Belt and Road: Five Years On
The Chinese Government’s Belt and Road Initiative (BRI) is shaping up to be the defining geo-economic strategy of the early 21st century. It is symbolic of broader shifts in the economic and political forces shaping our world, but also a major influence on these forces. The sheer scale of investment in the BRI, estimated at about US$1 trillion, underlines its potential to bring change. The nature of this change is less certain and, given the scale and complexity of the project, unintended and unexpected consequences are likely.
The analysis below draws from a roundtable discussion of academics and policy makers held at ANU in November 2018. The roundtable considered a number of scenarios for the future of BRI, and it is clear there is potential for ‘shocks’ that change the current path. But the analysis broadly assumes a continuation of current trends. The views are, of course, those of the authors.
Understanding the Belt and Road Initiative
While indications are that the BRI may have begun life more as a marketing slogan, this is no longer the case. BRI now represents a clear and deliberate projection of China’s economic power and its geo-political influence, and provides a clear challenge to US hegemony over world affairs. As a ‘grand’ strategy, BRI has a broad range of objectives, including:
Supporting the domestic Chinese economy by absorbing excess capacity and spreading the benefits economic growth within China
Supporting Chinese and regional prosperity by improving economic connectivity and capability across Eurasia
Deepening Chinese relationships and strategic influence across the Eurasian region
Providing a unifying narrative around China’s place in the region – for both domestic and international audiences
At its grandest, BRI provides an alternative narrative for world economic prosperity. Under BRI, national planning, state direction and bilateralism combine with the traditional mechanisms of liberal economic development (free flows of investment and trade under a rules-based order). To support BRI, China has adopted a mix of institutional structures and approaches that sit alongside (and outside) existing rules-based mechanisms – challenging the existing global order. There is potential for parallel rules systems to emerge, including in relation to the settling of disputes and setting of key international standards. Much of the long-term impact of BRI will depend on how these parallel systems develop, particularly the Chinese Government’s push to establish digital and technology standards and governance through the ‘Digital Silk Road’.
Implementation of BRI appears to combine a clear and stable long-term vision with a level of flexibility in the short-term. The recent announcement of joint projects with Japan suggests that the China remains open to new approaches and that the implementation of the BRI (if not its core objectives) will continue to evolve over time. More broadly, the collection of BRI projects can feel more like a portfolio of similar activities, rather than the result of a single unified plan. But areas of careful design and intent are apparent, with the suite of projects in Pakistan providing one example.
The Chinese Government’s willingness to fund long-term infrastructure investments in other nations is, perhaps, the defining feature of BRI. This approach challenges “western” free-market analysis and orthodoxy, and contrasts with the market and aid-based philosophies traditionally used by countries like Australia. Nations, including Australia, are now responding with their own infrastructure programs – with decisions appearing to be based more on strategic than economic considerations.
The rhetoric of the ‘New Silk Road’ delivering efficient new supply chains masks a wide array of projects, with markedly different economic potentials. It is an open question whether state-based decision making under BRI will prove effective in delivering economic and social value to both China and its partner countries. Judging this is made more difficult by low levels of transparency around BRI.
Ultimately, the economic success of the BRI depends on the quality of the projects chosen. And, as would be expected with the early stages of such a large and long-term strategy, the evidence to date is mixed. The Chinese Government, under the auspices of BRI, has provided support and loans to a significant number of projects that are not economically viable and will not deliver any real return on investment. In most cases, the balance of risks around project failure appears to rest with the partner nation rather than China.
The number of ‘bad loans’ the Chinese Government has made has contributed to concerns about the Chinese using ‘debt-trap diplomacy’ to gain strategic influence. However, this concern and particularly the use of ‘debt for equity’ swaps, seem to be overplayed. There is little real difference between debt and equity in ‘on the ground’ operations of an asset, as long as the governing laws and regulations in the relevant country are sufficiently strong and enforced. To date Chinese Government moves in this direction have provoked a backlash from local people and governments. National reactions so far suggests that ‘debt-trap diplomacy’ is an unlikely vehicle for widespread increases in Chinese strategic influence.
This is not to underplay the potential strategic impact, including on various alliances, of the BRI and the Chinese Government’s willingness to underwrite large infrastructure loans for different countries. The act of making these loans, particularly given the well-marketed Chinese approach of ‘non-interference in internal affairs’, will increase Chinese influence in a range of countries in the region and affect alliances across the region.
It is this shift in alliances and sympathies, combined with the Chinese Government’s ability to influence the operation of the “rules-based order” that will determine the strategic success of BRI. Based on the evidence to date, how this plays out will differ from country to country based on individual circumstances and domestic considerations. This seems true even in Pakistan, where BRI spending is highest and the most natural potential for a strong alliance seems to exist. The regional impact of BRI is therefore difficult judge, with the aggregate impact likely to depend on interactions between different individual circumstances across a highly complex region.
Another significant factor in the strategic success of BRI will be the impact of ongoing changes in attitudes within the US system towards China, most obviously expressed in the ramping up of the ‘trade wars’ in the last six months. Long-term competition with China and a new focus on what has been termed ‘patriotic capitalism’ within the US appears to be becoming a bipartisan policy with significant long term economic and strategic consequences.
