China's objectives with the Belt and Road Initiative

A global political economy view of China


Essay, 2020

25 Pages, Grade: 1,0


Excerpt

Table of contents

Introduction

Domestic objectives

Global objectives

Conclusion

Bibliography

Introduction

The ancient Silk Road served as vast trade network between China, other Asian countries, Europe and the Middle East for more than 2,000 years. By launching the Belt and Road Initiative (BRI) - comprising the Silk Road Economic Belt, the 21st Century Maritime Silk Road and a Digital Silk Road - China has revived this concept in 2013.

According to the White book on the BRI, the initiative is an ambitious economic vision with the objective to ´promote the connectivity of Asian, European and African continents and their adjacent seas, establish and strengthen partnerships among the countries along the [BRI], set up […] connectivity networks, and realize […] development in these countries.´1

Initially, the initiative was proposed as an ´umbrella framework´2 for regional infrastructure projects involving 65 countries, mainly in Eurasia, but as of 2020, it has grown into President Xi´s ´project of the century´3, which is based on ´win-win-cooperation´ and ´will benefit people across the world´4.

But while some scholars and politicians welcome the BRI as China´s contribution to international public goods and international development, others reject it claiming that its objectives are not transparent or, that it is a tool for China to leverage its massive economic resources for geostrategic interests and to facilitate business for its state-owned enterprises.5

Thus, is the BRI´s main objective to undermine the US-led world order? Is it driven by altruism aimed on facilitating economic growth in less developed countries? Is it the Chinese way to deal with domestic economy challenges? Or is it just an empty slogan? In short:

What are the objectives behind China's promotion and development of the Belt and Road Initiative?

Answering this question is the main purpose of this essay which is based on an international political economy (IPE) approach to bridge geoeconomic and geopolitical perspectives.

A better understanding of Beijing's intentions is highly important first, to assess to what extent the BRI is driven by economic, political, social or geostrategic interests; second, to predict the BRI´s impact on actors within the international system and on the system itself; third, to adequately advise policy makers in the world´s capitals.

Previous research

Research on the BRI has increased significantly with its growing influence, but most of the existing literature deals with its implementation and risk evaluation. Thus, recent research lacks interdisciplinary perspectives on the key drivers behind the BRI.6

Most observers define the BRI primarily as either China's trade promotion strategy or as great power strategy, with Flint and Zhu (2019) providing an insightful observation: While Chinese scholars define the BRI as an ´integrative economic project´7 that is disconnected from a grand strategy with geopolitical intentions, Western interpretations, in contrast, are often more critical, seeing it less as an economic initiative based on win-win cooperation. They see the BRI as geopolitical strategy of a rising China with hegemonic aspirations or – at least – a project to challenge Western interests and values.8

With regard to the Asian region, numerous scholars argue that China´s key objective is to improve relations with neighbouring countries.9 And while Grimmel and Li (2018) argue that the BRI constitutes a type of ´hybrid regionalism´10, it is defined as a tool to foster South-South cooperation, cooperation among the BRICS countries and international cooperation as well.11

Overholt (2015) perceives the BRI as Chinese ´grand strategy´ towards other countries in Eurasia – similar to the global ´grand-strategy´ of the USA in the post-World War II era. A corresponding approach is taken by scholars in comparing the BRI objectives to the US Marshall Plan.12 However, Chinese Foreign Minister Wang Yi firmly rejected such comparison by stressing that the BRI is ´neither a Marshall Plan, nor a geostrategic concept´13 and cannot be associated with the ´outdated Cold War mentality´14.

Shen and Chan (2018) conclude that the BRI is still too young to assess whether its results will be similar to those of the Marshall Plan, especially in view of the US – China competition for global leadership, while Cheng (2016) argues that the US had the capabilities to secure its economic interests with military power, whereas contemporary China lacks such military power.15 (China has improved its military strength but would be very unlikely to use it to pursue its economic objectives)

Also Djankov (2016), visiting fellow at the Peterson Institute for International Economics, and former deputy prime minister and minister of finance of Bulgaria, considers such comparison to be incorrect since in his view the Marshall Plan was – besides rebuilding war-devastated Europe – aimed at preventing the spread of communism, while the BRI appears to be a pure ´mercantile endeavor´16 aimed at creating business opportunities for Chinese companies that suffer from a downturn in the domestic economy.17

