The Belt and Road Strategy Has Backfired on Xi

Zachary Keimig/Tiananmen Square, China

Most who have heard of Xi Jinping’s Belt and Road Initiative (BRI) think of it as an exercise in economic statecraft. This hypothesis is wrong. The Belt and Road is less a geoeconomic power play than a marketing strategy. Few of the myriad projects and investment schemes labeled ‘Belt and Road’ exist because of the initiative as such. Grand strategists in Beijing did not cause the tremendous outbound flows of money, men, and material that comprise Belt and Road, and they cannot direct it either. What statesmen like Xi Jinping do have power to influence is how these flows are understood and perceived by the world. It is for this cause the Belt and Road Initiative was born.

From the beginning, this initiative has been less about using economic tools for geopolitical ends than using political, diplomatic, and propaganda tools to shape the global response to China’s growing power. It is against this benchmark that the successes of BRI must be judged, and on these grounds that its failures are most apparent.

All grand campaigns pursued by the Chinese party-state flow from the declared mission of the Chinese Communist Party (CCP). The party’s central task is to bring about the “rejuvenation of the Chinese nation,” an injunction to return China to the prosperity and glory Chinese associate with the empires of their past. This is a competitive endeavor. As the leader of an unapologetically Leninist regime, Xi Jinping believes that China’s return to glory requires “build[ing] a socialism that is superior to capitalism” and thereby “lay[ing] the foundation for a future where we will win the initiative and have the dominant position.” These grand goals place special demands on Chinese foreign policy: “It is vital that China proactively create a favorable national security environment,” Xi has explained. In other words, the grand strategy must focus on changing the norms of global institutions themselves, rather than just adapting to or violating them. As he would note on a later occasion, “the Chinese Dream can only be realized in a peaceful international environment and a stable international order.”

When Xi came to power in 2012, the international security environment did not look favorable. The United States was a close military ally with many of China’s neighbors and had just declared its intent to pivot its military posture to Asia. Washington was negotiating a regional free trade pact that would exclude the Chinese. Observers in Beijing feared the specter of containment. Equally disturbing was Western “discursive power”—party-speak for the hold that Western ideas and ideals had on the international stage. Party leaders identified liberal patterns of thought as a threat to their rule; they feared that an international order with thoroughly liberal operating norms would destabilize China and undermine its drive to move “closer to the center stage” of world affairs.

To thrive, the Party would need to push the international order into a “fairer and more reasonable” direction. Party leaders imagined a future where their socialist system held a place of honor, where hostile liberal hegemony had been replaced by a world governed by “a new model of international relations featuring cooperation and mutual benefit,” and in which Western alliance systems would be supplanted by “a partnership network that links all parts of the world.” In such a world, the party could rest easy, knowing that China’s rise to the top had been safely guaranteed. The only question was how to bring that world about.

The BRI is Xi Jinping’s personal attempt to enlist China’s infrastructure-industrial complex into the party’s quest to reshape the international order. Only a few years before Xi came to power, China had relied on this complex to power its way out of the Great Recession. Local governments partnered with SOEs to build new infrastructure on a gargantuan scale, funding projects through low-interest loans offered by China’s major policy banks. But by the early 2010s, this local government-SOE-policy bank nexus was in a state of crisis. Stimulus money was gone, returns on domestic infrastructure were trending negative, overcapacity exceeded 30% in industries like iron, cement, and aluminum, and Chinese banks had some $3 trillion USD in unused foreign exchange reserves. The only way to sustain its profits was to find new, paying customers abroad. “The lesson China learned [in the recession],” notes economist Andrew Batson, “is that debt is free and that Western criticisms of excessive infrastructure investment are nonsense, so there is never any downside to borrowing to build more infrastructure. China’s infrastructure-building complex, facing diminishing returns domestically, [applied] that lesson to the whole world.”

The globalization of the Chinese infrastructure-industrial complex was already well underway when Xi decided to describe it as part of a 21st century Silk Road. Many of the initiative’s largest and most prominent projects were announced, negotiated, or began construction years before the BRI’s official launch, and were simply rebranded after the fact to curry favor with the party leadership. As we shall see, Xi’s directives have had a limited influence on the decision-making process of the firms involved in Belt and Road activity since then.

Despite exercising little personal control over SOE decision making, Xi has gone to unusual lengths to associate their projects with his personal grand strategy. Xi has held two major international forums devoted specifically to Belt and Road, each bringing delegations from more than 40 countries to Beijing. Xi uses meetings with foreign heads of state to announce a new BRI Memorandum of Understanding and to publicly boost the effectiveness of the initiative’s “win-win” approach.

One catalog of major speeches about the BRI finds that Xi has given more addresses on the topic than all other members of the Politburo. The BRI has been reaffirmed as a central plank of “Xi Jinping Thought on Foreign Affairs”—a set of principles and guidelines that all of China’s foreign-facing officialdom is supposed to memorize, internalize, and implement—and was given a prominent place in Xi’s Political Work Report to the 19th National Congress. That Congress saw Xi’s signature initiative endorsed and enshrined in the constitution of the Communist Party of China.

