China’s “One Belt, One Road” Initiative: Economic Issues

China’s “One Belt, One Road” Initiative: Economic Issues

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Updated May 16, 2024
China’s “One Belt, One Road” Initiative: Economic Issues
The People’s Republic of China (PRC or China) in 2013
China’s Investment and Financing
launched an ambitious and multifaceted foreign economic
China’s use of onshore financing and special purpose
policy initiative—One Belt, One Road—to expand China’s
investment vehicles complicates the ability to track offshore
global economic reach and influence. In 2015, China’s
activity. One Belt, One Road is an umbrella initiative, and
leaders changed the English name to the Belt and Road
projects may be specifically or loosely tied to the effort. As
Initiative (BRI), possibly to deflect from the initiative’s
a result, many groups track PRC cross-border financing,
focus on developing China-centered and controlled global
investment, and overseas projects generally.
ties in a hub and spoke format. The Communist Party of
PRC overseas development finance between 2008 and 2021
China (CPC) incorporated the initiative into its Charter in
totaled an estimated $498 billion, rivaling $601 billion in
2017 and reaffirmed the effort’s significance in 2022 at its
World Bank lending over that time, according to Boston
20th Party Congress. Some participating governments say
University’s Global Development Policy Center. China’s
they value the initiative for filling infrastructure gaps. Other
global outward foreign direct investment (FDI) stock stood
governments, and some in Congress, assess that One Belt,
at $2.9 trillion (7% of world total) in 2022, up from $34.7
One Road projects advance PRC geopolitical and economic
billion (0.5% of world total) in 2001, while the United
goals while undercutting U.S. influence and interests.
States accounted for $8.0 trillion, or 20% of global outward
Scope and Objectives
FDI stock in 2022 (down from 32% in 2001), according to
One Belt, One Road aims to develop China-centered and -
official country data compiled by the U.N.
controlled global infrastructure, transportation, trade, and
China’s outward FDI flows peaked in 2016, while cross-
production networks. Initially focused on Asia, Europe, and
border contracts have been stable in agriculture, energy,
Africa, the scope has become global and encompasses over
minerals, finance, infrastructure, technology, and shipping
100 countries, including the United States. It includes a
(Figure 1). The overall value and size of PRC projects has
land-based “Silk Road Economic Belt,” a “21st Century
declined with China’s economic slowdown and debt
Maritime Silk Road,” and a “Digital Silk Road” that seeks
restructuring requests (e.g., Ecuador, Sri Lanka, and
to promote PRC information and communications
Zambia). The average commitment from China Export-
technology (ICT) supply chains, optical cable and satellite
Import Bank (CHEXIM) and China Development Bank
networks, and a “Health Silk Road.” The effort emphasizes
(CDB) in 2016 was $580 million per project, compared
policy coordination, trade and investment facilitation,
wtih $461 million in 2021. China may be at an inflection
dispute settlement, tourism, student and personnel
point in implementing existing projects and face a delay in
exchanges, and priorities in China’s 14th Five-Year Plan
activity after the pandemic. China’s domestic slowdown, as
(2021-2025), such as health, research, and standards setting.
it did in 2009, could fuel PRC expansion overseas in key
One Belt, One Road projects in energy, ICT, manufacturing
sectors.
(industrial parks and trade zones), and transportation (rail,
Figure 1. China’s Overseas Signed Contracts by Value
roads, ports, and airports) look to vertically integrate PRC
production supply chains, technology infrastructure, and
transportation networks. The effort involves technology and
financial integration that expands the use of China’s digital
platforms and currency. It seeks to expand PRC firms’
presence overseas, create new markets for China’s goods
and services, and secure access to foreign sources of
agriculture, energy, and strategic commodities. Projects
also aim to develop China’s interior regions, employ PRC
workers overseas, and offload excess industrial capacity.
At the One Belt, One Road forum in 2023, China’s leader
Xi Jinping emphasized areas of focus to include “high
quality development”; intermodal and green infrastructure;
pilot digital trade zones; science and technology