Zhang (2016) also views the BRI as a result of ´Chinese neomercantilist thinking´, but perceives it as the first serious attempt by China´s ruling elites to establish a mercantile strategy in Europe and Asia, thus serving to implement a new economic and political world order.18 And while the BRI is viewed, for instance by Shu (2013), as part of Beijing´s opening-up and development strategy, the reopening and reintegration of economies under the framework of the BRI has also been interpreted as a new globalisation phase.19

According to Demiryol (2019) the BRI has primarily been developed to tackle internal massive capital accumulation by ´externalizing development on a transregional scale´20. Resolving overcapacity as key driver was also identified by Wang (2016), but he further argues that China is urged to create new investment opportunities due to its excessive foreign exchange reserves.21 Furthermore, he defines the BRI, respectively the One Belt, One Road Initiative (OBOR), as a successor of the Go West strategy and a countermeasure to the US Pivot to Asia strategy, which was promoted under former US President Obama.22

This is in line with Zhou and Esteban (2018) who define Xi´s real intentions with the BRI as a ´multifaceted grand strategy´23 designed to promote the legitimacy of the CCP, but even more to thwart ´US containment and encirclement of China´24 and reduce US dominance both in Eurasia and globally. ´Economic integration, regional influence, and global geopolitical competition´25 are the three main objectives identified by Flint and Zhu (2019), who assess the geopolitics of connectivity. They argue that China has to create new regional networks, which makes the BRI an example of the interlinked operation of governments and companies in the global economy system since economic development requires ´territorial arrangements´ by the state, while geopolitical objectives are achieved through economic strategies.26

Based on insights gained from the previous mentioned literature as well as from the seminar on GPE held by Dr. Lambie, this essay argues that China´s objectives behind the promotion of the BRI are shaped by neorealist, constructivist and neoliberal thoughts and thus - in line with Zhou and Esteban (2018) - the promotion of trade and regional multilateralism reveals motives of power balancing, normative influence and institutional change. Meanwhile, Beijing´s intention to develop the BRI are driven by different challenges both domestic and global ones.

Domestic objectives

Promoting trade

Being the world`s largest trade nation since 2015, China has a key interest in facilitating regional and global trade. Therefore, based on arguments from classic trade theories such as Ricardo's theory of comparative advantages, the Chinese ministries have primarily emphasized states´ different resource endowments as motive for promoting cooperation since ´countries along the [BRI] have their own resource advantages and their economies are mutually complementary [with] great potential and space for cooperation´27.

However, according to the OCED, current global trade and future prosperity is significantly constrained by a large infrastructure gap.28 The Asian region alone requires US$ 26 trillion in infrastructure investments until 2030, although numerous programmes have already been aimed on improving the transport network between Asia and Europe along the ancient Silk Road, such as the Transport Corridor Europe-Caucasus-Asia and the Central Asia Regional Economic Cooperation Programme.29

Hence, by promoting and developing the Silk Road Economic Belt and the Maritime Silk Road, China, firstly, tries to narrow his gap. Estimations suggest that BRI investment projects bring in more than US$ 1 trillion in outward funding for foreign infrastructures within 2017-2027.30 And, already in the first half of 2017, more than 1,600 infrastructure projects have been contracted to enhance interconnectivity between China, the rest of Asia, Africa and Europe.31

Secondly, with the major share of investments aiming on the construction and modernization of transport networks, China attempts to reduce transportation time and, thus, trade costs. For instance, transport distance can be reduced by 90 percent when - instead of using the South China Sea route - commodities from the Middle East are imported via the Gwadar Port in Pakistan, which is home to numerous BRI projects and part of the US$68 billion China-Pakistan Economic corridor.32

Thirdly, China not only aims on facilitating intra-Asian trade but also on trade with Europe. As of 2020, the Eurasian freight train network connects China with 50 European cities and is up to 80 per cent cheaper than air freight with only half of the transit time of conventional shipping.33

Hence, creating mutual benefit through the promotion of trade can be certainly identified as one BRI goal since tackling the investment gap and reducing trade costs can benefit world trade. However, that´s the argument of the author, China´s objective of enhancing connectivity in various areas with the BRI is strongly driven by further, less officially stated, domestic challenges.

