Tuesday, February 06, 2018

U.S.-China Economic and Security Review Commission Program: "China's Belt and Road Initiative: Five Years Later"

The U.S. China Economic and Security Review Commission  was created on October 30, 2000 by the Floyd D. Spence National Defense Authorization Act for 2001 § 1238, Pub. L. No. 106-398 (Oct. 30, 2000) (codified at 22 U.S.C.§ 7002 (2001)) as later amended by a variety of legislation. Its purpose is to "monitor, investigate, and submit to congress an annual report on the national security implications of the bilateral trade and economic relationship between the United States and the People’s Republic of China, and to provide recommendations, where appropriate, to Congress for legislative and administrative action." (Fact Sheet).  It last annual report was produced in 2017: 2017 Annual Report, 2017 Executive Summary and Recommendations.pdf, Comprehensive List of the Commission's Recommendations.pdf.  Annual Reports may be accessed via links HERE

On January 25, 2018, the Commission hosted a program, "China's Belt and Road Initiative: Five Years Later."  The Program provided an opportunity top hear elaborated the official position of senior government officials and policy drivers.  It also provided an opportunity to understand the way that these important people tend to understand the China's OBOR from an American perspective.   The Program was recorded and may be accessed HERE. The Program (with links to written participant statements follows below). These are worth a careful read whatever one thinks of the perspectives  for which they are used and the soundness of the conclusions derived or the advice given.

China's Belt and Road Initiative: Five Years Later (Video)

LINK TO HEARING LIVESTREAM: https://www.senate.gov/isvp/?type=live&comm=uscc&filename=uscc012518 (link is external)

Thursday, January 25, 2018
Location: Dirksen 419

Hearing Co-Chairs: Commissioner Dennis Shea and Commissioner Katherine Tobin, PhD

9:45 AM – 9:50 AM:           Opening Remarks: Commissioner Dennis Shea and Commissioner Katherine Tobin, PhD

9:50 AM – 11:20 PM:          Panel I: Mercantilism with Chinese Characteristics: Creating Markets and Cultivating Influence

·         Nadége Rolland, Senior Fellow for Political and Security Affairs, National Bureau of Asian Research (Testimony)
·         Jonathan Hillman, Fellow and Director, Reconnecting Asia Project, Center for Strategic and International Studies (Testimony)
·         Randal Phillips, Managing Partner, Mintz Group (Testimony)

11:20 AM – 11:30 AM:       Break

11:30 AM – 1:00 PM:          Panel II: The Geostrategic and Military Drivers and Implications of the Belt and Road Initiative

·         Ely Ratner, Maurice R. Greenberg Senior Fellow for China Studies, Council on Foreign Relations (Testimony)
·         Joel Wuthnow, Research Fellow, Center for the Study of Chinese Military Affairs, National Defense University (Testimony)
·         Daniel Kliman, Senior Fellow, Asia-Pacific Security Program, Center for a New American Security (Testimony)

1:00 PM – 2:00 PM:            Lunch Break

2:00 PM – 3:30 PM:            Panel III: Regional Reactions and Competing Visions

·         Andrew Small, Senior Transatlantic Fellow, German Marshall Fund of the United States (Testimony)
·         Joshua Eisenman, Assistant Professor of Public Affairs, University of Texas at Austin (Testimony)
·         Tobias Harris, Economy, Trade, and Business Fellow, Sasakawa Peace Foundation USA (Testimony)

3:30 PM:                              Adjourn


Testimony before the U.S.-China Economic and Security Review Commission Hearing on: “China’s Belt and Road Initiative: Five Years Later”

January 25, 2018

Nadège Rolland
Senior Fellow, The National Bureau of Asian Research
The Belt and Road Initiative (BRI) is generally understood as China’s plan to finance and build infrastructure projects across Eurasia. Infrastructure development is in fact only one of BRI’s five components which include strengthened regional political cooperation, unimpeded trade, financial integration and people-to-people exchanges. Taken together, BRI’s different components serve Beijing’s vision for regional integration under its helm. It is a top-level design for which the central government has mobilized the country’s political, diplomatic, intellectual, economic and financial resources. It is mainly conceived as a response to the most pressing internal and external economic and strategic challenges faced by China, and as an instrument at the service of the PRC’s vision for itself as the uncontested leading power in the region in the coming decades. As such, it is a grand strategy1.
1. Belt and Road: What is It?
The Belt and Road Initiative was not announced as such five years ago, but in two separate speeches given by Xi Jinping: the first in Astana in September 2013, announcing China’s willingness to create a Silk Road Economic Belt stretching across land from China to Europe; the second in Jakarta in October 2013, mentioning China’s desire to launch its equivalent at sea, the 21st Century Maritime Silk Road. Both proposals rapidly got combined under the abbreviation “One Belt, One Road,” an English translation officially replaced in 2015 by “Belt and Road Initiative” (BRI), supposedly to counter the impression that China owned the concept and to reflect its willingness to welcome others’ participation. The basic idea is that infrastructure building (roads, railways, port facilities, pipelines, fiber optic and IT networks) across Eurasia will bring economic development to a large region spanning East to West from China’s eastern shores to Europe via Russia, Central Asia, South Asia and the Middle-East, and from China’s southern shores to Southeast Asia, the Indian ocean rim, the Persian Gulf and the Mediterranean. This is a vast region mainly composed of emerging markets and rising middle classes and which, taken together, accounts for two thirds of the world population and over half of the global GDP.
Since 2014, BRI has rapidly materialized through:
  • promises of Chinese investments with amounts oscillating between $1 and 1.3 trillion dollars, backed, among others, by the creation of new financial mechanisms such as the Asian Infrastructure Investment Bank (proposed in October 2013, officially opened in January 2016) and the Silk Road Fund (created in 2014);
  • an intense high-level round of Chinese diplomatic engagement, supported by a forceful propaganda campaign relayed by Chinese scholars and media around the globe, and crowned by the Belt and Road International Forum held in Beijing in May 2017;
    1 This testimony draws on the conclusions and research findings of my book, China’s Eurasian Century? Political and Strategic Implications of the Belt and Road Initiative, NBR, 2017.
the successful initiation of an impressive array of projects extending across the continental and maritime domain.
Sparing no modesty for a plan he personally designed with a handful of close advisors, Xi Jinping hailed BRI as the “project of the Century.” If successful, BRI certainly has the potential to fundamentally change the economic and strategic geography of the region.
2. What Purpose Does It Serve?
Even though BRI is officially portrayed and projected outside China as an economic endeavor that is meant for the benefit of the entire region, the internal discussions related to the project reveal it is mostly intended to serve China’s interests and objectives, both in the economic and strategic domains.
On the economic side,
BRI should be understood, at least partly, as a new stimulus package for the Chinese economy whose last double-digit growth was recorded in 2010. Right after the 2008 global financial crisis, the Chinese government quickly launched a $586 billion stimulus package, heavily investing in domestic infrastructure projects in order to help sustain growth. This measure only had a short-lived positive effect. The government needed to find another solution to be able to hit its self-imposed target of doubling GDP and per capita income between 2010 and 2020. From the regime perspective though, a thorough transformation of the country’s economic development model towards domestic consumption and private initiative would have come at unacceptable political cost. Instead of veering towards such a transformation, the government decided to rely once again on its preferred model, stimulating growth through investment, exports and subsidies to state-owned enterprises (SOEs), operating outside of China on a regional scale, via BRI.
Building infrastructure across Eurasia would also have the double advantage of helping to get rid of some of China’s excess industrial capacity that had been created by the 2008 stimulus package, while further supporting the state conglomerates’ “going global” strategy. Funded by Chinese policy banks (Eximbank, China Development Bank) and staffed by Chinese workers, regional infrastructure projects would predominantly become the preserve of China’s SOEs (China State Construction Engineering, China Railway Construction, State Grid, China Merchants, etc.), opening new markets for them and helping them build and scale a truly global footprint. Finally, it was hoped that BRI would help increase regional e-commerce and cross- border transactions conducted in renminbi, thus accelerating the Chinese currency’s internationalization.
Beyond the supposed multiple economic gains BRI would bring to China, its architects also believe it will help reap substantial political and geostrategic benefits for their country.
First among these, and consistent with what the Chinese Communist Party (CCP) has tried to do for almost two decades albeit with uneven results, the hope is that more investment in regional infrastructure will help reduce the development gap between China’s coastal and inner provinces. Sandwiched between its own eastern urbanized dynamic coastal poles, and emerging economies with increasing potential outside of its western and southern borders, China’s landlocked provinces lag behind in term of economic development. Development and enhanced
living standards are seen by Beijing as key factors to reduce the risk of social unrest and political instability. They are also seen as the best ways to discourage religious radicalization, fundamentalism, and terrorist recruitment - both within China’s borders and beyond.
Second, the acceleration of investments in infrastructure induced by BRI would enable Beijing to tackle another of its recurrent anxieties, this time related to its energy security. For years, Beijing has been uneasy at the thought that its energy imports transit through sea lanes of communication that are under the protection and surveillance of the U.S. Navy including in the South China Sea. Beijing has been looking for alternative routes to circumvent the so-called “Malacca Strait dilemma” and diversify its supplies through land routes. The projected and current BRI projects illustrate an attempt to redraw the map of China’s energy supply routes from Iran, the Gulf countries and eastern Africa, while increasing its imports from Russia and Central Asia. Traveling by sea/land pipelines through Pakistan and Myanmar, or directly by land across Eurasia, some of China’s energy imports would thus bypass the South China Sea, reducing the risk of being cut by a potential American naval blockade in case of a military conflict.
Lastly, China’s financial, political and diplomatic investment in BRI does not come out of a heartfelt Chinese commitment to serve the common good. In return for its largess, China expects to get some concrete geopolitical benefits for itself. BRI’s architects are blurring the lines between economy and strategy, and intend to use economic power as an instrument for strategic purposes.2 Instead of gunboat diplomacy and coercive military power, the PRC intends to use BRI to access new markets, get a hold on to critical infrastructure assets, and influence regional countries’ strategic decisions. Economic leverage will be used both as an incentive to garner support for its interests and reduce potential resistance, and as a means to punish recalcitrant countries.
Beijing expects that its plan will help “expand its circle of friends” - in other words, strengthen its influence in a vast area where democratic practice is weak, authoritarian regimes mostly prevail, and where the US influence is rather limited. In this region, as in countries facing increasing waves of discontent against globalization, there is a real prospect that following the “China model” could become increasingly appealing. Liberal democratic ideals and standards that the U.S., together with its European and Asian allies, have been trying to promote over the region as part of their shared post-Cold War vision of an “open and free” Eurasian continent,3 will likely come under increasing threat as BRI’s standards (or lack thereof) spread across this vast region.
Under Xi Jinping, China has been increasingly vocal about its dissatisfaction with the current world order. During his 19th Party Congress speech last October, Xi presented China’s path as “a new option for other countries and nations who want to speed up their development while preserving their independence.”4 Starting with the countries included along the Belt and Road that Xi purports to include in a “community of common destiny,” the PRC now offers a recipe
2 Professor Shi Yinhong calls this “strategic economy.” See his paper, “China’s Complicated Foreign Policy,” ECFR Commentary, March 31, 2015, http://www.ecfr.eu/article/commentary_chinas_complicated_foreign_policy311562.
3 After the end of the Cold War, several Western countries tried to promote infrastructure interconnectivity and economic development in the hope that prosperity would transform post-Communist Eurasia into a democratized and peaceful region.
4 “Full Text of Xi Jinping’s Report at the 19th CPC National Congress,” Xinhua, November 4, 2017, http://www.chinadaily.com.cn/china/19thcpcnationalcongress/2017-11/04/content_34115212.htm
for stability and prosperity, just like the one it has used for itself, and it is trying to convince the rest of the world that the Chinese way is the way of the future.
3. Internal Mobilization
BRI is meant to improve both China’s economic situation and its security environment in order to realize Xi Jinping’s “China dream of the great rejuvenation of the nation.” It is the organizing concept of Xi’s vision for China as a rising global power with unique national characteristics. It sets the general long-term direction for China and seeks to mobilize and coordinate the use of all available national resources (political, economic, diplomatic, military and ideological) to pursue internal (economic development, social stability) and external (foreign policy, national security) objectives in an integrated way. As such, it is a grand strategy that is meant to serve China’s unimpeded rise to great power status.
Because there exists no official map, no detailed publicly available list of projects, priorities, plans or even targeted countries, no Belt and Road “national task force,” no Belt and Road “special representative” or general secretary, some observers have dismissed BRI as empty talk. But a closer look at the inner workings of the Chinese system reveals a high degree of vertical coordination for the initiative domestically. Such a mobilization effort reflects the priority attached to it by the central government. The top-level plan trickles down to all bureaucratic levels:
  • The idea was conceived by Xi Jinping and his closest advisors, including Wang Huning, before he came to power in November 2012.
  • On March 28, 2015, the National Development and Reform Commission (NDRC), jointly with the Ministry of Foreign Affairs and the Ministry of Commerce issued a document entitled “Vision and Actions on Jointly Building Silk Road Economic Belt and 21st-Century Maritime Silk Road.” The document reads more like a general roadmap than a concrete and detailed proposal, but is the first attempt to give the outside world some sense about the government’s vision.
  • Also in March 2015, a central leading small group on “advancing the development of the belt and road” was set up, staffed by five Politburo members, indicating the central leadership’s determination to coordinate all aspects of the initiative and oversee its implementation at the highest level. The day-to-day management and coordination work with relevant ministries and entities has been assigned to the NDRC, which is hosting an “Office of the leading group” for BRI.
  • BRI seminars, workshops and study sessions are regularly being held at intermediary levels of the bureaucracy so that the information gets circulated to all relevant entities.5 Through its in-house think-tank (the China Center for Contemporary World Studies, CCCWS), the CCP’s International Liaison Department acts as the national secretariat for research activities related to BRI, both inside China and with foreign think-tanks along the Belt and Road. Scholarly exchanges, seminars and conferences organized
    5 See for example, “Maritime Silk Road "Belt and Road" Seminar Held in Hainan Marine Police Training Base, WeChat, January 8, 2018, accessed at
    https://mp.weixin.qq.com/s/-QnrH9P5bFAf_Zl1EnY6lQ, “Ou Xiaoli: China Does Not Impose any Political Standard on ‘Belt and Road’ Cooperation,” Caijing, November 30, 2017, accessed at http://finance.sina.com.cn/meeting/2017-11-30/doc-ifypceiq8353251.shtml, and “Zhang Gaoli: Advancing the Construction of Belt and Road by Persevering in Joint Discussions, Joint Building and Joint Development ; Creating a New Pattern of Linkages between Land-Sea and East-West,” Xinhua, January 15, 2016, accessed at http://www.chinatax.gov.cn/n810219/n810744/n1671176/n1671181/c2003599/content.html
domestically and around the world, are supposed to “provide sustained intellectual
support” and “promote better understanding” of BRI in wider audiences.6
  • Five additional documents, including some specifically dedicated to the maritime, energy, agriculture, and green cooperation along Belt and Road countries, have been
    published in 2017.7
  • During the October 2017 19th CCP Congress, BRI was incorporated into the Party
    charter. This latest addition shows the overall direction given to the Party in its efforts to make progress on the BRI front for the upcoming five years.
    In addition, BRI has been integrated into the 13th Five-Year plan (2016-2020) and dovetails the “Made in China 2025” plan and China’s “Internet Plus” strategy:
  • The 13th Five Year plan devotes a chapter to BRI and gives “high priority to implementing the strategy for the large-scale development” of China’s inland provinces.8 Xinjiang is named in the document as the core area of the Silk Road Economic Belt, and Fujian as the core of the 21st-Century Maritime Silk Road, but the overall objective is to make sure all of China’s most backward provinces benefit from greater economic opportunities offered by enhanced cross-border trade.
  • Meanwhile, the “Made in China 2025” plan released in May 2015 aims, among other objectives, at upgrading the PRC’s 10 key high-tech industries, five of which are directly related to BRI’s development: aviation and aerospace, electrical power, next generation information technologies, rail transportation and marine technologies.
  • Finally, China’s “Internet Plus” strategy, announced in March 2015 with the intent of fostering a strong domestic high-tech digital sector (mobile Internet, cloud computing, big data and Internet of Things) also overlaps with BRI’s pledge to support “e- commerce, digital economy, smart cities and science and technology parks” in Belt and Road countries9 as part of the Chinese government’s vision of a “Silk Road in cyberspace” that will materialize through the building of IT networks (subterranean and subsea fiber-optic cables, Beidou satellite coverage), increased regional e-commerce and even “exchanges in cyber culture.” A document issued in March 2017 on China’s “International Strategy of Cooperation in Cyberspace” officially calls domestic Internet companies to “take the lead in going global,” and specifically mentions BRI when it encourages them to “explore international market and build cross-border industrial
    6 He Na, “Think Tank to Support Belt and Road Initiative,” China Daily, February 24, 2016, accessed at http://usa.chinadaily.com.cn/china/2016-02/24/content_23617083.htm
    7 “Building the Belt and Road: Concept, Practice and China’s Contribution,” Office of the Leading Group for the Belt and Road Initiative, May 2017, accessed at https://eng.yidaiyilu.gov.cn/wcm.files/upload/CMSydylyw/201705/201705110537027.pdf ; “Vision for Maritime Cooperation under the Belt and Road Initiative,” June 20, 2017, accessed at http://english.gov.cn/archive/publications/2017/06/20/content_281475691873460.htm ; “Vision and Action on Jointly Promoting Agricultural Cooperation on the Belt and Road,” May 2017, accessed at http://english.agri.gov.cn/news/dqnf/201705/t20170512_247847.htm; “Vision and Actions on Energy Cooperation in Jointly Building Silk Road Economic Belt and 21st-Century Maritime Silk Road,” accessed at https://www.yidaiyilu.gov.cn/wcm.files/upload/CMSydylgw/201705/201705161049036.pdf ; “Guidance on Promoting Green Belt and Road,” May 2017, accessed at https://eng.yidaiyilu.gov.cn/zchj/qwfb/12479.htm.
    8 “The 13th Five Year Plan for Economic and Social Development of the People’s Republic of China (2016- 2020),” accessed at http://en.ndrc.gov.cn/newsrelease/201612/P020161207645765233498.pdf
    9 “Joint Communiqué of Leaders Roundtable of Belt and Road Forum,” Xinhua, May 15, 2017, accessed at http://news.xinhuanet.com/english/2017-05/15/c_136286378.htm
chain, (...) actively engage in capacity building of other countries and help developing countries” with several e-sectors in order “to contribute to their social development.”10
4. Five Years Later: Is It Real?
Even more difficult to find than a detailed BRI plan laid out by Beijing, is a list of projects that have actually come to life since 2013. During the May 2017 Belt and Road Forum, the Chinese government published a “list of deliverables” purporting to show that over 270 “concrete results” had been achieved in each of the five BRI areas, but mostly listing MoUs and cooperation documents signed with the UN, national governments, and relevant agencies within Belt and Road countries.11 Some Chinese governmental sources have pointed out that about 50 SOEs “have invested or participated in nearly 1,700 projects in countries along the new Silk Road routes over the past three years.”12 It is nevertheless a challenge to pin them down, partly because some of these projects were discussed, decided upon and/or were underway before 2013 (for example, Gwadar started in 2002, Hambantota in 2008), others have been announced with MoUs signed and promises of investment made, but have not yet sprung from the ground. Sometimes, the amounts of investment promised do not add up or China seems to have been promising the same amount several times over the years. Some projects have been started by other countries but funded either partially or totally by China, or have been announced by China but funded partially by non-Chinese financial institutions (such as ERDB, ADB and the World Bank). Should these also be counted as Belt and Road projects?
BRI is a work in progress, still in its early phase, with a completion date set by Beijing for the mid-21st Century. Cross-border infrastructure projects are some of the most difficult to implement as they require complex and often protracted negotiations over proposed routes, development rights, financing and investment returns. After all, it took the UN Economic and Social Commission for Asia and the Pacific (UNESCAP) almost 15 years between the launching of its Asian Land Transportation Infrastructure Program in 1992 and the signing of intergovernmental agreements on the Asian Highway Network (2003) and Trans-Asian Railway Network (2006). In contrast, it took China less than five years to launch and operate a multilateral financial institution (AIIB), and to create global momentum around Eurasian infrastructure building. No head of State or government across the large geographic area included in BRI has not heard about the Chinese initiative, included BRI in their diplomatic agendas for dialogues with Chinese counterparts, paid careful attention Beijing’s promises of capital and of a new type of “mutually beneficial cooperation,” and started to think about how their country could benefit from it, one way or another. What country, other than China, shows as much consistency and apparent dedication in its political, diplomatic and financial commitment to such a complex, diverse, unstable, and conflicted region, one that has been struggling for years to achieve economic development?
Yes, difficulties have emerged. Pakistan and Nepal, for example, have recently announced that they are reconsidering some BRI projects, because of unacceptable financing conditions in the
10 “International Strategy of Cooperation on Cyberspace,” Ministry of Foreign Affairs and Cyberspace Administration of China, March 02, 2017, accessed at http://usa.chinadaily.com.cn/epaper/2017- 03/02/content_28410278.htm
11 “List of Deliverables of Belt and Road Forum,” Xinhua, May 15, 2017, accessed at http://news.xinhuanet.com/english/2017-05/15/c_136286376.htm
12 Wu Gang, “SOEs Lead Infrastructure Push in 1,700 ‘Belt and Road’ Projects,” Caixin, May 9, 2017, accessed at https://www.caixinglobal.com/2017-05-10/101088332.html
first instance and irregularities in the bidding process in the second.13 BRI will probably encounter more setbacks in the future, including local resistance to Beijing’s financial conditions, an influx of Chinese manpower, or potentially harmful environmental impacts. But the Chinese government is well aware of the potential obstacles that lie ahead, and is working hard to anticipate and overcome them.
And yes, there’s a certain degree of improvisation and flexibility in the way BRI is unfolding; but that doesn’t mean it is not real. These characteristics are just a reflection of a system that works differently than ours. Assessments of success based on calculations of economic returns, quantifiable results and objective performance criteria, are not the most important and may not even be relevant in cases where projects have clearly been chosen, not for their economic profitability, but rather out of geopolitical motives.
The intangible manifestations of BRI are as important, if not more, than its actual concrete physical progress. With BRI, Beijing is not only strengthening its image as a truly global power, it is also developing a multi-layered web of political, economic, educational, industrial, and security ties with two-thirds of the world’s population, sowing seeds that will shape tomorrow’s Eurasian economic and geopolitical landscape. After all, BRI’s success is not going to be counted in miles of railways laid on the ground, nor in pounds of steel exported to emerging markets, but in increased Chinese influence and possible domination over a key region of the world. This is what is at stake. This is what the Chinese regime is so determined to achieve. This is why we need to take BRI seriously.
5. Recommendations
  • Recognize that BRI is about more than just infrastructure building, and that even its infrastructure component is problematic in terms of good governance standards.
  • Be realistic about how engaging or cooperating with China on BRI will be able to “shape” and persuade the Chinese elites to change the course they have set for their country.
  • Call out more systematically what is wrong with BRI and be more vocal about China’s attempts to deprive concepts such as openness and globalization of their original substance and meaning.
  • Formulate alternatives, and coordinate with other liberal democracies to achieve them.
13 The first project is Pakistan’s $14 bn Diamer-Basha dam on the Indus River, and the second, Nepal’s $2.5 bn Gandaki hydropower plant. See Ilaria Maria Sala, “More Neighbors Are Saying ‘No Thanks’ To Chinese Money – For Now,” Quartz, December 4, 2017, accessed at https://qz.com/1136000/more-neighbors-are-saying-no- thanks-to-chinese-money/


China’s Belt and Road Initiative
Panel I: Mercantilism with Chinese Characteristics: Creating Markets and Cultivating Influence

