October 16, 2018
By: Trissia Wijaya
China’s Belt and Road Initiative (BRI) gives the impression of a well-orchestrated program. But the decentralized and fragmented nature of the Chinese state means that BRI can merely aggregate spontaneous and competing local initiatives. In many ways, BRI could easily become less than the sum of its parts.
The Belt and Road Initiative (BRI) is the world’s largest transnational infrastructure project, with total expenditure estimated at about US$900 billion. It evokes strong attitudes among proponents and detractors. Is it economically viable or does it create debt traps in developing countries? Does it encapsulate China’s predatory interests or exercise of responsible power?
What has been sidelined in the debate is the endogenous nature of Chinese political economy. The initiative has been trapped at a crossroads by internal political forces and simultaneously illustrated an internationalization of home-grown reform driven by erratic policy-making and fragmented governance. While it yields opportunities, it yields as well contested outcomes.
Erratic and Fragmented
The erratic character of BRI is its most salient feature. Its development appears just as arbitrary as that of the first phase of Chinese reform, which encouraged a wide range of collective and private sectors to expand outside the reach of the state and even to compete with it. There is no sound mechanism to prevent individuals or organizations from taking on more grandiose projects, as long as they adhere to the mandate of “interconnectivity,” “globalization,” and “infrastructure.”
As a result, while Xi Jinping’s initial objective was to redeploy domestic overcapacity into investment overseas, the Chinese infrastructure sector has been turning out all-encompassing projects with various unintended consequences.
Southeast Asia, one of the main thrusts, is illustrative of the fragmentation of the Chinese state. The high level of decentralization in China means that regional and local actors can engage in foreign investment with little supervision from the central state. This has affected international economic relations in the region, muddling or even reversing policy goals. As a manifestation of this, a wide range of state and non-state actors is handing out money to capitalize on any opportunities in the name of BRI.
China’s largest high-technology companies have already made forays into the region. Huawei and ZTE have been active participants in building a so-called “digital new silk road,” while the Alibaba Group has touted an “e-Belt and Road” to connect regional logistic hubs with the company’s own ventures. It has bought stakes in the largest e-commerce firm in the region, the Lazada Group, and launched Malaysia’s Digital Free Trade Zone, a joint venture with the Malaysian government, to extend digital logistics for small- and medium-sized enterprises.
While multinational institutions have embraced BRI—Standard Chartered Bank, for example, echoes BRI with its “One Belt, One Road, One Bank” slogan for regional operations—its most noticeable effects can be seen at the municipal level. Cities across the region are trying to emulate Shenzhen, China’s answer to ports and Silicon Valley, through BRI-related investment. In Indonesia, working in synergy with the Jakarta-Bandung High Speed Railway, Chinese SOEs, like China State Construction Energetic Corporation (CSCEC), have been aligning their interest with the local developer, specifically in developing a mega-satellite city.
Meikarta city is fast becoming a flagship project of a politically well-connected Indonesian conglomerates, Lippo Group, that anticipates the satellite city to be the nerve center of the Jakarta-Bandung corridor.
In Malaysia, Guangdong-based Country Garden Holdings has partnered with the Sultan of Johor to inject US$100 billion into a massive development of an “eco-smart city” close to Singapore. Although controversial, cementing its mega plan as a standard demonstration zone of BRI in Southeast Asia, Country Garden scrupulously promised an “integrated production and service base” to shape “Malaysia’s Shenzhen” in the region.
The “entry” of new firms under China’s opening-up diversified the number and type of products available in the market and eventually created a kind of consumer revolution. Likewise, BRI has created new companies, but they represent “a thousand faces of China,” ranging from the best-managed, highly professional companies to ones that fail to comply with the most basic levels of market discipline.
By the end of 2017, there were more than 80 million private enterprises in China and approximately 150,000 state-owned enterprises in total. Yet, Beijing’s leadership has become more divided and weaker than in the recent past and is unable to control the irrational investment among the “entries” .
In Cambodia, for example, the seemingly benign intention of building a mini-Shenzhen out of the Sihanoukville Special Economic Zone has resulted in something that more resembles Macau, the Chinese gambling haven. A boom in Chinese-run casinos and karaoke bars has pushed locals out of the city. In addition, land prices in the area have skyrocketed, owing to a vast influx of Chinese capital into the real estate market. China’sUnite International Company has won a rare concession from Cambodia to develop one of the most beautiful stretches of Sihaknouville into a US$5.7 billion tourist complex.
Meanwhile, amid secret deals, Tianjin Union Development Group was granted a 99-year lease to about 20 percent of the kingdom’s total coastline, more than three times the legal limit under Cambodia’s land law. The autonomy enjoyed by China’s companies under the banner of BRI has promoted capital allocation that frequently has little to do with rational economic decision-making.
Water Can Float a Boat or Capsize It
In retrospect, just as “trial and error” has been an inevitable process in China’s developmental history, the apparent incoherencies of BRI reflect the connection between the fragmentation of state authority in China and insatiable economic appetite. China’s process of economic growth managed to avoid derailment due to Beijing’s endless pursuit of piecemeal reform.
Each new path of development was signposted and economic policy was adjusted accordingly. However, BRI has not yet displayed such resilience and flexibility. BRI will continue to present a steep learning curve for Beijing. Unlike domestic reform, BRI has been complicated by internationalization in conjunction with new dimensions of scale and scope.
Western critics have frequently labeled Xi “China’s imperial president,” when in fact his tutelage is not imperial enough to adequately oversee BRI. China under Deng Xiaoping balanced economic and political goals, and there is reason to believe that Xi has inherited that legacy. While BRI has been a promising means to unify Xi’s political appeal at home, it requires further work in terms of foreign policy.
As the Chinese saying goes, “water can float a boat just as it can capsize it.” A BRI buttressed with coherent policies is surely good for the Chinese leadership, but if it becomes unbalanced, it will rock the boat, with unintended consequences.
Trissia Wijaya is a PhD Candidate at the Asia Research Center, Murdoch University