China’s Belt and Road Strategy

China’s Belt and Road initiative has driven the construction of transportation facilities along the sea and land routes in China. The projects create significant geopolitical, economic and military benefits for Beijing, while imposing numerous unforeseen costs on local economies, environments and political systems. A shift to smaller projects, such as communications infrastructure, has also generated serious local and geopolitical concerns.

Originally announced by President Xi Jinping in 2013, “One Belt, One Road” has been promoted by the Chinese government as the “project of the century”^{Footnote 56}. It seeks to connect large parts of the globe through rail lines, pipelines, highways, ports, digital technology, and other infrastructure.

The Belt and Road has the potential to address real infrastructure needs^{Footnote 57}. At the same time, it is a serious strategic endeavor with support from the highest level of China’s Communist Party (CCP). The party has repeatedly referred to the Belt and Road as essential to its regional and global ambitions. A series of high-level party documents and addresses by senior leaders make clear that the Belt and Road is a core part of China’s efforts to achieve “national rejuvenation” and to create what the party calls a “community of common destiny” across the Indo-Pacific and beyond^{Footnote 58}.

Estimates for the Belt and Road’s size vary dramatically even as the project now approaches its six-year anniversary. Some put its total cost at roughly $1 trillion^{Footnote 59}; others say that many of these commitments have not or will not be honoured and that actual investments are closer to one-third that amount^{Footnote 60}. Although more than 100 countries are nominally involved in the Belt and Road, the overwhelming share of China’s efforts remains concentrated in the Indo-Pacific^{Footnote 61}.

A significant number of Belt and Road projects have explicit geopolitical applications. These projects can be understood as a form of “economic power projection”, one that allows Beijing to reshape the world’s strategic and digital geography and to place China at its center through targeted investments. Indeed, the People’s Liberation Army (PLA) has described the dual-use potential of certain port and rail projects^{Footnote 62}; Beijing has taken control of some projects, including the Hambantota Port, and reportedly pushed for military access; and many of the digital components of the Belt and Road could give Beijing access to critical infrastructure and information that might not otherwise be easily accessible.

Seven Challenges Emanating from Belt and Road Projects

When the Belt and Road was first announced, the program generated a positive response from many countries seeking additional sources of investment in needed infrastructure. With China a relatively new provider of infrastructure, expectations of the Belt and Road were generally high, despite lingering skepticism from Japan, India, and the United States. But six years after that initially warm reception, the effort has now provoked a backlash.

The setbacks Belt and Road confronts are rooted in growing political, economic, and security concerns in recipient countries that fall into roughly seven categories.

Sovereignty-Eroding

A number of Belt and Road projects are operated by China’s state-owned enterprises, either by contract or because of inadequate local capacity. For example, Chinese companies operate a number of ports, including Sri Lanka’s Hambantota Port as well as Greece’s Piraeus Port, and contracts for Chinese operation of additional ports have been signed in Israel, among other countries^{Footnote 63}. China’s operation of infrastructure—especially critical infrastructure such as hydroelectric dams—complicates negotiations over financial terms and can create enduring political influence and dependence. In some cases, China’s operation or control of Belt and Road projects is long term, with the 99-year lease of the Hambantota Port in Sri Lanka as the most extreme example.

Non-transparent

In many cases, Belt and Road projects feature opaque bidding processes and terms that are not made public to stakeholders in recipient countries. Concerns over a lack of transparency and a subsequent inability to hold political leaders accountable have grown in over a dozen countries, including Malaysia in Southeast Asia; Sri Lanka, Nepal, Bangladesh, and the Maldives in South Asia; Kenya, Uganda, and Zambia in Africa; and Venezuela and Ecuador in Latin America, among many others^{Footnote 64}. Even Pakistan has raised concerns over no-bid contracts and opaque terms, pushing for renegotiation^{Footnote 65}.

