“Everything under heaven is in utter chaos; the situation is excellent,” wrote Mao Zedong in his little red book. With every crisis comes opportunity, he thought.
The motto is as apt today as it was half a century ago. As an increasingly isolated America crawls from the world stage, the EU grapples with internal conflicts. As western powers quibble, so Xi Jinping builds his empire.
Beijing is on lockdown this week, as the nineteenth national congress of the Communist Party, held every five years since its formation in 1921, gets underway. Leaders of the party and, by extension, who runs the country, are being chosen.
Analysts have speculated that Xi will announce he is to serve past the 10-year term he is presently half way through. The philosophy of “Xi Jinping Thought”, an honour previously reserved for Mao, may be enshrined in Chinese folklore.
Xi’s grip over China’s 1.4bn inhabitants is greater than any leader since Mao. A nationalist, yet one willing to cooperate on climate change, he has cemented himself as modern China’s spiritual leader. Since rising to power in a period of crisis, Xi’s “Chinese Dream” is, to some extent, coming to fruition: GDP growth has, China claims, averaged nearly 10 per cent per year – the fastest sustained expansion by a major economy in history – lifting 800m people out of poverty and creating a burgeoning middle class.
The Emperor’s new empire
Yesterday, Xi told delegates at the closed-door summit that China will “take centre stage in the world”.
Central to his empire building is the Belt and Road Initiative, an immensely ambitious campaign to boost trade and economic growth – and subsequently influence – through mass infrastructure investment and a host of bilateral and regional trade agreements across Asia, Europe, and Africa. The initiative has become the centrepiece of Xi’s foreign policy and international economic strategy.
Announced in 2013, the “belt” – the land-based Silk Road Economic Belt – runs across Asia through Europe; the “road” – the oceangoing Maritime Silk Road – through Southeast Asia, Oceania, and North Africa. More than 65 nations, representing 4.4bn people – 63 per cent of the world’s population – and 29 per cent of global GDP, are in its path.
Many of the 1,700 or so projects have been underway for years, brought under the B&R umbrella after its announcement. The Chinese have been on an investment binge, building desperately needed infrastructure – from roads to power plants, dams to phone networks – in poor, developing nations.
In some markets, the Chinese are pushing at an open door. Kazakhstan was one of the first to commit to the initiative, already receiving billions in foreign direct investment (FDI). For the Kazakh people it has stimulated trade and investment, helping to spur economic development. In return, the Chinese will use the new infrastructure to greatly reduce logistics costs, while gaining access to Kazakhstan’s vast mineral resources, vital to securing China’s future energy needs.
According to ratings agency, Fitch, $900bn of projects are planned or underway. Tiring of purchasing bonds and gold, the Chinese government now favours FDI, which is expected to hit an estimated $150bn per year. At the recent Belt and Road Summit in Hong Kong, some $4 trillion of projects were identified for investment. Who will pay for it all, is yet to be established.
In the west, China’s growing influence is seen as a power grab. Strategic investments in Nigerian rail networks or Kenyan mineral extraction certainly benefit Xi’s lofty trade ambitions, and secure the commodities China needs to dominate.
While targeted Chinese capital certainly doesn’t come from an altruistic place, its impact has that effect in turn. A recent Toscafund paper found that “by providing much needed and well-directed investment capital to Pakistan and other fragile states, China is making a considerable contribution to pulling these nations back from the brink of dysfunction.”
This is true, in part. The China-Pakistan Economic Corridor, a $62bn collection of job creating projects, mooted to strengthen Pakistan’s economy by the construction of modern transportation networks, has created thousands of jobs for young men who could otherwise have been radicalised.
On the other side of the coin, the project, and many others like it, has greatly exacerbated regional tensions in China’s path, even leading in some cases to military clashes, much to the alarm of international observers.
Are you serious?
The Belt and Road initiative has its doubters, who see it as unrealistic, and largely symbolic. “Agreements” and endless conferences are all very well, but the sheer magnitude of required investment cannot be achieved by China alone.
The IMF recently warned debt levels in China are “dangerous” – but that doesn’t make its pockets shallow. Mercantilist wealth accumulated from years of exporting manufactured goods have given the country tremendous economic leverage.
China is pushing for the B&R projects to be funded in renminbi, as part of its push to internationalise its reserve currency. Although the greenback will dominate B&R, by lending money to foreign governments, which will use the Chinese funds to pay the Chinese companies, it spurs trade in renminbi.
The loans are coming thick and fast in the form of public-private partnership (PPP) initiatives. This should be met with caution on the global stage.
It was announced in August that China’s biggest state-owned commercial banks have begun raising capital for these projects. High risk loans to developing nations with substandard credit ratings could go awry for innumerable reasons, from war to corruption. While there have been countless successful PPP projects, fears that the state could amass hundreds of billions of dollars in nonperforming loans are not unfounded. A risk to China’s banking system is, by default, a risk to the global banking system.
The Belt and Road is ambitious in every sense. Nothing of this scale has ever been attempted, and it is too early to speculate about its success. It would be disingenuous, though, to blame the Chinese for trying to shore up global influence, as things fall apart elsewhere.
The Trans-Pacific Partnership, abandoned by Donald Trump, was planned as a deliberate counterweight to China, to deepen US involvement in the Pacific Rim. Without it, Trump has handed China a clean slate to negotiate regional terms of trade.
Xi is ambitious, hawkish, and will stop at nothing to make Belt and Road a success. It will define his presidency. But scepticism over its funding is due – the Chinese dream could quickly become a nightmare. Everything under heaven may yet turn to hell.
Elliott Haworth is business features writer at City A.M.