Introduction
The idea of the Silk Road to China has been intriguing humanity for more than 2000 years. The routes and roots of silk, one of China’s most important exports historically, has not only connected China to Central Asia and the Arab world but has defined China’s destiny. Today, the Belt and Road Initiative (BRI), announced in 2013, represents a way to create a “community of shared destiny” by (re)connecting trade and infrastructure of various regions of the world, as trade and infrastructure are considered to be the key components of development and prosperity.
Development is one of the key objectives in China’s Foreign Policy today. The Vision for Cooperation under the Belt and Road Initiative, White Paper on Foreign Aid and their linkage to the United Nation’s Sustainable Development Goals demonstrate the importance of the development agenda in China’s foreign policy. Referring to the United Nations 2030 Agenda for Sustainable Development, China’s Vision for Cooperation promotes the “Silk Road Spirit”, which entails “openness, cooperation and inclusive development” and aspires to “help developing countries eradicate poverty and foster a community of shared interests” and “shared destiny”, by engaging in a constructive and pragmatic partnership for sustainable development. The Memorandum of Understanding signed in 2016 by the United Nations Development Programme (UNDP) and China has contributed to creating a development framework along the Belt and Road. According to the data provided by the IHS Global Insight, Global Water Intelligence, International Energy Agency, International Transport Forum, the OECD and McKinsey Global Institute Analysis, China has overtaken the United States and the European Union to become the world’s largest investor in infrastructure, in sectors such as roads, power, rails, water, dams, telecommunications, ports and airports. Specifically, the BRI envisioned spending around $8 trillion for building a vast network of transportation, energy, and telecommunications infrastructure linking Europe, Africa, and Asia. Recipient countries along the BRI are open to these initiatives, as infrastructure and trade have been always considered conducive to economic growth and eradication of poverty. Furthermore, the Chinese development model has been considered to be an alternative to the so-called Western modernisation model, grounded in the Washington Consensus.
In view of all of this, how does the development model embedded in the BRI differ from the other models and what are the risks for aid recipient countries? Would trade and infrastructure along the BRI indeed reduce poverty in the recipient societies and under what conditions? And finally, is the development agenda conducive to human security and peace?
In a nutshell, the BRI’s approach to development includes three main elements: developing infrastructure and trade, foreign direct investment, and redistributing the comparative advantage of participating countries. These three elements are meant to help countries better integrate into world trade infrastructure. The difficulty here is that this approach increases the infamous debt trap and therefore can negatively influence people’s perceptions of China on the ground. This trend can undermine the common belief in the development-security nexus, that is, where there is development – there is security and vice a versa. Quite to the contrary, development agenda, which comes with the debt trap may infringe peace and security by changing security perceptions in the recipient countries and therefore fuel the potential of social resistance.
Let us address some of the implementation challenges of these three elements on the ground by evaluating foreign aid using Debt Sustainability Framework (DSF) provided by the International Monetary Fund in 2005 and by tracing how the “debt trap” influences security perceptions on the ground.
China’s development model
As coined in 2016 by Joshua Cooper Ramo, the term “Beijing Consensus” describes China’s economic development model and is often interpreted as an alternative to the Washington Consensus or the so-called western development model. The Chinese development strategy, which evolved in the context of the global financial and economic crisis, was conceived of as undermining the credibility of the neoliberal program for economic development and growth. In practice, it has been seen as an alternative to the market-friendly policies promoted by the International Monetary Fund and the World Bank.
China’s development model was largely welcomed initially by the developing countries due to its principle of non-intervention into domestic political affairs and lack of political conditionality. However, given that infrastructure projects across these regions are a part of China’s geo-economic and geopolitical strategy, the power game still plays out as usual, albeit in a more opaque way.
The BRI Vision and the official narrative contain the following notions which allow us to assess its development model. According to the BRI’s Vision, “promoting development and eradicating poverty are the common aspirations of the people along the Road”. Development, as described in the Vision, can be seen as both the legitimization of and purpose for increasing connectivity. The development would be achieved by constructing new infrastructure, industrialisation, innovation and playing to countries’ comparative advantages. “Good governance” has been replaced by “collaborative governance”, which implies cooperation among various institutions, but not necessarily creating discrete ones. In other words, one can extract from the BRI model that its model of development is similar to the classical modernisation model, which includes an emphasis on the comparative advantage of countries and a shift from agricultural to industrial economies. Some scholars would also point to “the neglect of historical factors [and] underestimation of the role former colonial powers and other countries within the same ‘social psychological’ space continue to play both in determining elites’ choices of exemplary and in providing legal-institutional constraints to development.” A review of statistics of BRI success shows that GDP is taken as the main measurement of economic growth, which means that arguments along the lines of dependency theories, which would not see the growth of GDP as an indicator of poverty eradication, becomes relevant again. While GDP measures the growth of welfare, it gives no indication of whether economic inequality is being addressed. Hence, economic growth along the BRI does not signify eradication of poverty.
Debt Sustainability and the Fiscal Space
According to the White Paper on “Foreign Aid” issued by the Chinese government in 2014, from 2010 to 2012, China provided assistance to 121 countries, including 30 in Asia, 51 in Africa, nine in Oceania, 19 in Latin America and the Caribbean and 12 in Europe. Additionally, China also provided assistance to regional organizations such as the African Union (AU). Non-intervention and non-conditionality principles are clearly spelt out in official Chinese documents; in their 2014 White Paper on Foreign Aid, the Chinese government specifies that “When providing foreign assistance, China adheres to the principles of not imposing any political conditions, not interfering in the internal affairs of the recipient countries and fully respecting their right to independently choosing their own paths and models of development.” An investigation by AidData into sub-national variation in Chinese aid allocation found that Chinese aid, unlike World Bank aid, is disproportionately allocated and can be exploitable.
