China’s Massive Belt and Road Initiative

Introduction

China’s Belt and Road Initiative (BRI), sometimes referred to as the New Silk Road, is one of the most ambitious infrastructure projects ever conceived. Launched in 2013 by President Xi Jinping, the vast collection of development and investment initiatives was originally devised to link East Asia and Europe through physical infrastructure. In the decade since, the project has expanded to Africa, Oceania, and Latin America, significantly broadening China’s economic and political influence.

Some analysts see the project as an unsettling extension of China’s rising power, and as the costs of many of the projects have skyrocketed, opposition has grown in some countries. Meanwhile, the United States shares the concern of some in Asia that the BRI could be a Trojan horse for China-led regional development and military expansion. President Joe Biden has maintained his predecessors’ skeptical stance towards Beijing’s actions, but Washington has struggled to offer participating governments a more appealing economic vision.

What was the original Silk Road?

The original Silk Road arose during the westward expansion of China’s Han Dynasty (206 BCE–220 CE), which forged trade networks throughout what are today the Central Asian countries of Afghanistan, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan, as well as modern-day India and Pakistan to the south. Those routes extended more than four thousand miles to Europe.

Central Asia was thus the epicenter of one of the first waves of globalization, connecting eastern and western markets, spurring immense wealth, and intermixing cultural and religious traditions. Valuable Chinese silk, spices, jade, and other goods moved west while China received gold and other precious metals, ivory, and glass products. Use of the route peaked during the first millennium, under the leadership of first the Roman and then Byzantine Empires, and the Tang Dynasty (618–907 CE) in China.

But the Crusades, as well as advances by the Mongols in Central Asia, dampened trade, and today Central Asian countries are economically isolated from each other, with intra-regional trade making up a small percentage of all cross-border commerce. They are also heavily dependent on Russia, particularly for remittances, which made up nearly one-third of the gross domestic product (GDP) of Kyrgyzstan and Tajikistan before the Russian war in Ukraine scattered remittance-sending migrant laborers. 

What are China’s plans for its New Silk Road?

President Xi announced the initiative during official visits to Kazakhstan and Indonesia in 2013. The plan was two-pronged: the overland Silk Road Economic Belt and the Maritime Silk Road. The two were collectively referred to first as the One Belt, One Road initiative but eventually became the Belt and Road Initiative.

Xi’s vision included creating a vast network of railways, energy pipelines, highways, and streamlined border crossings, both westward—through the mountainous former Soviet republics—and southward, to Pakistan, India, and the rest of Southeast Asia. Such a network would expand the international use of Chinese currency, the renminbi, and “break the bottleneck in Asian connectivity,” according to Xi. (In 2018, the Asian Development Bank estimated that the continent faces a yearly infrastructure financing shortfall of over $900 billion.) In addition to physical infrastructure, China has funded hundreds of special economic zones, or industrial areas designed to create jobs, and encouraged countries to embrace its tech offerings, such as the 5G network powered by telecommunications giant Huawei.

Xi subsequently announced plans for the 21st Century Maritime Silk Road at the 2013 summit of the Association of Southeast Asian Nations (ASEAN) in Indonesia. To accommodate expanding maritime trade traffic, China would invest in port development along the Indian Ocean, from Southeast Asia all the way to East Africa and parts of Europe.

China’s overall ambition for the BRI is staggering. To date, 147 countries—accounting for two-thirds of the world’s population and 40 percent of global GDP—have signed on to projects or indicated an interest in doing so.

Analysts estimate the largest so far to be the estimated $62 billion China-Pakistan Economic Corridor (CPEC), a collection of projects connecting China to Pakistan’s Gwadar Port on the Arabian Sea. In total, China has already spent an estimated $1 trillion on such efforts. Experts have predicted that China’s expenses over the life of the BRI could reach as much as $8 trillion, though estimates vary.

What does China hope to achieve?

China has both geopolitical and economic motivations behind the initiative. Xi has promoted a vision of a more assertive China, even as the country’s outstanding loans have grown to the equivalent of over a quarter of its GDP.