Solving the capital accumulation problem

The first argument is that the BRI is designed to develop the economies of China`s emerging neighbour states to boost both demand for Chinese consumer products and infrastructure services.34 The necessity for China to penetrate foreign markets and to overcome the structural limitations of its ´capital accumulation regime´35 stems largely from three aspects:36

First, saturated export markets in developed economies and a (possible) ´underconsumption crisis´37 ; second, insufficient domestic demand and third, overproduction in several Chinese industries.38

Chinese industries, such as steel, cement, or solar energy, were used to substantial government investments in domestic infrastructure projects and have accumulated massive overcapacities over the last years, but now risk sitting idle.39 China´s steel production capacity more than doubled between 2006 – 2015 representing nearly half of global capacity. But in 2016 almost 50 per cent of steel mills were operating at a loss.40

Zhong, president of the CCC Tianjin Dredging Company states ´the problem now is that the domestic dredging market is saturated. We have to go out. If our company is to survive and thrive, we must conquer new markets and the Belt and Road helps us in this regard´41.

A statement of the Ministry of Commerce presents the solution ´steel, […] and other industries struggle with overcapacity at home, but there is a shortage in the world. Along the Belt and Road there is a vast need for infrastructure, and this generates huge demand´42.

Shifting a significant part of their capacities into large BRI infrastructure projects abroad could therefore solve China´s domestic problem of capital accumulation at least to a certain amount.43

For example, 85 million tons of steel are expected to be absorbed by the construction of new railway routes and, in 2013 – 2015, about 70 percent of Chinese oversea credits to BRI partners were linked to the condition to use Chinese material and labour.44 And the major steel and iron production region, Hebei, for instance, has already decreased its production capacity and plans to shift a major share by 2023 abroad.45

Furthermore, Beijing regards large state-owned construction firms to be ´carriers´46 of the BRI advising them to integrate other Chinese firms along their value chain, which in turn leads to profits for domestic cement and steel companies by selling their overcapacities as well as to a growing number of strategic alliances of domestic firms.

These alliances can, in turn, leverage their economic power in international competition by further penetrating foreign markets, since Chinese government and banks financially back their internationalisation process.47

SOEs in the construction industry, for example, have gained large shares in foreign markets of BRI partner countries with Chinese construction services exports growing from US$10 billion to US$16 billion within 2013 - 2015, while, for instance, European construction firms faced stagnating or shrinking exports.48

Sceptics, however, argue that the estimated US$1 trillion spent on BRI infrastructure projects account for only 20 percent of the Chinese government´s investment in fixed assets, and that, therefore, these projects are no salvation for the majority of Chinese firms in industries with excess capacity.49

However, the author of this essay – in line with Demiryol (2019) - wants to stress that China, not simply aims at absorbing its overcapacity to less developed countries, but has put a strong focus on connectivity to interlink subregional and global value chains and to reorganise the foreign economic space based on asymmetric interdependence.50

By doing so, China makes it prohibitively expensive for most BRI partners to withdraw from Chinese controlled networks, thus renders it more suitable for capital expansion and enables China to (better) control global value chains.51

Developing Western Regions

The third objective that arises primarily from domestic challenges, is to lift the population in China´s Western and Northeastern regions out of poverty by promoting growth and economic equality.52 In these provinces, including for example Xinjinag and Qinghai, a lack of investment and infrastructure has fueled economic inequality and ethnic tensions.53

Accelerating the economic development has been the aim of the Western Development Strategy since 1999, while in 2017 President Xi promised to promote development of the all less developed provinces by enhancing trade and connectivity between these regions, Central Asia and South Asia through the BRI.54

[...]


1 See the document Vision and Actions on Jointly Building Silk Road Economic Belt and 21st Century Maritime Silk Road Plan published by the National Development and Reform Commission/NDRC (2015). The initiative is based on five priority areas - policy coordination, facilities connectivity, unimpeded trade, financial integration, and people-to-people bond.