There are two apparent rationales for Xi’s decision to claim the globalization of the SOE infrastructure-industrial complex as his personal brainchild. The first is that Xi hoped that this framing might shape the contours of future outbound investment and construction, bending them towards his personal diplomatic priorities. Xi has made clear what these priorities should be: transportation and energy infrastructure in strategic locales. Guidance documents from the National Development and Reform Commission, China’s premier development coordination agency, instruct project managers to prioritize six “economic corridors” with China’s neighbors. As one analyst notes, the corridors “conspicuously bypass the maritime chokepoints that China has hitherto (by necessity) relied upon American naval capability and benevolence to secure.” Xi emphasized that the BRI must “give priority to projects of strategic importance,” and that

Infrastructure connectivity is the foundation of development through cooperation. We should promote land, maritime, air and cyberspace connectivity, concentrate our efforts on key passageways, cities and projects and connect networks of highways, railways and seaports. The goal of building six major economic corridors under the Belt and Road Initiative has been set, and we should endeavor to meet it.

Reducing complex political processes down to bland slogans (“belt and road”), numbered lists (“six major economic corridors”), and overly broad policy guidelines (“give priority to projects of strategic importance”) is a strategy of control that Chinese communist leaders often turn to. They lead a party-state whose members number in the tens of millions; most individuals working for it find themselves subject to overlapping, and sometimes conflicting, lines of authority. True centralized direction of this morass is not possible. To form order from chaos, party leaders rely on propaganda and sloganeering to communicate directly to the cadre on the scene. Party leaders dispense with detailed directives that foresee every contingency in hope that cadres will grasp the principles of the party’s guiding ideology and then develop their own path for implementing these principles in their unique situation. When Xi declares that “whether we succeed in our pursuit of peaceful development to a large extent depends on whether we can turn opportunities in the rest of the world into China’s opportunities,” he does so knowing that his statement will repeated and reprinted in state publications that diplomats, SOE managers, military officers, and party bureaucrats must read. It is their responsibility to turn broad and bland platitudes into individual plans of action.

Most party rhetoric is like this, intensely focused on its internal audience of party members and state employees. The Belt and Road rebranding, however, has a second, larger audience: all the world outside of China. Loudly calling attention to SOE projects and investment abroad allows Xi to subvert hostile narratives surrounding China’s rise. Christening foreign development projects as the central plank of Xi’s grand strategy was an attempt to legitimize China’s return to superpower status. “Promoting BRI, boosting win-win cooperation between China and other countries, and pursuing common development,” Xi informs his diplomats, means “tell[ing] the world China’s success stories, [and through these means] promot[ing] mutual understanding and friendship between China and other countries.”

The legitimizing mission of the Belt and Road is seen in Xi’s invitation to “welcome others to join China’s express train of development.” This was an intentional bid for prestige: China was openly offering “a new trail for other developing countries to achieve modernization” on terms not set by the West. Xi made this clear in 2017 when he declared that “the banner of socialism with Chinese characteristics is now flying high and proud for all to see,” and that the party was

Blazing a new trail for other developing countries to achieve modernization. [The Chinese example] offers a new option for other countries and nations who want to speed up their development while preserving their independence; and it offers Chinese wisdom and a Chinese approach to solving the problems facing mankind.

This sort of rhetoric changed the terms of SOE engagement with outside clients. What would have been understood as business deals between individual SOEs and governments who purchased their services have been transformed into diplomatic endorsements of the “Chinese approach to solving the problems facing mankind.” Each Memorandum of Understanding signed by a foreign government would legitimize the Chinese development path—and the Chinese Communists who pioneered it.

It was a fine strategy, but one with a double edge.

Transforming SOEs cash-cow projects into handmaidens of China’s national rejuvenation had unanticipated consequences. Americans who might have dismissed these projects as an ad-hoc series of bilateral investment agreements now saw them as a challenge to America’s global leadership. Reactions in Tokyo and New Delhi were just as hysterical, and from the Chinese perspective, just as preventable. The natural reaction of the world’s dragon-slayers to BRI publicity was to hunt for BRI projects they might discredit—a task made far easier by the consequences of Xi’s branding campaign.

In the words of one economist, Xi’s decision to associate SOE firm strategy with his personal diplomatic brilliance “gave the SOE infrastructure-complex carte blanche to pursue whatever projects they [could] get away with.” Poor investments that would have once drawn criticism, or at least extra scrutiny, by observers in China were now given a free pass, as few Chinese would risk tarring an initiative the General Secretary had invested so much of his personal prestige into. Outside China, in contrast, critics would now credit sloppiness or malfeasance not to the failings of individual SOES or financial consortiums, but to the malevolence of the Chinese government. Anything that went wrong with any project would now be laid directly at the feet of Xi Jinping.

