People & Society / Asia-wide

Understanding the Belt & Road

by Peiying Loh

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Back in September 2013, President Xi Jinping first introduced the Silk Road Economic Belt during his visit to Kazakhstan. Just a month later, he gave another speech to the Indonesian parliament and proposed the 21st Century Maritime Silk Road.

Together, these two features are now dubbed the Belt, Road Initiative (or sometimes, One Belt, One Road).

Both initiatives aim at creating trade habitats across the globe that will cultivate multilateral economic cooperation and connectivity. In order to do so, infrastructure is key. To this, China is investing all across the globe mainly in transport and energy.

What is Belt? What is Road?

The Silk Road Economic Belt draws on the grandeur of the historic Silk Road trade that spanned from the 2nd century BC to the 15th century. It retraces the connections that joined Asia and Eurasia. Likewise, the 21st Century Maritime Silk Road is meant to revive the maritime silk road, which connected continents for 17 centuries. Contrary to its name, the maritime route was focused on something else—spice.

Despite its mandarin name「一帶一路」, the Belt and Road are not really one and singular. The Belt comprises of six economic corridors that connect China with Europe via Central Asia, Russia, and the Middle East. The Road comprises of three Blue Economic Passages that join Asia with Africa, Europe, and Oceania.

Click any line to see more information about the corridors

Why is China doing this?

For power, of course. But beyond power are reasons that are just as important.

One of the often cited reasons is overcapacity. China has experienced an economic boom in the last few decades, largely driven by manufacturing and industrialisation. Now, the country is facing a bottleneck, especially in its construction industry. Opening new markets as an outlet for its excessive savings continues to fuel the construction business, and prevents China’s economy from turning sluggish.

China has also been economically reliant on its eastern coastal states for too long. Developing its western region and opening its frontier with Central Asia allows the country’s economy to diversify. At present, the European Union is also the largest trading bloc with China. Establishing more access routes also enhances the country’s economic security.

A more modest goal is to internationalise the Renminbi (RMB). China aims to have half of all its foreign trade to be executed in RMB by 2020. In the last few years, the RMB has gained momentum partly due to the BRI, and the rise of China’s cashless society and the virality of WeChat and Alipay.

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China’s Gross Regional Product and Total Population of major cities from 2012-2016. Data taken from: National Bureau of Statistics of China

How is such an expensive endeavour being funded?

The first question that arises with regards to the Belt and Road is—how is it being funded? China may be one of the richest nations in the world, but even their resources are limited. It is estimated that the entire BRI will cost between US$4 trillion to US$10 trillion.

China has built a comprehensive financial architecture to guarantee the BRI’s success to the best of its abilities. But Chinese banks and institutions alone will not be able to fund all the projects under the BRI. Private capital plays an important role, and banks all around the world are hopping onto the bandwagon, spreading their operations into countries within the Belt and Road corridors. This will have profound consequences for the global financial system.

Amount (US $ Billion)

480
Pending

Category

Multilateral Development Bank
Regional Funds
Bilateral Funds
Investment Funds
Big 4 State-owned Commercial Banks
Policy Banks
International Bank
Sovereign wealth funds and institutions

Changing the game

Of honourable mention is the Asian Infrastructure Investment Bank (AIIB).

The AIIB is one of the key institutions driving the BRI. It is a multilateral development bank with 56 members states. Thus far, it has funded infrastructure developments in Bangladesh, Myanmar, Pakistan, and Tajikistan.

Voting percentages of each country among the major international banks.

Since World War II, the global financial landscape has been dominated by the Bretton Woods institutions, namely the World Bank, and the International Monetary Fund, and later the Asian Development Bank. Despite being the second largest economy in the world, China’s voting power in these institutions do not reflect its economic might. There have been many naysayers and critics of the AIIB, but one can say that China is merely taking corrective action to balance out the scales.

There is a misconception that AIIB is an instrument of Beijing’s policymakers. China has repeatedly emphasised the contrary and added that it invests in infrastructural developments throughout the concerned regions. For example, one of the BRI’s loudest opponents is India, but they are also among the largest beneficiaries of AIIB.

How is China getting other countries to participate?

