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China’s Flexibility on Display at the Belt and Road Forum

BLOG - 25 April 2019

As 37 heads of state and government are convening in Beijing for the second Belt and Road Forum, stakeholders in Europe are in search of answers beyond the formalities on two specific aspects. With the Forum, China signals that international criticism has been heard and displays an intention to respond positively, but should we expect more than cosmetic adjustments? And while it is clear that advanced economies have little need for BRI infrastructure (even though some welcome Chinese capital in their existing infrastructure), what remains unclear is if BRI projects in developing countries will one day offer tangible opportunities to European companies.

This second Beijing Forum is China’s opportunity for a rejuvenation of the Belt and Road image. The BRI has suffered setbacks in recent years, from Malaysia to Kenya, accumulating a reputation for creating debt traps and seeking political influence behind smoke and mirrors with announcements in dozens of billions of USD that catch the attention of the entire world when often much less is happening on the ground. 

There are obvious signs of introspection coming from China, but what will they lead to? At the minimum, the Forum is expected to end with a communiqué stressing the importance of debt and environmental sustainability, transparency and the rule of law. China is finally appropriating the language that the European Union has long tried to promote with little success. This even led to frictions at the first Belt and Road Forum in 2017 when the EU refused to endorse a BRI multilateral statement on trade, precisely because it did not include such language. Only two years ago, Beijing perceived those terms as too constraining. 

China’s introspective mood is well captured by a report recently released by the Chinese think-tank Grandview Institution that makes three recommendations regarding port investment:

  • the need to place less emphasis on their strategic dimension and more emphasis on their commercial value;
  • the need to accept more transparency on port operations as a guarantee against corruption scandals;
  • and the need to rely less on high-level official communication channels and more on channels allowing access to thinking in the port’s social environment, to avoid turning the locals against Chinese companies.

This second Beijing Forum is China’s opportunity for a rejuvenation of the Belt and Road image.

One sign of China responding to the international demand for more transparency would be clearer communication on the total amount of money China is injecting in BRI infrastructure projects globally. An official map showing the status and the value of completed and ongoing projects would put an end to speculation. Indeed, there are rumors that China is considering issuing a list of projects. This would be a turning point. Overall, Beijing would have good reasons to think that ambiguity has served well the cause of the BRI, with vagueness creating operating space in the form of high expectations. A shift to convincing the world with reliable facts would mark a dramatic change of public diplomacy strategy. 

So far, Chinese statistics tell the story of a global expansion of China’s state capitalism. According to MOFCOM, Chinese companies have invested 90 billion USD in BRI partner countries between 2013 and 2018, an average of 11 billion USD per year. Not surprisingly, MOFCOM’s statistics indicate that contracted project work for Chinese companies in BRI target countries during the same time period of time is much larger than direct investment, reaching 600 billion USD. Of these, China’s 97 central State-Owned Enterprises are seizing the lion’s share. According to the State-owned Assets Supervision and Administration Commission that oversees their operations, central SOEs are involved in 3,116 BRI investment and infrastructure projects - this represents 50% of the total number of projects and 70% of their total value. As a result, the world’s top 5 global contractors are all Chinese SOEs, with the largest, China State Construction and Engineering, working on projects in 119 countries

This overwhelming domination of SOEs points to the question of the space left for companies from other countries, in particular firms from advanced economies that do not need big ticket infrastructure projects financed by China on their soil. Politically, China does not object to the involvement of firms from Japan, France or Singapore alongside Chinese companies in third countries. Japan and Singapore have signed such agreements with China and the issue was on the agenda of Xi Jinping’s recent state visit to Paris. In reality, the record of deals signed in third countries is meagre and China wins market shares at the expense of competitors.

The Belt and Road Forum is also China’s opportunity to work at reversing the setbacks encountered on some of the most visible, signature projects. Several megaprojects are in trouble. To take examples in Southeast Asia only, these include the Kyaupkyu port in Myanmar and three high-speed railways: Bandung-Jakarta, Bangkok-Nong Khai and Vientiane-Kunming. Megaprojects only represent a fraction of China’s involvement in global infrastructure but are an important measure of success. 

Central SOEs are involved in 3,116 BRI investment and infrastructure projects - this represents 50% of the total number of projects and 70% of their total value.

Where China has truly shown flexibility is in confirming that normal business relations are possible outside the framework of the Belt and Road Initiative, and even without a formal political endorsement of the BRI. India offers the best example. The country that refuses to send any representative to the Belt and Road Forum is also the largest recipient of loans from the Asian Infrastructure Investment Bank. Foreign Minister Wang Yi has recently stated about India’s opposition to the BRI that it was a "fundamental difference" but that China understood that "the Indian side has their concerns"

But India is an exception and the Belt and Road increasingly looks as a claim of Chinese leadership over the developing world. China’s posture as a champion of infrastructure development is inseparable from the position that China remains a developing country. Incessant attacks from the United States and Europe aiming at the privileges attached to this status at the WTO for the world’s second largest economy, also an increasingly high-tech powerhouse, are yet to generate any adjustment on that fundamental issue.

 

Copyright : NICOLAS ASFOURI / POOL / AFP

 

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