China’s belt and road initiative shows how China and the U.S. are swapping roles in global trade

China's Belt and Road Initiative is the story of the power of multilateralism versus the glory of unilateralism

Published May 4, 2019 10:00AM (EDT)

Xi Jinping; Donald Trump (Getty/Thomas Peter)
Xi Jinping; Donald Trump (Getty/Thomas Peter)

On April 25-26, 2019 in Beijing, the People’s Republic of China hosted a forum celebrating its Belt and Road Initiative (BRI). The BRI sponsors infrastructure investment in countries along the old Silk Road and has the potential to include over 60 countries, 4.5 billion people, and 40 percent of the global economy. This forum represented yet another facet of the U.S.-China global economic competition and how each is approaching the confrontation.

At stake in this U.S.-China contest is the dominant role of designing the future of the global economy. The deep irony is that the U.S. and China are both changing their approaches to more closely approximate the other’s recent past. This is the story of the power of multilateralism versus the glory of unilateralism, of the quiet accomplishments of coalitions versus the atavistic aggressions of autarky. Surprisingly, it is the story of how the U.S. and China are slowly assuming the previous public orientations of the other.

The Belt and Road Forum (BRF) was no ordinary forum, as the BRI is no ordinary overseas assistance program. Often compared to the 1948 U.S. Marshall Plan, the BRI’s sheer scale of resources is unprecedented. From 1948-1951, the U.S. transferred $13 billion ($100-115 billion in current prices) to Western Europe for reconstruction. From 2014-2018, China financed an estimated $448 billion (stated by China as over $440 billion) in 64 BRI partner countries and is estimated by Chinese officials to eventually involve $1 trillion, roughly ten times the size of the Marshall Plan. That said, the Marshall Plan was composed overwhelmingly of grants, while the BRI is almost exclusively loans.

The global influence of the BRI was demonstrated by those who attended the forum. Thirty-six heads of state (including Russian President Vladimir Putin and Italian Prime Minister Giuseppe Conti, the first G7 country to endorse this Chinese policy) and some five thousand foreign officials and business delegates arrived in person. Twelve of Europe’s 36 governmental heads were there, as well as nine of ten ASEAN state leaders. Chinese media detailed the over 170 agreements and with 125 countries in place before the forum, but the forum itself was not window dressing. President Xi of China announced that $64 billion in deals and “283 deliverables” were signed at the forum, and a few days later on May 1st, China signed a Memorandum of Understanding with Switzerland to collaborate on trade, investment, and finance for BRI projects.

Just as important were the countries that did not attend. The United States sent no one, whereas two years earlier in May 2017 at the first BRF, President Trump dispatched White House Senior Director for Asia Affairs Matthew Pottinger (a man, incidentally, that Mr. Trump now says “doesn’t exist”) to lead a delegation of “observers”. Back then, Pottinger said that U.S. firms were “ready to participate in Belt and Road projects” and had “much to offer.” Not anymore.

China’s southwestern neighbor India declined to attend both BRFs. India publicly characterizes the BRI as an opaque neocolonial exercise that promotes “debt-trap diplomacy” against poorer countries, a view shared by many, including India’s South Asian neighbors; six of the eight South Asian Association for Regional Cooperation member states did not attend. China’s East Asia neighbors also refrained; no top leaders came from Japan, South Korea, or even North Korea. And Turkey did not attend, though President Erdogan himself had come two years earlier, a response to China’s treatment of its Uighur Muslim minority.

As with many international policy areas, the BRI is forcing countries to choose sides between China and the United States. Given the considerable material benefits on offer, some traditional U.S. allies, such as Italy and Britain, have been moving rapidly toward China and over half the 28 members of the EU have signed bilateral endorsements of the BRI.

The U.S. has taken several steps to address the BRI as a threat since it attended the first BRF in May 2017. Assistant Secretary of Defense for Asian and Pacific Security Affairs Randall Schriver noted the Administration is “[seeing] the results of the Belt and Road Initiative, the predatory economics associated with it.” Concerned that China was wooing states away from U.S. influence, the United States began to put money on the table, with Secretary of State Mike Pompeo announcing a $113 million infrastructure development program for the Indo-Pacific region. In October 2018, Congress passed and President Trump signed into law the Better Utilisation of Investment Leading to Development Act, which consolidated the Overseas Private Investment Corporation (OPIC), a federal agency focused on development finance, into a new entity with investment capital of $60 billion, or twenty times less than the BRI will eventually deploy.