On a superficial level, the BRI is meant to create opportunities for economic cooperation. In reality, it is also an attempt by China to grow the country’s global influence by forging alliances through infrastructural investments. Participation of the countries involved is crucial in determining the success of the BRI, and developing nations are China’s easiest targets. Lacking in infrastructure due to poor domestic savings and lack of expertise, China’s offers of loans at concessional funding is extremely attractive.

Bilateral Diplomacy

China’s main approach for getting countries to buy into the BRI has been through bilateral diplomacy. Beijing has long preferred approaching cooperation through this one-to-one method, and continues to do so for the BRI despite its international nature.

This approach is also most effective where there is a lack of coordination among regional groups, a weakened European Union (EU), and retreating American power. In Southeast Asia, this is apparent. Despite the presence of the Association of Southeast Asian Nations (ASEAN), the nature of the partnership that each of the member states have with China varies.

Countries such as Cambodia and Laos are more-or-less fully supportive of the BRI, and have already received many long-term loans from China to fund several ambitious developments, notably in hydropower. Others like Singapore and Indonesia are still negotiating a fine balance, acknowledging that the BRI is important but not closing itself off to alliances with other players in the region, such as Japan and the U.S.

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Countries that have made bilateral commitments with China for the BRI.

Multilateralism

While China has a preferred modus operandi, it has not turned away from multilateralism. The AIIB is a key example of this. It is also a member of Brazil Russia India China South Africa (BRICS), which in 2014 established the New Development Bank to fund infrastructure projects in its member countries—yet another convenient tool for the BRI. China also has a foothold in the Shanghai Cooperation Organisation—the only organisation besides the United Nations in which both India and Pakistan are members. That said, China’s ability to maneuver the SCO has proven a challenge. Russia still has a strong hand in the SCO, and in June 2018, India’s opposition blocked the SCO’s unanimous endorsement of the BRI.

China is also plugging in areas where other regional alliances are breaking down. In light of a conflicted EU, Beijing has created the “16+1 Initiative” that draws together 16 Central and Eastern European countries. As these European states turn to Beijing for economic growth, there is uneasiness in the EU that the BRI will undermine EU’s agenda for trade liberalisation. A similar phenomenon is also taking place with the Mekong River Commission, which has shown that it is ineffectual in getting member states to the negotiating table to deliberate on their shared river resource. In response, China has established the Lancang-Mekong Cooperation instead, which has rolled out a five-year development plan and sees participation from all Mekong countries.

In recent months, China has also temporarily shifted its focus to cultivating the African and Middle-eastern countries. In July at a China-Arab States Cooperation Forum, Beijing pledged US$20 billion in loan to Arab nations for the development of their industries and economies. Just a month later in September at a major summit with African leaders, China pledged another US$60 billion in aid and loans to African countries. No doubt, money plays the most vital role in convincing countries to participate in the BRI. For nations that long struggled with development and have been at the mercy of Europe and the U.S., China’s offer of cash with no strings attached is extremely attractive.

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Shanghai Cooperation Organisation (SCO), Brazil Russia India China South Africa (BRICS), 16+1, Lancang Mekong Cooperation.

With an initiative of this scale and ambition, surely there are issues?

bri-issues-jammu-kashmir

Territory

Among the most immediate concerns is territory. Some of the BRI corridors run through contested land. The most prominent one is Kashmir, where tensions have resurfaced due to the BRI. The China-Pakistan Economic Corridor (CPEC) runs right through the disputed territory. Due to this, India has been the BRI’s loudest naysayer, and bilateral relations between the two nations have been tense. In 2017, this resulted in a military standoff at the border of Dokham between China and India.

bri-issues-southchinasea

The South China Sea is another elephant in the room in debates about the BRI. The “Nine-Dash Line” is a demarcation line used initially by the Republic of China, and subsequently the People’s Republic of China, for their claims in the South China Sea. Despite the United Nations Convention on the Law of the Sea tribunal ruling in 2016 that China had no historical right to the area demarcated by the nine-dash line, it has had an increasing military presence in the area. While most of the countries involved in the South China Sea have approached this with great caution and avoid open confrontation with Beijing, it has no doubt caused hesitation in readily accepting the BRI.

