The Utterly Dysfunctional Belt and Road

Image Source

It is not luxury and pomp that make a king a king. It is when his orders are never disobeyed that he has entered a title such as yours.

The always excellent Stella Zhang directed me to a newish paper by political scientists Lee Jones and Zeng Jinhan on the domestic politics of China’s Belt and Road. Long term readers will remember that I am bearish on Xi’s grand dream. Here is how I described the central problems with the scheme for Foreign Policy:

There is also a gap between how BRI projects are supposed to be chosen and how they actually have been selected. Xi and other party leaders have characterized BRI investment in Eurasia as following along defined “economic corridors” that would directly connect China to markets and peoples in other parts of the continent. By these means the party hopes to channel capital into areas where it will have the largest long-term benefit and will make cumulative infrastructure improvements possible.
This has not happened: one analysis of 173 BRI projects concluded that with the exception of the China-Pakistan Economic Corridor (CPEC) “there appears to be no significant relationship between corridor participation and project activity… [suggesting that] interest groups within and outside China are skewing President Xi’s signature foreign policy vision.” 

This skew is an inevitable result of China’s internal political system. BRI projects are not centrally directed. Instead, lower state bodies like provincial and regional governments have been tasked with developing their own BRI projects. The officials in charge of these projects have no incentive to approve financially sound investments: by the time any given project materializes, they will have been transferred elsewhere. BRI projects are shaped first and foremost by the political incentives their planners face in China: There is no better way to signal one’s loyalty to Xi than by laboring for his favored foreign-policy initiative. From this perspective, the most important criteria for a project is how easily the BRI label can be slapped on to it….. 

The problems China has had with the BRI stem from contradictions inherent in the ends party leaders envision for the initiative and the means they have supplied to reach them. BRI projects are chosen through a decentralized project-management system and then funded through concessional loans offered primarily by PRC policy banks. This is a recipe for cost escalation and corruption. In countries like Cambodia, a one-party state ruled by autocrats, this state of affairs is viable, for there is little chance that leaders will be held accountable for lining their pockets (or, more rarely, the coffers of their local communities) at the entire nation’s expense. But most BRI countries are not Cambodia. In democracies this way of doing things is simply not sustainable, and in most BRI countries it is only so long before an angry opposition eager to pin their opponents with malfeasance comes to power, armed with the evidence of misplaced or exploitative projects. [1]

The key points to take away from my account is that the failures of the BRI seem to factor back to a few central points: first, that project selection is mostly driven by the priorities of folks working in SOEs, provincial governments, and a plethora of different policy banks. The central government in Beijing has difficulty directing their efforts. Secondly, that these people do not have a good understanding of the countries in which they are investing, and face little incentive to gain this understanding. This leads to the sort of corruption and ‘predatory’ funding that has given BRI its poisonous reputation in countries long exposed to it.

Jones and Zeng agree with this general picture, but provide a far more detailed account of what is happening ‘behind the scenes’ when BRI projects are chosen and funded. The process they describe is not unique to the Belt and Road. It starts as Communist high leadership paints bold words in the sky:

Foreign-policy steering happens through several important mechanisms. The first is top leaders’ major speeches, which are usually kept vague to accommodate diverse interests and agendas. Rather than ‘carefully-worked out grand strategies’, they are typically ‘platitudes, slogans, catchphrases, and generalities’, offering ‘atmospheric guidance’ that others must then interpret and implement. Examples include: Deng’s tao guang yang hui, whose meaning is ‘debateable’; Hu’s ‘harmonious world’ – ‘more of a narrative than a grand strategy’; and Xi’s ‘new type of great power relations.’ As discussed below, Xi’s vague 2013 remarks on the ‘silk road economic belt’ (SREB) and ‘maritime silk road’ (MSR) exemplify this tendency. [2]

These steering mechanisms elicit diverse responses from subordinate actors. To survive and thrive, officials must at least appear to be enthusiastic implementers of central directives. Hence, they typically rush sycophantically to embrace leaders’ vague slogans, creating the misleading appearance of a tightly-controlled, top-down governmental machine. However, they may simultaneously manoeuvre to serve their own sectional  interests and agendas, rather than simply implementing a detailed grand strategy imposed from above. First, they may influence emerging policy plans. Because top leaders generally rely on disaggregated bureaucracies, party-state think-tanks and universities to develop their vague slogans into policies,  other  actors  can  often  insert  their  own  interests  into  evolving  policy  platforms. Remarkably, this occurs even with respect to China’s core interests, which were left to academics, think tanks and bureaucracies to define, prompting them to identify their concerns as core interests to acquire more power and resources. 

