Have we reached Peak BRI?
Are concerns about China overblown?
The Belt and Road Initiative (BRI) is a major foreign policy initiative undertaken by the government of China. It is a device that aims to extend Chinese influence on a global scale. The scope of the scheme reflects an immense ambition, not only in terms of the geographical area it covers, but also for the depth to which it goes. The government of China has put significant amounts of money behind the scheme, which different sources estimate at between $1 US trillion and $8 US trillion, depending upon what is included and how it is counted. Either way, this is a vast amount of money. What does China expect in return for these sums? How does that fit into Chinese foreign policy? Does it represent a break with the past? And what does it portend for the future?
Perhaps the first place to start a review of the BRI would be to define what it is and how it fits into Chinese foreign policy. The BRI is an interlocking web of trading and financial relationships that spans the globe. It encompasses hard infrastructure, such as road and rail links, it encompasses both maritime and overland trade routes for primary products and finished goods, and it also encompasses a digital infrastructure reaching into space. The core idea would be for Chinese influence to follow the traditional routes of the Silk Road, building a ‘Silk Road Economic Belt’ of prosperity, in conjunction with a ‘21st Century Maritime Silk Road’, along which goods would flow. The policy is closely associated with President Xi, and receives support from the highest levels of the Chinese government.
It begs the question of what is expected from the participants of the BRI? The answer to this question can be found in traditional Chinese foreign policy. The foreign policy of the Emperors placed less emphasis on physical conquest and a greater emphasis on the extension of Chinese influence. In this sense, the BRI is a modern vehicle for spreading influence across the globe. In return for — mainly — financial assistance, the government of China expects the members of the BRI not to criticise Chinese policy, not to oppose Chinese policy, and to accept Chinese leadership in international fora. In a traditional way, the client state receives material benefits from China and is expected to acknowledge the ascendency of China.
This set of expectations underpins the operation of the BRI. The thinking behind this is closely associated with the ‘Pivot of History’. We have written about this before (see here), but the main thinking behind the idea is that whoever controls the Eurasian landmass, will control the destiny of the world, mainly though trade and financial networks rather than military conquest. The operation of the BRI in recent years has been devoted to building a vast trading network that stretches from the Pacific shore of China, all the way to the North Sea in Europe. The network has not been fully built out and the pace of building in recent years has slowed somewhat. Partly this is because the recipients of BRI largesse have become a little more wary of Chinese intentions, and partly because the available funds for infrastructure investment have not been as readily forthcoming. The recent trade war between China and the US has slowed the pace at which the BRI has been expanding, which has caused some to ask if we are seeing ‘Peak BRI’?
By ‘Peak BRI’, we do not mean that the networks are contracting. Instead, we mean that they are not expanding as fast has the have been in the recent past. The BRI is still expanding, but at a slower rate. It continues to focus upon trading relationships rather than, say, the establishment of military bases. The PLA has expanded in recent years, but the government of China seems reluctant to use it in quite the way that the European and NATO nations have used their military in recent times. Partly this is because the PLA is something of an unknown quantity, and partly because the core interests of China have not been threatened. In Europe and North America, the issue of Taiwan is raised to suggest a degree of Chinese aggression, but as we have argued elsewhere (see here), we feel that this is more a case of saving face than an expression of hostile intent. The downside risk of a foreign misadventure for Beijing is sufficiently great to cause it to hold it’s hand. Influence is likely to gain better rewards than conquest.
If we look at the areas in which the BRI continues to expand, two stand out as being of note. The first is Africa. China continues to invest in the supply of primary products in Africa. An interesting development, particularly in Francophone Africa, is that the financial aspects are covered by China, with the security aspects being underwritten by Russia. In terms of where the money originates, since 2015–16, China has recycled its US Dollar trade surpluses not into US Treasuries, but into US Dollar denominated loans to BRI participants, especially in Africa. Some commentators in the west refer to this type of relationship as debt servitude, but it can also be seen as a means to unlock development funds that otherwise would not be there. Exactly how this will unfold in the future depends on such unpredictable factors as the future progress of the commodity cycle. However, in the absence of other sources of development funding, we can expect it to continue, further locking some African nations into the Chinese sphere of influence.
The second area that stands out is Central Asia. With the American withdrawal from Afghanistan, something of a diplomatic vacuum was created in Central Asia. Traditionally, this area would be considered as part of the Russian sphere of influence. However, the sanctions regime that resulted from the Russian invasion of Ukraine has weakened Russian influence in the area, opening it up to greater influence from China. It was no great surprise to see a tentative accord between China and the Taliban. It makes sense to see China, Russia, and Iran collaborating to resist American influence in Central Asia and the Middle East. According to the notion of the ‘Pivot of History’, this is exactly what we could expect to see if the Eurasian landmass were to become more fully integrated. This last point speaks to the profound nature of the BRI and how it departs from the maritime trading networks that currently dominate the global economy.
A land based trading network under the leadership and direction of Chinese influence is exactly how we could describe the BRI. This process is likely to continue into the near future, but at a slower pace. The trade war between China and the US has limited the growth of the US Dollar trade surpluses that China can deploy. The weakening of the Chinese economy has restricted the ability of the Chinese government to fund investment abroad. It has resulted in a degree of capital rationing and China being far more selective about the investments that are made. The process of expanding the BRI continues, but at a slower pace. In that sense, we are starting to see Peak BRI. Whether this should diminish western concerns about China is another matter. Chinese influence is set to continue expanding in the near term, mainly because the United States and its allies are unable to commit sufficient resources to resisting it. There comes a point where, if we are to resist China, we need to put some money on the table.
© Stephen Aguilar-Millan 2023
