China’s BRI fuses global infrastructure alongside socialism with Chinese characteristics

This article examines how the infrastructural benefits of the Belt &Road Initiative (BRI)are emanating from the world’s most populous country, and soon-to-be largest global economy,stretchingacross the vast geographies of the developing world.  We also look at how  the entire BRI programme is being purposely orchestrated by China’s government into inclusive forms of sustainable and equitable development.

The BRI’s policy on sustainable and equitable development

Sustainable and equitable development has become a deeply entrenched feature of BRI policy. For instance, the United Nations Development Program (UNDP) in its 2017 paper ‘Identifying Development Dividends along the BRI’, argues that “the BRI holds the promise of filling Sustainable Development Goals (SDG) through the provision of local content and enhancing their coordination, opening the way to BRI projects positively impacting critical social issues such as inequality and inclusiveness”. In practice, this feature of the BRI is best exemplified in Africa, where 39 African countries are said to officially participate in the pan-continental program, alongside cooperation with the 53-member organisation of the African Union.

In this context, China’s contribution to a large number of infrastructural developments across many African states has evolved into a key component of these countries development strategies.  Where few other international financial institutions are offering funding for infrastructure, China is providing that support to address Africa’s desperate need – which it shares with much of the developing world – for railways, ports, roads and energy. Alongside this hard infrastructure, many of these investments come along with agreements for China to build considerable amounts of social infrastructure.  This would include not only major cities on Africa’s coastal countries, but deep into the vast and largely inaccessible interior, providing essential educational and healthcare services to numerous isolated villages and remote communities.

For instance, by end-2014, alone, China had built 30 hospitals and an equal number of malaria prevention and health control centres throughout Africa, not to mention the training of over 3000 healthcare workers and investment into anti-malaria drugs, medical equipment and supplies. In 2015, President Xi offered up to US$60 billion to support Africa over the subsequent three years with public health being a major part of that assistance. Much of the outstanding interest-free debt arising from this financial support, for the poorest indebted African states, as well as continental interior states and small island states, has been written off since that time.

This was followed by another US$60 billion of financial assistance, in 2018, including a US$20 billion credit line, US$15 billion in aid and interest-free concessional loans, and US$10 billion earmarked for the China-Africa Development Fund. On this occasion, the focus of investment has also been on small-scale green and sustainable projects for rural and village communities, rather than larger-scale building projects in cities. Moreover, during this period of enhance financial support, China has fused its BRI policy of hard infrastructure with its “China African Policy”, established in the Forum on China-Africa Cooperation (FOCAC), where bilateral health related cooperation measures are now put forward on an annual basis.

Aside from the growing continent-wide provision of social infrastructure, China has also been introducing greater investment into digital infrastructure – fast becoming a key aspect of China’s BRI policy of reducing Africa’s economic inequality through greater informatization and digital connectivity.  For instance, on a global level, as a result of the high levels of informatization being introduced by Chinese investment in BRI participating countries, digital connectivity rose by 2.78% in 2016, over the previous year, while the average global growth rate was 2.1% for that period. Although starting from a low base, the BRI’s comparatively better performance was largely attributable to the construction of Information & Communications Technology (ICT) network infrastructure.  As an example in Tanzania, China Telecom assisted the government to complete the establishment of a major optical fibre transportation network. The end result gave rise to a level of informatisation in Tanzania from practically zero internet application to world class levels, while also promoting the development of local ICTs and internet industries. Tanzania has since become one of East Africa’s most important communications hubs for not only the region, but also further afield in Africa.

In line with Beijing’s emerging policy approach of balancing physical infrastructure with social and communications infrastructure, to enable more sustainable and equitable development,there is a growing recognition among global decision-makers that wealth creation needs to be more proactively transferred to broader sections of global society than has been hitherto praxis under Western neoliberal economics.  As the latter philosophy falls under intensifying scrutiny and loss of legitimacy, the rise of China and its government’s credo of “Socialism with Chinese characteristics” is resonating across the corridors of power in many developing economies, as exemplified above, and is doubtless clawing itself into the minds of decision makers in Western advanced economies and associated global multilateral institutions, that China’sBRI model of development can’t simply be brushed off with glib accusations of “debt-trap diplomacy”.

The BRI heralds a new era of changing global geo-economics and urbanisation

The concept of “geo-economics” has recently become an increasingly prominent concept in academic literature, now given more weight with the onset of US President Biden’s multi-trillion dollar infrastructure proposal paralleling China’s multi-decade focus on infrastructure development.