Actors can also lobby through LSGs, the Chinese People’s Consultative Conference, the National People’s Congress (NPC), sectoral ministries, policy banks and state-linked policy institutes. In some cases, top leaders’ slogans themselves emerge from this bottom-up advocacy – as was the case with BRI itself (see below). 

Secondly, actors interpret leaders’ slogans, and subsequent policy platforms, in ways amenable  to  their  particular  interests,  sometimes  skewing implementation significantly.  Interpretation often follows leaders’ speeches immediately, before they are even developed into vague policy outlines, with unfavorable elements facing ‘resistance’ and ‘distortion.’ Finally,  actors  can  even  ignore  central  guidelines.  Although  CCP  controls  minimize  open  defiance, there are many documented instances of agencies taking action overseas without approval,  or  violating  national  laws  and  policies  to  pursue  their  particular  interests.  This includes SOEs, local governments, and the security forces. [4]

This was seen on full display with the roll out of the Belt and Road, with macro-economists of various stripes, military strategists, think tankers, and financial reformers all rushing out studies showing how the Belt and Road justified their pet policy preferences. This is a useful reminder from Zeng and Jones. I also think this is correct frame to understand the sort of material covered in reports like this one by Joel Wuthnow, which details debates held in China about the security implications of the Belt and Road. Many of the reports included are less useful for understanding the actual ‘strategic’ or ‘military’ rationale of the Belt and Road than the Chinese nat/sec establishment’s desire to claim ownership of the initiative.

But no class of people have been more successful in appropriating the initiative for their own ends than the provincial governments and their lackeys:

The most important influencers, though, were state-linked economic interests and provincial governments. The real impetus for expanding infrastructure programmes through OBOR was the long-term fallout from the 2007–2008 global financial crisis. China rode out the crisis only through a US$586 billion stimulus package, mostly involving local government borrowing to finance infrastructure projects. By the early 2010s, the stimulus was spent and many local governments were virtually bankrupt. Overcapacity exceeded 30% in the iron, steel, glass, cement, aluminium and power generation industries. Many SOEs faced a major profitability crisis, with returns on domestic infrastructure turning negative. Meanwhile, Chinese banks faced their own over-accumulation crisis, with US$3 trillion in foreign exchange reserves and dwindling domestic lending prospects. For these interests, OBOR represented an opportunity to internationalise their domestic surplus capacity. Unsurprisingly, these politico-economic actors lobbied furiously to influence the translation of Xi’s slogans into concrete policy, in order to grab part of the spoils.  

Only 14 provinces were invited to the NDRC’s initial OBOR symposium in December 2013, indicating a relatively tight circle of beneficiaries. Excluded provinces, however, quickly lobbied for inclusion, through  forums  like the NPC. Provincial  universities  and  think  tanks  were  encouraged to demonstrate locales’ historical links to the ancient silk road – generating the aforementioned publications boom. Local media were also enlisted, leading to a profusion of stories mentioning OBOR, from 543 in 2014 to 5935 in 2015, with coverage in virtually every provincial outlet. For example, Shaanxi and Henan provinces waged an intense public battle over which of them contained the start of the historical silk road Competition over the MSR’s ‘starting point’ was even fiercer, with rival claims from Fujian, Jiangsu, Guangdong and Guangxi. Provinces with weaker claims invented ‘starting points’ linked to geographical locations or commodities, like porcelain or tea, then even squabbled over these. Shandong and Hebei, for example, both claimed that their cities, Qingdao and Huanghua, were the ‘northern starting point.’ [5]

But in the scramble to land deals, provincial governments often worked at cross-purposes from each other. Jones and Zeng include several examples to this effect, but I found the following story to be particularly humorous:

In 2013, Guangxi and affiliated business interests agreed  with  Malaysia’s Pahang state  government  to  upgrade  Kuantan  port,  including  by  developing a cross-country railway, road links and a US$3.4 billion industrial park. Guangxi subsequently leveraged  BRI  to  expand  its  involvement.  However,  in  September  2015, Guangdong province  signed  a  rival  agreement  with  Malaysia’s  Malacca  state,  including  a  US$4.6 billion industrial park and a US$10 billion port upgrade. 

