13.4 The Belt and Road Initiative and China's economic diplomacy
3 min read•august 9, 2024
China's is a massive global infrastructure project aimed at boosting trade and connectivity. It's a key part of China's economic diplomacy, linking countries through land and sea routes to expand Chinese influence.
The BRI faces challenges like concerns and transparency issues. China's using various strategies to address these, including establishing financial institutions and promoting trade agreements to support the initiative's goals.
Belt and Road Initiative (BRI) Overview
Global Infrastructure Development Initiative
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- Belt and Road Initiative launched by Chinese President in 2013 aims to enhance regional connectivity and economic cooperation
- Encompasses two main components: land-based and sea-based
- Land-based component focuses on connecting China to Europe through and Russia
- Maritime component aims to link China's coastal regions to , , the , and Africa
- Infrastructure development serves as the cornerstone of BRI includes construction of roads, railways, ports, and energy pipelines
- Economic corridors established to facilitate trade and investment flows between China and participating countries (, )
Strategic Objectives and Implementation
- BRI seeks to address China's industrial overcapacity by exporting excess production to developing countries
- Promotes Chinese technological standards and expertise in infrastructure development globally
- Utilizes state-owned enterprises and policy banks to finance and implement BRI projects
- Encourages Chinese companies to invest in BRI countries creating new markets for Chinese goods and services
- Enhances China's by strengthening economic ties with participating nations
- Implements people-to-people exchanges through cultural and educational programs to foster mutual understanding
Economic Diplomacy Strategies
Trade Liberalization and Financial Integration
- Free trade agreements negotiated by China with BRI countries to reduce tariffs and non-tariff barriers
- (RCEP) signed in 2020 includes China and 14 other Asia-Pacific countries
- upgraded in 2015 to further liberalize trade in goods and services
- efforts aim to increase the use of Chinese currency in international trade and finance
- Establishment of offshore Renminbi centers in major financial hubs (Hong Kong, Singapore, London)
- Cross-border Renminbi settlement mechanisms implemented to facilitate trade transactions
Investment Promotion and Financial Support
- (AIIB) founded in 2016 to provide financial support for infrastructure projects in Asia
- established in 2014 with $40 billion initial capital to invest in BRI-related projects
- and offer concessional loans to BRI countries
- signed with numerous countries to protect Chinese investments abroad
- China International Development Cooperation Agency created in 2018 to coordinate foreign aid and development assistance
- initiatives promoted to support environmentally sustainable projects along the BRI
Controversies
Debt Sustainability and Project Transparency
- debate centers on concerns about China's lending practices to developing countries
- Critics argue BRI projects may lead to unsustainable debt burdens for recipient countries (Sri Lanka's Hambantota Port)
- Questions raised about the economic viability and environmental impact of certain BRI projects
- Lack of transparency in project negotiations and implementation processes fuels suspicions of corruption
- Concerns about Chinese companies' labor practices and environmental standards in BRI countries
- Geopolitical tensions arise as some countries perceive BRI as a tool for expanding China's global influence
International Responses and Mitigation Efforts
- United States and other Western countries launch alternative infrastructure initiatives (Build Back Better World, Global Gateway)
- Calls for increased multilateral cooperation and adherence to international standards in BRI projects
- China introduces debt sustainability framework for BRI projects to address concerns about over-indebtedness
- Efforts to improve and environmental standards through third-party audits and assessments
- Renegotiation of some BRI contracts to address concerns raised by recipient countries (Malaysia's East Coast Rail Link)
- Increased focus on "high-quality" BRI projects emphasizing sustainability, inclusiveness, and local capacity building
Key Terms to Review (29)
21st century maritime silk road: The 21st century maritime silk road is a major component of China's Belt and Road Initiative (BRI), aimed at enhancing global trade and economic cooperation through a network of sea routes that connect Asia, Africa, and Europe. This initiative emphasizes investments in port infrastructure, shipping lanes, and maritime trade agreements to foster connectivity and promote economic growth among participating countries.
Asian Infrastructure Investment Bank: The Asian Infrastructure Investment Bank (AIIB) is a multilateral development bank established in 2015 to support infrastructure projects across Asia and beyond, aiming to enhance economic development and connectivity. It connects with various global initiatives by promoting sustainable investment in infrastructure, thus influencing economic growth models and fostering relationships with developing nations.
Belt and Road Initiative: The Belt and Road Initiative (BRI) is a global development strategy initiated by China in 2013 that aims to enhance regional connectivity and economic integration through infrastructure investment and trade. By building a network of roads, railways, ports, and other infrastructure across Asia, Europe, and Africa, the BRI seeks to promote trade routes and foster economic growth while extending China's influence on the global stage.