One of the more overt examples of this formulation is evident in the Atlantic Council’s paper, “The geoeconomics of Biden’s stimulus”, where it quotes the OECD’s forecast for 2021 US economic growth of 6.5% as one that “could surpass China’s growth this year”, fuelled by the American Rescue Plan and proposed Infrastructure Plan for democracies.  Aside from dealing with the debilitating economic fallout from Covid-19, the vast government-led reflation program has a very clear eye on keeping abreast with the meteoric rise of China’s economy and the determination of its leaders to convert their newfound wealth-creating power into a global infrastructure expansion.

Cross-border infrastructure investment has therefore become a significant geo-economic issue. It is also a two-sided phenomenon on the one hand enabling wide-ranging opportunities to modernize post-European colonial and post-Soviet societies in need of institutional and physical restructuring, while on the other representing powerful new instruments of partnership diplomacy increasingly attracting countries into China’s magnetic orbit. Accordingly, China’s infrastructure partnerships are heralding an important shift from military power and politically-conditional trade access, as a prime measure of geo-economic status, in favour of physical connectivity and trading relations but without the political strings.

Physical infrastructure also compels observers to look at what’s happening on the ground, reflecting the extent to which the provision of logistical connectivity succeeds in attaining influence in international relations.  Indeed, it can be argued that China is exerting a new developmental paradigm that is transforming the nature of international relations in the 21stcentury. As examples, China is providing substantial funding for Pakistan (a former colony of the British empire) and Kazakhstan (an ex-Soviet republic) to modernize and significantly upgrade their extensive railway networks and supplemental transportation systems. In turn, this has fostered new and ever closer international relations between China and these countries.

Amid the burgeoning pan-Eurasian infrastructure, modern BRI urbanisation is taking root, a phenomenon that is set to exert significant influence over how cities develop into the 21st Century.  Just as transcontinental trade established by the ancient Silk Road once led to the rise of cities such as Herat, in Afghanistan, and Samarkand, in Uzbekistan; the BRI will bring new investment, technology, infrastructure and trade relations to many of the world’s cities and urban networks.

Once fully implemented the BRI linkages, between major cities on the Eurasian landmass and Chinese megacities, will place China’seconomy at the centre of a regional network of production, financial and diplomatic platforms, associated with sustainable urban development. From this perspective, the BRI is more than just an exercise in trade and infrastructure expansion: It is also a means by which China could be in pivotal a position to shape the larger meta-pattern of urbanisation connected with its economic largesse and plans for societally-inclusive and regional development.

The experience in Europe and North America has been that economic growth linked to urbanisation has tended to concentrate in a handful of very successful city regions. By reinforcing historic land routes through Eurasia and into Europe, the BRI aims to challenge this pattern and grow the less developed regions and cities across this vast geography.

BRI is now about fostering SME opportunities at the urban level

One critical factor in determining how the BRI translates into broad-based growth will be whether small and medium enterprises (SMEs) are able to take advantage of new trade opportunities. Because SMEs account for the vast majority of enterprises and jobs in any country, their ability to become more competitive and succeed in international markets helps ensure gains from trade are broadly shared across society.

Research by the International Trade Centre (ITC), a multilateral agency having a joint mandate with the World Trade Organisation and the United Nations, reveals that access to market information is a major obstacle for SMEs seeking to trade internationally. ITC and China’s Ministry of Commerce signed an agreement to strengthen the international trade capacities of SMEs, to foster greater South-South cooperation and meet the goals of the United Nations 2030 Agenda for Sustainable Development. Within this context, competitive, globally and regionally integrated SMEs can translate into inclusive growth across the BRI.

Just as cities played an integral role in the connective tissue of the ancient SilkRoad route, so too can they play an indispensable role in the implementation of the BRI. Enhancing connectivity, in the sense of improving physical transit routes, both terrestrial and maritime, as well as communications, including digital networks, between countries along the BRI must therefore begin in cities and the ability of SMEs to facilitate and finance them. Improving urban investment climates and removing barriers to financing will therefore be of paramount importance when it comes to the BRI’s policy support framework for SMEs. This has been underlined in an economic report on urbanization in Africa, released by the United Nations Economic Commission for Africa, highlights SMEs’potential to speed up structural and economic transformation in some of the world’s most resource-rich nations, situated along various BRI regions including Central Asia, the Middle East and Africa.

