What China’s Belt and Road has to learn from 1920s America


May 17, 2017

What China’s Belt and Road has to learn from 1920s America

Chinese President Xi Jinping’s plan to resurrect the Silk Road must heed the lessons of a bygone era

By  Sourabh Gupta

Image result for china's one belt one road

Perceptive China-watchers have observed that President Xi Jinping ( 習近平 ) has modelled his political mission on Deng Xiaoping ( 鄧小平 ) – even if his methods bear a whiff of Maoism.

Deng put an end to the turmoil of the Cultural Revolution and engineered China’s transformation towards socialist modernisation. Xi’s sweeping reforms and anti-corruption crackdown aim to engineer an analogous transformation that will deliver China to the cusp of a “moderately prosperous” society by the time of the Chinese Communist Party’s centennial founding in 2021.

In one notable respect though, Xi has broken with the Paramount Leader. Deng had counseled a 24-character strategy on his countrymen: “observe calmly; secure our position; cope with affairs calmly; hide our capacities and bide our time; be good at maintaining a low profile; and never claim leadership.” By contrast, Xi has not been shy to employ assertive diplomacy in support of an ambitious, long-term and strategic foreign policy.

No single political project personifies this more than the “Belt and Road Initiative”, which aims to resurrect the ancient Silk Road through infrastructure projects that will link Eurasian economies into a China-centred trading network. When two dozen or so heads of state assemble in Beijing for the Belt and Road Summit on Sunday and Monday, the magnitude of the imposing soft-power dimension of this “win-win” project that aspires to embed Xi’s “China Dream” within a “neighbourhood community of common destiny” will be on ample display. The BRICS Summit in Xiamen (廈門) this September will be a sideshow by comparison.

A variety of malignant motives, mainly economic, have been ascribed to the Belt and Road plan. It aims to channel Beijing’s allegedly manipulated reserve surpluses abroad, prop up the internationalisation of the yuan, unload China’s industrial overcapacity on neighbours, ensnare the recipient country in a cycle of debt, exploit the host country’s strategic resources and purchase their political affiliation along the way.

Steel pipes are loaded for export at Lianyungang port, Jiangsu province, China. Some critics see the Belt and Road as a way to unload China’s industrial overcapacity on neighbours. Photo: Reuters

While these claims contain merit, the redeeming arguments are more compelling. China’s hard currency reserves are better put to use in hard infrastructure projects in developing countries than deposited passively in New York’s financial market. At a time of volatility in liquidity provision in the international monetary system, yuan internationalisation and the rise of another issuer of safe, short-term and liquid instruments is to be welcomed. Moreover, the bilateral yuan swap lines and dedicated trade payments and securities settlement infrastructure that Beijing has rolled out over the past half-decade will enable recipient countries to denominate their borrowings in local currency, thereby limiting costs and exposures.

Transferring industrial capacity, improving infrastructure and reducing transaction costs on the other hand will enable developing countries to jump-start a dynamic upward spiral of growth and development in sectors where they enjoy latent comparative advantages – on lines similar to China’s own industrial jump-start in the 1980s. A comparison of China’s and the US’ Eximbank (Export-Import bank) loans to Africa, meanwhile, belie the oft-repeated claim that the former is directed solely at natural resources. China Eximbank has contributed to almost all 54 countries in Africa – resource rich or poor – and displays no perceptible pattern of favoured client state lending. US Eximbank loans, by contrast, are concentrated in energy and mining and confined to a favoured few.

Finally, with developing and emerging economies forecast to account for 59 per cent of world GDP in 2018 (neatly reversing the average 59 per cent accounted for by advanced economies from 1980 to 2007), as per the IMF, the rise of an alternate model of development financing that is leaner, cheaper, quicker and more flexibly attuned to host country systems and requirements should be welcomed, not stigmatised.

Development economics aside, the most consequential effects of the Belt and Road will be in international relations.

The Belt and Road’s storied predecessor, the Silk Road, two thousand years ago ushered in an age of commerce and civilizational exchange and afforded a set of loose principles of order and self-restraint. The Belt and Road’s ‘open regionalism’, likewise, will showcase Xi’s determination to practice a “new type of international relations” that binds China’s extended periphery as far out as Africa in a win-win embrace. Purposeful translation of his optimistic assessment for peace and development will realise the long-delayed promise of south-south cooperation in the post-colonial age. With luck, it will also confine the fascination with Great Power transition ‘traps’ – particularly the ‘Thucydides Trap’ (in which an established power’s fear of a rising power leads them into a vicious cycle of competition and eventually war) – to the armchairs of zero-sum-minded historians and think tank specialists.

