The BRI is Dead? Long Live the BRI?, Part II- Accelerants Allover with Sporadic Retardants

My last blog highlighted the debate raging about the health of China’s Belt and Road Initiative (BRI).[1] It also reviewed the economic and political rationales for China’s ambitious scheme. This blog takes the position that the BRI is neither dead nor on life-support. Such claims ignore the array of enduring domestic and international reasons (enumerated below) for China to continue pushing it and, importantly, for Chinese companies and subnational actors like provinces to persist with the internationalization it supports. This blog further notes we need to acknowledge varying BRI participant country situations. It accepts that the BRI will not advance as dramatically as before, though, truth be told, it was not advancing dramatically earlier.[2] It does not, though, embrace the thesis that the BRI will assume significantly new forms.[3] The BRI’s ambit will remain broad to satiate participant and Chinese interests and capabilities.[4]

The domestic economic and political forces currently propelling the BRI are many as well as long-standing. Indeed, some predate by BRI by decades even if they did not exert the same force then as they did when the BRI came into being or now. A powerful domestic economic one is that China produces too much for its own market.[5] A second is that many Chinese firms must go overseas because they face intense or unfair competition domestically as well as cost structures that are heading in an unfavorable direction.[6] A third is that Chinese provinces and cities need to develop and connect more extensively with neighboring regions and countries as well as other Chinese provinces and cities.[7] BRI infrastructure provides a way to address all these issues. Regarding domestic political forces, the BRI is closely associated with paramount Chinese leader Xi Jinping and is a device Chinese policymakers believe can promote domestic integration.[8] Beijing also expects the BRI to improve the situation in Xinjiang by moderating the inward flow of undesired influences from adjoining areas.[9]

Looking at international drivers, numerous economic and political factors will support the BRI’s continuation. Starting with the former, China covets greater access to foreign markets. Among other things, it needs to find outlets for its excess production, diversify its trade partners, and obtain critical raw materials. Furthermore, Chinese companies require expanded opportunities to invest, sell their products and services, obtain intellectual property and technology, promote their standards, and jump protectionist walls. As well, China desires channels for internationalizing its currency, the Renminbi.[10] Turning to international political factors, China still needs to demonstrate it is a benefactor of the developing world and a global, not just Global South, leader. China also derives various political gains from deeper bilateral economic ties with BRI participants.[11] Lastly, the BRI helps China facilitate China-centric regional integration.

Too often commentators ignore the distinctive characteristics of BRI participants. Yes, they uniformly need infrastructure and associated financing and investment. They are far, though, from uniform politically or economically. Many are not political basket cases, on the verge of defaulting on their loans, or bereft of any genuine need for BRI infrastructure. In fact, many BRI participants such as Chile, Greece, Hungary, Malaysia, Panama, Saudi Arabia, Thailand, and United Arab Emirates have, even if there are challenges, the financial wherewithal, government capacity, and/or domestic political stability, to make good use of the BRI and provide suitable destinations for Chinese capital and firms. Even economically-troubled BRI participants like Cambodia, Ethiopia, and Jamaica have political usefulness (though in different degrees) to China and economic value to Chinese companies, both which can fuel the BRI.

The oft-highlighted BRI “money problem” requires discussion. On the recipient side, marquee participants such as Kenya, Laos, and Pakistan all have excessive debts or problems repaying loans.[12] On the lender or investor side, compared to past periods, China may not have as much money to and/or may be less willing to lend or invest.[13] Participant debt problems are real, but unfortunately there is excessive focus on certain troubled debtors, without acknowledging that some of them (e.g., Venezuela) have debt problems having no link to the BRI.[14] In addition, as noted, many BRI participants do not face severe debt problems. Furthermore, the financial condition of certain BRI borrowers such as Angola and Ethiopia potentially could improve with, respectively, increases in commodity prices or internal political stabilization. There also is too much focus on troubled projects like Hambantota as if they told the whole story. Yet many BRI projects are moving forward, even if more slowly or downsized.[15] As for China, its economy eventually will improve; there will be pressure on Chinese financial institutions to support the aforementioned needs of China and Chinese companies and BRI participants demands, and Chinese firms will locate capital to fund their internationalization.[16] The above will combine to ensure there is a pool of able (not to mention willing) BRI borrowers and able and willing Chinese lenders and investors.[17]

The BRI is neither dead nor on life support. It is easy to proclaim such when the benchmark is a BRI that never existed. This blog argues the BRI will continue to move forward because the forces that catalyzed it remain. Furthermore, many BRI participants not only need and want the BRI, but can make something out of it. The aforenoted money problem will not disappear, though they may not exert the severe drag some forecast. While the BRI did not end up the “project of the century,” many projects ultimately will happen, some with century-long effects.