Testimony before the U.S. – China Economic and Security Review Commission
Randal Phillips, Managing Partner for Asia, Mintz Group January 25, 2018
In the fall of 2013, Chinese President Xi Jinping put forward the strategic conception of building the “Silk Road Economic Belt” and the “21st Century Maritime Silk Road,” known shortly as the “One Belt and One Road” (OBOR) initiatives. Interestingly, this initiative when announced was very much a top down exercise, an idea that caught Xi’s eye from within policy research elements of the Chinese Communist Party (CCP) and put forth with relatively little input from below. Much of the Chinese government bureaucracy that would have to support it found themselves having to scramble to figure out exactly what Xi meant by this, and what the scale and scope of effort needed would be to support it. Given the direct linkage to Xi as a signature policy, the Chinese bureaucracy proceeded to rally quickly to flesh this out and it has subsequently become a cause too big to fail in the Chinese system.
China’s official mission statement for OBOR is: “The idea carries forward the spirit of the ancient Silk Road that was based on mutual trust, equality and mutual benefits, inclusiveness and mutual learning, and win-win cooperation. It also conforms to the 21st century norms of promoting peace, development, cooperation and adopting a win-win strategy for all. The conception organically links the “Chinese dream” to the “Global dream” and has far-reaching strategic significance with a global impact.”
As mission statements go, that does a great job of capturing all the catch phrases of recent propaganda efforts by the CCP under Xi’s leadership, but doesn’t capture fully the motivations behind this effort. There are several drivers of this policy that must be fully appreciated to understand why this is of such import to the Chinese leadership. These include:
1. At the time of the announcement of the OBOR policy, China was wrestling with its desired response to the U.S. “rebalance to Asia,” and in particular its economic component the Trans Pacific Partnership (TPP). Taken together with the effort by the Obama administration to pursue a similar free trade initiative with Europe (TTIP), China saw the need to present alternative rules and regimes for the future. The relatively vacant space of infrastructure spending provided a ready-made and relatively benign path to do so.
2. The Chinese leadership under Xi Jinping has recognized the need to deal with “supply side” issues of overcapacity, as well as excess foreign
exchange reserves, and an initiative such as this provides a channel to
address these issues to China’s benefit.
3. A central issue to Xi Jinping is the “rejuvenation of the Chinese nation,”
which essentially means having China play a much more active and central role in world affairs than that which had been pursued previously under Deng Xiaoping’s dictum to hide capabilities and bide time. Xi sees OBOR as an ideal political and economic platform on which to boost China’s international position and image, something greater in scope and ambition to the U.S. Marshall Plan after World War II and hard to oppose on the face of the policy given the infrastructure demand in the regions involved. The lack of specific target dates for completion of any initiatives also allows the Chinese leadership to declare success as it sees fit and not be bound to any hard deadlines.
4. The maritime “road” portion of the plan firmly plays to China’s desire to build the infrastructure and capacity to diversify its energy supplies and reduce the risk of being “strangled” in the Straits of Malacca in a conflict situation. This matches concerns reflected in internal People’s Liberation Army (PLA) planning documents dating back over a decade looking to promote energy transmission routes through Burma, potentially building a canal through the Carat Isthmus in Thailand, and ports in Pakistan, Sri Lanka and beyond.
5. It remains a high priority of the Chinese leadership to more fully develop the western regions of China, for economic as well as domestic stability reasons. This means that Xinjiang, Qinghai, Ningxia and Yunnan are likely to receive a disproportionate amount of funding and attention in the lifespan of this initiative, something certainly welcome to those regions but also a driver for major foreign and domestic investment decisions.
6. Finally, and perhaps most importantly, the ramifications of OBOR must be assessed together with China’s massive industrial policy initiative “Made in China 2025.” Launched in 2015, this policy seeks to make China the world leader in 10 critical categories of the economy that are on the cutting edge of 21st century industries. In that regard, China has launched the equivalent of 10 Manhattan Project-style initiatives to “gain the commanding heights” in these sectors, driving large scale investment decisions and setting clear market access restrictions. Just the scale of the effort, let alone the degree to which China is successful, will heavily influence world markets in key sectors and be a major player in China’s economic relations worldwide.
As has been seen in increasingly glowing government and CCP pronouncements since November 2013, capped off by OBOR’s enshrinement in the CCP Constitution at the 19th Party Congress in October 2017, this initiative is a centerpiece for Xi’s economic and foreign policies and thus will receive the benefit of the entirety of the PRC’s bureaucratic and corporate backing. It is too big to fail, and at least as long as Xi is around, it won’t be allowed to fail. The front lines of support are provided by China’s recently established Asian Infrastructure Investment Bank (AIIB), a thus far
seemingly well functioning new multilateral institution that serves as a showpiece for China’s evolving pursuit of an alternative global construct. While up and running in relatively short order, however, the AIIB’s importance in financing OBOR, at least thus far, is far outshone in terms of scope by China Development Bank (CDB) and China Export-Import Bank (China Ex-Im). It’s precisely the central role of these institutions that is troubling to U.S. and other foreign officials – and companies seeking to get involved - given the very limited transparency in operations they provide, and the clear role they play in advancing China’s economic interests. CDB and China Ex-Im are able to act above the fray in China’s bureaucracy, and continue to effectively rebuff efforts by foreign governments and entities alike to gain insight into their compliance and decision-making processes.
One must tip their hat to the country that invented bureaucracy, as China has fully harnessed its government departments, domestic state-owned enterprises, and major “private” multinationals to all recognize the benefit (and essentially the necessity) to create their own OBOR policies as a priority and pursue it accordingly. Entities are falling all over themselves to declare their support for OBOR and create units within their respective organizations to drive projects labeled as dedicated to OBOR’s success and show their fealty to this policy. It’s not only politically correct, but good business. That mindset has transcended to most multinational corporations, including many U.S. firms, who also go out of their way to inform their PRC interlocutors – especially SOE’s - that they, too, have created OBOR teams in their entities to help guide their approach to the PRC market and beyond.
As a recent analytical assessment produced by the Conference Board stated, OBOR is clearly an ambitious platform for China to try to soak up at least a good portion of its acute industrial overcapacity and support growth for distressed state industry. It is arguably China’s most audacious effort yet to try to engineer growth, and reaffirms the grip and control China’s government has over major assets in the economy, as well as the socioeconomic imperative to keep them producing. It also illustrates the leadership’s lack of progress, at least thus far, in migrating growth drivers away from state-financed investment toward household consumption. Finally, OBOR represents an intervention and deployment of central government funds that flies in the face of the celebrated November 2013 CCP Third Plenum promise to let markets play a decisive role in China’s economy going forward.
This past year has been pivotal in trying to assess what’s real and what’s hype with OBOR. Many corporate executives, trade diplomats and China watchers worldwide watched in awe – well-founded skepticism but yet awestruck – as Xi Jinping addressed the World Economic Forum in January 2017 extolling the virtues of globalization, openness, connectivity and a free and fair trading order. These were people well steeped in the effects of China’s highly protectionist policies at home, thus finding it amazing that they were listening to Xi’s anti-protectionist rhetoric abroad and wondering if the world had been turned on its head given the positive reception he received. This is magnified by the fact that the vast majority of US and European observers involved in the region believe that China under Xi has been closing, rather
than opening, doors to trade and investment, and accelerating on a path towards isolation, insulation, illiberalism and more government controls.
On the other hand, one must also look at the success China achieved with the May 2017 Belt and Road Forum on International Cooperation in Beijing, seeming to indicate that much of the global community may have a different, and more welcoming, perspective on China’s vision and role in the world. The turnout speaks for itself – twenty-nine heads of state and several dozen other ministerial-level national delegations – all coming to Beijing on relatively short notice compared to the norms of international conference planning. Though the officially stated results and joint communiqué issued from the conference was not earth-shattering in significance, it would be hard to point to another gathering drawing such firepower in comparison to what Xi Jinping was able to draw to Beijing.
Somewhat akin to what U.S. presidential candidate Ross Perot famously stated in 1992 about the “giant sucking sound” of investment flows to Mexico should NAFTA pass, the enticement of RMB flows to recipient countries in the OBOR path is at least as real. While advanced economies have tended to focus on China’s perceived desire to alter global norms, its paranoia about information and data flows, its lack of reciprocity in trade and investment policies, its internet firewall and increased obsession with national security – all understandable and legitimate concerns – the Belt and Road Forum attendees mostly from developing countries all demonstrated through their attendance that they are not overly concerned about any of these issues. This is music to the ears of Xi and the Chinese leadership, particularly as codified in the recent CCP 19th Party Congress official documentation that China should seek to be seen as a credible leader for 21st century globalization. In this view China is essentially offering ups its blend of state capitalism, socialist market economy, authoritarian political control, and new multilateral institutions as a new path for countries to consider and the possible backbone of a new international order. Given that most of the OBOR interested nations are highly protectionist with state-led economies in their own right, this is not a hard sell for China.
The net effect of these views is that there is an effective dividing line between developed and developing nations in their outlook on OBOR. Essentially there is a battle between those concerned over changing China’s behavior on an ample number of trade, investment and governance issues, and those relatively unfazed by this and instead focused on scrambling for the cash. China is betting on the latter side winning, and is being quite transparent in its position and confident in its ascendancy. There is every reason to believe based on the record of the past five years of Xi’s leadership, the priorities he ensured were endorsed at the 19th Party Congress, and the very public pronouncements being issued to “grasp the historic opportunity,” that China under Xi will not liberalize in the manner that most Western audiences had hoped or expected. The good news, at least to those who are worrying about China’s perceived ambitions to change the global order, is that China’s actions thus far point to a more regional rather than global scope. This is certainly true in Eurasia and parts of Africa. China has laid down a marker that it is the leading driver of developmental policy in
these regions, and is increasingly expecting other nations and existing multilateral institutions to acknowledge this.
So what should multinational companies expect from China’s OBOR initiative?
The first thing that needs to be recognized is that OBOR does not provide a level playing field for Western MNC’s to compete with Chinese firms. It is plain and simple an instrument of China’s political and economic growth and manifestation of the opportunity Xi Jinping sees for China to take center stage in the world. That said, there are, and will be, quite a number of opportunities for foreign businesses to participate in the “best supporting actor” category. We are seeing this on the ground in Beijing and Shanghai among numerous U.S. multinationals that are eager to carve out opportunities. The net effect thus far, and likely for the foreseeable future, is for companies to play sub-contracting roles to leading Chinese enterprises, particularly in the services sector such as commercial insurance, consulting, logistics, technical services provision, etc. Many Chinese firms are bidding on OBOR-related contracts fully knowledgeable that they do not possess the complete expertise in house to carry out the project, but rather will have to subcontract many aspects to foreign firms, knowing that OBOR is much like an affirmative action policy to benefit Chinese enterprise in the leading roles. While this limited role for foreign enterprises is on its face distorted and a tilted playing field, a number of analysts assess that this may turn out to be a good thing given the high risk, low economic return of the vast majority of OBOR projects to date. As has been seen in so many other areas of Chinese economic policy, the rate of return is much less important that the perceived or real political and diplomatic benefits China is seeking. This is why CDB and China Ex-Im, by far the two leading financers of OBOR, are not particularly concerned in moving forward on their projects while private sector entities are taking a comparatively more cautious approach.
So will it work? Like most things, it depends on how you define success. As a political and soft power initiative, it has already proven quite beneficial to China, and is likely to continue on that path unless China unduly overplays its hand or stumbles into scenarios where host sovereignty sensitivities are tweaked. That’s a very real potential outcome in such a grandiose project, but China at least to date has gone to great lengths to try to ameliorate these risks. The financing and economic return aspects of OBOR are likely to be the most challenging, and even with China’s very large foreign exchange reserves and firm political commitment its hard to see China being able to bear the brunt of this financing any more than a decade out, if even close to that amount of time. The policy is directly tied to Xi Jinping personally, and since he’s now enshrined to be China’s paramount leader barring upheaval until he goes off to meet Marx, there is every reason to believe that the PRC will do everything possible to sustain this policy.


G eo st r at egi c an d M i l i t ar y D r i v er s an d Implicationsof theBelt and Road Initiative
Prepared statement by


MauriceR.GreenbergSenior Fellowfor ChinaStudies Council on Foreign Relations


U.S.-ChinaEconomicandSecurityReviewCommission 2nd Session, 115th Congress

H ear i n g o n C h i n a’ s B el t an d R o ad I n i t i at i v e
Any discussion of Chineseforeign policy and U.S.-Chinarelationsshould begin with abaselinedescription of theoverall context anddominant trends.I wouldoffer four toplineobservations.
First, theUnited Statesand Chinaarenow locked in ageopolitical competition, primarily still in Asia. How thiscompetition evolveswill determinetherules, norms, and institutionsthat govern international relations i n t h e co m i n g d ecad es, as w el l as l ev el s o f p eace an d p r o sp er i t y f o r t h e U n i t ed St at es.
Second, theUnited Statesislosing thiscompetition in waysthat increasethelikelihood not just of the crumblingof theU.S.-ledorder inAsia,but alsotheriseof aChina-dominatedregion.If suchafutureinfact comestobe,theregionwill belessfree,lessopen,andlessinclusivethanit istoday.Manyof America’s foreign policy achievementsover thelast 75 yearswill belost, and it will takegenerations(at least) to revive central elementsof today’sliberal international order.
TheCouncil on Foreign Relationstakesno institutional positionson policy issuesand hasno affiliation with theU.S. government. All statementsof fact and expressionsof opinion contained herein arethesoleresponsibility of theauthor.
Ja n u a r y 2 5 , 2 0 1 8
Third, the U.S. government has failed to approach this competition with anything approximating its importance for the country’s future. Washington remains distracted and unserious about the China challenge. The Trump administration sounded some of the right notes in its first National Security Strategy, but on balance its foreign and domestic policies do not reflect a government focused on projecting or sustaining power and leadership in Asia.
Fourth, despite current trends, the United States can arrest China’s momentum and prevent the growth of an illiberal order in Asia. The foundations of American power remain strong, while China’s weaknesses are mounting by the day. There is nothing inexorable about either China’s rise or American decline. But neither will these trends reverse themselves without better policy and strategy in Washington.
This is the context in which we should consider the military and geostrategic considerations of China’s Belt and Road Initiative (BRI). The United States does not need a counter-BRI strategy; instead, it needs a comprehensive China strategy to manage the challenges of which BRI is both a cause and symptom.
Driversand Benefitsfor China
Militaryandgeostrategicfactorsarelargelysecondarytotheeconomicimperativesof theBelt andRoad
Initiative.1 The strategy primarily serves China’s efforts to transform and grow its economy amidst the hangover and slowdown of its exhausted manufacturing and investment-led model at home. Beijing hopes to find big projects and new markets for Chinese firms throughout the various belts and roads.
However, the strategic dimensions of BRI are barely below the surface. The initiative carries strategic significance in part because of what it says about Chinese Communist Party General Secretary Xi Jinping’s ambitions for China’s role in the world. Xi has quite explicitly retired China’s moderate, cautious foreign policy and is instead pursuing greater power and leadership on the global stage.2 In that sense, Belt and Road bears on military and security affairs because it demonstrates Xi’s willingness and desire to pursue big, bold ideas that put China at the center of international politics in ways it has strongly resisted in recent decades. There is no reason to believe he will cabin these efforts to economic initiatives as China’s military becomes increasingly capable of projecting power overseas.
Moreover, although strategic factors have not been primary motivators, it is still the case that the size, scope, and geography of the initiative are likely to have significant military and geopolitical effects. It will do so both directly and indirectly, and provide both advantages and risks for Beijing. The possible upshots for China include the following areas.
Energy security: Diversified traderoutesfor energy importsarearguably themost direct and indisputable strategicbenefittoChinafromBeltandRoad.3 Beijingisseekingtobuildroads,ports,andpipelinesthat
1 Nadège Rolland, China’s Eurasian Century? Political and Strategic Implications of the Belt and Road Initiative (Washington, DC: The National Bureau of Asian Research, 2017).
2 Bonnie S. Glaser and Matthew P. Funaiole, “Xi Jinping’s 19th Party Congress Speech Heralds Greater Assertiveness in Chinese Foreign Policy,” Center for Strategic & International Studies, October 26, 2017, https://www.csis.org/analysis/xi-jinpings-19th-party- congress-speech-heralds-greater-assertiveness-chinese-foreign-policy.
3 Christopher Len, “China’s Maritime Silk Road and Energy Geopolitics in the Indian Ocean: Motivations and Implications for the Region,” in Asia’s Energy Security and China’s Belt and Road Initiative, NBR Special Report 68. Erica Downs, Mikkal E. Herberg, Michael Kugelman, Christopher Len, and Kaho Yu (Washington, DC: The National Bureau of Asian Research, November 2017), 41-53.
can alleviatewhat Chinesestrategistshavelong called the “Malacca Dilemma;” namely, vulnerabilities that result from having to ship much-needed energy imports through the South China Sea and up the east coast of China, where U.S. and other regional militaries have the capabilities to threaten or block maritime traffic. More routes that are more secure reduce the likelihood of adversaries being able to choke off China’s energy sources. As a result, BRI will likely include pipelines through Russia and Central Asia, as well as deep water ports in South and Southeast Asia.
Counterterrorism: Lack of accessand transparency continueto obscurethescopeof China’sterrorism probleminXinjiangandsurroundingprovinces.Nonetheless,therehavebeenviolent incidents,whichare likely to continue, if not increase, asaresult of multipletrends: foreign fightersreturning from Syriaand Iraq; thepotential for greater extremist activity in Afghanistan and Central Asiaif theUnited States withdraws;andgrowingdomesticdiscontent inwesternChinaduetothegovernment’senhanced oppression of Uighur Muslims.4 Chinese officials argue that economic development is an important part of any counterterrorism program. In this telling, extremism in Xinjiang and neighboring countries will abate to the extent that Belt and Road brings jobs, education, and higher standards of living.
Overseasmilitary accessandpresence: China’s government is actively searching for overseas bases to station and rotate military forces, and the People’s Liberation Army and People’s Armed Police will gain increased access in BRI countries.5 This will occur in a variety of ways. Chinese forces will be deployed to narrowly protect high-priority projects. Host countries may also request security assistance to defend against domestic instability that could imperil vital infrastructure. Finally, in some instances, China is likely to acquire or control major transportation facilities, including ports and airports, in exchange for Chinese investment and debt forgiveness. This has already transpired in Sri Lanka and may again soon in Myanmar.6 The PLA currently lacks the ability to sustain large numbers of troops far from mainland China. This will change over time with improvements in training, doctrine, and more access to overseas facilities. With naval access in the Indian Ocean, the PLA will eventually be able to protect and disrupt vital shipping lanes, while also basing forward submarines and anti-submarine warfare capabilities that could pose a security challenge to regional countries, particularly India.
Illiberal regional security order: If Belt and Road proceeds as China envisions, it is likely that an illiberal regional order will develop in which democracy and individual rights are largely subservient to economic growth and social stability. China has been hostile to sovereignty violations under the precepts of the liberal international order, and is already building an alternative set of rules, norms, and institutions that seek to circumscribe the ability of the international community to protect and defend individual rights against the wishes of their governments. The point here is not that external intervention will not occur—China has mostly, despite its rhetoric, already abandoned its strict policy of non-interference.7 What it does mean is
4 Robbie Gramer, “The Islamic State Pledged to Attack China Next. Here’s Why,” Foreign Policy, March 1, 2017, http://foreignpolicy.com/2017/03/01/the-islamic-state-pledged-to-attack-china-next-heres-why/.
5 Ralph Jennings, “China May Consider These Countries For Its Next Overseas Military Base,” Forbes, October 1, 2017, https://www.forbes.com/sites/ralphjennings/2017/10/10/china-is-most-likely-to-open-future-military-bases-in-these-3- countries/#7959f7454006.
6 Kai Schultz, “Sri Lanka, Struggling With Debt, Hands a Major Port to China,” The New York Times, December 12, 2017, https://www.nytimes.com/2017/12/12/world/asia/sri-lanka-china-port.html?_r=0.
7 Sherif A. Elgebeily, “How China’s Foreign Policy of Non-Intervention is All About Selective Action,” South China Morning Post, April 30, 2017, http://www.scmp.com/comment/insight-opinion/article/2091502/how-chinas-foreign-policy-non-intervention-all-about.
that intervention will occur to protect governments and projects that are important to Beijing. It is also likely that the Eurasian continent overall will become less free and more authoritarian, which is already occurring in places where China has dominant influence.
Greater coercivecapacity over security matters: Belt and Road isarguably most important for security issues
b e c a u s e i t c r e a t e s t h e p e r c e p t i o n o f a C h i n a - l e d e c o n o m i c o r d e r i n A s i a . A s C h r i s t o p h e r Jo h n s o n a t C S I S succinctlyput it,BRI helps“toreinforcetheemergingglobal narrativethat Chinaismovingtothecenter of
global economic activity, strength, and influence.”8 This has direct implications for military issues insofar as countries will be increasingly unwilling to partner with the United States or push back on Chinese assertiveness if they believe it will result in tangible and costly forms of retribution. China is already using economic carrots and sticks to coerce U.S. allies and partners to reduce security cooperation with the United States.9 Prominent recent examples include South Korea (over the Terminal High Altitude Area Defense missile defense system) and the Philippines (over disputes in the South China Sea). Countries as far as Greece are carrying Beijing’s water on political matters in the European Union to reap what they expect to be the spoils of Belt and Road. Beijing’s neutering of the Association of Southeast Asian Nations (ASEAN) over the South China Sea is exemplary of how states and collections of states are likely to defy their national security interests to bend to China’s demands for economic purposes.
Security Risksfor China
Chinawill facesignificant, and in many waysnew, security challengesasaresult of Belt and Road. These include terrorism, domestic instability in partner countries, and heightened regional rivalry. China’s government,evenif cognizant of theserisks,isnot curbingitsambitionsandloftyrhetoricfor Belt and Roadfor at least threereasons.First,thereisadeeply-heldbelief inthestabilizingeffectsof development, such that over timeasuccessful BRI will resolve, or at least temper, themost acutesecurity challenges. Second, Belt and Road isseen in Beijing aspart of an overall effort to reviveand transform China’s strugglingeconomy,whichistiedtoregimelegitimacyandsocial stability.Third,andperhapsmost
i m p o r t a n t l y , B e l t a n d R o a d i s p e r s o n a l l y i m p o r t a n t t o X i Ji n p i n g a n d i s n o w c l o s e l y i n t e r l i n k e d w i t h h i s legitimacy and legacy. Chinesebureaucratshavethereforetaken on an unquestioning, uncritical drive, regardlessof theattendant security risksand political fallout likely to emerge. Thisisall to say that noneof therisksdiscussed below arelikely to weaken Beijing’senthusiasm and determination over Belt and Road in thecomingyears.
Terrorism: Belt and Road will likely raisethepotential for actsof terrorism against Chinesenationalsand businessinterests,bothat homeandabroadinBRI-recipient countries.Manyof theproposed
t r an sp o r t at i o n an d t r ad e r o u t es p ass t h r o u g h ar eas al r ead y su f f er i n g f r o m t er r o r i sm an d i n su r g en c y . A t t h e sametime,Chineseoverseasinvestmentsinthedevelopingworldhaveat timesfueledresentment when accompaniedbycorruption,environmental damage,low labor standards,andfew economicbenefitsfor local populations.Thepolitical exigenciesof advancingBRI projectswill onlyincreasethelikelihoodof non- economicallyviableprojectsthat result insomecombinationof wastedresources,mountingdebt,and abandoned efforts. Thiscould turn and sharpen moreextremist venom toward China. Two additional factorscouldanimatethesetrends.First,China’sownextraordinaryanddeepeningoppressionof Muslim

8 Chris Johnson, “President Xi Jinping’s Belt and Road Initiative,” Center for Strategic and International Studies, March 2016, p. 2.
9 Evan A. Feigenbaum, “Is Coercion the New Normal in China’s Economic Statecraft?” Carnegie Endowment for International Peace, July 25, 2017, http://carnegieendowment.org/2017/07/25/is-coercion-new-normal-in-china-s-economic-statecraft-pub-72632.
Uighursin western China; and second, Belt and Road infrastructureand energy projects will likely be soft targets, rich with symbolism.
D o m est i c i n st a b i l i t y i n r ec i p i en t c o u n t r i es: B e l t a n d R o a d r o u t e s t h r o u g h d i s t i n c t l y u n s t a b l e a n d u n g o v e r n e d
s p a c e s . B y t h r u s t i n g i t s e c o n o m i c f u t u r e a n d X i Ji n p i n g ’ s l e g i t i m a c y o n B R I ’ s s u c c e s s , C h i n a w i l l h a v e a n outsizedstakeinsupportingfriendlyregimesandpreservingdomesticstabilityinrecipient countries.Thisis fairlyevident transitivity:greater investmentsleadingtogreater interestsleadingtoenhancedmeasuresto defend and protect against security threatsto thoseinterests. In thefirst instance, thiswill result in China providing resourcesto BRI countriesto securehigh-profileprojects. Beijing hassaid it will rely on partner countriesrather than providesecurity itself. Thisisfinein theory, but isunlikely to work: instability already reignsthroughout theseterritoriesexactly becausethehost government isunableto providehigher levelsof security.Chinawill start witharmssalesandtechnical assistance,but likelywill finditself inserting personnel and itsown military hardwareinto recipient countriesbeforetoo long. That will put China alongsidepartner countriesputtingdowninsurgenciesandsuppressingdissent.Moreover,if Chinese nationalsor businessesfall victim to political violencein recipient countries,Beijingwill faceconsiderable domesticpressuretorespondwithforce.

H ei g h t en ed r eg i o n a l r i v a l r y : C h i n a i s f o n d o f p r e s e n t i n g i t s f o r e i g n p o l i c i e s a s “ w i n - w i n ” a n d t o t h e b e n e f i t o f all countries. Thiswasrelatively easy to do when Chinahad asmall footprint and wasnot inserting itself in regional affairsoutsideof itsimmediateperiphery.Thiswill changeasChinabuildsstrategicinfrastructure andextendsitsinfluenceandpower intocontestedareasandrivalrousregions.Already,theChina-Pakistan E c o n o m i c C o r r i d o r , so f ar t h e m ar q u e el em en t o f B R I , h as r ai sed h ac k l es i n N ew D el h i b y p u r su i n g investmentsin territory claimed by both Indiaand Pakistan. Permanent or rotational PLA Navy presenceat portsin theIndian Ocean will also heighten tensionswith India. Likewise, projectsin theMiddleEast will invariably affect the regional competition between Saudi Arabia and Iran.10 Projects in Eastern Europe will, even if inadvertently, put a thumb on the scales between Western Europe, the European Union, and Russia. In each instance, China’s efforts to not pick sides will become untenable, and Beijing will become increasingly invested in supporting specific parties. Moreover, China’s influence will envelop areas that India and Russia consider within their traditional spheres of influence. This will produce overt competition over third countries when and where interests diverge between Beijing, New Delhi, and Moscow. Military relations and security assistance are likely to feature as important elements of those contests.
Recommendationsfor U.S.Policy
At least five principles should animate U.S. policy in response to potential strategic implications of Belt and Road: first, theU.S. security competition with Chinaremainsmost urgent and intensein East Asia; second, economicsand security areintimately linked and should beconsidered asessential legsof any policy; third, theUnited Statesneedsan affirmativeeconomicagendain Asia,not just adefensivestrategy against the negativeexternalitiesof BRI;fourth,publicnarrativesareasimportant astherealityontheground;five,the potential for backlash against Chinashould not createcomplacency or givetheimpression that China’s influenceisnot expandingnonetheless.
10 Ilan Goldenberg and Ely Ratner, “China’s Middle East Tightrope,” Foreign Policy, April 20, 2015, http://foreignpolicy.com/2015/04/20/china-middle-east-saudi-arabia-iran-oil-nuclear-deal/.
Prevent China from controlling theSouth China Sea: The analysis above suggests that Belt and Road will draw and allow for greater Chinesemilitary presenceoverseas, particularly in South and Central Asia. My own research on theimplicationsof greater Chineseforceprojection capabilitiesarrived at thefollowing (perhapsnon-intuitive)conclusion:inresponsetoChina’sgrowingforceprojectioncapabilities,thehighest strategicpriorityfor theUnitedStatesshouldbeensuringthat it remainscompetitiveinEast Asiaanddoes not cedemaritimezoneswithin the“First Island Chain” in waysthat giveChinafreerangeto protect forces from deep within theSouth ChinaSea.11 Belt and Road may solve China’s “Malacca Dilemma,” but it will not in and of itself alleviate America’s ability to hold the Chinese military at risk along its littoral. I have presented my recommendations elsewhere for a comprehensive strategy for the South China Sea, and will only say here that current U.S. policy and inattentiveness is abetting ultimate Chinese control of the South China Sea.12 If brought to conclusion, this will significantly enhance the coercive value of any overseas Chinese military presence in the Indian Ocean region. Bottom line: if the United States wants to reduce the potential threat of overseas PLA deployments as a result of BRI, it should focus first and foremost on East Asia, specifically the South China Sea.
Rejoin theTrans-PacificPartnership: U.S. withdrawal from the Trans-Pacific Partnership (TPP) constitutes the Trump administration’s biggest strategic mistake in Asia to date. Heightened concerns over America’s commitment to the region and greater perceived likelihood of a China-led economic order have quickly cascaded into the security realm.13 As a leading indicator in the South China Sea, regional countries have all but folded their hands in the absence of an alternative pole of power and influence from the United States. Where similar dynamics are present, this trend will likely play out repeatedly if and when BRI investments begin to flow. Although parts of Belt and Road will necessarily fall outside the scope of U.S. efforts to set high-standard trade and investment rules, knitting together TPP with the Transatlantic Trade and Investment Partnership (T-TIP) with Europe would have bracketed both sides of BRI, reducing China’s coercive boon, resisting the spread of illiberalism, and creating political space for continued security cooperation with the United States. The Trump administration’s strategy of pursuing a “free and open Indo- Pacific region” is the right instinct, but will fail without an economic component on par with the scale and scope of TPP. The Trump administration’s approach to revising or even withdrawing from the Korea-U.S. Free Trade Agreement and the North American Free Trade Agreement will also shape the willingness of U.S. partners to engage in trade negotiations with the United States. The military consequences of BRI will be substantially larger without U.S. economic leadership in Asia and globally.
E n g a g e i n a c t i v e “ b u r d en - sh i f t i n g ” : B R I w i l l i n c r e a s e C h i n a ’ s i n t e r e s t s i n t h e s t a b i l i t y a n d g o v e r n a n c e o f a r e a s where the United States is currently spending considerable resources. Afghanistan is the most obvious example, followed by Pakistan and parts of the Middle East. U.S. policymakers should map areas where China’s interests are rising and, concurrently, the United States is overextended or bearing disproportionate costs. Rather than imploring Beijing to “burden-share” or be a “responsible stakeholder,” the United States
11 Elbridge Colby, Andrew Erickson, Zachary Hosford, Ely Ratner, and Alexander Sullivan, “More Willing and Able: Charting China’s International Security Activism,” Center for a New American Security, May 19, 2015, https://www.cnas.org/publications/reports/more-willing-and-able-charting-chinas-international-security-activism.
12 Ely Ratner, “Course Correction: How to Stop China’s Maritime Advance,” Foreign Affairs, July/August 2017, https://www.foreignaffairs.com/articles/2017-06-13/course-correction.
13 Ely Ratner and Samir Kumar, “The United States Is Losing Asia to China,” Foreign Policy, May 12, 2017, http://foreignpolicy.com/2017/05/12/the-united-states-is-losing-asia-to-china/.
should consider unilaterally reducing its outlay of resources where U.S. and Chinese goals sufficiently overlap and where China’s interests are sufficiently large such that Beijing will pick up the slack.
R eb u i l d i n st i t u t i o n s f o r U . S . i n f o r m a t i o n o p er a t i o n s: T h e i n f l u e n c e C h i n a i s g a r n e r i n g f r o m B e l t a n d R o a d — and theancillary effectson security and military mattersof importanceto theUnited States—far outstrip the actual economic value of the projects. In fact, much of what China cites as Belt and Road projects either predatetheinitiativeor would havehappened anyway in thenatural courseof China’seconomicassistance and activity.14 Chinese officials have also talked about incorporating Latin America and the Arctic into Belt and Road, which would effectively make it simply a moniker for Chinese foreign policy, not a specific set of initiatives. This calls for more U.S. media and information platforms that can provide a degree of level setting about the facts and fictions of BRI, as well as the degree of U.S. and other country investment and assistance. Citizens in Southeast Asia, for instance, might be surprised to hear that U.S. and Japanese foreign direct investment in their region is considerably larger than Chinese. Both U.S. officials and U.S.- supported media can help to paint a more realistic and accurate picture of BRI. High-level statements voicing concerns about BRI from Secretary Mattis and Secretary Tillerson have been important. The Trump administration’s sometimes-heard rhetorical formula is a good one: “In a globalized world, there are many belts and many roads, and no one nation should put itself into a position of dictating 'one belt, one road.'”15 U.S. officials should also consider talking about the “Belt and Road Strategy,” rather than using Beijing’s more innocuous “Belt and Road Initiative.” It would be even more effective to coordinate these messages with partners, particularly members of the newly-revived Quad (Australia, India, and Japan). The Trump administration has also begun to articulate an alternative vision of a “free and open Indo-Pacific” that protects the independence and sovereignty of regional countries.16 U.S. foreign policy will have to do more to reflect this commitment to a more liberal order. In addition, current efforts to enhance U.S. broadcasting and information operations, largely in response to Russian disinformation campaigns, should also focus on developing more capable China-related and Chinese-language platforms to report on BRI activities in relevant countries.
Capacity-buildingfor recipient countries: It bears underscoring that Belt and Road is not an inherently bad thing, despite the discussion herein of potential security challenges. Clearly, there is demand for more infrastructure in Eurasia, and there is no viable alternative to replace entirely China’s potential provision of resources. That being said, negative externalities will develop if recipient countries are subject to corruption and coercion, or caught in debt traps that China exploits for political and strategic ends. At the low end of the spectrum, the United States should consider teaming up with like-minded countries (including Australia, Japan, and Singapore) to provide technical assistance to help recipient countries evaluate proposed major infrastructure projects. Washington should also consider which existing multilateral institutions could act as a clearing house of best practices or a forum to assess BRI projects. Cognizant of potential moral hazard, the United States could also consider working with other advanced economies to make funds available at
14 Gabriel Wildau and Ma Nan, “China’s New ‘Silk Road’ Investment Falls in 2016,” Financial Times, May 10, 2017, https://www.ft.com/content/156da902-354f-11e7-bce4-9023f8c0fd2e.
15 Wade Shepard, “Why the Ambiguity of China’s Belt and Road Initiative is Perhaps Its Biggest Strength,” Forbes, October 19, 2017, https://www.forbes.com/sites/wadeshepard/2017/10/19/what-chinas-belt-and-road-initiative-is-really-all-about/#394cbff9e4de. 16 Rex W. Tillerson: “Remarks on ‘Defining Our Relationship With India for the Next Century,’” October 18, 2017, U.S. Department of State, https://www.state.gov/secretary/remarks/2017/10/274913.htm.
affordableinterest ratesfor governments stuck in BRI debts traps. Countries like Sri Lanka and Myanmar should have alternatives to handing over vital infrastructure to China if they are indebted to Beijing.