There is little economic rationale for developing two world-class ports on the Malay Peninsula. These projects reflect not a coherent master plan but  rather competitive, sub-national  dynamics in both countries.  Moreover, these micro-level dynamics clearly do not–indeed, cannot–add up to a coherent, macro-level network of infrastructure. Unsurprisingly, statistical analysis reveals no correlation between Vision and Actions [the official policy document guiding the BRI] six ‘corridors’ and projects on the ground, suggesting that the plan is failing even to guide investment activity in a broad sense. [6]

They also include several examples of provincial governments simply re-branding existing proposals to get them passed under the ‘Belt and Road’ label:

Moreover,  some  provinces  had  clearly  ‘uploaded’  their  pre-existing/preferred  projects  into Vision and Actions. For example, Vision and Actions instructed Guangxi to develop the Beibu Gulf Economic Zone–which Guangxi itself initiated in 2006 under GWD. Similarly, Yunnan was tasked to develop the Greater Mekong Subregion–a grouping initiated by the Asian Development Bank in 1992 and subsequently the major focus for Yunnan’s GWD activities. Vision and Actions also incorporated the Bangladesh-China-India-Myanmar (BCIM) ‘corridor’ into BRI, which Yunnan initiated in 1998.  As  one  MFA-linked  scholar notes,  Vision and Actions is  less  a  ‘top-level  design’  than  a  collation  of  provincial wish-lists, with top leaders telling provincial leaders: ‘if you have a scheme or plan, give it to us, and we will put it into the basket.’ [7]

These are not the only examples of this practice that Jones and Lee discuss (I mention a few others in my essay for Foreign Policy as well). But you do not need to browse a detailed list of each and every one of these projects to grasp their central problem: with the provinces, SOEs, and policy banks acting as the driving force behind individual BRI schemes, Beijing has immense difficulty using these projects for geopolitical ends. In their interviews with officials in Beijing, Jones and Zeng found this sentiment expressed again and again:

Officials in the Ministry for Public Security’s think tank concede [that] the ‘different departments and agencies involved in foreign aid’ have created ‘chaos and disorder,’ permitting ‘bad conduct by Chinese companies. Different departments are … following their own interest, not following our national interest of getting better relations. They only think about making money for themselves or interest groups’ 

….As [another] policymaker concedes, governance is BRI’s ‘biggest difficulty’: ‘there is no unified department  to  manage  [it].’  Responsibility  is  instead  spread  across  diverse  party-state  agencies including, in addition to the aforementioned financing agencies: the MoF, which influences  financial  disbursements;  the  NDRC,  which  regulates  large-scale  infrastructure  projects;  MOFCOM,  which  regulates  ODF,  investment  and–with  the  State-owned  Assets  Supervision and Administration Commission and various functional ministries–SOEs; and the relatively weak MFA, which struggles to promote wider foreign-policy goals. 

In practice, one frustrated MFA-linked scholar complains: the ‘MFA should be the hub for everything, but it is not.’ The economic agencies dominate and ‘provincial  SOEs  have their own projects …It makes the MFA really embarrassed.’ [8]

At this point one is tempted to ask: how do we square all of this with Xi Jinping’s centralization drive? Is not Secretary Xi the most powerful man to rule China since Deng and Mao? Why can’t he put things in order?

Zeng and Jones have an answer for this as well:

It is more accurate  to  say  that  Xi  has  made  unusually  strong  use  of  [existing] coordinating  mechanisms,  particularly  those  relating  to  cadre  discipline  and  ideological  control. While this has elicited widespread public displays of loyalty, it does not necessarily guarantee strong control over policy outputs. This is not least because Xi’s policy frameworks remain as vague as those of his predecessors. For example, at a 2013 diplomatic work conference, Xi used the vague slogan fenfa youwei, usually translated as ‘striving for achievement.’ Other party-state actors have interpreted this as meaning anything from totally disregarding other countries’  interests to a modest increase in proactivity. Competing maritime agencies exploited this vaguenes to intensify their activities in  the  South China Sea, generating clashes with neighbouring countries. To rein them in, Xi created a new China Coastguard, but by March 2018 the merger of maritime agencies remained incomplete, with continued coordination  problems, resulting in the coastguard’s reallocation  to  the Central Military Commission and the abolition of its previous overseer, the State Oceanic Administration. 

…This constant institutional reshuffling – six years after he took power–-implies that Xi has not yet surmounted China’s formidable coordination challenges. Indeed, his new coordinating bodies also ‘need coordination;’ Naughton suggests that their proliferation has only made decision-making ‘more  erratic,’  with  ‘yawning  gaps’ between  policy  intent  and  implementation.  Indeed,  many of Xi’s signature policies encounter routine noncompliance. 