Financially Unsustainable

The Center for Global Development released a report in 2018 showing that eight countries involved in the Belt and Road—Djibouti, Kyrgyzstan, Laos, the Maldives, Mongolia, Montenegro, Pakistan, and Tajikistan—are facing serious challenges in repaying their loans to China^{Footnote 66}. Beijing is the largest foreign creditor for most of these states, with some owing it more than half their foreign debt. A number of countries, including Thailand, Malaysia, Sri Lanka, Nepal, Pakistan, Burma, and Bangladesh, have canceled or scaled back costly projects for financial reasons. Of those projects that were completed, many have been unable to generate enough revenue to justify the initial investment, arguably leaving the recipient country in worse financial shape than before. In some cases, such as Venezuela and Ecuador, China’s investments are secured with commodities from the recipient country, a model of lending that most developed countries abandoned because of its colonial overtones^{Footnote 67}.

Locally Disengaged

Recipient countries are increasingly criticizing Chinese investments as disengaged from local economic development. In many cases, Beijing’s investments mandate the use of Chinese firms and labour for construction projects, require the acquisition of land from locals, and sometimes even call for Chinese state-owned enterprises to operate the resultant infrastructure, thereby inhibiting the transfer of skills to local workers. Concerns about imported labour have appeared even in countries with strong political ties to China, including Pakistan and Laos^{Footnote 68}. With respect to profit-sharing arrangements for infrastructure projects, many agreements are inequitable, especially if recipient governments prove unable to make debt payments to Beijing. Finally, many Chinese infrastructure projects, especially in Africa, appear built primarily to facilitate the extraction of commodities that are then exported to China.

Geopolitically Risky

There are growing concerns that infrastructure projects financed, built, or operated by China can compromise the recipient country’s security or place the country in the crosshairs of strategic competition pitting Beijing against other great powers. For example, Sri Lanka’s decision to agree to a debt-for-equity deal with China has given Beijing a 99-year lease on a strategically positioned port, generating anxiety in New Delhi, Tokyo, and Washington. The Maldives’ growing indebtedness to Beijing and Bangladesh’s initial interest in Chinese construction of the country’s first deep-water port raised concerns in India that these countries might eventually host Chinese military facilities close to Indian shores^{Footnote 69}. Elsewhere, concerns over the geopolitical risk of projects have produced domestic unrest. For example, Vietnam’s decision to allow three 99-year special economic zones for Chinese companies in strategically important regions resulted in widespread popular protests^{Footnote 70}.

Environmentally Unsustainable

Belt and Road projects have increasingly generated environmental concerns. In some cases, these projects have proceeded without adequate environmental impact assessments or have involved targeted bribes to circumvent them. For example, Burma suspended China’s investment in the Myitsone Dam project in part over insufficient attention to environmental concerns, and dam and rail projects in Indonesia were criticized for not having undergone adequate environmental assessments^{Footnote 71}. Some projects that advanced have caused seemingly irreversible environmental damage. Beijing has infrequently been willing to punish companies for environmental lapses, and Chinese firms do not appear to be significantly concerned with the environmental impact of their investments—especially if recipient countries lack adequate regulations around environmental standards. In some cases, even projects that were thought to be environmentally sustainable have subsequently proved to be more damaging than expected.

Corruption-Prone

In countries that already have a high level of kleptocracy, Belt and Road projects have often involved payoffs to politicians and bureaucrats. Projects that are financially or environmentally unsound are sometimes approved as a direct result. The Belt and Road’s initial statement of principles^{Footnote 72} makes no mention of corruption, and companies are not punished for corrupt practices overseas. Indeed, evidence of bribery has been uncovered across a wide range of projects. Bangladesh blacklisted a major Chinese state-owned enterprise, China Harbour Engineering Co., for trying to bribe a senior government official^{Footnote 73}. China Communications Construction Co., one of the Belt and Road’s main builders, has been credibly accused of bribery in the Philippines, Malaysia, Equatorial Guinea, and Sri Lanka^{Footnote 74}. As these examples suggest, China’s willingness to pay politicians to facilitate these projects not only corrodes democratic institutions but also results in policies that are directly against the public interest of the countries in question. When new governments take power, they often unearth evidence of corruption from their predecessors, embarrassing Chinese companies in the process.

