Will China's New Trade/Debt Diplomacy Strategy Reshape The World?

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A century ago, the British Empire dominated global trade, and now China appears to be making a solid play to assume a similar leadership role, with one key difference: China's goal seems to be a projection of power through infrastructure building, not military force. Its Belt and Road Initiative already has nearly $ 1 trillion in projects planned or underway in the form of roads, ports, rail, pipelines, and power generation across Asia and reaching into Europe and Africa. Another $1 trillion is planned for the coming decade, spanning over sixty countries.

Because China's financing generally comes in the form of loans, not aid, observers have coined the term "debt-trap diplomacy," by which China gains favorable access to the projects it finances as a form of loan repayment, thereby expanding its influence and relative advantage.

Will China's "Belt and Road" strategy lead merely to dominance in trade, with eventually significant worldwide political backlash? Or will the Belt and Road Initiative eventually reshape the international landscape, affecting the dollar's role as reserve currency, the regulation of financial markets, the traditional role of the U.S. military, and even the role of NATO? Will China use debt diplomacy to successfully dominate the world? Or will China's own domestic problems of massive debt and bloated state-run corporate giants, combined with a rapidly aging society, stymie its plans?

Three dozen important observers offer their views.

JOSEPH S. NYE, JR.

University Distinguished Service Professor, Harvard University, and author, Is the American Century Over? (2015)

Xi Jinping has said his Belt and Road Initiative would promote Chinese economic and political power around the world. China plans to lend more than $1 trillion for infrastructure projects over the next decade, while the United States is cutting back on aid and contributions to international institutions. Does this mean China will win its geopolitical competition with the United States?

"One belt, one road" means many things to many people, including China's leaders. As an aid program, it means preserving jobs in industries where China has serious overcapacity; insuring Chinese access to energy and resources; and using economic carrots to increase China's influence in recipient countries. In that sense, it is less a revolutionary challenge to the current international order than an organic growth of Chinese power within that system.

In these terms, the Belt and Road Initiative faces a number of predictable problems. Some countries, such as Britain, have objected to signing written memorandums of understanding of support. In Sri Lanka, debt and unpaid loans plagued projects that turned out to be "white elephants." Security conflicts bedevil projects that cross tense borders as in Pakistan. India is not happy to see a greater Chinese presence in the Indian Ocean, and Russia, Turkey, and Iran have their own agendas in Central Asia.

But the larger question is whether the Belt and Road Initiative will serve as a grand strategy that reshapes the international landscape. A century ago, British geopolitical theorist Haiford Mackinder argued that whoever controlled the world island of Eurasia would control the world. American strategy, in contrast, has long favored the geopolitical insights of the nineteenth-century admiral Alfred Mahan, who emphasized sea power and the rimlands.

Even in the age of the internet, geography still matters. In the nineteenth century, geopolitical rivalry revolved around the "Eastern Question" of who would control the area ruled by the crumbling Ottoman Empire, and infrastructure projects like the Berlin-to-Baghdad railway roused tensions among the Great Powers.

With the Belt and Road Initiative, China is betting more on Mackinder. But the overland route through Central Asia could revive the nineteenth-century "Great Game" for influence that embroiled Britain and Russia, as well as former empires like Turkey and Iran. At the same time, the maritime "road" through the Indian Ocean accentuates China's already fraught rivalry with India, with tensions building over Chinese ports and roads which India sees as political rather than economic ventures.

Asia has its own balance of power, and many countries worry about the rise of Chinese power. India, Japan, Vietnam, and others do not want Chinese domination. They see America as part of the solution. American policy is not containment of China--witness the massive flows of trade and students between the countries. But as China becomes more nationalistic and enthralled by Xi's vision of national greatness, it will tend to drive many countries into America's arms. I would still bet on Mahan.