Experts see the BRI as one of the main planks of a bolder Chinese statecraft under Xi, alongside the Made in China 2025 economic development strategy. For Xi, the BRI serves as pushback against the much-touted U.S. “pivot to Asia,” as well as a way for China to develop new trade linkages, cultivate export markets, boost Chinese incomes, and export China’s excess productive capacity. “China has had a fair amount of success in redrawing trade maps around the world, in ways that put China at the center and not the U.S. or Europe,” says CFR’s David Sacks, an expert on U.S.-China relations.

At the same time, China is motivated to boost global economic links to its western regions, which historically have been neglected. Promoting economic development in the western province of Xinjiang, where separatist violence has been on the upswing, is a major priority, as is securing long-term energy supplies from Central Asia and the Middle East, especially via routes the U.S. military cannot disrupt.

More broadly, Chinese leaders are determined to restructure the economy to avoid the so-called middle-income trap. In this scenario, which has plagued close to 90 percent of middle-income countries since 1960, wages go up and quality of life improves as low-skilled manufacturing rises, but countries struggle to then shift to producing higher-value goods and services.

Finally, Beijing could seek geopolitical leverage over BRI countries. A 2021 study [PDF] analyzed over one hundred debt financing contracts China signed with foreign governments and found that the contracts often contain clauses that restrict restructuring with the group of twenty-two major creditor nations known as the “Paris Club.” China also frequently retains the right to demand repayment at any time, giving Beijing the ability to use funding as a tool to enforce Chinese hot button issues such as Taiwan or the treatment of Uyghurs. In January 2022, Nicaragua officially joined BRI, one month after severing diplomatic ties with Taiwan.

What are the potential roadblocks?

The Belt and Road Initiative has also stoked opposition. For some countries that take on large amounts of debt to fund infrastructure upgrades, BRI money is seen as a potential poisoned chalice. China views BRI projects as a commercial endeavor [PDF], with loans close to a market interest rate that it expects to be fully repaid. Some BRI investments have involved opaque bidding processes and required the use of Chinese firms. As a result, contractors have inflated costs, leading to canceled projects and political backlash. 

China Rarely Cancels Debt

Renegotiated debt by outcome, January 2001 to November 2020

$0B

$10B

$20B

$30B

$40B

Deferral or rescheduling

Modification to loan terms or other outcome

Ongoing

Debt cancellation (write-off)

$0B

$10B

$20B

$30B

$40B

Deferral or rescheduling

Modification to loan terms or other outcome

Ongoing

Debt cancellation (write-off)

$0B

$20B

$40B

Deferral or rescheduling

Modification to loan terms or other outcome

Ongoing

Debt cancellation

(write-off)

Source:  Rhodium Group.

Examples of such criticisms abound. In Malaysia, former prime minister Mahathir bin Mohamad campaigned against overpriced BRI initiatives and canceled $22 billion worth of BRI projects, although he later announced his “full support” for the initiative. CFR’s Belt and Road Tracker shows overall debt to China has soared since 2013, surpassing 20 percent of GDP in some countries.

Since the COVID-19 pandemic and the Russian invasion of Ukraine roiled global markets, a climbing number of low-income BRI countries have struggled to repay loans associated with the initiative, spurring a wave of debt crises and new criticism for BRI. In Pakistan, for example, imports required to build CPEC infrastructure contributed to a widening budget deficit, ultimately resulting in a bailout from the International Monetary Fund (IMF). And in Ghana and Zambia, high debt loads that partly consisted of BRI loans led to sovereign default. However, many countries that sign on to BRI have few alternatives, Sacks says.

“If loans that you know are charging an exorbitant interest rate are the only way [to get infrastructure financing], you still have to weigh that trade off and probably proceed with that,” he says. 

Other skeptics connect the BRI with climate change. Though China committed to stop building coal-fired power plants abroad in 2021, nonrenewable energy investment has made up nearly half of all BRI spending; ambiguity remains about whether the commitment applies to projects already in progress or only to new projects, and if it restricts coal-fired power plant financing in addition to construction. 

How has the United States responded to China-led regional integration?

The United States has shared other countries' concerns about China’s intentions. Since the Obama administration’s Pivot to Asia, the United States has spent billions of dollars and flexed diplomatic muscle to build infrastructure and foster cooperation between low-income countries. President Donald Trump passed the BUILD act, which consolidated Overseas Private Investment Corporation (OPIC), a U.S. government agency for development finance, with components of the U.S. Agency for International Development (USAID) into a separate agency (the Development Finance Corporation) with a $60 billion investment portfolio.

