China’s Infrastructure Play

Over the past three millennia, China has made three attempts to project its economic power westward. The first began in the second century BC, during the Han dynasty, when China’s imperial rulers developed the ancient Silk Road to trade with the far-off residents of Central Asia and the Mediterranean basin; the fall of the Mongol empire and the rise of European maritime trading eventually rendered that route obsolete. In the fifteenth century AD, the maritime expeditions of Admiral Zheng He connected Ming-dynasty China to the littoral states of the Indian Ocean. But China’s rulers recalled Zheng’s fleet less than three decades after it set out, and for the rest of imperial history, they devoted most of their attention to China’s neighbors to the east and south.

Today, China is undertaking a third turn to the west—its most ambitious one yet. In 2013, Beijing unveiled a plan to connect dozens of economies across Eurasia and East Africa through a series of infrastructure investments known as the Belt and Road Initiative. The goal of the B&R, Chinese officials say, is to bring prosperity to the many developing Asian countries that lack the capacity to undertake major infrastructure projects on their own by connecting them through a web of airports, deep-water ports, fiber-optic networks, highways, railways, and oil and gas pipelines. The B&R’s unstated goal is equally ambitious: to save China from the economic decline that its slowing growth rate and high debt levels seem to portend. The infrastructure initiative, China’s leaders believe, could create new markets for Chinese companies and at the same time provide a shot in the arm to the struggling banks and state-owned enterprises whose disgruntled bosses might otherwise trouble the current leadership of the Chinese Communist Party.

The B&R could become either a source of great-power competition or a force for stability.

Also called One Belt, One Road, the B&R is a massive undertaking that will shape Eurasia’s future. It will extend from the Pacific to the heart of Europe, stimulate some $4 trillion in investment over the next three decades, and draw in countries that account for 70 percent of the world’s energy reserves. So far, however, the United States has either fruitlessly attempted to undermine the initiative or avoided engaging with it altogether. That is the wrong course. Washington should instead cautiously back the many aspects of the B&R that advance U.S. interests and oppose those that don’t. The United States does not have to choose between securing its global position and supporting economic growth in Asia: selectively backing the B&R would help achieve both goals.

SILK ROAD TRIP

The B&R comprises two main parts: a series of land-based economic corridors that China refers to collectively as the Silk Road Economic Belt, and the Twenty-First-Century Maritime Silk Road, which will traverse the South China Sea, the Indian Ocean, and the Mediterranean Sea. The first of the Silk Road Economic Belt’s corridors will connect northeastern China to energy-rich Mongolia and Siberia by means of a modernized rail network. The second, the China-Pakistan Economic Corridor, will link China’s western region of Xinjiang to the Pakistani deep-water port of Gwadar, on the Arabian Sea. Beijing will open up China’s southwestern provinces to the Indian Ocean by investing in rail, highways, ports, pipelines, and canals in India, Bangladesh, and Myanmar (also called Burma). To the south, China is developing what it has termed the China–Indochina Peninsula Economic Corridor, connecting Southeast Asia’s 600 million inhabitants to China’s economy through investments in ports and high-speed rail. Beijing also aims to complete two major rail projects: one will likely link Henan Province, Sichuan Province, and the Xinjiang region to hubs in Poland, Germany, and the Netherlands by way of Central Asia, Iran, and Turkey; the other, the New Eurasian Land Bridge, will connect China to Europe by way of Russia. Finally, Beijing is developing a corridor that will connect ports in Djibouti (where China is building a naval base), Kenya, Tanzania, and Mozambique to the Red Sea, the eastern Mediterranean, and central and southeastern Europe. (Although Beijing has not publicly identified that corridor as part of the B&R, it has taken steps—such as purchasing a controlling stake in the Greek port of Piraeus and announcing a plan to back a high-speed railway connecting it to Serbia, Hungary, and Germany—that make its intentions fairly clear.)

So far, state-owned Chinese construction and engineering firms have taken on most of the projects generated by the B&R. Backed by the deep pockets and political clout of the Chinese government, these corporate giants are hard to outbid; that will remain the case for the foreseeable future. As for financing, China has developed dedicated institutions to back the projects. The Asian Infrastructure Investment Bank, which opened for business in January, is perhaps the best known of these. Together with the Silk Road Fund, a B&R-focused Chinese government fund, and the New Development Bank, a multilateral development organization formerly known as the BRICS Development Bank, the AIIB will lend nearly $200 billion to infrastructure projects over the coming decade.

