World leaders will gather in Beijing on Sunday for a summit on One Belt, One Road (OBOR), Xi Jinping’s ambitious effort to develop a Chinese web of infrastructure and investment along the old Silk Road trade routes. But for all the initial hopes about the so-called Chinese Marshall Plan, Beijing’s lending to the project has so far been underwhelming. The Wall Street Journal reports:
Four years after Mr. Xi launched the One Belt, One Road megaproject, domestic economic realities—slowing growth, mounting debt and fleeing capital—are catching up with the plan.
Undeniably, real projects are forging ahead: Chinese bulldozers and cranes are at work on a high-speed rail line from China to Laos, port facilities in Sri Lanka, power stations in Vietnam and Pakistan and an international airport in Nepal.
Adding it all up, Louis Kuijs, head of Asia research at Oxford Economics, tallies annual Chinese lending to the several dozen belt-and-road countries at around $130 billion in recent years. However, the bulk of that is from commercial banks. The two development banks that finance infrastructure projects relevant to One Belt One Road account for about $40 billion.
That’s not small change. Yet it’s out of step with soaring official rhetoric: Expected beneficiaries are still waiting for the gusher of Chinese infrastructure funds to open up.
China’s surprisingly modest commitment to OBOR is partly a factor of changing economic realities. When the project was announced in 2013, the abundance of Beijing’s foreign reserves meant it had greater luxury to shovel money into politically appealing foreign infrastructure projects. But since then, China’s foreign-exchange reserves have plummeted, capital flight has accelerated, and economic growth has slowed. Under those circumstances, China’s investment priorities have turned inward, and it is more difficult to justify diverting mass capital to foreign projects while the domestic economy is struggling.
Meanwhile, the capital that is leaving China is largely going to markets that are safer, richer, and better developed than those under the OBOR framework. According to data cited by the WSJ, Chinese companies have invested more in the United States since 2014 then the 60-plus countries of the Silk Road combined. In other words, Xi’s regional investment priorities have not translated into a shift in private investors’ decision-making.
For that reason, OBOR may remain dominated by the kind of state-driven, politically motivated, and commercially dubious deals that have backfired on Beijing in the past. China is no better at picking winners than anyone else, as its past boondoggles in Venezuela and Africa remind us. And as The Economist notes, major belt-and-road projects in Pakistan and Kyrgyzstan are already running into trouble and causing Beijing headaches.
None of this means that Xi’s signature foreign policy initiative should be prematurely written off as a white elephant. But China’s past record of boondoggles and its hesitancy to invest wholeheartedly in the project do complicate the picture. Chinese media are predictably preparing for the summit by casting OBOR as a visionary effort that will reshape global supply chains and spread prosperity throughout Asia. Perhaps it will all pan out that way—but the program’s slow start provides plenty of reason to doubt.