China’s Belt and Road Gamble: Can it deliver?
Shahid Yusuf is currently Chief Economist of The Growth Dialogue at the George Washington University School of Business in Washington DC, Adjunct Professor at Johns Hopkins University SAIS and a non-resident fellow of the Center for Global Development. He holds a Ph.D. in Economics from Harvard University, and a BA in Economics from Cambridge University. Prior to joining the Growth Dialogue, Dr. Yusuf was on the staff of the World Bank. He was the Director of the World Development Report 1999/2000 on “Entering the 21st Century” and he managed the East Asia’s Prospects project from 2001- 2009. Dr. Yusuf has published widely in academic journals and he has authored or edited 30 books on industrial and urban development, innovation systems and tertiary education, which have been translated into a number of different languages. His most recent publication is “China and the Global Economy”.
Starting in 1999, China’s enterprises and banks began to implement the first phase of Jiang Zemin’s “go out” strategy. The strategy was motivated by the need to secure supplies of energy and raw materials including agricultural land for food crops and thereby reducing resource uncertainties; to penetrate new markets and build brand image so as to promote export growth; to learn about and acquire advanced technologies through joint ventures and by buying up foreign firms with IP; and also to widen employment and business opportunities for Chinese workers and entrepreneurs. Economic motives were intertwined with the political. With domestic development moving into high gear, a more confident China set its sights on raising its profile abroad and acquiring diplomatic clout commensurate with its increasing economic weight.
The Belt and Road Initiative (BRI) is born
Following the Financial Crisis of 2008–9, China’s engagement with the rest of the world—and in particular with neighboring countries—entered a new phase. China was now the world’s second-largest economy, and by 2013 it had surpassed the United States to become the premier industrial and trading nation with vast foreign exchange reserves that could bankroll a more forceful international strategy. The Financial Crisis and the ensuing global recession also undermined the attractions of the western (capitalist) model of development and enhanced the marketability of the competing Beijing model. With the transfer of authority in 2012 to a leader—Xi Jinping—committed to doubling China’s GDP by 2021, building its military capabilities and extending its overseas political influence, the stage was set for the Belt and Road Initiative (BRI, “yidai yilu”). Xi Jinping proposed this in 2013. Since then, much effort has gone into fleshing out the still-nebulous venture, marshaling justification, identifying profitable projects, and mobilizing finances.
The BRI’s financial lynchpins thus far are the AIIB (with $100 billion of capital); the $40 billion Silk Road Fund; the New Development Bank (or BRICS Bank, with an initial subscribed capital of $50 billion); China’s policy banks: ExIm and the China Development Bank; and the leading Chinese commercial banks. At a major BRI event held on May 2017 in Beijing, President Xi announced that BRI was “the project of the century” and that China would commit another $100 billion towards its implementation in addition to the $50 billion spent over the past four years. If the currently-projected spending is realized, the BRI would be 12–15 times the size of the Marshall Plan.
The BRI envisages a Silk Road Belt through Central Asia and extending beyond to West Asia, the Middle East terminating in Europe with a spur extending into South and Southeast Asia; and a Maritime Silk Road that could more closely knit together economies in Southeast Asia, Oceania and East Africa. The Belt is comprised of 6 corridors: China-Mongolia-Russia; a new Eurasian Land Bridge; a corridor from China to Central and Western Asia; a China- Indo-China peninsula corridor; a China Pakistan corridor; and a Bangladesh-Myanmar-China corridor. The Maritime Silk Road to develop the “blue engine” (“lanse yinqing”) initially identified two routes: one that traverses the Indian Ocean and terminates in the Mediterranean; and a second that penetrates the South Pacific. To these China has added a “blue economic passage” (“lanse jingji tongdao”), the Northern route now that the lower reaches of the Arctic Ocean are expected to be ice-free for much of the year by 2030 and usable by ice strengthened ships.
The BRI could include as many as 65 countries, 40 of which have signed cooperation agreements with China. BRI could ultimately impact 4.4 billion people with a collective GDP of $21 trillion—almost one fourth of the global total.
Source: Markey and West (2016): Behind China’s Gambit in Pakistan. Council on Foreign Relations. https://www.cfr.org/expert-brief/behind-chinas-gambit-pakistan
Source: Ed Struzik, “Shipping Plans Grow as Arctic Ice Fades,” Yale Environment 360 (2016), http://e360.yale.edu/features/cargo_shipping_in_the_arctic_declining_sea_ice
Why did China launch BRI?