Securing China’s Belt and Road Initiative: Dimensions and Implications

Dr. Joel Wuthnow1
Research Fellow, Center for the Study of Chinese Military Affairs Institute for National Strategic Studies
U.S. National Defense University

Testimony before the U.S.-China Economic and Security Review Commission Hearing on “China’s Belt and Road Initiative: Five Years Later”
25 January 2018
Executive Summary
Although China’s official rhetoric casts it in solely economic terms, the Belt and Road Initiative (BRI) also has well-defined strategic and security aspects: it contributes to China’s overall national security, but is also subject to a variety of operational and strategic challenges. Chinese sources suggest that Beijing is using BRI investments as a means of stabilizing border regions, securing energy supply routes, and cultivating stronger diplomatic and economic influence with partner nations. However, those goals could be constrained by challenges ranging from the physical risks of operating in remote and unstable areas to the possibility of unilateral and coordinated opposition from other major powers. These are in addition to the inherent economic challenges associated with infrastructure development (such as the ability of developing and poorly governed states to repay debts).
Aware of the risks, Beijing is marshalling all forms of national power to create a safer and more strategically advantageous context for the BRI. The People’s Liberation Army (PLA) is improving its ability to carry out non-traditional security operations such as non-combatant evacuations and disaster relief missions at longer range and for longer periods. China is also developing other options, including host nation support, private security firms, and law enforcement initiatives, to secure BRI personnel and assets. At the strategic level, Beijing is using high-level engagements, public diplomacy, and economic inducements to reduce the potential for the BRI to aggravate competition with other major powers.
China’s success will depend in part on the reactions of other countries. From a U.S. perspective, the Trump administration will have to weigh competing factors as it designs a response: overt confrontation with Beijing may impose a cost on U.S. firms hoping to take advantage of new opportunities and harm U.S.-China relations, while accommodation could fuel Chinese ambitions, jeopardize U.S. interests in prudent lending and market access, and alienate U.S. partners such as Japan and India that have expressed serious concerns about China’s activities. The Department of Defense will also have to consider tradeoffs as it decides whether, and how, to collaborate with the PLA in ways that enhance security along BRI routes. At a minimum, the
1 The views expressed in this testimony are those of the author and are not an official policy or position of the National Defense University, the Department of Defense or the U.S. Government. A basis of this testimony is Joel Wuthnow, Chinese Perspectives on the Belt and Road Initiative: Strategic Rationales, Risks and Implications (Washington, DC: NDU, 2017).
department will have to prepare for a greater PLA role outside of East Asia, and maintain contact with Chinese counterparts in order to better understand their goals and capabilities, de-conflict activities, and determine whether and where there may be opportunities for cooperation.
Strategic Aspirations
As a matter of public diplomacy, Chinese officials have consistently framed the BRI as a “win- win” economic project: its success will contribute to the long-term economic growth of both China and its Eurasian partners.2 One interlocutor outlined three more specific economic goals: facilitating new markets for China’s excess industrial capacity (especially massive stocks of steel, concrete, and other building materials leftover from China’s stimulus response to the 2008 global financial crisis), spurring development in China’s impoverished western regions, and providing a “new form of globalization” that would be more equitable than the postwar system which primarily served western interests.3 By contrast, Chinese rhetoric downplays the strategic advantages that will accrue to Beijing.
Nevertheless, foreign observers have speculated about Beijing’s ulterior geopolitical motives.4 Commentators liken the BRI to the Marshall Plan—i.e., a way for China to create strategic advantage in its backyard just as the United States used economic statecraft to cement its position in Western Europe following World War II—and as a modern manifestation of early 20th century British geographer Halford Mackinder’s thesis that dominating Eurasia is a prerequisite for global hegemony.5 In carefully-argued research, Nadège Rolland depicts the BRI as part of China’s “grand strategy,” using all elements of national strength to “assert [China’s] influence and reshape at least its own neighborhood.”6
Chinese strategic assessments—those carried out by professional civilian and military analysts within domestic journals, books, and reports, and not intended primarily for foreign consumption—help validate international concerns about the BRI’s geopolitical underpinnings. Chinese analysts routinely cite the following as advantages:7
2 See, e.g., Xi Jinping, “Work Together to Build the Silk Road Economic Belt and the 21st Century Maritime Silk Road,” Speech at the Belt and Road Forum for International Cooperation, May 14, 2017, http://news.xinhuanet.com/english/2017-05/14/c_136282982.htm.
3 Discussions with PLA interlocutors, Beijing, December. The analyst contrasted the “new form of globalization” with a previous, U.S.-led wave that “primarily benefited transnational western companies and increased the gap between rich and poor countries.”
4 However, one analyst warns observers not to overstate the BRI’s strategic objectives, pointing to the greater importance of economic and political motivations. Christopher K. Johnson, President Xi Jinping’s ‘Belt and Road’ Initiative (Washington, DC: CSIS, 2016), v.
5 See, e.g., Enda Curran, “China’s Marshall Plan,” Bloomberg, August 7, 2016, https://www.bloomberg.com/news/articles/2016-08-07/china-s-marshall-plan; Joseph S. Nye, “Xi Jinping’s Marco Polo Strategy,” Project Syndicate, June 12, 2017, https://www.project-syndicate.org/commentary/china-belt-and- road-grand-strategy-by-joseph-s--nye-2017-06.
6 Nadège Rolland, “China’s ‘Belt and Road Initiative’: Underwhelming or Game-Changer?” The Washington Quarterly 40:1 (2017), 136.
7 For more details, see Wuthnow, Chinese Perspectives on the Belt and Road Initiative, 9-13; see also Nadège Rolland, China’s Eurasian Century? Political and Strategic Implications of the Belt and Road Initiative (Washington, DC: NBR, 2017), 109-119.
  • A Safer Neighborhood. Mitigating threats across China’s restive western periphery is a perennial challenge for Beijing. Key problems include Tibetan and Uighur separatist movements and their cross-border advocates, narcotics trafficking, infiltration of Islamic extremists into western China via Central Asia, and even concerns about foreign- sponsored “color revolutions” in border areas.8 Fostering infrastructure development and regional economic connectivity, in the view of Chinese analysts, can help address the roots of instability by lifting neighboring populations out of poverty, bolstering (often authoritarian and China-friendly) regimes, and tying Xinjiang more closely into the regional economy. A related benefit, though not explicitly argued in Chinese sources, is that a safer western border region implies fewer strategic distractions and more resources available for China to expand its influence across maritime Asia.9
  • More Secure Energy Supply and Transport Routes. Another persistent dilemma has been diversifying China’s energy supplies, which remain heavily dependent on maritime transport routes through the Strait of Malacca and other chokepoints.10 Dubbed the “Malacca Dilemma” during the Hu Jintao era, the concern is that China’s oil imports could be subject to interdiction by foreign navies during a crisis. BRI projects such as an oil pipeline linking Pakistan’s Gwadar Port with Xinjiang and a second Sino-Russian oil pipeline (which came online in January 201811) could help reduce, but not eliminate, China’s overreliance on vulnerable sea lanes. The BRI’s maritime component, known as the Maritime Silk Road, could also help secure China’s continuing maritime shipments through additional port development, including the opening of new PLA navy overseas logistics bases.12
  • Stronger Chinese Economic and Diplomatic Influence. Drawing from a prominent 2012 Global Times editorial by Beijing University professor Wang Jisi, Chinese analysts portray the unveiling of BRI projects as the realization of a “march west”—the premise being that the absence of the United States as a strategic heavyweight in Eurasia has created an opportunity for China to extend its diplomatic and economic influence in the
    8 See, e.g., “China’s Military Strategy,” State Council Information Office, May 26, 2015, http://news.xinhuanet.com/english/china/2015-05/26/c_134271001.htm.
    9 For a discussion of Chinese strategic aims along the Asian littoral, see Joel Wuthnow, “Asian Security without the United States? Examining China’s Security Strategy in Maritime and Continental Asia,” Asian Security, September 2017, http://www.tandfonline.com/doi/abs/10.1080/14799855.2017.1378181.
    10 For data on Chinese oil imports, see U.S. Energy Information Administration, China Overview, last updated May 14, 2015, https://www.eia.gov/beta/international/analysis.cfm?iso=CHN. According to the CSIS China Power Project, 80% of China’s oil imports in 2016 passed through the Strait of Malacca. See: https://chinapower.csis.org/much-trade-transits-south-china-sea/
    11 The second pipeline, connecting Siberia with China’s northeast, doubles Russia-supplied oil from 15 to 30 million tons/year. “Russia Tightens Oil Group With China’s Second Pipeline,” Bloomberg, January 1, 2018, https://www.bloomberg.com/news/articles/2018-01-01/second-chinese-crude-oil-pipeline-linked-to-russia-s-espo- opens.
    12 An initial overseas base was opened in Djibouti in July 2017, while a second facility may be under construction near Gwadar Port on the Arabian Sea. Minnie Chan, “First Djibouti... Now Pakistan Port Earmarked for a Chinese Overseas Naval Base, Sources Say,” South China Morning Post, January 5, 2018, http://www.scmp.com/news/china/diplomacy-defence/article/2127040/first-djibouti-now-pakistan-port-earmarked- chinese.
region while avoiding a costly direct competition with Washington.13 BRI projects are thus not only useful in facilitating regional economic integration, but also buttress China’s simultaneous efforts to solidify bilateral relations with key partners. For instance, development of China-Kazakhstan freight and passenger lines since 2013 support the elevation of bilateral relations into a “comprehensive strategic partnership,” which also includes regular high-level diplomacy, counter-terrorism cooperation, and expansion in bilateral trade.14
While articulating clearly defined, and ambitious, strategic objectives, Chinese assessments generally avoid more sweeping proclamations about Beijing’s willingness or ability to create an uncontested, Mackinder-esque sphere of influence in Eurasia. There are several reasons why Chinese self-assessed aims may remain limited, rather than expansive. BRI projects are funded primarily by loans that are meant to eventually be repaid. However, China is investing in countries that, in many cases, pose significant credit risk: a 2017 Moody’s analysis, for instance, found that 54% of BRI investments have gone to countries with poor (i.e. Ba1 or lower) investment ratings.15 Christopher Johnson also suggests that the underlying political motives driving the BRI, including the need to buttress Xi Jinping’s political legacy, mean that the Party leadership may “stay the course” on high-profile but financially unsound projects, resulting in a bleaker long-run economic outlook.16
From a security perspective, Chinese analysts are also conscientious of the potential pitfalls. Rather than inflating the prospects for strategic gains, Chinese sources tend to focus more on the operational and strategic-level vulnerabilities that Beijing will have to address in order to successfully implement BRI projects. Often debating amongst themselves, authors offer a variety of proposals for how to mitigate those risks using both military and civilian means.
Operational Risks and Mitigation Strategies
Even before the BRI was launched in late 2013, China had experienced the dangers involved in conducting business operations in remote and unstable regions. Major incidents, such as 2006 anti-China riots in Zambia and the 2011 Libyan civil war, which required the PLA to conduct an improvised evacuation of around 35,000 Chinese oil workers, grabbed domestic headlines and 17 placed an impetus on Beijing to consider how Chinese personnel and assets could be protected. Thus Chinese officials have been under no illusions about the physical risks involved in building infrastructure and transportation networks across conflict prone areas of Central and South Asia, and into the Middle East. Setting public expectations at a realistic level, Xi acknowledged in
13 Wang Jisi, “‘March West,’ China’s Geostrategic Rebalance” [‘西进,’ 中国地缘战略的再平
], Global Times [环球时报], October 17, 2012, http://opinion.huanqiu.com/opinion_world/2012-10/3193760.html
14 “China Focus: China, Kazakhstan Move Closer with Belt and Road Cooperation,” Xinhua, June 9, 2017, http://news.xinhuanet.com/english/2017-06/09/c_136353535.htm.
15 David Ho, “Cost of Funding ‘Belt and Road Initiative’ is Daunting Task,” South China Morning Post, September 27, 2017, http://www.scmp.com/special-reports/business/topics/special-report-belt-and-road/article/2112978/cost- funding-belt-and.
16 Johnson, President Xi Jinping’s ‘Belt and Road’ Initiative, 23.
17 See Mathieu Duchâtel, Oliver Brauner, and Zhou Hong, Protecting China’s Overseas Interests
(Stockholm: Stockholm International Peace Research Institute, 2014).
2017 that the BRI runs through areas marked by “conflict, turbulence, crisis, and challenge,” and called for stronger security cooperation between partner nations.18
Although China has thus far avoided major security incidents along BRI routes, several recent cases illustrate the potential risks to BRI workers and projects. These include the March 2015 evacuation of more than 500 Chinese nationals from Yemen, denoting not only risks to overseas workers, but also regional instability astride key maritime shipping lanes; the November 2015 killing of a Chinese citizen by ISIS radicals in Syria; the May 2017 abduction and murder of two Chinese citizens in Pakistan’s Baluchistan province (site of Gwadar Port and other key BRI projects);19 and a December 2017 Chinese embassy warning that terrorist attacks in Pakistan may be imminent.
Chinese analysts anticipate that these types of problems will expand as BRI projects enter their construction and operational phases. Key challenges include inter- and intrastate sectarian violence, which could destabilize host nations and place workers in danger; hostage-taking for ransom; terrorist attacks carried out by groups such as ISIS, Pakistani militants, or the Turkestan Independence Party (formerly known as the East Turkestan Independence Movement); and major natural disasters such as earthquakes and mudslides, which may be increasing due to climate change effects.20 These problems are exacerbated by China’s limited capacity to address them. Chinese sources identify problems such as insufficient strategic air and sea lift (needed to carry out non-combatant evacuations), inadequate private personnel security services, and weak political risk analysis capabilities.21
These assessments have prompted consideration of the ways in which China needs to be prepared to secure its overseas BRI interests. Analysts discuss the tradeoffs of different types of approaches, which include the following:
Stronger Expeditionary Capabilities. One remedy would be expanding expeditionary PLA capabilities, such as more long-range naval deployments (and overseas logistics bases), additional strategic air lift, and more rapidly deployable ground forces.22 Such assets would be helpful in defending critical sea lanes, as well as in conducting non- combatant evacuation, disaster relief, and counter-terrorism operations. PLA interlocutors also envision a “network” of international peacekeeping forces, including Chinese personnel, which could be available to protect overseas projects.23 However, challenges
18 “Full Text of President Xi’s Speech at Opening of Belt and Road Forum,” Xinhua, May 14,
19 Pakistan did not confirm the murders of two Chinese teachers until October 2017. See: “Pakistan Confirms Deaths of Two 2 Kidnapped Chinese Nationals,” China Daily, October 31, 2017, http://www.chinadaily.com.cn/world/2017-10/31/content_33929197.htm
20 For further details, see Wuthnow, Chinese Perspectives on the Belt and Road Initiative, 13-7.
21 Interviews, Beijing, December 2017
22 The 2017 DOD China military power report illustrates the PLA’s progress in fielding an expeditionary force: the ground forces are generating rapidly deployable forces “through the development of army aviation units, special operations forces, and air-land mobility” (2); the PLA air force has debuted its domestic- produced Y-20 strategic transport aircraft, whose missions include HA/DR, replacing a small fleet of Russian-origin aircraft (29); and the navy’s current and planned aircraft carriers will “help enable task group operations in the ‘far seas.’” (52).
23 Indeed, China has already relied on UN peacekeeping forces to safeguard overseas assets; the clearest example is the involvement of Chinese military personnel in the UN mission in South Sudan, site of major Chinese oil
to a military-centered approach could include added financial burdens in an era of declining budget growth, resistance from the services (who may oppose resource allocations that distract from core warfighting missions), domestic and foreign opposition to putting Chinese “boots on the ground,” and the fact that some risks, such as localized terrorist incidents, may not require military intervention.
  • Host Nation Support. Another approach is relying more extensively on host nation law enforcement, intelligence, and military support. The most prominent example is a 12,000- strong force drawn from the Pakistani army that has protected Chinese workers in Gwadar and other sites along the China-Pakistan Economic Corridor since 2015.24 PLA interviewees also describe the possibility of working with the Taliban, who they characterized as a “friendly” organization, to protect Chinese copper mines in northeast Afghanistan that have been dormant for years because of security concerns.25 Benefits of this approach could include cost effectiveness, delegation of risks to non-Chinese nationals, and reliance on forces with intimate knowledge of local languages, customs, and terrain. Key challenges, however, would include limited host nation capacity to handle major emergencies, reliability, and opposition of foreign publics to units being allocated to protect Chinese workers and assets.
  • Private Security Services. A third approach is increasing reliance on foreign or Chinese personnel security companies, in addition to insurance and risk assessment services. Some Chinese firms may contract with more expensive but experienced foreign security providers such as Academi (formerly known as Blackwater), while other may hire cheaper domestic contractors. Chinese oil conglomerate Sinopec, for instance, has retained Shanghai-based Dewei Security to provide self-defense training for overseas workers, and to engage local employees to provide personnel and site protection.26 Although cost effective and potentially useful in addressing low-level risks, deficiencies of relying on private Chinese security companies include limited regional expertise, domestic regulations prohibiting overseas ownership of firearms, and employment of local contractors who may not be reliable.27
    investments. See Colum Lynch, “U.N. Peacekeepers to Protect China’s Oil Interests in South Sudan,” Foreign Policy, June 16, 2014, http://foreignpolicy.com/2014/06/16/u-n-peacekeepers-to-protect-chinas-oil-interests-in- south-sudan/.
    24 Saeed Shah and Josh Chin, “Pakistan to Create Security Force to Protect Chinese Workers,” Wall Street Journal, April 22, 2015, https://www.wsj.com/articles/pakistan-to-create-security-force-to-protect-chinese-workers- 1429701872. Thousands of additional security and police personnel were deployed in 2017 in Sindh province, including placing jammers on Chinese vehicles to avoid improvised explosive devices. See: “CM Sindh Directs to Provide Special Security for Chinese Working on CPEC Projects,” The Nation, December 7, 2017, http://www.cpecinfo.com/cpec-news-detail?id=MzQ0NQ==.
    25 Ironically, the Taliban was suspected of killing 11 Chinese road construction workers in Afghanistan in a 2004 attack. See Carlotta Gall, “Taliban Suspected in Killing of 11 Chinese Workers,” New York Times, June 11, 2004, http://www.nytimes.com/2004/06/11/world/taliban-suspected-in-killing-of-11-chinese-workers.html.
    26 “Sinopec Conducted First Overseas Security Training for 2015,” Sinopec News, January 12, 2015, http://www.sinopecgroup.com/group/en/Sinopecnews/20150121/news_20150121_650598841619.shtml.
    27 Interviews, Beijing, December 2017. Chinese interlocutors worry in particular about a “Benghazi” scenario developing in which local security contractors fail to protect employees during a crisis.
International Cooperation. A final option is to strengthen bilateral or multilateral security partnerships to collectively address risks. Examples include combined training with foreign partners in non-traditional security areas such as counter-piracy, counter- terrorism, and disaster relief;28 maritime security cooperation, such as joint China- ASEAN patrols in the Mekong River basin; and intelligence sharing and law enforcement cooperation, including a counter-terrorism mechanism established in 2016 between China, Pakistan, Afghanistan, and Tajikistan.29 These activities provide several advantages, such as cost distribution, capacity building, and generating mutual trust and regional awareness, but are generally not oriented towards crisis response and remain contingent on the commitment of resources from both China and partner governments.
The key source of debate between Chinese analysts is how much emphasis to place on building the PLA, whose Party-defined responsibilities include protection of China’s overseas interests, into a more global expeditionary force, versus outsourcing security to different arrangements (host nation support, private security, or international cooperation).30 Although the mix of strategies remains in flux, extrapolating from current trends suggests that Beijing will rely on a multi-layered patchwork of different approaches, varying across regions and focused on different types of threats, to reduce operational challenges facing the BRI.
Strategic Risks and Mitigation Strategies
At the strategic level, the BRI is not unfolding in a geopolitical vacuum: several other major powers have concerns about how China’s activities will affect their interests. Despite a May 2015 Sino-Russian agreement to forge a “great Eurasian partnership,” for instance, some Russian analysts remain wary about China’s growing presence in Central Asia.31 Indian strategists worry that Chinese investments in the Indian Ocean region, such as port development projects in Sri Lanka and Pakistan, will precipitate a greater Chinese naval presence in India’s backyard.32 Indian officials and major thinkers have also criticized the BRI as predatory and illiberal.33 The 2017 U.S. National Security Strategy, without naming the BRI, warns about Chinese attempts to
28 For instance, the PLA navy conducted its first anti-piracy exercise with the U.S. navy in September 2012 and with NATO in November 2015. For an overview of Chinese military diplomacy, see Kenneth Allen, Phillip C. Saunders, and John Chen, Chinese Military Diplomacy, 2003-2016: Trends and Implications (Washington, DC: NDU, 2017). 29 “Afghanistan, China, Pakistan, Tajikistan Issue Joint Statement on Anti-Terrorism,” China Military Online, August 4, 2016, http://eng.mod.gov.cn/DefenseNews/2016-08/04/content_4707451.htm.
30 Some PLA analysts are surprisingly frank about the limitations of the military’s’ ability to respond across different types of threats, despite invocations since the Hu Jintao era for the PLA to be able to protect overseas interests. For instance, Major General Zhu Chenghu argues that China should rely less on the PLA and more on private security companies. See: “NDU Professor: ‘One Belt, One Road’ Requires Building Overseas Security Capabilities” [国防大学教授: ‘一带一路要建海外安保力量], Ta Kung Pao [大公网], May 13, 2015, http://news.takungpao.com/mainland/focus/2015-05/2998430.html.
31 For an analysis, see Sebastien Peyrouse, “The Evolution of Russia’s Views on the Belt and Road Initiative,” Asia Policy 24 (July 2017), 96-102.
32 Dhruva Jaishankar, “India Feeling the Heat on Belt and Road,” Lowy Interpreter, August 21, 2017, https://www.lowyinstitute.org/the-interpreter/india-feeling-heat-belt-road.
33 See, e.g., Harsh V. Pant, “India Challenges China’s Intentions on One Belt, One Road Initiative,” Observer Research Foundation (ORF) Commentaries, June 22, 2017, http://www.orfonline.org/research/india-challenges- china-intentions-one-belt-one-road-initiative/.
“displace the United States in the Indo-Pacific region, expand the reaches of its state-driven economic model, and reorder the region in its favor.”34
Such concerns have led major countries to propose alternative economic corridors and ways of financing them.35 In May 2015, Japan announced a five-year, $110 Billion plan to support private funding of “quality infrastructure” projects, using criteria such as long-run cost effectiveness, local job creation, and environmental sustainability.36 Two years later, Tokyo and New Delhi released a vision for an “Asia-Africa Growth Corridor,” described as a “people- centric sustainable growth strategy” that would increase economic connectivity between the two continents through infrastructure development, vocational training, and cooperative projects in areas such as agro processing and pharmaceuticals.37 The December 2017 U.S. National Security Strategy argued that modernization of development finance should be a priority so that the United States “will not be left behind as other states use investment and project finance to extend their influence.”38 Washington has also discussed alternative trade, transit, and financing frameworks with various Indo-Pacific partners, including at a re-conceptualized iteration of the U.S.-Japan-India-Australia quadrilateral dialogue, held in Manila during President Trump’s November 2017 visit.39
Chinese analysts have devoted significant attention to these trends, often concluding that 40 individual or collective responses by other powers could inhibit China’s competitiveness. Key ways in which strategic competition can be reduced, in their view, include the following:
Coopting foreign business elites. One method is developing partnerships with foreign companies. One Chinese report, for instance, argued that the BRI will provide U.S. firms with “great business opportunities in all sectors,” citing cooperation between General Electric and the China National Machinery Industry Corporation in building Kenya’s wind power infrastructure as a successful model (albeit not a BRI project per se).41 The premise is that pressure from the business community will translate into political support. Whether this approach will succeed in the U.S. context is unclear. Comments during the early months of the Trump administration highlighting potential U.S. economic cooperation in BRI projects has given way to a stronger emphasis, evident during the 2017 quadrilateral discussions in Manila, on prudent lending and cooperation between Indo-Pacific democratic allies and partners.42
34 The White House, National Security Strategy of the United States of America, December 2017, 25.
35 Thanks to NDU’s Thomas Lynch for data points in this area.
36 Japanese Ministry of Foreign Affairs, “Partnership for Quality Infrastructure,” May 21, 2015, 1-2.
37 “Asia Africa Growth Corridor: Partnership for Sustainable and Innovative Development,” Presentation at the African Development Bank Meeting, May 2017.
38 The White House, National Security Strategy of the United States of America, December 2017, 39.
39 “Australia-India-Japan-U.S. Consultations on the Indo-Pacific,” U.S. State Department, November 12, 2017, https://www.state.gov/r/pa/prs/ps/2017/11/275464.htm.
40 Wuthnow, Chinese Perspectives on the Belt and Road Initiative, 17-22.
41 Boarding the Fast Train: Case Studies and Practical Solutions for the U.S. to Connect to the Belt and Road Initiative, Chongyang Institute for Financial Studies, Renmin University, September 2017, 3-10.
42 Early comments include NSC Senior Director for Asia Matt Pottinger’s reported comments at the May 2017 Belt and Road Forum suggesting that U.S. companies as “ready to participate in Belt and Road projects.” Stuart Lau, “U.S. Warms Up to ‘Belt and Road’ Business Potential,” South China Morning Post, May 14, 2017, http://www.scmp.com/news/china/diplomacy-defence/article/2094295/us-warms-belt-and-road-business-potential.
  • Leveraging bilateral relationships. China has also leveraged bilateral relationships to encourage support for the BRI. For example, a November 2017 meeting between Xi and Japanese Prime Minister Shinzo Abe, in which the two leaders agreed to make a “fresh start” in Sino-Japanese relations, led in part to Tokyo offering financial incentives for Japanese firms to build joint ventures with Chinese companies in areas related to infrastructure development (though perhaps intended more as a substitute than a complement to the BRI framework).43 China has also solicited U.S. support for the BRI in high-level meetings, though with less tangible results.44 Coercive diplomacy is also an option. Some Indian observers, for instance, contend that China escalated tensions in the Doklam border region during mid-2017 in order to signal dissatisfaction with Prime Minister Narendra Modi’s absence from the Belt and Road Forum, and to push India into a more positive approach toward BRI.45
  • Shaping international public opinion. A third method is working through media, public diplomacy, and Track II channels to reduce suspicions about the BRI in major countries and explore avenues of cooperation. Messages delivered by PLA interlocutors in recent discussions, for instance, include casting U.S. officials’ criticisms of the BRI, such as those offered by Secretary of State Rex Tillerson in October 2017,46 as unfair, affirming that China’s ultimate ambition is not to “replace the U.S. as world hegemon,” and framing the BRI as a “constructive means” for both countries to improve relations and contribute to global public goods provision.47
    Largely absent from Chinese assessments is the acknowledgement that China’s own practices may be contributing to regional demand for alternative infrastructure funding. Secretary Tillerson argued that the nature of Chinese financing is burdening partners with “enormous levels of debt,” and resulting in projects that rely on “foreign workers,” rather than creating local jobs.48 In Djibouti, for instance, three China-backed projects have led the debt-to-GDP ratio to balloon from 50% in 2014 to 85% in 2016, with the International Monetary Fund warning that the country remains at high risk of debt distress.49 This has prompted concerns about whether
    43 “Japan to Help Finance China’s Belt and Road Projects: Nikkei,” Reuters, December 5, 2017,
    https://www.reuters.com/article/us-japan-china-beltandroad/japan-to-help-finance-chinas-belt-and-road-projects- nikkei-idUSKBN1E003M.
    44 See, e.g., “U.S. President Donald Trump Meets With Yang Jiechi,” PRC Ministry of Foreign Affairs, June 23, 2017, http://www.fmprc.gov.cn/mfa_eng/zxxx_662805/t1473199.shtml.
    45 Sushil Aaron, “Is China Punishing India For Its Belt and Road Stance While Testing Modi and Trump?” Hindustan Times, July 4, 2017, http://www.hindustantimes.com/opinion/is-china-punishing-india-for-its-belt-and- road-stance-while-testing-modi-and-trump/story-1NIB0lcGtgMy4UVO5pDO1M.html.
    46 See Rex W. Tillerson, “Remarks on ‘Defining Our Relationship With India For the Next Century,” Delivered at CSIS, October 18, 2017, https://www.state.gov/secretary/remarks/2017/10/274913.htm.
    47 Discussions with PLA interlocutors, Beijing, December 2017
    48 Tillerson, “Remarks on ‘Defining Our Relationship With India For the Next Century.”
    49 International Monetary Fund, “Djibouti: Staff Report for the 2016 Article IV Consultation—Debt Sustainability Analysis,” February 7, 2017, 1.
China will translate its partners’ debts into geopolitical influence; one government critic told the New York Times that, “We don’t know what China’s intentions really are.”50
None of Beijing’s options to assuage local concerns are particularly attractive. One approach is using public diplomacy to counter narratives about China acting as a “neocolonial power,”51 but this message will not resonate if projects fail to create local jobs, worsen local corruption problems, or create environmental problems.52 Another choice would be debt forgiveness, but this would strain government coffers and underscore the poor decision-making that contributed to non-performing BRI loans. China may also convert unpaid debt to equity shares in infrastructure projects, as in Sri Lanka’s December 2017 decision to grant China a 99-year lease of the Hambantota port to repay part of its $8 Billion debt. However, this could raise local concerns to even higher levels as critical infrastructure is ceded to a foreign power.53 Thus, states may seek alternative financing—or forego projects altogether.54
Conclusion and Policy Implications
In sum, the strategic aims driving the BRI—creating a safer neighborhood, securing energy supplies, and cultivating influence—are ambitious, though somewhat attenuated by perceived risks and challenges. Not only are BRI projects subject to the physical risks inherent in large- scale infrastructure development across the Eurasian hinterland, which are exacerbated by China’s limited ability to address them, but the whole enterprise is also vulnerable to unilateral or collective responses by China’s major competitors. Souring relations between China and partner nations, due to the norms, premises, and stringent terms attached to BRI locations and financing, may impose further limits on Beijing’s ability to convert economic cooperation into geopolitical gains.
China’s success will depend in part on the reactions of other major countries. From a U.S. perspective, policymakers will have to weigh multiple competing factors in designing a coherent response. On one hand, overt confrontation with Beijing would be an irritant in U.S.-China relations and potentially cost U.S. firms the chance to take part in BRI projects (as illustrated by a recent agreement between General Electric and China’s Silk Road Fund in the energy investment arena).55 On the other hand, accommodation could imperil U.S. stakes in prudent lending and Eurasian market access, alienate U.S. partners such as Japan and India that have expressed serious concerns about China’s activities, and fuel China’s strategic aims beyond their current levels. U.S. officials will also need to evaluate the costs and opportunities of developing
50 Andrew Jacobs and Jane Perlez, “U.S. Wary of Its New Neighbor in Djibouti: A Chinese Naval Base,” New York Times, February 25, 2017, https://www.nytimes.com/2017/02/25/world/africa/us-djibouti-chinese-naval-base.html. 51 Rolland, “China’s ‘Belt and Road Initiative,’” 135-6.
52 Joshua Eisenman and Devin T. Stewart, “China’s New Silk Road Is Getting Muddy,” Foreign Policy, January 9, 2017, http://foreignpolicy.com/2017/01/09/chinas-new-silk-road-is-getting-muddy/.
53 Kai Schultz, “Sri Lanka, Struggling With Debt, Hands a Major Port to China,” New York Times, December 12, 2017, https://www.nytimes.com/2017/12/12/world/asia/sri-lanka-china-port.html.
54 Saibal Dasgupta and Anjana Pasricha, “Pakistan, Nepal, Myanmar Back Away from Chinese Projects,” VOA, December 4, 2017, https://www.voanews.com/a/three-countries-withdraw-from-chinese-projects/4148094.html.
55 “General Electric, China’s Silk Road Fund to Launch Energy Investment Platform,” Reuters, November 9, 2017, https://www.reuters.com/article/us-trump-asia-china-deals-ge/general-electric-chinas-silk-road-fund-to-launch- energy-investment-platform-idUSKBN1DA057.
alternatives to BRI routes and financing, including the potential for cooperation with Indo- Pacific allies and partners.
Congress can play a role in ensuring the development of a pragmatic U.S. strategy. The Trump administration has offered some implicit critiques of the BRI,56 and suggested the need for alternative infrastructure development approaches. Congress could ask U.S. officials to articulate a more detailed strategic approach for protecting U.S. values and interests, including specifying the resources needed to offer alternatives for the region. In addition, Congress’s research arms can sponsor independent analysis of U.S. interests and strategic options (e.g., ways in which the United States can partner with Japan, India, and others to promote alternative economic corridors and offer alternative financing).
A narrower question is whether and how the Department of Defense should cooperate with China in areas related to securing BRI routes. As part of Xi’s emphasis on improving U.S.-China military relations,57 the PLA has pursued increased operational and training cooperation with the United States in areas such as humanitarian assistance/disaster relief, counter-piracy, and counter-terrorism.58 From a Chinese perspective, this engagement is not only useful in fostering mutual trust, but may also help create a safer environment for China’s overseas interests. Some of these activities have already been pursued, including U.S.-China combined counter-piracy exercises in the Gulf of Aden, last held in December 2014, and China’s participation in the non- traditional security portions of the U.S.-led multinational RIMPAC exercise.
However, bilateral military cooperation will need to be pursued in the context of U.S. strategic goals, policy judgments, and legal constraints. The 2000 National Defense Authorization Act, in particular, requires the Secretary of Defense to restrict engagements with the PLA in 12 areas when contact would create a “national security risk due to an inappropriate exposure.” Counter- terrorism cooperation, for instance, could expose the PLA to advanced warfighting tactics, 59 techniques, and procedures, even if both countries share an interest in reducing terrorist threats. Thus caution in responding to Chinese entreaties is warranted, and sensible. At a minimum, the geographic combatant commands should remain in regular contact with their Chinese counterparts as PLA units enter their areas of responsibility, so as to better understand Chinese goals and capabilities, de-conflict activities, and identify areas where both sides may cooperate to achieve shared goals.
U.S. officials should also anticipate that expansion of BRI projects will be accompanied by enhanced Chinese military diplomacy throughout Eurasia. Over the past 15 years, China has expanded capacity-building, combined training, and high-level engagements with states such as Pakistan and Afghanistan; those efforts may continue both as part of a broader effort to
56 These include the State Department’s readout of the U.S.-Japan-India-Australia quadrilateral dialogue, which referenced “increasing connectivity consistent with international law and standards, based on prudent financing,” and the December 2017 National Security Strategy, which discussed modernization of development finance.
57 For a discussion, see Phillip C. Saunders and Julia G. Bowie, “U.S.-China Military Relations: Competition and Cooperation,” Journal of Strategic Studies 39:5-6 (2016), 662-684.
58 Interviews, Beijing, December 2017.
59 For an analysis of opportunities and challenges in U.S.-China counter-terrorism cooperation, see Murray Scot Tanner and James Bellacqua, China’s Response to Terrorism, Report for the U.S. China Commission, June 2016, 127-130.
strengthen bilateral relations and to help stabilize BRI partners.60 As China’s military diplomacy expands, partners could have incentives to play Beijing and Washington against each other to secure better deals, or request that the two countries more effectively coordinate their security assistance programs. Thus the Department of Defense and other stakeholders should monitor these dynamics and determine whether and where, if appropriate, U.S. security programs may need to adapt to changing circumstances.
60 Allen, Saunders, and Chen, Chinese Military Diplomacy, 2003-2016, 11. 12 


