China: An International Journal

INTRODUCTION

In the wake of the 18th Party Congress in 2012, there was a growing call in Chinese policymaking circles for the adoption of a "grand strategy" by the incoming leadership of Xi Jinping. While China at the time had no lack of five- and 10-year plans, many international analysts believed that the country was deficient in an overall plan which would reflect its rising international standing and expanding global interests. It is generally believed that the Chinese leadership's adoption of a grand strategy would be highly beneficial: On the domestic level, such a strategy would have a unifying effect, which is needed in an era when rapid growth has created considerable national stress. On the international level, a grand strategy could craft a more appealing image for China and alleviate the increasingly widespread notion of a "China threat".

First unveiled in 2013 by Chinese President Xi Jinping at the Nazarbayev University in Kazakhstan and then subsequently proposed by Xi during his state visit to Indonesia, China's "Belt and Road Initiative" (BRI), originally known as the "One Belt One Road" (OBOR) initiative, has become a crucial pillar of Xi's grand strategy conceptualised during his first term from 2012 to 2017.¹ The BRI is China's ambitious economic diplomacy initiative that comprises two components, one via the maritime route between Asia and Europe, and the other through the overland route from Asia to Europe. As of now, 129 countries and 29 organisations have signed to participate in the BRI.

Through the implementation of the BRI, China has gradually departed from Deng Xiaoping's low-profile diplomacy (taoguang yanghui) that cautions China against [End Page 3] being a world leader (juebu dangtou), and moved to recalibrate itself towards the new vision of increasing China's engagement with other regions. Xi's overture has greatly reduced the lingering political influence of retired Party elders in key policy and personnel decisions. Xi has also attempted to export China's excessive capital, technology and industrial capacity to other countries that need them in order to elevate China's domestic economic activities and to align them with its emerging global strategy. It is evident that Xi has fundamentally shifted China's strategic gravity from domestic economic development, which was the country's focus for three decades, to an outward expansion of its influences.

The launch of the BRI, which is the Xi administration's one and only major foreign policy initiative, can be attributed to three factors. First, China's economy has shown signs of a slowdown, and the BRI is therefore deemed effective in consuming the overproduction, overcapacity, and excess products and commodities.² Second, the BRI dovetails with China's foreign policy which seeks to extend China's influence into other regions.³ For example, countries in Africa, Eastern Europe and even Central Asia, which are not on the receiving end of Western monetary aid, have been more receptive to the BRI. With the entry of Chinese investment into these regions, Chinese influence in those regions has also inevitably increased. Third, China has also recognised that the BRI presents an opportunity to create alternative funding agencies that reflect China's growing strengths.⁴ Financial institutions, such as the Asian Infrastructure Investment Bank (AIIB), Silk Road Fund and the BRICS Bank (set up by Brazil, Russia, India, China and South Africa), fund BRI projects and have enabled China to address the voting rights allocation inequality issue in the World Bank, International Monetary Fund and Asian Development Bank.

The BRI consists of two components, i.e. the overland Silk Road and the maritime Silk Road. The conceptual idea of the overland Silk Road is based on a historical narrative from the 1800s when a German traveller coined the word "Silk Road" to describe the overland route which camels plied across to bring goods from China to Europe through a series of intermediaries (Persians, Arabs, Central Asians).⁵ Today, this route is powered by high-speed railways transporting goods from Chinese cities to Western Europe, and vice versa. The maritime Silk Road also has a historical narrative—the Ming dynasty Admiral Zheng He's ships in the 14th century and Portuguese explorer Vasco Da Gama's fleet in the 15th century had travelled along the same route.⁶ The present-day maritime shipping route that Chinese and foreign cargo vessels traverse is almost identical to Zheng He's maritime voyages, which stretched from the Chinese to the East African coast. [End Page 4]

Since the launch of the BRI in 2013, China has faced multiple challenges with countries located along both the maritime and overland routes. The first challenge to the BRI is debt sustainability, which has both domestic and international dimensions.⁷ Despite China's recent push to invest overseas and its larger risk appetite, it is still considered a latecomer in lending and development finance—an area in which advanced economies in the West are dominant players. The extension of credit to underdeveloped host countries in need of infrastructural development could be a double-edged sword for both China and the host states. For instance, China faces difficulty in keeping a balance between its mounting public debt and its practice of making investments in risky and volatile places. However, if China's investments in the host states' infrastructural development yield benefits, then its intervention would be considered a game changer.

The second challenge pertains to the search for creative and pragmatic risk mitigation measures.⁸ Using natural resources as an alternative loan repayment method and the equity-for-debt swap scheme have raised international concerns. BRI sceptics have alerted the international community about Beijing's "debt trap diplomacy", i.e. using loans to extract resources and strategic assets of debtor countries. However, the BRI is not a charity and Chinese enterprises involved in the BRI rightfully expect returns on their investments. To protect the BRI's public image, it is necessary to formulate terms and conditions for heavily indebted countries to follow and by which they should abide. That China is capable of building and managing world-class infrastructure domestically is beyond doubt. However, developing a framework for infrastructure construction and management in overseas projects may take time, particularly for countries whose state does not play a dominant role in the economy like it does in China. Hence, it is imperative that China seeks avenues to lower financial risks in its BRI projects to generate positive impacts for host states, and also to alleviate fears of "debt trap diplomacy".

