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Economy

Is Multilateralizing the Belt and Road Initiative Possible?

Sep 25 , 2020
  • Rene Zou

    China-focused policy analyst with a dual master’s from Sciences Po, Paris and Peking University

As China’s Belt and Road Initiative (BRI) approaches its seventh anniversary, it is clear it is not only changing the world, it is also changing itself. The BRI is a trillion-dollar plan to connect the infrastructure and economies of countries across Asia, Africa and Europe, based on the land and maritime routes of the ancient Silk Road. It has been dubbed China’s “Marshall Plan for the 21st Century”, except it is not a traditional aid program, and it will cost at least seven times more than the U.S.’s original, if everything is built as planned. The U.S. Marshall Plan cost around $130 billion in today’s value, whereas estimates for fully implementing the BRI range from $1-8 trillion. 

As China’s ambitions grow with the BRI, Chinese leaders have increasingly recognized the need to attract more funding, improve risk management, and seek partners with more international experience. Their latest efforts have culminated in “third-party market cooperation”, a new model of cooperation between China and developed countries on projects in third-party markets, namely, developing countries participating in the BRI. China’s National and Development Reform Commission (NDRC) released Third Party Market Cooperation Guidelines and Cases in August 2019, and to date, China has signed 14 such agreements with developed economies, from Singapore and Japan to France and Italy. These bilateral memorandums of understanding (MOUs) seek to promote cooperation and coordination between companies and policymakers, often through committees comprised of public and private sector representatives or forums like the China-Japan Third-Party Market Cooperation Forum. 

This represents an important shift in China’s BRI strategy, and signals more opportunities for both state and non-state actors to participate in the initiative’s future implementation. 

The first Belt and Road Forum (BRF) for International Cooperation in May 2017 pledged billions in new capital with an emphasis on “win-win cooperation” between China and countries participating in the BRI. Meanwhile, the second BRF in April 2019 announced no fresh capital, instead highlighting “openness” and “high-quality development” to address international criticism and skepticism. In his opening address at the second BRF, Chinese President Xi Jinping noted, “We welcome the participation of multilateral and national financial institutions in BRI investment and financing and third-party market cooperation.” He continued, “With the involvement of multiple stakeholders, we can surely deliver benefits to all.” 

The central paradox is while the BRI is multilateral in design and concept, it has been bilateral in its approach to implementation thus far. Still, the BRI is a concept rather than a legal document, and therefore enjoys greater flexibility for change. According to Homi Kharas, Senior Fellow at the Brookings Institute, multilateralizing the BRI implies “establishing rules of the game that everyone including large powers play by.” However, is it possible to form multilateral norms within a China-led initiative? 

China’s intentions are often called into question, as concerns are raised about a race-to-the-bottom in standards for infrastructure development. Most projects under the BRI are discussed and implemented on a bilateral instead of trilateral basis, through MOUs signed between China and host country governments. This results in a lack of transparency in the bidding and procurement process, which is problematic in countries experiencing weak governance or corruption. 

According to statistics compiled by CSIS, 89% of Chinese-funded projects are awarded to Chinese contractors, whereas only 29% of multilateral development bank (MDB) projects have contractors of Chinese origin. These same BRI developers have the tendency to follow environmental and social standards, which for the most part, are much lower than international best practices. Critics have accused Beijing of practicing “debt-trap diplomacy”, by inducing borrowing countries to borrow billions to fund infrastructure projects they cannot possibly repay. 

Still, others have noticed a race-to-the-top dynamic triggered by an infrastructure financing battle between China and its competitors. It is important to note, many developing countries face serious infrastructure deficiencies, with limited sources of financing available to address this. As experts note, the “driving force here is recipient country governments, and China is responding” to that, thus highlighting the demand-driven nature of China’s development assistance. 

In the race against China in infrastructure development BRI, developed countries will need to respond by providing alternatives. In 2015, Japan established the Partnership for Quality Infrastructure (PQI), in collaboration with the Asian Development Bank (ADB). Meanwhile, the European Union (EU) launched its Euro-Asian Connectivity Strategy in 2018. The U.S. passed the BUILD Act by late 2018 and is now discussing a proposal for an Infrastructure Development Coalition (IDC) to compete with the BRI, building on its previous vision of a “Free and Open Indo-Pacific” (FOIP), with a focus on “transparency” and “sustainability”. However, operationalizing these ideas and finding sufficient resources to compete or out-compete the BRI will require significant time and political will. 

A third way perhaps exists with the multilateralization of the BRI. For instance, the establishment of the new China-led multilateral development bank (MDB), Asian Infrastructure Investment Bank (AIIB), not only demonstrates China’s willingness to adopt multilateral norms, but also its ability to attract the UK, France, Germany and Italy to join in its infrastructure building effort. At present, the AIIB co-finances with many traditional MDBs, including ADB and World Bank. Still, disbursements remain significantly smaller than those of Chinese state-owned banks (such as China Development Bank or the Big 4), which operate outside of the multilateral system. That being said, Chinese state-owned banks also co-finance with international financial institutions, and many are setting up joint investment funds to boost construction along the Belt and Road. 

Since the outbreak of COVID-19, the enthusiasm for promoting third-party market cooperation has not subsided. Chinese Foreign Minister Wang Yi has addressed audiences in France and Italy, with a focus on themes such as green economy, port construction, and digitalization. Chinese and French companies have already cooperated on four ports in Africa, including one sponsored and constructed by China Harbour Engineering Company (CHEC) and operated by French logistics firm CMA CGM in Nigeria Chinese and French companies have collaborated on the Kribi Deep Water Port in Cameroon, Tibar Bay Port in Timor Leste, Tincan Island Container Terminal, Ibom Deep Seaport and Lekki Deep Seaport in Nigeria.Italian companies have won sub-contracts on various projects, including a high-speed railway project in Thailand. Meanwhile, Japan and China are cooperating on several projects in Thailand’s Eastern Economic Corridor (EEC), including a smart city in Chonburi, and a high-speed rail linking the country’s three main airports. In July, representatives from NDRC and Singapore’s Minister for Trade and Industry reaffirmed strong economic ties, and endorsed an updated list of projects. Despite tensions along the Himalayan border, India has been urged to meet China halfway through third-party cooperation. Dialogue is also gaining traction in host countries, such as Pakistan, where the $60 billion China-Pakistan Economic Corridor (CPEC) is located. 

While project pipelines are seldom immune from geopolitical headwinds, market rationale will prevail. When driven by market forces, third-party market cooperation allows China and its developed country partners to combine their comparative advantages in production, technology, management and finance to optimize the efficiency of global resources allocation. Ultimately, it makes sense for Chinese, multinational and local firms to cooperate. While China and developing countries may have a competitive advantage in production and manufacturing given lower-cost resources and labour, MNCs from developed countries offer more financial resources, management experience and core technologies. 

Instead of competing with China in a race-to-the-top or race-to-the-bottom, the international community has the option of cooperating with China through multilateralizing the BRI. A focus on climate change, sustainable development, and digitalization is welcome – a shift China seems to be embracing. 

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