China’s Belt and Road Initiative: If You Build It, Will They Come?

To begin with a bit of trivia, who said the following line? “When you give roses to others, their fragrance lingers on your hand.”

If you guessed Cole Porter, you’d be wrong. Nor does this line hail from a wooden quote board for sale on Etsy. It was delivered by China’s President Xi Jinping at the 10th anniversary celebration of China’s Belt and Road Initiative (BRI) in October 2023.

Originally announced by President Xi in 2013, the Belt and Road Initiative (BRI) is Beijing’s signature program for promoting economic development and connectivity across nearly 140 countries. Plausible estimates project that Beijing has invested nearly one trillion dollars in the BRI’s panoply of projects around the world, including transportation infrastructure, energy, and telecommunications projects. Notables include one of the largest dryports in the world called the Khorgos Gateway in Kazakhstan, a high-speed railway in Indonesia called “The Whoosh”, and a network of infrastructure projects comprising the China-Pakistan Economic Corridor (CPEC). Of the latter, China’s foreign minister Wang Yi said, “If [BRI] is like a symphony involving and benefitting every country, then construction of the [CPEC] is the sweet melody of the symphony’s first movement.” Roses and symphonies. What are the success prospects of China’s BRI?

To answer this question, I offer a story from class. Whether they realize it or not, students frequently are a source of terrific classroom anecdotes, some of which occasionally become inputs into research. While discussing China’s BRI, a student raised his hand and offered an invaluable story. For part of his childhood, he lived in Niger’s capital city, Niamey. For decades, he explained, the city had one bridge crossing the Niger River that split the city, the aptly-named John F. Kennedy Bridge. This highly-congested two lane bridge was the main alternative for crossing the river until the mid-2000s. Then China provided funding and a construction workforce to build a brand new four-lane bridge just downstream from the Kennedy bridge. To my student’s surprise, when the new bridge was completed, he saw very few local people actually using it. He suspected that mistrust towards China (and the association of low-quality goods with China) led local people to regard the bridge with suspicion, despite its newness and larger size. He also reported hearing locals refer to the bridge with assorted expletives from the Hausa language.

My student’s vignette led me down a new research path. Should we expect BRI projects to be value-adding for local peoples, or will they instead reject those projects—and why?

BRI: A Primer

Beijing conceives of the BRI as the creation of a “21st century Silk Road”, aiming to “… realize diversified, independent, balanced and sustainable development in [BRI countries]” through “[promoting] the connectivity of Asian, European and African continents and their adjacent seas”. Xi Jinping has emphasized the centrality of infrastructure projects to achieve this goal, as he stated of BRI in 2017: “Infrastructure connectivity is the foundation of development through cooperation… We should promote land, maritime, air and cyberspace connectivity, concentrate our efforts on key passageways, cities and projects and connect networks of highways, railways and seaports…” In pursuit of these ends, China has emerged as the world’s largest official lender of government-to-government loans in the world.

While some argue that BRI largely boils down to a rebranding of the “Going Global” policies pursued by Xi’s predecessors to address excess domestic industrial capacity, the rollout of BRI has nonetheless sparked a great deal of international attention. The international community has responded in kind with counter initiatives to fund infrastructure projects, including the G7’s “Build Back Better World” Initiative. Since the Chinese government is opaque regarding the operation of BRI, researchers around the world have rushed to compile data on the scope and scale of the BRI portfolio. Such efforts have resulted in detailed maps depicting BRI as a massive, cohesive web of interconnected projects. These maps—which take on the appearance of board games like Ticket-to-Ride or Risk—present an image of top-down orderliness and cohesion within the BRI that differs to a considerable degree from the reality on the ground. How large is that difference?

Knowledge Constraints: Who Is Planning for Who?

While there’s little doubt that BRI funds have initiated more infrastructure projects than would otherwise have been the case, it is less clear whether those projects actually add value for local peoples over and above their opportunity costs. In this respect, the success of BRI along the lines of China’s stated ends—promoting economic development and connectivity—rests upon coordination mechanisms generated by markets. Its success depends less on centralized decision makers within Chinese state and policy banks or state-owned enterprises.

Within markets, the price system provides the mechanism to coordinate the disparate and conflicting plans of millions of people. Market prices serve as signals, providing information and incentives to individuals as they seek to accomplish their desired ends. Profit and loss signals generate continuous feedback for market participants to assess whether resources are being deployed to their highest-valued uses among alternatives. Likewise, relative price changes provide the means for rapid adaptation as economic plans are carried out.