Most important, China has retooled its foreign policy in service of the Belt and Road Initiative. To encourage their support for the B&R, Beijing welcomed India and Pakistan into the Shanghai Cooperation Organization, a regional bloc; it is likely pushing for Iran to join, too. In Europe, China has upgraded its relations with the Czech Republic, turning Prague into the hub of its ventures on the continent. During a state visit in March, Chinese President Xi Jinping finalized business and investment deals worth some $4 billion with the Czechs. Driven by the belief that the B&R’s success depends on stability in the Middle East, meanwhile, China has recently taken an activist approach in the region that contrasts starkly with its historical reluctance to get involved there. In January, Xi became the first foreign leader to visit Iran after the lifting of international sanctions on that country; on the same trip, he met with the leaders of Egypt and Saudi Arabia. China has also attempted to mediate between the rival factions in Syria’s civil war; has supported Saudi Arabia’s efforts to defeat the Houthi rebels in Yemen; and, in December 2015, passed a law that will allow the People’s Liberation Army to participate in counter­terrorism missions abroad.

WASHINGTON’S SNUB

The B&R will guide China’s economic and foreign policy for the foreseeable future. Yet many China watchers in the United States have downplayed the initiative’s importance, suggesting that it is a pub­lic­ity stunt meant to portray China as a benevolent power, a vanity project intended to secure Xi’s legacy, or an unwieldy boondoggle that China, which has struggled with some development initiatives in the past, will fail to execute.

Nowhere is this underappreciation more apparent than in Washington. Congress has not held a single hearing dedicated to the B&R; neither has the U.S.-China Economic and Security Review Commission, a body that Congress created in 2000 to monitor bilateral trade and security issues. At both the 2015 and the 2016 meetings of the U.S.-China Strategic and Economic Dialogue, the highest-level annual summit held between the two countries, U.S. and Chinese officials detailed more than 100 areas of potential cooperation without mention­ing the B&R once, and in their public statements, U.S. officials tend to refer to the initiative in vague terms. Washington has not only refused to acknowledge the importance of the B&R; in some cases, the Americans have attempted to undermine it, as when the United States futilely opposed the creation of the AIIB.

The United States does not have to choose between securing its global position and supporting economic growth in Asia.

This passive-aggressive approach is misguided: it allows China to shape Eurasia’s economic and political future without U.S. input; it denies American investors opportunities to profit from major infra­structure projects; and, insofar as it seeks to weaken the initiative, it could stifle a source of much-needed growth for Asia’s developing economies and Europe’s stagnating ones. As the failed U.S. attempt to prevent its allies from joining the AIIB shows, resisting China’s regional economic initiatives puts Washington in an uncomfortable position with some of its closest partners, many of which see the B&R as a useful tool for pulling the global economy out of the doldrums. U.S. officials should also be mindful of history: transnational infrastructure projects have often bred hostility among great powers when not managed collaboratively, as the grandiose rail projects of France, Germany, and the United Kingdom did in the years leading up to World War I.

The United States’ failure to properly respond to the B&R is especially striking given that Washington inadvertently helped precipitate Beijing’s interest in the project. The “rebalance,” or “pivot,” to Asia that U.S. President Barack Obama initiated in 2011 has proved hollow, but it has nevertheless reinforced China’s sense of encirclement by the United States and its allies, as has the Obama administration’s de facto exclusion of China from the Trans-Pacific Partnership. Those actions killed many of China’s ambitions in the Pacific, leading Beijing to seek strategic opportunities to its west. In addition, by opposing China’s calls for a larger voting share at the International Monetary Fund in the first decade of this century, the United States pushed Beijing to establish a multilateral lender of its own. And by backing restrictions on projects that violated American environmental standards at the World Bank—where, in 2013, the United States supported a ban on funding for most new coal-fired power plants—the United States made room for Beijing to develop alternative institutions with the knowledge that it could find customers among its less scrupulous neighbors. Even the United States’ unsustainable federal debt played a role in the creation of the B&R: as it ballooned in the years after the 2008 financial crisis, the yield on U.S. Treasury bonds plummeted, pushing China, the world’s largest foreign holder of U.S. debt, to direct more of its massive savings to infrastructure instead.

BACKING THE BIG DIG

Over the course of the next four years, Asian countries will need around $800 billion annually to build the transport, energy, and communications networks that they require to achieve their development goals. The investment provided by today’s development banks meets less than ten percent of that need—and even if the AIIB and China’s other funding outfits live up to their promise, the money will still fall short.

The United States should not allow its concerns about great-power rivalry to distract it from the challenges this deficit poses to global prosperity. Above all, Washington should not attempt to leverage its relationships with the Asian countries where China plans to back infrastructure projects to stymie the initiative’s progress. Such a course would grant countries such as Kazakhstan, Myanmar, and Sri Lanka inordinate power, creating new flash points between Beijing and Washington.

Instead, Washington should approach the B&R with an open mind. U.S. officials should publicly acknowledge China’s initiative and the potential benefits it offers, provided that Beijing leads the effort trans­parently and ensures that it works largely in the service of inter­national development rather than China’s own gain. The two countries should then find a bilateral forum—the Strategic and Economic Dialogue is just one option—in which to discuss a joint economic development agenda and come up with a role for the United States that plays to its strengths. American defense contractors, for example, could provide physical security and cybersecurity services to B&R projects, and the U.S. military could help secure some of the more volatile regions where Washington already has military assets, such as the Horn of Africa. That would spare China the need to increase its overseas military presence and bolster the legitimacy of the U.S. forces working in those areas. The United States should reassure some of its allies, particularly those in Southeast Asia, where anxiety about China’s ascendance runs deep, that the B&R is largely a force for economic development rather than Chinese expansionism. And U.S. officials should seek a role for Washington in the AIIB, either as a member of the bank or as an observer.

