Shortcuts / 17 June 2020

China’s Belt and Road Initiative

Officially called One Belt, One Road it is one of Chinese President Xi Jinping’s policies, and it’s all about China investing in big infrastructure projects throughout the world. So what is China is setting out to do, which nations have signed up and why is it a contentious project, especially here in Australia?

Chinese President Xi Jinping announced the One Belt, One Road Initiative at the end of 2013. What are its broad objectives?

The stated objectives are “to construct a unified large market and make full use of both international and domestic markets, through cultural exchange and integration”. There’s also references to it being a tool to improve the mutual understanding and trust of member nations. But in a practical sense, it’s a Chinese government program to address an “infrastructure gap” that builds on the old trade routes that once connected China to the west, which is essentially the Silk Road.

What is the Silk Road?

It’s a network of ancient trade routes between the East and West starting in China and stretching across to the Middle East and into Europe. These routes were used for economic, cultural, political, and religious interactions from 2nd century before Christ to the 18th century.

What is the ‘belt’ and what is the ‘road’?

The ‘belt’ refers to the overland routes from China involving road and rail transportation from the west of the nation through Central Asia, and finally to Europe. Whereas the ‘road’ refers to sea routes, and we’re talking about investment in ports to provide China with maritime access across the Indian Ocean. So to put it simply, what it will mean is that the Chinese government is going to fund major infrastructure projects like ports, railways, highways, power stations, aviation and telecommunications around the world.

How much is the project estimated to cost?

China hasn’t put a figure on how much it will cost, but whatever it is, it will be a lot. Some estimates say it will cost more than A$1.5 trillion. Others say US$4–8 trillion. But it’s a huge area we’re talking about, and to facilitate trade in that area, China’s funding one of the largest infrastructure and investment projects in history, with about 70 countries already signed up.

How will it be funded?

Well, China’s not giving the money away. What it’s doing is providing the finance, and China has lent up to $US350 billion to countries so far, about half of them considered high-risk debtors. And the loans differ from most other loans to developing countries from institutions like the World Bank. They tend to carry higher interest rates and shorter maturities, requiring refinancing every couple of years. So to be clear – the countries taking out loans need to pay it back, with interest. And in order to do this China has set up banks to facilitate the flow of money and analysts now reckon Beijing is a bigger lender to developing nations than the World Bank or the International Monetary Fund which has been cause of much criticism. The US and others have accused China of what’s called ‘debt trap diplomacy’, which means China’s accused of lending more money than poor countries can afford so it can seize strategic assets and to expand its military and economic footprint. There’s already an example of this occurring. In 2017, Sri Lanka was forced to hand over the strategic port of Hambantota on a 99-year lease after it was unable to pay its loan.

Which countries are supportive of the project?

Once completed, it’s estimated the Belt and Road initiative will affect more than 60% of the world’s population and is expected to soon account for almost 40% of total world trade. For China parts, they say it’s an opportunity for many nations improve their trade capabilities and in turn grow their economy and improve the standard of living of their citizens. And many countries agree. The initiative has signed memorandums of understanding with 125 countries. Those in support of it include more than half of the EU’s 28 member states. Most of the countries that have endorsed it are developing countries, but there’s also the likes of Italy and Greece, who sit in the direct path of the BRI, as well as New Zealand.

Which countries aren’t supportive of the project?

Those who haven’t endorsed the Belt and Road Initiative include the US and some of its allies – like Australia – they are concerned that this is really all about China spreading its influence. And there’s a paradox for America with it becoming more isolationist under President Donald Trump while being simultaneously concerned that China is increasing its global presence. And the high level concerns go deep into our systems of government and values of democracy and commitment to a free society. Australia and the US would say that things get complicated when your values could be compromised by being tied up in financial arrangements that could see our region beholden to China, which doesn’t share our values.

What’s Australia’s take on the matter?

For Australia’s part, despite our Pacific neighbours – New Zealand, Papua New Guinea, Vanuatu and Tonga – signing up to a memorandum of understanding with China which is basically the step before signing up to the Belt and Road initiative… we are largely with the US on this one. It’s tricky for us because we’re economically tied to China. Some see the positives of Australia signing up to the initiative. But former PM Malcolm Turnbull called Belt and Road an “agenda”, not an economic initiative, and PM Scott Morrison agrees saying it’s “not consistent with Australia’s national interest.”

What’s the deal with Victoria?

In 2018, the state of Victoria has signed a memorandum of understanding with China to be part of the Belt and Road Initiative, which is contradictory to the federal government’s position. This is a formal acknowledgement that they recognise one another and a broad agreement that China’s national development and reform commission would work with the Victorian Government on Belt and Road Initiatives. While there are no deals or projects as such, it’s a mutual commitment to “promote practical cooperation” with Chinese firms in Victoria’s infrastructure projects, and in return Victorian firms could get a look in on projects in China and in other countries that have signed up to Belt and Road. PM Scott Morrison says Victoria should get its fingers out of the foreign affairs cookie barrel because its a policy area that’s determined by the federal government. He recently said that “I respect their jurisdiction when it comes to the issues they’re responsible for and it’s always been the usual practice for states to respect and recognise the role of the federal government in setting foreign policy.” At this stage, Victoria hasn’t agreed to do much as part of the deal. It’s not like they’ve borrowed money from the Chinese under the initiative. And the memorandum of understanding is not a legally-binding agreement. But even still, the Victorian government is not backing away from it saying it’s a good things to promote economic ties with the world’s second largest economy. This side issue has not painted a particularly pretty picture of the Australia-China relationship, which is already under strain following Australia’s push for an international inquiry into the Covid-19 pandemic.

Squiz Recommends:
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The New York Times “Poor Countries Borrowed Billions from China. They Can’t Pay It Back.”

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