Zach Montague | Wednesday, Dec. 4, 2019
Seven years into a sweeping and costly effort to rebuild Asia with itself at the center, China has a publicity problem with its Belt and Road Initiative. What has become the guiding macroeconomic centerpiece of Chinese foreign policy is in many ways stranded on shaky ground.
Some of the Belt and Road Initiative’s trouble is superficial, like its unwieldy name, which had to be rebranded from its earlier form, “One Belt, One Road,” that itself was an abbreviation for two interrelated investment strategies called the Silk Road Economic Belt and the 21st Century Maritime Silk Road.
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But fundamentally, Beijing’s problems stem from tangible issues such as waste, political cronyism and a slew of overambitious infrastructure projects that have created unsustainable levels of debt for partner countries. Last year, Sri Lanka turned over ownership of a Chinese-funded port built as part of the Belt and Road that the government couldn’t afford to finance. In Kazakhstan, a flagship rail depot designed to transform the country into a shipping hub for Central Asia—a so-called dry port—has fallen short of expectations as maritime shipping remains much cheaper. And this year, Myanmar, Malaysia, Nepal and Pakistan have all reduced or cut back Belt and Road projects out of fear of expensive contracts for potential albatrosses saddled with debt.
Eyeing an opportunity to capitalize on Beijing’s missteps, the United States and two of its closest allies in the Asia-Pacific have rolled out an alternative development scheme, known as the “Blue Dot Network,” that aspires to be effective in all the areas the Belt and Road has not. Born from a partnership between the U.S., Japan and Australia, the new initiative bills itself as a more transparent, market-driven solution to the pitfalls that China has experienced by relying on its mammoth state-owned banks to select and finance megaprojects.
Even after a decade of steady investment across the continent, the Asian Development Bank estimates that Asian countries still need to pump a collective $1.7 trillion into infrastructure every year until 2030 in order to keep development on a steady pace and stay on course to address climate change. The institutions overseeing the Blue Dot Network—the U.S. Overseas Private Investment Corporation, Australia’s Department of Foreign Affairs and Trade, and the Japan Bank for International Cooperation—argue that countries looking to meet these needs can do so in more focused and financially sound ways, without relying on China or risking long-term Chinese control over projects gone awry.
The announcement of the Blue Dot Network in early November touched on many of the fears that have come to surround the Belt and Road’s riskier investments. It mentioned “principles-based infrastructure and sustainable economic growth,” and stressed the importance of local labor rights, apparently referencing China’s tendency to favor Chinese contractors and construction companies. It also noted the value of sovereignty “of property and resources,” likely playing on fears that projects of geopolitical significance like ports and dams could fall into Chinese hands if they become unaffordable, as happened in Sri Lanka.
The Blue Dot Network may offer an opening to challenge Beijing’s investment spree across Asia at a time when China is showing signs of economic vulnerability.
But the plan as announced provided few specifics about what sort of standards it will follow, and what mix of government and private funding it will rely on to realize its goals.
The same day the Blue Dot Network was announced, the United States Agency for International Development, USAID, unveiled a $440 million package aimed at the Indo-Pacific region, which also mentioned infrastructure and energy projects as funding priorities. But that aid appears to be aimed at traditional projects, and for the most part the Blue Dot Network seems to be looking to private companies to finance a new generation of projects that would be vetted for quality and sustainability. In so doing, the Blue Dot Network is embracing the assumption that, with the right research and due diligence, foreign companies that so far have been wary to invest in politically unsustainable and corruption-prone corners of Asia can be swayed to change their minds.
For its part, China has acknowledged some of the criticisms highlighted by the Blue Dot Network, and has taken steps to be far more assertive about correcting its misfires in the Belt and Road. Economic trends at home have become a growing concern for the Chinese government, particularly as China’s economy begins to slow and its era of generous, nearly unrestricted overseas investing may be ending. In October, China saw its industrial profits tumble at the fastest rate in eight months, and in November it poured over $142 billion into local government bonds to help build out infrastructure at home in 2020 to offset slowing growth.
Even if the Blue Dot Network’s broader goals and methods are still vague, though, it makes a remarkably bold statement as a multilateral pact aimed at undercutting China’s economic ambitions. For Japan and Australia, which both count China as their biggest trading partner, to join the U.S. in headlining a push to lure developing economies away from Chinese loan offers signals a new level of assertiveness from countries that usually go out of their way to avoid rattling Beijing.
Australia, in particular, depends on China for over 23 percent of its trade, more than double its share with the United States, its second-largest trading partner. Yet as Australia’s political disputes with China have grown more intense over claims of espionage and other regional tensions, the Blue Dot Network may offer an opening to at least challenge Beijing’s investment spree across Asia at a time when China is showing signs of economic vulnerability.
Despite its failures, the Belt and Road has captured worldwide attention and left leaders in many developing countries generally content with its results. For now, the Blue Dot Network is just a vision statement, lacking the vast amounts of money and feverish pace of construction that China has realized with the Belt and Road.
Yet its announcement alone signifies that many governments that have been warily watching China build inroads across Asia sensed a favorable moment to step into the fray. How effectively the Blue Dot Network can compete with, let alone replace, Chinese investment clearly depends on how willing private actors and corporations are to join in its mission. But if the engine of China’s economic growth continues to falter, and more of its contracts abroad go sour, many leaders in Asia may begin to wonder where else to look for assistance.
Zach Montague works in the Washington bureau of The New York Times. He covers breaking news and has previously worked in Abu Dhabi and Beijing. Follow him on Twitter @zjmontague.