Ironically, Xi’s BRI success over the past six years has forced President Trump partially back into the multilateral game. The BRI drove the U.S. to sign two agreements, one with Japan and Australia in 2018 and one on April 25, 2019 (the BRF’s first day) with Canada and the EU. Both agreements offer development financing to emerging countries that is a “robust alternative” to “unsustainable state-led models”, a clear BRI reference. OPIC’s acting president David Bohigian stated that in these agreements the U.S. was committed to offering development finance according to five principles, which included host nation sovereignty, environmental protection, local job creation, transparency, and ensuring each project is long-lasting. “We’re trying to hold up an example for the world of the way that development finance should work,” he said.

Finally, the U.S. State Department has quietly provided teams of economists, lawyers, and accountants to BRI countries negotiating with China over BRI projects and funding. These U.S. professionals assist the country in question to press China for less onerous loan terms and highlight areas where the Chinese offerings are too demanding. In 2018, Myanmar pushed back on a Chinese multibillion-dollar loan package for a deepwater port in their country, insisting that the port did not need to be so large, and thereby reducing the Myanmar government’s debt burden. Myanmar was able to do so confidently because U.S. AID provided a group of technical service professionals who were able to question the structure and the demands of the project and bring it in line with Myanmar’s domestic needs, instead of the Chinese lender’s preferences.

A striking element of the forum was the tenor of President Xi’s brief keynote remarks. Described as Mr. Xi’s biggest diplomatic effort of the year, his speech lacked the triumphalist national tone of the first BRF and sounded surprisingly more like a Washington Canon than a Beijing Credo. He spoke of opening China’s domestic market, making Chinese overseas investments more transparent, easing customs and import barriers, holding its currency stable, eliminating “unjustified” market-distorting policies, and cracking down on corruption, stating that “We are committed to supporting open, clean and green development and rejecting protectionism.” He further called for foreign and private sector investment into the BRI, a significant divergence from his pledge two years ago to finance the BRI through Chinese funds. While likely a response both to attacks on the BRI as a debt trap for poor countries and against China’s own domestic protectionism, Xi’s words demonstrated China’s movement toward publicly supporting a more open and multilateral system, even as it attempted to displace the U.S. as the dominant economic power by means less public and less open. Furthermore, Xi’s emphasis on other participants beyond China and his repeated references to integrating multilateral organizations to help develop the BRI is unexpected evidence of China’s positive public expressions toward multilateralism. For his biggest diplomatic speech of the year, Mr. Xi spent a surprising amount of time talking about economic openness and institutional multilateralism, even if his many critics do not believe his words will be matched by deeds.

By contrast, President Donald Trump has aggressively and publicly moved the United States, the acknowledged avatar of multilateralism, back toward a more unilateral, confrontational, and truculent public position. Withdrawing from the Trans-Pacific Partnership and its multilateral, consensual approach on his first day in office, Mr. Trump has since explicitly threatened both the United States’s NAFTA partners with trade sanctions and dictated treaty changes, imposed steel tariffs on allies, and declared a trade war against China. His “America First” trade policy approach breaks with seventy years of U.S. practice of free trade underpinned by multilateral organizations, most of which were created, financed, and organized by the U.S. after World War II. Mr. Trump’s overt hostility in trade and his eagerness to impose unilateral trade tariffs on specious national security grounds harkens more toward China’s modern trade protectionism than it has 20th century U.S. history.

The BRI throws this Chinese public shift toward multilateralism and America’s public shift back to unilateralism in sharp relief. Both the BRI and the Marshall Plan mixed national goals with international support. They were both aimed at providing economic support to win political allegiance; the U.S. was aiming to undermine postwar Soviet influence in Europe, while today China seeks to displace U.S. influence in its region. Both intended to stabilize international markets and raise exports for its domestic firms. However, with the Marshall Plan, the U.S. created a multilateral economic institution capable of governing itself beyond direct U.S. control (which still exists as the OECD), while the BRI was explicitly born a unilateral, Chinese-controlled creation. It is the BRI’s movement toward multilateralism that is so distinctive and unprecedented in modern Chinese history, as is the U.S. movement toward aggressive unilateral trade demands.

