CHAPTER 1
âONE BELT, ONE ROADâ
FINANCING THE NEW SILK ROAD
New Silk Road (âBelt and Roadâ)
In November 2014, Beijingâs habitually smoggy skies turned a brilliant shade of blue. The clean air was engineered to coincide with the first full meeting of the Asia-Pacific Economic Cooperation (APEC) forum in China since 2001. With twenty top leaders flying into the capital, including US president Barack Obama and Japanese prime minister Shinzo Abe, the government was determined to show it at its best. Factories were shuttered; shops, schools and businesses closed; cars ordered off the roads; and residents advised to leave town. Farmers were told not to fire up their traditional stove-heated bedsâor risk arrest.1 Once the dignitaries flew out and the steel mills reopened, the sky returned to its familiar grey. Cynical Beijingers coined an expression to describe the fleeting phenomenon: âAPEC blueâ refers to anything too good to be true.
The APEC meeting in 2014 was the most important international event in Beijing since the 2008 Olympics, and the first big meeting of foreign leaders chaired by President Xi Jinping. If the Beijing Olympics was Chinaâs opportunity to show the world that it had arrived as a modern global power, the APEC forum was President Xiâs chance to show that China was finally going to start acting like one. He did not disappoint, easily projecting the air of an international statesman and negotiating confidently with President Obama. Most significantly, he used the forum to intimate grander geostrategic ambitions for China, announcing plans to ramp up overseas investment to US$1.25 trillion over the coming decade. Placing China at the heart of Asian diplomacy, he proposed new initiatives that dovetailed with the signature foreign policy of his administration: building a New Silk Road.
Founded in 1989, APEC is supposed to champion trade and regional economic integration, but often comes across as little more than a talking-shop. President Xi attempted to inject much-needed vitality into the forum by floating the ambitious idea of a Free Trade Area for Asia-Pacificâessentially a more inclusive version of the Trans-Pacific Partnership (TPP) sponsored by the United States, of which China is conspicuously not a member. He also persuaded his counterparts to approve a new âAPEC Connectivity Blueprint 2015â2025â involving the construction of new roads, railways and shipping lanes across Asia and the Pacific Rim. Xi presented these ideas as part of a grandiose vision for the future. âThe development prospect of our region hinges on the decisions and actions we take today,â he told 1,500 businesspeople attending the forum. âWe are duty-bound to create and fulfil an Asia-Pacific dream for our people.â2
No Chinese leader before Xi has had the gumption to talk of an âAsia-Pacific dreamâ under implicit Chinese leadership. China has traditionally been a passive player in the world of high diplomacy, preferring to hide behind a mantra of ânon-interferenceâ in other countriesâ affairs rather than to shape global events. But under Xi, China is preparing to play a much more active role over its borders, and is ready to underpin its diplomacy with huge economic largesse. Just two weeks before the APEC meeting, Beijing hosted a launch ceremony for the Asian Infrastructure Investment Bank (AIIB), at which 21 countries agreed to become founder members of the first Chinese-sponsored multilateral development lender. And at the APEC meeting itself, President Xi announced the establishment of a US$40 billion Silk Road Fund specifically to finance projects along the New Silk Road.
The founding of the AIIB and the Silk Road Fund are evidence of Chinaâs deepening strategic ambitions in Asia. This first became apparent in 2013, when the new foreign minister Wang Yi announced that the focus of foreign policy would shift to Chinaâs backyard. Among its neighbours, China would seek to build a âcommunity of shared destinyââa vision that not only encompasses greater economic integration backed by huge spending on infrastructure, but also mutual defence of national interests.3 Chinaâs aim is to use economic incentives to build closer relationships with its neighbours, drawing them ever tighter into its embrace. In return for delivering roads and power lines, it expects its partners to respect its âcore interestsâ, including its territorial claims in the South China Sea. This is what Beijing means by âwinâwinâ diplomacy.
The shift to a more assertive foreign policy marks a fundamental break with the past. Since âReform and Openingâ began in 1978, Chinese foreign policy has been underpinned by the âDeng Xiaoping theoryâ, which holds that diplomacy must serve the greater goal of domestic development. In essence, this boils down to supporting Chinaâs export growth model by attracting foreign investment and promoting a stable external trading environment. Deng laid down his famous dictum in the early 1990s, when he urged Chinaâs leaders to âobserve calmly; secure our position; cope with affairs calmly; hide our capacities and bide our time; be good at maintaining a low profile; and never claim leadershipâ.4 This strategy is abbreviated in Chinese to taoguang yanghui, which is usually translated as âhide our strength and bide our timeâ, but literally means âhide light, nurture obscurityâ.
