Chinese President Xi Jinping’s tenure has been marked by high ambition. His vision – the “Chinese dream” – is to make his country the world’s leading power by 2049, the centenary of communist rule. But Xi may be biting off more than he can chew.
A critical element of Xi’s strategy to realize the Chinese dream is the One Belt, One Road (OBOR) initiative, whereby Beijing will invest in infrastructure projects abroad, with the goal of bringing countries from Central Asia to Europe firmly into China’s orbit. When Xi calls it “the project of the century”, he may not be exaggerating.
In terms of scale or scope, OBOR has no parallel in modern history. It is more than 12 times the size of the Marshall Plan, America’s post-World War II initiative to aid the reconstruction of Western Europe’s devastated economies. Even if China cannot implement its entire plan, OBOR will have a significant and lasting impact.
Of course, OBOR is not the only challenge Xi has mounted against an aging Western-dominated international order. He has also spearheaded the creation of the Asian Infrastructure Investment Bank, and turned to China’s advantage the two institutions associated with the BRICS grouping of emerging economies (the Shanghai-based New Development Bank and the US$100 billion Contingent Reserve Arrangement).
At the same time, he has asserted Chinese territorial claims in the South China Sea more aggressively, while seeking to project Chinese power in the western Pacific.
But OBOR takes China’s ambitions a large step further. With it, Xi is attempting to remake globalization on China’s terms, by creating new markets for Chinese companies, which face a growth slowdown and overcapacity at home.
With the recently concluded OBOR summit in Beijing having drawn 29 of the more than 100 invited heads of state or government, Xi is now in a strong position to pursue his vision. But before he does, he will seek to emerge from the National Congress of the Communist Party of China later this year as the country’s most powerful leader since Mao Zedong.
Since taking power in 2012, Xi has increasingly centralized power, while tightening censorship and using anti-corruption probes to take down political enemies. Last October, the party bestowed on him the title of “core” leader.
Yet Xi has set his sights much higher: He aspires to become modern China’s most transformative leader. Just as Mao helped to create a reunified and independent China, and Deng Xiaoping launched China’s “reform and opening up”, Xi wants to make China the central player in the global economy and the international order.
So, repeating a mantra of connectivity, China dangles low-interest loans in front of countries in urgent need of infrastructure, thereby pulling those countries into its economic and security sphere. China stunned the world by buying the Greek port of Piraeus for $420 million. From there to Seychelles, Djibouti and Pakistan, port projects that China insisted were purely commercial have acquired military dimensions.
But Xi’s ambition may be blinding him to the dangers of his approach. Given China’s insistence on government-to-government deals on projects and loans, the risks to lenders and borrowers have continued to grow. Concessionary financing may help China’s state-owned companies bag huge overseas contracts, but by spawning new asset-quality risks, it also exacerbates the challenges faced by the Chinese banking system.
The risk of non-performing loans at state-owned banks is already clouding China’s future economic prospects. Since reaching a peak of $4 trillion in 2014, the country’s foreign-exchange reserves have fallen by about a quarter.
The ratings agency Fitch has warned that many OBOR projects – most of which are being pursued in vulnerable countries with speculative-grade credit ratings – face high execution risks, and could prove unprofitable.
Xi’s approach is not helping China’s international reputation, either. OBOR projects lack transparency and entail no commitment to social or environmental sustainability. They are increasingly viewed as advancing China’s interests – including access to key commodities or strategic maritime and overland passages – at the expense of others.
In a sense, OBOR seems to represent the dawn of a new colonial era – the 21st-century equivalent of the East India Company, which paved the way for British imperialism in the East. But if China is building an empire, it seems already to have succumbed to what historian Paul Kennedy famously called “imperial overstretch”.
And indeed, countries are already pushing back. Sri Lanka, despite having slipped into debt servitude to China, recently turned away a Chinese submarine attempting to dock at the Chinese-owned Colombo container terminal. And popular opposition to a 6,000-hectare industrial zone in the country has held up China’s move to purchase an 80% stake in the loss-making Hambantota port that it built nearby.
Shi Yinhong, an academic who serves as a counselor to China’s State Council, has warned of the growing risk of Chinese strategic overreach. And he is already being proved right.
Xi has gotten so caught up in his aggressive foreign policy that he has undermined his own diplomatic aspirations, failing to recognize that brute force is no substitute for leadership. In the process, he has stretched China’s resources at a time when the economy is already struggling and a shrinking working-age population presages long-term stagnation.
According to a Chinese proverb, “To feed the ambition in your heart is like carrying a tiger under your arm.” The further Xi carries OBOR, the more likely it is to bite him.
Professor Brahma Chellaney has totally misunderstood the term “imperial overstretch” – Paul Kennedy had used it to refer to military and economic coercions from an existing empire that were clearly unjustifiable, unsustainable and perhaps even indefensible. There is an essential military component behind the idea.
China is clearly not an empire (the US owns that title presently).
There is no military or economic coercion in the OBOR initiative. China does not have a real bluewater navy yet (the US is the largest naval power; it also has close to 800 military bases overseas).
China has just begun implementing the very first steps of the OBOR initiative, and therefore has not spent any significant amount of money, especially compared to what China can afford to spend. The US, on the other hand, meets and exceeds this criteria, as the national debt is higher than its GDP, and yet the government is still borrowing money that it cannot possibly repay. Unfunded liabilities of the US govt runs in the hundreds of trillions now. That, I submit to you Mr Chellaney, is overstretch.
The US meets all the defining elements of “imperial overstretch” while China meets none. It’s not even close.
Last but not least, US rating agencies (Moody’s, S&P, Fitch) cannot be relied upon for genuine, truthful, or professional opinions regarding economic and financial matters. Their atrocious (some would say criminal) records prior to the 2008 subprime crisis alone should have been a strong enough wake up call to all who have ever used their services.
Sorry, professor Chellaney, you’ve missed the mark by miles.