, which aims to resurrect the ancient Silk Road through infrastructure projects that will link Eurasian economies in a China-centred trade and investment network.
The magnitude of the BRI’s soft-power dimension was on ample display when the two dozen or so heads of state and government assembled in Beijing on May 14–15 for the Belt and Road Forum for International Cooperation. The BRICS Summit this September in Xiamen will be a sideshow by comparison.
A variety of malignant economic motives have been ascribed to the BRI. It purportedly aims to channel Beijing’s allegedly manipulated reserve surpluses abroad, prop up the internationalisation of the renminbi (RMB), unload China’s industrial overcapacity on neighbouring countries, ensnare recipient nations in a cycle of debt, exploit the host country’s strategic resources and purchase their political affiliation along the way.
While these claims contain merit, the arguments in favour of the BRI are more compelling.
China’s hard currency reserves are better put towards infrastructure projects in developing countries than deposited passively in New York’s financial market. At a time of volatility in international liquidity provision, RMB internationalisation is to be welcomed. Moreover, the bilateral RMB swap lines and dedicated trade payments and securities settlement infrastructure that Beijing is establishing will enable recipient countries to denominate their borrowings in local currency and thereby limit costs and exposures.
Transferring industrial capacity, improving infrastructure and reducing transaction costs will enable developing countries to jump-start a dynamic upward spiral of growth and development in sectors where they enjoy latent comparative advantages — similar to China’s own earlier industrial jump-start. Besides, a comparison of Chinese and US Eximbank loans to Africa belie the oft-repeated claim that the former is solely natural resources-seeking. China Eximbank has contributed to almost all 54 countries in Africa — be they rich or poor in resources — and displays no perceptible pattern of favoured client state lending. US Eximbank loans, by contrast, are concentrated in energy and mining and confined to a favoured few.
Finally, with developing and emerging economies forecast to account for 59 per cent of world GDP in 2018 (neatly reversing the average 59 per cent accounted for by advanced economies from 1980 to 2007), the rise of an alternate model of development financing that is leaner, cheaper, quicker and more flexibly attuned to host country requirements should be welcomed, not stigmatised.
But setting aside finance, the most consequential effects of the BRI will be felt in international relations.
The BRI’s storied predecessor — the original Silk Road — ushered in a brilliant age of commerce and civilisational exchange. BRI’s ‘open regionalism’ will likewise showcase President Xi’s determination to practice a ‘new type of international relations’ that binds China’s extended periphery as far out as Africa in a tight win-win embrace. Purposeful translation of his optimistic assessment for peace and development will also materially realise the long-delayed promise of South–South cooperation in the post-colonial age.
In terms of more recent parallels, China’s re-emergence at the turn of the 21st century bears remarkable parallels to the United States’ rise a century ago.
Between 1890 and the early-1900s, the proportion of American manufacturers engaged in exports rose dramatically from less than a quarter to more than two-thirds as the burgeoning surpluses from farms and factories were absorbed overseas. By the late-1910s and through the 1920s, the United States became a prodigious exporter of capital as more than $1 billion in loans surged out of New York annually.
As the BRI becomes a conduit for the export of Chinese capital on a similar scale, its design and rollout must also be informed by the cautionary lessons of that era.
Boom had periodically turned to bust in the US economy and subjected many of its poorer hemispheric trade partners and raw material suppliers to simultaneous capital and commodity market shocks. Washington failed to step up to the plate at the time and provide the necessary public goods (international development financing, recycling of capital flight, inter-governmental institutionalisation, stabilisation loans to name a few) that could have placed a floor under the crash overseas. China’s capital exports must avoid such boom-bust patterns of deployment and instead, with patience and purpose, marry hard physical capital with soft technical know-how, managerial skills and local project ownership.
During the next decade, China will replace the United States as the world’s largest economy. As it keeps growing richer, it must commensurately assume the mantle of collaborative leadership and provider of global public goods. The BRI is an appetising start but the proof of the pudding will ultimately be in its eating, as well as its ability to draw as-yet sceptical bystanders in the West and in Asia to the banquet.
Sourabh Gupta is a senior fellow at the Institute for China-America Studies, Washington, D.C.
A version of this article was first published here in The South China Morning Post.
I highly appreciate the positive views of the author in terms of the BRI as well as the argument for aution and learning from the paths already travelled, because both are important for the success of BRI.
Given the scale of the BRI, it is essential to plan and coordinate the whole projects and to take into account the broader world economic conditions and developments.
Perhaps there is a strong need to establish a modelling framework to undertake the planning, implementation and monitoring of the whole BRI (incorporating all the economies involved as well as the rest of the world which may be further divided into a few major economic blocks), in addition to the planing and cost and benefit study of each individual project.
The problem with the USA is that the people never prosper during the Glided Age at all. It was until FDR’s economic policies including strict government regulations that the citizens were able to achieve middle class and the boom and bust cycles were far and few and they did not last too long. Now that the wealthy people and corporations are running Washington and determined to capture the city, county and state governments, the USA will be returning again to those bad times. The only difference is that the USA will not have a strong manufacturing base and any manufacturing jobs will be automated or done by low wage workers.
The USA government failed to deliver many things because even during the 50s and 60s, corporations and wealthy people were still able to use the government for their own interests when you look at how many times the USA overthrew populist governments.
The question is will the people in the African 54 countries will prosper and become middle class? Will this also led to people demanding political, social and economic reforms in their countries? In addition, what kind of political influence will China have over these countries through this economic aid?