BRI projects, chosen through the political process, are unable to leverage these coordinating mechanisms. Projects are bid upon primarily by Chinese or host-country state-owned enterprises (SOEs). After vetting by state officials, projects are funded by Chinese state and policy banks. Two in particular, the Chinese Export-Import Bank and China Development Bank, account for over two-thirds of BRI lending. At each step of this process, resources are allocated through central planning, bureaucratic processes, and political criteria. Decision-makers in these institutional contexts cannot use market signals to guide, adapt, and evaluate their decisions, but instead must rely on other means—such as output targets and politically-salient narratives.

Of the challenges facing BRI decision-makers, analyst Jonathan Hillman has argued that the success of BRI, “… hinges on China having the discipline to choose the right projects and walk away from the wrong ones.” Without the discipline of market signals and incentives, BRI decision-makers—both in China and in host countries—lack the ability to choose the “right projects” as well as the ability to detect error and adapt to correct inefficiencies with respect to their chosen projects. Yet they still promise roses and symphonies.

Institutional Constraints: Hirschman’s Trait-Making and Trait-Taking

In his 1967 book, Development Projects Observed, the economist Albert Hirschman (1915-2012) chronicled his observations while studying development projects all over the world on behalf of the World Bank. Through these experiences, Hirschman developed a sharp eye for anticipating negative unintended consequences associated with large-scale development projects. Of relevance to the analysis of BRI are Hirschman’s concepts of “trait-making” versus “trait-taking”, a framework for assessing the existing constraints relevant to projects’ success prospects.

On the one hand, “trait-making” refers to the decision to introduce new inputs and processes—including technological capabilities, institutions, sociopolitical conditions and cultural values—required to achieve some desired output. In contrast, “trait-taking” refers to the decision to accept certain inputs and processes (i.e. traits) as “temporarily unchangeable aspects of the environment”. (Hirschman, p. 120) Of the two, decisions involving trait-making have played an outsized role in the difficulties presenting themselves to BRI decision-makers.

Hirschman recognized the great frequency with which desired project outcomes were conditional upon some existing constraint (e.g. ineffective rule of law, insecure property rights) somehow being relaxed. Of this, Hirschman wrote: “Bringing, as they do, new activities into a pre-existing environment, development projects are likely to imply far more would-be trait-making than is commonly realized, and a principal task of the project analyst is to uncover the most significant economic and sociopolitical changes on which the success of the project is implicitly premised.” (p. 134) Unbeknownst to central planners, initiating projects unduly premised on trait-making has been a central flaw of BRI’s operation. For a salient example of this, we’ll consider one of BRI’s flagships in Central Asia.

Application: The China-Pakistan Economic Corridor (CPEC)

The China-Pakistan Economic Corridor (CPEC), a set of projects including highway, port, railway, and energy projects, among others, is widely regarded as the flagship of BRI. Within CPEC, the “crown jewel” is the project developing port and city of Gwadar in western Pakistan. Having received upwards of $500 million, BRI decision-makers desire to complement the port with a new city, complete with an international airport, industrial park, and tourist attractions. BRI decision-makers envision Gwadar to be a key input into the economic development of the landlocked western China. As Portuguese diplomat and author Bruno Maçães has put it, “If Kazakhstan serves as China’s gateway to Europe, Pakistan is its gateway to the Indian Ocean,” explaining that Pakistan “may become China’s California, granting it access to a second ocean and resolving the Malacca dilemma”.

Besides the armed groups that occasionally block the port’s entrance, very little activity is taking place at Gwadar to date. Approximately 1,000 people currently work at the port, a far cry from the stated goal of 500,000 Chinese professionals moving to Gwadar by 2023. Likewise, the goal of increasing regional economic activity (especially between Karachi and Gwadar) has run into difficulties, making it hard for officials to adapt. Indicative of this, China’s COSCO shipping lines opted to terminate their container shipping services between Karachi and Gwadar due to inadequate cargo handled at the port and continual delays in construction of the Gwadar Free Trade Zone. Ships at Gwadar are far more likely to load and unload construction equipment related to other BRI projects in Pakistan compared to commercial goods.

This scenario is illustrative of a more general pattern within the BRI of procuring funds to construct infrastructure that is highly questionable in terms of its demand by market participants. To date, very few Chinese businesses have demonstrated interest in setting up factory operations in Gwadar. A former Pakistani official recently told the Financial Times, “… it’s OK to borrow money and build infrastructure, but it’s more difficult to bring investors into our zones to make stuff and sell it”. Again, from the Financial Times, “[the] lack of follow-through from Chinese private companies has arguably been CPEC’s biggest shortcoming”. Clearly, private actors are not bullish on Gwadar’s prospects.

