Since the inauguration of China’s Belt and Road Initiative in 2013, its bold vision has become China’s most important global economic and foreign policy instrument.
In a nutshell
- China’s Belt and Road Initiative will remain expansive
- Investment may dip as China retools its approach
- Competition with the West will likely intensify
With its Maritime Silk Road, China’s Belt and Road Initiative has moved far beyond Eurasia and its original aims of creating a New Silk Road project. The geographical scale has expanded to more than 140 countries, including in Africa, the Middle East, South Asia and Latin America. At the same time, the BRI has also expanded its ambitions with the introduction of a Digital Silk Road, a Polar Silk Road (for developing arctic shipping routes and offshore arctic fossil fuel production and mineral mining), a Health Silk Road and a 5G-based Internet-of-Things (IoT) project. They will shape economics and geopolitics for decades to come with wide-ranging implications for international security.
The BRI was created in response to China’s industrial overcapacity, low domestic demand, stagnating exports abroad and the need to increase connectivity with developing economies for expanding to new foreign markets. By 2027, total global BRI spending could reach $1.3 trillion. Other economic forecasts predict more than 2,600 projects worldwide valued at $3.7 trillion.
In recent years, China’s BRI has increasingly invested in the Middle East, the Persian Gulf and Africa. By 2016, China was the largest exporter to Africa, accounting for 17.5 percent of Africa’s imports. By mid-2017, more than 10,000 Chinese-owned companies already operated in Africa. Loans from China to African countries ($126 billion) surpassed its foreign direct investments ($41 billion) between 2001 and 2018. It resulted in a closer political alignment between China and African countries. China’s two main overseas development banks invested $23 billion in infrastructure projects in Africa between 2007 and 2020 – $8 billion more than the other top eight lenders combined (including the World Bank, African Development Bank and the United States International Development Finance Corporation as well as European development banks).
China has long considered overland access and land routes to resources to be more secure than seaborne imports. The China Pakistan Economic Corridor, for instance, reduces the distance between China and the Middle East from 12,900 kilometers by insecure sea lanes to a shorter and more secure distance of 3,000 kilometers by land. Between 2008 and 2035, China says it will invest $36 billion in energy connectivity projects and about $41 billion in mineral and petroleum projects to be realized in Central Asia.
Facts & figures
China’s high-risk loans
Sectoral expansion and civil-military synergy
The development of transport, energy and telecommunication infrastructures as well as the establishment of a network of ports, controlled by Chinese state-owned companies, have been at the heart of the BRI during the last decade. In addition, other sectors have also been increasingly integrated, such as information and communication technologies (like 5G), e-commerce, finance, space, tourism, legal, customs, police, education, culture and others. Chinese authorities have identified five constituent pillars: coordination in policymaking, interconnecting infrastructure, trade facilitation, financial integration and human connections.
The Belt and Road Initiative is Beijing’s most important political and economic instrument.
These initiatives allow the internationalization of Chinese priorities and an alignment with its long-term strategic interests. As such, the BRI is Beijing’s most important political and economic instrument. Beijing is also using the BRI as a new multilateral cooperation platform alongside the G20, the Shanghai Cooperation Organisation, Asian Infrastructure Investment Bank and others. It uses those platforms to define new international standards in United Nations organizations (such as in the digital and telecommunication sectors), and to redefine existing rules of international economics and politics for global governance. By 2035, China hopes to become the world’s most important standard-setting power with its strategy, called China Standards 2035. It has proactively been engaged in the UN’s International Organization for Standardization, the International Telecommunication Union (ITU) and other international forums. It is represented in those UN and other fora with leading positions used to build consensus for China’s interests.
Enhancing transparency is crucial for improving governance and for benefiting entire populations rather than small, corrupt elites in partner countries.
China’s Digital Silk Road might be the most challenging and consequential one for the West. Connecting the world’s internet through fiber-optic cables has become ever more important to global communications. It is also one of the most important elements of the Pakistan and East Africa Connecting Europe project, using undersea fiber-optic cables. The China-Pakistan Economic Corridor is the BRI’s largest component. Similar to 5G and the Huawei technologies in Western critical infrastructures, fiber-optic cables raise the question of the responsibility of public and private actors to protect privacy since they require network software management to monitor all information. Many security concerns have been raised by the technological vulnerabilities, as well as the construction and maintenance of these fiber-optic cables. In Beijing’s Made in China 2025 initiative, China’s plan is to acquire a 60 percent share in the global market for fiber-optic cables.
China’s BRI strategy is based on a highly coordinated blueprint with economic, financial, technological, maritime, and military dimensions. The 13th Five-Year Plan (2016-2020) called for integrated civilian-military development projects in overseas maritime regions. The 2015 defense white paper required infrastructure development to serve both civilian and military use that is “compatible, complementary, and mutually accessible.”
However, the more that the scope and geographical scale are widened, the more difficult it will become to coordinate worldwide BRI projects effectively.
Facts & figures
China’s Iron Silk Road grows
One clear scenario ahead is that the BRI will keep expanding but will need to adapt in response to international criticism.
China’s BRI strategy has created a new Sino-centric network of economic, financial, political and security relations worldwide. The idea is to promote China’s vision of future global governance based on Chinese values. Beijing’s strategic interests are to enhance its national prestige, buttressed by soft and hard power. Despite its preference for land routes, China has also expanded its maritime routes following its “String of Pearls” strategy by owning and controlling ports alongside the sea lanes in the Indian Ocean and Southeast Asia (the Strait of Malacca and the South China Sea).