January 25, 2018
Testimony before the U.S.-China Economic and Security Review Commission
The Geostrategic and Military Drivers and Implications of BRI
Daniel Kliman, Senior Fellow, Asia-Pacific Security Program Center for a New American Security*
Commissioner Shea, Commissioner Tobin, thank you for the opportunity to testify before this distinguished commission on “The Geostrategic and Military Drivers and Implications of BRI.”1
I commend this commission for convening a daylong hearing on different aspects of China’s Belt and Road Initiative, or BRI. My testimony will focus on the geostrategic and military drivers and implications of BRI, while also touching on the larger elements of an American strategy intended to shape BRI to align with international rules and norms, cooperate selectively with China, and compete smartly where required.
What is BRI, and Why Does It Matter
China is making a trillion-dollar play to shape the economic and geopolitical future of the Indian Ocean rim and Eurasia. Unveiled by Chinese President Xi Jinping in the fall of 2013,2 what has since become known as the Belt and Road Initiative (though still sometimes referred to as “One Belt, One Road”) is a long-term effort by Beijing to link together parts of Asia, the Middle East, Africa, and Europe through building ports, rails, roads, pipelines, and telecommunications networks, and other types of infrastructure.
Geographically, BRI covers countries representing 65 percent of the world’s population and one-third of its economic output. China plans to spend a trillion dollars in support of the initiative, which at present encompasses two major parts: a “21st Century Maritime Silk Road” stretching from Southeast Asia across the Indian Ocean into the Mediterranean Sea; and, a “Silk Road Economic Belt” extending across Eurasia with branches terminating in Pakistan, Europe, and potentially additional locations.3 A “Digital New Silk Road” that
* The views presented in this testimony are Daniel Kliman’s alone and do not represent those of CNAS or any other organizations with which he holds an affiliation. He wishes to thank CNAS colleague Melodie Ha for conducting research in support of this testimony. CNAS is partnering with the Sasakawa Peace Foundation (SPF) on a project focusing on how the United States and its allies and partners should respond to China’s Belt and Road Initiative (BRI). Other entities with a general interest in BRI, such as the U.S. Government, the Government of Japan, and various U.S. corporations, are supporters of CNAS. A full list of CNAS supporters and the Center’s funding guidelines can be found at https://www.cnas.org/support-cnas/cnas-supporters.
overlays both the maritime and land corridors with communications technology infrastructure may eventually become a third major part of BRI.4
The primary drivers behind BRI ultimately relate to China’s domestic economy: the need to relieve surplus industrial capacity, the imperative to promote economic growth in China’s underdeveloped regions through greater international connectivity, and the ambition to transform state-owned enterprises into globally competitive companies. Yet BRI also reflects several geostrategic and military considerations. First and foremost is President Xi Jinping’s vision of national rejuvenation –a China predominant in Asia and the leading power globally by 2049.5 Longstanding concerns about China’s energy dependence on vulnerable sea lines of communication as well as a desire to stand up new China-centric international organizations also motivate BRI.6
Despite some recent high-profile setbacks to several BRI projects,7 China at present retains
the initiative. And
the United States should neither underestimate China’s ability to implement the vision articulated for BRI nor downplay the appeal of BRI to countries in dire need of investment in physical and digital infrastructure. In late 2013, a lack of imagination prevented the United States from anticipating the scope and consequences of Beijing’s land reclamation in the South China Sea, delaying a timely and vigorous response. By comparison, BRI is unfolding over a far larger land and maritime expanse, and could have more sweeping consequences for the United States.
Geostrategic and Military Implications of BRI
Given BRI’s enormous ambitions, even if many projects never fully deliver or fall through, it could still reshape the economic and geopolitical landscape of the Indian Ocean rim and Eurasia. Key geostrategic and military implications include:
Accelerating the Demand for Chinese Power Projection. BRI increases China’s need to project military power abroad. As Chinese investment and workers flow into far-flung and sometimes unstable regions, the demand for the People’s Liberation Army (PLA) to conduct noncombatant evacuations, humanitarian assistance and disaster relief (HA/DR), counter- terrorism missions, and other activities that Chinese strategists call “military operations other than war” will grow.8 So will the demand on the PLA Navy (PLAN) to protect sea lines of communication that connect the major nodes of the “21st Century Maritime Silk Road.”9 In turn, BRI will reinforce voices within the PLA calling for more investment in capabilities to project power abroad – though preferences for what form this investment takes will likely differ by service.10
Facilitating the Supply of Chinese Power Projection. Expanding the PLA’s presence overseas will require a dedicated logistics network that goes beyond “pit stops” at commercial ports. The dual-use infrastructure that China constructs through BRI – such as ports and airfields – can serve as the building blocks for a more robust logistics network that enables the PLA to deploy more regularly and at a larger scale into the Indian Ocean and beyond.11 Djibouti is a case in point, where China initially built a new commercial port and
subsequently secured agreement from the Djiboutian government to construct a nearby military facility.12
Enhancing China’s Diplomatic Leverage. China’s lending practices associated with BRI at times deviate from global standards. In offering loans to countries at a level beyond their ability to repay, China has created debt traps that translate into financial leverage and permanently unequal diplomatic relationships. This in turn gives China an opening to parlay dual-use infrastructure constructed by its BRI investments into future military facilities that could provide a basis for projecting power in ways that go well beyond conducting non- combatant evacuations and counter-piracy.13 It also could enable China to compel indebted countries to support its larger geopolitical objectives on issues such as maritime disputes in the South China Sea and in multilateral forums like the United Nations.
Complicating U.S. Military Operations. The expansion of the PLA’s presence overseas that BRI both accelerates and enables will pose new challenges for the U.S. military. In peacetime, the United States and China will operate in close proximity, not only in new maritime locations such as the Indian Ocean, but also in new ways, such as conducting missions from bases in Djibouti that are less than 10 miles apart,14 increasing the possibility of accidents in a space that the “Rules of Behavior for Safety of Air and Maritime Encounters” concluded by the U.S. Department of Defense and China’s Ministry of National Defense in 2014 likely does not cover.15 To the extent that BRI paves the way for China to station its submarines in the Indian Ocean region,16 it will increase the undersea threat to U.S. warships operating there. Lastly, China could ultimately seek to deploy destabilizing capabilities such as long-range anti-ship missiles to the bases or military access points that BRI facilitates. This would create on a small scale the type of anti-access and area-denial (A2/AD) challenge confronting the United States in the Western Pacific, and elevate the risk to U.S. naval assets in the event of conflict.
Improving China’s Energy Security. Roughly 80 percent of China’s oil imports pass through the Strait of Malacca.17 BRI presents China with an opportunity to improve its energy security over the long term through creating a web of pipelines and ports that bypass this potential maritime chokepoint. Key projects include the China-Pakistan Economic Corridor (CPEC), which will allow China to transport Middle East oil from Gwadar to its western provinces, as well as a trans-Burma oil pipeline.18 Coupled with a growing PLA presence in the Indian Ocean, these new pipelines and ports will likely give Chinese leaders greater confidence in their ability to weather a maritime economic blockade in the event of a conflict.
Bolstering China’s Digital Influence. International attention has primarily focused on China’s efforts to build roads, rails, and ports across the Indian Ocean rim and Eurasia, yet digital infrastructure has emerged as a major element of BRI. Beijing has begun including communications connectivity in its investment plans. Digital infrastructural investment by China could pose a unique set of challenges, as Chinese companies have few qualms about exercising censorship, eroding online privacy, or intercepting trade secrets at the behest of the government in Beijing.19 Moreover, in its Next Generation Artificial Intelligence Development Plan, China has announced its intent to “accelerate the broad application of AI technologies in
countries along the ‘One Belt, One Road.’”20 China could potentially glean large amounts of data
from the digital infrastructure constructed by BRI. This data could help to fuel China’s AI industry,
and also give its companies a potential edge engaging consumers in markets across the Indian Ocean
rim and Eurasia.
Antagonizing India – and Irritating Pakistan. BRI has amplified longstanding Indian concerns about Chinese encirclement. India has objected in particular to CPEC, which runs through Kashmir, territory that both it and Pakistan claim. For India, the development of the Gwadar port – a flagship project of CPEC – also raises the prospect of a Chinese military foothold along its western approaches. As Indian anxieties about BRI have increased, it has accelerated efforts to strengthen ties with the United States and Japan. From a U.S. perspective, this development reinforces regional stability; viewed from Beijing, it fuels fear of regional containment. While antagonizing India, BRI has also begun to create irritations in the China-Pakistan relationship. China has brought its own workers and companies into Pakistan, doing comparatively little to build local capacity. And China has at times attempted to impose strict conditions on lending that would undermine Pakistani sovereignty.21 Over time, BRI could make China an increasing target for local antipathy in Pakistan, perhaps reducing the level of popular dislike directed toward the United States.
Weakening European Cohesion. Chinese investment into Europe associated with BRI has exacerbated existing divisions pitting Western European states and Brussels – the seat of the European Union (EU) – against the less wealthy countries of Central and Eastern Europe. The EU’s leadership has displayed a cautious approach toward BRI, underscoring that it must “
The United States and BRI
The United States has yet to develop a coherent strategy toward BRI. During President Obama’s tenure in the White House, BRI occupied a minor place in the hierarchy of issues that made up U.S. China policy. Other issues dominated the Obama administration’s focus on Beijing. On the cooperative side, addressing climate change, promoting global economic development, and ensuring support for UN Security Council sanctions against Iran received priority. On the competitive side, countering Beijing’s construction and subsequent militarization of artificial island outposts in the South China Sea absorbed the attention of senior officials. Consequently, the Obama administration never formalized a view of BRI. Even so, its commitment to strengthen regional connectivity – as manifested in multiple initiatives spanning Central, South, and Southeast Asia – and drive to boost U.S. investment across the Indo-Pacific functioned as a de facto response.
adhere to a number of principles including market rules and international standards.”22
However, states in Central and Eastern Europe have embraced BRI, and in Hungary’s case, may
have ignored European public tender requirements when awarding China with a high-speed railway
contract. Chinese investment into Central and Eastern Europe has also translated into diplomatic
leverage, rendering European unity on key questions like how to manage China’s investment in high-
technology industries more challenging. Overall, BRI will likely reduce Europe’s capacity to function
as a unified partner in any American response to address China’s mercantilist trade and investment
Although the Trump administration has yet to unveil a systematic response to BRI, it is clear that over the coming years, BRI will occupy a comparatively prominent place in U.S. policy toward China on the competitive side of the relationship. Senior administration officials including the Secretaries of State and Defense have publicly criticized BRI.24 President Trump has yet to directly address BRI in public remarks. However, in his speech at the APEC CEO Summit in November 2017, he delivered a thinly-veiled critique, calling for alternatives to “state-directed initiatives that come with many strings attached.”25 Without referencing BRI by name, the Trump administration’s new National Security Strategy acknowledges a “geopolitical competition between free and repressive visions of world order taking place in the Indo-Pacific region,” calling out China’s role in using economic inducements and infrastructure investments to pursue its geopolitical aspirations.26
The Trump administration has started to sketch out limited elements of a U.S. approach toward BRI. At the APEC CEO Forum in November, President Trump announced that the United States would reform its development finance institutions to create new incentives for private sector investments. He has also urged international financial institutions (IFIs) to dedicate greater resources to large-scale infrastructure projects.
Thus far, the most promising aspect of the Trump administration’s evolving response to
BRI is growing cooperation with allies and partners. During the president’s November trip to Asia, his administration announced that the U.S. Overseas Private Investment Corporation (OPIC) would join with Japanese partners “to offer high-quality United States- Japan infrastructure investment alternatives in the Indo-Pacific region.”
27 Moreover, BRI appears to have been a topic of discussion in recent senior level meetings with India, as well as the revived US-Japan-Australia-India four-way talks, also known as the Quad.28 Overall, the Trump administration appears inclined to develop a robust strategic response to BRI. Yet whether the Trump administration can fully execute a response to BRI is uncertain given its budgetary priorities and predisposition against multilateral organizations.
Guidelines for a U.S. Strategic Response
Ultimately, a U.S. response toward BRI must occur within the larger context of a positive American strategy to sustain the rules-based international order that since the end of World War II has underpinned global peace, prosperity, and democracy expansion. Recognizing this, the United States should seek to shape BRI to align with accepted international norms and standards; pursue opportunities for selective cooperation with China; and compete where required.
The following guidelines provide a basis for developing a U.S. response to BRI:
Avoid a purely oppositional approach. The United State should learn the lesson of its failed opposition to China’s Asian Infrastructure Investment Bank (AIIB): countries need new sources of investment, and are unlikely to be persuaded that they should reject additional opportunities for economic development based on abstract arguments over international principles. BRI fills a void left by traditional international financial institutions. Moreover, BRI’s activities run the gamut from predatory lending to investments that would pass muster
under global norms. BRI is not a monolith, and treating it as such will make it more difficult to impose necessary scrutiny on those investments that deserve careful review.
Offer a positive vision – one that includes China. The United States should advance an affirmative vision of high-quality physical and digital infrastructure linking together Asia, Africa, the Middle East, and Europe in shared growth and preparation for the economy of the future. Washington should emphasize that development financing should expand opportunities – not constrict national choices through unsustainable debt or degrade national sovereignty through terms that ultimately compel countries to cede control of critical infrastructure. American officials should articulate that they welcome a more connected Indian Ocean rim and Eurasia in which China serves as one of multiple major nodes in a network of physical and digital infrastructure constructed not only by China, but also by a diverse set of states.
Place U.S. allies and partners at the center. The United States should seek to incorporate key allies and partners into the planning and execution of a strategy toward BRI. Their interests and concerns should inform and undergird a U.S. approach, not least because the United States alone cannot effectively respond to BRI given its vast geographic and financial scope. When identifying the most promising countries to involve in this effort, the United States should focus on allies and partners with sufficient resources and stature to chart their own approach toward BRI regardless of Chinese economic inducements or coercion. Here, Japan, India, Europe, Australia, and Saudi Arabia stand out. This collection of allies and partners will naturally have different perspectives and equities when responding to BRI, and the United States should provide a platform to facilitate information exchange and an alignment of approaches where possible.
Shape Chinese overseas basing. With BRI both accelerating and enabling the PLA’s operations abroad, the United States and its allies and partners should identify where a Chinese military presence would be most destabilizing and take action to prevent it or at least mitigate the consequences. For the United States, this will likely mean focusing more on BRI investments along the Indian Ocean rim than those in Central Asian states. The United States and its allies and partners should convey to countries considering granting China military access the potential consequences for their sovereignty, as well as types of PLA capabilities that would prove most disruptive. Congressional Delegations could play an important role in communicating these concerns to political decision makers in states where China is pursuing military access.
Ensure the U.S. military can operate in A2/AD environments. To the extent that BRI eventually paves the way for a network of overseas Chinese military facilities that feature some offensive capabilities, the United States could in the future confront on a limited scale the type of A2/AD challenge that today defines the Western Pacific. It is therefore essential that the Department of Defense (DoD) continues to invest in new capabilities and develops new operational concepts that will allow U.S. forces to effectively operate in A2/AD environments. A U.S. military designed to fight and prevail in the Western Pacific will be able to handle the comparatively modest A2/AD capabilities that China might deploy to future facilities in the Indian Ocean. Congress can play an important role in ensuring that the DoD
maintains an adequate focus on the force modernization required to prepare the U.S. military to operate in a highly contested environment.
Focus on digital infrastructure. U.S. companies have a comparative advantage in the digital domain, and the potential implications of the information technology dimension of BRI are most uncertain – and potentially most consequential over the long term. The United States and its allies and partners should consider launching a Digital Development Bank that would specialize in digital infrastructure and ensure that countries in the Indian Ocean rim and Eurasia have alternatives to a Faustian digital financing bargain with China.
In recent years, ambitious Chinese initiatives have too often caught the United States flatfooted. Now is the time to develop a strategic response to BRI. In the absence of a coordinated approach that brings together the United States and its allies and partners, large parts of the Indian Ocean rim and Eurasia could become the core of a new China-centric order in which many states have little choice but to follow Beijing’s lead.
1 This testimony draws on Daniel Kliman and Harry Krejsa, “Responding to China’s Belt and Road Initiative,” CNAS Commentary, November 13, 2017, https://www.cnas.org/press/press-note/cnas-commentary-responding-to-chinas- belt-and-road-initiative; and Daniel Kliman and Manpreet S. Anand, “Expanding U.S.-India Geoeconomic Cooperation Amid China’s Belt and Road Initiative,” Asan Forum, December 23, 2017, http://www.theasanforum.org/expanding-us- india-geoeconomic-cooperation-amid-chinas-belt-and-road-initiative/#3.
3 4
. .
For a detailed study on the origins and evolution of BRI, see Christopher K. Johnson, “President Xi
Jinping’s ‘Belt and Road’ Initiative: A Practical Assessment of the Chinese Communist Party’s Roadmap for
China’s Global Resurgence,” Center for Strategic and International Studies, March 2016, https://csis-
For a comprehensive breakdown of BRI’s maritime and land elements, see Gal Luft, “It Takes a Road,”
Institute for the Analysis of Global Security, November 2016, http://www.iags.org/Luft_BRI.pdf
Rachel Brown, “Beijing’s Silk Road Goes Digital,” Council on Foreign Relations Asia Unbound Blog, June
6, 2017, https://www.cfr.org/blog/beijings-silk-road-goes-digital
5 Rush Doshi, “Xi Jinping made it clear where China’s foreign policy is headed,” The Washington Post, October 25, 2017,
foreign-policy-is-headed/?utm_term=.865aa51cb2d1. 6
. 8 For example, see “
9 Christopher D. Yung and Ross Rustici with Scott Devary and Jenny Lin, ““Not an Idea We Have to Shun”: Chinese Overseas Basing Requirements in the 21st Century,” Institute for National Strategic Studies China Strategic Perspectives, No. 7, October 2014,
http://ndupress.ndu.edu/Portals/68/Documents/stratperspective/china/ChinaPerspectives-7.pdf. 11 Yung et. al., “Not an Idea We Have to Shun.”
13 Bhrama Chellaney, “China’s Creditor Imperialism,” Project Syndicate, December 20, 2017, https://www.project- syndicate.org/commentary/china-sri-lanka-hambantota-port-debt-by-brahma-chellaney-2017-12.
14 Jeremy Page, “China Builds First Overseas Military Outpost,” The Wall Street Journal, April 19, 2016, https://www.wsj.com/articles/china-builds-first-overseas-military-outpost-1471622690.
Johnson, “President Xi Jinping’s ‘Belt and Road’ Initiative.”
Saibal Dasgupta and Anjana Pasricha, “Pakistan, Nepal, Myanmar Back Away From Chinese Projects,” Voice
of America
December 4, 2017, https://www.voanews.com/a/three-countries-withdraw-from-chinese-
China’s Military Strategy,” The State Council Information Office of the People’s Republic of China,
May 2015, https://news.usni.org/2015/05/26/document-chinas-military-strategy.
10 Andrea Ghiselli, “The Belt, the Road, and the PLA,” China Brief Volume 15, Issue 20, The Jamestown Foundation, October 19, 2015, https://jamestown.org/program/the-belt-the-road-and-the-pla/.
12 Andrew Jacobs and Jane Perlez, “U.S. Wary of Its New Neighbor in Djibouti: A Chinese Naval Base,” The New York Times, February 25, 2017.
15 “Memorandum of Understanding Between the Department of Defense of the United States of America and the Ministry of National Defense of the People’s Republic of China Regarding the Rules of Behavior for Safety of Air and Maritime Encounters concluded by the U.S. Department of Defense and China’s Ministry of National Defense,” November 2014, https://www.defense.gov/Portals/1/Documents/pubs/141112_MemorandumOfUnderstandingRegardingRul es.pdf.
17 Sara Hsu, “China’s Energy Insecurity Glaring In South China Sea Dispute,” Forbes, September 2, 2016, https://www.forbes.com/sites/sarahsu/2016/09/02/china-energy-insecurity-south-china-sea-dispute/#28fde1552eec.
18 Luft, “It Takes a Road”; B.A. Hamzah, “Alleviating China’s Malacca Dilemma,” Institute for Security and Development Policy Voices, March 13, 2017, http://isdp.eu/alleviating-chinas-malacca-dilemma/.
20 “A Next Generation Artificial Intelligence Development Plan,” China’s State Council, July 20, 2017, translated by Rogier Creemers, Graham Webster, Paul Triolo, and Elsa Kani, https://www.newamerica.org/documents/1959/translation-fulltext-8.1.17.pdf.
21 C. Christine Fair, “Pakistan Can’t Afford China’s ‘Friendship’,” Foreign Policy, July 3, 2017,
http://foreignpolicy.com/2017/07/03/pakistan-cant-afford-chinas-friendship/; Saibal Dasguptal, “In a jolt to OBOR, Pakistan rejects China dam aid,” The Times of India, November 16, 2017, https://timesofindia.indiatimes.com/world/pakistan/pakistan-walks-out-of-chinese-project-for-pok- dam/articleshow/61662966.cms.
22 “Speech by Jyrki Katainen, Vice President of the European Commission at the Leaders’ Roundtable of the Belt and Road Forum for International Cooperation,” May15, 2017,
23 James Kynge and Michael Peel, “Brussels rattled as China reaches out to eastern Europe,” The Financial Times, November 27, 2017, https://www.ft.com/content/16abbf2a-cf9b-11e7-9dbb-291a884dd8c6; Philippe Le Corre, “Europe’s mixed views on China’s One Belt, One Road initiative,” Order from Chaos Blog, Brookings, https://www.brookings.edu/blog/order-from-chaos/2017/05/23/europes-mixed-views-on-chinas-one-belt-one-road- initiative/.
24 When testifying before Congress, Secretary of Defense James Mattis bluntly observed: “in a globalized world, there are many belts and many roads, and no one nation should put itself into a position of dictating ‘one belt, one road.’” Speaking at the 2017 Atlantic Council-Korea Foundation Forum, Secretary of State Tillerson issued a public broadside against BRI: “China’s economic development, in our view, should take place in the system of international rules and norms, and One Belt, One Road seems to want to define its own rules and norms.” J
16 Manish Shukla, “China prepares to deploy nuclear submarines at Pakistan’s Gwadar Port: True face of CPEC?” Zee News, January 18, 2018, http://zeenews.india.com/world/china-prepares-to-deploy-nuclear-submarines-at-pakistans- gwadar-port-true-face-of-cpec-2074537.html.
19 Paul Mozur, “Huawei, Chinese Technology Giant, Is Focus of Widening U.S. Investigation,” The New York Times, April 26, 2017, https://www.nytimes.com/2017/04/26/business/huawei-investigation-sanctions-subpoena.html.
ames Mattis in “Political and Security Situation in Afghanistan,” Stenographic
Transcript Before the Committee on Armed Services of the United States Senate, October 3,
2017, https://www.armed-services.senate.gov/imo/media/doc/17-82_10-03-17.pdf
Rex Tillereson,
“Meeting the Foreign Policy Challenges of 2017 and Beyond,” December 12, 2017,
“Remarks by President Trump at APEC CEO Summit,” November 10, 2017,
“National Security Strategy of the United States,” The White House, December 2017,
“President Donald J. Trump’s Visit to Japan Strengthens the United States-Japan Alliance and Economic
Partnership,” White House Fact Sheet, November 6, 2017, https://www.whitehouse.gov/briefings-
Julie McCarthy, “Tillerson Visit Highlights India’s Evolving Relationship with U.S.,” NPR, October 26,
2017, https://www.npr.org/sections/parallels/2017/10/26/560224471/tillerson-visit-highlights-indias-
evolving-relationship-with-u-s; “Australia-India-Japan-U.S. Consultations on the Indo-Pacific,” U.S. State
Department Press Statement, November 12, 2017,
26 27
Contextualizing China’s Belt and Road Initiative
Written testimony for the USCC submitted on January 19, 20181
Joshua Eisenman, Ph.D.
Assistant Professor
LBJ School of Public Affairs University of Texas at Austin
[NOTE: This testimony places the Belt and Road Initiative (BRI) in the larger strategic context of China’s longstanding political-economic relations with the developing world. In keeping with the questions provided by commission staff, this testimony has four primary objectives: (1) explain China’s strategic goals in the developing world and BRI’s role in achieving them; (2) unpack and summarize the primary Beijing political-economic initiatives with an emphasis on BRI and China’s political and soft power outreach; (2) explain how other countries have perceived and responded to China’s development-first approach spearheaded by BRI; and (4) articulate some of the implications for the United States.]
I. Overview
On May 14, 2017, over 1,500 people, including twenty-nine national leaders and delegates from 130 countries, gathered at the China National Convention Center in the Olympic Center in Beijing to hear President Xi Jinping’s remarks opening the Belt and Road Initiative (BRI) Conference. What we hope to create is a big family of harmonious co-existence,” Xi said, then announced another 100 billion yuan ($14.49 billion) for the Silk Road Fund, bring the total to nearly $55 billion. Moreover, he added: “The China Development Bank and the Export-Import Bank of China will set up special lending plans respectively worth 250 billion yuan and 130 billion yuan to support Belt and Road cooperation.” During the group photo, Xi was flanked by Russian President Vladimir Putin and Turkey’s President Recep Tayyip Erdogan, who both spoke at the ceremony. summed up the mood among the attendees
For centuries, Western observers have predicted that China would someday emerge as a major political and economic force in regional and world affairs andas the 2017 BRI Conference and dozens of similar events demonstratethat day has arrived.
The pace and scope of China’s emergence has been breathtaking. Between 2000 and 2016, China’s real GDP increased more than fourfold to roughly $11.4 trillion at the 2016 exchange
1 This testimony is derived from the forthcoming book: Joshua Eisenman and Eric Heginbotham, eds., China Steps Out: Beijing’s Major Power Engagement with the Developing World (London: Routledge, 2018).
Ethiopian Prime Minister Hailemariam Desalegn
: “China has taken the leadership in laying the foundations for the realization
of our shared vision for an open, fair and prosperous world. Achievement of this vision will
require our political commitment and a huge sum of resources.”1
rate;2 its foreign trade climbed from $642 billion to $3.7 trillion (in 2016 dollars);3 and its share of the global economy grew from 3.6 percent to 14.9 percent.4 Over the last three years, Chinese FDI, which was about $70 billion in 2013, exceed $170 billion in 2016.5 When Beijing abandoned isolation and began its economic “opening” to the world in the mid-late 1970s, even the most optimistic Chinese policymaker could not have predicted such a precipitous expansion of global engagement.
Under the “going out” strategy, which was first advanced in 1997 and formally initiated in 1999, Chinese firms have been transformed from novice newcomers to global powerhouses, and become deeply enmeshed in international trade, banking, and mergers and acquisitions.6 The growth in China’s trade with the developing world has consistently outstripped that with the developed world, and Beijing’s policy banks (most notably the China Ex-Im Bank and China Development Bank) have deployed hundreds of billions in capital in an unprecedented global infrastructure financing campaign that dwarfs that of the World Bank.
After the 2009 global financial crisis, Chinese leaders came to believe that the historic trend towards multipolarity had accelerated and that developing states were becoming ever more important economic, political and military partners. China’s new self-confidence was reflected in Xi Jinping’s notion of “major power diplomacy with Chinese characteristics” and his call to shape the international environment more proactively.7 China has become an increasingly active participant in international institutions, taking a leading role in United Nations peacekeeping operations and almost doubling its contributions to and vote share in the International Monetary Fund.8 Beijing has also created and funded numerous Sino-centric regional organizations (e.g., the China-Africa Cooperation Forum and the China-Community of Latin American and Caribbean States Forum) that provide regional venues for Chinese leadership. Other organizations like the Asian Infrastructure Investment Bank (AIIB) enhance the perception that China has emerged as the champion of globalization, though it is unclear whether such institutions complement or challenge existing international institutions.9
Since 2013, Beijing’s “going out” policy has been expanded into the ambitious BRI initiative championed by President Xi Jinping. To cope with excess industrial and construction capacity and gain higher returns, the financing of infrastructure has been accelerated under the BRI. To help Chinese state-owned and private firms take advantage of new economic opportunities in lesser-developed regions, China has policy banks and other funding mechanisms (e.g., the China Ex-Im Bank, China Development Bank, the China-Africa Development Fund, and the Silk Road Fund) to lend money to foreign governments to execute infrastructure projects employing Chinese firms. The Beijing-based Asian Infrastructure Investment Bank, unlike the others, is a multilateral institution, but it is also part of China’s larger international development and trade promotion strategy. According to an official media outlet: “With the ‘Belt and Road’ initiative and other strategies serving as a powerful engine... China’s overseas investment will continue to maintain a double-digit growth rate.10
Yet, China’s ambitious push into the developing world, now headlined by BRI, has not been without setbacks and problems. China’s economic slowdown, especially the sharp downturn after 2015, precipitated a drop in global commodity prices and raised new questions about the profitability of many government-driven commodity investments. Similarly, after making tens of
