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China's Belt and Road Initiative is now six years old. And the BR Forum that concluded the other day in Beijing saw the Initiative turning into work-in-progress project with almost the entire world caught up in its sway.
The trillion-dollar development project envisages new networks of transport and energy corridors, digital infrastructure, ports and industrial parks from which all roads will lead to China. The number of countries involved, China says, is now 123.
According to the official narrative, the project will "promote the economic prosperity of the countries along the Belt and Road, promote regional economic cooperation, strengthen exchanges and mutual learning between civilisations, and promote world peace and development," helping to build a "shared future for humanity."
According to the Asian Development Bank, the developing countries of Asia alone require infrastructure investments of about $1.7 trillion per year to maintain growth, reduce poverty, and mitigate climate change. In Africa, on the periphery of the BRI, the African Development Bank estimates annual infrastructure requirements to be $130 to $170 billion. The World Bank and donors in wealthy countries are only tentatively restarting their funding for developing country infrastructure after decades of decline.
Infrastructure has important multiplier effects. It creates a temporary economic stimulus through the demand for goods and services as construction is under way. And if the investment is sound, infrastructure improvements can have a powerful effect on economic development, most centrally by reducing costs.
A preliminary analysis by the World Bank economists found that BRI investments did appear to be significantly cost-reducing. If accompanied by efficiency-boosting policy reforms, transport costs could fall by a quarter in some BRI countries. And many countries around the world are keen to capture some of the Chinese manufacturing firms that are moving to cheaper locations.
Between 1980 and 2000, China built more than 184 new ports to support its rapidly expanding economy. Most of these came to have industrial parks and special economic zones nearby, where manufacturers could cluster and easily export. Because new ports are usually capital-intensive and have low rates of return due to their lengthy start-up periods, China gave preference to joint ventures with foreign firms expected to bring in capital and operating efficiencies.
According to China's Ministry of Transport, Chinese firms have been involved in the construction or operation of at least 42 ports in 34 countries along the Belt and Road.
China's Ministry of Commerce has multiple funding tools to support Chinese advances in construction, natural resource exploration, and technology exports. This is a far cry from the "markets first" approach advocated today by Washington and its allies.
The China Development Bank has committed at least $110 billion to projects in BRI countries as of mid-2018. China's Export Import Bank announced it had provided $90 billion.
Looked at from the United States' point of view, the challenge is that China's approach-investing in infrastructure-is, not surprisingly, quite attractive to many low-income countries and the US does not have the tools to offer something better.
The United States having relatively generous pockets, committed only about $35 billion in economic assistance in 2017 and very little of this went to economic infrastructure.
Since its very inception, the developed world led by the US and its allies, Europe (now minus Italy) and Japan has opposed the BRI on various grounds, the major one being assumption on the part of Washington that the BRI is a strategy aimed at displacing the United States as the world's dominant power and cementing China's rise.
Trying to dissuade the developing world from being won over by the BRI the US has been shouting from the rooftops that China was actually trying to get the low income countries entrapped in debt it cannot service and thereby hand over, finally, its sovereignty to Beijing. By way of example it could not refer to any project other than Sri Lanka's Hambantota which in fact went the way it went because of host country's failure to build the needed infrastructure for the port to be of any use for Sri Lanka even in the medium term.
Meanwhile, a new thinking is developing in the developed world which believes that the West instead of vainly trying to oppose the Initiative should help shape the BRI by being more closely involved. This new thinking suggests that multilateral partnerships can build capacity among borrowing governments and their civil societies to analyze the public-private partnerships that are evolving as key financing methods for BRI.
So far, China has been relying on loan capital far more heavily than equity in BRI financing. Yet equity investments from China would shift more of the risks to Chinese investors, and away from borrowing country governments and their taxpayers. This should be encouraged.
BRI's greatest successes have arguably been smaller-scale but highly targeted investments in developing countries. Because these countries often lack necessary infrastructure, the marginal benefit of each yuan spent is greater than in more developed areas. A new road in Tajikistan or a bridge in Laos may not attract much outside attention, but it goes far in supporting local economies and promoting connectivity.
According to this new thinking in Washington the US policymakers must not let the BRI's assumed failures obscure its actual successes. It, therefore, suggested that despite myriad concerns, knee-jerk opposition to the BRI would be counterproductive.
This new thinking in the developed world believes that knee-jerk opposition to BRI would unnecessarily heighten tensions between the United States and China and would reinforce Chinese perceptions that the United States seeks to contain China, a view that already holds strong currency in Beijing. Next, it would only exacerbate existing concerns about the BRI. It is further believed that if China remained the only option in countries along the Belt and Road, they are far more likely to take Beijing's terms without question. Third, it would limit the US ability to push the BRI in a positive direction by removing the United States from conversations surrounding the initiative. If China views the United States as reflexively opposed to its proposals, it is far less likely to take seriously even the United States' legitimate concerns about the initiative.
It is believed that both the United States and China can learn lessons from the Asian Infrastructure Investment Bank (AIIB), a Chinese-led multilateral development bank that the United States initially opposed. When Beijing first proposed the institution, in the view of the Washington the Chinese concept did not appear committed to international best practices and high standards. The US policymakers were skeptical of the organisation and, as a result, tried to discourage allies and partners from joining the bank. In the end, the United States failed to convince its partners to stay out of the grouping, which exposed the limits of U.S. influence vis-à-vis China and left Washington isolated.
By all accounts, the bank has demonstrated itself to be a professional institution. China's willingness to work with a broad set of both developed and developing nations (by the time of the AIIB's official launch fifty-seven countries had joined, including Germany, the United Kingdom, and France) to incorporate international best practices for the AIIB has also helped ensure the bank's transformation into a high standards institution like it is today. Under the leadership of Jin Liqun, the institution has developed a reputation as a competent multilateral development bank with legitimate aims to improve social and economic development across Asia.
For Beijing, the lesson is said to be obvious. It should seek to transfer the successes of AIIB, including appointing an accessible and transparent leader able to help critics demolish the assumed failures of the BRI, and promote its successes. For US policymakers, it should be clear that if they want to address concerns about the BRI, coming out against it would only limit Washington's ability to constructively engage with China on issues related to the BRI and global governance.
Despite many misunderstandings about the BRI, the original idea behind China's implementation is said to have remained unchanged. China hopes that the BRI will bring development, prosperity, peace, and security, and it hopes to work with all partners to create a bright future for the world.
But out of more than 3,000 projects of various kinds financed by Chinese banks, Hambantota is the only one that has ever been used as evidence for "debt-trap diplomacy."
China's interest in overseas ports is said to be central to many of these concerns. Investment by Chinese companies in ports in Greece and elsewhere in southern Europe is portrayed as a "Trojan Horse" entering through Europe's "soft underbelly."
China is moving out of low-end manufacturing, has overcapacity in the construction industry, and still holds foreign reserves of around $3 trillion.
The reason for launching BRI, they believe, is that the initiative slots neatly into low-income countries' development aspirations. China has excess foreign exchange, construction capacity, and mid-level manufacturing and needs to send all of these overseas.

Copyright Business Recorder, 2019

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