The Belt and Road Initiative: Another Case of “China Mode”?

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Written by Zhao Bingxing; Originally appeared at Global Research

The Belt and Road Forum held in Beijing on May 14 and 15, 2017 has come to an end, but not the Belt and Road Initiative (BRI) per se, so the relevant debate will continue. According to the Chinese government, this forum achieved great success, which has been exemplified by the attendance of 1,500 delegates, including 29 heads of state or government and 270 concrete outcomes (though many were letters of intent or the like, rather than contracts).[1] Some may argue that this forum is more ceremonial than substantial, but a closer look shows that BRI is still backed by some tangible achievement. Below are some examples：

1. The Sino-Myanmar oil pipeline as a pilot project of BRI has started operation in this April;
2. Multiple Sion-European freight railway lines which connecting Chinese cities and London, Madrid, Duisburg, Warsaw, etc. have already opened so far;
3. Gwadar Port in Pakistan which was invested by China opened in November 2016;
4. Chinese-led consortium has won the bidding of Jakarta-Bandung high speed train in Indonesia and the construction is ongoing;

……

When this initiative was announced by Chinese President Xi Jinping in September 2013, few expected that up to 70 countries or international organizations would agree to join this initiative or cooperate with China under the umbrella of it three years later.[2] Though a conclusion for such a long term project is too early to be drawn at this moment, a positive trend can be observed so far. Then a question is raised: why was China able to put such an ambitious and yet challenging plan into practice step by step, and garner acknowledgment and endorsement by more and more countries?

Chinese President Xi Jinping at the Belt and Road Forum for International Cooperation on May 15, 2017 in Beijing. (Photo by Jason Lee-Pool/Getty Images)

Multiple factors contributed to this achievement. First and foremost, many countries in the geographic scope of the Belt and Road, or even beyond, have strong demand to enhance connectivity and better infrastructure, especially those developing countries, and this is a perfect match with the rationale of BRI. In other words, this initiative is based more on real needs than fantasy. Some accidental factors such as Trump’s isolationism also played a role. This policy “helped” China implement its BRI unexpectedly because it made some countries in favor of unimpeded trade and globalization turn to China to certain degree. Between the underlying cause and the accidental factors we can find that the approach that China adopted to carry out this initiative, which is quite different from that of the West, is also an important enabler. Of course, such approach with Chinese characteristics have both pros and cons, but so far it seems to be more positive judging from the result.

First, “economy first” is a fundamental principle for the cooperation between China and other countries. It is no secrecy that China has some geopolitical consideration when this initiative was proposed, but cooperation has always centered on the common economic interest, which also coincides with China’s current overall foreign policy. Even for some countries that China has territorial dispute or historical grievance with, such as India and Vietnam, China still showed very positive attitude and sought cooperation with them.

There used to be a long period of time when China’s foreign policy was ideology oriented. But since the Reform and Opening-up policy was adopted in late 1970s, China started to downplay the ideological divergence with other countries and establish rapport with almost all the countries in the world. In the meantime, extensive and almost non-selective economic cooperation with other countries has become an important part of China’s foreign policy, regardless of the political system, ideology or human rights status in other countries. The “economy first” principle is quite effective because this is the field where all the countries have interest and consensus is easily reached. This is a sharp contrast to the strategy of the West, which usually takes democracy and human rights into consideration.

Furthermore, China shows little interest in getting involved in the domestic politics of other countries. It rarely take a position in the struggle among different factions in other countries, nor criticize any of them. On the whole, China’s “no intervention” policy is welcomed by most countries. It mitigates the concerns not only from these countries, but also from other big powers which have significant interest there, all of which facilitates the cooperation between China and these countries. For example, in Central Asia, a key area of the BRI, China proposed “Three Nos” principle, i.e. no interference with Central Asian countries’ internal affairs; no attempt to seek a dominant role in regional affairs; and no desire to create a sphere of influence.[3] This stance made the initiative easier to be accepted by the Central Asian countries and to some extent reduced the worry of Russia, who had traditional interest in this region. As a result, such policy provided more opportunities for both China and relevant countries to develop bilateral cooperation, though some criticized that such cooperation would benefit mainly those in power, rather than the general public in these countries.

Second, the fast and forceful top-down approach also played an important role. Considering that this initiative is a long term project involving more than 60 countries, which have different development level, political and economic institutions, culture and religion, the current progress can be viewed as “normal”, if not “fast”. In fact, the power centralization in China ensured the effectiveness of implementation because the long lasting negotiation and bargaining between the decision makers and those who carry out the decisions can be reduced greatly, be it right or wrong.

The application of this approach is not only in governmental agencies, but also involves state-owned enterprises (SOE). For private companies and investors, their decisions are purely driven by business interest, rather than the mandate from the government. So their participation in the BRI is based on their own calculation, not to cater for the propaganda.

Although the percentage of overseas investment of SOEs among all the enterprises has declined year by year, the statistics shows that it still accounts for more than half (50.4%) of the total investment in 2015.[4] Chinese SOEs by nature are profit-making organizations and to a great degree follow the basic law of market economy. But it is also true that their business strategy is influenced by the government. As regard to the BRI, which is intensively advocated by Chinese government, SOEs need to actively get involved and has a role in realizing this project.

However, it should be noted that the main driver of the investment of these SOEs is still the expected economic gain, not the mandate from the government. The reason why Chinese SOEs are dominant in the relevant projects in the Belt and Road Initiative is that the main areas of bilateral cooperation, such as transportation, energy and infrastructure are those SOEs have more competitive advantage than the private companies from China.

