Overview of the main goals of China’s Belt and Road Initiative

1. Executive Summary

  • The Belt and Road Initiative is a large-scale projects which involves a wide variety of state and non-state actors around the globe, introduced, monitored and promoted by the Chinese government. Through a series of agreements the initiative is quickly gathering support from international organizations and countries across the historic Silk Route and beyond.
  • There are five officially stated goals of the BRI including political coordination, facility connectivity, trade liberalization, financial integration and people-to-people bonds. Other goals include attempts to deal with China’s excess capacity, internationalization of RMB, the creation of a multipolar world with a stronger voice of China as a regional leader and a global power, and the overall growth of China’s “strategic resilience” to overcome its dependence on easily blocked maritime routes for energy and food imports.
  • The strategies to achieve those goals vary according to sector and region, however the common pattern is to use state owned entities for heavy investment in infrastructure projects in different countries across the six economic corridors and beyond, while obtaining political backing in a form of political agreements with organizations and Memoranda of understanding on BRI with other governments.
  • International companies may gain advantages not only through decreased trade barriers and lower transportation costs, but also using its expertise in advanced management, integrated solutions, hi-tech application and in the financial sector, where the share of Chinese funding is forecasted to decrease. However certain risks for businesses and for states are present as well, such as lack of transparency and due diligence, debt traps, few economic benefits for locals, and strategy divide.
  • The main beneficiaries of BRI will most likely remain the countries in Central and South East Asia. However, since the scale of BRI is widening and due to the transition from the first stage of BRI mostly equating to infrastructure construction, more actors in trade, manufacturing, IT, tourism and other sectors will get involved. In Europe the focus of BRI will be the Southern ports and the Mediterranean sea, as well as Eastern and Northern Europe.
  • The main strategy recommendation is the creation of a comprehensive BRI policy to prevent political divide within Europe and assure its stance in other regions it deems important.

2. Who are the main actors influencing strategy decisions in respect to the topic?

The Belt and Road Initiative (BRI) was proposed by the current Chinese leader Xi Jinping during his speech in Astana, Kazakhstan in 2013 and Jakarta, Indonesia in a form of a Silk Road Economic Belt and a 21st Century Maritime Silk Road respectively, connecting China to Europe through land and sea in order to “forge closer ties, deepen cooperation and expand the development space in the Eurasian region.”[1] Since then, continuous conceptualization of BRI has widened its scope to include countries from all over the world, reaching far beyond the historic Silk Road. BRI has turned into China’s flagship foreign policy initiative with large investment capital, numerous actors and ambitious goals.

In China the key actors behind the initiative are: 

  • The Leading Small Group on Advancing the Construction of the Belt and Road and its subsidiary, the Office of the Leading Small Group on Advancing the Construction of the Belt and Road, located within the National Development and Reform Commission (NDRC);
  • The Chinese Ministry of Foreign Affairs (MOFA), Ministry of Commerce (MOFCOM), Ministry of Culture (MoC) with the authorization of the State Council;
  • State International Development Cooperation Agency (SIDCA) for policy guidelines and provincial implementation plans as well as for oversight and coordination of work with relevant ministries and entities. 
  • The financing of projects mainly comes through:
  • The Export-Import Bank of China, a state-funded and state-owned policy bank aimed at supporting China’s foreign trade, investment and international economic cooperation, the China Development Bank (CDB), which it is responsible for raising funds for large-scale infrastructure projects, and a number of other banks, such asAgricultural Bank of China (ABC), and China Construction Bank (CCB) to name a couple, international financial institutions, includingAsian Development Bank (ADB), and the Asian Infrastructure Investment Bank (AIIB) , and funds affiliated with state-owned entities such as the Silk Road Fund financed by the EIBC. 

The initiative also involves a large number of Chinese and international companies, as well as 105 countries in Asia, Africa, Europe, Latin America, and the South Pacific region, and 29 international organizations.[2]

3. What are the goals and sub-goals of the main actors in respect to the topic?

The BRI is set to accomplish a large set of goals including stimulus to China’s development with new external and internal sources of economic growth amid ongoing China’s economic transformation, deal with structural problems, foster high-quality production and transition to innovative development model while upgrading its involvement into regional and global value chains. 

