Can China really take the high road with its big, bold infrastructure plan?

Jane Cai
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Can China really take the high road with its big, bold infrastructure plan?

When Chinese President Xi Jinping made a commitment last weekend to ensure his pet “Belt and Road Initiative” operated in line with international norms and standards it was widely seen as a response to mounting suspicion and criticism of the multibillion-dollar trade and infrastructure scheme.

While it was unusual for him to address such concerns so publicly, his closing speech at the second Belt and Road Forum in Beijing was intended to do much more than appease the critics, analysts said. Indeed, it sent a strong message that China is prepared to shift its focus from investment to governance, and adapt its whole approach to the contentious programme.

“We will actively seek to be anchored by widely accepted international standards and norms,” Xi told 37 state leaders and senior officials from Asia, Europe, Africa and Latin America. “We will adhere to the people-centred development concept and pursue harmony in economic development, society and the environment.”

A joint communique issued after the summit also pledged to bring the scheme “in line with our national legislation, regulatory frameworks, international obligations, applicable international norms and standards”.

The statement, signed by Xi and the 37 dignitaries – including Russian President Vladimir Putin and Italian Prime Minister Giuseppe Conte – also emphasised the need for financial sustainability, pollution control and cooperation in fighting corruption.

Since its launch in 2013, the belt and road scheme, which seeks to boost connectivity across Asia and into Europe, Africa, Latin America and beyond, has attracted 126 partner countries and 29 international organisations.

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While China’s ruling Communist Party has been keen to trumpet its achievements, the programme has faced widespread criticism for its lack of transparency, allegations of neocolonialism and claims it saddles impoverished host nations with unmanageable levels of debt.

Projects such as the construction of dams along the Mekong River – which as well as China flows through the Southeast Asian nations of Myanmar, Laos, Thailand, Cambodia and Vietnam – have also brought into question the scheme’s environmental credentials.

But Xi’s pledge was clear evidence of Beijing’s desire to give the plan a complete overhaul, said George Magnus, a research associate at Oxford University’s China Centre.

“China is deadly serious about the belt and road. The softer line on governance and conformity to international standards is also aimed at countries like the US, Japan, India, Germany and France that have so far resisted acknowledging or signing up to the scheme.”

While European Union heavyweights Germany and France sent ministers to the forum, the United States and India – unlike at the first event in 2017 – did not.

Japanese Prime Minister Shinzo Abe sent his special envoy Toshihiro Nikai, secretary general of the ruling Liberal Democratic Party to the event. When Abe visited China in October, he said that while Japan was interested in working with China on infrastructure projects it was bound by international rules such as open bidding and financial sustainability.

Magnus said Xi’s speech was all about tackling those concerns.

“[His] motives revolve around being seen to right wrongs on the one hand, and winning credibility and support from lobbies, if not governments, in major developed nations on the other,” he said.

Xiao Gang, a former head of China’s securities watchdog and previously chairman of the Bank of China, the country’s biggest foreign exchange lender, said Beijing was serious about rectifying the mistakes it had made and closing loopholes to prevent difficulties in the future.

For instance, the belt and road plan lacked standards or norms for handling debt defaults, debt relief and other issues, he said, adding that its non-systematical, non-binding, flexible and optional approach had proven to be problematic.

In his book, Institutional Openness: Building a New Investment and Financing System for the Belt and Road Initiative, which was published last month, Xiao said that while China’s mature investment and financing mechanism worked well at home, it did not always apply in belt and road host countries, so projects had to be dealt with on a case-by-case basis.

Also, as international standards on human rights and the environment were often too stringent for developing countries, China tended to apply its own or those of the host nation, he said.

But because some Chinese standards – in areas such as export credits, export credit insurance and foreign aid – were quite opaque and those of host nations countries considered too lax, many developed countries were reluctant to cooperate on belt and road schemes, Xiao said.

“China and belt and road countries cannot simply copy international rules,” he said in his book. “Governance innovations should be made as soon as possible. Delay[s] … will do serious harm, result in losses from sovereign debt defaults, and undermine China’s global influence and reputation.”

Beijing has already been stung. When plans were announced in 2017 for a cross-country rail line in Malaysia – to be built by Chinese companies and financed by Chinese money – Kuala Lumpur described the belt and road scheme as a “game changer”.

