Belt and Road to Where?

11 december 2017

Alexander Gabuyev is Chair of "Russia in Asia-Pacific" Program at Carnegie Moscow Center.

Resume: Setting aside the shortcomings of the Belt and Road concept, the “OBOR hype’ around the world points to a real and fundamental trend — the ascent of China as a truly global economic and military power.

On October 24, 2017, the Communist Party of China (CPC) adopted a new version of the Party Constitution. Along with the name of Secretary General Xi Jinping, the document enshrined the One Belt One Road (OBOR) concept – Xi’s trademark geoeconomic concept that is now used to explain almost every move that China makes outside its borders. The “Belt and Road” concept has become so inflated, that it’s no longer helpful to understanding anything about China’s relationship with the outside world, but only further obscures an already complicated picture.

Beijing has promised to increase the number of Chinese soldiers in UN peacekeeping missions: this is characterized as a by-product of Belt and Road. The Chonqing’s provincial government is subsidizing yet another cargo train to Europe: again, this portrayed as a further indication of how serious and far-sighted (strategic?) the Chinese leadership and its Belt and Road initiative is. A Chinese private company is buying a Silicon Valley startup: That too is now part of OBOR’s digital dimension! The embedded notion of China having a strategic culture dating back to Sun Zi and Zhuge Liang forces analysts to search for a Chinese strategy even when there is scarcely a hint that this quality is present. of it. Telltale signs of strategy include stated goals, criteria of success, and a timeline. None of these are prominently part of the OBOR concept.

The Belt and Road initiative lacks a clearly stated goal. In his initial presentation on the idea -then called the Silk Road Economic Belt (SREB) — in Astana, Kazakhstan in September 2013, President Xi did not set any clear goals, unless one counts tasks “to forge closer economic ties, deepen cooperation and expand development space in the Eurasian region” or “vigorously enhance practical cooperation and be good partners of win-win cooperation.” The same was true of Xi’s later speeches on the subject, including at the inaugural Belt and Road summit in May 2017. One could search through the policy documents issued by the National Development and Reforms Commission (NDRC), but the usually factual ministry resorts to the “win-win” formulation each time it approached the question of OBOR goals.

Against this background many analysts produce their own theories on what exactly Zhongnanhai has in mind when talking about Belt and Road. Some explanations point to geo-strategic rationales. According to this school of thought, China, embattled by conflict with its neighbors in the South China Sea and contained by U.S. and its allies in Northeast Asia, looks for “strategic space” in the West and tries to establish its dominance over continental Eurasia. A more nuanced variant of this approach links OBOR to Xi Jinping’s ideas about “periphery diplomacy” through which China seeks to improve relationship with its neighbors by providing them with economic development. Yet another school of thought would frame OBOR as the Chinese version of Bretton-Woods institutions — the World Bank, IMF and the WTO — to shape the international economic order in accordance with Beijing’s interests and preferences (this is why initiatives like AIIB or talks on RCEP are included under the OBOR umbrella). Some scholars point to Chinese domestic economic needs, highlighting OBOR’s potential to export China’s industrial overcapacity or support infrastructure-building that will help to generate employment in PRC. There is no shortage of scholars linking the origins of OBOR to Hu Jintao era’s project of Developing the West, particularly the west of the PRC. Finally, a popular explanation is a logistical one: China wants to tap into the potentially faster continental routes to Europe by upgrading infrastructure in Eurasia, and thereby also avoid sea lanes controlled by the U.S. Navy.

These and many other theories about China’s strategic rationales behind the Belt and Road are based on Chinese sources and interviews with Chinese scholars, officials and businesspeople. The spectrum of theories reflect not only the diverse backgrounds and research priorities of scholars outside of China looking at Belt and Road, but also the wide range of opinions and approaches toward this initiative within China. Since Xi proclaimed the SERB idea in Astana, nearly every university, ministry, region and SOE in China has held at least one event dedicated to OBOR. Newly established think tanks in the PRC dedicated to studying this issue already number in the hundreds. At the same time, most of Chinese officials and analysts advising Beijing would acknowledge in private conversations, that the top leadership has not given them much positive direction about what Belt and Road actually is. The only internal instructions that have so far come from Zhongnanhai are about banning words like “project” (that has a goal and timeline, Beijing prefers the looser term “initiative”), or banning publication of official maps purporting to show the scope of OBOR.

Lack of stated goals is closely tied to the second feature of the Belt and Road, which distinguishes it from a strategy — the initiative doesn’t have any performance criteria. Xi Jinping did identify five broadly defined facets of the initiative in his Astana speech 2013, namely, policy communication, road connectivity, trade facilitation, monetary circulation (financial cooperation including promotion of local currencies), and people-to-people ties. Beijing has not, however, identified any quantifiable indicators of success or progress. This means that a great many things can be presented as progress under OBOR. Examples include, establishing a new intergovernmental commission with Russia, financing a new road project in Tajikistan, signing an FTA with Georgia, establishing a currency swap with Switzerland and holding an annual beauty pageant in Sanya.