Banners advertise the Belt and Road Forum in Beijing. Photo: AP

China’s re-emergence at the turn of, and the first few decades of, the 21st century bears remarkable parallels to America’s rise a century ago. Between 1890 and the early-1900s, the proportion of US manufacturers engaged in exports rose from less than a quarter to more than two-thirds, as the burgeoning surpluses of farms and factories were absorbed overseas. By the late-1910s and through the 1920s, the US became a prodigious exporter of capital as more than US$1 billion a year in loans surged out of New York. Nearly one-third as many foreign bonds floated on Wall Street as bonds of US companies.

As the Belt and Road becomes a conduit for the export of Chinese capital on as prodigious a scale as the US a century ago, its design and roll-out must also be informed by the cautionary lessons of that era. When boom had periodically turned to bust in the US economy and subjected many of her poorer hemispheric trade partners and raw material suppliers to simultaneous capital and commodity market shocks, Washington failed to provide the public goods (international development financing; recycling of capital flight; inter-governmental institutionalisation, and stabilisation loans, and so on) that could have placed a floor under the crash – and misery – overseas. China’s capital exports must avoid such boom-bust patterns and instead marry hard physical capital with soft technical know-how, managerial skills and local project ownership with purpose and patience.

During the next decade, China will replace the US as the world’s largest economic power. As it grows richer, it must assume the mantle of collaborative leadership and provider of global public goods. The Belt and Road is an appetising start but the proof of the pudding will be in its eating, as well as its ability to draw sceptical bystanders in the West and in Asia to the banquet

2 thoughts on “What China’s Belt and Road has to learn from 1920s America

  1. In the West, the One Belt One Road (OBOR) has been compared with the American postwar Marshall Plan, which was designed to support the European recovery and to insulate the Soviet Union. There are parallels, but also major differences. The Marshall Plan was created to help rebuild economies in Western Europe. While there is no consensus on exact amounts, the cumulative aid may have totaled $13 billion (some $130 billion in 2016 dollar value). These efforts pale in comparison with the OBOR, which involves far greater cumulative investments, which are currently anticipated at $4 trillion to $8 trillion, depending on timeline and scenario estimates. Unlike Marshall Plan, the OBOR does not predicate participation on membership or tacit support of military alliances. It is focused on 21st century economic development – not on 20th century Cold War.

    The Marshall Plan was predicated on participation in the US-led North American Treaty Organization (NATO). Historically, almost 75% of the total aid went to just five countries: the UK, France, West Germany, Italy, and the Netherlands, which became the NATO’s core members over time. Today, the NATO still accounts for over 70% of all military spending in the world (US 38%, non-US NATO: 32%), although friction about NATO financing by members reflects underlying pressures among the founding members. While much is made about the humanitarian aid by the West, it should be seen in context. In 2016, world military expenditure is estimated to have been $1,686 billion, according to SIPRI research. In turn, international humanitarian assistance reached a record high of $28 billion in 2015, according to most recent Global Humanitarian Assistance Report. In brief, the West-led humanitarian assistance is less than 2% of world military expenditures, which is led by the NATO. That’s untenable over time, especially as more than 90% of global humanitarian aid goes to long- and medium-term recipients.

    Unlike advanced economies, emerging and developing nations have neither the ability nor willingness to over-invest in military spending. In per capita terms, China ($156), India ($42), and even Russia ($481) invest a lot less than the US ($1,885), or major European economies ($860) in military spending. Moreover, China does not predicate entry to the OBOR on membership in military alliances, as the US did. That is vital. When NATO’s rearmament replaced economic development as the West’s primary goal in the postwar era and when the Cold War divided the world, instability and economic volatility surpassed stability and economic growth in the global agenda. That benefited mainly a few advanced economies but not the decolonizing nations, which were penalized by costly conflicts that were exported to the Third World as the direct result from the Cold War. It is these historical failures in economic development that the OBOR has potential to alleviate over time – through renewed global cooperation, the rise of more inclusive multilateral inter-governmental development banks, and new and massive infrastructure initiatives in a number of pivotal emerging and developing economies that are still amid industrialization or the drive to industrial maturity. OBOR has the potential to change the 21st century – for the better.

  2. For better or worse, (depending on who you ask), the OBOR is definitely a bold experiment which at this juncture in human history only a country like China can undertake or attempt to.

    In a way it is in tacit response to calls from Western countries particularly the US for China to take some from of leadership role in global affairs.

    So the show is on, the script is read, the actors are identified, tickets almost sold out. Hope we have a happy ending because in traditional Beijing opera it is not always the case.

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