Building Bridges: China’s Shift in Foreign Policy
The Chinese Communist Party’s amendment to the Chinese constitution,
which removes the two term limit for presidency, means that President Xi Jinping’s political and economic agenda is now increasingly relevant to the global community. The mandate allows President Xi to steer policy without time constraints and to root out dissent and corruption. The guiding ideology behind President Xi’s administration is his vision for the Chinese nation and people — the Chinese Dream (“Zhong Guo Meng”). The Chinese Dream is the rejuvenation of the nation to its historical state of political and economic brilliance.
“The Chinese Dream is the rejuvenation of the nation to its historical state of political and economic brilliance. ”
In order to achieve the Chinese Dream, China has turned to its bygone trade routes to bolster economic and political ties with its neighbors. At the cornerstone of China’s economic vision is the proposed $900 billion Silk Road Infrastructure Project. The goal of the project is to construct trade routes by land, stretching from China to the Near East and Europe, and by sea, to Africa and the Mediterranean. The plan is comprised of two parts. The first is the Silk Road Economic Belt, an infrastructural plan to connect Chinese cities to cities across the Near East and Eastern Europe via highways, bridges, railways, and power stations. The second is the 21st Century Maritime Silk Road, a plan to revive a series of trade routes throughout the South China Sea and the Indian Ocean via ports and gas pipelines. Collectively, these propositions form what is known as the Belt and Road Initiative. But what remains most interesting about the Belt and Road Initiative is not whether it will succeed or not, but the questions surrounding China’s road to riches: namely, how will the initiative be financed, and how will the global community receive China’s ambitions?
China’s ambitious financing has not gone unnoticed, nor uncriticized. On a bilateral basis, China has granted very generous loans to developing countries through state-owned enterprises. However, the nation has received heavy criticism for being an irresponsible lender, and many of its neighbors fear that China is creating a string of nations economically dependent on China. Nowhere is this more clear than in Sri Lanka, where the country had failed to pay its $8 billion debt and was forced to give over the Hambantota Port to China for 99 years. Other than ensnaring debts, other nations, particularly those in Southeast Asia, are worried that economic partnerships come at the price of recognizing China’s territorial claims to the South China Sea.
Despite these criticisms, Chinese State media is determined to paint a picture of win-win infrastructure deals that will help bring millions more out of poverty. Some nations are grateful for these proposed loans — especially those in Central Asia, where vast mineral wealth has yet to be fully utilized, and along the Mekong River, where creditors are rushing to develop the region’s infrastructure. In Cambodia, China is already the country’s biggest lender, and infrastructure wars between China and Japan have helped develop its infrastructure at preferential rates.
“On deals struck on a multilateral basis, China is forced to maintain high international standards in regards to which projects to pursue.”
Indeed, this win-win rhetoric is much more believable in the context of multilateral lending. On deals struck on a multilateral basis, China is forced to maintain high international standards in regards to which projects to pursue. China’s option for its borrowers to receive loans on a multilateral basis means that its borrowers are not solely indebted to China nor subject to China’s conditions.
However, China’s lack of representation in the Bretton Woods institutions works against its ambitions to finance widespread infrastructural projects on a multilateral front. In Asia, both Japan and the United States benefit from the IMF, World Bank, and Asian Development Bank (ADB) — in which the two countries hold disproportionately large voting shares in comparison to their regional economic significance. On the other hand, China’s voting rights constitute only 6% in the IMF, 5% in the International Bank for Reconstruction and Development branch of the World Bank, and a stunning low of 5% in the ADB.
With the odds stacked against China for preferential loans on a multilateral basis, China has worked to challenge the inequities of the Bretton Woods institutions by founding its own multilateral banks such as the New Development Bank (NDB) with Brazil, Russia, India, and South Africa, as well as the Asian Infrastructure Investment Bank (AIIB). With both banks headquartered in China, the message is clear: China is creating its own institutions in response to its relative exclusion from US institutions. And despite criticism from the US, these multilateral banks hold the same mission to help fund infrastructure and alleviate poverty.
In terms of financing the Belt and Road Initiative, state owned enterprises and multilateral banks will only contribute a fraction of the financing. The primary brawn of the financing will come from China’s commercial and policy banks that have already pledged billions of dollars to infrastructure projects across the Belt and Road. Despite this, China’s dedication to infrastructure across the region illustrates its commitment to reduce financial and geographical boundaries and to unify the region.
Whether China will succeed in its ambitions to craft a more unified Asian economic landscape and develop infrastructure projects that benefit the region is yet to be seen. China faces many challenges in financing its ambitions and must confront substantial geopolitical opposition including competition to finance these projects. And as China, the United States, and Japan race one another to fund Asia’s developing countries, rates on loans across Asia will be lowered, and nations’ infrastructure will be developed. For developing nations, competition grants these countries the infrastructure they need, along with the leverage to decide which nations to borrow from. As Dr. Sok Siphana, who led the negotiations for Cambodia to its eventual acceptance to the WTO, stated, “Competition is good because now we can shop around.”
China’s greatest competitors in the Asia-Pacific region, the United States and Japan, are quick to label China as an irresponsible power and refuse to recognize the ways that new Chinese institutions may reveal flaws in modern lending. Indeed, many Chinese multilateral banks have vowed to cooperate with existing post World War II institutions in accomplishing their goal of eliminating poverty. In taking a more active role in global finance, China has shifted its foreign policy, and the international community should be aware of China’s attempts to take on the role of an assertive and responsible global power. Perhaps soon, more nations will be open to the possibility that China can help lead the way forward on an economic front to a more developed world. In reference to Napoleon's famous words that “China is a sleeping lion… when she wakes she will shake the world,” Chairman Xi confidently declared, “The lion has already awakened, but it is a peaceful, amiable and civilized lion.”