A year later, the newly re-elected Prime Minister Mahathir Mohamad slammed the deal as a corrupt and costly venture that would drown the Southeast Asian country in debt. He promptly postponed it until a new deal could be negotiated. That was achieved last month when Beijing agreed to slash the cost of the project by a third, or about US$5 billion.

Chinese officials overseeing the project said on condition of anonymity that Beijing was deeply concerned about the renegotiation and feared other countries might follow suit.

In a bid to offset that risk, China has been seeking to attract third-party partners to help establish and apply international rules to belt and road projects, which could then be used as an aid to arbitration in future disputes.

Wang Yiwei, a professor of international relations at Renmin University in Beijing, said China wanted to set up a mechanism under which countries involved in projects were bound by international accords and standards.

“Some countries, for example, think that because China is so rich they should squeeze every penny they can out of it,” he said.

“To stop that, Beijing needs to work with developed countries in third-party markets, like it is doing with Switzerland on assessment, supervision and arbitration in project construction and design.”

Switzerland recently signed a memorandum of understanding to cooperate with China on belt and road projects, making it the third European country, after Italy and Luxembourg, to do so in the past two months.

“The aim of the MOU is for both parties to intensify cooperation on trade, investment and project financing in third-party markets along the routes of the Belt and Road Initiative,” China’s finance ministry said.

Sourabh Gupta, a policy specialist at the Institute for China-America Studies in Washington, said: “With most developing countries already having signed on to the programme, the bulk of the rejectionists are, typically, advanced countries who will hold it to demanding standards if they are to ever cooperate in third-country markets – let alone participate within the scheme. So it’s better to revise and improve the current approach.”

China was already locked into “high standards” arrangements with Italy, Austria and, increasingly, Japan, so it made sense to roll these out “so that poor governance standards in certain host countries do not incentivise Chinese promoters and contractors to compromise on the project quality … and thereby damage the overall initiative and China’s image”, he said.

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While a universal standard might be the goal, the programme would still have to be tailored to suit local tastes and sensitivities, said Zhao Kejin, from Tsinghua University’s Institute of Global Development.

Beijing did not want to be seen as force feeding its rules and regulations to host nations.

“When China talks about applicable international practice, it means it will not totally copy standards of the West,” he said.

The new arrangement would include raising standards and conformity with global rules on investment and project construction, but with the participation of third-party players, whether they were developed countries or international organisations, he said.

But analysts remain sceptical about the extent to which China’s approach will be in line with international norms.

Jude Blanchette, a specialist in Chinese politics at Crumpton Group, a US advisory and business development firm, said: “The central question is whether China will be able to create and capture sufficient strategic and economic benefits from the programme if the initiative is indeed placed on a more transparent and inclusive footing.”

Oxford University’s Magnus said international rules, transparency, accountability and the rule of law often ran contrary to the self-proclaimed interests, values and beliefs of China’s ruling Communist Party, and of the state-owned enterprises that were the principal beneficiaries of the programme.

“That said, some things like environmental protection are in China’s interests and also not politically awkward. So there may be some à la carte options here for China,” he said.

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Several European countries expressed cautious optimism after hearing Xi’s promises.

The German embassy in China said it welcomed the commitments and considered them a turning point. “What is crucial now is rapid implementation,” it said.

The Delegation of the European Union to China expressed a similar sentiment, with a spokesman saying the group was “now expecting to see all these promises translated into reality as soon as possible”.

The US embassy in Beijing also voiced its support, but said it would closely monitor any developments.

“We encourage China to ensure its practices are sustainable and promote inclusive development, good governance, transparency and strong economic institutions,” a spokesperson said.

“We will continue to raise concerns about opaque financing practices, poor governance and disregard for internationally accepted norms and standards, which undermine many of the standards and principles that we rely upon to promote sustainable, inclusive development and to promote stability and prosperity.”

In his opening speech at the Belt and Road Forum, Xi told an assembled group of more than 5,000 political and business leaders that “we Chinese always honour promises”. Amid growing dissatisfaction and impatience from the US and Europe, he also spent much of his time renewing his pledges to allow overseas investors greater access to China’s markets.

The question now, was whether Beijing could deliver on its promises, said Patrick Mendis, a former Rajawali senior fellow at Harvard University and a distinguished visiting professor of China-US relations at Peking University.

“President Xi speaks more like an American president in the absence of US leadership in the world … [but] the reoccurring question is the trust deficit in Chinese actions,” he said.

“With the speech, I hope that Xi honours this Confucian principle of sincerity.”

Additional reporting by Wendy Wu

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