Sustaining China’s growth performance and acquiring geopolitical advantages that will heighten China’s power and prestige are the key justifications for the BRI but there are several other reasons that are gaining in importance:
- BRI could enable China to keep its growth rate in the 6% to 7% range so as to fulfill Xi’s goals of doubling China’s GDP between 2010 and 2021 and making China a prosperous country by 2049. With gross domestic investment (currently 43 percent of GDP) yielding low returns, China needs to find investment outlets with better returns. BRI is a way of channeling resources into potentially more lucrative projects, utilizing China’s excess industrial capacity in steel, non-ferrous metals, cement, and in the transport, construction and power-generating equipment subsectors among others. BRI-related projects would also create employment for the huge construction workforce as domestic activities begin tapering. Tightening economic and infrastructure based links with neighboring economies would boost and sustain the growth of China’s manufactured exports—in part by increasing dependence of countries along the Belt and the Road on Chinese equipment, spare parts and services;
- To create a Eurasian economic corridor and a string of economic hubs stretching all the way through Eastern Europe, thereby generating a development dynamic that is advantageous for China’s growth;
- To break out of the perceived encirclement of the country by the United States and its allies and (re) establish regional hegemony in competition with the U.S. and Japan. BRI would advance the objective of achieving a decisive economic and military advantage over neighboring countries and in the process encircle India with ports in Myanmar, Sri Lanka and Pakistan (“a string of pearls”);
- To undermine and progressively marginalize U.S influence in East and Southeast Asia, especially the alliance with South Korea and support for Taiwan;
- To safeguard supplies of energy and raw materials by eliminating the threat of a blockade of the Straits of Malacca and developing alternative routes and sources of supply;
- To quell the restive (Uighur) minority population by strengthening the economies of China’s Western Provinces through investment in BRI infrastructure and by forging closer trade links with Kazakhstan/Kyrgyzstan/Pakistan. Moreover, infrastructure diplomacy and investments in Afghanistan and Pakistan could serve to minimize the risks from extremism spilling over into Xinxiang.
Developments to date
As of end 2016, $900 billion worth of projects were planned or under implementation—with loans and credits from Chinese banks amounting to $1.2 trillion (not all for BRI projects). Chinese agencies claim that BRI will eventually absorb between $4 trillion and $8 trillion.
Starting with the Chongqing-Duisberg rail link that was (re) established in 2011 prior to the announcement of the BRI, several Chinese cities now have rail connections with European cities and a number of provinces have begun constructing logistics centers to service BRI traffic (EIU 2015). Some projects such as Hambantota Port in Sri Lanka (on which work began in 2008) and Gwadar Port in Pakistan (which has been under construction since 2002) predate the BRI. Others that are underway or approaching completion include: a gas pipeline from Azerbaijan to Turkey and Europe (financed by a $600 million AIIB loan in 2016, its largest); gas pipelines from Kazakhstan and Turkmenistan to China; the purchase of a $420 million stake in Greece’s Port Piraeus and the building of a railway link to Eastern Europe (from Belgrade to Budapest); Chinese companies now manage a total of 29 ports in 15 countries and 47 sea terminals in another 13 countries; an Ankara-Istanbul rail link; a port and gas pipeline in Myanmar; road, power and port projects in Pakistan (the China-Pakistan Economic Corridor, a centerpiece of BRI, is promised more than $55 billion, of which $35 billion is earmarked for energy projects: nuclear- and hydro-power projects and coal-fired plants. See below); the first leg of the Pan Asian railway from Kunming to Vientiane; high-speed rail projects in Saudi Arabia and Iran; and a rail link from Bangkok to Nakhon Ratchasima. In addition, Chinese provinces taking their cue from BRI also plan on investing in neighboring countries. For example, Guangdong Province intends to invest in a power plant in Vietnam, an oil refinery in Myanmar and in Southeast Asian banana plantations (EIU 2015).
Assessing the merits and demerits of BRI
The “extraordinarily lavish public relations campaign” and the vast sums that China is committing to BRI have delayed a much-needed rigorous assessment of its economic benefits and risks for China and its partner countries that will be borrowing mainly from Chinese entities to finance large infrastructure projects many of which will be constructed by Chinese companies using Chinese labor and materials. To this day, the BRI remains a patchwork of projects that is devoid of a well-articulated strategy backed by solid analysis of the potential risk-adjusted benefits. And risks there are aplenty for China and for the several politically less-than-stable countries that will be the focus of BRI, particularly in Central and South Asia. None of these countries have a track record of good policy, economic performance and budding technological capabilities, which leads one to wonder whether they will be able to attract additional productive private investment, generate the tradables and benefit from railway technology transfer so as to accelerate growth and service the BRI loans.
A close partnership with China needs to be approached with caution because the communist regime has staked its legitimacy on sustaining rapid growth and attaches relatively limited importance to transparency. The governance and finances of state-owned enterprises that are spearheading major BRI projects are opaque; their capacity to manage and implement complex transnational projects is untested. Contractual relations with such entities could well prove to be contentious if projects fail or the work done and materials used are of poor quality, or if lax environmental standards cause damage. Thus, a number of issues deserve closer attention and more systematic study than they have received.
- Can China finance BRI projects to the tune of several trillion dollars from its own resources? And if not, will China need to tap the international bond market for the bulk of the financing?
