“The Belt that Fits, the Road that Leads”
The Belt and Road Initiative: China steps to the front of the line
The Belt that fits, the Road that leads
(How China’s Belt and Road Initiative redraws the geopolitical map)
Summit Magazine, 2016
Arnie Saiki
Some 900 projects planned or underway benefitting more than 80 countries comprising 29 percent of the global Gross Domestic Product (GDP) and requiring an estimated 150 million tons of steel represent China’s ambition to reorganize the global economic (and political) order. The rapidly industrializing communist republic’s Belt and Road Initiative (BRI), as these projects are collectively known, may be the single greatest development venture in the history of the world. The BRI seeks to develop the necessary infrastructure to link China with other economic regions, and not only advanced economies like the European Union (EU), but also with developing regions where opportunities for trade and development have been largely stunted as a result of economic cooperation policies adopted from the immediate anti-communist, post-World War II era.
China’s president, Xi Jinping, refers to the One Belt One Road plan as the “project of the century,” an enterprise that seeks to restore and harmonize supply chains linking the empires of the ancient world into a 21st century network of development and ideas.
American geopolitical literacy is more apt to view the world through the lens of militarized hegemony than through trade and development. Even though the outcomes benefit the same postcolonial adherents, we are more likely, for example, to interpret the Vietnam War as a campaign to stop the spread of communism than as an occupation to protect western access to rubber and tin.
To fully appreciate the opportunities that the BRI presents, we have to readjust that lens and focus on the access to trade, investment and development. The advanced economies (the old colonial administering powers) have used foreign aid as a tool to transfer capital, goods and services to cooperating countries, relying upon the carrot and stick principle of development assistance in exchange for its strategic economic partnership. In contrast, what the BRI offers is infrastructure support to provide governments and regions with access to trade predicated on a new kind of multilateralism, rather than it being contingent upon participation in the free market.
Concerns about whether China has an agenda for replacing the U.S. as the new global hegemon should be put to rest, however. The BRI is better viewed as an economic liberator, removing the yoke of dependency in exchange for what President Xi describes as a promotion of peace, security, economic and social progress, sustainable development and combating climate change in “an interdependent and increasingly complex, globalizing world.”
Neoliberal Collapse
For context, global economic policy throughout the last quarter century conformed to Washington’s unipolar influence over development and investment: a direct result of the 1989 collapse of the Soviet Union (USSR). Perestroika—the opening of the old Soviet markets to the west—created a tremendous appetite for foreign direct investment, as countries that previously depended on trade with the USSR had little choice but to surrender to the demands of investment cabals.
According to World Bank data, between 1990 and 2008, outflows of Foreign Direct Investment (FDI) from the U.S. alone jumped from $50 billion to a staggering $532 billion before falling to $313 billion just after the 2008 downturn. Taking advantage of hungry markets, investors and financial institutions exploited the development needs of failing economies to assert the neoliberal doctrine, a policy of privatization and financialization that weakens protections on labor, the environment and procurement. Countries that did not conform to neoliberalism were often shut out from participating in global supply chains.
After the Soviet collapse, trade and investment rules promoted by multilateral institutions like the World Bank, International Monetary Fund (IMF), World Trade Organization (WTO) and Organisation for Economic Co-operation and Development (OECD) ensured that every sector in trade and development that could benefit from Wall Street’s new financialization program would be absorbed. And, for nearly 20 years, this hunger for acquisition consumed not just commodities, goods and services, but debt as well.
The problem, however, is that the neoliberal doctrine predicated on this growth paradigm could only be sustained with debt and control over the market. Since America’s public debt has grown from $10 trillion (60 percent of GDP) in 2007 to $20 trillion today (106 percent of GDP), we are less able to leverage credit as the global equities market is no longer singularly dominated by Wall Street.
By 2008, these liberalized investment rules had sent our economy careening off a cliff. The IMF and other global financial bodies understood that it was more than simply a speculative housing bubble that crashed the system. The debt-investment paradigm suggested that financial instruments promoting the excesses of neoliberalism were indeed unsustainable, particularly when the value of these assets could no longer be leveraged for more credit.
Then-President Barack Obama’s economic advisory team, Timothy Geitner and Larry Summers, pushed forward an economic policy hinging on the expectation that by simply adopting some of the new Dodd-Frank regulatory rules, neoliberal free-market financialization would correct itself. The president provided as good a sales pitch as he could to promote investor confidence in this system, but the world was not idly waiting for neoliberalism to revive itself.
President Obama adopted the wish list of corporations and industries and promoted controversial trade agreements like the Trans-Pacific Partnership (TPP), the Transatlantic Trade and Investment Partnership (TTIP), and the Trade in Services Agreement (TISA), while military doctrines like the Pacific Pivot sought to assuage confidence in investors by shifting military resources into the Asia-Pacific to defend the neoliberal order. The problem is that the system could not rise up from the ashes like the phoenix as promised but, rather, had to be put on life support through trillions of dollars of debt, like the Frankenstein’s monster it was.