The official goals of BRI are listed in the statement calledVision and Actions on Jointly Building Silk Road Economic Belt and 21st-Century Maritime Silk Road 2015/03/28and comprises five sets of goals:

Policy coordination. This includes the establishment and strengthening of political partnerships, development strategies and joint support for large-scale economic projects with countries along the Belt and Road “embracing the trend towards a multipolar world..”[3] 

Facility connectivity. Joined infrastructure development to promote global free trade regime and the open world economy through the improvement of physical connectivity of Asian, European and African continents and their seas. Regional transport connectivity in Asia is expected to address the infrastructure funding gap identified by the Asian Development Bank (ADB).[4] 

Trade deepening. The initiative is aimed at unleashing market potential in this region through lowered trade barriers, promote investment and consumption, as well as creating numerous job opportunities and other benefits of open market economy.

Financial integration. The goal is to set up all-dimensional, multi-tiered and composite financial connectivity networks.

Cultural integration. Enhanced people-to-people bonds through cultural and academic exchanges, tourism, cooperation in the field of medicine, science and technology and mutual learning will enable cross-cultural understanding and promote peace.

There are other potential goals of the BRI.

  • It is widely believed that the initiative is a key part of China’s grand foreign policy design, to increase China’s political influence in its regional neighbourhood and beyond through heavy investment, assert its place as a global decision-maker with regional priorities and friendly neighbour relations. [5] China also shares its technological, law enforcement and military capabilities to BRI countries and influence security-related issues like satellite navigation, disaster management and combating crime.[6]
  • Others argue that BRI is purely an economic and commercial project aimed at dealing with China’s overcapacity in certain industrial sectors, provide jobs for Chinese workers, increase international use of its currency, increase its exports and boost the development of it’s poor western provinces as well as their neighbouring areas, such as Central Asia.[7] China’s loan practices in 2013–15 show that 70 percent of overseas credit was given on the condition that at least part of the funds be used to purchase Chinese equipment and involve Chinese labour.[8]
  • An alternative explanation of the main underlying BRI goal is that it is a way for China to increase its ‘strategic resilience’. The construction of a wide range of trade routes and energy corridors as well as restructuring the trade structure to make more and more countries dependant on Chinese capital and markets.[9] The alternative transportation routes are able to resolve the “Malacca dilemma”, a potentially dangerous situation where almost 80% of Chinese oil imports (as of 2016) come by sea through the Malaccan Strait, which can be easily blocked by the third parties.[10]

Lastly, there are reasons to believe that BRI does not exist as a concrete defined initiative, but represents a vehicle to frame and market China’s overall foreign policy. The initiative indeed has an all encompassing character and goes far beyond the target regions along historic land to include Latin American countries, the Arctic route, Digital Silk route etc. Hence goals and strategies across regions differ according to what the region has to offer.[11]

4. How do the main actors plan to reach their goals – what are their strategies?

There is a wide variety of strategies used under the framework of such an ambitious initiative to achieve its goals. The Office of the Leading Group for Promoting the Belt and Road Initiative points out that the first step to political connectivity along the BRI is achieved through bilateral agreements as well as incorporation of the BRI into important documents of international organizations (a consensus a resolution of the UN member states of 2016, welcoming the Belt and Road Initiative and other economic cooperation initiatives and urging the international community to ensure a secure environment for these initiatives; a Resolution 2344 by UN Security Council of 2017, G20 Leaders’ Communiqué), APEC and other international and regional organizations (a special Declaration on the Belt and Road Initiative  with CELAC – China and the Community of Latin American and Caribbean States of 2018, Forum on China-Africa Cooperation Beijing Action Plan (2019-2021) etc. 

In terms of facility connectivity, China has invested in projects alongside the identified six major corridors for international economic cooperation (the New Eurasian Land Bridge, and the China-Mongolia-Russia, China-Central Asia-West Asia, China-Indochina Peninsula, China-Pakistan, and Bangladesh-China-India-Myanmar economic corridors) as well as projects and significant trade points in Europe (Budapest-Belgrade trade route, Port of Piraeus etc.). 

Trade liberalization efforts have seen the introduction of the “Initiative on Promoting Unimpeded Trade Cooperation Along the Belt and Road”, to which 83 countries and international organizations have subscribed, the establishment of 12 experimental free trade economic zones, lowered tariffs on imports of certain goods[12] and free trade cooperation agreements with ASEAN and EEU.

The financial integration includes but is not limited to the creation of 76 financial  institutions in 28 B&R countries, with 50 banks from 22 B&R countries opening banks in China; the creation of China-EU Joint Investment Fund largely sponsored by the Silk Road Fund and the European Investment Fund to dovetail with the Investment Plan for Europe; while the efforts to internationalize the Chinese RMB has led to the projects of the China Europe International Exchange, Astana Stock Exchange etc.