…Vision and Action translated Xi’s slogans into a ‘plan’, but this remains extremely loose, with others explicitly invited to ‘draw up implementation plans and roadmaps for advancing the BRI’ and ‘work out plans and measures for regional  cooperation’.  This  enables  dozens  of  agencies  to  interpret  and  implement  BRI  according to their sectional interests, not a centrally-defined strategy. Xi’s ideological control has strengthened,  since  to  gain  resources  and  policy  support  all  of  these  interests  must  present their agendas as ways to implement his fabulous schema. But this certainly does not translate into detailed control of BRI outputs. [9]

Reading this, one is reminded of the constant failure central organs have had in their attempts to force provincial, city, and county governments to reign in spending and wean themselves off of Local Government Financing Vehicles. As Andrew Batson put it in a recent blog post, “The Belt and Road is really the expansion of a specific part of China’s domestic political economy to the rest of the world.” His explanation is worth quoting in full:

Local governments discovered they could borrow basically without limit to fund infrastructure projects, and despite many predictions of doom, those debts have not yet collapsed. The lesson China has learned is that debt is free and that Western criticisms of excessive infrastructure investment are nonsense, so there is never any downside to borrowing to build more infrastructure. China’s infrastructure-building complex, facing diminishing returns domestically, is now applying that lesson to the whole world.

In Belt and Road projects, foreign countries simply take the place of Chinese local governments in this model (those who detect a neo-imperial vibe around the Belt and Road are, in this sense, onto something). Even the players are the same. In the 1990s, China Development Bank helped invent the local-government financing vehicle structure that underpinned the massive domestic infrastructure boom. Now, China Development Bank is one of the biggest lenders for overseas construction projects.

Those who defend the Belt and Road against the charge of debt-trap diplomacy are technically correct. But those same defenders also tend to portray the lack of competitive tenders and over-reliance on Chinese construction companies in Belt and Road projects as “problems” that detract from the initiative’s promise. They miss the central role of the SOE infrastructure-complex interest group in driving the Belt and Road. Structures that funnel projects funded by state banks to Chinese SOEs aren’t “problems” from China’s perspective–they are the whole point. [10]

What to make of all this?

I am still comfortable with my earlier declaration that (from China’s perspective) the Belt and Road has been “one big mistake.” Many investments have been poorly chosen; the greatest beneficiaries are SOEs and local government officials who profit—financially and politically—from BRI projects but do not have to deal with the political and diplomatic blowback created when opposition parties in BRI countries take power and begin to investigate deals made by their opponents. For this reason I am far less concerned with BRI’s global reach than many other observers. I simply don’t think this is going to bring the PRC the sort of political returns Xi Jinping was hoping for when he first laid out his grand vision of a continent spanning infrastructure regime.

I am not ready, however, to declare that the Belt and Road fiasco is evidence that Xi Jinping is incapable of controlling the Party, or that the Party is incapable of long term policy. This is what Jones and Zeng argue we should take away from their research:

China’s complex, multilevel governance system still makes it extremely difficult for Beijing to pursue a coherent, consistent grand strategy. In the IR literature on China, grand strategy is frequently used to denote a long-term, coherent plan, usually aimed at countering US hegemony. Some even identify a capacity to plan and execute policy over an entire century…. In reality, the Chinese party-state’s transformation makes it very hard for China to formulate and execute grand strategy according to any of the definitions. Chinese leaders–even Xi, as shown more fully in the empirical discussion below–generally cannot generate ‘detailed grand plans,’ preferring vague slogans and ‘atmospheric guidance.’Far from priortising key interests and goals, this leaves even the definition of ‘core interests’ to others to contest and decide. Even if leaders could devise a ‘grand plan’, they would struggle to coordinate actors and resources to pursue their chosen ends….  

China’s ‘strategic vision’ is vague, its meaning determined less by top-level strategic thinkers than the actors it is ostensibly ‘guiding.’ Furthermore, the process by which ‘the principle is translated into a plan’ involves complex, multi-level bargaining, not the ‘top-level design’ that Chinese commentators and official statements frequently emphasise.  

