Global China and the Fears of its Neighbours

“Hide your strength, bide your time,” Deng Xiaoping used to say. In recent years, China has become increasingly vocal on the world stage. Has its historical moment come? Many observers believe that by means of its Belt and Road Initiative China is remaking Eurasia to serve its goals. Valdai Club experts explain whether this is true and if China’s interests can be aligned with those of its neighbours.

In April 2019, the second Belt and Road forum was held in Beijing. The event, which was attended by the heads of thirty-seven states, confirmed the image of China as a global power with a global agenda. More and more countries are expressing an interest in the Chinese initiative to improve the infrastructural connectivity of Eurasia, but criticism of the project has gotten louder and louder. The forum was not attended by representatives of China’s closest neighbours: India, Japan and the two Koreas. The USA was also a no-show – while the Trump administration dispatched an official from the National Security Council to the first forum, held in 2017, the second one was openly ignored. Who Is (and Who Isn't) Attending China's 2nd Belt and Road Forum? Shannon Tiezzi
The Second Belt and Road Forum is officially underway in Beijing, bringing with it a host of government leaders from around the world. But who, exactly, is coming — and just an importantly, who isn’t? And what does the attendee list say about the Belt and Road Initiative as a whole?

Since the 1970s, when China embarked on its path of economic reforms, the development of the country followed the principle expressed by Deng Xiaoping: “hide your strength, bide your time.” Everything was subordinated to the tasks of economic growth, which in the 1990s averaged 10% per year. In the international arena, Beijing behaved with extreme restraint, without showing either regional or global ambitions. The peaceful growth of China in the 1980-1990s was based on an economic partnership with the United States. All this time, the Washington establishment has proceeded from the fact that the integration of the Asian giant into the world economy would lead to Beijing becoming part of a US-led West-centric global system.

There were even hopes that the formation of a significant middle class in China as a result of economic reforms would contribute to political reforms and China will eventually become a Western-style democracy, repeating the path of Japan and South Korea. In the mid-2000s, the concept of the G2 was put forward – an informal unification of the USA and China for global management (another name for it is “Chimerica” i.e. China + America). However, the symbiosis did not work: Washington found that Beijing does not like the role of junior partner to the global hegemon.

When the crisis broke out in the West in 2008-2009, leading to a decline in the US financial system and the ideology of the Washington Consensus, China felt that its historical moment had come. In July 2009, the then-Chairman of the People’s Republic of China, Hu Jintao, gave a speech in which he urged China to increase its strength and influence in the world, and in the fall of 2013, his successor Xi Jinping put forward projects for the 21st century: the Sea Belt and Maritime Silk Road transport corridors in Eurasia. Subsequently, they merged into the “One Belt, One Road” project, which has more recently become known as the Belt and Road Initiative.

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In order to implement its ambitious development programme, China needs enormous resources. Making it so that access to these resources is accompanied by the receipt of relative benefits by all participants in the process is an exceptionally difficult task.

By the beginning of the 2010s, the accumulated volume of Chinese investment and Chinese economic involvement in the processes that take place in various parts of the world had become extremely high, according to Valdai Club expert Vasily Kashin of the Centre for Comprehensive European and International Studies at HSE. By pursuing a passive foreign policy, the PRC could no longer protect its vital economic interests and ensure its economic security.

In 2014, China announced the creation of financial mechanism for the implementation of infrastructure projects under the Belt and Road Initiative. They include the Silk Road Fund and the Asian Infrastructure Investment Bank (despite its name, the latter includes two dozen countries in Europe, Africa, Latin America and Oceania). The significance of this event is hard to overestimate: for the first time since the end of World War II, global financial institutions have appeared in the world that are not Western in origin.

The realization that the US was mistaken about the future trajectory of China’s development is well expressed by the words of two former officials in the Obama administration, which Robert Manning cites in his Valdai paper: “Washington now faces its most dynamic and formidable competitor in modern history. Getting this challenge right will require doing away with the hopeful thinking that has long characterized the United States’ approach to China.”

The collapse of illusions was inevitable, says Valdai club expert and HSE professor Glenn Diesen: “As its economy grew, China came under greater pressure to secure reliable access to energy resources and transportation corridors to mitigate the vulnerability of being dependent on the benign intentions of the US. The interdependence between the US and China was also unsustainable due to the trade gap, which was characterised by China’s dependence on exports to the US, and US reliance on China to fund its growing deficits. Eventually, neither the US nor China were comfortable with the huge debt. Furthermore, China’s low-wage, export-based development strategy has been exhausted due to shrinking rates of migrant workers from the countryside, untenable environmental degradation; meanwhile, the suppression of domestic consumption and standards of living (to maintain low-cost manufacturing as a comparative advantage) caused discontent.

