One Belt, One Road, One Winner

China’s Belt and Road Initiative is bankrupting poor countries and destabilizing the world economy.

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By Jennifer Sun

China’s people have much to be proud of. Since the death of Mao Zedong in 1976, the country has been transformed from a stagnating communist backwater into an economic and industrial giant. Massive increases in quality of life followed a series of ambitious economic reforms by Deng Xiaoping as 800 million people were lifted out of poverty and entered into the growing middle class. China’s GDP reached an annual growth rate of 10 percent (far outpacing the U.S.’s comparably low rate of 2.5 percent) between 1979 and 2017, and its manufacturing sector came to define its important place in the world economy. Industry is now China’s most valuable market; nearly half of the world’s entire steel supply was produced in China in 2017. It comes as no surprise, then, that the term “rising power” is heard more today than ever before.

At the root of China’s rise is the powerful leadership of Xi Jinping. His aggressive promotion of Chinese influence in Asia (and more recently, Africa) and his steely defense of the country’s policy goals have earned him a place among the great leaders of the Chinese Communist Party. The president’s interventionist approach to enterprise has earned him few enemies in the private sector. Most corporations have learned to survive and thrive by cooperating with the Chinese government. Companies like Zhejiang Huayou and Jinchuan Group hold uncontested control over the cobalt refining industry, positions they are unlikely to lose. And state-allied behemoths like Tencent and Alibaba (whose CEO, Jack Ma, announced membership into the Communist Party in 2018) continue to challenge American monopolies in shipping and sales.

It’s not just the private sector. From building military bases in the economically important South China Sea to funding oil and gas pipelines in Russia and Siberia, China’s government has taken enormous steps in its pursuit of global economic primacy. Nowhere was this made clearer than in the 2013 announcement of the Belt and Road Initiative (BRI), a massive worldwide infrastructure development program. President Xi Jinping marketed the initiative as a flagship attempt to streamline international trade, lift poor countries out of economic stagnation, and increase technological and cultural exchange.

The BRI seemed like a saving grace for economically stagnant nations that attracted little international attention or investment. For example, Pakistan had never been perceived as an ideal place to invest; corrupt governments, tensions with India, and the threat of terrorist attacks discouraged foreign interest in the country. This changed when China offered to build a new port in the small but strategically located city of Gwadar. The port was the first of many projects proposed, designed, and constructed by China in Pakistan’s interior, and the results are clear: a $62 billion “economic corridor” crossing Central Asia, with the promise of more development to come. Projects like the Gwadar port were supposed to be the gold standard for China’s international economic diplomacy: lucrative deal-making that benefited both sides equally and was an overall boost to the world economy.

In recent years, however, the BRI has run into problems. A $60 million loan to Pakistan was internationally criticized for its unfavorable conditions: the deal threatened to devalue Pakistan’s currency and endanger its already fragile economy. These kinds of predatory loans are not made by accident. Too often, Chinese firms (almost always with substantial backing by the communist government) loan huge amounts of money to economically unstable countries that do not have the means to repay them. For example, Kenya, unable to pay off billions of dollars of loaned money, was forced to hand over its most valuable shipping port in Mombasa. Sri Lanka faced a similar situation when its Hambantota port—a project financed by Chinese loans—fell into disuse and irrelevance. The island nation’s government was unable to pay off the huge debts incurred in the port’s development and surrendered it to China as collateral. In many cases such as these, the Chinese government used its great economic and diplomatic power to force smaller and poorer nations into giving up sovereign territory in place of repaying crushing debt.

This sort of “debt-trap” diplomacy only damages the fragile international economic order still in recovery from the shock of the 2008 crisis. It places Chinese policy goals ahead of the fiscal health of poor, undeveloped nations and hinders their ability to grow and participate in the world economy. The world must act against the Belt and Road Initiative and all it represents. As is often the case, the cost of action is great, but the consequence of inaction is greater.