The third challenge for China is taking into account the potential leadership changes in these beneficiary states that have signed up for BRI projects.⁹ Recent elections in Sri Lanka, Malaysia and Pakistan have added uncertainties to China-backed projects in these countries. With new leadership claiming power in these countries, threats to review, postpone, renegotiate or cancel BRI projects have hurt Chinese investments considerably, caused Chinese relations with the host countries to turn sour and cast uncertainty over long-term projects, e.g. the high-speed railway project in Malaysia. These are realities that China must factor into the calculations for BRI projects. For instance, newly elected governments had to act upon the citizens' mandate to put allegations of corruption and irregularities in BRI projects under scrutiny, and thus these governments were under pressure to scrap or renegotiate BRI-funded projects. [End Page 5] Implementing fair and sound procedures from the initial bidding stage to construction stage would therefore provide a form of insurance against such political headwinds.

The fourth and major challenge for China is geopolitics, given that Chinese investment and influence have expanded along the BRI routes.¹⁰ Central Asia—an important part of the BRI—is the traditional backyard of Russian geopolitical influence. China must therefore walk a tightrope balancing between engaging Central Asia's involvement in BRI projects and preventing antagonism with Russia, which still retains a significant interest in the region. Besides, China has been entangled in long-drawn maritime/territorial disputes with Southeast Asian claimant states and Japan over the South China Sea and East China Sea (specifically the Senkaku/Diaoyu Islands), respectively, both of which are situated along the maritime Silk Road. Another noteworthy point is China's expanding economic and military presence in Africa and Europe as a result of its BRI projects that have aroused the suspicions of Western countries over its intentions. Italy's recent decision to join the BRI, together with Greece which is the first European Union (EU) country to join, had provoked intense reactions from Western European countries as they regard the BRI as China's strategy to divide and subvert Europe by means of the "salami tactics". China therefore has to deal with complex geopolitical challenges in managing BRI projects overseas.

This special issue is the result of a workshop titled "China's 'One Belt One Road' Initiative: Five Years On" organised by the East Asian Institute, National University of Singapore on 2 November 2018. The workshop convened international scholars from relevant regions to assess the implementation and impact of the BRI. The collection of seven articles in this special issue provides an insight of the geopolitical, financial and economic challenges facing China's BRI, as well as its ripple effect in the region and the world at large.

Yu Hong's article anchors the special issue with an updated understanding and assessment of the BRI, specifically, the progress and challenges after five years of implementation. In Kong Tuan Yuen's overview of the BRI in Southeast Asia, he argues that the launch in Southeast Asia was not only out of geo-economic and geopolitical consideration, but also due to overcapacity in China's internal industrial and economic development. Kong also highlights that debt trap and sovereignty issues are the main challenges that BRI projects face in Southeast Asia. The onus is on China to review its BRI projects in Southeast Asia and the format of cooperation, and give due consideration to the domestic political development of the countries it cooperates with. Sarah Chan's article offers a microscopic view of Singapore's role in the BRI. She argues that although Singapore does not have any major BRI-related infrastructure projects on its shores, it is an important regional financing hub and plays a pivotal role as a gateway to the Southeast Asia region, which is part of the maritime "road". Singapore's business-friendly environment is conducive to the facilitation of investments into Southeast Asia, into which the majority of BRI-related investments have flowed. [End Page 6] Sarah Y. Tong's article provides a preliminary assessment of the BRI and China's trade development. She outlines four observations in her analysis. First, China's BRI is premised on developing and diversifying trade and investment relations. Second, evaluating the impact of the BRI is difficult due to the broad coverage of projects. Third, five years on since the BRI implementation, only limited changes in China's trade relations with BRI countries are discerned relative to those with non-BRI countries. On the other hand, huge regional variations exist within BRI countries in their trade relations with China.

The remaining three articles by Serik Orazgaliyev, Erik Baark and Giuseppe Gabusi provide perspectives of the BRI from other regions. Orazgaliyev analyses China's energy cooperation with Central Asia in the context of competition among various geopolitical actors. He uses Kazakhstan as a case study as the country which has attracted the lion's share of foreign direct investment in Central Asia, including investment from China within the BRI. Orazgaliyev rationalises that Central Asian states benefited from the BRI as the competition among global actors created opportunities for Central Asian states to diversify their export routes, thereby strengthening their political and economic independence. The BRI, in extending its reach to Europe, has provoked wide-ranging debates there about the newfound Chinese presence. Erik Baark, basing his work on his survey and analysis of the debates, highlights the existence of a serious knowledge gap in Europe about China and its role in the World. Giuseppe Gabusi studies the BRI's impacts on the China–EU relationship from a Western European perspective. He argues that the BRI, in projecting China's economic might and political influence in Europe's neighbourhood, has possibly harmed the interest of some countries in some cases.

As guest editors of this special issue on "China's 'Belt and Road' Initiative: Challenges and Global Effects", we hope that the articles in this issue will catalyse further discussions about the geopolitical, economic and financial challenges that China's BRI has faced in different parts of the world. As the BRI seeks to impact trade and economics on a global scale, it is unsurprising that various types of challenges it faces hail from all directions. By presenting multifaceted perspectives of the BRI from other faraway regions like Central Asia, Europe and the Middle East, this special issue enhances readers' understanding of the BRI's global effects and the extant complexities that the Chinese government encounters when promoting the initiative overseas. Conducting a coherent research on the BRI and its successes and failures abroad in the context of underlying changing international dynamics may be challenging. Nevertheless, this is one of the few topics of tremendous significance concerning China. [End Page 7]