Too Free or Not Too Free: China's Belt and Road Initiative

It’s impossible to mention global economics without the elephant in the room: China’s massive Belt and Road Initiative (BRI). The BRI is the crown jewel of the Xi Jinping-led economy that rocketed China out of the doldrums of the pre-1990’s in which the vast majority of the rural and urban population lived in poverty. Those days are long-gone, at least if Chinese media is to be believed.

Outwardly, China boasts modern cities, highly developed infrastructure for shipping, manufacturing, and overland transport. Add that to an aggressive economic playbook that is powered by extreme government engineering, and what do you get? An emerging superpower.

For decades, China’s impressive growth was geared toward domestic expansion. In 2013, the Xi government announced they were taking the show hemispheric. The BRI aims to stretch the tendrils of Chinese economic and cultural influence over the developing Asian continent and evolve a competing economic sphere to the West.

On the inside, ominous questions still percolate out of the informational smoke of state-controlled media and ideology. The issues of human rights abuses and authoritarian social controls are well known across the Western world, but there are equally unnerving elements in China’s economic toolbox. The offering of unsustainable debt, suspiciously uncompetitive contract bidding, and the steady growth of Chinese influence on regional politics, are just a few of the worrisome issues facing the countries being courted by the China-backed salesmen on their doorstep.

What is clear is that the economic mitosis of East and West is well underway, and the choice being offered is both social and economic in nature. Economies may be uncoupled, but value and values cannot. This message has been heard by the United States, and the country has responded as any great torch-bearer of freedom and the free-market should: by offering a competitive choice.

The proposal of the Build Back Better World (B3W) initiative is an economic development package coupled with Western values that aims to unseat the Chinese jouster tilting for global influence and cultural supremacy. Too free, or not too free: that is the question that preoccupies the undiscovered countries and markets of the world as the Belt and Road Initiative unfolds and the West rises to meet the gauntlet it’s cast on the economic landscape.

Now that the introductions are out of the way, let’s talk numbers.

Import/Export: The Costs of Doing?Business

The BRI is often referred to as the New Silk Road. If that sounds impactful and expensive, that’s because it is. The long-term vision of the plan includes the development of overland trade arteries throughout Asia all the way to Europe. In the short-term, Beijing’s primary emphasis is on maritime shipping. It turns out that if you understand the problem of Chinese shipping and its approach to the challenge through the BRI, you understand basically everything about the initiative.

China is a gigantic exporter, and unlike most Western economies they send out far more than they receive. In 2020 China exported over $2.7 trillion worth of goods and services, and a whopping 60% of that was transported over water. However, Chinese-based fleets are at a simple geographic disadvantage in terms of shipping to the West. While China has the capacity to produce many favorably-priced products relative to European producers, it is an extant fact that Shanghai to Ireland is a long way to trip-a-ferry. If China could find a faster way to Europe it would save a great deal of time and money.

A Sea of Troubles for?Pakistan

Unfortunately, China only has an eastern coastline so it had three choices: put up, shut up, or make something up. It went with the latter. China’s premier BRI project began with a $46 billion investment in the China-Pakistan Economic Corridor (CPEC), which is essentially a gigantic highway and railway route from the China-Pakistan border straight through the middle of Pakistan to the Gwadar Port on the Arabian Sea. This cuts out over 6000 nautical miles and nearly a month at sea off the trip from Shanghai, and it’s for that reason that China has invested not only in transportation infrastructure in Pakistan but also worker education, energy production, and even built an airport in support of it.

This all seems great for Pakistan in the short-term, of course, whose economy and infrastructure were decidedly sub-par compared to the developed world. However, all this development comes at a price. The projects are all funded by Chinese financial entities, the contracts are almost exclusively granted to Chinese companies, and, crucially, Pakistan has doubled its national debt. In 2013 its total debt was $44 billion with only 9.3% of it owed to China. By 2021, it was over $90 billion and nearly 30% of that owed to Beijing. That share alone is more than 10% of Pakistan’s GDP.

The situation has led many observers to suggest that Pakistan is ensnared in a “debt trap”. The argument goes like this: China intentionally gets a developing country’s fragile economy hopelessly encumbered, and then uses this leverage to make said country a subservient vassal on the global stage. Some critics argue that such fears are unfounded because China hasn’t indicated this Machiavellian scheme is its actual intention.

Personally, I take the response of chess champion and resident genius of strategic games Gary Kasparov when he was asked why the Russian people seem to like Vladimir Putin so much even though he kills his political opposition and uses his power to squash freedom of speech and the free press: “How do you know?” That’s an excellent question. Pakistan would do well to seriously consider Polonius’s advice in Act 1 of Hamlet: “Neither borrower nor a lender be, for loan oft loses both itself and friend.”?

As the old cliché goes, there’s no such thing as a free lunch, and Pakistan will have much to chew as they ruminate on their economic and geopolitical future with a salivating Chinese investor. This is the kind of deal every developing country is going to have to face when Beijing dangles a carrot and offers to open up schools and improve the power grid. Is it any wonder that the planned trade routes that China is investing in so aggressively tend to wander around a strong democracy like India, and instead travel through countries like Bangladesh, Myanmar, and Pakistan? I think not.

The Free Market: To Thine Own Self Be?True

As I have pointed out previously, India is a country that realizes its Western values are on the table when it’s bargaining with its northern authoritarian stablemate. It knows full well that when the Xi government publishes in its BRI briefs goals like “cultural exchange” and “media cooperation,” it’s not talking about spicy food and reality TV. It takes note of China’s silence on Ukraine when its economic interests are on the line. India understands that China’s great communist development of “common prosperity” doesn’t seem to include the Uygher people in the West or the 286 million rural migrant workers who make all those goods in Chinese shipping containers while earning 22% less than the average worker in Beijing. And those people are Chinese citizens. They’re the ones whose prosperity the BRI is supposed to be all about.

Nonetheless, developing countries have to be developed by someone, and if there’s no other seller in town then you’re eventually going to have to buy. Fortunately, the United States is partnering with the West to roll out a competing project that offers the same types of economic opportunities and possibilities as the BRI, but with a distinctly Western set of values. The United States’ B3W initiative, in conjunction with the G7, is relatively new as of 2022. Still, it’s a heavy hitter. It has the potential to be a game-changer for countries who want economic evolution without undemocratic overtones, and will provide some much-needed balance on the world stage. The B3W will have a global scope, ranging from Latin America and the Caribbean all the way to Africa to the Indo-Pacific region.

Critically, unlike the unilateral Chinese development schemes, the B3W will prioritize “infrastructure development carried out in a transparent and sustainable manner,” which promises to be a valued contrast to Beijing’s approach of granting non-competitive contracts to its domestic firms. Additionally, the B3W seeks to accomplish its goals using multilateral financing — again, in contrast to Chinese insistence on its in-house debt — that is “values driven” and climate friendly (unlike the coal-driven power plants China is backing in Pakistan).?

As the scenario unfolds on the geopolitical stage, it will be fascinating to see how this portfolio of finance and ethics competes with the Xi model as East and West disentangle and reconstitute their competing economic spheres. Both will offer economic growth. Both will offer a cultural choice. For my money, I’m betting on the West and its free-market economy and freedom of the human spirit as the developing nations of the world make their choice: Too free or not too free?