This paper was published on The Diplomat on April 9, 2015. To read published version, please visit:

http://thediplomat.com/2015/04/how-china-can-perfect-its-silk-road-strategy/

Diplomatic Risks Facing China’s Belt and Road Strategy

Xue  Li  and Xu Yanzhuo

The key words of China’s diplomacy in 2014 are “one belt and one road”(OBOR).  OBOR strategy has become China’s key foreign agenda, by which it means Beijing will promote this initiative in economic, political, military and cultural aspect in next 8-10 years. It is known in Chinese academia that 2013 is the year of conceiving, while 2014 is the year of conceptualizing and 2015 is fully implementing.

In 2014, the preparation of OBOR strategy is remarkable, politically, the CICA mechanism and dual-track approach; while economically several economic corridors and the upgraded China-ASEAN free zone, and in terms of trade, the Asia-Pacific free trade zone. All these evidences hint that China is undergoing a foreign strategic transformation, that is, “keeping a low profile” is fading, yet “achieving something” could not fully reflect the new government’s diplomatic ambitions. And “proactive and enterprising, striving for achievements” will probably become Beijing’s new diplomatic agenda. Neighborhood diplomacy has a significant role in China’s strategy and will properly become more important than the traditional diplomatic priority of China-US relationship.

The success of this strategy lies in the following threefold, first, how to assess US’s rebalance to Asia-Pacific, containment (or to say a condition of being under siege) or hedge? Second, how to gain recognition and cooperation from countries alongside the Silk Road Economic Belt and the 21th Century Maritime Silk Road  (SRs countries), “selective supporting the proposals” or “turn-key projects”? Thirdly, how to avoid economic and political risks as much as possible? Whether the existing plans will lead to large number of unfinished international projects? 

How to assess Asia-Pacific Rebalance?

If there were no US, China may have already realized its rising. Washington has launched its Asia-Pacific rebalancing strategy targeted at China’s rising, vice versa, Beijing has put forward OBOR initiative partly in response to the negative impacts along with the Asia Pacific rebalance. 

As a result, the assessment of “Asia-Pacific rebalancing” strategy would largely impact China’s reaction and measures. If the strategy was introduced to contain China, then Beijing has to confront it through establishing and enlarging allies, exploring quasi allies and friendly countries, hence to expand its political clout and to dilute US’s influence from surrounding area.

And if the strategy were not targeted at containing China, yet it were delivering a message that US-China confrontation would be the last resort, even if US has capability to so. In the first place, Washington would expect China to pursue its national interests in an internationally accepted way and to play a bigger role in international affairs. In short, it is a hedging strategy that has a dual aims of both engagement and prevention. In this case, it creates lot of consensus between US and China. The “competition-cooperation” will become a new normal. 

Many people has argued that the reasons to US’s containment to China are as follows, Washington is attempting to westernize China ideologically and politically; to strengthen alliance and to support China’s rivals in order for containing Beijing; to blockade advanced technology and arms to China; to further promote China’s market economy and cultural infiltration through talents exchanges and training.

However, only the “westernizing China ideologically and politically” could be considered as containment. Other arguments above can be explained as “hedge”. A pragmatic US could hardly solve Iraq and Afghanistan crisis, obviously, it is not capable enough to westernize China. At this moment, US’s priority is not westernizing China, instead, Obama administration’s Asia-Pacific rebalancing strategy still could be categorized as Anglo-Saxon countries’ traditional foreign strategy. 

The main driving force of British Empire’s global expansion is the pursuit of commercial interests. Balance of power and regional stability could help to realize the goals, hence are core of British Empire’s strategy. To be specific, helping the weaker side in order for regional balance of power and preventing the rising of regional power and reducing its impact to British security and interest. A typical example is that British has conducted its Continental Policy for hundreds of years. After World War II, the super power US put this strategy as “regional strategic principle”, for instance, supporting Western Europe’s confrontation to Soviet Union and its Eastern European allies; supporting Pakistan against India in South Asia, confronting socialist countries through a series of bilateral alliance in East Asia. At present, it favors Japan in East China Sea disputes and claimants in South China Sea disputes in order for balancing China’s rising. 

After the Cold War, the biggest challenge for US is a rapidly rising China. During Clinton administration, Washington has a clear hedge strategy to Beijing, that is engagement and prevention. At that time, there was a big gap between China’s comprehensive strength and that of US’s and the country lacks capability to challenge US. Thus, US highlight engaging in order to involve China into international political and economic system. After the global financial crisis in 2008, China has a significant role in world politics and economy, thus US started to adjust its China policy. Since China does not accept G2, Obama administration launched the policy of “returning to Asia-Pacific” signaled of preventing China, and later the “Asia-Pacific rebalancing” strategy. At the same time, it put forward the idea of “Indo-Asia-Pacific” to woo South Asian countries while balancing China. It is also worth noting that, even so, US does not give up engaging with China. 