billions in politically-driven loans at favorable rates to countries such as Venezuela, Zimbabwe, and Sri Lanka, China now faces problems recouping its money. The question is whether BRI will reverse these trends or, more likely, exacerbate them.
Asymmetric trade and investment relations have engendered concern among leaders in numerous developing countries, and, in some cases, drawn protests from local populations. China’s growing hard power, combined with its more assertive approach to territorial and boundary issues in the South China Sea, has also caused some states around China’s periphery to seek closer military or strategic ties with the United States and Japan. Farther afield, in the Middle East and to a lesser extent Africa, Beijing’s commitment to neutrality and non-interference in regional disputes are increasingly being tested as its economic interests expand in ways that require it to behave like a more traditional major world power.
II. China’s Strategic Objectives in the Developing World
There are various formulations of China’s “core national interests” (核心利益), but all assume three overlapping objectives.11 First, China’s leaders seek to ensure the continued rule of the Communist Party; second, they seek to maintain and defend China’s sovereignty and territorial integrity; and third, they want to maintain an international environment conducive to China’s continued economic growth.
Despite propaganda efforts to portray Chinese policies as rooted in solidarity with the developing world, the drivers of Chinese policies remain primarily domestic, and regime survival remains Beijing’s foremost objective, informing all other interests. The priority on regime survival is evident in the content and character of its diplomacy, party-to-party relations, defense of sovereignty norms in international politics, and in its near single-minded emphasis on economic development.12 As Deng Xiaoping said in 1992: “Development is the hard truth” (发展是硬道 理).13 At Davos in 2017, Xiin a comment reminiscent of both Deng and U.S. President Abraham Lincoln’s Gettysburg Address—said: “Development is of the people, by the people and for the people.”14
The emphasis on economic growth and domestic stability naturally shapes China’s engagement with the developing world. Chinese leaders view economic growth and welfare as central to regime survival, and they view trade as a critical engine of growth. For more than a decade, developing countries have supplied the minerals, metals, timber and energy demanded by the Chinese industrial, construction and manufacturing sectors. To secure steady access to those resources, Chinese companies have, since the early 2000s, moved to purchase upstream energy and mineral assets, primarily in developing countries. These countries have also become important outlets for Chinese consumer products, enabling Chinese firms to build brand loyalties in emerging markets.15
Improved living standards are integral to Xi’s “China Dream,” with its goal of achieving a “moderately well off” society (小康社会) by 2021. For many years, officials in Beijing viewed
rapid economic growth as essential to absorbing China’s growing workforce and avoiding social instability. Since the Third Plenum of the Communist Party’s 18th Congress, however, leaders have emphasized balanced growth, environmental protection, and eliminating structural
imbalances within the economy. That said, old habits die hard. Local and many central government officials continue to use GDP growth rates as the yardstick of success. Moreover, Xi’s “Made in China 2025,” is a plan to comprehensively upgrade and strengthen the country’s manufacturing capability. Nevertheless, as wage structures continue to shift in China and as environmental concerns mount, labor-intensive industries (e.g., textiles and leather goods) will continue to shift production to developing states.
The developing world is also a locus of Beijing’s efforts to maintain or defend its “territorial integrity.” After a “diplomatic truce” from 2008 to 2016, the competition for diplomatic recognition between Taipei and Beijing appears to have resumed with the election of Tsai Ing- wen in Taiwan. In its quest to contain separatist impulses in Tibet, China periodically sanctions countries and foreign organizations that give the Dalai Lama a platform or afford him anything approaching recognition.16 Chinese activities to secure its claims to features in the South China Sea have included the use of hard power and coercive measures directly against rival claimants. China has also solicited public support from at least 66 mostly-developing countries for recognition of its maritime territorial claims in the South China Sea, and employed a variety of economic and political means to purchase the loyalty of the smallest and weakest states in ASEAN (Laos and Cambodia) to divide the organization and prevent unified opposition from coalescing.17
More broadly, China has found common interests with developing states on a range of political- economic issues (e.g., environmental priorities and trade-offs, trade policy, technology standards, and the form and function of international institutions) and has sought to partner with the largest of them to foster a more “democratic” international order. Interests on these issues often align across regime types. Despite India’s long history of vibrant democratic governance, New Delhi’s votes in the UN General Assembly on various issues are more closely aligned with those of Beijing than they are with Washington’s.18 In Beijing’s case, support for norms related to state sovereignty and non-intervention are motivated by a desire to insulate itself from international condemnation, sanctions and intervention related to its human rights abuses and harsh policies toward minorities in Tibet and Xinjiang.
III. Structure of China’s Political-Economic Engagement with Developing Countries
China’s relations with developing countries display three principal characteristics: first, Beijing benefits from and sometimes exploits asymmetry in its relations with developing countries; second, China pursues a “package” approach – bringing economic, political, and other means to bear in a coordinated, albeit imperfect, manner; and third, Beijing advances its interests through a network of interlocking and self-reinforcing bilateral, regional, and global engagements. Each developing country’s ability to derive benefits from its relationship with China depends primarily on its ability to develop and implement a coordinated national strategy that carefully considers the combined implications of these three characteristics over the short, medium, and long term. If a developing country ignores these realities or fails to consider their full implications, it is unlikely to achieve its own objectives vis-à-vis China; a much larger, richer, and generally, better coordinated state.
Asymmetric Engagement
Asymmetry is the most pervasive and enduring aspect of nearly all of China’s bilateral relationships, a fact that then-Foreign Minister Yang Jiechi reminded a
China’s nominal GDP ($11.4 trillion in 2016) dwarfs every developing country and is more than double the
combined GDP of India ($2.3 trillion), Brazil ($1.8 trillion), South Africa ($280 billion).20 In 2016, Chinese exports made up more than half of all exports from the developing world.21
Although asymmetry is ever-present in China’s relationships with nearly all developing countries, Beijing can choose to either highlight and exploit it or downplay it. China’s comprehensive “package” approach (discussed immediately below) magnifies the perception of asymmetry, while egalitarian diplomacy and calls for “brotherhood” and “equality” diminish it. Regional forums like FOCAC and the ChinaCommunity of Latin American and Caribbean States (CELAC) Relations Forum invariably alternate locations between China and different partner countries in these regions. Symbolically, this places China on par with entire regions and practically it enhances Beijing’s already disproportionate agenda setting power. Beijing never fails to play the impressive and gracious host, with banquets replete with constant references to solidarity, state-sovereignty, and the equality of all nation states.
Comprehensive Engagement
Chinese foreign policy involves “multi-centric, multi-layered and multi-pivotal sub-networks of regional and international cooperation that are interconnected and interwoven,” explained former Vice Minister of Foreign Affairs He Yafei.22 Chinese foreign policy also now emphasizes a broad array of collaborative enterprises including foreign aid, educational and cultural exchanges, media cooperation, military assistance and training, and political cadre training. Beijing looks to combine these elements (discussed individually below) into a comprehensive package that creates synergies among China’s various interests and allows the state to target resources and apply leverage to achieve its objectives. The breadth of Beijing’s “comprehensive diplomacy” is well illustrated in its November 2016 white paper on Latin America and the Caribbean, which lists five broad areas of cooperation (i.e., political, economic, social, cultural, and peace and security) subdivided into 37 specific programs.
China’s economic diplomacy, party-to-party relations, military diplomacy, and cultural outreach is often woven into a package that appears irresistible. China’s policy banks have become the developing world’s go-to lenders. Between these, and its massive state-owned commercial banks, China has 20 of the largest 100 banks in the world (ranked by total assets).23 China’s state-owned and semi-private infrastructure and telecoms firms have become the face of the country’s overseas presence, building railroads, dams, airports, highways, and fiber optic networks for dozens of countries.
To be sure, not all of China’s overseas engagement is state directedor even directly state supported. Chinese small and mid-sized Chinese entrepreneurs (which account for a rapidly growing, and often unaccounted for, share of overseas trade and investment) generally operate independently in the developing world.24 Even large SOEs target deals based primarily on
security forum of the
Association of South East Asian Nations (ASEAN) of in 2010 when he said: “China is a big
country and other countries are small countries, and that’s just a fact.”19 Indeed,
prospective profitability, and they have proven willing in rare cases to resist political pressure to invest in deals they deem unpromising.25 Nevertheless, Beijing can influence investment decisions and frequently does so to further its political objectives.
While economic tools are perhaps the most persuasive in Beijing’s toolkit, China’s comprehensive engagement goes beyond economics, and aims to build a stable, multifaceted, and mutually beneficial set of bilateral relationships. Chinese leaders have recognized that broader relationship must be “high-quality” and go beyond profits to include a “sense of justice” (义利观).26
Interlocking Engagement
While all major states conduct diplomatic activities at the bilateral, regional, and global levels, China’s engagement consists of a particularly tight latticework of institutionalized relationships, and its focus on creating or interfacing with regional organizations is distinctive in the degree, if not type, of effort involved. By building a dense network of interlocking relationships, Beijing hopes to build a stable and mutually reinforcing structure that will further its interests.
Although China’s creation of regional organizations is among the most distinctive features of Beijing’s approach to the developing world, its bilateral relations remain the foundation. Multilateral forums boost legitimacy and visibility, but binding deals are primarily pursued bilaterally. China’s approach towards individual countries is tailored in accordance with Beijing’s specific interests there. China’s relations with nearby states are generally deeper and more complex, with a mix of political, and economic interests, and sometimes territorial disputes, at play. Beijing’s more distant relationships, by contrast, tend to prioritize economic objectives. China’s relations with emerging major developing powers (including the BRICS countries and the developing members of the G-20) cut across regional lines and also tend to be multidimensionalwith several overlapping political, economic, and security components.
Across the developing world, Beijing has deepened its bilateral relationships and maintains “strategic partnerships” with some 67 states.27 Within each region, Beijing places considerable emphasis on its relations with large and important anchor or “hub” states where circumstances of geography, politics or economics make relations with China particularly propitious. These relationships tend to receive more attention in Beijing and be relatively stable over time. In East Asia, they include Indonesia and Thailand; in South Asia, Pakistan and India; in Central Asia, Kazakhstan; in Africa, South Africa, Egypt and Ethiopia; in the Middle East, Iran; and in Latin America, Brazil and Argentina. This list is not definitive, and has and will continue to evolve over time. For example, some states, like Venezuela under Hugo Chavez, received special attention and financing from Beijing for a limited period of time for political reasons. Small, but strategically located states, like Cambodia and Laos, are more susceptible to Chinese influence, and have served as useful “nail-house” votes in consensus-governed ASEAN.
The pattern of deepening engagement with regional institutions is replicated across every developing region. Beijing established relations with ASEAN in 1991, and today is involved in eleven ASEAN ministerial-level mechanisms across a wide range of economic, political, cultural, and security areas. It has maintained an ambassador to ASEAN since 2008, and has participated in the China-ASEAN Free Trade Area since 2010.28 In Latin America, China was admitted as a permanent observer to both the Organization of American States (OAS) and Latin American Parliament in 2004. In January 2015, Beijing and Latin American leaders held the inaugural meeting of the China-CELAC Forum, at which Xi Jinping established a target for Chinese investment in Latin America of $250 billion within ten years.29 Notably, the CELAC forum, unlike the OAS, does not include the United States.
China’s regional diplomacy in Africa is orchestrated largely under the Forum on China-Africa Cooperation (FOCAC), which convened its first Ministerial Conference in Beijing in October 2000. In 2006, FOCAC was elevated to a Ministerial-level Summit, with meetings held every three years. China and Arab partners established the China-Arab States Cooperation Forum (CASCF) in 2004.30 The CASCF and China-Gulf Cooperation Council strategic dialogue established in 2010 have allowed Beijing to expand relations with the Sunni-dominated Gulf States, which had been limited by China’s close relations with Shia Iran.31
Since the 1980s, China has become an increasingly active contributor to international institutions. China’s participation reassures other states that it is committed to the international system, provides venues to advance Chinese interests, and helps “lock in” Chinese policymakers in ways that help reduce conservative domestic opposition to reform. China’s expanded involvement in global institutions also serves to highlight and promote Beijing’s efforts to lead the developing world by reforming and shaping global institutions. Beijing has pushed for years to change quotas and vote shares in the World Bank, IMF, and Asian Development Bank, although the process has been painfully slow.32 In the World Bank, it has advocated greater transparency in the selection of the president and an end to Western dominance, and has consistently sought to expand the prominence of the G-20 vis-à-vis the G-7.33
IV. BRI and China’s Development-first Political-Economic Engagement
BRI (i.e. concessionary debt financing)
Development with Chinese characteristics has gone global. BRI seeks to create a new Sino- centric era of globalization using both traditional tools of Chinese statecraft as well as new types of economic incentives and debt financing arrangements. For two decades, China has promoted a “going-out” policy among its SOEs. Financing for Chinese-built projects in developing countries comes from a variety of sources, the most important being China’s policy banks established in 1994 to finance projects important to Chinese economic growth. The Export-Import Bank of China (China Ex-Im Bank) and the China Development Bank provide large volumes of soft loans to developing countries under the condition that they hire Chinese SOEs to complete projects.34 The loan portfolio of these two banks and 13 regional funds exceed the $700 billion outstanding loans from all six western-backed multilateral banks combined (including the World Bank, Asian Development Bank, Inter-American Development Bank, European Investment Bank, European Bank for Reconstruction and Development, and African Development Bank).35
When Chinese leaders conduct summit meetings, they often travel with large business delegations and sign MoUs worth hundreds of millions if not billions of dollars. In Islamabad in April 2015, for example, Xi Jinping and Pakistan’s President Nawaz Shari signed 51 MoUs worth nearly $28 billion as the first phase of a larger Pakistan-China Economic Corridor Project said to be worth more than $50 billion.36 During the December 2015 FOCAC meeting, Xi Jinping pledged some $60 billion in funding support, mostly in the form of loans and export credits and $5 billion in assistance to Africa.37
The dollar values discussed at these meetings hold out the promise of profits and economic growth for smaller partner nations. But MOUs are, of course, not legally binding contracts and many do not reach fruition or remain decades in the future. Others involve deals for which negotiations had been ongoing (in some cases for years), but which are pushed forward to correspond with a political meeting or leaders’ summit.
In October 2013, the BRI became the overarching framework for this effort. Somewhat confusingly, the “belt” portion is continental, while the “road” portion is maritime. The Silk Road Economic Belt (SREB) runs through Central Asia, West Asia, the Middle East, and Europe. The Maritime Silk Road (MSR) connects China to countries in Southeast Asia, Oceania, and parts of North and East Africathe South China Sea, South Pacific, and Indian Ocean regions. Designed to improve connectivity between China and more than 60 countries, BRI is overseen by the National Development and Reform Commission, Ministry of Foreign Affairs, and Ministry of Commerce, all under the auspices of the State Council.38 Projects include virtually all types of transportation infrastructure, including rail, roads, ports, airports, electricity generation, telecommunications and various other forms of connectivity.39
In October 2013, the same month that BRI was introduced, Xi Jinping announced China’s intention to establish the AIIB, which will complement the BRI initiative. The AIIB began operations in December 2015 with 57 founding member states37 from Asia and 20 outside of it.40 Initial capital was $100 billion, about two-thirds of the capital of the Asian Development Bank and about half that of the World Bank.41 Although the AIIB is headquartered in Beijing, its president reports to an international board, and although China holds the largest voting bloc (26 percent) it remains a minority stakeholder. Beijing has also created the Silk Road Fund, backed by China’s sovereign wealth fund but open to private investors.42 Established in December 2014, the Silk Road Fund is capitalized at roughly $55 billion.43 The AIIB’s slow start and the Silk Road Fund’s limited scale means that the preponderance of financing for BRI projects come from China’s policy banks.44
may be transferred directly into the Beijing-based bank accounts of China’s state-owned
Once terms are reached with a host country, funds
enterprises, which execute the project using Chinese materials and labor.
While there are many unanswered questions about the initiative, it is clear that BRI takes China’s
finance and infrastructure construction efforts to a new, and far riskier, level. Beijing intends to
allocate at least $1 trillion to the initiative, and scores of multinational corporations, both
Chinese and foreign, are angling take full advantage.45 The framework has subsumed many
projects that were being considered long before BRI was launched, but the unquestioned political
backing implied by writing BRI into the CPC constitution may lead to more projects being
launched with less careful assessment of likely risks and returns. Because these projects involve loans, heavy BRI funding may exacerbate the debt problems of already poor states and further burden deeply indebted Chinese banks. China now owns more than half of some African nations’ foreign debt, and many expect Beijing will have to write off significant portions in the years ahead.
Developing countries play a central role in China’s “going out” foreign investment strategy. As early as 1999, China had amassed about $155 billion in foreign reserves and was looking to gain returns while generating work for its SOEs.46 That year, at the Fourth Plenum of the 15th National Party Congress, Jiang Zemin launched the so-called “going out strategy” encouraging firms to “establish branches overseas” and “explore international markets.”47 Subsequent decisions during the 2000s provided funding mechanisms to facilitate outward investment. China’s move outward began slowlyand primarily involved SOEs in the extractive and construction industries—but has diversified and gathered momentum since 2010. China’s non- financial FDI flow increased from $3.6 billion (in 2016 USD) in 2003 to some $141.2 billion in 2015a real compound annual growth rate CAGR of 36 percent.48
According to official figures, as of 2015 about 57 percent of China’s total (outward) FDI stocks were in developing states (excluding investment in offshore financial centers), with the largest accumulations in Asia (25 percent of total), Africa (12 percent), and Latin America (5 percent).49 In some sectors, Chinese firms also have their own sizable war chests and may sometimes prefer to invest their own funds. Much of CNOOC’s $15 billion 2012 purchase of Canada’s Nexen, for example, came from CNOOC’s own cash reserves.50 Notably, although Chinese investment in all these regions has increased markedly over the last decade, it is often not the largest investor. For example, Chinese investments in Africa during 2014 accounted for seven percent of all FDI in the region, far less than France’s 21 percent.51 In 2015, Chinese investment in Africa dropped to just three percent of the global total.52 China accounted for about 9.5 percent of total FDI in Southeast Asia in 2016, Japan accounted for about 14.5 percent and the United States for about 12 percent.53 In short, China has gone from having virtually no FDI stake in these regions to being a major player. But it is not the singularly dominant actor it is sometimes portrayed as, but rather one among several important investors.
Another important BRI objective is expanding and promoting trade, which enables China to leverage comparative advantages to grow its economywith attendant benefits for the Chinese people and state capacity. Trade growth is not necessarily purely, or even necessarily primarily, a function of state-led promotion activities, but Beijing is using BRI to tip the balance in favor of its firms and suppliers. Chinese corporations, including SOEs, private and semi-private firms, often work closely with state policy banks and diplomats, who are empowered to help promote exports. According to one analysis, Chinese commercial service attaches working in China’s African embassies outnumber U.S. Foreign Commercial Service officers working in the region by some fifteen to one.54
The rapid expansion of Chinese trade has become a key driver of GDP growth. GDP grew by a real compound annual growth rate of 9.1 percent between 1978 and 2015, while trade increased by an average of 12 percent. Trade growth has slowed considerably since 2012, partly due to government policies designed to enhance domestic consumption and, more importantly, the slowing of the Chinese economy.55 China’s trade grew by a 3.52 percent in 2014, shrank by 9.85 percent in 2015 and shrank again by 4.02 percent in 2016.56 These trends are even more pronounced in China’s trade with developing countries. Private firms accounted for 38.1 percent of trade in 2016.57
For China, developing countries have become increasingly important raw material suppliers and are growing markets for its manufactured products. China’s trade with developing countries has come to account for an increasing percentage of the country’s overall trade volume. In 1990, developing countries represented only 15 percent of total Chinese trade, but by 2000, that figure had grown to 19 percent, and by 2010, it had reached 31 percent. After peaking around 34 percent in 2012, the percentage has plateaued, as China’s economic slowdown has reduced the need for raw materials and the price of oil and metals like copper and iron ore has fallen. If and when commodity prices fully recover, developing countries are likely to once again regain their leading position.
The value of China’s trade with the developing world was $29.4 billion in 1990 (measured in constant 2016 USD) and rose to $1.2 trillion in 2016 (about 33 percent of China’s total foreign trade)a real CAGR of 15.4 percentcompared to a 12.1 percent CAGR for China’s total trade over that period. China’s trade volume by region were: Southeast Asia, 12.4 percent of total Chinese trade; the Middle East, 5.5 percent; Latin America, 5.7 percent; Africa, 4.1 percent; South Asia, 3 percent; and Central Asia, 0.9 percent.58
Economic Assistance
China provided substantial economic assistance to developing states during the 1950s, 1960s, and early 1970s, but cut back on those expenditures in the late 1970s, 1980s and 1990s as it sought to rebuild its own economic position. Over the last decade, however, foreign aid has reemerged as an important part of the Chinese foreign policy toolkit, and Beijing released white papers on the subject in 2011 and 2014. The budget for foreign assistance has grown rapidly over the last decade, with an average annual increase of 29.4 percent between 2004 and 2009. Between 2009 and 2012, China’s aid disbursements totaled $14.4 billion, or about a third of China’s total aid from 1950 to 2008.59 Unfortunately, the Ministry of Commerce, which coordinates China’s assistance programs, does not provide year-on-year tracking, complicating systematic evaluation.
Chinese economic assistance comes in three varieties: grant aid (36 percent of the 2009-2012 total); interest-free loans (8 percent); and concessional loans (56 percent).60 These funds go to support a wide range of programs: emergency assistance, technical aid and instruction, health care and medical facilities, low cost housing, education, state capacity building, infrastructure development, and environmental protection. In terms of distribution, some 52 percent went to Africa over this period, 31 percent to Asian states, and 8 percent to Latin America and the Caribbean.61
China’s approach to foreign assistance differs in several respects from the members of the OECD’s Development Assistance Committee (DAC), private Western donors like the Gates Foundation, and multilateral institutions like the World Bank. Rather than poverty alleviation, China’s assistance, particularly its concessionary loan aid, is primarily focused on infrastructure development tied to Chinese business contracts. It is nearly always distributed on a state-to-state basis. Unlike Western countries and institutions which often place economic or political conditionality on their aid, Chinese aid does not require subsequent audits and comes with “no political strings attached.”
The predictable result is that Chinese aid is often easier for corrupt foreign leaders to “capture” and channel towards politically important regions, constituencies, and cronies.62 While China’s foreign aid programs could focus more on grants and interest free loans and made more transparent to safeguard against abuse by recipient governments, the approach taken by the DAC states and the Bretton Woods Institutions has also faced criticism. Angus Deaton, who won the 2015 Nobel Prize in Economics for work on poverty, argues that the West’s approach to aid “undermines what poor people need most: an effective government that works with them for today and tomorrow.”63 Some therefore favor of China’s “development first” approach, with its focus on state capacity and infrastructure.64
V. Soft Power with and Political Outreach
Beijing’s impetus to become a “cultural major power” (文化大国) predates Xi. A broad conceptual framework was adopted in 2004 under the official formulation “China’s peaceful rise,” and a subsequent white paper was issued in 2011, as both a guide for Chinese policymakers and an effort to reassure anxious foreigners. Since 2013, however, Xi Jinping has spoken repeatedly on the need to increase China’s “soft power” (软实力) by, among other things, creating a compelling Chinese narrative and strengthening Beijing’s capacity to convey its message overseas.65 “Soft power” is the ability of one nation to shape the preferences of others through its appeal and attraction at the popular, elite, or government levels.66 Because soft power helps shape others’ preferences, it increases the perception of congruence between Chinese interests and those of others.67
According to Chinese analysts, the nation’s history makes it a “cultural major power” with great natural advantages.68 In 2004, Beijing launched the Confucius Institute program to cultivate the study of Chinese language and culture abroad. According to the Confucius Institute Headquarters website, in 2016 there were 500 institutes around the world. Although these are clustered in developed countries, with 109 in the United States alone, many developing states also host institutes. Skeptics question whether Beijing-backed Confucius Institutes are being used to influence university research agendas and impinge on academic freedoms.69
China promotes other types of “person-to-person” exchanges, including foreign students studying in China. Beijing sponsors tens of thousands of foreign youths for training both in their home countries and at Chinese universities and vocational schools. According to the Ministry of Education, there were 442,773 international students studying in China in 2016, up from about 290,000 in 2011. Of foreign students in 2016, some 49,022 received scholarships from the
Chinese government, an increase of 20 percent from 2015.70 In 2016, more than 264,976 foreign students in China hailed from Asia, but thousands of students are from other developing regions. For at least two consecutive years, the greatest increase was in the number of students from Africa, who numbered some 61,594 in 2016, up 23.7 percent from 2015. China is looking to expand job opportunities for graduates, so it can retain and utilize these young Chinese-speaking foreigners.71
China’s influence in developing countries has expanded under President Xi, who in 2014 exhorted his comrades: “We should increase China’s soft power, give a good Chinese narrative and better communicate China’s messages to the world.”72 Chinese language schools, media training, cultural exchanges, educational and training programs, and other forms of aid and assistance have increased China’s soft power in many countries.73
Meanwhile, Beijing is spending more time and resources hosting and visiting counterparts from developing countries’ political parties than ever before. Outreach by the International Department of the Central Committee of the Communist Party of China (ID-CPC) is a historical and ongoing feature of Chinese foreign policy and supplements the diplomacy conducted by state organs (e.g., the MFA) and leaders. The Party’s political outreach generally looks to engage in ways that avoids the appearance of intervention in domestic affairs. In autocracies, the ID- CPC may avoid interaction with the opposition, while in liberal democracies, it maintains ties with both ruling and opposition parties.
In Africa, the CPC has expanded its host diplomacy, cadre training, and outreach to political parties in Africa and throughout the developing world. China’s training programs are generally oriented towards state capacity building and include, for example, training programs on the management of agricultural technology programs. Other elements, like the political cadre training done by the International Department of the CPC Central Committee and media training programs run by the official Xinhua News Agency, are explicitly political and are intended to improve foreign perceptions of China and legitimize the ruling party. In 2014 and 2015, some 2000 officials of South Africa’s African National Congress (ANC) were trained by the CPC, and Beijing is financing the ANC Political School and Policy Institute, modeled on the China Executive Leadership Academy in Shanghai.74 Ethiopia was perhaps the earliest and most eager student of Chinese cadre training, and has dispatched delegations regularly to China since 1994.75 During a public talk at Fudan University in Shanghai in May 2017, Arkebe Oqubay, a
Over the last decade, led by Xinhua and CCTV, China’s state-run media has advanced an initiative to enhance China’s influence and international image.77 Since 2005, Xinhua has emphasized cooperation, content sharing, and media training programs with dozens of news outlets throughout the developing world.78 China wants to improve younger generations’ perceptions of its political system and gain elite support to counter what Beijing sees as Western efforts to portray Chinese practices in an unfavorable light. In 2017, for instance, Renmin University in Beijing hosted a 10-month development studies and media exchange with 48 students from Africa, South Asia, and Southeast Asia. Training topics include China’s political,
Minister and Special Advisor to the Prime Minister of Ethiopia, identified party-to-party
relations as the first of three Sino-Ethiopian links (along with government-to-government and