These seven challenges, though common across Belt and Road projects, are not inherent to infrastructure investments involving external powers. Indeed, projects in recipient states that lack capacity and negotiating power can avoid these challenges entirely if appropriately scoped.

The Belt and Road’s Future: Adaptation, Evolution, and the Digital Silk Road

The Belt and Road is facing a significant backlash that is most pronounced in the Indo-Pacific but is also readily apparent in a diverse array of regions. The resistance appears to be most robust in democracies, with several politicians elected in part because of growing public concern over Chinese investments in countries such as Sri Lanka, the Maldives, and Malaysia. Once in office, these politicians often uncover the corrupt practices their predecessors may have engaged in with China’s state-owned enterprises and are forced to cope with the financial or environmental implications of projects that were not necessarily in the public interest.

If the Belt and Road is in part a propaganda effort to project the inevitability of China’s global ascent, the growing international concern over certain high-profile projects seriously risks undermining Beijing’s intended narrative. These obstacles raise an important question: Will China be able to adapt its economic statecraft, or are there major limits to the Belt and Road’s ability to evolve?

With Xi’s personal status deeply intertwined with the Belt and Road’s prospects, and with the effort now embedded in the CCP’s Constitution, abandonment is not politically viable. Instead, on the fifth anniversary of the Belt and Road last year, Xi announced a “new phase” of the program even as he seemed to acknowledge some of its limitations^{Footnote 75}. The Belt and Road would remain central to China’s economic statecraft, but Xi encouraged focusing more on “high-quality” investments that are smaller-scale, arguing that the “broad brushstrokes” had been made in the first phase and the second phase would require “fine brushwork” instead. Smaller projects would ostensibly have fewer issues with financial sustainability, local detachment, environmental sustainability, and corruption. In addition, Xi has reiterated that Chinese state-owned enterprises are brand ambassadors for Beijing, and he has called for greater party oversight of the Belt and Road and launched new state institutions—such as the China International Development Cooperation Agency (CIDCA)—that might provide supervision to mitigate the risks of embarrassing scandals related to corruption or environmental impact.

Even if Beijing were to succeed in reorienting the Belt and Road, it is important to note that limited projects can have outsized political, economic, and strategic influence, especially when they involve telecommunications infrastructure. This area is a major focus of Belt and Road’s next phase, and China has exported much of the infrastructure for not only communications but also surveillance and censorship. With companies such as Huawei and ZTE as its standard-bearers, China is building or operating telecommunications infrastructure in countries as varied as Burma, Kyrgyzstan, Nepal, Bangladesh, Mexico, and Kenya, along with dozens of others^{Footnote 76}. Other Chinese hardware providers, such as Hikvision, are assisting recipient countries with setting up networks of cameras to monitor public spaces in cities.

China’s Belt and Road investments have also been accompanied by efforts to externalise the standards that support its domestic model of digital surveillance. In his 19th Party Congress address, Xi called attention to China as an alternative governance model, and China’s surveillance apparatus is integral to those efforts. According to Freedom House, China held trainings with representatives from more than 30 countries on new media and information management^{Footnote 77}.

Conclusion: Evaluating Future Belt and Road Projects

The first five years of the Belt and Road demonstrate the challenges for recipient states caught up in China’s economic statecraft. To avoid a repetition of the past, it is essential for governments, companies, journalists, and civil society groups in developed and developing countries to evaluate the advantages and disadvantages of future infrastructure projects involving China. The following framework provides a rudimentary guideline of expectations that should be considered when entering into infrastructure projects with Beijing.