How to resolve the distrust of surrounding countries?

China makes effort to establish all kinds of international mechanism led by Beijing and emphasizes great power relationship, advocates non-aligned policy and conducts aggressive measures in maritime disputes. Thus, the surrounding countries are concerning that China would pursue its national interests in sacrificing them. As a result, they take a dual strategy of “relying on China for the economy and US for security”. The successful implementation of OBOR initiative will help to gain understanding and support from SRs countries, especially in security aspect. It may be the biggest challenge of OBOR strategy. In this case, it could start to build sub-regional multilateral security mechanism in functional areas, such as establishing common fishing ban in South China Sea, carrying out joint patrols and bilateral and multilateral military exercises.

Economically, China has carried out OBOR strategy through investment and joint construction of infrastructure in order for sharing China’s economic growth fruits with SRS countries. However, many small and medium countries are worried that highly economic dependence on China will led that Chinese people would flood into their country and the number of corrupted officers would increase. Even though traditional developed countries did not encounter much of these complaints, Beijing has to make efforts to deal with it. 

Additionally, some SRs countries are concerning the negative effects on ecological environment along with these large construction projects; while some small countries are worried that the investment would change their traditional culture and lifestyle. Chinese government is exploring the solution of these problems domestically, yet the current situation requires it to be resolved in its overseas investment. Although it is hard, it is impossible to avoid. 

How to avoid political and economic risks?

A rising country inevitably needs to establish its own political, security, economic and cultural space. Historically, the space is exclusive. Even as for US, its Asia-Pacific rebalancing strategy aims to build an exclusive security and economic mechanism, to be specific, strengthening bilateral allies and quasi-allies and launching the exclusive TPP economically. Against such background, could US still claim itself as a constructor and involver in Asia’s stability and prosperity?  Asia doesn’t have the right to create its own free trade zone, does it?

Different from US, China has welcomed US’s engagement into the regional mechanism led by Beijing, such as AsiaInfo, Asia-Pacific free trade zone and Asian Infrastructure Investment Bank. It indicates China’s openness, inclusiveness and morality, comparing with its US counterparts.

Building its own regional space and filed is a necessary experience on China’s way to become a global power. Since China’s competitiveness lies in economic field, OBOR mainly focused on economic cooperation. Frankly, geese-flying all SRs countries are beyond any state’s capability and responsibility. Hence, China should be cautious about the economic and political risks in implementing this strategy.

Many analysts have argued that the main domestic driving force of OBOR strategy is to reduce foreign exchange reserves and to transfer excess capability. However, as foreign exchange reserves are not revenue, it could only be used for foreign economic activities. The three principles of foreign exchange reserves are security, liquidity and profitability, of which security is the most important one. Considering the fact that the investment environment in SRs countries is not as developed as that in Europe and US, the ROI is not optimistic, of which some may become bad debts. It is severely against the three principles of foreign exchange reserves management, if the funds have become bad debts. China needs to avoid it by all means.

As for the excess capacity, taking steel industry as an example, if the demands for steel from SRs countries were as much as China’s domestic railway consumption, (it is already an impressive figure), China’s large amount of excess steel still could not be resolved through transferring to those countries. Because the steel consumption for domestic railway construction is 21 million tons, in contrast, the excess steel has reached 450 million tons. In this case, shutting down the factories could be the only effective way, even if it is painful.

Additionally, it is also worth noting the political risk of OBOR strategy. Many SRs countries has suffered from political instability, serious corruption or (and) the threat of terrorism, how to seek for cooperative countries or projects with political stability and economic potentiality and how to connect the SRS countries should become a key topic in further studies. If SRs countries were categorized as small and medium countries; countries that have territorial disputes; pivot countries and sub-regional powers, then the pivot countries should be key to the strategy. 

Summary

This paper has raised three questions (or risks) for OBOR strategy. It is also worth noting that the external environment assessment and development strategy adjustment suggested in response to these three questions should be also considered as routine along with China’s rising. OBOR strategy has drawn a blueprint for China to become a comprehensive global power.

OBOR is competing with “Asia-Pacific Rebalancing” strategy. And the competitive relationship will examine China and US’s overall national capability. If China could properly implement the strategy, it is possible for Beijing to change “US’s Asia Pacific” into “China’s neighborhood”, vice versa, a failure OBOR could also become “China’s curse and US’s blessing”. Nevertheless, OBOR is a trial and a path for China’s evolution from“ regional power with global influence” to “comprehensive global power”. Since there is no better choice, Beijing could only strive and make efforts for the best result. The strategy has decided, while details make difference. China has a relatively strong national strength, but it has to cautiously consider its emphasis and capability and avoid becoming the National Development and Reform Commission and MOF of SRs countries.