Such a course would have a number of benefits. By cautiously embracing the B&R, the United States could ensure that American firms and investors are not excluded from the opportunities offered by what might become the biggest economic development project in history. Washington’s engagement could also encourage some of the European, Japanese, and South Korean investors who have been reluctant to fund Chinese-led infrastructure projects to change their tune—which would have a broadly positive impact on global growth and, by extension, on the U.S. economy. And by becoming a more active participant in the B&R’s various related institutions, the United States would be better positioned to ensure that China’s projects adhere to international labor and environmental standards.

Together, China and the United States are responsible for half of the world’s economic growth. At a time when the world economy is facing a potentially prolonged stagnation, Beijing and Washington would be better off harmonizing their development agendas than stepping on each other’s toes.

DON’T SELL THE ROPE

The United States, however, should not give the B&R its blanket support, since doing so would pose serious risks. First, it would feed Russia’s fears of U.S.-Chinese collusion, triggering paranoia in the Kremlin, where there is already concern about China’s push into former Soviet states, and Moscow could lash out in response. India poses a similar challenge. It recognizes the B&R’s economic promise, but like Russia, it is wary of China’s motives; specifically, New Delhi is troubled by the commitments Beijing has made to Pakistan and by China’s growing presence in the Indian Ocean and the neighboring countries of Bangladesh, the Maldives, and Sri Lanka. Any perception that China and the United States are attempting to change the status quo in the region might feed New Delhi’s anxiety and accelerate an arms race between China and India. In both cases, Washington should tread carefully, doing everything it can to avoid creating the appearance of unwanted collaboration between China and the United States. As for the Middle East, the Gulf states will chafe at the prominent role the B&R could give Iran as a land bridge between Central Asia and Europe. So Washington should make clear that its support for China’s infrastructure push will depend on Beijing’s commitment to preserving the delicate balance of power in the Persian Gulf, and it should try to ensure that projects that provide economic boons for Iran are balanced by investments of similar benefit to the Gulf states. And to ensure that it is seen as a leader on global infrastructure itself, Washington should launch and promote its own infrastructure projects, such as the New Silk Road initiative proposed in 2011 by then Secretary of State Hillary Clinton to connect Turkmenistan, Afghanistan, Pakistan, and India with roads and pipelines.

The greatest risk that the United States would face by supporting the B&R wholesale is that China could use American goodwill to advance its own ascendance to the United States’ detriment—above all, by attempting to change the delicate status quo in Southeast Asia and the South China Sea. If China is indeed pursuing a long-term strategy to supplant the United States as the world’s dominant power, as some China watchers contend, then giving it the chance to take such a course would be a grave mistake. In response to the recent rejection of China’s historical claims to most of the South China Sea by an international tribunal, for example, Beijing might try to build dual-use infrastructure that would further militarize the region and intimidate its rivals there. That is something the United States should not tolerate, as no degree of economic integration can justify compromising the United States’ Pacific alliances.

Chinese officials would likely recognize that U.S. involvement in the B&R would place some limits on Beijing’s ability to redraw the lines of the Eurasian economy. But for reasons of self-interest, they should still welcome American cooperation. Infrastructure projects tend to carry a high risk and produce only modest returns on investment; the B&R is too vast and expensive to rest on one country’s shoulders. American engagement would clear the way for co-investments by U.S.-, European-, and Japanese-led institutions, such as the World Bank, the Asian Develop­ment Bank, and the European Bank for Reconstruction and Development; it would attract private capital to China’s projects, as well.

Washington has not only refused to acknowledge the importance of the B&R; in some cases, the Americans have attempted to undermine it.

The Belt and Road Initiative could become either a source of great-power competition or a force for stability and collaboration. Beijing and Washington can ensure that the latter possibility wins out. In general, the best course for the United States will be one of selective buy-in: it should participate in projects that advance its interests, such as infrastructure investments aimed at improving intraregional trade in Southeast Asia, while avoiding or resisting those that undermine them. For its part, Beijing should prioritize projects that benefit both China and the United States, and it should put vanity projects on the back burner.

It will take a great deal of magnanimity for the United States to resist the urge to oppose such a grand strategic initiative as the B&R, especially since China’s westward push comes at a time when Washington is increasingly confused about its own role in the world. But the United States must remember that its response to the project will help determine the future of U.S.-Chinese relations and of the international order. And as the global economy slows down and hundreds of millions of Asians languish with few hopes of escaping poverty, the United States must recognize that its fate is linked to that of the developing world—and that it should give its blessing to initiatives that will lift all boats.