Thus, the long string of BRI related incidents that have elevated what were essentially commercial or financial disputes into crises in the diplomatic relationship between China and various BRI host countries. BRI projects have been enmeshed in corruption scandals or political controversies in Malaysia, Myanmar, Sri Lanka, Bangladesh, Pakistan, Kyrgyzstan, Kazakhstan, Czech Republic, Italy, Australia, and the Maldives. The worst of these disputes have swept anti-China political parties into power. Their leaders condemned the Belt and Road “as a big cheat,” denounced the CPC for its “new colonialism,” and maligned Beijing’s efforts as an attempt to ensnare their nations with “debt-trap diplomacy.”

There is little evidence that Beijing ever intended any of its projects to become debt-traps, nor that they would even have the ability for this level of central strategic action. Yet haphazard project selection was an inevitable outcome of Xi’s decision to make the SOEs and policy banks—domestic actors that face no incentive to take the party’s long-term foreign policy priorities seriously—the foundation of his grand strategy.

The key actors in this system are the host governments of Belt and Road member countries (who generate most of the foreign-facing project proposals), municipal and provincial government officials (who generate the rest of the proposals, have responsibility for international projects where domestic connectivity plays a part, and sometimes act as middlemen), large SOEs (who provide the actual goods and services tendered), and PRC policy banks (whose loans fund the projects). Proposed projects are then passed up to the National Development and Reform Commission—notably, not the more centralized and foreign-oriented Ministry of Foreign Affairs or Ministry of Commerce—for approval and review. This mirrors the project development process of the PRC’s recession spending spree. Extending the process to new shores is an excellent way to subsidize the state contractor-policy bank nexus, but a questionable foundation for a coherent foreign policy.

Xi’s strategic visions and the Belt and Road realities bear but a measly semblance to each other. One analysis of 173 BRI projects concludes that, apart from the China-Pakistan Economic Corridor, “there appears to be no significant relationship between corridor participation and project activity.” When participation is measured through dollars invested, the skew is even greater: approximately 30% of the $148 trillion invested in BRI countries between 2014 and 2018 went to three countries: Singapore, South Korea, and Israel. None of these three are in the six strategic economic corridors; each is already considered a developed economy.

Projects can work at strategic cross-purposes: in 2013 officials in Guangxi and their SOE allies financed a multi-billion dollar investment in a port, cross-country railway, and industrial park in Malaysia’s Pahang state; two years later, officials in Guangdong province signed a rival agreement with Malacca to fund its own multi-billion dollar industrial park and port. “There is little economic rationale for developing two world-class ports on the Malay Peninsula,” note political scientists Zeng Jinhan and Lee Jones, “These projects reflect not a coherent master plan but rather competitive, sub-national dynamics in both countries. Moreover, these micro-level dynamics clearly do not–indeed, cannot–add up to a coherent, macro-level network of infrastructure.”

The distribution of dollars invested and projects constructed puts to question whether Chinese SOEs are behaving any differently than they would have without the BRI framework. At least one researcher who interviewed dozens of decision-makers in Chinese SOEs reports that considerations of profit, not politics, is driving project selection. Little surprise, then, that as the number of countries nominally involved with the BRI has grown over the last three years, actual money spent on foreign projects has not risen. Having used their excess foreign reserves in the first half of the 2010s, funding from policy banks to start new projects peaked in 2017 and has fallen drastically since. Bankers and businessmen are simply not willing to go into the red to fulfill Xi Jinping’s intentionally vague directives.

Xi did not create the infrastructure-industrial complex’s decentralized project selection and development process. He inherited it. Branding this inheritance a central plank of Chinese foreign relations was his mistake. The actors were too various, and their relationships too complex, for a simple system of centralized control. This left Xi with little choice but to rely on the propaganda and ideology apparatus to try giving the Belt and Road strategic direction. These tactics for guiding cadre behavior are powerful in the absence of other incentives—but when there were billions of dollars to be made, the siren call of those other incentives sounded far louder than the exhortations of Xi Jinping Thought. The irony is that foreigners did pay attention to Xi’s exhortations. Xi then found himself paying costs for a strategy he could proclaim but could not implement.

The future of the BRI branding project is uncertain. The initiative is entangled with Xi’s personal prestige. It is hard to imagine Xi’s signature initiative falling away unless Xi himself falls first. More likely then, is that both international attention and party focus on the initiative will slowly taper off as the true motive force behind its projects, SOEs looking for easy money will determine that foreign money is no longer so easily made.

This may already be happening. The coronavirus crisis has crashed foreign demand, excess foreign reserves have already dwindled, and under the aegis of “dual circulation” the government is set to offer financial incentives to firms that reorient towards Chinese domestic consumption or move up the manufacturing value chain. The pageantry of the Belt and Road will live on. But if foreigners still quake at Chinese economic power at the end of this decade, it will not be because of Chinese road-building abroad, but instead the bounding strength of Chinese industry at home.

Tanner Greer is a journalist and researcher. His writing focuses on contemporary security issues in the Asia-Pacific and the military history of East and Southeast Asia.