Strategies to strengthen people-to-people bonds are diverse and cover spheres like theatre, museums, art festivals and major cultural events, library alliances, the protection of cultural heritage, NGO cooperation, education including joint efforts on international degree recognition, tourism, health and medicine and are planned to be expanded to areas like disaster relief, anti-poverty action, and humanitarian aid.

5. What are the opportunities and threats of the Chinese strategies? What are the implications of these strategies on the other main actors?

Opportunities:

  • If implemented as announced by Chinese officials, the BRI will lower the transportation costs allowing for increased connectivity, growing trade and lessened trade barriers, which would be beneficial for all countries across the BRI corridors.
  • As Chinese companies are expected to gradually become more cautious with funding, international companies may get opportunities in financial sectors from debt or equity financing to public private partnerships, mergers and acquisitions and even engineering, procurement and construction partnerships.[13] 
  • Opportunities will arise for projects in the high-technology sector, especially those that need to be suited for local environments (e.g. “green” projects like energy-saving technology, and health and safety).[14]
  • European international companies’ management experience including cross-cultural management, infrastructure, real estate and joint ventures, as well as long-term planning and risk controlling could be a competitive advantage.[15]
  • Ability to work across sectors, e.g. combine quality production with related technology and effective management will also be a plus.[16]

Risks:

  • Accusations of debt trap diplomacy. The ease with which Chinese banks provide loans to businesses which pledge to implement projects vaguely defined as BRI projects coupled with competitive business environment in China, motivates Chinese companies to invest for the sake of investing. Considering that many of the countries included in BRI are developing countries willing to agree to cheap loans, whereas some of the BRI projects turn out to be infeasible, non-commercially viable, or unsustainable, bad debts occur. There is a widespread concern that countries indebted beyond their ability to repay may fall victim of China’s geopolitical objectives. 
  • Similarly, genuine infrastructure needs and commercial logic of BRI projects may be sacrificed to political ambitions, leaving the future of those projects uncertain, especially that Chinese banks’ track record in relation to infrastructure projects at home is not spotless.[17]
  • Difficulties with the coordination of actors on different levels within China, the debated ability of China to finance so many projects alone, the uncertainty of whether or not China’s long-term investment will pay off and how to secure them in areas with unstable political situation leaves researchers questioning whether BRI is really capable of improving other countries’ role in value chains and speeding up their modernization. Some argue that the growth in trade will not necessarily be followed by qualitative developments and will only lead to modernization of China itself.[18] 
  • Lack of transparency in tenders. Up to 89% of companies participating in BRI projects are Chinese, with only 7.6% local contractors.[19] Similar concerns are raised regarding excessive reliance on Chinese workers over local, hindering job creation large-scale projects could bring.[20]
  • In Europe, there is a risk of an increased divide between the EU member states over BRI. To this day attitudes towards BRI in Europe differ evident from the number and regional distribution of countries which signed the Memorandum of Understanding of the BRI with China.[21] The inability of the EU to quickly address and coordinate European infrastructure policies as well as the EU “after-crisis thirst for investments”,[22] might reinforce internal decision-making struggles and create unfavourable climate in the EU.

6. Forecast of possible future strategy moves or outcomes of strategy

In the world:

  • The all-encompassing nature of BRI together with the actual economic benefits is much more than a Chinese-funded infrastructure project. It is expected that in pursuit of economic benefits more international companies will become involved in the near future. Political backing in the form of bilateral agreements between China and other countries around the world act as an encouragement for firms to join in.
  • The scale of BRI will go beyond energy and infrastructure to constitute trade, manufacturing, the Internet, tourism and other aspects.
  • Due to the long-term investment horizon for infrastructure projects, which to this day constituted the largest share of all projects, China’s state-owned enterprises (SOEs) are expected to continue to gain most profit. However, the diversification of projects and involved industries as well as China’s geopolitical and financial risk considerations, will bring more international companies onboard.
  • In Asia, BRI might kick-start a new cycle of infrastructure spending, acting as a leverage for future investments from diverse sources to bridge the infrastructure gap.[23]
  • Due to China’s regional priorities and ambitions as well as a mere geographic proximity, population sizes and vast market potential, Southeast Asia and South Asia will remain key beneficiaries from BRI projects. 

In Europe:

  • BRI’s investments in railway and port infrastructure will influence trade relations between China and Europe by lowering transportation costs and increasing trade volumes. 
  • Since the main European railway hubs advocated by the BRI are located in Germany and Poland, the nearby industries will receive competitive advantage, leaving the overall impact of the railway development potentially more evident in Northern and Eastern Europe.[24] 
  • Lower cost of maritime trade is expected to reinforce the status of the Mediterranean and Southern Europe as the entry point of the main BRI shipping route to Europe.