China's promotion of infrastructure initiatives suggests that the “peaceful rise” is being replaced by the task of reorganising Eurasia to its needs. “This objective is pursued with a three-pillared approach,” continues Diesen. “The first pillar is developing strategic industries by asserting leadership over the top technologies of the new industrial revolution, such as the 5G network and automated manufacturing, to ensure that Eurasia integrates under Chinese technological ecosystems. The second pillar is the establishment land- and maritime transportation corridors to physically integrate Greater Eurasia. The third pillar is the construction of new financial and economic instruments such as new economic blocs, investment banks, transaction system, trade/reserve currencies etc.”

The Belt and Road initiative is essentially a political superstructure over the process of economic expansion of Chinese private and state-owned companies, which began in the late 1990s, explains Vasily Kashin: “It inscribes the activities of Chinese business in certain political frameworks and allows the PRC to use this business activity to enhance its role in regional policymaking and global governance.”

Over the years, the implementation of the Belt and Road Initiative crystallized the attitude of global and regional players to it. “Although Beijing has consistently put the economic component at the forefront and denied any geopolitical motives, it has become clear to the outside world that Belt and Road is aimed not only at promoting economic projects, but also at increasing China’s political influence and its capabilities in reforming global governance and the system of international relations,” says Alexander Lomanov, Chief Researcher at the Primakov National Research Institute of World Economy and International Relations (IMEMO RAS).

According to Glenn Diesen, the main variable, which explains the changeable nature of the attitudes to the China’s initiatives from different countries, is geo-economic consequences. “The principal geoeconomic implications derive from China’s intentions to integrate Greater Eurasia as a multipolar construct to repudiate US attempts to sustain the unipolar moment,” he says. “The main opponent to China is therefore the US and its allies such as Japan that have vested interest in perpetuating the Western-centric status-quo.”

On the eve of the second Belt and Road initiative, the Washington-based Centre for a New American Security released a report on the challenges faced by countries agreeing to work with China on the Belt and Road. The report says they will face an “erosion of national sovereignty” once “Beijing takes control of the infrastructure projects located on their territory through equity arrangements, long-term leases or multi-year operating contracts.” Chinese projects are described as obscure, their implementation contributing to the spread of corruption; the burden of Chinese loans is becoming unbearable for the debtors.”

“It is noteworthy that American experts have not overlooked the ‘geopolitical risk’ of using Chinese technologies for the development of national telecommunications networks, because the equipment can be used for espionage,” notes Lomanov. “Obviously, it is becoming increasingly difficult to isolate America’s ‘concerns’ about the interests of emerging countries from its policy of all-round pressure on Chinese companies to prevent them from becoming world leaders in telecom equipment production.”

“In November 2018, US Vice President Mike Pence declared that America would not ‘offer constricting belts or a one-way road’ to Asian countries, explicitly hinting at China’s unacceptable plans,” continues Lomanov. “Trump’s special assistant, Garrett Marquis, called the Belt and Road ‘China's infrastructure vanity project’. The US military sees Belt and Road as a tool of strategic expansion, apparently fearing that cargo ports built with the participation of Chinese capital will turn into Chinese Navy bases overnight. The growing controversy on Belt and Road is reviving the long-standing Western propaganda clichés such as the Chinese threat and the upcoming collapse of China. Some dub Belt and Road a Chinese Trojan horse, meaning it will mask the expansion of China’s regional influence and its military and political expansion. Others argue that Belt and Road is doubly dangerous, since it can pull into the debt trap not only its unlucky partners, but also China itself.”

The American authorities have officially spent about $2 trillion on the wars in Iraq and Afghanistan; according to other estimates, this amount may be two or three times greater. These huge expenses have failed to bring prosperity or stability to emerging countries. China would use such money to give Asian countries a real chance at development. 

