China’s One Belt, One Road

Mac Valledor

NOTHING about China’s “Belt and Road” project is small–from the size of its investments to the guest list (Russian President Vladimir Putin; our very own President Duterte; Italian PM Paolo Gentiloni; IMF managing director Christine Lagarde, Chinese President Xi Jinping) for the recent conference in Beijing to rave about the initiative. To better its odds of accomplishing such monumental feat, China would be wise to think smaller.

While it is true that the “One Belt, One Road” initiative addresses real needs of improving the energy and transport infrastructure from Asia to Europe, such as the construction of modern roads, rails, seaports, and power plants along less developed  countries, China has valid concerns not only about the security of its energy supplies, but also money, expertise, and excess capacity in its construction industry.

For both China and the initiative’s participating countries, the danger is that overreaching ambitions could ax the program’s probability of success. A lack of feasible projects and not a lack of financing has hampered infrastructure development in Asia. Unavoidably, as it has even within China, politically driven lending will make more “white elephants”, taxing participating countries with unsustainable debt burdens.

Politicians and strategists could justify these losses as the cost for development and order along China’s fringes. However, the costs may not be so easy to bear. Ratings agencies have already advised of the risk to banks’ balance sheets as loans sour. The export of China’s investment-heavy development model will also relieve strain on uneconomical state-owned Chinese companies to reform and cut overcapacity. And with a Chinese block of capital outflows and retention of currency reserves to prop up the Chinese yuan, there is little money to waste on bad projects.

There is no reason either to believe that building more roads and pipelines will ipso facto achieve China’s grander goals: to advance economic growth and thus political stability. Gushing money into construction projects could just as well promote graft in host countries along the “One Road, One Belt” route, incite anti-Chinese zeal and provoke sabotage attacks. China’s historic penchant for transacting with less democratic governments and lifting a few questions about their own governance can produce animosity among ordinary citizens.

The experience of China with a major funder of the “One Belt, One Road”, the Asian Infrastructure Investment Bank (AIIB), is informative. The bank’s conspicuous launch in 2014 bred fears that Chinese leaders were seeking to upset the present global financial order—these fears were misguided. The AIIB is managed by a team of international professionals and complying to very high standards and is projected to unlikely lend more than US$2 billion per year for its first five years in operation, limiting not only its influence, but also its losses.

China needs to use the same validity to “One Belt, One Road” projects, which should be examined not only for their advertised numbers, but also for their sustainability in the long run. Banks and other lenders in the initiative need to be clear about financing terms and thoughtful of borrowing countries’ ability to repay. Project officers should confer not only with government bureaucrats, but also with local farmers, businesspeople, and NGO— and definitely not with corrupt leaders. There must also be a forum addressing for environmental and ecological concerns. Along with developing infrastructure, China should also be promoting greater openness and receptiveness in economies along the “One Belt, One Road” route.

Most importantly, China needs to handle the “One Belt, One Road” with great attention and  a decisive appreciation of risks. That will possibly result in fewer, less high-profile projects; nevertheless, China and the participating countries will be the stronger for it.