China’s membership in the European Bank for Reconstruction and Development (EBRD),  the European Investment Fund, and the launch of the EU-China Connectivity Framework in 2015 should help in promoting synergy between China’s BRI and EU’ Trans-European Transport Network policy and favour cooperation in areas such as infrastructure, equipment, technologies, and standards.[25]

7. Possible strategy options for local/Eu companies and decision-makers.

For businesses

  • Calculate advantages and limitations of partnering up with Chinese SOEs. Depending on the sector, area of operation, size of the company etc., the benefits of partnership with an SOE outweigh the traditional threats they are accused of (e.g. intellectual property violations) and include Chinese market access to areas where foreign access is restricted, such as aerospace, automotive, nuclear power, and telecommunications. Moreover, international companies able and willing to provide expertise in areas like operations, technology, human resources and finance are expected to be especially welcomed by the SOEs since in many  cases they fall short of those.[26] 
  • When operating on foreign grounds consider using the services of professional firms not only to deal with local tax requirements and legal regulations, but also to assess financial and other risks through due diligence. It is advised to obtain risk and accident insurance. 
  • Keep promoting the value of intellectual property protection rights and attempt to encourage SOEs to acknowledge it.

For political decision-makers:

  • It is advised to create a comprehensive EU strategy towards the BRI as a political, economic and cultural global initiative as soon as possible to seize the momentum and negotiate deals and economic routes which would help lessen developmental disparity in Europe and allow EU member states to profit from the ‘division of labour’ and the growing economies of scale. 
  • Moreover, a comprehensive strategy should not treat BRI as a purely commercial project, and should be based on thorough consideration of the EU’s political interests and priorities especially in Central Asia and Africa.
  • It is advised to create a list of all Chinese projects under the BRI framework, potentially even asking the Chinese government to cooperate on that, since currently there is no such official list, and the distinction between BRI-related projects and Chinese investments for other purposes remains unclear. Additionally, that would make a comparative analysis possible to identify and further address the potential flaws.
  • It is important to keep addressing issues which have already arisen in projects associated with the BRI, such as the assessment of country or organisational capacity to repay debt, uphold workers’ rights, prevent intellectual property theft, promote environmentally-friendly solutions and generally promote corporate social responsibility.
  • In terms of the EU infrastructure development, even though the sea routes will likely remain the main trade routes due to the lower cost of transportation, the renovation and enlargement of the European railway system will result in long-lasting improvements in logistics, achieving greater economies of scale and help further advance industries which constitute the main imports by railway (e.g. electronics and automotive components)

[1] Rolland, Nadège, A Concise Guide to the Belt and Road Initiative. The National Bureau of Asian Research (Apr, 2019) Available at: https://www.nbr.org/publication/a-guide-to-the-belt-and-road-initiative/#targetText=CENTRAL%20AND%20CENTRALIZED&targetText=The%20Belt%20and%20Road%20Promotion,’%20political%20and%20economic%20situations.%E2%80%9D

[2] According to state-run Xinhua, China Focus: Belt and Road Initiative makes solid progress, embraces brighter future: report, 2019. Available at: http://www.xinhuanet.com/english/2019-04/23/c_137999264.htm

[3] Full Text: Vision and actions on jointly building Belt and Road 14:42, April 10, 2017 (Xinhua). Belt and Road Forum for International Cooperation. Available at: http://www.beltandroadforum.org/english/n100/2017/0410/c22-45.html

[4] Closing the financing gap in Asian infrastructure – ADB South Asia Working Paper Series No. 57. Published in June 2018. Accessed at: https://www.adb.org/sites/default/files/publication/431261/swp-057-financing-gap-asian-infrastructure.pdf

[5] Wang, Y., ‘Offensive for defensive: The Belt and Road initiatives and China’s new grand strategy’, Pacific Review, vol. 29, no. 3 (2016), pp. 455–63.

[6] Merics, Mapping the Belt and Road initiative: this is where we stand, 2018. Available at: https://www.merics.org/en/bri-tracker/mapping-the-belt-and-road-initiative

[7] Huang, Y., ‘Understanding China’s Belt and Road Initiative: Motivation, framework and assessment’, China Economic Review, vol. 40 (2016), pp. 314–21; Lo, C., ‘China’s Silk Road Strategy’, International Economy, vol. 29, no. 4 (2016), pp. 54–55, 71; and Luft, G., ‘China’s infrastructure play: Why Washington should accept the New Silk Road’, Foreign Affairs, vol. 95, no. 5 (2016), pp. 68–76.