- China’s neighbors worry that the purpose of BRI infrastructure and connectivity is to facilitate the export of Chinese products and services and to further China’s geopolitical ambitions. Many are already on the slippery slope to deindustrialization and BRI could accelerate the process. Existing light consumer manufacturing would be imperiled and the likelihood of diversifying into more complex products would be greatly diminished because of the comparative advantage that China enjoys in products such as steel, rolling stock, vehicles, power generating equipment (including solar panels and wind turbines), telecom equipment, construction equipment, consumer electronics and electrical machinery.
- There is a risk that the hub-and-spoke model will not lead to convergence. Puga noted that cross border transport infrastructure has not led to regional convergence in Europe. If anything, it has tended to increase regional disparities making existing hubs more dominant and disadvantaging nearby regions in the hub shadow.
- Research on the growth-inducing effects of infrastructure is somewhat equivocal but on balance positive. Countries can improve their lot through transport, communications and power infrastructures. But in order to service the loans from China or other borrowers will need to greatly expand their exports and run trade/current account surpluses. Given the trends in manufacturing and the slowing in the growth of world merchandise trade, is that likely? In 2016, China’s trade surplus with BRI participants equaled $250 billion. Could countries such as Pakistan that runs a $13 billion trade deficit with China possibly narrow and reverse the trade gap and run surpluses with its hyper competitive neighbor or with other trading partners? If they do not, what is the return to these countries in terms of longer-term gains from infrastructure? In other words, how much growth could the road, power and SEZ (special economic zone) projects unlock by way of tradable goods and services? Furthermore, if highly-indebted countries are unable to repay these loans, what are the consequences for Chinese firms and for their bankers? Taking over assets that will need to be marked down would involve absorbing large losses.
- What is the risk that BRI could exacerbate the resource curse in countries such as Kazakhstan, Turkmenistan and Afghanistan? Could the creation of the BRI trade corridor render them even more resource dependent and stunt their non-resource based tradable sectors?
- China’s projects in its Western provinces have at best yielded modest returns; thus far, the profitability of China’s FDI in developing countries has also been low. This experience raises questions over the viability of the cross-national infrastructure projects intrinsic to BRI. These projects will be costly to construct and the financial returns are likely to be meager, at least in the medium run. The contractual arrangements will be with destination country governments and political changes could easily affect outcomes. Political risk could discourage participation by investors from developed countries.
- There are in addition, geopolitical issues that need to be factored in. China’s actions in the South China Sea including the construction and militarization of seven artificial islands, oil drilling in the East China Sea and its relations with North Korea have alarmed China’s neighbors. Attempts to encircle India and to tighten political and economic linkages with Southeast Asian countries, are likely to worry the U.S. and its allies. Chinese closeness to and support for Pakistan will be troublesome for India and could weaken the incentive for Pakistan to settle some of its differences with India. Political tensions within and among countries, sporadic violence (as in Pakistan’s Baluchistan Province) and arms races in South, Southeast and East Asia could undermine BRI, as could continuing discord in the Middle East. How might these developments and others affect growth prospects?
The BRI is a work in progress. As with its domestic economic strategy in the 1980s and 1990s, China “is crossing the river by feeling the stones.” It has some broad ambitions, but no clear strategy or precise objectives, no well-defined timeframe, and little by way of empirical estimates of what BRI might achieve for China and for other participants. There has been no economic analysis of BRI projects or assessment of their financial viability. It is an article of faith that transport and energy infrastructures will generate high net long term returns irrespective of how and where they are constructed and at what cost. This is a big assumption, based on insufficient evidence. Insufficiency and rent-seeking can easily eat up the return on infrastructure investment.
Moreover, as China’s growth has slowed and is likely to continue slowing, its current account surplus has begun declining and its foreign exchange reserves have shrunk, China’s capacity to single-handedly shoulder the bulk of BRI financing has diminished. The fluid state of China’s international relations injects an additional dose of uncertainty into the planning and implementation of the BRI.
Now that BRI is entering its fourth year with billions already spent or committed both China and its partners need to take a hard look at the economics of the Initiative: is the money already spent likely to yield an adequate return for all parties? What about projects under implementation or in the planning stage? Have these been thoroughly vetted? What is the opportunity cost of such investment? What sort of complementary investments are needed for the benefits to be realized? There is little evidence of such due diligence. And this bodes ill for the countries that have accepted Chinese loans and will be on the hook if the returns fall short of expectations.
