China’s Belt and Road Initiative: Aid, Investment or Something Else?

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SEATTLE — Building on the concept of the ancient silk road, Chinese President Xi Jinping unveiled the Belt and Road Initiative (BRI), a transcontinental infrastructure project and trade partnership, during a visit to Kazakhstan in 2013. Since its announcement, BRI has been one of the most ambitious international projects that the People’s Republic of China has ever undertaken, recognized as being on par with Deng Xiaoping’s Reform and Opening-Up in the 1980s.

The numbers reveal a lot about the staggering scope and scale of this project. As of October 2017, the Chinese government has spent more than $300 billion on development projects and plans to commit $1 trillion more in the next decade. The partnership with 68 countries across Africa, ASEAN, the Middle East and Eastern Europe covers 65 percent of the world’s population, 75 percent of energy resources and 40 percent of GDP.

Such unprecedented scope and scale require careful long-term strategic planning by the Chinese government, taking all aspects of economic, social and political impact into accounts. Media outlets such as The Economist and The Telegraph have made the comparison between China’s BRI and the United States’ Marshall Plan, one of the most effective and influential foreign aid initiatives in history. Multidisciplinary scientific journal Nature has also published comparative studies by scholars like Simon Shen from The Chinese University of Hong Kong on BRI and the Marshall Plan.

So, is the Belt and Road Initiative really a foreign aid package like the Marshall Plan? Is it leaning more towards commercial investment? Or is it actually something else?

Is the Belt and Road Initiative Aid?

First and foremost, China is not part of the Organization for Economic Cooperation and Development (OECD), therefore, it is not required to officially disclose its foreign aid information like OECD member countries do. This also results in much of China’s outflow of money not being counted as official development assistance (ODA), what OECD defines as foreign aid.

In a recent report published by AidData, researchers found that in the 14-year period between 2000 and 2014, only $81 billion out of $354.3 billion (roughly 23 percent of China’s total financial outflow) was categorized as ODA. The majority of China’s financial assistance to foreign countries is not considered official development assistance; this aid is sometimes called “rogue aid” by the media. BRI projects are often counted when calculating the total financial assistance to developing countries, which along with other loans, grants and services constitute the broader definition of China’s foreign aid.

A huge part of BRI is the loans given to developing countries to fund their infrastructure development projects. Having analyzed the financing routes of BRI, researchers from the Brookings Institution believe that the loans are indiscriminate in terms of recipient countries’ geographic location or governance, which indicates that China’s decisions on loans are based more on the needs of recipient countries rather than China’s own interest in trade. The researchers conclude that BRI, especially indicated by recent data, is more demand-driven like foreign aid rather than supply-driven like foreign investment.

Is the Belt and Road Initiative Investment?

While many see the Belt and Road Initiative as a generous foreign aid package distributed over 68 countries, other evidence shows that the nature of China’s financial assistance via BRI might not be so altruistic. In a Washington Post interview, Yun Sun, an expert on Chinese foreign funding from Stimson Center, said that the criteria for China to offer aid are “the convergence of interests, which could be commercial, political, or even reputational”.

The economic aspect of BRI is evident, as trade with the 68 member countries has already exceeded $1.4 trillion. There are additional trillions of dollars in the next decades waiting to be sent out to fund more international projects, which can produce greater trade possibilities. In a working paper by AidData, researchers estimate that for every additional China-funded project, the recipient country’s economic growth will increase by 0.7 percent in the following two-year period.

Evan Ellis, a U.S. Army War College professor whose studies focus on China’s engagement in South America, said, “The Chinese don’t just give loans; they are almost all tied to using Chinese companies as subcontractors,” suggesting China’s method of turning possible conflicts related to financial assistance into win-win contracts.

The Reality: A Mixture

In fact, according to the Wall Street Journal, China officially considers BRI to be both a humanitarian effort, offering emergency food aid, poverty alleviation and other infrastructure development projects to the countries in need, and a strategic alliance, strengthening trade routes across the continent and boosting economic growth both for fund-recipient countries and China itself. It is an oversimplification to define BRI as either aid or investment: it is best understood as a combination of the two.

Indicated by the research by AidData on past Chinese development aid and many other accounts of China’s financial assistance to developing countries, China has always approached foreign aid partly from a commercial perspective. China’s foreign aid to Africa, for example, has been widely criticized for its natural resource-backed loans, which showcase China’s overwhelmingly economic interests in the recipient African countries.

China’s Belt and Road Initiative, in line with China’s previous foreign aid efforts, is not purely “official development assistance” by OECD’s definition, or investment as understood by businesses in a market economy. Touching upon infrastructure development, trade, natural resources, humanitarian relief and many other aspects, BRI is a multifaceted program that connects a large portion of the world and fosters an economic and political strategic alliance unprecedented in terms of scale and scope.

– Chaorong Wang

Photo: Flickr

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