Bilateral investment treaties: Bilateral investment treaties (BITs) are agreements between two countries that establish the terms and conditions for private investment by nationals and companies from one country in the other. These treaties aim to promote and protect foreign investments, providing legal security and rights such as fair treatment, protection against expropriation, and the ability to seek international arbitration in case of disputes. They play a significant role in shaping economic diplomacy, especially for countries looking to attract foreign investments through initiatives like the Belt and Road Initiative.
Central Asia: Central Asia is a region in Asia that includes countries such as Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan. It serves as a strategic geographical and cultural crossroads between East and West, significantly influencing the dynamics of trade, politics, and economic development, particularly in relation to initiatives like the Belt and Road Initiative.
China Development Bank: The China Development Bank (CDB) is a state-owned development bank established in 1994 to provide financing for infrastructure and development projects both domestically and internationally. As a key player in China's economic strategy, it plays a crucial role in supporting initiatives such as the Belt and Road Initiative, which aims to enhance global trade and connectivity through investments in infrastructure across various countries.
China-ASEAN Free Trade Agreement: The China-ASEAN Free Trade Agreement (CAFTA) is a trade agreement that establishes a free trade area between China and the ten member states of the Association of Southeast Asian Nations (ASEAN). It aims to promote economic cooperation, reduce tariffs, and enhance trade and investment between China and ASEAN countries, playing a pivotal role in regional economic integration and development.
China-Indochina Peninsula Economic Corridor: The China-Indochina Peninsula Economic Corridor (CICPEC) is a key component of China's Belt and Road Initiative (BRI) that aims to enhance economic connectivity and cooperation between China and the countries of the Indochina Peninsula, including Vietnam, Laos, Thailand, Myanmar, and Cambodia. By developing infrastructure such as roads, railways, and ports, this corridor seeks to facilitate trade, investment, and overall economic development in the region, aligning with China's broader strategy of expanding its influence through economic diplomacy.
China-Pakistan Economic Corridor: The China-Pakistan Economic Corridor (CPEC) is a major development project that aims to enhance connectivity and economic cooperation between China and Pakistan through infrastructure investments, including roads, railways, and energy projects. This initiative is a key component of China's Belt and Road Initiative, reflecting China's broader strategy to strengthen its economic influence in South Asia while providing Pakistan with essential infrastructure for economic growth.
Comparative Advantage: Comparative advantage is an economic principle that explains how countries can benefit from trade by specializing in the production of goods and services for which they have a lower opportunity cost than others. This concept helps to highlight the efficiencies gained when countries focus on their strengths, leading to increased overall economic output and mutual benefits from trade, especially in the context of global initiatives such as economic diplomacy.
Debt sustainability: Debt sustainability refers to the ability of a borrower, such as a country, to manage and repay its debt without requiring debt relief or accumulating further debt. It encompasses the balance between a country’s current debt levels, its income generation capacity, and future economic growth prospects. This concept is particularly important when considering international investments and loans, especially in initiatives like the Belt and Road Initiative where countries may incur significant debts for infrastructure projects.
Debt-trap diplomacy: Debt-trap diplomacy is a strategy used by a country to leverage loans and financial aid to gain political leverage over another nation, often leading to situations where the borrowing country becomes heavily indebted and increasingly dependent on the lending country. This tactic is commonly associated with China’s Belt and Road Initiative, where infrastructure investments in developing nations create significant debt burdens that can compromise their sovereignty and decision-making.
Economic interdependence: Economic interdependence refers to a mutual reliance between countries or regions, where the economic activities of one nation impact and are influenced by the economic activities of another. This concept is crucial in understanding how global trade, investment, and economic policies are interconnected, shaping relationships between nations. It often leads to increased cooperation, as countries work together to achieve mutual benefits through trade agreements, joint ventures, and international partnerships.
Export-Import Bank of China: The Export-Import Bank of China (Ex-Im Bank) is a state-owned financial institution that provides financing and insurance services to support Chinese companies' international trade and investment activities. It plays a crucial role in facilitating China's economic diplomacy, particularly through initiatives like the Belt and Road Initiative, by offering loans and financial assistance to countries involved in infrastructure projects.
Geopolitical influence: Geopolitical influence refers to the power a nation holds over other nations or regions based on geographic, political, economic, and cultural factors. This influence can manifest in various forms, including economic partnerships, military presence, and cultural exchanges, impacting international relations and global dynamics. In the context of initiatives like the Belt and Road Initiative, geopolitical influence plays a crucial role in shaping how countries engage with each other on both strategic and economic levels.
