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

January 22, 2021
China’s “One Belt, One Road” Initiative: Economic Issues
President Xi Jinping of the People’s Republic of China
commodities, and energy; acquire foreign capabilities; and
(PRC or China) in 2013 launched an ambitious and
build infrastructure. China’s overseas development finance
multifaceted foreign economic policy initiative—One Belt,
between 2008 and 2019 is estimated to have totaled $462
One Road—to expand China’s global economic reach and
billion, rivaling $469 billion in World Bank lending over
influence. In 2015, Beijing changed the English name to the
the same period, according to Boston University’s Global
Belt and Road Initiative (BRI), possibly to deflect from its
Development Policy Center. China’s global outward FDI
focus on developing China-centered and controlled global
stock is estimated to have risen from $34.7 billion (0.5% of
ties in a hub and spoke format. In October 2020, the
world total) in 2001 to $2.1 trillion (6% of world total) in
Communist Party of China’s Central Committee reaffirmed
2019. The United States accounted for $7.7 trillion, or 22%,
the effort’s central role in national economic development
of global outward FDI stock (down from 32% in 2001.)
and securing China’s supply chains. A January 2021 White
Paper, International Development Cooperation in the New
China’s state banks—including China Export-Import Bank,
Era, issued by China’s cabinet, highlights the initiative’s
China Development Bank—state firms, and government
role as a platform for China’s global commercial activity.
guidance funds (e.g., the Silk Road Fund), undertake a large
share of China’s overseas lending and investment. China’s
Scope and Objectives
payments appear to bypass the host country. The Chinese
One Belt, One Road aims to develop China-centered and -
government typically pays its firms onshore in China for
controlled global infrastructure, transportation, trade, and
the projects they implement, while host governments pay
production networks. While initially focused on Asia,
the Chinese government for the project. These projects are
Europe, and Africa, the scope has become global and
neither assistance—China’s loans are typically not offered
encompasses over 100 countries, including the United
interest-free and tend to be issued at, or near, market
States. It includes a land-based Silk Road Economic Belt, a
terms—nor truly commercial, because repayments are often
21st Century Maritime Silk Road, and a Digital Silk Road
backed by collateral commitments (e.g., lease rights,
that seeks to promote overseas China’s information and
minerals, or commodities) made to the PRC government,
communications technology (ICT) supply chain, including
which in turn absorbs much of the commercial risk for
hardware, and optical cable and satellite networks. The
Chinese firms. Recipients of collateral commitments may
initiative also emphasizes economic policy coordination,
include state firms designated by the PRC government that
trade and investment facilitation, dispute settlement,
were not party to the original transaction.
tourism, student and personnel exchanges, and cooperation
in research and development, standards, media, and health.
Figure 1. China’s Overseas Signed Contracts by Value
One Belt, One Road focuses on infrastructure, and related
supply chain, transportation, technology and financial
integration that expands the use of China’s credit
information system and currency. Projects in energy
(supply, generation, and transmission), ICT, manufacturing
(industrial parks and trade zones), and transportation (rail,
roads, ports, and airports) look to vertically integrate
China’s production supply chains, technology and service
infrastructure, and transportation networks. The initiative
seeks to expand China’s state firms’ presence overseas,
create new markets for China’s goods and services, and
secure access to foreign sources of agriculture, energy, and
strategic commodities required for China’s economic

development and policies. Projects also aim to develop
Source: Rhodium Group with data from China’s Ministry of
China’s interior regions, employ Chinese workers overseas,
Commerce through October 2020.
and offload excess industrial capacity. China is focusing on
China’s outward FDI levels peaked in 2016, but its
global collaboration in health, research, and standards
government statistics show that cross-border contracts have
setting in response to the COVID-19 pandemic, a focus on
been more stable (Figure 1). China’s use of onshore
basic research in the 14th Five-Year Plan (2021-2025), and
financing and special purpose investment vehicles
implementation of the China Standards 2035 strategy.
complicates the ability to track activity. Some analysts
anticipate headwinds for China in 2021 due to rising debt
China’s Investment and Financing
levels in many countries in response to the COVID-19
China has emerged as a top global investor and financier as
pandemic and an inability to commit to new infrastructure.
its companies have moved offshore to access raw materials,
China’s interest in offshoring excess capacity and

