China’s New Silk Road Dream

An ambitious feat of diplomacy and engineering may not take the country where it wants to go.

Photo Illustration: 731; Photos: Getty Images; iStock Photo

For centuries the Silk Road, stretching across deserts, steppes, and mountains, linked the imperial dynasties of China with Europe. Chinese rulers used the thoroughfares to expand their power and influence deep into Asia. Today a newly assertive Chinese empire—this time, a communist one—is undertaking a gargantuan project to re-create those ancient trade routes and the political and economic clout that came with them.

Nicknamed One Belt, One Road, China’s plan is to construct roads, railways, ports, and other infrastructure across Asia and beyond to bind its economy more tightly to the rest of the world. The scheme was honored with a prominent place in the country’s latest five-year plan, released in late October, and has become a favorite subject of top leaders, who sell it as an international initiative to foster peace and prosperity. The program will “answer the call of our time for regional and global cooperation,” President Xi Jinping proclaimed during a speech at the Boao Forum in March.

In reality, though, One Belt, One Road is all about China. The program’s designed to forward Beijing’s strategic and economic interests around the world—at the expense of the West’s—and offer lucrative opportunities abroad for Chinese companies enduring a slowdown at home. In the end it’s a boondoggle that could set back China’s reform, expose its banks to financial risk, and alienate the very nations it’s meant to woo.

Beijing has been using infrastructure projects to bolster its influence among needy nations for some time, most notably in Africa. But One Belt, One Road takes those ambitions to another level. One arm, the Silk Road Economic Belt, will pass from China to Europe through Central Asia, and the other, the 21st Century Maritime Silk Road, will better link the country to Southeast Asia, the Middle East, and Africa along vital sea lanes. Although the exact details remain fuzzy, some estimates of the program’s scale boggle the imagination. In a May speech, China’s ambassador to the U.K., Liu Xiaoming, boasted that the program would involve 60 countries with almost two-thirds of the planet’s population.

China has a long list of reasons to promote this grand vision. It’s in the interest of the country, as one of the world’s biggest trading nations, to reduce the costs of transporting goods and secure access to key markets and commodities. The infrastructure push could also boost China’s role in global finance. Beijing and the financial institutions it backs are gushing loans and investments for the initiative. Last December the country inaugurated a $40 billion Silk Road Fund to invest in One Belt, One Road projects. China’s state banks are already lending big to countries along the new routes. The expansion of China-backed finance could propel Beijing’s quest for greater international stature for the renminbi, which it’s promoting as a global reserve currency.

This powerful concoction of trade and finance could draw more emerging economies closer to Beijing, including in regions where the West would like to gain influence, such as Central Asia. For many developing countries in desperate need of upgraded roads, ports, railways, and power systems, Chinese assistance is almost irresistible. “Anytime the Chinese dangle renminbi in the face of foreign officials, they kind of swoon,” says Scott Kennedy, director of the Project on Chinese Business and Political Economy at the Center for Strategic and International Studies in Washington. “All along the Silk Road they have opened their hearts to the Chinese.”

Beijing’s initiatives may lead to a sort of “development competition” between the U.S. and China, in which Washington feels compelled to increase its own assistance and financing for the emerging world, as has already happened in Africa. Still, the news for the West isn’t all bad. By improving infrastructure, China could help lift growth in poor nations—and the entire global economy. The construction projects will potentially create business for engineering and other companies from the West, too. “We shouldn’t freak out too much about what the Chinese are doing,” Kennedy says. “There’s a huge strategic opportunity for the U.S.”

That’s if the U.S. can take advantage of it. One Belt, One Road is geared ultimately to boost Chinese industry. At home, Beijing is attempting to decrease the economy’s dependence on astronomical levels of credit-driven investment for growth, and that spells tougher times for Chinese construction companies, equipment makers, and other businesses that had gorged on the country’s building boom. A key motivation behind Beijing’s big infrastructure schemes is to find fresh outlets for these companies overseas. China understandably expects that its own companies will take the lead in planning, constructing, and supplying projects it’s also funding. In fact, a study by London-based merchant bank Grisons Peak showed that 70 percent of the overseas loans it examined from two Beijing policy banks were made on the condition that at least part of the funds be used to purchase Chinese goods.

Even with China’s banks and special funds running full tilt, it’s uncertain where all of the money will come from to finance the Silk Road scheme. A report on Chinese state media says the number of projects under its umbrella has already reached 900, with an estimated price tag of $890 billion. With many projects destined for economically weak countries with dubious governance, China’s money could get lost to corruption or wasted in poorly conceived plans. Chinese companies already have a suspect record of implementing such projects.

According to data compiled by the American Enterprise Institute (AEI), about a quarter of all overseas investments and construction and engineering projects undertaken by Chinese companies from 2005 to 2014—worth $246 billion—have been stalled by snafus or failed. Almost half were in transport and energy—just the sort of projects that will be key to One Belt, One Road. “China is currently trying to create the story of an economic success, and if it has some public failures, that could be damaging to its brand,” says Homi Kharas, deputy director of the Global Economy and Development program at the Brookings Institution.

Nor is there any guarantee that China’s cash will win it camaraderie. In Africa, where China has a long record of investment, a Gallup poll released in August showed the approval rating of Beijing’s leaders had dropped among Africans in 7 of the 11 countries included in the survey. “The goodwill expressed at the highest levels doesn’t trickle down into warm sentiments,” says J. Peter Pham, director of the Africa Center at the Atlantic Council, a think tank based in Washington. “Chinese soft power is relatively weak.”

China’s infrastructure bonanza also presents dangers to its own economy. Local governments are jumping on the bandwagon, announcing a slew of projects aimed at connecting their provinces to Silk Road routes. In an April report, HSBC estimated that the projects already planned within China could total $230 billion. That may help sustain growth in the short run but delay the economy’s crucial transition away from investment-led growth, which would lead to even harder times in coming years. In fact, One Belt, One Road is in its essence the export of China’s old growth strategy—using state banks to fund investment by Chinese companies on foreign soil.

None of these concerns is likely to matter in the end. China’s international infrastructure push is, after all, a diplomatic endeavor, one to which the reputation of the state has become intimately tied. “The Chinese are going to work very hard—throw money at any and all problems—to make sure prized ‘belt and road’ projects all work out,” says Derek Scissors, an AEI scholar. That could turn China’s grand Silk Road dreams into an even grander disappointment.

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