Assessing China and BRI

Grand carefully orchestrated plans and conspiracy theories are the staple of both hindsight analysis and real-time debates. Accordingly, the austerity imposed on Greece was part of a grand German plan, or the trade-related actions by US on China are part of a comprehensive plan, or the BRI is a grand 

In this context, Yanis Varoufakis's words of wisdom is pertinent,

When a large-scale crisis hits, it is tempting to attribute it to a conspiracy between the powerful. Images spring to mind of smoke-filled rooms with cunning men (and the occasional woman) plotting how to profit at the expense of the common good and the weak. These images are, however, delusions. If our sharply diminished circumstances can be blamed on a conspiracy, then it is one whose members do not even know that they are part of it. That which feels to many like a conspiracy of the powerful is simply the emergent property of any network of super black boxes.

In recent months, there have been alarming news about the trends associated with Chinese lending to developing countries as part of the Belt and Road Initiative (BRI). Commentators have been quick to characterise it as part of a new wave of Chinese colonialism, debt-trap diplomacy, and hard development philosophy. 

But a new study by Mark Akpaninyie questions the argument of a grand national strategy by Beijing and instead claims that it is largely the consequence of profit-seeking actions by Chinese companies,

Little evidence actually suggests that Beijing coordinates a unified strategy to lure the developing world into unsustainable debt. Instead of a state-led strategy, Chinese firms — motivated by profit and abetted by a toxic combination of bureaucratic disorganization, incompetence, and negligence at the state level — have exploited poor nations, which are dependent on cheap, and sometimes bad, loans. These companies, knowingly or unknowingly, persuade countries to pursue projects where benefits to the firms far outpace the benefits of the host nation. Asymmetric information or deception may even misrepresent the feasibility or sustainability of pursued projects. What is worse, governments sign onto nonconcessional loans that accrue high interest rates or carry onerous terms that disadvantage already vulnerable countries. This practice does not trap recipient countries into taking on unsustainable debt. Instead, it allows Chinese companies to profit from often crooked deals building much-needed infrastructure in some of the world’s poorest countries, exploiting the undersupply of financing and these countries’ appetite for infrastructure projects.

One could replace country with business enterprises and the effects would be same. As the history of cross-border capital flows teach us, credit can flow into even the most indebted nations breaking down all semblance of discipline. In fact, this debt-fuelled investment strategy has been exactly what these same firms and their creditors have been following in China itself over the past two decades. 

Andrew Batson is spot on,

The broader point here is that looking at the Belt and Road through the lens of “grand strategy” or “geopolitics” ... is quite misleading... The Belt and Road is really the expansion of a specific part of China’s domestic political economy to the rest of the world. That is the nexus between state-owned contractors and state-owned banks, which formed in the domestic infrastructure building spree construction that began after the 2008 global financial crisis (and has not yet ended).

This assessment of BRI should not be taken to mean we can be complacent about other things that China does, some of which are most likely part of a conscious strategy. It's just that we need to assess trends on their merits and not be led purely by conspiracy theories and our availability biases or preconceived notions.

Update 1 (10.05.2019)

MR points to Tanner Greer's analysis of a study by Lee Jones and Zeng Jinhan. They write,

China’s massive ‘Belt and Road Initiative’ (BRI) – designed to build infrastructure and coordinate policymaking across Eurasia and eastern Africa – is widely seen as a clearly-defined, top-down ‘grand strategy’, reflecting Beijing’s growing ambition to reshape, or even dominate, regional and international order. This article argues that this view is mistaken. Foregrounding transformations in the Chinese party-state that shape China’s foreign policy-making, it shows that, rather than being a coherent, geopolitically-driven grand strategy, BRI is an extremely loose, indeterminate scheme, driven primarily by competing domestic interests, particularly state capitalist interests, whose struggle for power and resources are already shaping BRI’s design and implementation. This will generate outcomes that often diverge from top leaders’ intentions and may even undermine key foreign policy goals.

In other words,

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... 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 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... 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.

And this confluence of economic interests is critical,

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.