20 June 2017

Why the Belt & Road Initiative? Key drivers behind Xi Jinping’s grand project


“Belt and Road” is the most discussed phrase in Indian foreign policy circles over the last month or so. And yet, we have an incomplete understanding over the factors behind this grand project.

At a simplistic level, it is either seen as a Chinese project to encircle India or as a project to deploy China’s potentially crippling overcapacity in the infrastructure sector.

This is where I found Nadege Rolland’s China’s Eurasian Century? to be of great help. Chapter 3 of the book lists a number of drivers behind BRI.

To make greater sense, I have classified the factors listed by the author into 3 categories: domestic, geopolitical, and geoeconomic.

“Zhōngguó mèng” — The Chinese Dream — is China’s equivalent of Achche Din

Domestic drivers

The Chinese party-state’s social contract effectively rests this promise: higher levels of growth → more employment → prosperity for all its citizens. Xi Jinping has explicitly put forward two time-bound goals: China should become a “moderately well-off society” by 2021 and a “fully developed nation” by 2049. BRI is an initiative that gains strength from this narrative and hence it has become a key element of Chinese foreign policy.

A change from an export-led model of growth to a one that depends mainly on domestic consumption requires painful economic restructuring. This might also be deeply unpopular, chipping away at CCP’s legitimacy. A better option for China is to go back to its trusted model — invest in infrastructure and manufacturing. BRI helps here.

The most commonly cited reason is overcapacity in infrastructure development. But there is now consensus that although BRI won’t be able to create commensurate demand to match the existing excess capacity, it can help buy enough time for reform and restructuring.

economic development through BRI will alleviate the threat from the “three evil forces” (terrorism, separatism, and extremism) and “cut off the external linkages that exist with western China’s separatist forces.” In other words, more Han control over western and north-western extremities of China will be possible with infrastructure created under BRI.

Geopolitical drivers

State Owned Enterprises (SOEs) investing abroad will become expressions of China’s party-state like never before. Several SOEs (natural gas, railways, power etc) have been merged, undoing the public sector competition logic that was the guiding principle until a few years back. They will not be competing with each other for international contracts under BRI as a result of these mergers. When these merged behemoths invest in neighbouring countries, the Chinese party-state will be able to influence the politics of those countries much better.

Carrots and sticks will be used to mould behaviour of the countries joining BRI. States that are friendly to China, support its interests, or at a minimum do not challenge it on sensitive issues will receive economic and security benefits from Beijing; conversely, countries that oppose China, or infringe on its security and sovereignty, will be denied access to these rewards and might even be actively punished.

Geoeconomic drivers

BRI will increase demand for Chinese goods abroad. This will be a long-term win for China’s economic growth.

BRI will internationalise renminbi. This will shield the exporters from exchange rate fluctuations, allowing the export-led model of growth to continue.

It will help China secure energy transportation routes through Central Asia, reducing Chinese dependence on Malacca Straits.

The next exercise will be to evaluate the relative significance of these drivers.

[For further reading, the book chapter is located on the NBR website here]

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