[8] Kynge, James “Chinese Overseas Lending Dominated by One Belt, One Road Strategy,” Financial Times, June 18, 2015

[9] Ljungwall, Christer and Bohman, Viking. The Belt and Road Initiatives and New Geopolitical Realities. In The Belt and Road Initiatives and New Geopolitical Realities China–Russia Relations and Regional Dynamics

From Pivots to Peripheral Diplomacy ed.by Lora Saalman (SIPRI, Mar. 2017) Available at: https://www.sipri.org/sites/default/files/China-Russia-relations-regional-dynamics.pdf; Luft, G., It Takes a Road: China’s One Belt One Road Initiative, an American Response to the New Silk Road (Institute for the Analysis of Global Security, Nov. 2016), <http://www.iags.org/Luft_BRI. pdf>

[10]  Khurana, Gurpeet S. Geopolitics of China’s ‘Maritime Silk Road’ Concept: An Indian Perspective // China’s Maritime Silk Road and Asia / ed. by Vijay Sakhuja, Jane Chan. National Maritime Foundation. New Delhi: Vij Books India Pvt Ltd, 2016. Pp. 16-21.

[11] To learn more about potential regional strategies consult Oxford Analytica, Belt and Road’s purposes differ in different regions, 2019 Available at: https://dailybrief.oxan.com/Analysis/GA241080/Belt-and-Roads-purposes-differ-in-different-regions

[12] South China Morning Post. China cuts tariffs on more than 700 goods in bid to open up economy and lower domestic consumer costs (26 Dec 2018). Available at: https://www.scmp.com/economy/china-economy/article/2179491/china-cuts-tariffs-more-700-goods-bid-open-economy-and-lower

[13] Deloitte Insights, Embracing the BRI ecosystem in 2018: Navigating pitfalls and seizing opportunities (Feb, 2018) Available at: https://www2.deloitte.com/us/en/insights/economy/asia-pacific/china-belt-and-road-initiative.html

[14]  Ibid.

[15]  Ibid.

[16]  Ibid.

[17] Reuters, Fitch: China’s One Belt, One Road Initiative Brings Risks (Jan, 2017) Available at: https://www.reuters.com/article/idUSFit987609

[18] Киреева, А.А  «Инициатива пояса и пути»: содержание, цели и значение». Сравнительная политика и геополитика, 2017.

[19] The Belt and Road’s Barriers to Participation, CSIS, 7th February 2018, viewed 15th November 2018. 5 Notice of the Two Departments on Carrying out the Special Action for Supporting the Participation of SMEs in the Belt and Road Initiative, MIIT and CCPIT, 4 th August, 2017, viewed 15th November, 2018,  www.miit.gov.cn/newweb/n1146290/n4388791/c5756167/content.html

[20] https://www.cnbc.com/2018/09/14/china-must-do-more-to-tap-locals-in-belt-and-road-initiative-panel.html

[21] Peel, Michael and Hornby, Lucy (2019) China pledges open Belt and Road but west is split on project.Financial Times. Available at: https://www.ft.com/content/b10359ce-669f-11e9-9adc-98bf1d35a056

[22] Prodi,Giorgio, Fardella, Enrico, The Belt and Road Initiative and Its Impact on Europe Russia in Global Affairs (Mar, 2018). Available at: https://eng.globalaffairs.ru/valday/The-Belt-and-Road-Initiative-and-Its-Impact-on-Europe-19500

[23] Deloitte, 2018

[24] Prodi, Fardella, 2018

[25] Ibid.

[26] Deloitte, 2018

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Strategy Development Section

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The EU should be inspired by the Chinese BRI and establish its own initiative which should define a comprehensive strategy towards the neglected regio…

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Hypothesis: China is obtaining political backing also through political platform (some new, some old), such as 17+1 Platform in Europe or FOCAC in Afr…
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• The BRI serves also an internal security goal • The goal to develop the underdeveloped inland regions in China. • Especially the injiang Uygur Auton…
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• The BRI can be seen as a communication instrument to give a positive and inclusive connotation to Chinese external action in foreign policy, economi…
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I believe the BRI, and the investments it encompasses, could unlock massive economic opportunities stretching from western China to Caucasus, through …

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In order to share the burden, but also to benefit more directly from the political and economic opportunity infrastructure development gives, I believ…

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The BRI is something of a win-win for the Chinese government: it will either build something, or a foreign government will fall into a debt trap? In t…
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“It is advised to create a comprehensive EU strategy towards the BRI as a political, economic and cultural global initiative as soon as possible to se…

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