cultural, media and economic studies. Counselor Liu Yutong, Chief of the Public Diplomacy Division at the MFA’s Information Department, welcomed the journalists with a speech about Chinese stability and growthand questioned the wisdom of Britain’s exit from the EU and the U.S. election of Donald Trump.79
VI. Evaluating BRI and Countries’ Perceptions
Chinese engagement with the developing world has undoubtedly helped Beijing enhance the perceived legitimacy of the CPC, improve living standards for the Chinese people, and expand Beijing’s power and influence around the world. China has been largely successful in achieving these aims, but it has also not been without setbacks, and the scale of risk has risen together with its overseas profile in recent years. China’s BRI and the “going out” strategy before it open developing markets to Chinese-made products and expanded access to the raw materials China needs to meet domestic demand. Its investments and loan financing for infrastructure, catalyzed through BRI initiative, have provided sustained opportunities to redeploy China’s considerable productive capacity in the construction, telecom and other sectors. All of this facilitates China’s pursuit of its centenary goals, the lifting of living standards for the Chinese people, the power of the Chinese state, and (most importantly for China’s leaders) the perceived legitimacy of the Communist Party.
While China’s BRI has been a diplomatic success to date, its future is uncertain. At home, Chinese leaders understand that economic growth is overly dependent on investment and exports, though they remain ambivalent about rebalancing towards consumption-led growth. At the same time, Beijing’s policy banks regularly finance projects regarded as too risky by Western counterparts and the decline in commodities prices has exacerbated that risk.80 China’s existing loans to friendly governments in Zimbabwe, Venezuela, and Sri Lanka already portend tens of billions of dollars in potential losses. China provided roughly $60 billion in loans and aid to Venezuela between 2007 and early 2016, and, as of mid-2016, the latter still owed China $20 billion. But with oil prices stuck near $50 per barrel and Venezuela unable to service its debts fully, Beijing finally cut off new lending in September 2016.81
BRI represents a massive and unprecedented expansion of connected lending to international borrowers that enmeshes the already deeply indebted Chinese banking system in some of the world’s most precarious economic and political environments. The lending program’s sheer size requires Chinese government and party organs, many with little experience in international operations, to vet scores of projects across a myriad of regulatory, linguistic, and cultural environments. Many poor countries, especially in Africa, are happy to take cheap Chinese loans now and let future leaders and citizens pay them back. China’s response has often been to grant loan forgiveness and then provide more loans, creating a serious moral hazard problem. Many governments are banking on China’s continued largesse and are thus happy to take whatever they are offered. However, Beijing, which saw its foreign reserves drop by more than 20 percent between 2014 and 2017, cannot write off bad loans ad infinitum.
BRI could also open new opportunities for fraud and corruption. China, which itself ranks an unimpressive 83 on Transparency International’s 2015 corruption index, is building hundreds of projects in some of the least accountable countries in the world, such as Turkmenistan (154),
Kyrgyzstan (123), Cambodia (150), and Myanmar (147). On an OECD 8 point scale of risk by recipient country, the portfolio of states that China’s banks extended loans between 2013 and 2015 entailed an average risk rating a full point higher (i.e., more risky) than the World Bank’s.82 Xi himself seemed to recognize the challenges when he called for a “stable, sustainable and risk- controllable financial security system” to supervise the BRI initiative.83
In the political realm, Chinese diplomacy has generally been successful in developing relationships and gaining influence. Beijing has certainly seen failures and setbacks, and has addressed such problems by expanding the depth and breadth of its bilateral political relations with developing states and through existing and newly created multilateral regional organizations. By institutionalizing relations via diplomatic arrangements, party-to-party dialogues, economic agreements, military forums, and person-to-person exchanges, Beijing has created numerous overlapping buffers that enable the rapid return to normal relations if unexpected crises disrupt the relationship.
China’s overseas image is generally favorable, though it varies widely, depending on location and issue. According to a 2015 Pew survey conducted in 27 countries, an average of 55 percent of respondents hold a favorable image of China, compared to 69 percent for the United States. China is viewed most favorably in Africa (average of 70 percent in nine countries) and Latin America (57 percent average in six countries), while the perception is less positive in regions closer to China, where security concerns weigh heavily, and in the Middle East, where many have reservations about China’s treatment of its Muslim Uighur population. Those surveyed also had a dim view of China’s respect for human rights, with just 34 percent having a favorable impression.84
Influence, which might be defined as the ability to bring about changes in another state’s intended behavior in ways that advance one’s own aims, is notoriously difficult to measure, as it involves counter-factual analysis. That said, China appears to have successfully influenced other states on issues of marginal importance to the other state, where the costs of taking the desired action are small. Vague official statements supporting China’s position on the South China Sea, for example, are costless for African and Middle Eastern states. Similarly, acquiescence to Beijing’s single-minded efforts to marginalize Taipei and the Dalai Lama, also have minimal political costs for states beyond China’s immediate periphery. South Africa, however, paid some price for acceding to China’s demands when it refused the Dalai Lama a visa, prompting the cancelation of a conference of Nobel laureates in Pretoria.85
There are few clear cases of China’s ability to translate its combined economic, political, military and soft influence into favorable outcomes when the stakes are high for the other state. However, China’s efforts to minimize opposition to its consolidation of its territorial claims in the South China Sea arguably represent a case of at least partial success. Beijing has achieved a fait accompli in the South China Sea by reclaiming 3,200 acres of land on seven features and thereby turning reefs and rocks into significant military outposts.86 Such measures have alarmed the states most directly affected, including Vietnam and the Philippines, and fueled wariness in larger regional states like Indonesia and Malaysia. Beijing has responded by offering a blizzard of trade and aid proposals and by leveraging its asymmetric relationship with Cambodia and Laos to thwart joint statements by ASEAN.
China’s impact on the economic, governance, and environmental welfare of the partner states in the developing world is mixed. China is, by far, the largest trade partner of developing states in every part of the world, and the loan portfolio of its policy banks and regional funds exceeds that of all Western multilateral banks combined.87 Chinese activity is stimulating growth and building infrastructure in regions that are chronically short of capital and investment. Even in Southeast Asia, where Japan, the United States, and other Western countries are major actors, most states suffer from infrastructure financing deficits.88 In sub-Saharan Africa, China’s aid and investments are distributed across a wider range of recipient states than is assistance from Western states and international organizations. Some of the difference is explained by Beijing’s willingness to engage the least savory African regimes, but it also reflects the more limited (and focused) interests of Western firms, states, and international organizations in Africa.
Needless to say, countries have been affected differently by their engagement with China. During the commodities boom of the 2000s and early 2010s, growth rates rose rapidly among resource-rich countries. At the same time, imports from China had significant displacement effects on domestic African and Latin American producers of labor intensive manufactured products, like textiles and food processing.89 The pattern was more mixed in East Asia, where the region’s integrated production chains contribute to the specialization among states.90 Roughly 50 percent of Indonesian exports to China are raw materials, while Taiwan, Korea, and Malaysia export mostly intermediate, capital, or consumer goods.91
China’s corporations have a poor record of environmental protection at home, and they have contributed to degradation overseas, especially when local governments suffer from poor capacity, weak oversight, or endemic corruption. Some firms have been accused of cutting corners, ignoring safety standards, using secondhand or low-quality materials and equipment, and building environmentally destructive projects. Complaints have come from Laos, Vietnam, and Cambodia regarding environmental damage and droughts from Chinese hydropower projects along the Mekong River; from Indonesia regarding an ill-fated, over-budget coal power plant and a failed high-speed rail project; from Myanmar regarding Chinese firms clear-cutting forests; and from Korea and West Africa about harm done to the marine environment by Chinese trawlers fishing practices.92
Facing growing public resentment at home, the Chinese government has become more attuned to environmental issues. It has passed new environmental regulations and promoted the State Environmental Protection Administration to ministerial status, changing its name to the Ministry of Environmental Protection in 2008.93 Both the Chinese state and its companies have adopted or signed international compacts designed to protect the environment overseas.94 Nevertheless, enforcement responsibilities and oversight remains weak at home, and Beijing has even more difficulties policing its corporations especially small- and mid-sized private firms overseas. China’s lack of conditionality, lax oversight, and poor corporate citizenship contribute to, or at least do not discourage, rent seeking and corruption in partner states.95 The problem is likely to worsen as rising labor costs in China push more “dirty” manufacturing to relocate to cheaper and less well-regulated developing countries.
China’s expansion in the developing world may also adversely affect the spread of liberal values. After a remarkable wave of democratization from the mid-1970s to the mid-2000s, the tide
appears to have turned. According to the 2017 Freedom House report, those countries experiencing a net decline in freedom have exceeded the number experiencing a net gain every year between 2006 and 2016. In 2016, 67 countries saw declines while just 36 improved.96 In some countries, like Russia, Venezuela, and Zimbabwe, autocrats have maintained the facade of democracy (e.g., elections and private press outlets) while stripping them of all meaning.97 Others, like Ethiopia, seem to have more borrowed directly from China’s authoritarian state-led development model.
China’s attractiveness as an economic model has increased due to its sustained economic growth and as neoliberal economic practices (broadly known as the Washington Consensus) have lost the confidence of policymakers in developing states particularly in the wake of the global financial crisis of 2008. More recently, however, reduced growth rates and rising debt levels in China have diminished the attractiveness of the “China model.” Moreover, with the decline in commodities prices, Chinese investments and debt financing for resource-related infrastructure has saddled some countries with unsustainable debt again diminishing the popularity of China as both partner and model. Only time will tell whether the billions of dollars Beijing has spent on enhancing and projecting its soft power the Confucius Institutes, CPC cadre training programs, Xinhua media training, film festivals, think-tank exchanges, student scholarships, etc. will succeed in improving perceptions of China.
Despite these efforts to enhance Chinese “soft power,” however, many countries on China’s periphery continue to harbor deep concerns about Beijing’s long-term ambitions and others are deeply ambivalent about excessive dependence on trade with and investment from China. Addressing these concerns while pursuing Beijing’s material goals will challenge Chinese foreign policy leaders for the foreseeable future.
VII. Implications for the United States
Beijing and Washington’s relations with the developing world are not primarily zero-sum. To a significant extent, interests are parallelthat is, separate and non-overlapping in either a competitive or cooperative sense. American firms benefit from improved global growth and improved economic efficiencies that result from China’s policy banks financing tens of billions of dollars’ worth of transportation infrastructure around the developing world. Chinese raw material purchases from Africa, for instance, are a link in the global supply chain. They supply Chinese manufactures, which, in turn, sell their finished products to furniture stores from Boston to Beijing to Bangkok. But although Washington and Beijing pursue their economic and political interests vis-à-vis developing states in ways that often neither directly benefits nor harms the other, that dynamic could change if the Sino-U.S. relationship evolves dramatically for the worse or if the BRI precipitates a massive raft of loan defaults that destabilizes the international economic system.
In some important respects, American and Chinese interests coincide. Both benefit from stability and prosperity in the developing world, yet they attribute these outcomes to different sources. Washington has long maintained that free and fair elections and an open society are essential for long-term political stability, while Beijing believes that economic development is the primary cause.98 The bloody aftermath of the Arab Spring has dampened Washington’s interest in
actively supporting democratic change through revolutionary means, though it continues to promote democratic and liberal values. After the election of Donald Trump, it remains to be seen whether Washington will revert to traditional modes of active interventionism or adopt a more isolationist “America first” foreign policy.
The United States would be well served to deepen its political and economic presence and influence in the developing world. By many standards, U.S. engagement with and assistance to the developing world in areas from health care and food aid, to institution-building, environmental leadership, military engagement, media, NGOs, and a raft of other areas remain deeper and better considered than China’s. Yet many of these efforts gain little attention and are not well understood. Of much greater concern, U.S. efforts could be severely undercut should funding for the U.S. Department of State, the U.S. Agency for International Development, and other parts of the U.S. foreign policy establishment be significantly reduced. The U.S. government is already far less involved in promoting trade and investment than China. This puts U.S. firms at a disadvantage in competing with Chinese counterparts, and it undermines the larger effort to maintain U.S. relevance in the developing world. Washington should increase funding for the Foreign Commercial Service, U.S. Ex-Im Bank, and other federal programs that improve U.S. corporations’ international competitiveness. The United States has the resources to maintain its global leadership position; the question in these uncertain political times is whether it will choose to do so.
1 “Quotes from leaders at China’s New Silk Road meeting,” ABC News, May 14, 2017.
2 International Monetary Fund (hereinafter referred to as IMF), World Economic Outlook Database, gross domestic
product, constant prices (national currency) and gross domestic product, current prices (U.S. dollars). GDP growth is
most meaningfully measured in local currency, but note that growth in GDP U.S. dollar value is highergrowing in
real terms almost sevenfold between 2000 and 2016.
3 IMF, Direction of Trade Statistics, 2016. Figure from 2000 adjusted using IMF estimated U.S. GDP deflator, since
original current figures are provided in U.S. dollars.
4 IMF figures, using exchange rates; purchasing power parity figures will yield different results.
5 Guo Xiaohong, “EY: China’s 2016 outbound FDI to exceed US$170 bln,” China.org.cn, September 29, 2016;
“Mixed messages,” Economist, October 1, 2016; “MOFCOM Department Official of Outward Investment and
Economic Cooperation Comments on China’s Outward Investment and Cooperation in 2016,” Website of the
Ministry of Commerce of the People’s Republic of China, January 18, 2017. 6
Prior to sanctioning at the central government level, however, several provinces (e.g. Guangdong) had already begun to encourage provincial level firms to seek economic
opportunities abroad. The first Central government publication calling on “SOEs to ‘go out’” was published by the State Council on February 1, 1999 as Document 17,
“Going out” was President Jiang Zemin at the September 1999 Fortune Global Forum in Shanghai under the theme China: The Next 50 years,” and formally ratified in 2000 at the 3rd session of the 9th National People’s Congress.
7 For more on this concept see: Michael Swaine, “Xi Jinping’s Address to the Central Conference on Work Relating to Foreign Affairs: Assessing and Advancing Major- Power Diplomacy with Chinese Characteristics,” China Leadership Monitor, no. 46 (March 19, 2015): 1-19.
8 Mark Weisbrot and Jake Johnston, “Voting Share Reform at the IMF: Will it Make a Difference,” Center for Economic and Policy Research paper, April 2016.
At the National Foreign Investment Conference on December 24, 1997, President Jiang Zemin said: “It’s important
to combine ‘bringing in’ and ‘going out’ (“走出去”), both are indispensable.” This appears to be the
first time that “going out” was mentioned publically.
Circular encouraging enterprises to carry out overseas
processing and assembling of materials. Available at: http://www.gov.cn/english/official/2005-
publically touted by
9“China’s Xi Jinping Seizes Role as Leader on Globalization,” The Wall Street Journal, January 17, 2017; “China now the Unlikely Champion of Free Trade in the Trump Era,” The Globe and Mail, January 20, 2017.
10 Guo.
11 On the Chinese use of the term “core national interests,” see Michael D. Swaine, “China’s Assertive Behavior, Part One: On ‘Core Interests,’” China Leadership Monitor, no. 34 (Winter 2011): 1-25. See Chinese definition at The State Council Information Office of the People’s Republic of China, “China’s Peaceful Development” (White paper), September 6, 2011, available from the State Council Information Office of the People’s Republic of China website.
12 As Xi Jinping said at Davos in 2017: “China has come this far because the Chinese people have, under the leadership of the Communist Party of China, blazed a development path that suits China’s actual conditions.” See Xi, “President Xi’s Speech to Davos.
13 Deng, Xiaoping. “Speeches in SEZs from January 18 to February 21, 1992.” People’s Daily, December 29, 2000. 14 Xi, “President Xi’s Speech to Davos.”
15 Yuval Atsmon, Jean-Frederic Kuentz, and Jeongmin Seong, “Building Brands in Emerging Markets,” McKinsey Quarterly, September 2012.
16 Andreas Fuchs and Nils-Hendrik Klann, “Paying a Visit: The Dalai Lama Effect on International Trade,” Journal of International Economics 91, no. 1 (September 2013): 164-177; Nick Macfie, “China Slaps New Fees on Mongolian Exporters Amid Dalai Lama Row,” Reuters, December 1, 2016; Robin Yapp and Sao Paulo, “Dalai Lama Snubbed in Brazil After Chinese Fury at Mexico Talks,” The Telegraph, September 18, 2011; “Thailand Rejects Chinese Pressure Over Dalai Lama,” United Press International, February 11, 1993.
17 Wang Wen and Chen Xiaochen, “Who Supports China in the South China Sea and Why,” The Diplomat, July 27, 2016.
18 George J. Gilboy and Eric Heginbotham, Chinese and Indian Strategic Behavior: Growing Power and Alarm (Cambridge: Cambridge University Press, 2012), 72.
19 John Pomfret, “U.S. takes a tougher tone with China,” Washington Post, July 30, 2010.
20 GDP estimates are from International Monetary Fund (hereinafter referred to as IMF).
21 IMF, Direction of Trade Statistics.
22 He Yafei, “China’s Major-Country Diplomacy Progresses on All Fronts,” China.org.cn, March 23, 2016.
23 “The 100 Largest Banks in the World,” Banks Around the World, updated May 7, 2017. By a different accounting, Chinese banks held six of the top 23 positions (including all of the top four) in 2016. Will Martin, “These Are the 23 Biggest Global Banks All with More than $1 Trillion in Assets,” Business Insider, April 21, 2017.
24 Eve Cary, “SOEs Declining Role in China’s Foreign Investment,” The Diplomat, July 3, 2013; “China’s Overseas Direct Investment Surges 53.3% in First Ten Months,” China Daily, November 18, 2016.
25 See, for example, Wenjie Chen, David Dollar, and Heiwai Tang, “Why is China Investing in Africa? Evidence from the Firm Level,” The Brookings Institute, August 2015.
26 Xi Jinping used the phrase three times in his 2014 Foreign Affairs Work Conference (FAWC) speech. See “The Central Conference on Work Relating to Foreign Affairs was Held in Beijing,” Ministry of Foreign Affairs of the People’s Republic of China, November 29, 2014.
27 He Yafei, “China’s Major-Country Diplomacy Progresses on All Fronts,” China.org.cn, March 23, 2016; Feng Zhongping and Huang Jing, “China’s Strategic Partnership Diplomacy: Engaging with a Changing World,” European Strategic Partnership Observatory (ESPO) Working Paper, no. 8, June 2014.
28 State Council of the People’s Republic of China, “Timeline of China-ASEAN Relations over 25 Years,” English.gov.cn, September 7, 2016.
29 “China-CELAC Trade to Hit $500 Billion: Xi,” Xinhua, January 8, 2015.
30 Xu Xin, “Backgrounder: China-Arab States Cooperation Forum,” Xinhua, May 12, 2016.
31 “Press Communique of the First Ministerial Meeting of the Strategic Dialogue Between the People’s Republic of China and the Cooperation Council for the Arab States of the Gulf,” Ministry of Foreign Affairs of the People’s Republic of China, June 4, 2010.
32 Xiao Ren, “China as an institution-builder: the case of the AIIB,” Pacific Review 29, no. 3 (2016): 436.
33 “The Case for Reform at the World Bank,” Financial Times, August 10, 2016.
34 The third bank, the Agricultural Development Bank of China, has a domestic focus.
35 James Kynge, Jonathan Wheatley, Lucy Hornby, Christian Shepherd and Andres Schipani, “China Rethinks Developing World Largesse as Deals Sour,” Financial Times, October 13, 2016.
36 Mateen Haider and Irfan Haider, “Economic Corridor in Focus as Pakistan, China Sign 51 MoUs,” Dawn, April 20, 2015.
37 Winslow Robertson and Lina Benabdallah, “China Pledged to Invest $60 billion in Africa. Here’s What that Means,” Washington Post, January 7, 2016.
38 Rob Koepp,“One Belt, One Road”: An Economic Roadmap (Beijing: The Economist Corporate Network, March 2016).
39 推动共建丝绸之路经济带和 21 世纪海上丝绸之路的愿景与行动[Vision and Actions on Jointly Building Silk Road Economic Belt and 21st-Century Maritime Silk Road], National Development and Reform Commission of the PRC, March 28, 2015.
40 Jane Perlez, “China Creates a World Bank of Its Own, and the U.S. Balks,” New York Times, December 4, 2015; Mike Callaghan, “The $100 Billion AIIB Opens for Business: Will China’s Multilateral Ambitions Soar or Sour?” Lowey Institute, January 19, 2016.
41 “Why China is creating a new ‘World Bank’ for Asia,” The Economist, November 11, 2014.
42 “China to Estalish $40 Billion Silk Road Infrastructure Fund,” Reuters, November 8, 2014.
43 “Our Bulldozers, Our Rules,” Economist, July 2, 2016. On May 14, 2017, at the BRI Forum in Beijing President Xi increased the Silk Road Fund from $40 billion to $55 billion.
44 James Kynge, “How the Silk Road Plans will be financed,” Financial Times, May 9, 2016. The Export-Import Bank lent $80 billions for projects in 49 countries in 2015, compared to $27.1 billion for the Asian Development Bank (and less than $2 billion for the AIIB).
45 This conclusion is based on interviews with businessmen in Beijing and Shanghai in May and June 2017. Total funding, which will primarily involve debt financing, remains uncertain but has been estimated at between $1 trillion and $4 trillion. “Our Bulldozers, Our Rules.” “推动共建丝绸之路经济带和 21 世纪海上丝绸之路的愿景 与行动[Vision and Actions on Jointly Building Silk Road Economic Belt and 21st-Century Maritime Silk Road], National Development and Reform Commission of the PRC, March 28, 2015.
46 Foreign reserves continued to accumulate rapidly through June 2014, when they reached $3.993 trillion, before falling to about 3.051 trillion in November 2016. PRC State Administration of Foreign Exchange website, viewed December 12, 2016.
47 “Genghao di shishi ‘zouchuqu’ zhanlu” 更好地实施走出去战略 [Better Enforce “Going Out” Strategy], the Central People’s Government of the People’s Republic of China website, March 15, 2006.
48 National Bureau of Statistics of China, 中国统计年鉴 [China Statistical Yearbook], Beijing, various years. Current dollar figures converted to 2016 constant using GDP deflator.
49 Offshore financial centers include Hong Kong, Singapore, the Cayman Islands, and the Virgin Islands. The developed states of Asia are not included in the figures presented.
50 “China’s CNOOC to Buy Nexen for $15.1 Billion,” Financial Post, July 23, 2012.
51 “The African Investment Report 2015: An FDI Destination on the Rise,” Financial Times report, 2015.
52 “The African Investment Report 2016: Foreign Investment Broadens its Base,” Financial Times report, 2016.
53 Association of Southeast Asian Nations, “Foreign Direct Investment Statistics.”
54 Mwangi S. Kimenyi and Zenia A. Lewis, “New Approaches from Washington to Doing Business with Africa,” This Is Africa Online.
55 Joong Shik Kang and Wei Liao, “Chinese Imports: What’s Behind the Slowdown,” IMF Working Paper, May 2016.
56 Foreign trade grew by 3.8 percent during the last quarter of 2016.
57 “China’s Trade Surplus Down 9.1% in 2016,” China Daily, January 13, 2017.
58 IMF, Direction of Trade Statistics (DOTS).
59 James T. Areddy, “China Touts $14.4 Billion in Foreign Aid, Half of Which Went to Africa,” The Wall Street Journal, July 10, 2014.
60 Information Office of the State Council of the People’s Republic of China, “China’s Foreign Aid (2014),” July 2014.
61 Information Office of the State Council of the People’s Republic of China, “China’s Foreign Aid (2014),” July 2014.
62 Alex Dreher, Andreas Fuchs, Roland Hodler, Bradley C. Parks, Paul A. Raschky, and Michael J. Tierney, “Aid on Demand: African Leaders and the Geography of China’s Foreign Assistance,” Aid Data, Working Paper 3, October 2016.
63 Angus Deaton, “Why Poor Countries Need Strong Government More than Anything Else,” Market Watch, October 12, 2015.
64 Ron Matthews, Xiaojuan Ping, and Li Ling, “Learning from China’s Foreign Aid Model,” The Diplomat, August 25, 2016.
65 Feng Wenyan, ed., “Xi Jinping tan guojia wenhua ruanshili: zengqiang zuo Zhongguoren de guqi he diqi” 习近平 谈国家文化软实力:增强做中国人的骨气和底气 [Xi Jinping discusses national cultural soft power:
Strengthening Chinese character and integrity], Xinhua, June 25, 2015.
66 Joseph Nye coined the term “soft power” to describe the importance of U.S. cultural and political influence. See
Joseph S. Nye, Jr., Bound to Lead: The Changing Nature of American Power (New York: Basic Books, 1990).
67 See Goh on influence in different types of cases and for the “multiplier” effect. Evelyn Goh, “The Modes of
China’s Influence: Cases from Southeast Asia,” Asian Survey 54, no. 5 (September/October 2014): 825-848.
68 Yu Yuanquan 中国文化软实力建设任重道远” [Shouldering the heavy responsibility of building China’s soft
power], 对外大转播 [International Communications], 2007 (1); and 陈新光 [Chen Xinguang], “美国软实力衰退于
中国软实力提升” [U.S. soft power weakening, Chinese soft power rising], 中国日报 [China Daily], June 23, 2015.
69 Hagar Cohen, “Australian Universities the Latest Battleground in Chinese Soft Power Offensive,” Australian
Broadcasting Corporation, October 13, 2016; Ron Grossman, “U. of C. Profs Want China-Funded Institute Evicted
from Campus,” Chicago Tribune, May 4, 2014; Javier Espinoza, “‘UK Schools Advance Chinese Propaganda,’
Activists Say,” The Telegraph, March 30, 2015. Not all agree with the negative assessment. See, for example, Hilary
Lamb, “Rethink the Influence of Confucius Institutes, Suggests Study,” Times Higher Education, February 2, 2017.
70 2016 年度我国来华留学生情况统计 [2016 Statistics regarding foreign students in China], Ministry of Education
of the People’s Republic of China, March 1, 2017.
71 Zhang Xin, “China is Attracting a Massive Influx of International Students, but What are the Policies in Place to
Help them Stick Around?” Global Times, April 21, 2016. 72
David Shambaugh, “China’s Soft-Power Push,” Foreign Affairs, July/August 2015.
73 Professor Joseph Nye coined the phrase “soft power” in the early 1990s to describe, as he put it, “the ability to get what you want through attraction, rather than coercion or payments.” Alternatively, Nye defined the term as “shap[ing] the preferences of others” to do things in your interest through the attractiveness of one’s culture, political ideals, and policies, and leading by example. See Joseph S. Nye, Jr., Soft Power: The Means To Success in World Politics (New York: Public Affairs, 2004), X, 5.
74 Stephanie Findlay, “South Africa’s Ruling ANC Looks to Learn from Chinese Communist Party,” Time, November 24, 2014; “Beijing Will Increase Sway Over African Policymaking,” Oxford Analytics Daily Brief, August 8, 2016.
75 Yun Sun, “Political Party Training: China’s Ideological Push Into Africa,” Brookings Institution, July 5, 2016.
76 Lecture by Arkebe Oqubay School of Public and International Affairs, Fudan University, China, 26 May 2017.
77 Iginio Gagliardone, “China and the Shaping of African Information Societies,” in Africa and China: How Africans and Their Governments are Shaping Relations with China, ed. A. W. Gadzala (Lanham, MD: Rowman and Littlefield, 2015), 45-59; Iginio Gagliardone, “China as a persuader: CCTV Africa’s First Steps in the African Media Sphere,” Ecquid Novi: African Journalism Studies 34, no. 3 (2013): 29; Yu-shan Wu, “The Rise of China’s State-led Media Dynasty in Africa,” South African Institute of International Affairs Occasional Paper, no. 117 (2012): 24.
78 Shinn and Eisenman, 201-203; “Forum on China-Africa Media Cooperation,” CCTV, 2012.
79 Alpha Daffae Senkpeni, “China Launches Studies Exchange Program For African Journalists,” Front Page Africa, March 2017.
80 “China Rethinks Developing World Largesse as Deals Sour,” Financial Times, October 13, 2016.
81 Oren Kesler, “Should China Let Venezuela Collapse?” The National Interest, June 7, 2016; Patrick Gillespie, “China is Cutting Off Cash to Venezuela,” CNN Money, September 30, 2016.
82 “China Rethinks Developing World Largesse.”
83 “Xi Calls for Advancing Belt and Road Initiative,” Xinhua, August 18, 2016.
84 Richard Wike, Bruce Stokes and Jacob Poushter, “Global Publics Back U.S. on Fighting ISIS, but Are Critical of Post-9/11 Torture—Part 2: Views of China and the Global Balance of Power,” Pew Research Center, June 23, 2015. 85 Karin Brulliard, “Controversy Over Dalai Lama Leads to Cancellation of S. Africa Peace Conference,” The Washington Post, March 25, 2009.
86 “Military and Security Developments Involving the People’s Republic of China 2016,” Department of Defense, April 2016.
87 James Kynge, Jonathan Wheatley, Lucy Hornby, Christian Shepherd and Andres Schipani, “China Rethinks Developing World Largesse as Deals Sour,” Financial Times, October 13, 2016.
88 “How China’s Belt and Road is Transforming ASEAN,” South China Morning Post, January 8, 2017.
Xi eyes more enabling int'l environment for China's peaceful development,” Xinhua, November 30, 2014. Also
89 Matthias Busse, Caren Endrogan, and Henning Muhlen, “China’s Impact on Africa – the Role of Trade, FDI, and Aid,” Ruhr University Institute of Development Research and Development Policy Working Paper, 2014.
90 Ronald U. Mendoza, Keven C. Chua, and Monica M. Melchor, “Revealed Comparative Advantage, International Production Chain and the Evolving ASEAN-China Trade Linkages,” Journal of Asian Development Studies 4, no. 1 (March 2015): 23-36.
91 Sumedh Deorukhkar and Le Xia, “Gauging the Impact of China’s Growth Slowdown on Emerging Asia,” BBVA Research, Asia Economic Watch, March 2, 2016.
92 Joshua Eisenman and Devin Stewart, “China’s New Silk Road Is Getting Muddy,” Foreign Policy, January 9, 2017.
93 David H. Shinn, “The Environmental Impact of China’s Investment in Africa,” Cornell International Law Review 49, no. 1 (Winter 2016): 25-67.
94 Carla P. Freeman and Yiqian Yu, “China as an Environmental Actor in the Developing World – China’s Role in Deforestation and the Timber Trade in Developing Countries,” in Handbook on China and Developing Countries, ed., Carla P. Freeman (Cheltenham, UK: Edward Elgar Publishing, 2015).
95 Frank Stroker, “Perceptions of Chinese Firms in Africa Tainted by Corruption and Other Abuses,” Corporate Compliance Trends, February 27, 2015.
96 Arch Puddington and Tyler Roylace, Freedom in the World 2017: Populists and Autocrats: The Dual Threat to Global Democracy (Washington, D.C.: Freedom House, 2017).
97 Javier Correles, “The Authoritarian Resurgence: Autocratic Legalism in Venezuela,” Journal of Democracy 26, no. 2 (April 2015): 37-51; Lilia Shevtsova, “The Authoritarian Resurgence: Forward to the Past in Russia,” Journal of Democracy 26, no. 2 (April 2015): 22-37.
98 Some other East Asian states, including Japan, have views on political development and economic aid that are similar to those of China. Maiko Ichihara, Understanding Japanese Democracy Assistance, Carnegie Institute paper, March 2013.