Source: CRS, with data from China’s Ministry of Commerce.
cooperation; a “compliance evaluation system” to address
corruption; and cooperation in energy, tax, finance, think
PRC state banks (e.g., CHEXIM and CDB), state firms, and
tanks, media, and culture. In 2021, Xi presented at the
government funds (e.g., Silk Road Fund), undertake a large
United Nations (U.N.) General Assembly a Global
share of PRC overseas lending and investment. The PRC
Development Initiative (GDI) to complement One Belt, One
government often pays its firms in China for projects they
Road with “small and smart” development projects. To
implement, while host governments pay the PRC for the
date, GDI projects have been in food and medicine.
projects. Projects are neither assistance—PRC loans are
typically not interest-free and tend to be issued at, or near,
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China’s “One Belt, One Road” Initiative: Economic Issues
market terms—nor truly commercial, because repayments
rights it secures in other countries, challenging a core tenet
are often backed by collateral commitments (e.g., lease
of the global trading system and giving PRC firms
rights, minerals, or commodities) made to the PRC
asymmetric advantages over competitors. The PRC instead
government, which in turn absorbs much of the commercial
creates openings in foreign markets through “deal-ready”
risk for PRC firms. Recipients of collateral may include
state financing and integrated project delivery.
state firms not party to the original transaction that are
China’s investments in strategic sectors and infrastructure
designated by the PRC government.
have prompted governments in the United States, Australia,
China’s State Firms
Canada, Europe, India, and Japan, among others, to
PRC strategic investments are typically state-sponsored and
increase scrutiny of these deals and offer alternatives. Some
aim to advance national economic and foreign policy goals.
defense analysts assess that some of China’s civilian
A handful of state firms operate most projects. These firms
infrastructure projects also have military applications.
are funded by and report directly to the central government,
Under its military-civil fusion program and China
and include China Harbor, CRRC, State Grid, China Three
Standards 2035 initiative, China is developing standards
Gorges, and COSCO. China’s projects also strategically
that promote civilian and military interoperability,
position national champions—such as Huawei, ZTE, and
including in various technologies and infrastructure such as
Alibaba—by establishing technology and infrastructure
ports. China Merchants Bank, for example, signed the
platforms, architecture, and systems built to PRC standards.
initial commercial lease for property in Djibouti on which
Alibaba’s internet project in Malaysia, for example,
China developed a military base. Sam Enterprise Group, a
provides a foundation for PRC data/cloud, e-commerce, and
firm reportedly tied to China’s military, bought land in
financial services. Projects appear to seek interconnection
Vanuatu and the Solomon Islands. In addition, China’s
and interoperability in transportation (e.g., rail gauges),
projects offer alternatives to a range of U.S.-led networks
energy (e.g., power grid), and communications (e.g., 5G),
and standards. China’s overland rail and Beidou satellite
allowing potential PRC control of sensitive infrastructure
networks offer substitutes to U.S-controlled sea lanes and
and related services. Projects in cobalt, lithium, and nickel
GPS navigation technology. China is using PRC digital
support PRC battery and electric vehicle industrial policies.
platforms to support central bank digital currency.
U.S. Concerns
U.S. Government Response
Some observers note the economic benefits of China’s
Congress enacted the Better Utilization of Investments
investments in developing countries while others argue that
Leading to Development Act of 2018 (BUILD Act, P.L.
China is introducing unsustainable debt obligations and
115-254) to create the U.S. International Development
opportunities to gain concessions. China tends to extend the
Finance Corporation (DFC) and increase support for quality
duration of its loans, rather than forgive debt repayment,
market-oriented and financially-sustainable infrastructure
which can create long-term financial dependencies. In
projects with environmental and social safeguards. The
2017, when the Sri Lankan government was unable to repay
DFC has sought to compete with PRC consortia on projects
PRC loans, China Merchants Port Holdings Company, Ltd.
and in markets where the PRC has a major presence. In
acquired a majority stake in the firm that operates Sri
2019, Congress created a China and Transformational
Lanka’s Hambantota port and the right to operate the port
Exports Program at the Export-Import Bank of the United
for 99 years. Credit and loan terms are generally opaque
States with new financing tools and flexibilities to counter
and China tends to settle agreements bilaterally. China’s
PRC export financing. The U.S. government has promoted
opacity in lending came to a head in 2019 when the U.S.
a G-7 Partnership for Global Infrastructure and Investment,
government questioned whether International Monetary
and a Blue Dot Network prototype for quality infrastructure
Fund relief for Pakistan might also be used to repay China.
financing with Australia, Japan, and the Organization for
The PRC government insists that most state banks and state
Economic Co-operation and Development. In 2020, the
firms are not subject to sovereign lending terms adopted by
U.S. government sanctioned some PRC state firms that
the United States and other major creditors in the Paris
build One Belt, One Road military infrastructure in the
Club. PRC loans often forbid multilateral debt restructuring
South China Sea. Congress might also examine
(e.g., under Paris Club auspices). China joined the two G20
• PRC entities’ presence in U.S. production, energy,
debt relief initiatives that accept Paris Club disciplines, but
transportation, and communications networks and
these apply only to CHEXIM and the China International
investments in the Western Hemisphere and Caribbean;
Development Cooperation Agency. The PRC claims it has
• whether to allow U.S. development or export financing
provided more deferments under G20 schemes than Paris
to flow to projects that use PRC components or services;
Club members, but many countries indebted to China do
and
not appear to qualify or have not applied—likely due to
• whether new trade, investment, and procurement rules
PRC pressure—for G20 debt relief. Some experts also say
or standards are needed to respond to PRC actions of
One Belt, One Road undermines the role and principles of
concern, including those that violate multilateral rules.
multilateral financial institutions, which work with China
on projects, and argue China should not have a leadership
Karen M. Sutter, Specialist in Asian Trade and Finance
role in these institutions. Such collaboration may set better
Andres B. Schwarzenberg, Specialist in International
terms for host countries while also advancing PRC goals.
Trade and Finance
PRC entities are expanding overseas in many sectors that
Michael D. Sutherland, Analyst in International Trade and
the PRC restricts to foreign investors in China (e.g.,
Finance
construction, transportation, finance, and communications).
The PRC does not offer reciprocal market access for the
IF11735
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China’s “One Belt, One Road” Initiative: Economic Issues

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https://crsreports.congress.gov | IF11735 · VERSION 6 · UPDATED