Having recently completed both the world’s most extensive system of expressways and the
planet’s longest high speed rail network, China is now looking beyond its borders for
opportunities to keep building.
President Xi Jinping announced at a recent summit that Beijing has sealed megaproject
deals with 65 countries throughout Eurasia and Africa to construct ports, power stations,
rail lines, roads, and all the tunnels and bridges needed to connect them back to mainland
China.
At a total cost of over $1 trillion, the One Belt, One Road initiative is unprecedented
in size and scope.
So is the bold funding mechanism: China will use its large, state-run banks to provide
most of the financing, a risky move, when you consider how few of the nations in the
O.B.O.R. could afford something like this on their own.
“Oh,” say the leaders of economically-challenged, underdeveloped Laos, Yemen, or Ethiopia — or
the blood-soaked regime of Bashar al-Assad in war-ravaged Syria — “you want to loan
us billions of dollars to build some cool stuff in our countries?
Of course, why not!?”
China is hard-selling the project as a way to boost its westward connections, an update
of the silk road trade route that played a significant role in developing China and the
rest of the region 1,000 years ago.
But many analysts see this comparison as little more than a marketing pitch.
Al Jazeera clip: “Is the real point of this, East-West service then simply to boost China’s
westward connections?
[Pauline Loong] “Well I wouldn’t say simply to boost China’s westward connections, but
I totally agree with Charles that it’s more a PR stunt.
To call it the “Silk Road,” that’s really brilliant—evocative of romantic camel travels
in the past.
When, you know, you have these lovely silks and trade and so forth.
And it’s good, because look at all the headlines it has been getting, but in practical terms,
it’s early days yet.”
[Bryce] Aside from the lessons China learned from its own recent infrastructure boom, Beijing
is also drawing inspiration from the American Marshall Plan which financed the rebuilding
of Western Europe after it was decimated during the second world war.
That program was worth the equivalent of $130 billion in today’s dollars and ensured the
US had reliable export markets for the manufactured goods and machinery its growing economy had
become dependent on producing.
China’s modern version — first announced in 2013 — is the signature initiative of
President Xi Jinping.
Several projects have already been completed.
Earlier this year London became the 15th European city connected directly to China through an
ever-expanding global rail system, meaning freight trains loaded with goods can now arrive
after a 12,000km journey all the way from the east coast of the landmass.
And, at a cost of $4 billion, China also just completed Africa’s first transnational electric
railway, which runs 466 miles from Djibouti to Addis Ababa, the capital of Ethiopia.
Chinese companies designed the system, built the line, and supplied the train cars.
The many other projects under the O.B.O.R. umbrella include:
A $6 billion, 260-mile railway connecting eight Asian countries.
Desperately needed power plants to address Pakistan’s chronic electricity shortage,
part of a larger $46 billion investment by China in Pakistan aimed at offsetting the
American and Japanese-backed building boom happening in neighboring India, China and
Pakistan’s mutual rival.
Train lines will connect Budapest to Belgrade, Serbia, providing another artery for Chinese
goods to reach Europe after arriving in a Chinese-owned port in Greece.
And — in a move that adds prestige to O.B.O.R.
— China is financing more than a third of the $23.7 billion cost of the Hinkley Point
C nuclear power plant in southwest England.
Part of the challenge in analyzing whether this building boom is ultimately good for
the world is its sheer complexity.
Nothing like this has ever been done before in human history.
Yes, providing underdeveloped countries a chance to have better transportation infrastructure,
or cleaner power plants is a good thing.
But, by funding infrastructure that’s designed to enhance commerce and trade — instead
of basic services many of these countries need more, like clean drinking water, affordable
housing, and better education — China’s motives seem to favor the wealthy, elite business
class.
Here are other factors that explain why China is undertaking a project of this magnitude:
The Communist Party has staked its reputation on non-stop economic growth.
Since they hold all the power, the Chinese people expect them to deliver.
But with its domestic megaproject boom nearing completion, China must find new buyers for
all the steel, cement, and construction machinery its economy produces, or many of its factories
could grind to a halt.
It has decided the solution is One Belt, One Road, but lending hundreds of billions of
dollars to many countries with weak credit ratings and unstable political systems is
very risky.
Which reveals an underlying sense you get when you look closely at One Belt One Road:
China’s increasing desperation.
The country’s national debt is already very high, but borrowing continues to accelerate
at historic levels as state owned banks loan more and more money to state owned companies.
The prime example of the risks associated with the tight rope the Communist Party is
trying to walk was the government bailouts issued during China’s recent stock market
collapse.