China’s “One Belt, One Road” Initiative: Economic Issues
expanding overseas, and its ability to fund its firms,
promote civilian and military interoperability. This
however, may continue to drive certain projects.
potential overlap of military interoperability and state
control could make foreign civilian facilities like ports
China’s State Firms
available for China’s military use. China, for example,
China’s strategic investments are typically state-sponsored
initially signed a commercial lease in Djibouti through a
and aim to advance China’s economic and foreign policy
Chinese bank but then developed a military base on the
goals. A handful of China’s state firms operate and control
property. China’s projects appear to be developing
most projects. Many of these firms are funded by—and
alternatives to U.S.-controlled networks and standards.
report directly to—the central government. They include,
Technology and financial networks could facilitate China’s
among others, China Harbor and its subsidiary China
use of its currency or digital currency. China’s Beidou
Harbor Engineering, CRRC, State Grid, China Three
satellite network provides an alternative to U.S. GPS
Gorges, and shipping giant COSCO. China’s projects also
navigation technology. Overland transportation offers
strategically position national champions such as Huawei,
alternative trading routes to U.S.-controlled sea lanes.
ZTE, and Alibaba, in part by establishing technology and
infrastructure platforms, architecture, and systems built to
Trade Principle of Reciprocity
China’s standards. Alibaba’s internet project in Malaysia,
for example, provides a foundation on which China will
Reciprocity is a core principle of the global rules-based trading
offer data/cloud, e-commerce, and financial services.
system in which countries extend commensurate market
Projects appear to seek interconnection and interoperability
access terms. China is expanding overseas in many sectors
in transportation (e.g., rail gauges), energy (e.g., power
that domestically remain heavily restricted or closed to
grid), and communications (e.g., 5G), allowing China
foreign investors (e.g., construction, engineering,
potential control of sensitive infrastructure and related
transportation, communications, and financial services). China
services. Projects in cobalt, lithium, and nickel, support
does not offer reciprocal market access for the rights it
China’s battery and electric vehicle industrial policies.
secures in other countries. China instead creates openings in
foreign markets through offers of deal-ready state financing
U.S. Concerns
and integrated project delivery through a consortium of firms,
Some observers point to the economic benefits of China’s
which can be attractive to governments seeking to fast track
investments in developing countries while others charge
project approvals. Projects may facilitate trade, but often on
that China is introducing unsustainable debt obligations and
China’s terms and through the supply chains it controls.
opportunities to gain concessions. China tends to extend the
duration of its loans, rather than forgive debt repayment,
U.S. Response
which creates long-term financial dependencies. In 2017,
Congress enacted the Better Utilization of Investments
when the Sri Lankan government was unable to repay
Leading to Development Act of 2018 (BUILD Act, P.L.
Chinese loans, China Merchants Port Holdings Company,
115-254) to create the U.S. International Development
Ltd., acquired a majority stake in the firm that operates Sri
Finance Corporation (DFC) and increase support for quality
Hambantota port and the right to operate the port
market-oriented infrastructure projects that are financially
for 99 years. Credit and loan terms are generally opaque
sustainable and include environmental and social
and China tends to settle agreements bilaterally. China’s
safeguards. In January 2021, the DFC reportedly agreed to
opacity in lending came to a head in 2019 when the U.S.
help Ecuador repay its debt to China in return for Ecuador’s
government questioned whether International Monetary
agreement to exclude China’s firms from its 5G networks.
Fund relief for Pakistan might be used to repay China.
The U.S. government has sought to promote alternatives to
China through a Blue Dot Network for infrastructure
Some Members have expressed concern that One Belt, One
financing that it coordinates with Japan and Australia. Since
Road projects advance China’s commercial, geopolitical,
August 2020, the U.S. government has sanctioned several
and strategic goals while undercutting the economic role
PRC state firms that build and operate One Belt, One Road
and political influence of the United States and multilateral
projects through actions that targeted their role in building
institutions. Multilateral institutions collaborate with China
military infrastructure in the South China Sea. Looking
to undertake some One Belt, One Road projects. They may
ahead, Congress might also examine:
set better terms for host countries—including model
procurement practices that allow non-PRC firms to
 China’s presence in U.S. production, transportation,
participate—but may advance China’s goals. Some
energy, and communications networks and investments
observers have expressed concern that China is
in the Western Hemisphere;
undercutting the operations and principles of international
 Whether new trade rules or groupings are necessary to
financial institutions and question whether China should
influence the networks China is developing; and
have leadership roles in these organizations.
 Whether new standards, investment, or procurement
China’s investments in strategic sectors and infrastructure
rules ought to discipline certain investment behavior.
have prompted governments in the United States, Australia,
Canada, Europe, India, and Japan, among others, to
Karen M. Sutter, Specialist in Asian Trade and Finance
increase scrutiny of these deals. Some defense analysts are
Andres B. Schwarzenberg, Analyst in International Trade
concerned that projects could be dual use in nature. Under
and Finance
its military-civil fusion program and China Standards 2035
Michael D. Sutherland, Analyst in International Trade and
initiative, China is seeking to develop standards that

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


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