In Africa, China has become the largest source of development finance, making up roughly 20 percent of all lending to the continent. Some countries are borrowing too much, raising the risk of default. The International Monetary Fund has said that more than 20 African countries are overly indebted.
In Asia, the example of Sri Lanka’s Hambantota deepwater port, leased by China in 2017 for 99 years in exchange for writing off the island nation’s debts, has highlighted the flawed character of China’s BRI. Such projects have often benefited corrupt elites in Africa and other countries rather than the people. Chinese lenders often include clauses that exclude the debt owed to them from being included in international restructuring arrangements such as the Paris Club of bilateral creditors.
Chinese banks have, in turn, adopted increasingly hardline lending conditions, while shifting priorities to small and medium-sized businesses, green projects, and private investment. Prior to the UN Climate Change Conference in Glasgow last November, Beijing announced that it would no longer finance and build coal power plants abroad. It represented a significant commitment since China is the world’s largest investor and builder of coal power plants.
Another likely scenario is for China to selectively cooperate with the U.S. and the EU.
In June 2021, the G7 governments – pushed by the U.S. and the EU – agreed on a Build Back Better World Partnership (B3W), which envisages a “values-driven, high-standard, and transparent infrastructure partnership to narrow the $40+ trillion infrastructure need in the developing world.” In July 2021, the EU reaffirmed its Global Connectivity Strategy of 2018, bolstering its participation in the G7’s B3W-partnership initiative.
Although corruption, informal policies, cronyism, and the use of personal networks have been important BRI instruments to expand Chinese interests abroad, they have also been costly and ultimately counterproductive. According to the World Bank, bribery in transport projects may account for 5-20 percent of the overall transportation costs. Enhancing transparency will be crucial to improving governance and benefiting entire populations rather than small, corrupt elites in partner countries.
Another likely scenario will see decreases in investment. In 2021, China’s global BRI investment fell to $56.5 billion from $60.5 billion in 2020. This may lead China and the West to enhance cooperation based on mutual interests. One clear area of cooperation could be the acceleration of green energy projects. Since 2015, around 44 percent of all BRI investments went into the energy sectors of its partner countries. In 2018, 40 percent of that global investment still went into new coal power plants abroad, although China is also the world’s largest investor in renewable energy. According to the World Bank, China’s worldwide BRI projects are a significant contributor to global carbon emissions. A 2020 report of the United Nations Environment Programme warned that only $368 billion of the $14.6 trillion in announced global recovery spending from the Covid-19 pandemic met “green standards” – and most of it is in the EU and the U.S.
In 2019, Beijing promised that BRI investments would be “open, green and clean.” Despite its pledge, its energy investments remained dominated by fossil fuels. But in mid-2021, Beijing published the “Green Development Guidelines for Overseas Investment and Cooperation” and “Guidelines for Ecological and Environmental Protection of Foreign Investment Cooperation and Construction Projects.” They have paid much more attention to environmental risk management for all BRI projects and their supply chains when engaging overseas. Both private and state-owned Chinese companies need to promote green and high-quality development overseas projects in four major areas: energy, petrochemicals, mining, and transportation. These four sectors of the BRI account for about 70 percent of the overall BRI overseas value of investments and construction. They will accelerate green projects worldwide, which offer cooperation opportunities with the West.
Of course, even with China-Western cooperation on specific projects, continued competition remains highly probable. China has adopted an increasingly coercive and belligerent style of diplomacy. Consequently, China’s public image has suffered, not just in the U.S. and the EU, but also in developed Asian democracies such as Japan and South Korea. The EU looks at China more as a rival than a partner. Even given China’s interest in expanding green projects, Beijing views the sector primarily as a technology competition it needs to win for global supremacy.
Another scenario is that the war in Ukraine, in which Beijing has adopted a pro-Russian “neutrality” based on its alliance with Moscow, will harden the conflict between Western democracies and the authoritarian regimes of Russia and China. Russia’s invasion of Ukraine has already harmed the BRI and China’s Eurasian rail dreams. Container transport by rail from Duisdorf in Germany to China via Poland, Russia, Kazakhstan and Mongolia is suspended after Maersk stopped new rail bookings between Asia and Europe. The disruption has already hurt supply and logistical chains. Almost half of the Iron Silk Road train routes – as part of the New Eurasian Land Bridge – pass mainly through Russia. The number of freight routes increased from 40 in 2017 to 78 lines today. Last year, along the Iron Silk Road of the train system, Chinese products worth $75 billion (compared with just $8 billion in 2016), involving 336,000 standard containers, served 183 cities in 23 European countries. The number of trains jumped to 15,000 in 2021 from only 17 a decade earlier. Another part of the railway service crosses Ukraine but has been suspended and diverted.
The future will likely mean increasing competition between China’s BRI and the Western connective strategies – though it might not exclude cooperation for specific projects and in some sectors, such as green energy projects. But for Beijing, the ultimate strategic objective is to promote its interests and constrain or undermine those of the U.S. and the EU.
The BRI is Beijing’s most important instrument for changing the rules of the world order and future global governance. Meanwhile, the West has a critical interest in defining new technology standards in the digital and telecommunication sector, such as 5G for mobile networks. Related is future governance of the cyber field, in which the West seeks to secure the digital rights of individuals in democracies.
Ultimately, President Xi Jinping is likely to find that BRI gains still far outweigh the financial costs incurred by loan write-offs that recipient nations or companies cannot repay.