China’s cities will drive a new Asia and BRI SME-connected world

The city of Shanghai in China is a particularly prominent example of how industrial SMEs can revolutionize the course of urban development in developing economies. Shanghai’s transformation into a national economic hub is the result of rapid industrial development with the support of central government and the city’s municipal government. Local authorities fostered the growth of SME manufacturing industries, as well as marketing the city internationally to attract major industrial projects. In the early 1990s, the Shanghai Municipal Government designated several “pillar industries” as the city’s industrial focus which also incorporated a high degree of SME involvement in areas such as: automobiles, electronic and communication equipment, petrochemicals, steel products, equipment assembly and biomedicine. In 2020, the city’s GDP of US$595 billion, with over two-thirds accounted for by industry output, ranked it alongside international financial centres, such as London (US$650 billion).

Multi-stakeholder partnerships can therefore effectively boost the development of many city-based SME-driven industrial sectors. This is where the BRI comes into play by promoting the creation of mutually favourable partnerships in many of the world’s most populous developing economy regions, including Southeast Asia, Eastern and Southern Africa, parts of South Asia and the Middle East, and across more sparsely populated Russia, Eastern Europe and Central Asia.

Development strategies under BRI are also coming to include international forums where municipal leaders can learn from one another and cooperate on multi-stakeholder partnerships. The “BRIDGE for Cities – Belt and Road Initiative: Developing Green Economies for Cities” is an example of such an event, organized annually by the United Nations Industrial Development Organization (UNIDO) and the Finance Centre for South-South Cooperation,it offers municipal officials a platform through which to scale up their engagement in inclusive and sustainable urban industrial development initiatives.

SME-driven industrial development can therefore play a key role in adding economic value to improving living conditions within cities along the BRI, and promoting environmentally supportive production methods. By working together, in future, the international community can be anticipated to ensure the BRI’s strategic industrial priorities are best adapted to the promotion of sustainable urban development.

Mixed ownership large companies will support fairer wealth distribution through dividend policies

In addition to the BRI’s increased focus on SMEs to drive forward economic development, China’s government has been promoting mixed ownership enterprises (MOEs) for its large companies. It is a peculiarly Chinese model reflecting the traditional philosophy of “Yin and Yang”, representing a balance between two opposites. As such, MOEsinvolvea degree of private and other forms of ownership alongside ongoing public control and management of former Chinese state owned enterprises (SOEs). The MOE concept was first set out by President Jiang Zemin in 1997 but officially commenced in 2013 under President Xi Jinping. In  2019, the government announced that private sector entities could hold a majority stake in SOEs in certain key industries.

After starting with some carefully selected national-level enterprises, the policy has expanded in stages encouraging moreSOEsto adoptMOE status. By 2018, two-thirds of all central government firms and over half their affiliates were transferred into mixed ownership structures. This involved the private sector making equity purchases in SOEs exceeding US$50 billion.  Moreover, about 15% of companies listed on the Shanghai-Shenzhen component index are MOEs. Although MOEs are mandated with an economic rationale to reduce market imbalances and cut overcapacity to make decisions based on price incentives rather than national objectives, they also have a social mandate to achieve the goal of maintaining employment and consumer confidence.

This social mandate, particularly in relation to large MOEs, will likely be extended to decisions over MOEs’ future profit distribution policies under the government’s reform programs in addressing inequality and raising household incomes.  Dividends paid out by typically large MOEs are anticipated to be economically impactful in alleviating sharply rising inequality, over recent decades, given the ongoing diversity of MOE shareholders ranging from private companies and investment institutions, to a plethora of collective associations and cooperative enterprises constituting tens of millions of Chinese citizens.

Moreover, as the BRI expands and takes permanent root across various continents and regions, other countries, especially those in the developing world and irrespective of their forms of political governance may look to introduce their own versions of the MOE endorsing mixed policies of achieving a more harmonious balance between economic and social imperatives.  From this perspective, it may be conceivable that the BRI is a double-edged sword.  On the one hand, a geo-economic rival to the US, in the sense of physically connecting large parts of the planet to China’s giant economy, while on the other projecting a new societal system placing greater emphasis on more effectively balancing wealth distribution alongside wealth creation, than US-led globalisation has been concerned with over the last four decades.

This piece written for the Global Policy Institute is a reworked version of an article by Bob Savic for China Briefing entitled, “The Belt and Road Initiative 2035: Bridging Emerging Economy Infrastructure Gaps and Reducing Inequality by SME Growth” available on this link: https://www.silkroadbriefing.com/news/2021/04/16/the-belt-and-road-initiative-2035-bridging-emerging-economy-infrastructure-gaps-and-reducing-inequality-by-sme-growth/

About the GPI

The Global Policy Institute is a research institute on international affairs. It is based in the City of London, and draws on both a rich pool of international thinkers, academics as well as policy and business professionals. The Institute gives non-partisan guidance to policymakers and decision takers in business, government, and NGOs.

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