Beijing’s need of a new approach to doing business at home and abroad has been apparent for some time. Many of China’s past bilateral investment deals in Africa and Asia based around access to commodity resources were uncommercial, poorly implemented and, in some cases, unpopular locally. The property and investment boom at home that they served has now ended, leaving China with significant overcapacity in industry and construction, deflation and rising debt management problems.
Moreover, the country has tired of accumulating endless volumes of US Treasury and other government bonds, and now prefers more direct investment overseas. Beijing has also long expressed opposition to the dominance of the US and the dollar in the global financial institutions, most notably the International Monetary Fund and World Bank.
In the past year, therefore, Beijing has undertaken three major initiatives. With other Brics emerging economies it co-founded the largely symbolic New Development Bank, a sort of IMF clone institution. It founded, and will provide half the capital for, the Asian Infrastructure Investment Bank (AIIB), which now has 57 members. If financing, logistical and governance issues are addressed successfully, the AIIB could be lending $20bn a year by 2020, not far off the $30bn annual loan commitments of the World Bank today.
Yet this is all a complementary sideshow to One Belt, One Road. The popular claim is that this modern-day Silk Road will bind together 65 countries and 4.4bn people from Xi’an in western China (the old imperial capital and the start of the original road), across central Asia to the Middle East, Russia and Europe. The maritime road is designed to
Will One Belt, One Road succeed in transforming the global system as some claim? Protagonists [Proponents?]say that the beneficiaries of investment and suppliers stand to gain from new infrastructure, energy pipelines, fibre optic and communications systems, and lower trade barriers. It is also argued that it suits China to a tee. It could offset the effects of a falling investment rate and rising overcapacity at home, offer commercial sweeteners to potential anti-corruption campaign targets to co-operate with reforms, improve internal economic integration between the country’s advanced coastal and the more backward western provinces, and,
Yet, this is to put the cart before the horse. One Belt, One Road and complementary agencies such as the AIIB could be transformative but not in the abstract, and only if they reflect Beijing’s pursuit of other long-term economic and political goals. These include catapulting China’s income per head to US levels, the embrace of open governance, the willingness of other nations to buy into China’s foreign policy, and the development of the renminbi as a reserve currency rather than just a more widely used vehicle for transactions. It will be necessary to see the commitment to such ambitions.
If China’s new financial diplomacy aims to extend and deepen its global footprint without fundamental changes in political and economic philosophy, the result may be heightened global risks across Asia. Ultimately, its westward pivot would then simply be a commercial but truculent riposte to America’s pivot to Asia, reminding us, in the words of US historian Edward Luttwak, that geoeconomics is “the logic of war in the grammar of commerce”.