To use Hirschman’s terminology, CPEC projects—most notably at Gwadar—have involved a tremendous deal more trait-making than envisioned, particularly as a number of CPEC projects appear unwelcomed by local people. The Financial Times pointed out of CPEC that “… the plan took insufficient account of violent militant groups.” Attacks on Chinese engineers in August 2023 increased the security fears associated with the Gwadar port, which sits largely quiet in part due to the dangers that come with utilizing the highway that serves Gwadar. Similarly, in 2021 the main road leading to the Gwadar Port was “blocked [for months] by thousands of locals in a sit-down protest”.

The BRI, and CPEC in particular, presents a striking example of the truth that economic development is not merely a technological problem. For projects to have any success, decision-makers must take into account local realities as they pertain to the successes of projects. As economist Christoph Trebesch pointed out of this pattern within BRI, “[Chinese lenders] really went into many countries that turned out to have particularly severe problems”. Given that the allocation of funding for BRI projects occurs through political processes more likely to be based upon salient narratives, the lack of enthusiasm and follow-through from private actors—themselves subject to the discipline of profit and loss—comes as little surprise.

Conclusion: Technological versus Coordination Problems

The mistakes made by BRI decision-makers to a large degree boil down to thinking of the challenge of economic development as a technological, input-output problem. While supplying specific inputs to produce a narrow and clearly defined output (e.g. supplying mosquito nets to combat malaria) is one thing, the challenge of economic development is clearly not of that variety. Economic development is everywhere limited by institutional constraints and depends on the coordinating mechanisms generated by the market process, including market prices and the discipline of profit and loss, that guide and reconcile the plans of individuals. As Thomas Sowell put it in Knowledge and Decisions, “the most fundamental question is not what decision to make but who is to make it—through what processes and under what incentives and constraints, and with what feedback mechanisms to correct the decision if it proves to be wrong.”

While it’s possible for port, highway, and railway projects to provide value for local people, large infrastructure projects are not themselves sufficient for economic development, even if they do connect otherwise disparate people. China’s BRI thinking confuses cause and effect. Growing roses depends on healthy soil and fortunate weather. Symphonies are coordinated efforts. Even the benefits associated with centrally planned projects may well be the result of progress that’s already occurred as opposed to the spark for growth itself.

Upon publication, Albert Hirschman’s Development Projects Observed was largely ignored or dismissed by economists at the World Bank. As Michele Alacevich put it, “Hirschman’s insistence on uncertainty as a structural element in the decision-making process did not fit in well with the operational drive of Bank economists and engineers.” BRI decision-makers could use some Hirschman in their analysis. Unless there’s a dramatic turn of fortune, BRI may be best remembered by the CCP’s slogans associated with it. In view of this, I’ll add my own slogan to the mix: “Building it doesn’t mean they’ll come…”.

Footnotes

[1] Financial Times, “Ten years of China’s Belt and Road: What has $1tn achieved?” Gated.

[2] Maçães, B. (2019). Belt and Road: A Chinese World Order. Hurst. (p. 43)

[3] State Council of the People’s Republic of China. (2015). Full text: Action plan on the Belt and Road Initiative. In Chinese.

[4] Xi, J. (2017). Full text of President Xi’s speech at opening of Belt and Road forum. Belt and Road Forum for International Cooperation, Beijing.

[5] Hillman, J. E. (2020). The emperor’s new road: China and the project of the century. Yale University Press. (p. 14)

[6] Hirschman, A. O. (1967). Development projects observed. Brookings Institution Press. (pp. 126, 140)

[7] Maçães, B. (2019). Belt and Road: A Chinese World Order. Hurst. (p. 64)

[8] Chaudhury, D. R. (2019). Gwadar Port: China-Pakistan Gwadar Port runs into rough weather. The Economic Times.

[9] Leahy, J., Kynge, J., & Parkin, B. (2023). Ten years of China’s Belt and Road: What has $1tn achieved? Financial Times Gated.

[10] Aamir, Adnan (2021). China-Pakistan Belt and Road Initiative hits buffers. Financial Times, Dec. 7, 2021. Gated.

[11] Kynge, James (2023, March 28). China grants billions in bailouts as Belt and Road Initiative falters. Financial Times, Mar. 28, 2023. Gated.

[12] Sowell, Thomas. (1980). Knowledge and Decisions. Basic Books.

[13] Alacevich, M. (2014). Visualizing uncertainties, or how Albert Hirschman and the World Bank disagreed on project appraisal and what this says about the end of “high development theory”. Journal of the History of Economic Thought, 36(2), 137-168.