China's Belt and Road to Nowhere

Shanghai at night. Pixabay/Public domain

Beijing’s mixture of political and economic priorities may not result in an overall Belt and Road policy formula that is workable.

As we have noted in previous articles for the National Interest, the Chinese RMB has been under pressure to depreciate against the dollar. China’s central bank sold over $1 trillion in U.S. Treasury bonds to provide the dollars to slow down the decline (by buying RMB). Indeed, over the past several years China’s massive foreign currency reserve shrank from $4 trillion to $3 trillion as the country’s nationals went on a spending spree acquiring real estate and commercial assets in the United States and other nations.

With the imposition of currency controls last year, however, China’s posture as a net investor around the world is changing. The propaganda headlines of the Belt and Road Initiative suggest a massive capital outflow to other nations, but, in fact, just the opposite is the case. Indeed, the South China Morning Post reports that Beijing's strict capital controls are delaying private investments that are part of the Belt and Road project.

First and foremost the importance of China’s Belt and Road Initiative is political, namely to show President Xi Jinping in control of China’s command economy as he consolidates political power as dictator of China and the unquestioned leader of the CCP. Under Xi, the era of collective leadership in China is well and truly at an end.

But second—and more important—the continuing effort by China to “pump prime” internal economic activity via gargantuan infrastructure projects, both at home and abroad, reveals a basic flaw in the Chinese economy. Only when the political monopoly of the CCP has ended and China’s people are truly free to make economic and political choices will the country be able to provide sufficient investment opportunities at home so that desperate measures such as the Belt and Road spectacle will no longer be necessary.

Christopher Whalen is senior managing director and head of research at Kroll Bond Rating Agency. He is the author of Inflated: How Money and Debt Built the American Dream (Wiley, 2010) and the coauthor, with Frederick Feldkamp, of Financial Stability: Fraud, Confidence and the Wealth of Nations (Wiley, 2014). His website is

Image: Shanghai at night. Pixabay/Public domain