China's new Silk Road: A link to sustainable development?

Just days after the official establishment and operations of the Beijing-based Asian Infrastructure Investment Bank on Christmas Day, Chinese officials were quick to dismiss speculation that President Xi Jinping’s other — and perhaps grander — international initiative is being used by Beijing as a geopolitical tool. In a routine press briefing two weeks ago, Chinese foreign ministry spokesman Lu Kang explained that the East Asian nation’s much discussed One Belt One Road initiative will not be in any way a geopolitical tool, but rather an instrument of global growth and prosperity. The Belt and Road initiative, as it is also known, was first proposed by Xi in a September 2013 speech in Kazakhstan. One component of a series of international cooperation initiatives, the initiative aims to connect China to the rest of Asia and parts of Europe and Africa through a complex series of land routes and maritime trading. The system would rely heavily on yet-to-be built hard and soft infrastructure. Financing will come primarily from China’s foreign exchange reserves as well as the Asian Infrastructure Investment Bank, China Export-Import Bank and China Development Bank. While the Chinese government released action plans and documents about the Belt and Road initiative in March and October last year, there are widespread questions on financing, local buy-in, crosscutting policy initiatives, differing development conditions of involved nations, and safeguards. “It’s a very important policy but it also doesn’t necessarily mean that just because the [Chinese] government is highly supportive of it, that it will succeed,” according to Scott Kennedy, director of the Project on Chinese Business and Political Economy at the Center for Strategic and International Studies. The final project, according to the Chinese vision, will span three continents and impact a third of the world’s economy (around 60 countries) and more than half of the world’s global population (about 4.4 billion people) by reviving ancient trade routes and connecting economies and people through infrastructure development, including new and renovated roads, bridges and ports. The blueprint is ambitious, but, to an extent, inevitable. China’s economic growth has been slowing down from a steady double digit growth in the past years to less than 7 percent in the third quarter of last year, prompting the government to find ways to sustain the country’s appetite for growth. For some groups, the Belt and Road can be seen as an opportunity to redirect China’s domestic overcapacity and capital for overseas infrastructure programs to improve trade, investment and development in the region. Despite the economic advantages that might come with increased trade with China, political and development leaders are grappling with if and how the initiative can contribute to sustainable development, particularly for least developed and developing countries. Focus on safeguards With so many countries involved in the plan, political and development leaders are seeking a streamlined policy framework that tackles important issues such as procurement and customs. Similar to the concerns of nonprofit leaders over the impending operations of AIIB and the BRICS’ New Development Bank, making a sustainable development case for the One Belt One Road initiative will depend largely on the implementation of a standardized safeguards policy. While One Belt One Road is essentially a global initiative, if it is implemented, it will rely largely on bilateral cooperation between China and the involved nation. The initiative will then attempt to align individual countries with one another. According to analysts, these arrangements will require partner countries to monitor social and environmental impacts of Chinese-funded projects and enforce rules. “Some of the key countries on the OBOR list are countries that have been evidenced to practice lower standards when it comes to protection of human rights and access to information, as well as public consultation,” said Wawa Wang, sustainable finance adviser of multilateral watchdog CEE Bankwatch Network. The geographic and cultural diversity of the cities that may be impacted reflects the magnitude of China’s plans. Key cities may include Venice, Italy in the West, Moscow, Russia in the north, Nairobi, Kenya in the south, and Fuzhou, China in the east. Development organizations in these areas will likely take the lead in advocating for social and environmental safeguards. “They will … need to have procedures for engaging civil society in these countries, the governments, the NGOs, labor, the environmentalists, the media,” Kennedy said. “They’ll need to abide by rules.” A question of returns Experts say there is no proof that the big ticket infrastructure projects linked to the Belt and Road initiative will produce social or economic return on investment — or at least not yet. “These are complicated investments that will involve partnerships that involve public and private authorities,” said Kennedy of CSIS. “They’re going to need to know a lot about the governments in these different areas and how supportive they are of these projects and what the population thinks about them too. This is not a straightforward, easy thing.” Perry Wong, managing director for research at the California-based Milken Institute, echoed this sentiment, contending that understanding and respecting the local context is essential to making the eventual projects from the initiative more sustainable and inclusive. Regulatory policies that direct profit-seeking businesses to pursue operations in a sustainable manner should be in place. But a question of returns, he added, should not only focus in an economic lens — which has been the case for decades — that neglects sustainable issues like the concerns of the people and the environment affected. The people and the local environment should be at the center of all the projects and programs. “I think to that end in order for this to make across the finish line and make a healthy return of investment, you need the local participation,” Wong said. “I think that will be the best scenario and I thought that development should go that direction.” In the end, the initiative’s merits may be judged on a country by country or project by project basis. For instance, affected countries may benefit from a more structured and disciplined global supply chain linked to China which can spur economic growth. Moreover, if the initiative even partially achieves its economic growth objectives, then affected countries may also be able to mobilize more domestic resources and direct them towards development programs. Chinese assistance could also result in increased private sector investment in important areas such as infrastructure and social services. But now that China is grappling with its own economic problems at home, how the Chinese actually implement One Belt, One Road remains to be seen. Check out more insights and analysis for global development leaders like you, and sign up as an Executive Member to receive the information you need for your organization to thrive.