Alexander Lomanov

Not everyone is heeding Washington’s alarm bells. As noted above, a number of European countries, including NATO and EU member states, are showing interest in the Belt and Road. However, there is no consensus in Europe – according to Diesen, on the one hand, participation in Chinese projects opens up huge economic opportunities, but on the other, it means that Europe will have to condone China’s geostrategic plans to turn it into the Western periphery of Greater Eurasia. “China is simultaneously a cooperation partner with whom the EU has closely aligned objectives, a negotiating partner, with whom the EU needs to find a balance of interests, an economic competitor in pursuit of technological leadership, and a systemic rival promoting alternative models of governance,” stated a European Commission press release on March 12, 2019, expressing the EU executive’s position on relations with China.

In 2019, China won an important symbolic victory in the struggle for the minds and souls of Europeans. During Xi Jinping’s tour of Europe, a memorandum on Italy’s accession to the Belt and Road was signed, and his visit to France ended with a four-way dialogue, where he was joined by Chancellor Merkel and European Commission President Juncker. According to Valdai Club expert Xiang Lanxin, Franco-German interest in the Chinese project is a more important factor than the memorandum signed by Beijing and Rome.

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In the eyes of Brussels, the main problem surrounding China’s signing of a memorandum of understanding (MoU) with Italy, a founding member of the EU, is that it might jeopardise Europe’s attempt to create a united negotiating front vis-à-vis Beijing.

“It is not the first time that the Italians have fancied grandiose projects with China”, Xiang Lanxin writes. “Ever since the days of Venetian explorer Marco Polo, the Italians seem to have developed a tendency to exaggerate China’s importance in order to magnify their own importance...When the current, extremely precarious political games collapse again in Italy, any reversal of attitude towards the BRI is surely expected. Blaming previous government for grandiose but unfulfilled projects has been politics par excellence in Italy since the days of Renaissance Florence.

France and Germany are entirely different: if they decide to join the Belt and Road, it will drastically change the situation. “China’s official argument for the BRI is to promote global economic and social connectivity, he writes. The BRI “would help maintain the importance of multilateral institutions in the world, especially the UN and the WTO, thereby reducing international conflict. France and Germany are more or less on the same page with China on this and their support is crucial. On the other hand, the real success of the BRI depends on a sustained flow of international investment. Italy cannot deliver either of these. China alone cannot ensure that this project works in the long run. The BRI is doomed to failure if it cannot leverage third party financing, or stimulate a multinational joint-venture in investment projects, especially huge infrastructure projects.” 

If it can be said about Asia that here countries like Pakistan and Iran are supportive of China’s initiative, it’s because “they benefit from both the economic opportunities and the geostrategic shift away from the Western-centric world order”, Glenn Diesen says. In turn, India and Japan are most concerned about this. In many ways, the answer is the concept of Indo-Pacific, which is favoured primarily by these two countries.

The issues of economic relations require gradual and thorough discussion in order for high-quality bilateral agreements to be reached that may function for many years. There is no need to hurry up in these matters.  

Vasily Kashin

“China’s BRI is a unilateral project that advances the interests of one country,” says Valdai expert Samir Saran, president of the of the Indian analytical research centre Observer Research Foundation. “The Indo-Pacific strategy meanwhile is inclusive by definition. It must accommodate not only the interests of its guarantors (Australia, India, the US and Japan – the Quadrilateral Initiative), but also of all states that are willing to participate in the initiative. It is possessed of cooperative mechanisms that facilitate dialogue and cooperation, as opposed to the BRI which privileges ‘client-state’ models.”

“Currently the BRI and the ‘free and open’ Indo-Pacific are competing initiatives. However, the real choice will be made by developing states, who are currently leveraging both initiatives to obtain better deals. It’s not inconceivable that in the long term, some multilateral arrangement will accommodate both initiatives,” he stresses.

Russia is among those countries that invariably have a positive attitude to the BRI, both at the political and at the expert level. China is Russia’s second most important economic partner after the European Union and its turnover with China is growing. In Russia, there is a consensus regarding the importance of developing relations with China. On May 8, 2015, the two countries signed a joint statement on the pairing of the creation of the Eurasian Economic Union with the Silk Road Economic Belt. The task of conjugation, as the authors of the Valdai report Toward the Great Ocean­–4: Turn to the East write, is “creating a synergy between the two projects and organizing a new co-development area around Eurasia’s transport and logistical framework.”

However, experts describe Russia’s optimism about China’s initiatives as ‘cautious’. “China is an indispensable partner to Russia due to its capacity and intention to restructure the international economic system and usher in a more stable and balanced multipolar order,” says Glenn Diesen. However, he adds, “Russia remains cautious about becoming excessively reliant on an asymmetrical economic partnership with China as it could undermine its political autonomy.”