Brinza, A., 2017. China’s Continent Spanning Trains are running Half Empty. Foreign Policy. June 5th. http://foreignpolicy.com/2017/06/05/chinas-continent-spanning-trains-are-running-half-empty-one-belt-one-road-bri/
Calderon and Serven, L., 2004. The Effects of Infrastructure Development on Growth and Income Distribution. Washington DC. World Bank. http://www.alide.org.pe/download/CEDOM/Infraestructura_AS2003/politicas/09effectsCesar%20Calderon%20[Sólo%20lectura].pdf
Calderon, C., and Serven, L., 2010. Infrastructure in Latin America. Policy Research Working Paper No. 5317. Washington DC. World Bank. https://openknowledge.worldbank.org/bitstream/handle/10986/3801/WPS5317.pdf
Calderon, C., Serven, L., 2014. Infrastructure, Growth, and Inequality: An Overview. Policy Research Working Paper; No. 7034. World Bank Group, Washington, DC. https://openknowledge.worldbank.org/handle/10986/20365
Chibber, A., 2017. China’s Belt and Road Initiative and India’s options: Competitive Cooperation. Journal of Infrastructure Policy and Development. 1(2):1-12.
Creszensci, R., and Rodriguez-Pose, A., 2012. Infrastructure and regional growth in the European Union. Papers in Regional Science. 91(3):487-615. http://eprints.lse.ac.uk/44464/1/__lse.ac.uk_storage_LIBRARY_Secondary_libfile_shared_repository_Content_Crescenzi%2C%20R_Infrastructure%20regional%20growth_Crescenzi_Infrastructure%20regional%20growth_2014.pdf
Creszensci, R., Rodriguez-Pose, A., and Di Cataldo, M., 2016. Government quality and the economic returns of transport infrastructure investment in European regions. Journal of Regional Science. 56(4):555–582. https://www.researchgate.net/publication/308725844_Government_quality_and_the_economic_returns_of_transport_infrastructure_investment_in_European_regions
Dethier, J-J., and Moore, A., 2012. Infrastructure in developing countries: An overview of some economic issues. ZEF-Discussion Papers on Development Policy No. 165. Bonn, Germany
Economist Intelligence Unit (EIU) 2015. Prospects and Challenges one China’s One Belt One Road: A risk assessment report. London. https://static1.squarespace.com/static/529fcf02e4b0aa09f5b7ff67/t/554c49cee4b06fc215162cb4/1431062990726/One+Belt%2C+One+Road.pdf.
French, H., (2014). China’s Second Continent. New York. Knopf.
French, Howard W. Everything Under the Heavens: How the Past Helps Shape China’s Push for Global Power(New York: Knopf, 2017).
Gibbons, S., Lyytikainen, T., Overman, H., Sanchis-Guarner, R., 2017. New Road Infrastructure: The effects on firms. SERC Discussion Paper No.214. http://www.spatialeconomics.ac.uk/textonly/SERC/publications/download/sercdp0214.pdf; http://voxeu.org/article/new-road-infrastructure-effects-firms
Ismail, N.W., and Mahyideen, J.M., 2015. The Impact of Infrastructure on Trade and Economic Growth in Selected Economies in Asia. ADBI Working paper 553. Tokyo.
Lawler, A., 2014. Sailing Sindbad’s Seas. Science. 27 Jun 344, Issue 6191, pp. 1440-1445.
Lee, J.Y. 2016. China’s Hegemony. New York. Columbia University Press.
Luo, X., Zhu, N., and Zhou, H-F., (2009). China’s lagging region development and targeted transportation infrastructure investments. http://down.aefweb.net/WorkingPapers/w536.pdf
Millward, J. A., The Silk Road. New York. Oxford University Press.
Puga, D., 2008. Agglomeration and Cross-border Infrastructure. http://diegopuga.org/papers/eibinfra.pdf
Ribeiro, A., and Paez, A., 2010. Road accessibility and cohesion in lagging regions: Empirical evidence from Portugal based on spatial econometric models. https://www.researchgate.net/publication/229402834_Road_accessibility_and_cohesion_in_lagging_regions_Empirical_evidence_from_Portugal_based_on_spatial_econometric_models
Rolland, Nadege, 2017. China’s Eurasian Century: Political and strategic implications of the Belt and Road Initiative. NBR. http://www.nbr.org/publications/issue.aspx?id=346
Serven, L., 2010. Is Infrastructure Capital Productive. Washington DC. Brookings. https://www.brookings.edu/wp-content/uploads/2012/04/20100610_global_infrastructure_serven.pdf
Yu, N., de Jong, M.W., Storm, S., Mi, J., (2010). Spatial spillover effects of transport infrastructure: Evidence from Chinese regions. https://www.researchgate.net/publication/257425399_Spatial_spillover_effects_of_transport_infrastructure_Evidence_from_Chinese_regions; http://www.tandfonline.com/doi/pdf/10.1016/j.polsoc.2012.01.004
 They have fanned out across the developing world and have created niches for themselves in Africa, South Asia and Southeastern Europe. See Howard French (2014).
