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Xi Jinping’s big road is going to be bumpy

LiveMint logoLiveMint 11-05-2017 Michael Schuman

As they have guided China’s remarkable economic ascent over the last four decades, the country’s leaders have largely been content to focus on raising incomes and building factories. They have steered clear of messy international entanglements that could undermine economic progress, and with it the public support that keeps them in power.

Over the past decade, of course, a richer, more confident China has attempted to assert greater global influence. President Xi Jinping has boldly presented himself as a statesman prepared to champion big global causes, from fighting climate change to promoting free trade.

The most visible symbol of Xi’s ambitions is what’s now known as the Belt and Road initiative or One Belt, One Road initiative. The term is something of a catchall, encompassing a set of land and sea trade routes facilitated by new highways, railways, ports, power grids and other infrastructure to better connect China to Europe, Africa, the Middle East and South and South-East Asia. A two-day summit this weekend is meant to highlight the grandeur of the scheme, with an impressive guest list of heads of state and other international dignitaries from numerous countries.

It’s far too soon to pop the champagne, however. While its economic rationale remains at best uncertain, the Belt and Road programme will embroil China in the tangled affairs of other countries to a degree unparalleled in its modern history. That’s an area where China’s strengths—its financial clout, skill at building infrastructure and top-down management style—aren’t likely to be much help.

As with most things involving China, the numbers surrounding Xi’s initiative are staggering. Lan Shen, an economist at Standard Chartered, recently figured that China has so far inked $926 billion worth of projects tied to the scheme.

In theory, whatever roads, rails and ports do end up getting built could boost the potential for growth in many underdeveloped regions. But there’s good reason why countries along the planned routes need so much infrastructure in the first place: No one has been willing to build it. Many of the countries involved are unstable and corrupt, which means operating in them is especially treacherous. Gavekal Dragonomics analyst Tom Miller has said Chinese officials privately expect to lose 30% of their investments in Central Asia, and up to 80% in Pakistan.

Alexander Cooley, director of the Harriman Institute at Columbia University, has taken a close look at China’s earlier experiences in Central Asia. He notes that Chinese mining and construction projects in Pakistan have been attacked by rebels and dragged into separatist struggles against the government, while in Tajikistan, local political elites profited off a Chinese-backed highway by turning it into a toll road—with the cash streaming into their pockets.

Cooley’s conclusion: The Belt and Road initiative “risks stirring domestic political competition, fuelling networks of graft and rent-seeking, and not fulfilling its transformative potential”.

Though sold as a “win-win” programme for all involved, the scheme is ultimately meant to further Chinese economic interests by generating new business for Chinese companies, especially in sectors like steel and construction that suffer from excess capacity, and by promoting Chinese finance on an international stage. Participating governments could find themselves loaded down by debt from Chinese banks—all to pay Chinese companies and import Chinese workers to build infrastructure designed to expand Chinese exports.

That could spark local resistance and complaints that China is unfairly hoarding the benefits of the projects it sponsors, as has happened already in Africa and Sri Lanka.

And while new pipelines and power plants may win China friends, especially among the poorer nations along its periphery, the fact that Belt and Road is a Chinese state initiative will create new frictions. India, for instance, has so far given the programme the cold shoulder, despite Chinese pleas. Indian officials have objected to a key segment of the plan that runs through Kashmir territory held by Pakistan but claimed by India. Naturally, they’re also wary that the roads and rails built by China could facilitate the projection of Chinese military power and political influence well beyond its borders.

Chinese leaders aren’t blind to these hurdles. They have been at pains recently to emphasize the mutual benefits the scheme could produce, and have encouraged participation by the US, multilateral lending institutions and large institutional investors.

Ultimately, though, the success of the programme will depend on how transparent and inclusive China can bring itself to be. Its leaders will have to be willing to share not just the costs, but the benefits of these projects. They will have to bring locals into the decision-making process, be more attuned to their concerns and strive to meet high environmental and legal standards.

For a government accustomed to ordering around companies and banks, the diplomatic nuance and cooperative spirit necessary to make the Belt and Road work present a steep challenge. And with so much of Xi’s international prestige now wrapped up in the programme, China could feel compelled to press ahead, no matter what disputes and financial losses ensue.

Xi may be better off proceeding with more caution and less bombast. A little humility now could save Chinese leaders headaches later. Bloomberg

Michael Schuman is a journalist based in Beijing.-

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