At the same time, in Russia, “there is also concern about the relative closeness of the Chinese market for a number of EAEU goods, as well as that Chinese manufacturers may pose some threat to certain sectors of Russian industry,” adds Vasily Kashin. “We should keep in mind that the trade relations of large states are never simple or conflict-free, even if they are close allies at the political level. The issues of economic relations require gradual and thorough discussion in order for high-quality bilateral agreements to be reached that may function for many years. There is no need to hurry up in these matters.”

The Chinese say people should not refuse food for fear of choking. This also goes for the development of an approach to Belt and Road. However, one should not mindlessly put anything in their mouth.  

Alexander Lomanov

In fact, this applies to any country. “Chinese companies are often interested in increasing the number of projects they participate in, but lack sufficient concern regarding returns,” adds Kashin. “As a result, there is a risk that low-quality assets will be generated that will never recoup the money spent on them.” The difficulties associated with the implementation of projects in the framework of the BRI have already been encountered by several Asian countries. For example, Sri Lanka had to transfer the port of Hambantota to China for 99 years in exchange for debt relief, and the Maldives asked Beijing to restructure its debt in exchange for the construction of infrastructure, which turned out to be very burdensome for the small island nation. After elections were held in 2018 in Pakistan and Malaysia, the new leaders revised the conditions for their countries’ participation in the BRI.

The Malaysian case is especially interesting. According to Alexander Lomanov, it demonstrates how to deal with China, which is guided by business interests.. “In 2018, after Prime Minister Mahathir bin Mohamad came to power, he suspended the high-speed East Coast Rail Link (ECRL) construction China was involved in, citing the unaffordable price of the project for Malaysia as corrupt motivation for making the deal in the first place. All this time, the story has served as confirmation for critics that Belt and Road was a lame investment. However, in mid-April the Malaysian authorities said they had bargained with the Chinese side and negotiated a one-third price cut, so the construction would continue. Now, critics are happy that Mahathir ‘beat’ China. This is indeed a significant concession. But it is also a precedent that showed that you can bargain with China and negotiate favourable terms.”

Whatever the BRI is – an initiative aimed at general prosperity and development, as Chinese officials say, or a geopolitical tool, as foreign critics of the initiative believe, one thing is clear: this is not a charity project. “China always insists that countries unable to repay loans should not enter into large infrastructure projects with it,” emphasises Lomanov.

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The Belt and Road (BRI) is a significant project, especially for the developing countries of South and Southeast Asia, as well as for some African countries. It strengthens the role of China, which is gradually regaining its status as an economic superpower, and contributes to the development of a multi-polar globe.

Sometimes it is said that the BRI is the Chinese equivalent of the American Marshall Plan, which contributed to the restoration of the economic growth of post-war Western Europe. The Valdai Club experts consider such comparisons to be unjustified. “It is a much more vague initiative that lacks a distinct framework, and it has different and unclear forms of participation, which are applied to various countries. Vasily Kashin says. But it’s not only that. “The most important difference is that post-war Europe had a vivid memory of what an efficient market economy was,” opines Alexander Lomanov. For all the devastation and losses, they still had the institutions, legal regulations and the educational system. China’s Belt and Road extends to where roads and factories still have to be built, institutions need to be created and governance must be drastically improved.

According to the scholar, a new “Marshall Plan” will most likely be put forward by the US. In the twentieth century, Washington sought to resist Soviet influence in Western Europe; in the twenty-first century, it may likewise seek to contain China. “This is where the current US administration is heading; and they attach such great importance to the use of international development assistance. However, the potential size of this financial aid is about $60 billion – roughly about the size of China’s investment in the China-Pakistan economic corridor. It is a significant part, but still only a part of China’s investment in Belt and Road. With such limited resources, the Americans are unlikely to replicate the success of last century’s Marshall Plan. The talk about high-quality Western investment compared with Chinese outlays does not help.”

China’s Belt and Road Initiative is an unprecedented project in terms of scale, and it is inevitable that difficulties will arise in its implementation. Sometimes it is subject to valid criticism, but even critics admit that there is not yet a clear alternative for developing countries. By trial and error, China is building a new Eurasia – certainly for itself, but this does not mean that its interests cannot coincide with the interests of other players.

Views expressed are of individual Members and Contributors, rather than the Club's, unless explicitly stated otherwise.