That crisis was caused by the same sense of impatience that’s driving O.B.O.R.—the
Party’s need to feed the insatiable economic growth monster.
Using its powerful propaganda machine, Beijing urged its own people to invest their savings
heavily in its immature, unstable market—causing inexperienced citizens to treat investments
in companies like bets at a casino, creating a huge bubble that, naturally, burst.
The government then suspended trading for a while and pumped billions into the system
to avoid a total collapse.
So really, when you step back, the core motivation for One Belt, One Road boils down to the Communist
Party’s need to buy itself more time in order to come up with its next scheme to prop
up the economy, because when it inevitably slows down, which it’s already starting
to do, the Party’s promise to deliver a fantastic economic dream world will have been
proven false for everyone in China but the elites.
The silver lining is that many of the ventures China has undertaken will pay long-term dividends,
like building up its high-tech manufacturing sector, with the anticipation that when OBOR’s
transportation networks are complete, it will be ready to use them to deliver higher-cost
goods like iPhones, drones, and green energy technologies to the rest of the world.
The other major motivating factor here is the unmistakable opportunity to gain even-power
status with the United States in Asia.
The election of Donald Trump, and then his decision to walk away from the Trans Pacific
Partnership trade deal that would have hurt China, are massive geopolitical mistakes—completely
unforced errors that China intends to take full advantage of.
When it first announced the O.B.O.R. back in 2013, Barack Obama had just begun his second
term and the US pivot to Asia was in full force.
With rivals like Japan, South Korea, and Vietnam challenging China’s efforts to control maritime
trade routes, it was clear China was being hemmed in on its Eastern flank.
Despite the election of Trump, this is still true.
So by instead turning instead to the vast land mass to the west for new opportunities,
China minimizes its reliance on maritime trade routes that could be cut off in the event
of a destabilizing military conflict.
At the end of the day, China is all about business.
It doesn’t matter if you’re a democracy, a dictatorship, or a failed state, China wants
to work with you.
But this willingness to embrace some of the world’s more unsavory characters could backfire.
Just look who Xi is sitting next to at the O.B.O.R. summit: Russia’s Vladimir Putin
and Turkey’s Erdogan—two men who look more and more like dictators clinging to power
with each passing day.
That’s not a good look for China, and it reminds us that the Communist Party is even
less transparent.
But in a world where the President of the United States is a bumbling fool, these partnerships
create much less of an image problem now than they would have just a few months ago, when
the widely admired Barack Obama was leading the free world.
If you ask the Chinese, the O.B.O.R. is all about peace, an embrace of the concept of
coop-etition.
A generation ago it was unthinkable for a country to invest billions of dollars on infrastructure
in another country, but in our hyper-globalized world, dominated by interconnected markets,
it may become the norm, especially when we consider the intangible benefits—greater
economic interdependence lowers the risk that groups of countries will want to fight with
other groups of countries, many of whom are bound together by military alliances.
Every one of these projects increases China’s soft power, giving Beijing more and more leverage
in any future negotiation or military conflict.
The many foreign seaports it will build and manage for the next half century will be particularly
valuable chess pieces.
Its understandable that Chinese policymakers are romanticizing One Belt, One Road as a
crowning achievement for their nation—further recognition that it has regained its former
status as a great civilization that deserves recognition around the world.
But the reality is that it still has a long way to go.
Combined, the following factors may weaken the optimistic sales pitches being made to
foreign officials: a recent Oxford business school study argued that half of Chinese domestic
megaprojects actually destroyed, not generated economic value; a few of China’s previous
efforts to build megaprojects in foreign countries — like the A2 motorway in Poland — failed
miserably; landowners and their representatives in the national assemblies of host countries
are pushing back hard against attempts to take away their land; and public demonstrations
against some the projects are beginning to take root, and spread.
Another dose of reality that should sober Beijing is that— after analyzing China’s
overleveraged financial position — its credit rating was just downgraded by a major agency,
whose analysts concluded that its borrowing is raising red flags, and its economic growth
will continue to slow down.
Of course, none of these speed bumps is going to stop the Communist Party from attempting
to execute their great leap.
They are committed 100% to embracing a fundamental history lesson — one we were all reminded
of by Brexit’s improbable win and the unlikely ascendence of Donald Trump — that fortune
favors the bold—at least, in the short run.
Thanks for watching.
Get caught up on all of China’s major domestic megaprojects with the mini-documentary I made
last year, which started some interesting conversations.
To learn even more, and to support our work, sign up for a free 30-trial of Audible.com
— linked below — and you’ll get one free audio download, like the great courses
on The Fall and Rise of China.
Until next time, for TDC, I’m Bryce Plank.