The BRI’s ramifications extend far beyond economics alone. Its scale and breadth of international participation hold broad international consequences, especially in the environmental sphere. Isabel Hilton notes that the BRI is assisting many BRI countries to adopt China’s old energy orientation (installing cheap, dirty coal plants) as opposed to China’s new energy orientation (building clean renewable energy installations). She writes that Chinese companies are involved in at least 240 coal projects in 25 BRI states and many of these projects are installing older technologies and exclude modern carbon capture technologies. As China has moved strongly toward installing renewable energy domestically, China’s powerful fossil fuel companies have sought new markets overseas, targeting poorer BRI countries. These companies’ coal projects in BRI markets will continue to damage the environment, create more greenhouse gas emissions, and increase climate change, even as President Xi stated in his BRF address that the BRI should “pursue the new vision of green development and a way of life and work that is green, low-carbon, circular, and sustainable.” In the same vein as generals repeatedly fighting the last war, through the BRI China’s policy banks are repeatedly lending money to BRI countries to install the last generation’s energy technologies.

Two dark edges of the BRI have come into view and been the subject of public condemnation. First, China is accused of weaponizing BRI loans made to emerging countries to extort strategic assets. The most boldfaced example occurred in December 2017, when China demanded a 99-year lease on the Sri Lankan port of Hambantota and 15,000 acres of land around it after the Sri Lankan government had defaulted on the BRI loans that had financed its construction. This port held strategic value as it was close to India, China’s regional rival, as well as its location in a commercially important waterway. This prompted international outrage at China’s practices, which labeled the Sri Lankan case the “poster child for [BRI] debt-trap diplomacy.”

The second charge was that Chinese BRI lending practices were stimulating corruption around the projects. The Wall Street Journal detailed a shocking case, where Malaysian Prime Minister Najib Razak allegedly conspired with Chinese companies to overcharge Malaysia for BRI projects and share the excess cash. Razak signed $34 billion of infrastructure projects with Chinese state companies, financed by Chinese banks, making Malaysia the second largest recipient of BRI funding after Pakistan. Accusations of Chinese BRI funds being used in elections in Malaysia and Sri Lanka have had many BRI countries rethinking their BRI projects. Nowhere was this clearer than in Malaysia, where alleged BRI-linked graft was instrumental in defeating Razak and electing Mahathir Mohammad as prime minister, who then negotiated with China to cancel one BRI contract and reduce the price tag of another by one-third.

This U.S.-China competition also carries personal overtones. Mr. Xi’s reputation at home has suffered as a result of the slowing of the Chinese economy, so he needs some policy wins to balance the unrest at home and the BRI will certainly be considered his foreign policy legacy. Mr. Trump too needs some quick victories over a flashy opponent, so that voters at home will forget about Robert Mueller as fast as possible. These two men mirror their countries, one trying to knock the top dog off his perch, while the other is trying to maintain his dominance. Ironically, the Chinese have begun to publicly support the methods of multilateralism to recruit other countries to support their cause, while the U.S. government has been forced to abandon seventy years of multilateralism in favor of a muscular but mindless unilateralism.

At the BRF, there was an extraordinary moment. After President Xi had finished his address, International Monetary Fund Managing Director Christine Lagarde lauded his changed tone, telling the attendees that the BRI could “benefit from increased transparency, open procurement with competitive bidding and better risk assessment in project selection.” She was there as the chief representative of one of the world’s most powerful multilateral organizations, one the United States created in 1944, back when it recognized and built the power of the modern multilateral approach. China has recently recognized that to hide the flaws of its self-interested programs, it must make an effort to persuade others and embrace the language of multilateralism, if not its substance. Perhaps the United States will remember this lesson before too long.

By Sam Natapoff

Dr. Sam Natapoff is the President of Empire Global Ventures LLC (EGV) where he helps companies scale both internationally and abroad and is a leading expert in international economics and business consulting. He has a Ph.D. in International Relations from George Washington University.

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