Global supply chain: A global supply chain is a network of production, distribution, and logistics that spans multiple countries, enabling businesses to source materials, manufacture products, and deliver goods to consumers worldwide. This interconnected system allows for cost efficiency, access to resources, and the ability to respond quickly to market demands, all of which are essential for a company's competitiveness in today's economy.
Green finance: Green finance refers to financial activities that support the development of sustainable projects and investments aimed at addressing environmental challenges, particularly climate change. This includes funding renewable energy projects, energy efficiency initiatives, and other environmentally beneficial investments. The importance of green finance is growing as it plays a critical role in facilitating sustainable development and transitioning to a low-carbon economy.
Market access: Market access refers to the ability of a country or company to sell goods and services in a foreign market without barriers such as tariffs, quotas, or restrictive regulations. This concept is crucial as it influences trade relationships, economic growth, and competitive advantages between countries. Effective market access can enhance diplomatic relations and open doors for economic cooperation, which is particularly relevant when discussing the dynamics between major powers and China's broader economic initiatives.
Middle East: The Middle East is a region that encompasses parts of Western Asia and North Africa, known for its historical, cultural, and geopolitical significance. This area has been a focal point of trade, religion, and conflict throughout history, and it plays a crucial role in contemporary global politics and economics, particularly through initiatives like the Belt and Road Initiative which aims to enhance connectivity and economic cooperation between China and Middle Eastern countries.
Project Transparency: Project transparency refers to the practice of making information about a project, including its objectives, processes, financing, and outcomes, accessible and clear to all stakeholders involved. This concept is particularly important in initiatives like the Belt and Road Initiative, where clear communication can help mitigate concerns over debt diplomacy and promote trust among participating countries.
Regional Comprehensive Economic Partnership: The Regional Comprehensive Economic Partnership (RCEP) is a major free trade agreement that was signed in November 2020, involving 15 countries in the Asia-Pacific region, including China, Japan, South Korea, Australia, and members of the ASEAN group. RCEP aims to enhance trade and economic integration by reducing tariffs, improving market access, and setting common standards among member countries. Its significance lies in its potential to reshape regional supply chains and bolster economic relations among major powers in the Asia-Pacific.
Renminbi internationalization: Renminbi internationalization refers to the process of promoting the Chinese currency, the renminbi (RMB), as a global medium of exchange, reserve currency, and unit of account in international trade and finance. This movement aims to reduce reliance on the U.S. dollar, enhance China's financial influence worldwide, and facilitate trade and investment across borders. The broader goals of this initiative are closely tied to China's economic diplomacy and its strategic ambitions on the global stage.
Silk Road Economic Belt: The Silk Road Economic Belt is a key component of China's Belt and Road Initiative, aiming to enhance trade and economic connectivity between Asia, Europe, and beyond through infrastructure development. This initiative seeks to revive the ancient trade routes of the Silk Road by establishing a network of railways, highways, and pipelines that facilitate the movement of goods, services, and investments, promoting regional economic cooperation and integration.
Silk Road Fund: The Silk Road Fund is a state-owned investment fund established by China in 2014 to support the Belt and Road Initiative (BRI) by investing in infrastructure and development projects across countries involved in this vast economic network. It aims to foster economic cooperation, trade, and connectivity by providing financial resources to enhance infrastructure development in participating countries, thereby facilitating trade routes that revive the historical Silk Road.
Soft power: Soft power is the ability to influence others through attraction and persuasion rather than coercion or force. It involves the use of cultural appeal, diplomacy, and values to shape international perceptions and foster cooperation, making it a crucial tool in global relations.
South Asia: South Asia is a region in the southern part of Asia, which includes countries like India, Pakistan, Bangladesh, Nepal, Bhutan, Sri Lanka, and the Maldives. This area is marked by diverse cultures, languages, and religions and has significant geopolitical importance, especially in the context of economic initiatives and diplomatic relationships.
Southeast Asia: Southeast Asia is a region that includes the countries located south of China, east of India, and north of Australia, characterized by its diverse cultures, languages, and economies. This area plays a significant role in global trade and geopolitics, particularly in the context of economic initiatives and infrastructure projects like the Belt and Road Initiative.
Trade routes: Trade routes are established paths or networks through which goods, services, and information are exchanged between regions or countries. These routes have historically facilitated economic interactions, cultural exchanges, and diplomatic relations among nations, particularly in the context of global commerce.
Xi Jinping: Xi Jinping is the General Secretary of the Communist Party of China and the President of the People's Republic of China, having assumed power in 2012. His leadership is characterized by a strong emphasis on consolidating power, promoting economic reform, and asserting China's role on the global stage.