Even then, the ‘plan’ will not necessarily substantively ‘guide’ other actors’ behaviour, because they may interpret or ignore it according to their preferences, or even influence it, such that it is they who are ‘guiding’ the plan, rather than vice-versa. Accordingly, their conduct may not even amount to a ‘long-term pattern’, failing to meet even the woolliest, ‘grand behaviour’ definition. The term grand strategy thus conveys an impression of coherence that may not–and oftentimes cannot–exist in the Chinese context. ….Rather than a ‘well thought out grand strategy’, BRI is clearly a far looser policy platform, reflecting the ongoing transformation of China’s party-state and the emergence of regulatory-style governance. 

…Our analysis challenges mainstream discussion of Chinese policymaking under Xi Jinping. Xi is widely portrayed as the ‘new Mao’, concentrating all decision-making in his own hands. As Xi’s signature foreign policy, BRI is an important test case for this perspective, with Chinese analysts particularly emphasizing his personal role and ‘wisdom’ in crafting the ‘well-designed,’ ‘top-level’ plan…. With BRI, at least, Chinese behaviour clearly does not simply express Xi’s personal vision. [11]

Jones and Zeng argue that the phrase “grand strategy” conveys a sense of coherence that cannot exist in the Chinese foreign policy making context. I agree, but would go even further: the phrase “grand strategy” conveys a sense of coherence that cannot exist in any foreign policy making context. I tend to agree with Lucas Milevski that “grand strategy” is a conceptually questionable term that does not reflect how policy is actually made, and celebrated “grand strategies” are almost always post-hoc narratives imposed by historians decades after the fact.[12]

This does not mean, however, that long-term planning is impossible, nor that the Chinese are unable to do it. It might be useful here to compare the troubled history of the Belt and Road with the modernization and centralization of the People’s Liberation Army over the last two decades. Xi Jinping has taken an intimate interest in these two campaigns—and both have had stunning success. The military gains China has made in the last decade are not vanities. They are real. So are the losses various institutional factions have sustained as the command structure was streamlined and increasing emphasis has been placed on the PLA Navy, Air Force, and Rocket Force.

Why has Xi Jinping been more successful in this domain than the reforming SOE financing? There are a few potential answers. The simplest is that Xi Jinping simply has better grasp of or interest in the details of military command. I believe this is plausible, and am surprised at how little analysts think about how the personalities and interests of China’s central leadership might shape their priorities. A second explanation is that the stakes here are much higher: Xi has focused on consolidating and modernizing his hold on the Party’s ideology, internal discipline, and defense systems because these are the levers of power. Losing control of BRI projects has much less immediate consequences.

My final guess is institutional. The People’s Liberation Army is a very old institution. In many ways, Secretary Xi tamed the PLA by following tactics from the Communist playbook of the ’40s and ’50s. The anti-corruption campaign, crackdowns on non-sanctioned social groups (religious organizations, Uyghurs, etc.), changes in the censorship and propaganda systems, and the growth in ‘united front’ style campaigns both abroad and at home also fit rough patterns established in the Party’s early history. The tools for managing this sort of problem are a part of the institutional and ideological heritage Xi has inherited from his fathers. This same heritage has little useful to tell him about how to reform Local Government Financing Vehicles. Nor are there any easy leverage points for reform. Removing figures like Guo Boxiong, Xu Caihou, Zhou Yongkang was critical for his ability to ram potentially unpopular programs down the throat of the PLA. Just who do you remove to reform BRI? Which bureaucracy must be torn apart before Xi can unleash his will on China’s economy? Where can he intervene without scaring markets into a recession? There is no easy answer to that question—and until there is, I expect problems like these to stick.

[1] Tanner Greer, “One Belt, One Road, One Big Mistake,” Foreign Policy (6 December 2018).

[2] Lee Jones and Zeng Jinghan, “Understanding China’s “Belt and Road Initiative”: Beyond “Grand Strategy” to a State Transformation Analysis,” Third World Quarterly (2019), p. 3.

[3] Jones and Zeng, “Understanding China’s Belt and Road,” p. 4.

[4] ibid., p. 8.

[5] ibid. p. 11.

[6] ibid., p. 9

[7] ibid., p. 10

[8] ibid., p. 13

[9] ibid., p. 11

[10] Andrew Batson, “The Belt and Road is About Domestic Interest Groups, Not Development,” Andrew Batson’s Blog (2 May 2019).

[11] Jones and Zeng, “Understanding China’s Belt and Road,” p. 2-3; 14.

[12] Lucas Milveski, The Evolution of Modern Grand Strategic Thought (Oxford: Oxford University Press, 2017). There is an article version of his argument out there somewhere, but I am a tad too busy to go hunt it down now.