 BRI (or OBOR (One Belt One Road)) was deliberately presented as an “initiative” and not a strategy “so as to make it seem less threatening, more open ended and more inclusive.” Hillman (2017). https://www.csis.org/analysis/chinas-belt-and-road-initiative-must-become-strategy
 A possible trigger was the TPP launched in 2011 by Barack Obama that excluded China. The failure of China’s efforts to increase its voting rights in international financial institutions (IFIs) might also have been a factor. Xi Jinping first announced the so-called “One Belt One Road” in Astana because Kazakhstan has crafted an infrastructure plan, the Nurly Zhol (aligned with BRI), but was short of financing. Moreover, from among the Central Asian nations, Kazakhstan is the one most focused on diversifying its economy, lessening its dependence on petroleum and developing knowledge-based activities. BRI has also been labeled as the “New Silk Road” although it bears little resemblance to that trading system, which evolved organically over centuries and was not the hub and spoke Belt currently envisaged by the Chinese. A compact account of the historical Silk Road can be found in Miliward (2013). The Maritime Silk Road along, which trade flourished between 2000 BCE and 1500 AD is being illuminated by archaeological discoveries that are described by Lawler (2014). http://www.sealinksproject.com/wp-content/uploads/2014/07/Lawler-2014-Sailing-Sinbads-seas.pdf
 There remains a lack of clarity as to which agency is principally responsible for BRI, and its priorities. See The Economist (2017) https://www.economist.com/news/china/21721678-silk-routes-are-not-always-appealing-they-sound-china-faces-resistance-cherished-theme. According to some observers, “the Belt and Road has not even started its implementation stage, which runs from 2022 to 2049. It is currently in the “strategic planning” stage. In an age of short-term pressures, this long view is another remarkable feature of the Belt and Road. At a time when governments are operating from one budget resolution to the next, and companies from one quarter to the next, China has set its eyes on the middle of the century” Hillman (2017). https://www.csis.org/analysis/chinas-belt-and-road-initiative-must-become-strategy; See also the CSIS report on “President Xi Jinping’s Belt and Road Initiative”. Johnson (2016) https://www.csis.org/analysis/president-xi-jinping’s-belt-and-road-initiative
 The BRI complements China’s overseas FDI estimated at $161 billion in 2016 and its ODA that in net terms amounts to a over $5 billion – $5.4 billion in 2015. China’s FDI is tracked by the Rhodium Group. http://rhg.com/interactive/china-investment-monitor http://www.reuters.com/article/us-china-economy-investment-idUSKBN14F07R; Kitano (2016) https://www.jica.go.jp/jica-ri/publication/other/l75nbg000008yara-att/note_20170601.pdf
 “Xi Jinping positions China at the center of the new economic order”. NY Times May 14th 2017. https://www.nytimes.com/2017/05/14/world/asia/xi-jinping-one-belt-one-road-china.html
 Chellaney (2017) https://www.project-syndicate.org/commentary/one-belt-one-road-china-imperialism-by-brahma-chellaney-2017-05: Arnoud Balhuizen (2017) of BHP has calculated that direct investment though BRI could be more than 7 times that generated by the Marshal Plan. https://www.bhp.com/media-and-insights/prospects/2017/09/belt-and-road-initiative
 Iran expects to be a major beneficiary of the road and rail links with China and other parts of Eurasia. http://www.heritage.org/asia/commentary/chinas-huge-one-belt-one-road-initiative-sweeping-central-asia; https://www.nytimes.com/2017/07/25/world/middleeast/iran-china-business-ties.html?E=nytcore-ipad&smid=nytcore-ipad-share
 As of 2016, only 19 ships completed the voyage. However, further diminution of the ice cover and the use of icebreakers could permit many more ships to transit through this sea lane. The Arctic passage would reduce the surface travel time between China’s ports and European ones by a week (from 23 days) and eventually by as much as two weeks. China’s interest in the Arctic is reinforced by the region’s resource potential. CNPC has already taken a 9.9 percent share in the $29 billion Yamal LNG Project. Once the passage is operational, the Belt and Road could be renamed Belt, Road and Circle. Should the routes keep on multiplying, other terms could be added in due course. Lanteigne (2017) https://www.newsdeeply.com/arctic/community/2017/06/30/china-loops-the-arctic-into-its-belt-and-road-vision; Lanteigne (2017) https://thediplomat.com/2017/09/who-benefits-from-chinas-belt-and-road-in-the-arctic/; Gudjonsson and Nieisson (2017) http://thediplomat.com/2017/03/chinas-belt-and-road-enters-the-arctic/; Struzik (2016) http://e360.yale.edu/features/cargo_shipping_in_the_arctic_declining_sea_ice; https://www.nytimes.com/interactive/2017/05/03/science/earth/arctic-shipping.html; http://www.bbc.com/news/science-environment-37286750
 China is already the dominant trading partner of many of these countries.