Before Xi rebooted its foreign policy, China was generally happy to stand on the international sidelines. Its leaders demanded shows of international respect and were quick to accuse countries of âhurting the feelings of the Chinese peopleâ when they felt it was not forthcoming; but they rarely sought to lead.5 Instead they concentrated on economic diplomacy, pressing for trade agreements and supporting the overseas efforts of state-owned engineering and resource enterprises. They worked most actively with the Association of Southeast Asian Nations (ASEAN), hoping to allay fears that China was a competitive threat to its neighbours. They tried hard to present China as a responsible economic power: the decision not to devalue the renminbi during the Asian financial crisis in 1997 helped stabilize the region, and China provided billions of dollars of credit to Southeast Asian nations in the wake of the global financial meltdown in 2008.
With economic power, however, comes geopolitical clout. Chinaâs foreign policy strategists have long debated how a strengthening China should assert itself on the global stage.6 In 2004, Chinaâs leaders briefly began to talk about a âpeaceful riseâ, seeking to encapsulate the reality of Chinaâs resurgence while reassuring the world that it remained a benign power. When this was deemed too provocative for foreign ears, they adopted the more innocuous-sounding term âpeaceful developmentâ. Calls for a more assertive foreign policy grew after the global financial crisis, when the weakness of the US and European economies was laid bare. Yet, after some vacillation, Hu Jintaoâs administration officially stuck with Dengâs âbide and hideâ dictum. In September 2011, the government released a âWhite Paper on Peaceful Developmentâ, which reiterated that âthe central goal of Chinaâs diplomacy is to create a peaceful and stable international environment for its developmentâ.7
The old tenets of foreign policy began to unravel after the leadership transition in 2012â13. At a Party work conference in October 2013 dedicated to regional diplomacy, Xi Jinping made a speech titled âLet the Sense of Community of Common Destiny Take Deep Root in Neighbouring Countriesâ.8 Following Dengâs line, he said that foreign relations must secure âgood external conditions for Chinaâs reform, development and stabilityâ, but added that China must also foster a sense of âcommon destinyâ in Asia. Implicitly rejecting Dengâs advice to lie low, he declared that Chinaâs regional diplomacy should instead be fenfa youweiâan expression often translated as âenthusiasticâ but better rendered as âproactiveâ. Foreign Minister Wang Yi used a similar term to describe the overall direction of foreign policy at his inaugural parliamentary press conference in March 2014.9
In November that year, two weeks after the APEC meeting, Xi chaired a rare Central Work Conference on Foreign Relations. This was the first such high-level meeting since 2006, when a restrained President Hu Jintao had called for China to take its place in a âharmonious worldâ. Xi presented a more muscular vision: China should carry out âdiplomacy as a great powerâ, he said, and consolidate its leadership in Asia. Reiterating a line used by previous leaders, he said that a benign external security environment gave China a âperiod of strategic opportunityâ to concentrate on internal development through 2020. But for the first time, he implied that maintaining the favourable environment depended less on good fortune than on Chinaâs own diplomatic efforts. Finally, he explicitly linked the nationâs resurgence as a great power to the âChinese Dreamâ of national rejuvenation.10
Deciphering Chinaâs rapidly evolving diplomacy under Xi Jinping is tricky: smiles have frequently turned into snarls, especially in Southeast Asia. But his two work conference speeches give us a baseline to start from. Under the banner of the âChinese Dreamâ, Xi Jinping is pursuing a newly assertive foreign policy that prioritizes Chinaâs economic leadership in Asia. Simultaneously, he is seeking a ânew type of great power relationshipâ with the US, demanding that China be treated as an equal. These ambitions have implications for global institutions: at a Politburo study session on developing a Free Trade Area for Asia-Pacific in December 2014, Xi said that Beijing should âparticipate and lead, make Chinaâs voice heard, and inject more Chinese elements into international rulesâ.11 China has long pressed for a âmultipolarâ world, but President Xi is the first Chinese leader in at least two generations to try to make this happen.
