Beijing appears to be rethinking CCP General Secretary Xi Jinping’s Belt and Road Initiative, an ambitious bid to reshape global trade by lending money for infrastructure projects in countries across Eurasia. The initiative has come under fire at home and abroad, with domestic critics wondering why the PRC, still only an upper-middle-income country itself, is lending vast sums internationally, while skeptics in the United States and elsewhere have noted that, in some cases, the PRC has lent countries more than they could ever hope to repay (China Brief, August 10; Times of India, June 27)....MORE
Beijing appears to appreciate the risk this criticism poses to the BRI. PRC domestic propaganda organs have begun to note the need for BRI investment to move in a more “high-quality” direction, while publicly available data suggests that the PRC dramatically scaled back its BRI lending during the past two years (China Brief, August 10). Beijing has also begun to push back against external skepticism through a wide variety of channels. The World Bank recently came to Beijing’s aid in this respect, publishing a report that strongly endorsed existing BRI investment. The report’s conclusions, however, are based on highly dubious assumptions, and raise the question of whether the Bank’s timely, unqualified endorsement was a form of “relationship management” with one of its most important shareholders.
Terms of Trade
The World Bank report was rolled out at a presentation during the Bank’s annual meetings, which gather its most important stakeholders from around the globe for several days of discussion and networking (World Bank, October 15). Prior to the presentation, Bert Hofman, the Bank’s country director for China, promised it would “get some facts straight” on the BRI (Twitter, October 12). The presentation was well attended, and featured a panel discussion including a PRC vice minister of finance (Twitter, October 12).
The paper identifies 62 separate BRI investment projects, and evaluates whether they will reduce trade costs and spur economic growth for participating countries. Its conclusions are unambiguously positive. The report’s abstract states that “the Belt and Road Initiative will significantly reduce shipment times and trade costs”, reducing trade costs between 1.1 and 2.2 percent for the world as a whole, and 1.5 and 2.8 percent for participating Belt and Road nations (World Bank, October 15).
These findings by one the world’s premier international development organization are good news for the PRC, amid a rising chorus of international concern over the purpose and practicality of BRI investment. PRC diplomats, bankers, and businesspersons will no doubt point to them to assuage concerns among current and potential BRI partners. But the report’s findings are specious, because of two errors that appear to mar the reliability of its analysis
One Belt, One Road, All Wrong
The first problem is serious, but somewhat understandable given the BRI’s amorphous nature: Some of the projects the report identifies as “Belt and Road” projects have no discernible PRC involvement. For example, the Marmaray rail tunnel, which connects Turkey’s European and Eurasian sides, has been financed and built by a Turkey-EU-Japan consortium (Hurriyet Daily News, March 2; The Guardian, October 29 2013). The paper also includes a rail line from Arkalyk to Shubarkol in Kazakhstan, which was opened in 2014 with no apparent PRC involvement (Rail Turkey, September 17 2014), as well as a rail line from the Iranian city of Gorgen to the city of Uzen in Kazakhstan, which came online in 2013, also without PRC involvement (Railway Gazette, May 13 2013). Upgrades to ports in Aktau in Kazakhstan and Baku in Azerbaijan, while clearly meant to facilitate PRC transshipping across the Caspian Sea, were likewise completed without financing or construction assistance from PRC entities (Jamestown, October 2 2015; Railway Pro, Feb 25 2014). A Thai-Cambodia rail link was funded by Cambodia and the Asian Development Bank (Railway Gazette, April 5).
In its paper, the World Bank appears to have adopted an approach similar to the PRC’s in defining what constitutes a “Belt and Road” project. The PRC has not objected when countries brand their infrastructure projects as “Belt and Road”, even if no PRC-based entities are actually involved with the project. This seems to be the case with the above projects. In the case of the Maramaray tunnel, for example, Turkish president Recip Erdogan publicly associated the project with China’s “New Silk Road” at a 2017 Belt and Road Forum in Beijing, despite the lack of PRC involvement in its construction (Office of the Turkish President, May 14 2017).
The paper’s second problem is much more serious. The paper’s positive conclusions about the BRI’s future benefits are unambiguous (“the Belt and Road Initiative will reduce shipment times between 1.2 and 2.5 percent, leading to reduction of aggregate trade costs between 1.1 and 2.2 percent”), but its authors appear to have made no serious effort to grapple with the feasibility of the proposed projects. If the project has been proposed, and the relevant governments have declared it part of the BRI, the paper assumes it will be seen through to completion. Many of the projects it evaluates in Central Asia and Africa are already completed or are under construction. But the picture is very different for projects in South and Southeast Asia.
Some of the projects there are little more than pipedreams. A proposed high-speed rail line from Calcutta to Kunming, in the southwest of the PRC, appears to exist nowhere outside the mind of the PRC consul general in Calcutta (India Today, September 12). The paper assumes that Indonesia and Malaysia will complete an astonishingly challenging 50-km bridge across the Straits of Malacca; neither government is pursuing the project (SEAsia, February 6). It also assumes successful completion of a 120-km canal across the Kra Isthmus in Thailand, proposals for which have existed in one form or another for hundreds of years; at the moment the project has no form beyond a recently initiated Thai government feasibility study (Bangkok Post, October 29)....
HT: China Brief's editor Matt Schrader whose rants get raves:
...MUCH MOREMini-tweetstorm on what's wrong with the report: The Bank put out a high-profile report at its annual meetings. It analyzed 62 BRI projects to determine how they would lower the costs of trade. Its conclusions are unambiguously positive.— Matt Schrader (@tombschrader) November 20, 2018