 Nadege Rolland maintains that the ultimate purpose of BRI “is to build a Sinocentric Eurasian order in which Beijing’s influence and power have significantly expanded, authoritarian regimes have been consolidated and liberal norms have receded”. (China’s Eurasian Century: Political and strategic implications of the Belt and Road Initiative NBR, 2017, p. 3, http://www.nbr.org/publications/issue.aspx?id=346)
In a similar vein, Philip Stephens is of the view that, “China imagines an era in which the great land mass of Eurasia becomes the vital fulcrum of global power” with China as the pivotal Eurasian player (Financial Times, July 21st. 2017, https://www.ft.com/content/ed033dae-6c69-11e7-b9c7-15af748b60d0). Since the time of the Qin Dynasty through the mid-19th century—a period covering more than two thousand years, “The norm for China from its own perspective was a natural dominion over everything under heaven a concept in the Chinese language known as tian xia”(Howard W. French, Everything Under the Heavens: How the Past Helps Shape China’s Push for Global Power (New York: Knopf, 2017), 3-4).
 In Xi Jinping’s words, “We have set the goals of completing the building of a moderately prosperous society in all respects by the centenary of the CPC in 2021 and building China into a modern socialist country that is prosperous, strong, democratic, culturally advanced, and harmonious by the centenary of the PRC in 2049 so as to realize the Chinese Dream of the rejuvenation of the Chinese nation.” http://www.china.org.cn/opinion/2015-10/30/content_36935303.htm; 2049 would be the 100th anniversary of the founding of the People’s Republic of China.
 China’s investment in U.S. Treasury bills and other instruments yield equally low returns, and the fractious relations between the two countries discourage the further accumulation of dollar denominated securities.
 Balhuizen (2017) estimates that BRI could raise steel consumption by about 15 million tons annually over a ten-year period with Chinese companies supplying much of the increased demand. https://www.bhp.com/media-and-insights/prospects/2017/09/belt-and-road-initiative
 China is the world’s largest exporter of cement in 2016 accounting for 7.6 percent of the total. http://www.worldstopexports.com/top-cement-exporting-countries/
 Underutilization of coal fired power plants and increasing excess capacity has compelled China to cut back on the construction of coal-fired stations and to accelerate the retiring of aging plant. http://www.caixinglobal.com/2017-08-02/101125503.html. BRI is supporting the Shanghai Electric Group to build coal fired stations in Egypt, Pakistan and Iran with a total capacity of 6,285 MW that is ten times the capacity the company is developing in China. Meanwhile the China Energy Engineering Corporation is constructing another 2,200 MW of generating capacity based on coal in Vietnam and Malawi. In all, Chinese companies are investing in up to 386,000 MW of coal-fueled capacity worldwide. China has surplus capacity in the production of solar panels and associated equipment and wind turbines that it is also exporting. A solar park with a total generating capacity of 1,000 MW is nearing completion near Bahawalpur in Pakistan. https://www.nytimes.com/2017/07/01/climate/china-energy-companies-coal-plants-climate-change.html; https://en.wikipedia.org/wiki/Quaid-e-Azam_Solar_Park
 On the Chinese side, a number of cities are already positioning themselves as hubs for the Belt. The leading contenders are: Changchun, Zhengzhou, Yiwu, Xian, and Kashgar.
 China has not forgotten the (near) hegemony it enjoyed during Qing times and earlier when neighboring countries were permitted trade in exchange for tribute. That this hegemony did not go unchallenged is the subject of a book by Lee (2016) that examines China’s relations with some of its neighbors over four centuries. Brown’s (2017) take on China’s approach is that, “As with the Asia Infrastructure Investment Bank, BRI is part of a strategy to create a world for China where the United States is not ubiquitous. It is also an idea focused on improving connectivity – through building infrastructure, financial and investment links, and people to people movements and contacts. And, at least in the iterations of the idea from the National Development and Reform Commission and others within China, it is a major attempt to promote understanding, appreciation and respect for China’s culture”. https://reconnectingasia.csis.org/analysis/entries/where-does-chinas-belt-and-road-go/
 A leading Chinese scholar explained China’s intentions in these terms. “Sea lane security is critical to sustaining the stable development of the 21st Century Maritime Silk Road, while port facilities are the foundation of sea lane security China must therefore help to establish ‘sea posts’ that can support and resupply the ships traveling (and securing) the sea lanes. Such “sea posts” could be newly built, either by individual countries or with the help of China, or that China could lease existing facilities”. Clemens (2015) https://www.cna.org/cna_files/pdf/maritime-silk-road.pdf
 Tight governmental control exercised over the Uighur community that has assimilated far less with the Han population than the Hui Muslim minority, complements economic initiatives. http://time.com/3099950/china-muslim-hui-xinjiang-uighur-islam/. In recent years, the Chinese authorities have begun demanding that all Uighurs studying overseas be repatriated for fear that they might be radicalized. https://learningenglish.voanews.com/a/china-orders-uyghur-students-overseas-to-return-home/3849681.html