This ambition is underpinned by ever growing economic might. Chinaâs economy may be slowing, but even 5% annual growth adds the equivalent of a mid-sized economy like Argentina to its gross domestic product every year. China already accounts for nearly half of Asian GDP, is by far the regionâs largest trading partner, and is challenging Japan to become its largest investor. Beijing believes its financial resources and engineering prowess will prove irresistible, especially in countries lacking the capacity to finance and construct their own infrastructure. With the Belt and Road Initiative, it is effectively dangling a vast economic carrot before its neighbours. Chinaâs leaders judge that few countries are in a position not to bite, especially weaker states that cannot provide basic services for their citizens.
Yet China will struggle to convince its neighbours to embrace a new regional order centred on Beijing, precisely because they fear its immense economic power. No one wants to become a Chinese vassal. Beijingâs pursuit of a âcommunity of common destinyâ is seen across the region to be as much of a threat as an opportunityâespecially in the South China Sea. Here there is little doubt that Chinaâs âwinâwinâ diplomacy, a formula repeated ad nauseam by Chinese diplomats, is designed to serve Chinaâs interests first. Even among countries with a friendly relationship with China, fear of economic overdependence is widespread. Like the blue skies enjoyed by delegates during the APEC meeting in Beijing, Chinaâs fine words about mutual prosperity seem too good to be true.
BELT AND ROAD INITIATIVE
The centrepiece of Xi Jinpingâs âproactiveâ foreign policy is the Belt and Road Initiative. Stretching from the South China Sea across the Eurasian land mass, it is arguably the most ambitious development plan ever conceived. Taking its inspiration from the ancient Silk Road that ran from China to Europe via central Asia, it envisages building roads, railways and industrial corridors across some of the wildest terrain on earth, and linking these to upgraded ports in Asia, Africa, the Middle East and Europe. Beijing says the initiative will dismantle investment barriers, create new trade routes, improve international logistics, and deepen regional financial integration. It even grandly claims that it will promote âworld peaceâ.12
The initiative runs under a confusion of different monikers. President Xi first proposed building a âSilk Road Economic Beltââa land route through central Asia and the Middle East to Europeâat a speech in Kazakhstan in September 2013.13 A month later, in a speech to the Indonesian parliament, he proposed creating a â21st Century Maritime Silk Roadââa web of sea lanes through the South China Sea and Indian Ocean.14 First called the New Silk Road, the scheme was later dubbed âOne Belt, One Roadâ (yidai yilu), which sounds less clunky in Chinese than in English. After much internal debate, it is now officially translated as the âBelt and Road Initiativeâ. Beijing is adamant that it should not be called a âplanâ or a âstrategyâ, lest it be interpreted as a ruse to build a vast economic empire. China claims no ownership over the initiative, which it says is about âmutual trust, equality, inclusiveness and mutual learning, and winâwin cooperationââthough, in reality, it is very much a Chinese project.15
Beijing claims the initiative will run through sixty-seven countries, and Chinese media have published a number of maps purporting to show its route. In fact, there is no clearly defined Belt or Road: Chinese firms will help to lay new roads and railway tracks, linking them to new ports, wherever they can find willing partners. Some routes, such as the rail lines that lead from China to Europe via Kazakhstan and Russia, already exist; others are on the drawing board and may never leave it. For example, a potential southern route of the Silk Road Economic Belt through Iran and Turkey may or may not cross Kyrgyzstan, and may or may not have spurs through the troubled states of Iraq and Syria. Much like the ancient Silk Road, the Belt and Road will form a network of trading routes influenced by the competing demands of geography, commerce and geopolitics.
The initiative is motivated by a number of sweeping goals. In the first place, it aims to protect national security. China wants to create a network of economic dependency that will consolidate its regional leadership, enable it to hedge against the United Statesâ alliance structure in Asia, and diversify energy supplies. Beijing has few friends in Asia, but it is serious about helping its neighbours if they return the favour. This is a departure from the past, when Beijing did not try to cultivate close diplomatic relations, other than with the rogue states of North Korea and Myanmar.
Equally important are economic motivations. Beijingâs great hope is that state commodity producers, engineering firms and capital goods makers will find a lucrative new source of growth. The Belt and Road will require billions of tonnes of steel and cement, hundreds o...