Waning U.S. Hegemony

Since Donald Trump’s election to the presidency, the U.S.’s foreign policy has changed significantly to become an isolationist one. The power vacuum has presented many opportunities, and China has been fast to move in. For example, the Federated States of Micronesia (FSM) have had their security maintained by the U.S. military under a treaty that ends in 2023. China has already laid the groundwork. In March 2017, FSM and China affirmed their decision to cooperate for the BRI. There are talks that China may replace the U.S.’s presence in Micronesia, breaking its monopoly on the 2nd Island Chain. Meanwhile, the former superpower represents a weak defence in the Pacific. In recent months, Secretary of State Mike Pompeo announced that the U.S. would fund US$113 million to advance a “free and open” Indo-Pacific, focused on infrastructure and energy sectors. The amount is dismal compared to what China has put in.

Mixed Signals

Most news sources are eager to paint global politics in pro- and anti-U.S. camps, and to depict China as the new giant eager to replace the U.S. as the new global super power. Yet, the situation in Asia Pacific is in considerable flux. Japan has also risen to the challenge, and has been pushing back China’s influence over Asia. Being the third largest economy in the world, it has leveraged on its financial might to do this. Despite Trump pulling America out of the Trans-Pacific Partnership (TPP), Japan has carried the burden to see it to fruition. It is also investing and making its presence felt in areas similar to China’s BRI, such as bidding for the High Speed Rail project connecting Kuala Lumpur and Singapore.

Japan has also tentatively taken the lead in establishing a possible alternative to the BRI. Australia, the United States, India, and Japan are in talks to create a joint regional infrastructure scheme that can counter the BRI. However, details are still scant, and both Australia and Japan are still cautious—they are careful to not appear to alienate China completely and have on occasion signalled willingness to be part of the BRI.

bri-issues-power

Neocolonialism

One of the most worrying aspects of the BRI is that it appears to be a form of neocolonialism. Many have accused China of practicing debt diplomacy under the guise of the BRI, handing out large loans to developing nations that they realistically can never pay back. A famously touted example is Sri Lanka’s Hambantota port, which is now 85 percent owned by state company China Merchants Port Holdings Co. through a 99-year lease worth US$1.12 billion. Sri Lanka had little choice but to give it up to China due to outstanding debt. The move is reminiscent of the unequal treaties between China and the European powers following its defeat at the Opium Wars. What is perceived by most as a loss of sovereignty has raised alarm bells.

While Sri Lanka has become the cautionary tale for debt-trap diplomacy, few have paid closer attention to China’s strong presence in ports all around the world. At a glance, it appears as though China owns the coasts of Africa. These rapid developments have placed many countries on edge. Fears of a debt-trap have made even strong allies of the Belt and Road—such as Pakistan—question their position. There are also worries that ports with strong Chinese presence may be converted into military outposts.

bri-issues-ports
Ports where China has had some level of involvement.

What's next?

The BRI will take many years—if not decades—to complete. Whether it will ultimately be successful is yet to be determined, and one of the BRI’s greatest challenges is in winning the hearts and minds of local populaces. But it is apparent that the initiative is going to have massive global repercussions. This is because it is not only about infrastructure. It has penetrated almost all sectors—education, tourism, commerce, and e-services, among other areas. At present, China is the new champion of global economic integration and trade. Any country that dismisses this paradigm shift will inevitably be disadvantaged.

Projects

Rail Lines
Oil Lines
Gas Lines
Ports
Loh Pei Ying

About Loh Pei Ying

Pei Ying takes care of the day-to-day functions of Kontinentalist and is the resident data visualiser. She’s an aspiring historian and seeks plot twists in stories. In her free time, she is likely tending to her veggie garden, cooking, or cuddling her two fat cats.

Topics:

  • Belt & Road
    • ,
  • BRI
    • ,
  • Silk Road
    • ,
  • China
    • ,
  • Politics

Disclaimer: Our stories have been researched and fact-checked to the best of our abilities. Should you spot mistakes, inaccuracies, or have queries about our sources, please drop us an e-mail at hello@kontinentalist.com

There is further research in this story that for brevity’s sake that could not be displayed here. Should you have further queries about our information, please write us an e-mail.

  • Video: Gan Khiaw Choor
  • Additional research: Pang Chin Siang, Isabella Chua
  • Design and development: Joceline Kuswanto, Dylan Ng, Rifqi Ruhyattamam, Amanda Teo

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