One Belt, One Road: Why Trump Should Get Behind China's Economic Growth Plan
The United States has given off mixed signals. Last year the Obama administration offered a tepid endorsement. Former Deputy Secretary of State Tony Blinken said the initiative was “consistent” with U.S. goals and could be “complementary” with U.S. efforts. However, the Trump administration’s Dan Coats, Director of National Intelligence, warned of the Chinese desire to “expand their strategic influence and economic role across Asia.” The administration sent a lower-ranking delegation to last month’s Beijing forum.
Washington’s reluctance in part reflects concern that the PRC is using its economic strength for political purposes. The Obama administration similarly refused to join the Asian Infrastructure Investment Bank. To this issue now must be added President Trump’s protectionist tendencies, even though BRI theoretically offers commercial opportunities for America firms. However, realization of those possibilities depends greatly on the rules and terms governing projects at a time when United States firms feel increasingly unwelcome in China.
If Xi’s program is going to attract greater participation from these important international players, BRI must focus on economics, not politics, and promote projects which make economic sense for lenders/builders as well as borrowers/recipients. BRI also needs to take into account the often complex and fragile politics within participating states.
There are many potential pitfalls which need to be avoided. One is that the program may have too many objectives: China and fellow participants need to set priorities. Such a program, with high geopolitical goals, risks encouraging projects of little economic value. The pressure to find projects may grow particularly acute in the least developed BRI nations, many of which remain in poverty because of their own counterproductive policies. Indeed, nearly half of countries eligible to participate have been judged “high risk” by Oxford Economics, while half of those which have accepted projects have credit ratings below investment grade. To the extent that projects are treated more as assistance than commerce, BRI risks repeating the unhappy experience of manifold failed aid programs over the years.
Many of the governments involved are incompetent, unpopular and corrupt, undermining any program. Moreover, economic projects often have political overtones. China has found itself subject to protests and even treated as an election issue in such nations as Myanmar, Sri Lanka and Zambia. As noted earlier, Beijing’s Pakistan investment has drawn it into the Kashmir imbroglio. Russia may not react well if through BRI the PRC further attracts countries once part of the Soviet Union.
The program’s development might suffer from China’s own economic problems, such as banks with dangerously high-debt burdens and the temptation for companies and provinces to relabel most any economic development as BRI-related in order to win subsidies and other official support. Beijing’s increasing geopolitical aggressiveness may deter some states from participating out of fear of exploitation. Environmental issues are certain to arise, as well as risks of increased terrorism as potential targets, both people and projects, spread to more at risk countries. Finally, implementation issues are monumental: to manage so many projects in so many nations poses unprecedented challenges.
What of the future? There’s reason for skepticism, but problems can be overcome. However, doing so will require restraint and responsibility from Beijing’s nationalistic and aggressive authorities. One step would be serious economic reform at home, especially of state enterprises and banks, as well as ending what appears to be a systematic campaign to harass and disadvantage Western concerns. China also should join developed nations by paying off debts to the World Bank and IMF, which are artifacts of an earlier era.
The PRC should use BRI to empower poor nations. Beijing could open its capital markets, ease import barriers and enable more foreigners to work and do business in China. Also, Beijing should directly address the concerns of its greatest critics, emphasizing BRI’s economic purpose, focusing on private investment and participation rather than government enterprises, and structure deals to maximize international participation. The PRC could offer formal discussions over issues of concern, such as technical standards for projects.
Finally, China should seize the opportunity to share global economic leadership. Beijing should point out to the Trump administration that BRI offers the potential for the sort of “deals” that President Trump appears to value and look for ways to use the program as a means to expand trade with other nations in the wake of the Trump administration’s economic retreat.
In pushing BRI, President Xi spoke of the “great rejuvenation of the Chinese nation.” That already has occurred. China accounts for half of Asia’s economic activity. The PRC is the globe’s largest merchandise trader. In recent years it has been the largest contributor to world economic growth. Total Chinese foreign direct investment is estimated at a trillion dollars.
But challenges remain to Beijing’s program, most seriously the suspicion that BRI is a political maneuver intended for the PRC’s global advantage rather than the economic benefit of others. China should address its critics.
Last month President Xi called on conference attendees to “build an open platform of cooperation and uphold and grow an open economy.” Properly structured, BRI could advance that end. Then Beijing would be well positioned to challenge the United States and Europe, as well as India and Russia, to join China’s efforts. If they took up such a challenge, much could be accomplished for the benefit of all.