22 China’s western provinces and others as well have already committed resources to infrastructures that will support the BRI. Whether transport infrastructure will promote development in the western provinces is debatable given the sparse population, the topography, distance from major industrial and population hubs and weak demand. Luo, Zhu and Zhou (2009); Yu et al (2012). In the European context, Creszensci and Rodriguez-Pose (2012) conclude that transport infrastructure has proven to be a poor predictor of economic growth in the EU. They state, “In the case of the regions of the EU, there is little evidence of an impact of the transport infrastructure endowment of any given region or of its neighboring regions on economic growth…while, by contrast, local R&D capacity, local social conditions, and migration are much better predictors of economic performance”. Secondary roads are often a better bet. And government performance influences the returns from infrastructure and its upkeep Creszensci et al (2016). Rail links between Milan and Naples, have strengthened the economies of hubs while contributing little to the development of Southern Italy. A study of road infrastructure building in Portugal came to similar negative conclusions: greater accessibility did little to improve the cohesion and purchasing power of the less developed parts of the country. Ribeiro et al (2010)
 “One Belt One Road- and many questions”. FT (2017) https://www.ft.com/content/d5c54b8e-37d3-11e7-ac89-b01cc67cfeec?mhq5j=e3
Christopher Balding, Can China afford its belt and road” https://www.bloomberg.com/view/articles/2017-05-17/can-china-afford-its-belt-and-road
 Following extended negotiations regarding the management and use of Hambantota Port, the Sri Lankan government finally agreed in July 2017 to lease the port to China Merchants Port Holdings (CMPH) for the sum of $1.12 billion that will help ease the country’s debt servicing obligations. CMPH will have a 70 percent stake in the port, which it initially constructed for $1.5 billion. However, a Sri Lankan firm will be responsible for port security and its use by foreign naval vessels. http://www.reuters.com/article/us-sri-lanka-port-idUSKBN1AD120?il=0; http://asiantribune.com/node/90757
 Gwadar was an Omani enclave housing a fishing village that was purchased by Pakistan for $3 million in 1958 following negotiations spanning four years. The Khan of Kalat ceded it to the Sultan of Muscat in 1784. The development of modern port facilities in Gwadar by Chinese contractors commenced following the signing of an agreement with Chinese Premier Zhu Rongji. As of mid 2017, some 30,000 Chinese were working on projects in Pakistan. India has responded by committing to invest $500 million in Iran’s Chabahar Port and an adjacent Transport and Transit Corridor. Chabahar is a mere 100 km along the coast from Gwadar (Asia Times Aug 10th 2017..
 China’s spending on foreign port facilities along Silk Belt and Road amounted to $20 billion between June 2016 and 2017, a doubling of its investment during the preceding 12 months. https://www.ft.com/content/e00fcfd4-6883-11e7-8526-7b38dcaef614
The investment in ports commenced over a decade ago and in time has vastly increased China’s access to port facilities around the world. A number of customs agreements are further facilitating the flow of Chinese merchandise. https://www.forbes.com/sites/wadeshepard/2017/09/06/chinas-seaport-shopping-spree-whats-happening-as-the-worlds-ports-keep-going-to-china/#1753c6604e9d; https://www.forbes.com/sites/wadeshepard/2017/10/17/chinas-challenges-abroad-5-reasons-why-the-belt-road-will-succeed/#4b2725fe4a82
 FT (2017, May 17th) “China takes project of century to Pakistan”. https://www.ft.com/content/05979e18-2fe4-11e7-9555-23ef563ecf9a?mhq5j=e3; As of 2017, projects worth $18 billion were under implementation employing an estimated 60,000 Pakistani workers. http://www.cpecinfo.com/cpec-news-detail?id=Mzg5OA==. China also has an interest in exploiting Pakistan’s considerable untapped mineral resources primarily copper, gold and possibly lithium in Baluchistan close to the border with Afghanistan that contains large deposits of the prized mineral. With a number of projects in Pakistan coming on stream, China, CPEC related projects could be the “fastest and most effective” of the BRI projects to date. https://www.voanews.com/a/china-calls-pakistan-cpec-fastest-and-most-effective-of-bri-projects/3951874.html
 This is an expensive project with an estimated cost of $5.8 billion – a heavy burden for a small economy. It will be built through mountainous terrain with 62 percent of the line’s length consisting of bridges or tunnels. While it might benefit China’s trade and commerce, it is unclear how it will contribute to the development of Laos. The risk of environmental damage is considerable. http://www.asiasentinel.com/econ-business/china-laos-railroad-project/
 As of mid 2017, 12 new projects were announced however, five past projects on the books have been cancelled – in the U.S., Myanmar, Libya, Venezuela, and Mexico.
 Rolland, “All aboard.”
 Having spent close to $110 billion on “reconstructing” Afghanistan the United States has nothing to show for it. The state of dysfunction persists.
