China’s New Silk Road

(Bloomberg) -- The Silk Road conjures images of desert caravans crossing the Great Steppe and adventurers like Marco Polo navigating ancient trading routes connecting China with Europe and Africa. China’s modern-day adaptation, known as the Belt and Road Initiative, aims to revive and extend those routes via networks of upgraded or new railways, ports, pipelines, power grids and highways. President Xi Jinping champions his signature project as a means to spur development, goodwill and economic integration. Critics are wary of an increasingly assertive superpower’s push to spread its influence. Some countries have begun downsizing or canceling projects, even as new deals are being signed.

The Situation

Xi calls it the “project of the century,” an ambitious drive to grease the wheels of trade with massive new infrastructure projects; Morgan Stanley estimates spending will total $1.3 trillion by 2027. Belt and Road has become so integral to China’s foreign policy strategy that a reference was added to the Communist Party constitution in 2017. At least 157 nations and international organizations have signed up (including more than 60 in 2018), with typical plans including roads and power plants in Pakistan and a high-speed rail line in Indonesia. Yet some partners are weighing the benefits against concerns that projects will leave them saddled with debt and beholden to a foreign government, after Sri Lanka was forced to cede a newly developed port to a Chinese company in return for relief on some of the $8 billion it owed. The newly elected Malaysian government canceled $3 billion worth of pipelines and renegotiated a rail project in 2019, cutting the cost by a third to $11 billion. New leaders in the Maldives are seeking debt relief. Myanmar drastically scaled back a port deal struck under its previous military regime, to $1.3 billion from $7.5 billion. China’s ambitions have become  election issues in several countries. The Trump administration has sought to capitalize on the doubts, with Vice President Mike Pence telling Southeast Asian nations the U.S. wouldn’t “offer a constricting belt or a one-way road.”

The Background

Although the original trading routes were established more than 2,000 years ago, the Silk Road’s name — a reference to the delicate fabric long produced only in China — was coined in the 19th century by a German geographer. In its heyday, paper, gunpowder, porcelain and spices were transported to the west; horses, woolen rugs and blankets, gold, silver and glass made the return journey. Xi first proposed a New Silk Road in 2013 and later referred to it as “One Belt, One Road” before settling on the “Belt and Road Initiative.” Measured in today’s dollars, it has already cost more than the U.S. Marshall Plan that rebuilt Europe after World War II. China’s state finance bodies are lending $345 billion and state-owned commercial banks have pledged $233 billion, according to Gavekal Research. There’s also $40 billion from China’s Silk Road Fund, $100 billion from the China-led Asian Infrastructure Investment Bank and $59 billion from the World Bank. As President Donald Trump scales back U.S. involvement in international trade agreements, Xi is using the Belt and Road to position himself as a champion of global cooperation and development as well as free trade. In 2018, the initiative extended into South America, the Caribbean and even the Arctic. Italy in 2019 became the first Group of Seven nation to sign up, brushing off warnings from its American and European allies.

The Argument

China says it has no intention of deploying the Belt and Road to exert undue political or military influence and that the initiative is designed only to enhance economic and cultural understanding between nations. Xi calls his project “a road for peace,” yet other world powers such as Japan and the U.S. remain skeptical about its stated aims and even more worried about unspoken ones, especially those hinting at military expansion. Some point to China’s increasingly assertive military and speculate whether the development of dozens of ports might presage the establishment of naval bases, the so-called “string of pearls” theory that sees China trying to encircle India. Xi says the project won’t involve “outdated geopolitical maneuvering.” The World Bank says the revived Silk Road has the potential to stimulate economic growth, while also bringing challenges. Risks include corruption (the Kyrgyz prime minister is facing trial) and the creation of white elephants (like an airport in Sri Lanka that hosts only a couple of flights a day). Certain projects — especially costly overland routes — may simply not be viable or properly planned, deterring private investment. Xi, who is dealing with China’s own debt problems and slowing economic growth, has promised debt relief to some African nations, and a top Chinese regulator called for greater “social responsibility” in overseas investments. China is also drafting rules to determine which projects can be labeled Belt and Road, in part to avoid damage to the initiative’s reputation abroad.

The Reference Shelf

• China’s `Digital Silk Road’ is also making waves. 
• How Asia fell out of love with the Silk Road.
• A 2015 Chinese government explainer document on the Silk Road.
• The Financial Times shows what Belt and Road has cost the Maldives.
• The New York Times interactive China Rules series.
• Bloomberg Businessweek profiled a Chinese builder beset by charges of misconduct.
• A QuickTake on China’s version of the World Bank: the AIIB.

To contact the editor responsible for this QuickTake: Grant Clark at gclark@bloomberg.net, Paul Geitner

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