Scholars and the media often follow the official Chinese narrative in trying to calculate figures for trade and investment along the new Silk Road. But the criteria used to qualify a particular project in a particular country for inclusion in OBOR have become extremely elastic. It appears that even a casual remark from a low ranking official about “support” for OBOR or suggesting a country’s “interest” in a project in a neighboring country can be sufficient to see that country listed as a participant in OBOR. The hundreds of random agreements listed as signed during the Belt and Road forum in Beijing is the best testament to this approach.

Last but not least, OBOR doesn’t have any timeframe. No timeframe is to be found in the speeches of Xi Jinping and other officials, or in documents and roadmaps published by the Chinese government. Most of the times, when confronted directly over the timeline issue, Chinese officials and experts say that Belt and Road is a long-term goal that doesn’t have an underlying set of deadlines. Interestingly enough, not only does Belt and Road stretch into the indefinite future, it also reaches into the past.  Some of China’s old projects, like the construction of Gwadar Port in Pakistan, which began in 2002, are now listed among the Belt and Road’s flagship achievements. This approach allows Beijing to re-package old deals and projects in OBOR wrapping, and present them to the world as Belt and Road deliverables.

China’s current and prospective partners may find this uncertainty and lack of focus problematic. But for the Chinese political system, this lack of clarity around Belt and Road is actually a good thing. After all, the lack of performance criteria gives the government more latitude to declare positive outcomes and address the desire of all governments but, perhaps, especially single-party regimes, to appear successful, victorious and influential on the global stage.

Russia’s experience also illustrates that OBOR is a multifaceted and adaptive tool for Chinese public diplomacy and overseas propaganda, but hardly a real strategy. In 2013, when Xi Jinping announced the SREB initiative in Astana, the new project was met in Moscow with suspicion. Russia’s economic growth trajectory was flat (the fall coming in 2014 after collapse of the oil price and international sanctions following the war in Ukraine), so the Kremlin didn’t have financial resources to jostle for power with China in Central Asia. The extravagant ambitions of the SREB project, supported by the size of Chinese economy, looked like an attempt by Beijing to insert itself into what Moscow has claimed to be its privileged sphere of influence. In the context of the rift in relations with the West and rapprochement with China, The Kremlin’s attitude towards Belt and Road underwent a U-turn in the autumn of 2014. Increasing numbers of Russian officials now saw it as a mega-project to export Chinese overcapacity and build continental trade routes to Europe that would go through Russia and offer constructive synergies with the Moscow-led Eurasian Economic Union (EEU). In fact, the Customs Union between Kazakhstan, Russia and Belarus provides Chinese producers in the Western part of the PRC the shortest land road to the Europe, and an opportunity to reach European customers by crossing just two borders. In Moscow, on May 8, 2015 Putin and Xi signed a political declaration linking OBOR to the EEU. China and the EEU have started talks on a trade agreement, and Russia has pitched over 40 investment projects to Zhang Gaoli, China’s Vice-Premier of the State Council and chairman of the leadership small group on OBOR in Zhongnanhai). Given the political green light, many of Russia’s oligarchs rushed to Beijing with their projects, trying to wrap them in Belt and Road slogans.

The last two years have been a rude awakening for Russia and its EEU partners. The experience has been that adding the “OBOR” brand to a project did not elicit any additional concessions from the Chinese side, and that in most of cases Beijing has looked for profitable projects with a good internal rate of return. For example, out of 40 projects that support transport connectivity between Western China and Europe through EEU states, Beijing declined to invest in a single one, citing unsustainable financial models and unclear prospects for returns. Beijing’s new caution can probably be attributed to the stock market crash of 2015 and concerns about spiraling local debt which, in turn, triggered an audit of entire financial sector, including state banks and leading development institutions like the China Development Bank and the Export-Import Bank, which had been seen as important sources of financing for the Silk Road initiative. As a result, Beijing appears to have become more conservative when it comes to overseas lending by those institutions. The same goes for private investment, which became the object of intensified scrutiny from 2016 as China’s government started to combat capital flight.

The work of the Silk Road Fund (SRF), with its $40 billion in allocated capital, clearly illustrates this policy change. Created in 2014, the fund was slated to become the main driver of investment in OBOR, but has closed only seven deals in the past three years. Beijing now uses the SRF as a political purse: it is not linked to the global financial system and can therefore finance politically controversial projects, like investments in two energy projects owned by members of Putin’s entourage, Yamal LNG and Sibur.

Setting aside the shortcomings of the Belt and Road concept, the “OBOR hype’ around the world points to a real and fundamental trend — the ascent of China as a truly global economic and military power. While there may be no well-calculated and informed strategy behind Belt and Road, the increase in China’s external trade, military power, overseas investment and its imprint on various fields of global governance is undeniable. The visibility of Belt and Road is not driven by its intrinsic merits but rather stems from the cumulative impact of three decades of fast economic growth, a transformed and digitalized PLA, the globalized and innovative Chinese companies and a new generation of confident and sophisticated Chinese officials, officers and businesspeople — particularly amid America’s gradual retreat from global engagement.

This article is a part of the CSCAP Regional Security Outlook 2018

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