2 Demiryol (2019)

3 President Xi (2017)

4 President Xi (2017)

5 See Shen and Chan (2018), Baltensperger and Dadush (2019)

6 Research that deals with the BRI can also be found under its former term One Belt, One Road Program.

7 Flint and Zhu (2019: 96)

8 See Flint and Zhu (2019) and Demiryol (2019: 169)

9 See, inter alia, Wang (2016),

10 Grimmel and Li (2018)

11 See Zhou and Zhang (2018) on the BRI as opportunity to reinvigorating South-South cooperation; Liu and Dunford (2016: 335) on international cooperation.

12 See, inter alia, Overholt (2015), Sidaway and Woon (2017), Shen and Chan (2018)

13 Ministry of Foreign Affairs of the People´s Republic of China (2018)

14 Ministry of Foreign Affairs of the People´s Republic of China (2015)

15 See Chang (2016:310)

16 Djankov (2016:6) in Djankov and Miner (2016)

17 See Shen and Chan (2018), Djankov (2016) in Djankov and Miner (2016)

18 See Zhang (2016)

19 See Shu (2013) and Bijian (2017)

20 Demiryol (2019)

21 See Wang (2016)

22 ibid

23 Zhou and Esteban (2018:487)

24 Ibid

25 See, inter alia, Wang (2016) and Flint and Zhu (2019)

26 See Flint and Zhu (2019) and Glassmann (2011), who calls for adding geopolitical thoughts to debates on geoeconomic phenomena.

27 See National Development and Reform Commission (2015)

28 See OECD (2018)

29 See Asian Development Bank (2017) for the estimated infrastructure investments; for more examples of former attempts of modernizing the transport routes between Asia and Europe along the old Silk Road see Chan (2018).

30 See OECD (2018) and PwC (2016)

31 See, inter alia, by Zhou and Esteban (2018:490)

32 See Miner (2016) in Djankov and Miner (2016) and Demiryol (2019); estimated costs for the China-Pakistan Corridor are between US$46 billion and US$68 billion varying with data sources

33 See Schramm and Zhang (2018)

34 See, inter alia, Cheng (2016) and Djankov and Miner (2016)

35 Demiryol (2019:168)

36 See, inter alia, Cheng (2016)

37 This aspect is taken by the author from discussions in the GPE seminar on a possibly ´underconsumption crisis´, see also presentation of lecture 7, GPE Seminar 2019 provided by Dr. Lambie.

38 Due to the limited number of words this essay deals only with a discussion regarding excess capacity.

39 See Djankov and Miner (2016:12), and see Holslag (2019) for a detailed overview on eleven main industries receiving large government spendings but facing overcapacity

40 See Holslag (2019:118)

41 See Zhong Wenwei in: Holslag (2019:98)

42 See Ministry of Commerce (2015) in Holslag (2019:119)

43 See, inter alia, Demiryol (2019)

44 For the numbers on steel see Holslag (2019), for the oversea credits see a study of the Chinese Development Bank and the China Export Import Bank mentioned in the Financial Times by Kynge (2015)

45 See Demiryol (2019) and Holslag (2019)

46 Holslag (2019:127)

47 See Holslag (2019) and

48 See Holslag (2019) and data on ´EU external and Chinese construction services exports´ in WTO Trade Database

49 See, inter alia, Hoffman (2015)

50 See, inter alia, official statements by the National Development and Reform Commission (2015) on the BRI´s goal of promoting interconnectivity; see, inter alia, Flint and Zhu (2019) on the geopolitics of connectivity; see Demiryol (2019) for the arguments on the shift of excess capacities.

51 See Demiryol (2019) and Flint and Zhu (2019)

52 See, inter alia, Chan (2018)

53 See, inter alia, OECD (2018) and Zhou and Esteban (2018:490)

54 President Xi (2017)

Excerpt out of 25 pages

Details

Title
China's objectives with the Belt and Road Initiative
Subtitle
A global political economy view of China
College
Dresden Technical University
Grade
1,0
Author
Year
2020
Pages
25
Catalog Number
V968102
ISBN (eBook)
9783346316547
ISBN (Book)
9783346316554
Language
English
Tags
Belt and Road Initiative, International Political Economy, China, trade promotion, Chinese trade strategy, Neue Seidenstraße
Quote paper
Sandra Schorrer (Author), 2020, China's objectives with the Belt and Road Initiative, Munich, GRIN Verlag, https://www.grin.com/document/968102

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