In 2021, President Joe Biden, in collaboration with the Group of Seven (G7), launched the Build Back Better World Initiative (“B3W”) an infrastructure investment program conceived to compete with BRI. Though some supporters say B3W acts as a complement to BRI, many acknowledge that its lack of financing prevents it from acting as a serious challenger to China’s initiative. One year after B3W was announced, commitments under the initiative totaled only $6 million, and it had been renamed the Partnership for Global Infrastructure and Investment. Rather than investing in infrastructure, where China holds an economic advantage (China won more than eight times as many World Bank-funded infrastructure contracts as the United States in 2020), critics say Washington should boost its aid-based lending through existing multilateral institutions, such as the World Bank and IMF.

Others have argued that the United States might find a silver lining in the BRI. Jonathan E. Hillman, of the Center for Strategic and International Studies, says the United States could use BRI projects as a way to have China pay for infrastructure initiatives in Central Asia that are also in the U.S. interest.

What is the role for third countries?

Some countries have sought to balance their concerns about China’s ambitions against the BRI’s potential benefits.

India. India has tried to convince countries that the BRI is a plan to dominate Asia, warning of what some analysts have called a “String of Pearls” geoeconomic strategy whereby China creates unsustainable debt burdens for its Indian Ocean neighbors in order to seize control of regional choke points. In particular, New Delhi has long been unsettled by China’s decades-long embrace of its traditional rival, Pakistan. Meanwhile, India has provided its own development assistance to neighbors, most notably Afghanistan, where it has spent $3 billion on infrastructure projects.

Although India was a founding member of China’s Asian Infrastructure Investment Bank (AIIB), Indian and Chinese officials have since diverged on trade policy. Accordingly, the United States views India as a counterweight to a China-dominated Asia and has sought to knit together its strategic relationships in the region, most recently via the 2022 Indo-Pacific Economic Framework.

Japan. Tokyo has a similar strategy to New Delhi’s, balancing its interest in regional infrastructure development with long-standing suspicions about China’s intentions. Japan has committed over $300 billion in public and private financing to infrastructure projects throughout Asia. Together with India, Japan has also agreed to cultivate the Asia-Africa Growth Corridor (AAGC), a plan to develop and connect ports from Myanmar to East Africa, though little progress has been made on the initiative since it was announced in 2017.

Europe. Over two-thirds of European Union (EU) member countries have formally signed on to BRI with large Chinese infrastructure investment responsible for projects such as the renovated port of Piraeus in Greece and the Budapest-Belgrade railway in Hungary. Beijing has also funded a number of projects on the continent in non-EU countries. These investments have “made it harder for the EU to craft a united approach to China,” and Greece and Hungary have obstructed bloc-wide efforts to criticize China, CFR’s Jennifer Hillman and Alex Tippett write.

Some European countries have been more critical. French President Emmanuel Macron has urged prudence, suggesting during a 2018 trip to China that the BRI could make partner countries “vassal states.” In December 2021, the EU announced Global Gateway, a $300 billion infrastructure investment program explicitly meant to rival BRI, which critics say is a “drop in the ocean” compared to BRI. Others worry that China is using BRI funds to gain influence in Balkan countries hoping to become EU members such as Serbia, thereby providing China access to the heart of the EU’s common market.

Russia. Moscow has become one of the BRI’s most enthusiastic partners, though it responded to Xi’s announcement at first with reticence, worried that Beijing’s plans would outshine Moscow’s vision for a “Eurasian Economic Union” and impinge on its traditional sphere of influence.

As Russia’s relationship with the West has deteriorated, however, President Vladimir Putin has pledged to link his Eurasian vision with the BRI. Some experts are skeptical of such an alliance, which they argue would be economically asymmetrical. Russia’s economy and its total trade volume are both roughly one-eighth the size of China’s—a gulf that the BRI could widen in the coming years. And in the wake of the invasion of Ukraine, some analysts have said that Beijing’s refusal to condemn Russia has alienated Eastern European countries that are viewed as targets of BRI.