Third, the huge investment, which is largely from Chinese government or state-owed enterprises, provided powerful impetus to the implementation of this initiative. In December 2014, China set up Silk Road Fund (SRF) to support BRI and all the 10 billion RMB fund came from Chinese government and state-owned financial institutions. In 2015, initiated by China, Asian Infrastructure Investment Bank (AIIB) was established and it attracted 57 founding members.[5] Until now its capital is as much as 92 billion USD.[6] Although the purpose of this bank is not to serve BRI directly, the support on infrastructure projects from AIIB will no doubt benefit BRI. In the recent Forum on the Belt and Road, Xi announced that China would invest another 100 billion RMB to the Silk Road Fund. In addition to that, 60 billion aid will also be provided to the developing countries along the Belt and Road, not to mention the enormous investment from other Chinese enterprises. It is without a question that such huge fund is attractive to those developing countries, who have pressing needs to develop their economy but are short of money.

Why Beijing is able to invest such huge fund in BRI? Of course, the three decades rapid economic growth is the root cause. China became the second largest economy in the world since 2010 and its foreign exchange reserve has been ranked No. 1 since 2006, though the GDP per capita of China is still relatively low.[7][8] But this is not the only reason because there are some other countries who are also competent in term of economy. In fact, public ownership and power centralization of China make it possible for the fund to be used quickly and almost unrestrictedly by the elites so that the relevant projects can proceed. By comparison, the poor economic condition of Russia since Ukraine crisis has impeded the implementation of many projects related to RBI, though the distrust of China is also a reason.[9]

It is obvious that risks are also huge with regard to this investment, in particular those political risks of the developing or authoritarian countries. Even some Chinese scholars have warned that some investment may end up with nothing and this is an important reason why Western investors hold a very cautious position. In the past two decades, failed Chinese investment caused by unsteady political situation was quite common in Asia, Africa and South America. However, there are still some reasons that China decided to seize the “opportunities” and invest regardless of risks. One is the vast market in the developing countries, which is mainly supported by the large population there. The other is complementarity between China and those developing countries. Simply put, China can provide huge quantity of goods and some service to other countries at affordable price and obtain natural resource there at the same time.

Besides, it is interesting that some seemingly too risky investment or unreasonable aid yielded unexpected but quite positive outcome. For example, China used to provide aid to many African countries in 1970s and 1980s, including building of railways, hospitals, stadiums and other facilities. When China gradually shifted the mode of foreign aid and focused more on business cooperation, those Chinese construction companies were still favored by many African countries due to their good performance in the past and thus won in the bidding.

The achievement in economic growth made by China since Reform and Opening-up policy was implemented, in particular 1990s was closely relevant to China’s unique development mode. Unlike the Western mode, China mode is featured by the combination of market mechanism and power centralization. There is little dispute on the economic development that China mode has achieved and some even argue that Beijing Consensus is replacing Washington Consensus. Nevertheless, whether this mode is a real consensus relies heavily on two key issues, i.e. Is it sustainable within China, and is it applicable to other countries outside China? For the second one, academics and practitioners tend to hold that this mode is based on China’s political context and has its deep root in Chinese history and culture, thus is almost not replicable. For the first question, there seems to be more dispute among international observers. On the one hand, alerts have emerged for many times in the past two decades regarding China’s economy and triggered grave concerns one after another. On the other hand, China did successfully get rid of plight each time, or at least keep the “crisis” under control.

In fact, the BRI is another case in point in which China mode is reflected. Roughly speaking, the rationale of this initiative is to maintain the growth of China’s economy so that the country can be developed and the regime can be stabilized. In contrast, many other countries seek democratization before the economy can grow fast. In the meantime, the approach adopted in the implementation of this initiative also shows clear Chinese feature, rather than pure market driven mechanism.

Not surprisingly, the China mode has been viewed as a challenge to the development mode advocated by the West. The former didn’t strictly follow the rule and trajectory designed by the West, which emphasizes democratization and free market economy. But so far it has been proved to be effective in boosting economic growth, at least in China. This inevitably brought negative impact to popularity of Western mode and as a result, triggered big concerns. One major concern is that Chinese SOEs violate the the market competition order because they are backed by the government, it maybe true but we should not overlook the flip side. In many cases, such special relations led to plight or failure, rather than success of overseas investment. For example, in 2016, about 40 Chinese investment projects in Venezuela had to be terminated due to the collapse of economy in this country and most Chinese companies involved were state-owned.[10] If we focus more on the result, we may find that the favor from the government hardly benefit the Chinese SOEs in overseas market, which is quite frustrating for both of them because it is not rare that the negative impact of arbitrary administrative decision usually exceeded the support provided to these enterprises. This also means the “threat” to the Western companies or mode has been greatly overestimated, if there is any.

In addition, it is worth noting that the rise of China as well as its development mode may have different implication for most non-Western countries. To a large extent, China became a balancing power to the West and China mode provided an alternative so that the rest may obtain more opportunities to maximize their own interest.
For either the BRI or the China mode embodied in this initiative, it is still premature to draw a conclusion whether it is successful. The final result is to be tested and only time can tell. It should be noted, however, if neoliberalism is used as the only theoretical framework, we may find that this mode was derived from doubtful theory, followed by seemingly effective but actually problematic implementation, and will probably fail eventually. But such reasoning may have overlooked the fact that China mode has its distinct origin, context and rationale thus the existing evaluation criteria may not be applicable.

Notes

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