How the West can best respond to China’s belt and road

Posted: May 27, 2021 in South China Morning Post
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Been working on a few too many different projects of late: some large, some small, some with some really excellent co-authors (whom I beg forgiveness for being slow at the moment). As I chug along, penned a short article for the South China Morning Post which tries to set out some ideas on how (and if) the west should respond to China’s Belt and Road Initiative. Not vastly new ideas, but the topic is going to get a lot of airtime during the upcoming G7 session so it seemed the right moment to put the ideas out there.

How the West can best respond to China’s belt and road

  • Competing with China dollar for dollar is pointless as Chinese banks and state-owned firms are driven by different concerns than their Western peers
  • Building up governance capacity in developing countries will help them better manage and push back when Chinese firms step over the line
Illustration: Craig Stephens for South China Morning Post

In a barely veiled reference to the Belt and Road Initiative, the recent Group of 7 Foreign Ministers final communique called on China to end its “coercive economic policies and practices”.

It is not the first time the G7 and its individual members have targeted the initiative, but it is unclear what they would offer instead. Rather, the project has become a whipping boy in the broader geopolitical confrontation with China.

The first thing the West should remember when responding to China’s strategy is that it is not seen the same way globally. While Western countries might view Beijing’s investments in developing countries as exploitative, coercive and attempts to entrap nations in debt, they are sometimes simply the latest round of funding from a wealthy foreign power to come knocking with their own list of requirements.

Some will take China’s strategy at face value and do not care much about the requirements that follow, interpreting them as equal to Western nations’ requirements.

This is a crucial point to consider; while Western powers might attach a certain set of values to Chinese investments, this is not necessarily how they are seen. Most developing countries will accept investment wherever it comes from, and have such deep needs that they will take what appears to be the best value.

That is why competing with China dollar for dollar is pointless.

Part of the reason concerns the institutions involved. Chinese state banks and state-owned firms, often the main implementers of belt and road projects, are driven by a different logic than their Western counterparts. Their considerations centre around activity, employment and continuity rather than short-term profit.

This is not to say they want to lose money, but they are willing to look at projects with a different timeline. They will also, in some contexts, take on a project because the state wants them to. This is not the same for most Western companies, which answer to shareholders.

State-run institutions in China must also take account of the fact the Belt and Road Initiative is a main part of President Xi Jinping’s foreign policy vision and has been enshrined in the constitution. Thus, implementation of the vision is likely to be put above other considerations.

This is also different from in the West, where institutions may have political links, and Western banks might prefer to work with national firms, but there is little binding companies to specific national foreign policies. Rather, most try to avoid overt political links, knowing it can spell trouble.

This highlights a difficult policy area for Western governments. If they want to compete effectively, they have to start considering policies which would clash with the liberal market principles they claim to advocate.

This already happens, but it is often done quietly. Western capitals might need to start being more explicit about it.

One answer is to offer alternatives to critical decisions or infrastructure being targeted as belt and road projects. This is likely to differ from case to case, but the key will be to cooperate with like-minded allies to focus on specific projects.

One idea could be to develop a list of specific areas – no doubt technology would be top. But there is a danger such a list could become unwieldy, especially considering how many areas of society have some technological component. Embassies on the ground could be encouraged to work together, but this would be a complicated process.

A more effective strategy would be to focus on building up the governance capacity in developing countries. This is the real route to success in managing Chinese investment.

For example, rules in contracts for belt and road projects are not always followed or the contracts themselves have exemptions built in.

Chinese companies can fail to perform or implement feasibility studies, find ways around contractual obligations and are sometimes in a hurry to get things done, tending to operate as they are used to doing at home. This can create problems for host countries, which are left to clean up afterwards.

The best way for Western countries to tackle such issues is not by complaining but, rather, to build up local capacity to hold Chinese firms to account. In everything from infrastructure and technical standards to data storage, if the local authorities have stronger powers and capabilities, they will be able to better manage and resist when Chinese firms step over the line.

This recognises what seems the biggest gap in Western thinking. It is true that corruption can sometimes tip the scales, but the answer to that is not more investment, a bidding war or threats about taking Chinese money. Rather, it is empower locals to deal with corruption and ensure local governance can better manage investment.

None of this easy. Many investors, aid agencies and international financial institutions have been trying to do as much for years, which highlights another issue worth remembering.

That is, China does not have a magic wand to make all these problems go away. Arguably, in the belt and road, it has created a tool that could exacerbate issues. So, while China might be able to keep its projects on course for now, that may not be the case indefinitely.

As China becomes more embroiled in problems around the world, it will find itself hitting many of the brick walls that Western powers have experienced over time.

All this highlights why the West should worry less about belt and road projects per se and focus more on strengthening developing countries so they are able to manage whatever investments come their way.

Raffaello Pantucci is senior associate fellow at the Royal United Services Institute (RUSI) in London

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