Overall, it is important that the BRI is seen neither purely as an economic strategy nor as a security strategy. Historically, these two types of strategy are difficult to disconnect. It is also risky to assume that all parts of the Chinese Government system have the same objectives for the BRI. An examination of public announcements about BRI appears to show an enthusiasm within China to brand everything they can as BRI, suggesting a degree of opportunism within the internal bureaucracy.
Australia’s National Interest
Defining Australia’s interests with respect to BRI is complicated, particularly given the broader context of ongoing shifts in global power structures. Australia’s short-term responses to BRI need to be set in the context of a long-term strategy to deal with a stronger China and (relatively) weaker US.
Responding to BRI also requires a serious and simultaneous consideration of Australia’s economic and security interests, with these interests being set in the context of a set of clear national values which underpin our dealings with other nations. Current debate around BRI is too often viewed through either an economic or security lens without exploring the connections between the two or how they sit against our national values.
Broadly speaking, it is in Australia’s interests for BRI to succeed economically. The broader region will benefit greatly from investment in infrastructure and connectivity, and China is currently the most willing lender for many countries. Large scale failure of BRI projects would harm the region’s economic development and significantly destabilise security interests. Moreover, the success of BRI appears necessary for the Chinese Government’s ability to continue to improve the well-being of its citizens.
Australia’s interests are best served, however, by this economic success occurring in a way that is consistent with Australia’s security interests and our values. A better construction of Australia’s interest might be in the development of a “Belt and Road with rules-based characteristics”.
Establishing international rules and norms that are broadly acceptable globally could help manage many of the risks that could arise from the BRI. Clearer general-accepted rules could avoid the development of parallel international systems, and the potential for nations being asked to choose between a Chinese and Western international order. This will be particularly important as the BRI develops and shifts into new areas, like digital.
Greater transparency around project assessment and economic decision making involved in BRI projects would also assist. Better project assessment and transparency from recipient nations would lessen the potential for debt default and “white elephant” projects. Australian experience (if not absolute success) in commercial project assessment might provide be a valuable asset to nations participating in the BRI.
The Chinese Government’s willingness to evolve BRI might provide an opportunity for countries like Australia to help improve project assessment and governance processes in partnership with the Chinese Government. The Japanese Government is partnering with the Chinese on around 50 projects, providing one example of the potential for collaboration.
In pursuing a rules-based approach, slavish insistence on existing “rules-based order” is not in Australia’s interest, particularly as the existing rules may not appropriately recognise tensions between our economic interests, security interests and values. But neither is a world of non-transparent bilateral agreements negotiated between partners of unequal power. International rules setting and governance is another area where Australia has expertise that can be shared, if done sensitively to cultural differences.
Australia needs to recognise that on its current path BRI will expand China’s influence and security footprint across the region. In addition, the BRI is helping the Chinese Government to promote a ‘Chinese model’ of governance which combines authoritarian political system with a more free-market economics. While some level of change is inevitable, Australia needs to balance its economic interests by reinforcing its place as a good neighbour and friend to countries within the region.
In considering Australia’s national interest, some additional balances need to be achieved. Providing Australian business increased access to BRI opportunities is desirable but needs to be assessed against competing factors. On its own, providing such access is unlikely to materially enhance or detract from our existing security or economic position. However, this depends on the reaction of our key security partner and whether it impedes our ability to prosecute our interest in more transparency and rules-based approaches. Having a clear national approach, rather than individual state government approaches, is also desirable.
Thinking about the future
BRI represents a shift to a world of geo-economics where economic and security issues are deeply intertwined and sets up further potential for conflicts between these and our values. This demands a holistic approach to assessing implications and responses.
It is not clear that Australia’s decision-making architecture – both the official architecture and the sources of information and research – provides the holistic view that is needed. Security and economics remain two distinct streams of work with different ways of thinking and limited points of contact. Dealing successfully with the BRI, and many broader issues in the 21st century, will require changes. Further, the importance and place of Australian values, such as open economies and democracy, is something that will need further debate and consideration.
Understanding BRI well requires three distinct lenses:
Understanding the implications for the Chinese economy and people
- BRI is a huge bet being placed on behalf of the Chinese people, both economically but also in terms of their position within the world.
- Success or failure of BRI depends on its ability to generate wellbeing for the Chinese people.Understanding the implications for participating countries
- BRI has the potential to change both the economic fortunes and geo-political alliances of participating nations
- this potential should not, however, be overstated and depends heavily on the circumstances of each individual nation.Understanding the implications for the current “rules based” order
- There is no doubt that BRI will result in the current rules-based order changing.
- Australia’s interests are best served by a BRI that has transparency and which “play by the rules
There is merit in Australia developing a capability to better understand and bring these together all three lenses. These will be essential to understand the ‘value proposition’ that Australia can offer individual countries and the whole region in engaging with BRI, and how to design a value proposition that is in Australia’s interests and in other countries’ interests.
An obvious immediate interest is in pursuing a strategy to encourage greater transparency around project formation and conduct, including developing a pathway for BRI to be conducted against a framework of internationally recognised rules. This needs to be combined with a strategy which reinforces our broader economic and security value to the region.
Australia will not be able to do this alone, and it would be naive to suggest that Australia has significant power to bring but there is merit in government exploring more actively what strategies could be employed to assist achieve these goals.
Sean Innis is inaugural Director of the Public Policy and Societal Impact Hub at The Australian National University.
Ryan Young is Director of the Futures Hub at the National Security College at The Australian National University.