 Premier Li Keqiang referred to technology transfer as China’s, “golden business card”. FT (2017, July 18th p.9)
 China’s leading banks are engaged in roadshows to mobilize financing from domestic and offshore investors with the China Construction Bank aiming to raise RMB 100 billion and the Bank of China RMB 20 billion. https://www.reuters.com/article/us-ccb-fundraising-idUSKCN1B20ER
 Many in Pakistan are concerned that CPEC and trade agreements “could undermine Pakistan’s industry and sovereignty. FT (2017) https://www.ft.com/content/05979e18-2fe4-11e7-9555-23ef563ecf9a?mhq5j=e3; The Pakistan newspaper Dawn (2017, June 21st) has published a report detailing China’s long term plans to deeply penetrate Pakistan’s economy: “The plan envisages a deep and broad-based penetration of most sectors of Pakistan’s economy as well as its society by Chinese enterprises and culture. Its scope has no precedent in Pakistan’s history in terms of how far it opens up the domestic economy to participation by foreign enterprises”. https://www.dawn.com/news/1333101. The rising tide of steel imports from China compelled Pakistan to impose an anti-dumping duty on Chinese steel coils and sheets in February 2017 and duties on steel bars are under consideration. With Pakistan’s steel producers operating at 30 percent of capacity, imports from China threaten their survival. http://www.scmp.com/news/china/diplomacy-defence/article/2099060/china-pakistan-and-challenges-silk-road-connectivity
 Puga, 2008
 China is assuming that once infrastructure is in place industry and jobs will follow but it is an assumption that needs to be tested. The past contribution of physical infrastructure to growth is the subject of numerous studies. A survey by Dethier and Moore (2012, 4) concludes that “the elasticity of GDP with respect to infrastructure capital with a production function approach lies around 0.15 for developed countries…. and recent studies using a broader sample [arrive at comparable results]. This captures the direct effect of infrastructure on output…there may be additional indirect effects accruing through changes in the usage of the other inputs due to complementarities with infrastructure”. Other cross-country research by Calderon and Serven (2004, 2010, 2014) arrives at somewhat lower but still significant elasticities of between 0.07 and 0.10 (i.e. a doubling of infrastructure capital raises GDP by 10 percent directly and via externalities), with little variance among countries. They find that the stock of infrastructure raises productivity and growth over the longer term and the quality and quantity of infrastructure is correlated with a lower inequality. Bringing infrastructure availability up to the OECD median level would raise output per worker in Latin America, South Asia and SSA by 13.7%. 26.0% and 36.3% respectively (Serven 2010). Yet other estimates indicate that a 10 percent increase in the stock of infrastructure can raise GDP by 0.7 percent. A study of road improvements in the UK concluded that there were localized benefits from accessibility with each 1 percent improvement raising production capacity and employment by 0.3-0.4 percent. Timo Henckel (2010) https://www.brookings.edu/wp-content/uploads/2012/04/20100610_global_infrastructure.pdf. Gibbons et al (2017). Infrastructure availability and quality also facilitates trade, which in turn impacts growth. A paper by Ismail and Mahyideen (2015) provides a compact survey of the literature on infrastructure and economic performance and shows that hard and soft infrastructures working in tandem, can promote trade. Yu et al (2013) found evidence of positive spillovers from infrastructure in the Eastern and Northeastern regions of China but not central and western regions. Whether these findings from the past are indicative of potential future gains from infrastructure is uncertain.
 Between 2006/7 and 2015/16, Pakistan’s exports to China went from $575 billion to $1.63 billion. Meanwhile China’s exports to Pakistan increased from $3.5 billion to $12.1 billion. http://fp.brecorder.com/2017/03/20170314153866/; Figures in the FT indicate that China’s exports amounted to $16.5 billion in 2015.
 Down the road, servicing the loans from China will be burdensome for many countries. Chinese firms have already encountered problems with projects in Myanmar, Sri Lanka and Indonesia. Chinese SOEs that are spearheading BRI, such as the China Railway Corporation, are themselves increasingly in debt to Chinese banks: CRC’s debts amount to $558 billion and these are rising largely because much of China’s 22,000 km high-speed rail network runs at a loss. How long can China permit or compel these state entities to rack up debts? FT, July 18th 2017, p.9. “High-Speed Dream Hits the Buffers”. https://www.ft.com/content/9a4aab54-624d-11e7-8814-0ac7eb84e5f1?mhq5j=e3; FT, May 10th 2017. China’s Silk Road Investment falls in 2016. https://www.ft.com/content/156da902-354f-11e7-bce4-9023f8c0fd2e?mhq5j=e3
 Council on Foreign Relations (2017) https://www.cfr.org/asia-and-pacific/chinas-maritime-disputes/p31345#!/p31345
 In response to BRI and disputes along its northern border with China have induced India to launch its own initiative extending from Africa to Southeast Asia variously called the “Spice Route” the “Blue Revolution” and SAGAR – “Security and Growth for all in the Region”. (Chibber 2017).
 See IMF (2016) https://www.imf.org/external/pubs/ft/scr/2016/cr16270.pdf
 Some doubts have been expressed as to the actual increase in the resources that China has funneled into BRI projects since 2014. https://www.aei.org/publication/another-measure-shows-chinas-belt-and-road-initiative-is-overhyped/