Testimony before the U.S.-China Economic and Security Review Commission
China’s Belt and Road Initiative: Five Years Later Regional Reactions and Competing Visions
25 January 2018
Tobias Harris
Vice President, Teneo Intelligence
Economy, Trade, and Business Fellow, Sasakawa Peace Foundation USA
Thank you for giving me the opportunity to testify before the U.S.-China Economic Security Review Commission today on the subject of regional reactions to China’s Belt and Road Initiative (BRI). China’s USD 1tn program of infrastructure investment presents opportunities for its sixty-five member countries to develop, while also raising risks of over-dependence on Chinese investment, unsustainable borrowing, and high environmental and social costs for host nations.1
The risks and opportunities of the BRI extend even to Asia’s developed democracies, which already have complex economic relationships with China and interests in promoting development across Asia. In my remarks today I will focus on how Japan – which is in the process of developing a strategy of limited engagement with the BRI – has responded to the BRI, touching briefly on Australia to show some of the difficulties presented by the BRI. The Japanese case is particularly instructive because it shows that on the one hand, building a positive relationship with China may increasingly require engagement with the BRI in some form, while, on the other hand, showing that it is possible and even necessary for Asia’s wealthier democracies to pursue their own development strategies to help BRI members minimize their dependence on China and maximize their freedom of action. Japan may not be able to match China’s promises dollar for dollar, but through its willingness to increase its lending, loosen rules and implement other reforms to its foreign assistance institutions, and to promote private investment by Japanese companies Tokyo has arguably outlined a possible response to the BRI even as it considers participating in the BRI.
Japan’s approach to the BRI not only provides a model for the US consider as it formulates its own Asia policies, but also is an opportunity for the US to strengthen its relationships with Japan, Australia, and, increasingly, India, as they all determine how to respond to the BRI.
Japan’s shift on the BRI
As we meet today, Japan’s approach to China’s Belt and Road Initiative is a moving target. After years of keeping its distance from the BRI – and, with the United States, actively opposing the creation of the related Asian Infrastructure Investment Bank (AIIB) – the Abe government has signaled that it is developing a strategy of limited cooperation with the BRI. Japan’s BRI strategy is still a work in progress, so our discussion today must by necessity be tentative. However, what we know thus far suggests that the Abe administration is developing a strategy whereby Japanese public financial institutions like the Japan Bank for International Cooperation (JBIC) and Nippon Export and Investment Insurance (NEXI) will provide financial support for Japanese corporations working on BRI projects, provided the projects satisfy certain conditions, including transparency, profitability, debt sustainability for the borrower, and no possibility that the infrastructure could be converted to military purposes. Early reports suggest that public finance will focus on backing joint Japan-China projects regarding the development of renewable energy infrastructure in third countries, promoting high-speed industrialization in third countries, and the proposed rail connection between China and Europe.2
These conditions are largely consistent with the Abe administration’s focus on “high- quality” infrastructure investment, and, as such, do not necessarily signify a sharp break with its prevailing approach to regional development or its broader foreign economic policies. Instead, from what we know of the Abe government’s approach, the emerging policy shift is likely driven by pragmatic calculations that recognize the role that China and the BRI will play in regional development, infrastructure investment, trade facilitation, and connectivity not just within Asia but between Asia and other regions. The Abe government is not ceding leadership in regional development to China but it is recognizing that the initiative does bring much-needed investment to the region – investment that Japan and the Japan-led Asian Development Bank (ADB)3 have long recognized as necessary – and that whether or not Japan participates, the BRI will go forward and could reshape Asia and much of the developing world over the coming decades. By endorsing participation by Japanese firms, the Abe government will tacitly acknowledge this reality and try to find ways for Japan to profit from the BRI and perhaps shape the initiative on the margins in a way more friendly to Japanese interests and values.
The Abe administration’s shift is part of a broad recalibration of Japan’s foreign economic policies since the United States withdrew from the Trans-Pacific Partnership in January 2017. From Abe’s decision to join TPP talks in March 2013, the regional trade pact had been the predominant focus of the Abe administration’s foreign economic policy, as it provided a framework not only for addressing longstanding issues in its bilateral relationship with the United States but also established “high-quality” rules that would govern trade and investment in the Asia-Pacific in the twenty-first century. While TPP’s origins predate the BRI, as the talks proceeded, it became increasingly clear that for Japan, TPP was at least part of its answer to the BRI. While not explicitly focused on helping middle-income economies develop, the inclusion of Vietnam and
Malaysia and the prospect of other Southeast Asian countries joining the bloc in the future suggested an approach to development in which developing countries would, in exchange for access to the markets of the US and other wealthy members (making them the agreement’s biggest beneficiaries in GDP terms4), undertake politically difficult domestic reforms that could fundamentally restructure their economies. As long as the Abe administration was focused on implementing TPP as it was signed in February 2016, it could afford to remain aloof from the emerging China-led framework for regional development.
US withdrawal severely undermined the concept of TPP as development model, forcing the Abe government to rethink its overall approach to trade, investment, and development in Asia. While Tokyo eventually decided to lead the bid to revive the TPP without the US – now the Comprehensive and Progressive Agreement for the Trans- Pacific Partnership (CPTPP) – without the US, it was not nearly as beneficial or as appealing to the developing-country members, and Vietnam and Malaysia repeatedly signaled their skepticism about the post-US TPP. The Abe government appeared more supportive of the Regional Comprehensive Economic Partnership (RCEP) after the US left TPP, but the larger, more economically diverse membership of RCEP meant that it was never going to satisfy Japan’s desire to advance higher standards for regional integration – and it is possible that the Abe government’s insistence on raising RCEP’s standards, which Abe and other officials repeated after the US withdrew from TPP, indicated that Tokyo was more interested in slowing RCEP’s progress rather than guiding them to completion. The other difference, of course, is that RCEP included China, meaning that unlike TPP it would not be a tool for reshaping China’s economic practices or help Asian countries reduce their dependence on China. Therefore, after the US withdrawal from TPP, Japan was left with a trade agreement that did not have the same appeal to middle-income Asia while facing a China that was aggressively expanding its ambitions for integration through the BRI framework.
The result is that beginning in spring 2017 the Abe administration began articulating a multi-faceted updating of its foreign economic policies. Despite Abe’s dismissing the value of TPP without the US on multiple occasions,5 the prime minister decided that Japan would throw its weight behind efforts to revive the agreement without the US and set an ambitious goal of finalizing the revisions by the Asia Pacific Economic Cooperation (APEC) summit in Vietnam in November 2017. Additionally, it would also push to conclude an economic partnership agreement (EPA) with the European Union, talks for which had begun in 2013. By pursuing these agreements, especially the TPP- 11, Japan would show that even as the US shifted away from multilateral to bilateral and unilateral approaches to trade, the multilateral trading system was still deepening on multiple fronts – and Japan was still invested in advancing new rules to govern commerce in the twenty-first century. Meanwhile, in May Japan and India announced the creation of the Asia-Africa Growth Corridor (AAGC), an infrastructure investment initiative that appeared to be a direct challenge to the BRI.
At the same time, however, the Abe government began quietly but purposefully signaling to Beijing that Japan is open to participating in the BRI in some capacity. Even
as Japan was resurrecting TPP and assuming leadership of the bloc of eleven, the Abe government began making overtures to Beijing. The clearest sign of a shift came in mid- May, when Abe dispatched Takuya Imai, his principal private secretary, along with the Liberal Democratic Party’s (LDP) secretary general Toshiro Nikai, widely regarded as a leading LDP “China hand” to Beijing to attend the Belt and Road Forum. During this visit, Nikai met with Xi and conveyed a letter from Abe expressing the prime minister’s hopes for an exchange of visits and more constructive bilateral engagement. This delegation communicated the Abe administration’s seriousness regarding rapprochement with Beijing, in which cooperation under the auspices of the BRI could play a central role.
When Abe met Xi on the sidelines of the G20 in Hamburg in July 2017, the joint statement included the first mention of BRI – “Japan and China will discuss how to contribute to the stability and prosperity of the region and the world, including the One Belt, One Road initiative.”6 By November, when Abe met Xi and Chinese Premier Li Keqiang on the sidelines of APEC, the language had been upgraded: the joint statement with Xi now said, “The two sides shared the view [emphasis added] that they will together discuss how Japan and China will contribute to the stability and prosperity of the region and the world, including the ‘the Belt and Road’ Initiatives.”7 The joint statement from Abe’s meeting with Li two days later included the same language but also noted:
Both sides shared the view that Japan and China should cooperate with each other in order to deepen and expand their win-win economic relationship, and that developing Japanese and Chinese businesses in third countries will be beneficial not just to Japan and China but to the development of the countries concerned as well. They also shared the view that exchanges in the business community should be promoted.8
This point from the Abe-Li summit is particularly important because it directly anticipates the policy approach the Abe government eventually indicated it would adopt in December 2017, whereby it would provide financial support for Japanese firms working on BRI projects but not directly participate in the BRI or join the AIIB. This trajectory has continued since the start of 2018. On 10 January, Abe met with Nikai and Yoshihisa Inoue, secretary-general of the LDP’s coalition partner Komeito (which has its own connections to China) and reiterated that Japan’s cooperation with the BRI would be on a case-by-case basis, with decisions made on the basis of the aforementioned criteria as well as from consideration of China’s preferences.9
Political drivers
As surprising as Japan’s embrace of the BRI has been, it bears stressing that Japan’s embrace is thus far not only still pending but also looks to be modest: private-sector-led investment with government backing, with no indication that Japan will change its stance on non-participation in the AIIB. While Tokyo is learning to live with the evolving China-led development regime, it is not prepared to jump in with both feet and, as will
be discussed in the next section, is still focused on its own initiatives. This is not a grand strategic realignment, the birth of something like what former Prime Minister Yukio Hatoyama called an “East Asian Community.”10 Rather, it is driven mainly by domestic political considerations, which, as the Council on Foreign Relation’s Sheila Smith has noted, have increasingly played an outsized role shaping Japan’s China policies.11
First, the Abe government has signaled that it wants to use the fortieth anniversary of the Japan-China Treaty of Peace and Friendship as an opportunity to put the bilateral relationship on a more stable footing. The two governments have not minimized the significant obstacles to a genuine sea change in their relationship – the territorial dispute and broader competition in the East China Sea, Japanese concerns about China’s support for North Korea, and tensions regarding China’s burgeoning military power – but have agreed that bilateral dialogue with a view towards building a stable relationship is worthwhile. As 2017’s joint statements recognized, economic cooperation will be an important factor for restoring trust between the two countries. The expectation is that the commitment to stabilizing the bilateral relationship will lead to an exchange of high-level visits, including visits by Xi and Li to Japan and Abe to China and the drafting of a new bilateral communiqué that would highlight the importance of bilateral economic cooperation, particularly through the BRI.
Public opinion polls suggest that the Japanese public is broadly supportive of efforts to strengthen bilateral cooperation. The annual survey of public opinion in Japan and China conducted by Japanese think tank Genron NPO found that while sources of distrust remain, especially the dispute over the Senkaku/Diaoyu Islands, the Japanese public is increasingly less pessimistic about the state of the relationship at present and less pessimistic about the future of the relationship.12 The 2017 poll, which was released in December, suggests that Abe can count on domestic political support for reaching out to Beijing. The poll found:
  • 59.2% of Japanese believe “a new, stronger cooperating relationship should be established between the two countries for the sake of a stable and peaceful order”;
  • 40.7% of Japanese believe that “[strengthening] trust between the two governments” would be useful for improving the relationship;
  • The share of respondents who identified China as a country that poses a military threat to Japan fell from 66.6% in 2016 to 45.3% in 2017.
    The perception that China is less threatening to Japan and that it is important for the two governments to work together stands in stark contrast to the years following the 2010 collision between Japanese Coast Guard and Chinese fishing vessels near the disputed islands and the 2012 standoff following Japan’s “nationalization” of the islands, after which Japanese public hostility to China rose sharply.
    However, while the public is more open to bilateral cooperation, the Genron NPO poll shows that the Japanese public is also highly skeptical about the prospects for economic cooperation. Only 27% of respondents (9.7% strongly, 17.3% relatively)
agreed that the two economies’ complement each other, “making it possible to build a win-win relationship.” A plurality – 35.9% - expects that economic relations will worsen (although this was an improvement over 2016 when 44.2% were pessimistic). Only 8.6% said Japan should cooperate with China’s economic plans; a large majority (61.4%) was not sure. The implication is that while the public is supportive of diplomatic measures to reduce tensions and strengthen cooperation, the Japanese people are not necessarily clamoring for Japan to follow China’s economic leadership. Whether intentionally or not, the Abe government’s approach appears to fall at this sweet spot. For the same reason, the Japanese government’s approach could be highly sensitive to incidents in the East China Sea, such as the recent passage of a Chinese submarine just outside territorial waters near the disputed islands, which prompted protests from the Japanese government.13
At the same time that the Abe government is sensitive to the opportunities and constraints presented by changing public attitudes towards China, it is also sensitive to the Japanese business community’s interest not just in a stable relationship but in the business opportunities arising from the BRI. It is not clear just how widespread interest in the BRI is among Japanese firms: a May 2017 Reuters survey found that 95% had no desire to participate in the BRI and no firms were currently considering participation in BRI projects.14 However, it is entirely possible that business sentiment changed once the Abe government signaled that Japanese participation (with public financing) was possible. One indicator of corporate Japan’s enthusiasm is advocacy in favor of BRI participation by the leadership of Keidanren, Japan’s leading business federation. Keidanren chairman Sadayuki Sakakibara attended the Belt and Road Forum at Beijing’s invitation; approved of references to BRI cooperation in the 2017 Abe-Xi joint statements, noting that Japanese businesses were especially interested in “connectivity infrastructure” projects;15 and led a business delegation to China in November during which he argued that bilateral cooperation through the BRI would benefit not just the two countries but the whole world.16 Meanwhile, the joint statement produced by the Keidanren-hosted Japan-China CEO Summit in December included a BRI plank that stated: “Both sides agreed to work closely with each other in close cooperation in third- country markets in which both countries’ companies can demonstrate their superiority within the ‘One Belt, One Road’ framework.”17 (In his remarks at a reception for the summit, Abe noted that Sino-Japanese cooperation on infrastructure could “contribute greatly to the prosperity of Asian peoples” and suggested the possibility of cooperation as part of the BRI, but also said such cooperation would be under Japan’s “Free and Open Indo-Pacific Strategy” framework.18)
At a basic level, Keidanren’s support for Japanese participation likely reflects concerns that by foregoing participation, Japanese firms – which have already been engaged in a fierce competition with Chinese firms for infrastructure projects across the region – would be operating at a disadvantage in the race to build the infrastructure Asia’s middle-income countries need to develop. Corporate Japan’s concerns likely include not only the advantages that Chinese firms could enjoy but also firms from other economic rivals, including South Korea, Germany, and France, which have signaled their willingness to cooperate with China through the BRI. Corporate Japan’s influence
should not be overstated: its voice carries weight in government deliberations, but it does not necessarily make the government’s policies. Nevertheless, in this case, given the Abe administration’s focus on creating new market opportunities for Japanese firms overseas and promoting Japanese exports, including infrastructure, the administration was likely receptive to corporate Japan’s arguments that if Japan remained outside of the BRI, Japanese firms would miss profitable opportunities. However, it is too early to say how many Japanese companies will participate in the BRI, in what countries and on what projects they will work, and just how profitable participation will be.
Japan’s regional development strategy
As Abe’s aforementioned remarks at the Japan-China CEO Summit suggest, Japan’s participation in the BRI will occur within the existing framework of Japan’s regional development, trade, and investment strategies. Japan has contributed to the development of Southeast and South Asian countries since the early 1950s, beginning with reparations during the early postwar period and continuing to significant amounts of official development assistance (ODA) and investment as Japan’s economy achieved takeoff growth. In a broad sense, Japan’s postwar approach to ODA and investment in Asia’s developing countries anticipated what China is trying to accomplish through the BRI. The Japanese government recognized that by investing in the industrialization of Asia’s less-developed countries – particularly through energy infrastructure and “connectivity” infrastructure like roads and ports – it could create overseas market opportunities for Japanese firms and exports, strengthen Japan’s political influence in strategically important countries, and secure access to energy supplies and other resources needed for Japanese producers.19
While over time Japan has directed more resources to poverty alleviation in least- developed countries, its development strategy has remained preoccupied with the economic development of Southeast and South Asia. For example, in 2015, Japan’s total gross ODA disbursements were roughly USD 12bn, approximately half of which went to Asia – including USD 3.2bn to Southeast Asia and USD 2.46bn to South Asia. Revealingly, the two largest recipients of Japanese ODA were India and Vietnam, which received USD 1.54bn and USD 1.42bn in ODA respectively. Both countries are, of course, increasingly important strategic partners for Japan and targets for Japanese foreign direct investment as they become integrated in Japanese supply chains.20
However, as China has grown wealthier and began using its resources to promote economic development through infrastructure construction in Asia and elsewhere in the developing world, Japan has found itself locked in a competition with China to win projects, preserve market share, and maintain political influence across Southeast Asia after decades of being the region’s preeminent economic power.21 As a result, the Abe administration has upgraded its approach to regional development in order to preserve a leadership role for Japan even in the face of what has been described as China’s “Marshall Plan” for the twenty-first century. At the same time, as the Abe government articulated Abenomics, its program for revitalizing Japan’s economy, it identified infrastructure exports as a source for potential growth, meaning that competition with
China and Asia’s “infrastructure gap” presented Japan with a major opportunity. Therefore,