IAN BREMMER

President and Founder, Eurasia Group, and author, Us vs. Them: The Failure of Globalism (forthcoming)

China is set to become a global superpower. It has surprising political stability and resilience. Yes, its debt and demographic issues are big problems (not to mention their environmental woes), but there's no reason to believe that these concerns are about to implode China's state-capitalist model. If anything, China's state-capitalism has proved its durability and strategic advantages in recent years while American (and European) liberal democracy lurches ever further from leading by example. Put another way, it's safer to bet on the China dream than not.

China expresses power in dramatically different ways than the United States, and its Belt and Road Initiative is one of those ways. Eventual economic dominance of other countries around the world brings influence and "reciprocity," but unlike the Americans, the Chinese aren't trying to promote an ideological system of governance. They aren't building a global military, and they don't have a convertible currency and aren't moving with any rush to create one. So I don't see the rise of China and its strategy of debt diplomacy as being the end of NATO; if the U.S. military and/or NATO erode significantly, it's likely to come more because of decisions the Americans will make (and are continuing to make) than because of Chinese power.

Where we are likely to see a sea change is in the sphere of technology, which will be the most important for determining who controls the future. In the tech sphere, China's busy setting up standards that are most clearly in opposition to those of the West. It's an increasingly zero-sum system, and China is already on the road to being a superpower, if it isn't already. If there's a true threat to America's status (and there is), that's where it comes from.

CHRIS LEUNG

Chief China Economist, DBS Bank (Hong Kong)

The Belt and Road Initiative is a brilliant foreign policy idea blending with an ambitious long-term outbound investment plan. It is unprecedented in scale and geographical coverage and potentially a game-changer for the global order in the long run.

This is a tremendous task but not entirely impossible. Less-developed countries are tempted to accept loans from China due to the absence of stringent human rights conditions imposed by Western institutions, despite the high interest rate charged by Chinese banks. In return, they offer either management rights on ports and harbors to China, or in some cases, even direct equity investment in strategic assets. The deals are usually mutually beneficial in the short term. Sustaining such relationships into the longer run is, however, a daunting challenge.

In fact, the challenges of the Belt and Road Initiative go far beyond the economics, as evidenced by the cases in Myanmar and Sri Lanka. The change of ruling government to a new democratically elected government in Myanmar has subsequently led to the termination of several Chinese infrastructure projects, potentially interrupting one of the three major rail routes--the Bangladesh-China-India-Myanmar (BCIM) corridor, with a total length of 2,800 kilometers. It originates from Kunming province in China, and will have to pass through Myanmar to complete the BCIM with an end destination in Kolkata, India. Even in Pakistan, the rising activism of Balochistan independence parties located in Gwadar could complicate the project progress of the China-Pakistan Economic Corridor. Hiccups of a similar nature also happened in Sri Lanka and Africa. Obviously, the common cause of these debacles stems from a rising phobia about Chinese influence.

These challenges confirm the limited potency of China's "mercantilist" approach in driving the Belt and Road Initiative in the medium term. Termination or postponement of mega-infrastructure projects consequentially inflicts heavy financial losses on Chinese state companies. Not all countries are willing to make concessions in lieu of debt repayment to China.

The hard lessons should ensure China comprehends that deepening economic inter-dependency with client states via credit is only one of many steps. China needs to pay more respect to environmental protection, pay more attention to the voices of the local population, pay more compassionate and equitable monetary compensation for land taken away from local residents, and partner with companies from other countries to reduce the image of "China-centric" investments. Last but not least, China should offer lower interest rates for participating countries to ease their worry over mortgaging their future to China. This will take some time for China to digest because her political institutions are not accustomed to such considerations in executing political imperatives. China will learn quickly. Time will eventually tell.

ROBERT A. MANNING

Senior Fellow, Brent Scowcroft Center on International Security, Atlantic Council

China does not need the Belt and Road Initiative to dominate in trade: it is an outgrowth of economic success. China is the world's largest trading and capital-exporting nation and the source of nearly two-thirds of the U.S. global trade deficit in 2017. China already is the largest trading partner of every U.S. ally...

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