Actuating Alternatives
A bulwark to economic recovery was that the world’s emerging economies had not suffered the same setbacks as the advanced economies. While Wall Street and regulators were stumbling trying to figure out how to adjust the system, the emerging markets and developing countries built up their regional trade and investment partnerships by promoting a framework opposing the neoliberal system. This included strengthening environmental and financial regulatory policies, building new multilateral partners, and encouraging State-Owned and State-Invested Enterprises.
At the time of the financial collapse, the BRICS countries (Brazil, Russia, India, China, South Africa), although suffering some financial setbacks, were better capitalized to weather the economic downturn. Since, generally speaking, these were equity markets whose value was more tangible than debt markets, global investors continued to benefit from emerging markets and developing countries. Whereas the United States relied upon international economic and security agreements to strengthen the unipolarity of the neoliberal system, BRICS announced an alternate, multipolar system: one in which global governance would be decentralized and more equitable to the participating countries and regions.
In 2014, BRICS signed the Fortaleza Declaration launching the New Development Bank and Contingency Reserve Arrangement—alternatives to the World Bank and IMF, respectively. The following year, the AIIB (Asia Infrastructure Investment Bank) was ratified by 57 countries that included some of Washington’s closest allies such as Australia, France, Germany and the United Kingdom, despite objections from the U.S. and Japan.
As soon as it was launched, the AIIB was quickly capitalized with an injection of $100 billion from founding members. Some of the rules for AIIB funding are that 70 percent of the funds must come from within Asia, and the bank limits large private shareholders so that voting rights can be allocated equally to the 57 founding members, regardless of equity stakes. These are far more democratic rules than the World Bank or the Asian Development Bank, which has a weighted voting system where votes are distributed in proportion to member’s capital subscriptions.
The president of the World Bank, Jim Yong Kim, said at the time: “The developing world’s infrastructure investment needs are too huge for any single institution. We view the AIIB as an important new partner.” From its launch, the AIIB was established to be the funding mechanism for the Belt and Road Initiative and, although the rules ensure that Beijing has veto power, the bank provides fail-safes like a supermajority to safeguard balance in the decision-making process.
Washington was quickly losing its unipolar influence and President Obama asserted a more hawkish position by adopting an agenda that would obstruct and potentially contain the physical transport of goods and services between the competing BRICS countries. While China was investing in developing regions like Africa and Latin America, Washington was trying to foment regime change in Brazil and South Africa. India became a less reliable BRICS partner with the election of Narendra Modi as Prime Minister of India. Tensions with Russia escalated overnight as a result of the U.S.-backed Ukraine coup that initiated the annexation of Crimea, and was further strained by Russia’s presence in Syria. And in China, the U.S. fueled tensions between the Philippines and China over its territorial status in the South China Sea by undermining the dispute process held between China and the Association of Southeast Asian Nations (ASEAN).
Under a Trump administration, whatever salient points the U.S. had for perpetuating opposition against BRICS has dwindled. The Philippines have developed closer relations with China; ASEAN and China are pushing for a new plurilateral trade agreement under the Regional Comprehensive Economic Partnership (RCEP); some of the European North-Atlantic Treaty Organization (NATO) partners are quietly retreating from their anti-Russia position; India and its rival Pakistan have joined the Shanghai Cooperation Organization, (an eight-member security alignment for the Belt and Road Initiative, the largest in both land and population); and in Brazil, many in President Temer’s U.S.- backed, right-wing government are facing corruption charges.
It is within the context of global leadership that the Belt and Road Initiative moves China in front of the US in influence over global trade and development, altering the geopolitical map. To be clear, however, it is not as if China cut in front of the U.S. Rather, it appears as if President Trump has dragged the U.S. out of line altogether. Since his tenure began in 2017, President Trump has alienated alliances, fractured agreements and generally undermined the United State’s credibility for stabilizing the geopolitical order. And, while there are other alliances altering this map, it is likely that the Belt and Road Initiative will be the catalyst for China to fill the void left over.
A Shifting Paradigm
Globalization is not new, and when we consider that, for millennia, the exchange of goods, services and ideas were essentially supply chains that motivated the history of civilization, it should come to no surprise that hegemony over global markets have grown alongside the speed with which communication has accelerated. For the advanced economies, access to this technology has prolonged unfair advantages for influencing markets. By promoting communication infrastructure to developing markets, the BRI will level the playing field with new access and opportunity.
We got a glimpse of how historical supply chains inform our geopolitical narrative with the emergence of the Silk Road which began during the Han dynasty (207 BCE–220 CE) Caravans trading across the vast landscape provided a network of exchange in markets that grew into cosmopolitan centers where culture, language and belief systems mixed and thrived. The emergence of the European-dominated maritime trade of the 16th century, however, would soon replace much of the land-based transport of goods along the Silk Road, and many of the old centers of trade were sidelined when populations moved to centers with maritime access.
