Beijing’s economic diplomacy: the Belt and Road Initiative

The project is an emblematic example of the new assertive and confident approach developed by China in the last decade and represents its contemporary economic and geopolitical ambitions

The modern economic history of China is unique. According to the World Bank, China is the major economy with the fastest sustained economic expansion in history, lifting more than 800 million people out of poverty. The consequence of China's economic development has been tangible for people, making it the main legitimation for the Communist Party. In fact, after the death of the historical leader Mao Zedong and the end of the Cold War, consistently with a broader global trend, China has started to abandon ideology. The great legitimizing role played by ideology under Mao’s leadership was replaced, with the advent of Deng Xiaoping, by economic performance. Since that moment, the survival of the Communist Party's dominance, and so the internal stability of the country, has become performance-based: the support of the people is linked to the increasing benefits resulting from the country's economic growth.

Economic gains have also been the main tool for China to increase its relative power in the world. On one hand this is related to a direct effect, such as the possibility to allocate more money to the military apparatus or the increasing relevance associated with the country in the global economic system. On the other hand, the successful history of China’s economic development has become a motive of pride for the country and a major tool of diplomacy and soft power around the world. The employment of economic means as a foreign policy tool in order to obtain political and economic goals is called “economic diplomacy” and China has become the perfect example of its employment. The best practical example of it is the Belt and Road Initiative (BRI). The project is an emblematic example of the new assertive and confident approach developed by China in the last decade and represents its contemporary economic and geopolitical ambitions.

The BRI represents the most ambitious project of China under the leadership of Xi Jinping and is known as a comprehensive strategy of inclusive development aimed at enhancing connectivity, trade and investments between China, East and Central Asia, the Middle East and Africa. It also represents China's economic diplomacy, merging its economic development and its foreign policy. The project is made up of two huge, complementary, different parts: The Silk Road Economic Belt and the Maritime Silk Road. The first project aims at building a net of roads, railway connections, pipelines, fiber optics, and communication networks across the Eurasian continent. Instead, the maritime part will link China to crucial sea spots in Asia, Africa and Europe. BRI aims at addressing the many different challenges of China's development, projecting the country into its new role as a global superpower. Among the analysts it has emerged a cross-sectional understanding of the Chinese initiative, considering Beijing's economic and geopolitical goals from both the domestic and foreign perspectives. In fact, the project is focused on developing a strategy that can address both the economic challenges faced by China internally and the new global economic and geopolitical aspirations that the country has shown under the leadership of Xi Jinping.

The astonishing economic development of China has been followed by critical externalities which, in the long run, represent a threat to the country's prosperity. One of the most relevant is the marked inequality between the eastern provinces and the western ones. The strategic position of the coastal provinces in the east part of the country led them to become the neuralgic spot of China’s economic development model. As a consequence, the country experienced huge internal migration from the central and western provinces to the cities of the east side, which resulted in a widening regional economic imbalance. Already in the 90s, Beijing started to attempt to tackle this problem through a variety of measures, such as government-led investments aimed at creating a better link between the poor western provinces and the more productive in the East.

The BRI represents the renewal of those projects through the development of new and efficient infrastructural investments that could improve the connectivity between the different regions of the country. Coping with this issue is crucial also from a security point of view since economic disparities represent a threat to the political stability of the country; a better integration of peripheral unstable regions, such as Tibet and Xinjiang, would benefit the unity of the state. Another unintended consequence of the economic development of China, related to the more recent adjustments undertaken by the country to cope with the financial crisis of 2008, is the excess industrial capacity in different sectors, from steel to cement production. Tackling overcapacity has become a top economic priority for the government, which sees the BRI as the opportunity to move out of China the excess industrial production and facilities. The problem would be addressed through direct foreign investments to the countries where the BRI will be articulated; it would be a win-win strategy according to Beijing: China will reduce the supply excess while the other countries will be helped to build up their industrial bases and infrastructures.

There is also another feature that has been transparently identified by China as a key objective of BRI, which is also related to an aspect of the Chinese economy increasingly challenging for the country: the insatiable need for raw materials, especially energy resources. It is not a case that many of the countries involved in the project are rich sources of different raw materials and that BRI involves many energy-related infrastructures and investments. The country has already started a strategy of diversification of the supply sources to overcome the so-called “Malacca Dilemma”, which consists of the over-dependence on the Malacca Strait for the import of oil. Being so dependent on one single choke point represents a significant vulnerability for China and BRI could help the country to diversify and broaden its access to natural resources, which continue to play a crucial and majoritarian role in the economic development of China despite its investments in green energy sources.

Addressing the challenges that the Chinese economy is facing is the first step toward sustaining the economic development of the country, which is part of the core national interests of China. Nonetheless, the BRI project is also a looking forward project which aims at expanding and improving the economic and political position of China, two aspects that are strictly related to each other. The vast program of economic integration behind BRI represents the opportunity for China to upgrade its industry and export its own standards. For a long time, China has not been a standard-setter, because in order to facilitate its integration into the world economy the country has been willing to accept the international standards. The situation is changing as a result of the positive economic development of China which has gradually led the country to develop its own methods and technologies. Controlling standards in a certain sector means to have a competitive advantage over the other actors, by being able to direct the development in that specific field.

The BRI, since it will be based on Chinese production components, represents a way for China to export its standards and so push its economy and industries to a higher, international level. A good example is the market of high-speed trains, which will be a crucial component of the Silk Road Economic Belt. In this sector, China is a leader detaining more than fifty percent of the world's production of high-speed railways, and so it can shape the standards of the industry. Becoming a standard-setter is an integral part of upgrading the Chinese industry. The country in the last decade has embraced a new economic development pattern based more on quality rather than quantity, intending to become an innovation-driven economy, producing higher-end goods.

The other crucial aspect of BRI concerns its sources and forms of financing. At the moment it is possible to identify four main sources of financing: Chinese “policy banks”, such as the China development bank controlled by the Ministry of Finance; the four Chinese state-owned commercial banks; multilateral institutions, especially the Asian Infrastructure Investment Bank; the Silk Road Fund, a specific state-owned investment fund to foster investments in countries part of the BRI. The institutions in charge of sustaining the project represent another aspect of China trying to export on a global stage its own standards. The BRI will provide Chinese-led multilateral institutions the opportunity to expand their influence by managing big projects involving many states and so increasing the international political leverage of China.

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