’s dependence on a global system it could not shape or control.
Along a range of different policy issues, decision-makers were coming to the realization that China’s problems could not be solved exclusively within its borders. A crucial challenge was the uneven distribution of growth among the different provinces, resulting in large regional economic disparities. The government in Beijing had tried to address these disparities through ambitious development plans focused on the western provinces—Xinjiang above all, with its restive Uyghur population, the source of violent confrontations in 2009 and subsequently—but in the past, development in China had only been successful when combined with access to international markets, so a similar solution for the frontier regions had to be sought in new infrastructure and new trade connections with Central Asia, Pakistan and the Caucasus. Cities such as Urumqi in Xinjiang were after all closer to the borders of Europe than to Beijing or Shanghai.
One of the advantages of working within a framework as vague and ductile as the Belt and Road is that different policies can actually be pursued simultaneously—in apparent violation of the economist Jan Tinbergen’s admonition that achieving a given number of desired policy goals requires an equal number of tools. Increasing connectivity across Eurasia can help obviate Xinjiang’s economic isolation while boosting demand for Chinese steel and aluminum, but it can also be a way to establish new energy routes linking producers in Central Asia and energy-hungry Chinese cities and factories. Chinese dependence on oil and gas imports will continue to grow in the next two decades. Securing cheap and reliable access to energy sources is therefore a priority for Chinese foreign policy. There are ways to limit its exposure to disruptions in energy flows, and all or almost all of these are served by the vision of and projects included in the Belt and Road.