China's Challenges Abroad: Why The Belt & Road Initiative Will Succeed

China's Challenges Abroad: Why The Belt & Road Initiative Will Succeed

Wade Shepard
The place where Chinese gauge tacks come together to meet Russian gauge tracks

 Concurrently, the Belt and Road Initiative (BRI) seems to include everything that China touches and nothing at all, but this doesn’t mean that the initiative is all smoke and mirrors. It’s really happening — in the meeting rooms and conference halls of governments and state-owned enterprises around the world, on the ground in logistically strategic locations, in the nascent special economic zones of dozens of countries, it’s happening -- regardless if the U.S. Defense Secretary seems to feel that it’s little more than a pompous dictate.

Controlling physical infrastructure networks

While not sexy, ports, roads, rail lines and logistics zones make up the circulatory system of the world. They are the arteries that goods and people flow through from one point to another, and laying a claim in this area is the first stage of the BRI.

The 'Fuxing' bullet train leaves Nanjing south railway station - Getty images

Over the past five years, Chinese companies are now running no less than 77 sea terminals in dozens of countries, building high-speed rail corridors across Southeast Asia and potentially even Europe and Russia, funding the construction of highways in Pakistanbridges in Bangladesh, power plants in too many countries to list here, erecting new cities and/or special economic zones in Sri LankaOman, Myanmar, Malaysia and Abu Dhabi, dug a vast array of oil and gas pipelines stretching across Central Asia, Russia and Southeast Asia, and established a 35-line network of direct freight trains connecting the manufacturing centers of central and western China with cities in Europe.

In developing this infrastructure, China has shown that they can vastly outcompete other companies and governments to get contracts. Their strategy is simple: they overpay. But we have to remember that the economic principles of the BRI are not those that are at play for today, but those of 10, 20, 50 years from now. China is apparently investing in a future world where all roads run through Beijing, and only once that's set up will talks of profit and loss be applicable.

The development of soft infrastructure

At root, developing physical infrastructure internationally is a way for China to establish and cement the long-term political relationships which are truly the beating heart of the BRI.

The biggest leaps that the BRI has perhaps been taking are in the development of what could be called soft infrastructure which is carried out in the realm of politics: intergovernmental agreements, trade deals, customs pacts and aid deployments.

Chinese President Xi Jinping - News conference - Belt and Road Cooperation Forum May 2017

Since the Xi Jinping era began in China, the country has been systematically making trade deals with countries all over the world, with a special emphasis on those along the conceptual routes of the BRI. Officially, China has 19 FTAs in the works, 14 of which have already been implemented.

Xi and company have also been busy at work establishing customs agreements across Eurasia, having signed deals with TaiwanFinland, a landmark pact with the EU, as well as a prospective future agreement with the UK. Last year, China also signed onto the TIR Convention, which is a 70+ country agreement to speed up customs protocols for the more efficient transport of goods.

In addition to trade pacts and customs agreements, China has jumped with two feet into the foreign aid game. According to an extensive study by the College of William & Mary's AidData team:

AidData's research offers a picture of a rising financial giant that is challenging even the biggest donor nations. China provided $354.4 billion in official funding around the world between 2000 and 2014 -- not far off the amount spent by the United States in the same period, $394.6 billion. In some countries, the two nations looked like competitors, with China sometimes usurping the United States to become the preeminent donor.

While these researchers discovered that China's aid practices are probably not as rogue as they are often assumed to be, they did uncover an interesting correlation where countries in Africa who vote in support of China at the UN get rewarded with a big boost in aid.

The money is there

Counting 100 Yuan banknotes 2016 Bloomberg


Earlier this year, China bears had a field day reporting about how the Beijing's foreign reserves were falling, with some pointing out that upwards of $1 trillion were lost. But this appears to have been little more than a minor hiccup, as over the past six months in a row China's reserves have been on the rise and are now above their customary $3 trillion. Or, we can put it like this: China makes around $40-$60 billion per month from the imbalance between imports and exports alone, and even seemingly extravagant spending on the BRI doesn't yet seem to have much of an impact on Beijing's bottom line. Basically, China is funding their continent spanning endeavor with chump change, and the wheels are not coming off of this initiative anytime soon.

Crossing geopolitical divides

Instead of calling heads or tails, China calls both, crossing all geo-political barriers and befriending nations on both sides of established conflict lines. Declaring the "with us or against us" type of foreign policy where governments form political bonds with select blocs of countries which stand in opposition to other countries as “outdated geopolitical maneuvering,” China aims to instead “forge partnerships of dialogue with no confrontation and of friendship rather than alliance,” according to China’s Storyteller-in-Chief, Xi Jinping. Concurrently, China is building relationships with Israel and Iran, Azerbaijan and Armenia, Russia and Ukraine, Pakistan and (ultimately) India, North Korea and the U.S. -- crossing all lines and treading all paths in between.

The advantage of this is clear: more countries on the table to deal with theoretically means more deals, more geo-economic clout, and fewer barriers to trade.

The power of bilateralism

World leaders at the Belt and Road Forum, May 2017 Getty

The BRI can ultimately be deduced to a series of interconnected bilateral trade and development deals which China is making either one-on-one or group+1 with countries and political blocs across Asia, Europe, and Africa. There is no overarching structure, no membership protocols, no moralistic browbeatings, no predefined set of standards that BRI participants need to uphold in unison, and deals that are made do not need to be watered down to the lowest common denominator of an established group. Each country or bloc negotiates on their own terms, and deals can be structured in accordance with its particular parameters. When things go awry, China can renegotiate with the conflicting party directly rather than having a situation that puts an entire multilateral network at risk.

Basically, China seems to have realized that not all countries are the same, not all government systems function alike, and not all cultures can be blanketed with the same, rigidly defined set of standards and protocols. This strategy also gives China more of a dominant position over its partners, as without a bloc of countries behind them they are in the ring one-on-on with a much stronger, faster, and economically stable opponent.

Simply put: the BRI is built to actually work.