As the Abe government developed this approach, it recognized that Japan would not be able to match China in quantitative terms and has therefore articulated a regional development strategy focused on “quality.” The February 2015 revision of Japan’s Development Cooperation charter stresses the need for “quality growth” that is inclusive, sustainable, and resilient.22 In Asia, this would entail “both physical and non- physical infrastructure including that which is needed for strengthening connectivity and the reduction of disparities both within the region and within individual countries,” with a focus on helping Southeast Asian countries escape the “middle-income trap.” Several months later, in May 2015, Abe announced the creation of the Partnership for Quality Infrastructure as part of the broader overhaul of Japan’s development policy. Japan would increase its investment in Asian infrastructure to JPY 13.2tn between 2016 and 2020, a 30% increase over the previous five-year period, with the funds divided between the ADB, the Japan International Cooperation Agency (JICA), and the Japan Bank for International Cooperation’s (JBIC) infrastructure investment program, the Japan Overseas Infrastructure Investment Corporation for Transport & Urban Development (JOIN). To encourage private investment, JBIC would relax its conditions requiring host governments to offer guarantees of their ability to repay loans and instead offer to cover losses incurred by private investors. JICA would streamline the process of dispensing loans and grants and would work closely with the ADB to foster public- private partnerships (PPP). JICA and the ADB would establish a fund to enable them to make equity investments in support of infrastructure investment. Recognizing that Asia’s infrastructure needs are substantial, he argued, “
in March 2013, the administration created a prime ministerial advisory
council to develop a strategy for infrastructure exports and develop new tools for providing public support for Japanese exporters. The government established a target of JPY 30tn in orders for infrastructure exports by 2020, three times larger than the JPY 10tn Japan exported in 2010. Abe and other senior officials have persistently used foreign trips to promote Japan’s infrastructure systems, especially high-speed rail and
subway and electrical systems (including nuclear power).
We should seek ‘quality as well as
quantity.’ Pursuing both ambitiously is perfectly suited to Asia.”23 This program was
clearly intended as Japan’s response to the then-nascent BRI and AIIB.
The Abe government would further refine its infrastructure export strategy in 2016, when,
in conjunction with its hosting of the G7 in May 2016, it unveiled the “High-Quality Infrastructure Export Expansion Initiative,” which included new capital for Japan’s public financial institutions that would, from 2017 onwards, increase annual support for infrastructure exports to JPY 200bn annually from JPY 110bn, sharply reduce the time required to secure a yen-denominated international loan, explore euro-denominated
lending, and increase NEXI’s insurance coverage for overseas projects to 100%.24
Seen from this perspective, the pending decision to participate in the BRI appears to be simply a new component of a wider-reaching strategy rather than a new strategy in and of itself. Limited participation in the BRI may present Japan with new opportunities for both meeting its development goals by helping to close Asia’s infrastructure gap and for
meeting its infrastructure export target. Indeed, even as Japan has moved closer to embracing the BRI, it has deepened its partnership with India to promote its own infrastructure initiative, the AAGC. The Abe government has not only engaged India as a partner for advancing “quality” infrastructure in Asia and neighboring regions, it has also taken advantage of India’s decision to not join the BRI to ramp up its own development assistance, complementing the broader strategic engagement between the Abe and Modi governments. The joint statement from Abe’s September 2017 visit to India includes a laundry list of Japanese aid and investment projects in India, including infrastructure development in India’s North Eastern Region (which, coming in the wake of the military confrontation between India and China at Doklam, was opposed by China25); major rail investments, including the Mumbai-Ahmedabad high-speed rail and a JICA-sponsored technical assistance program for the National High Speed Rail Corporation; subway projects in six major cities; and energy, sanitation, and “smart city” cooperation.26 As noted previously, as of 2015 India was already the largest recipient of Japanese ODA, and the latest bilateral exchanges suggest that India will continue to grow as both a partner and recipient of public development assistance and private investment from Japan. The deepening of the Japan-India partnership puts Japan’s approach to the BRI in perspective. In much the same way Japan has pursued TPP as an alternative vision for the regional trading regime, Japan has pursued its own vision of regional development. Even if Japan seeks areas of cooperation with China, strategic competition between the two countries will lead Japan to keep China-led initiatives at an arm’s length and will lead it to pursue its own vision for regional development even if it
cannot match China in terms of funding.
Comparison: Australia and the BRI
Japan’s evolving approach to regional development and the BRI contrasts in important ways with Australia, another Asian developed country with a complex, interdependent economic relationship and an often-contentious political and security relationship with China. Like Japan, Australia recognizes Asia’s needs for infrastructure and has also stressed the importance of “high-quality” infrastructure that “has robust social and environmental safeguards and avoids unsustainable debt burdens on the economies of the region.”27 Unlike Japan, however, Australia has struggled to chart an independent path that balances cooperation with China and pursuit of its own development strategy.
It may belatedly be reaching a similar policy mix as Japan has articulated.
To a certain extent, however, Australia and Japan are moving in opposite directions.
Whereas Japan opposed the AIIB and refused to consider BRI participation before 2017,
Australia concluded a free trade agreement with China in 2014, was a founding member of the AIIB in 2015, and, according to Chinese Ambassador Cheng Jingye, entered discussions with China in 2015 and 2016 regarding how China and Australia could cooperate under the auspices of the BRI, including a possible linkage to Canberra’s plan for developing Northern Australia.28 However, ahead of a March 2017 visit to Australia by Premier Li Keqiang, the Turnbull government abandoned talks regarding a memorandum of understanding for a BRI-Northern Australia linkage.29 In short, even as Japan was preparing to discuss how to cooperate with the BRI, Australia was rejecting
Chinese overtures to extend the initiative to Australia itself. Australia has not categorically rejected the BRI; Trade Minister Steven Ciobo attended the Belt and Road Forum in May 2017, for example, on which occasion he said, “Australia supports the aims of initiatives such as Belt and Road that improve infrastructure development and
increase investment opportunities in the Asia-Pacific region.”30
As with Japan, Australia’s approach to the BRI has been strongly shaped by domestic politics. In Australia’s case, despite signals from Canberra that it is willing to work with China on infrastructure investment across Asia, Australia has been in the midst of a “panic” about the Chinese government’s influence in Australia following reports about “thought policing” of Chinese students at Australian universities and the resignation of opposition Senator Sam Dastyari after it emerged that he appeared to have accepted Chinese donations in exchange for defending Beijing’s positions, particularly on the South China Sea.31 Prime Minister Malcolm Turnbull himself escalated tensions with China when, speaking in Mandarin, he evoked Mao Zedong by saying “the Australian people stand up” in response to perceived Chinese influence operations.32 In this context, it may be difficult for the Turnbull government to bolster cooperation with China on infrastructure investment or extending the BRI to Australia proper. In fact, since the start of 2018, Canberra has feuded with Beijing over its development policies after Minister for International Development and the Pacific Concetta Fierravanti-Wells criticized China for funding “useless buildings” in the South Pacific,33 prompting the Chinese government to oppose Canberra’s “irresponsible remarks.”34 In this context, it may be difficult if not impossible for Australia to move beyond what Australian scholar
Ian Hall calls Australia’s “wait-and-see” BRI strategy.35
At the same time, Australia is struggling to articulate an independent development strategy. While it has enthusiastically embraced the TPP-11 alongside Japan, the Australian government has continued to cut ODA budgets and has yet to articulate new policies to leverage private-sector investment. This may be beginning to change: in December the Turnbull government issued a report highlighting opportunities for infrastructure investment in the Association for Southeast Asian Nations (ASEAN)36 and the revival of the “quad” of Australia, the US, Japan, and India could create new opportunities for economic cooperation. Nevertheless, even as Japan has responded to China by revamping its development institutions, promoting private investment, and pursuing new relationships to promote regional development before seeking to cooperate with the BRI, Australia has struggled, failing either to reach an
accommodation with the BRI or to develop a new strategy for competing with China.
By comparing how Japan and Australia have responded to the BRI, there are two takeaways. The first is that domestic politics matters. Part of the reason Japan is only now pursuing a role in the BRI is that the Japanese public is not nearly as hostile towards China as it was after the Senkaku/Diaoyu dispute intensified after 2012. Similarly, the uptick in fear and hostility in Australia towards China’s presence in Australia has made it difficult for Canberra to take a consistent position towards the BRI. Second, although Japan has argued for “quality” infrastructure investment, it has recognized that it cannot counter China without spending some money. While Japan’s
ODA budget has not necessarily grown, as mentioned previously the Abe government has channeled more funds to its overseas investment institutions and made it easier for them to lend. By contrast, the recent spat between Australia and China over China’s aid in the South Pacific has highlighted the extent to which Australia has cut its ODA
Implications for the United States
The massive investment surge promised by the BRI has highlighted longstanding concerns about the risks of economic interdependence with China; with Chinese funds, analysts argue, will come Chinese influence over a recipient’s foreign and domestic policies. As the recent uproar in Australia shows, these concerns are not limited to
developing countries – and they are not new concerns.38
However, Japan’s management of its relationship with China and its cautious embrace of the BRI is instructive. While we do not yet know what form Japanese cooperation with the BRI will eventually take or what effects it could have on Japan domestically, the Abe
government’s approach offers some lessons.
First, the Japanese government’s shift on the BRI rests on an essential fact. With the BRI added to the Chinese Communist Party’s constitution at the nineteenth Party Congress, there is no question that the BRI will remain central to China’s foreign policy for at least as long as Xi is in charge. Whether or not third countries decide to cooperate with China through the BRI, China will continue to use it to strengthen its trade and investment links across Eurasia and the rest of the developing world. Developed countries like Japan and Australia have the choice to stay out of the initiative – and are obviously less dependent on Chinese investment than the less developed and developing countries most in need of infrastructure – but staying out will have costs, whether in terms of lost opportunities for one’s businesses or lost influence in BRI
partner countries.
If the BRI will be a fixture in Asia’s economics and politics, the developed democracies, especially the maritime democracies in Asia, need to have their own plans for how to promote development in Asia, particularly in the middle-income countries of ASEAN. As important as strengthening security ties with allies and partners around East Asia is for the United States, Japan, and Australia, security cooperation will not be sufficient to win “hearts and minds” in the region over the long term. Obviously, China’s rise is divisive throughout the region and countries can be attracted to China’s economic power while still being concerned about its military power. In fact, for many of China’s neighbors its economic power is a source of anxiety too. In a 2017 Pew survey of attitudes towards
China across the region, only 26% of Vietnamese, 49% of Indonesians, 48% of Filipinos,
and 20% of Indians said that China’s growing economy was a good thing for their country. Ironically, Australians were the most positive about the benefits of China’s growth: 70% said it was good for Australia. In all of these countries, majorities (and a plurality in Indonesia) said China’s growing military power was a bad for their countries.39 These attitudes present an opportunity to the US and its allies to present an
alternative vision for the region. But, over time, as China ramps up its investment through BRI, it could wield influence through a variety of channels, complicating efforts by the US and its allies to win support for their own initiatives in the region.40 As the US competes for influence in Asia, it cannot assume that fears of China’s military power will be sufficient to preserve its influence. As Japan has shown, the best way for the US and its partners to challenge China’s growing influence is to offer an alternative. As Japan’s engagement in India has shown, by committing resources and pursuing its own development strategy, Japan has lowered the costs to India of staying out of the BRI. Perhaps India will not be able to stay out of the BRI forever, but Japan’s ODA and growing investment portfolio will increase India’s freedom of action if and when it does. The same holds true in other countries on China’s periphery. Their fears of dependence on China give the US and its allies an opening, but as Japan shows, it is necessary to
have something tangible to offer them.
This need is even more profound now that the US has withdrawn from TPP and the administration has not yet articulated a new strategy to deepen engagement with middle-income Asia. As noted previously, TPP offered Asia’s developing countries new market opportunities in the US in exchange for reforming their economies in ways that benefited US companies. As the Obama administration emphasized and as the Abe administration has continued to stress, TPP also provided the region with an alternative sets of rules that could force China to adapt, instead of pushing its own version of the rules governing trade and investment in Asia through the BRI. While Japan’s bid to revive TPP may preserve some of its benefits as an alternative vision for regional economic integration, the absence of the US limits its attractiveness to the developing countries that were otherwise eager to join. Without a regional trade strategy aimed at middle-income Asia, it is imperative for the US to develop a regional development strategy that uses bilateral foreign aid, cooperation with the ADB and other multilateral lending institutions, and, perhaps most importantly, incentives to encourage private infrastructure investment in South and Southeast Asia. Given Japan’s existing capabilities and influence, the US should coordinate closely with Japan and follow Tokyo’s lead in stressing the importance of high-quality infrastructure. Developing a joint regional development strategy could be an appropriate agenda item for the US-Japan
Economic Dialogue, as well as for future meetings of the quad.
Despite China’s determination to use its wealth to promote greater economic ties to China across Eurasia and expand its power and influence, it is not inevitable that China will succeed in binding its neighbors ever closer. But the US and its allies cannot beat something with nothing. If they want to support the development of Asia and ensure that, even as the region develops, its growth is fiscally, environmentally, and socially sustainable, it is imperative that they coordinate and develop their own plans for meeting Asia’s developmental needs, giving the countries of South and Southeast Asia more freedom of action even as Chinese investment proceeds.
1 Michael Camdessus, “Why China’s belt and road must be a pathway to sustainable development,” South China Morning Post, 17 May 2017. .
2 Jiji Press, 24 December 2017. . Accessed 15 January 2018.
3 Asian Development Bank, Meeting Asia’s Infrastructure Needs, February 2017. Accessed 17 January 2018. .
4 Peter A. Petri and Michael G. Plummer, “The Economic Effects of the Trans-Pacific Partnership,” Working Paper Series 16-2, Peterson Institute for International Economics, January 2016. .
5 Robin Harding, “TPP ‘has no meaning’ without US, says Shinzo Abe,” Financial Times, 22 November 2016. .
6 Ministry of Foreign Affairs of Japan, “Japan-China Summit Meeting,” 8 July 2017. . Accessed 14 January 2018.
7 Ministry of Foreign Affairs of Japan, “Japan-China Summit Meeting,” 11 November 2017. Accessed 14 January 2018.
8 Ministry of Foreign Affairs of Japan, “Japan-China Summit Meeting,” 13 November 2017. . Accessed 14 January 2018.
9 “Japan to weigh Belt and Road projects case by case, Abe says,” Nikkei Asian Review, 11 January 2018. Accessed 17 January 2018. .
10 Yukio Hatoyama, “Japan's New Commitment to Asia: Toward the Realization of an East Asian Community,” 15 November 2009. .
11 Sheila Smith, Intimate Rivals: Japanese Domestic Politics and a Rising China (New York: Columbia University Press, 2015).
12 Genron NPO, The Japan-China Joint Opinion Survey 2017, 20 December 2017. .
13 Reuters, 11 January 2018. Accessed 17 January 2018. .
14 Reuters Japan, 24 May 2017. https://jp.reuters.com/article/reuters-poll-china-idJPKBN18K36U. Accessed 15 January 2018.
15 Keidanren, “Summary of Chairman Sakakibara’s Remarks in Press Conference,” 10 July 2017. http://www.keidanren.or.jp/speech/kaiken/2017/0710.html. Accessed 17 January 2018.
16 Mainichi Shimbun, 23 November 2017. https://mainichi.jp/articles/20171124/k00/00m/020/078000c. Accessed on 15 January 2018.
17 Keidanren, “3rd Japan-China CEO Summit Joint Statement,” 5 December 2017. . Accessed 15 January 2018.
18 Shinzo Abe, “Remarks at the Welcome Reception for the 3rd Japan-China CEO Summit,” 4 December 2017. . Accessed 17 January 2018.
19 Hugh Patrick, “Legacies of Change: The Transformative Role of Japan’s Official Development Assistance in its Economic Partnership with Southeast Asia,” APEC Study Center, Columbia University, Discussion Paper No. 54. January 2008. . Accessed 16 January 2018.
20 Ministry of Foreign Affairs of Japan, White Paper on Development Cooperation 2016. March 2017. Data from “Statistics and Reference Materials.” .
21 See He Ping, “Could Sino–Japanese competition benefit Asia?,” East Asia Forum, 9 November 2015. . Accessed on 16 January 2018.
22 Ministry of Foreign Affairs of Japan, “Development Cooperation Charter,” 2 November 2015. . Accessed 17 January 2018.
23 Shinzo Abe, “The Future of Asia: Be Innovative,” 21 May 2015. . Accessed 17 January 2018. 24 Kantei, Strategic Council for Infrastructure Export and International Cooperation, “High-Quality Infrastructure Export Promotion Initiative,” 23 May 2016. http://www.kantei.go.jp/jp/singi/keikyou/dai24/siryou2.pdf. Accessed 16 January 2018.
25 “Oppose 'Third Party', Says China on India-Japan's Northeast Plan,” NDTV, 16 September 2017. . Accessed 17 January 2018.
26 Ministry of Foreign Affairs of Japan, “Japan-India Joint Statement: Toward a Free, Open and Prosperous Indo-Pacific,”14 September 2017. http://www.mofa.go.jp/files/000289999.pdf. Accessed 17 January 2018.
27 Department of Foreign Affairs and Trade of Australia, 2017 Foreign Policy White Paper. . Accessed 16 January 2018. 28 Australia-China Business Council, “Ambassador’s Remarks,” 24 November 2016. . Accessed 16 January 2018.
29 “Australia rejects One Belt, One Road over US ties,” Today, 22 March 2017. . Accessed 16 January 2018.
30 Minister for Trade, Tourism, and Investment, “China’s Belt and Road Forum,” 14 May 2017. . Accessed 16 January 2018.
31 Amy Remeikis, “Sam Dastyari quits as Labor senator over China connections,” The Guardian, 11 December 2017. . Accessed 16 January 2018.
32 Ryan Manuel, “China is furious and Australia should expect more backlash after questioning its influence,” ABC News, 13 December 2017. . Accessed 16 January 2018.
33 Catherine Graue and Stephen Dziedic, “Federal Minister Concetta Fierravanti-Wells accuses China of funding 'roads that go nowhere' in Pacific,” ABC News, 10 January 2018. . Accessed 16 January 2018.
34 Stephen Dziedic, “Beijing complains about Australia's 'irresponsible' attack on China's Pacific aid program,” ABC News, 11 January 2018. . Accessed 16 January 2018.
35 Ian Hall, “Belt and Road: The case for ‘wait and see’,” The Interpreter, 16 October 2017. .
36 Commonwealth of Australia, ASEAN NOW: Insights for Australian Business, December 2017. .
37 Primrose Riordan, “Minister’s Attack on China over Pacific is ‘clumsy’ says Penny Wong,” The Australian, 10 January 2018. . Accessed 16 January 2018.
38 See James Mann, The China Fantasy (New York: Penguin Books, 2007).
39 Laura Silver, “How people in Asia-Pacific view China,” Fact Tank, 16 October 2017. http://www.pewresearch.org/fact-tank/2017/10/16/how-people-in-asia-pacific-view-china. Accessed 17 January 2017.
40 See Evelyn Goh and James Reilly, “How China’s Belt and Road builds connections,” East Asia Forum, 4 January 2018 and China Power Team, “How will the Belt and Road Initiative advance China’s interests?” China Power, May 8, 2017, updated September 11, 2017. Accessed January 17, 2018. . .

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