Getting lost in 'One Belt, One Road'

Willy Lam Wo-lap April 12, 2016 15:58

As the brainchild of President Xi Jinping, the “One Belt, One Road” strategy is probably the country's most heavily pitched official slogan domestically and internationally since Xi assumed his office three years ago.

Obviously he has high hopes for this grand strategy as a lethal weapon that can hopefully help China replace the United States in 20 years’ time as the world’s No. 1 superpower.

Curiously, however, the once intense media hype about “One Belt, One Road” generated by party mouthpieces across mainland China has suddenly died down since the beginning of the year.

Even in his annual government report delivered before the National People's Congress (NPC) plenary meeting last month, Premier Li Keqiang only briefly mentioned “One Belt, One Road” in a paragraph of no more than 150 words.

Nor did members of the NPC and the Chinese People's Political Consultative Conference, many of whom are prominent private entrepreneurs and billionaires in the mainland, boost the idea in their speeches like they did last year.

The reason why they were getting less enthusiasitic about or even downplaying “One Belt, One Road” is obvious: they have started to notice that this strategy is a sloppy and poorly conceived idea that Xi came up with on his own to serve his ego without any careful study and planning beforehand, and there are more and more signs in recent months indicating that this plan is simply financially unsound and unsustainable.

In fact, the financial experts at the State Council have estimated that “One Belt, One Road” would cost as much as US$8 trillion if it was fully implemented following Xi’s orders.

However, so far the total amount of capital at the disposal of the newly founded Asian Infrastructure Investment Bank is only about US$24 million. In other words, there is simply a huge shortage of funds to support Xi’s ambitious project.

What Xi is trying to achieve with his strategy is to export excess production and infrastructural equipment to developing countries in Central Asia, South Asia, East Africa and some of the member countries of the Association of Southeast Asian Nations, so as to expand China’s political influcence and jump-start its economy amid sluggish growth in exports and weak domestic demand.

However, many of the infrastructural projects initiated by China under “One Belt, One Road” that are already underway, such as the massive US$50 billion infrastructural project in western Pakistan, have turned out to be pure economic aid offered by Beijing rather than bilateral investment projects.

Simply put, China is trying to buy friendship and political influence by investing massive amounts of money on infrastructure in countries along the “One Belt, One Road”.

No matter how cash-flush Beijing is, it will be impossible for China to keep pumping cash into these regions like that.

In fact, China’s foreign reserves have already slid from US$4 trillion last year to US$3.2 trillion.

Western economists say the country needs foreign reserves of at least US$2.8 trillion to ensure the soundness of its public finances. In other words, China is just one step away from the yellow line.

It has become increasingly apparent that the “One Belt, One Road” strategy is a poorly conceived and unsustainable idea that is turning into a financial black hole.

Nobody across China, apart from Xi himself and his most loyal lieutenants, is bullish about this flamboyant yet enormously costly plan.

The fact that Hong Kong's chief executive worked his heart out pitching “One Belt, One Road” in his recent Policy Address suggests that he is either completely ignorant about basic economics or that he was too eager to kiss up to Xi, even at the expense of Hong Kong’s interests.

This article appeared in the Hong Kong Economic Journal on April 7.

Translation by Alan Lee

[Chinese version 中文版]

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FL

Willy Lam Wo-lap

Adjunct Professor, History Department, The Chinese University of Hong Kong