Infrastructure and foreign aid are part and parcel of the BRI development model. Hence, debt financing is also a part of the equation. AidData reports that about three-quarters of loans have been at commercial interest rates. According to a debt forecast of the Economist, levels of debt for countries increased significantly after they became involved in the BRI:
Source: The Economist, 2018
One can see that countries across different regions have been affected. However, in order to understand whether this foreign aid can contribute to the eradication of poverty depends on the sustainability of the debt. Reportedly, there is no established debt sustainability along the BRI. Debt sustainability depends not only on macroeconomic variables, but also the structure of the debt portfolio.
Research conducted in 68 BRI countries, including 14 countries of East and Southeast Asia, 13 countries in Central and South Asia, 17 countries in the Middle East and Africa, and 24 countries in Europe and Eurasia, has shown that today 23 BRI countries (out of the 68) are at risk of debt distress and 8 countries have potential debt sustainability problems.
While the Debt Sustainability Framework provides some tools to calculate debt sustainability, data on China’s Foreign Direct Investment and Foreign Aid remains opaque. As reported by the UN Department of Economic and Social Affairs, there is a clear shortage of official statistics, making the analysis of the global fiscal landscape imprecise, which can lead to “an incomplete and potentially biased assessment of fiscal resources available to governments.” Hence, the lack of data creates uncertainty in terms of how far can a country go into debt and whether BRI foreign aid is conducive to development in practice.
Addressing the third element of the BRI development model, the opportunity to strengthen or change small countries’ comparative advantage, one needs to put BRI trade diplomacy into the global trade structure. Problems with poor countries’ comparative advantage will be difficult to solve through bilateral agreements only. One would need to harmonize the network of semi-transparent bilateral agreements, undertaken within the BRI, with the WTO framework. Today, this task is almost unfeasible at the structural level.
Making debt sustainable is crucial for the BRI development agenda also for reasons of security perceptions. Today, China’s acceptance around the world is grounded in its previously peaceful and relatively neutral role in the international political arena. In other words, popular perceptions of China have been relatively neutral or positive. Reportedly, with increases in indebtedness, security perceptions have also been changing. Research on security perceptions has shown correlation between the debt trap and increase of conflict potential at the grassroots. Some examples of changing security perceptions in correlation with the debt trap can be seen in Central Asian countries, specifically in Kazakhstan, Tajikistan, and Kyrgyzstan. Although the facts of cooperation in various fields provide a positive outlook to these states’ relations with China, parts of the population remain sensitive to Chinese purchase of land, which resulted in a few protests across Kazakhstan (towns, such as Atyrau, Aktobe, Semey) in 2016.[i] In Tajikistan, the protests emerged when 1,000 square kilometres (3% of Tajikistan’s territory) was granted to China for a partial debt write-off. It is important to note that this swap cannot necessarily be considered to be a part of China’s strategy, as the disputes over borderlands have deep roots in the relations between China and the Central Asian states. However, in the light of the BRI developments, these social memories may play out negatively, while (re)shaping people’s security perceptions of China.
Concluding remarks and policy recommendations:
As BRI vision of development focuses on the lack of political conditionality in return for aid, it has been perceived as an alternative to previously known modernisation models. However, the lack of political conditionality does not prevent the socio-economic consequences which flow from the ‘debt trap’ affecting small economies.
In order to achieve its goals, this development model needs to take into consideration the following concerns:
- Shift from the debt trap to debt sustainability: estimate the debt sustainability and the countries’ own fiscal space in aid recipient countries and have a sustainable aid limit.
- Pursue data transparency policy: the financing terms for loans to sovereign governments need to be publicly available, especially when it comes to CDB and China Exim Bank, in order to make an assessment of country’s debt to China and debt sustainability possible.
- Be aware of the correlation between the debt trap and security perceptions: as the debt trap has been identified as one of the key components in shaping security perceptions of China along the BRI, it is important to avoid land-for-debt swaps as populations remain sensitive to losing land, not only because it is a tangible asset, but also due to its linkage to community survival practices, memories and power structures on the ground. Otherwise, development risks undermining human security, rather than maintaining it.
- Ensure that the redistribution of comparative advantage complies with the free- and fair-trade principles. As the research has shown, the redistribution of comparative advantage of participating states would be difficult to achieve without an increase in subsidies and state control, which does not necessarily guarantee the principles of free trade. Furthermore, the attempt to combine the system of global trade created by the WTO (and all its pitfalls) with the network of bilateral and regional agreements provided by the BRI may face not only issues of transparency, predictability and stability, but those of legitimacy.
In sum, the new development agenda emerging through the BRI pragmatism poses both risks and opportunities to qualitatively improve wellbeing, peace and prosperity along the BRI societies. However, the dilemmas outlined should be addressed in order to prevent falling into the new old traps of development infrastructure previously known to world history.
Endnotes
[i] Vakulchuk, Roman and Indra Overland (2019). “China’s Belt and Road Initiative Through the Lens of Central Asia”, in Fanny M. Cheung and Ying-Yi Hong (eds). Regional Connections Under the Belt and Road Initiative. The Prospects for Economic and Financial Cooperation. London: Routledge, pp. 115 – 133.
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