As colonial powers competed for domination over commodity resources, islands became strategic locales for controlling maritime trade and transit points, as they were easy to defend and administer. This shift from land to sea advanced the social and economic growth of maritime regions while stagnating innovation and commerce along the land- based routes, making them more insular and less cosmopolitan. In what President Xi calls a “win-win” approach to trade and development, the BRI provides new infrastructure and security to the historic inland routes, creating opportunities for insulated regions to have greater participation in international commerce and trade.
Currently, there are six Belt and Road corridors being funded. Each promotes the development needs of various sectors like transportation, tourism, energy, environmental protection, information and communication technologies. Although some of these industries are depleting and degrading to the environment, the projects seek to be compliant with transboundary environmental impact regulations, accounting for environmental risk and damage. With President Trump’s withdrawal of the U.S. from the Paris Climate Agreement, China and its partner economies are moving forward with the Agreement to develop new technologies for offsetting environmental damage while adopting new regulatory environmental guidelines.
These Belt and Road corridors are like arteries branching out from China in every direction, linking regions that, in some cases, have had notorious, long-standing disputes. The most notable, the China-Pakistan Corridor, will now include India and pass through the politically unstable Kashmir province. Although it is too soon to predict whether this route will indeed succeed, its planning speaks not only to economic development, but also to a vision where the will for cooperation could very well establish a whole new paradigm for peace.
To get a sense of how China is honoring its international agreements, the communist country has just rerouted its plans for the Nicaragua Canal, the single largest infrastructure project being built today. It is an alternative to the Panama Canal which is a vital maritime thruway dominated by a security and trade partnership with the U.S. In 2012, the United States and Panama signed a Free Trade Agreement that includes a provision for the monitoring of goods through a tracking technology system that would give partner countries privileged access through the canal, while slowing and potentially detaining ships that will have more limited access to that technology. Because supply chains rely upon speed of delivery to remain competitive, plurilateral agreements like the TPP create unfair barriers to countries unwilling to adopt, for example, Washington’s privatization and investment agenda.
Despite the environmental degradation resulting from dredging, the Nicaragua Canal was promoted as creating a new opportunity for many of the Caribbean and Latin American countries that have had poor access to global markets. When Nicaragua won its maritime boundary case against Colombia last year, it provided Nicaragua with broader access to trade partners across the Caribbean Sea by reasserting territory that had been truncated and given to Colombia when Nicaragua was occupied by the United States.
When protests erupted from indigenous communities and environmentalists who did not want the canal to go through their traditional territory, China rerouted the proposed path by several miles. In contrast, the Lakota Sioux, who spent months protesting the Dakota Access Pipeline with very visible global support from civil society, saw their demands to reroute the pipeline ignored by the U.S. federal government.
The Belt and Road will also benefit Pacific island countries. The Pacific is a vast region that is still dominated by old colonial administrations. Fourteen of the 22 Pacific island nations are independent states, while the others remain territories or are under occupation. Australia, Chile, France, New Zealand and the U.S. reap tremendous benefit from Pacific fisheries, resource minerals and strategic location, and have done little to provide any real opportunities for development.
China has also recently announced a vision for maritime cooperation under the Belt and Road Initiative bringing new challenges and opportunities to the Pacific by investing in regional infrastructure and access that could inspire new markets of trade between Asia, the Pacific and Latin America. The Melanesian governments of Fiji, Papua-New Guinea, and Vanuatu have recently opted out of the Pacific Agreement on Closer Economic Relations (PACER)-Plus, a free-trade agreement negotiated for the benefit of Australia and New Zealand corporate interests, giving them greater access, for example, to privatize water or derivatives of plant or animals.
The BRI alternative promotes development of a “21st-Century Maritime Silk Road Blue Carbon Program.” In contrast with the recently announced “Blue Carbon Initiative” launched by western conservation groups like Conservation International and The Nature Conservancy, where the protection over marine and shoreline ecosystems will be accounted for by private interests through public-private partnerships, the BRI program will offset carbon expenditures for states. This is a fundamental shift for the Pacific in that, under the Blue Carbon Initiative, private industry and investors will benefit from the value of the region’s ecosystem while, under the BRI, developing countries and member governments will benefit.
So, while it may be correct to say that U.S. free-marketeering did win over the communist system, the story is far from over. History could very well prove that malfeasance, greed and mismanagement of the neoliberal order may soon place the U.S. at the back of the line and behind China when it comes to influence over development and trade rules that will shape global markets in years to come.
Globalization will not collapse with the end of neoliberalism. Rather, it will move forward with new rules for development and trade—rules that will be shaped not by one unipolar economic policy, but by the various markets, countries and regions who have been waiting for an opportunity to move out from under the shadow of free market privatization and into the light of more equitable economic opportunities.