China Argues Over ‘Belt and Road’ Goals

An analysis by Michael Lelyveld
china-xi-jinping-belt-and-road-forum-may15-2017.jpg Chinese President Xi Jinping attends a roundtable summit during the Belt and Road Forum at the International Conference Center at Yanqi Lake, north of Beijing, May 15, 2017.

Last month, China's official news agency insisted that the country's ambitious "Belt and Road" initiative has nothing to do with its industrial overcapacity problem.

On the same day, the official English-language China Daily reported that it does.

The disagreement over China's excess production capacity is central to understanding its many motives for its "Silk Road Economic Belt" and "21st Century Maritime Silk Road" plans to build infrastructure outside its borders for trade with Europe and Africa.

The initiative, also known as "One Belt, One Road" (OBOR), could involve U.S. $1 trillion (6.8 trillion yuan) of investment in as many as 64 countries on the trade routes, foreign experts have said.

The question is whether the government is using OBOR to shift China's surplus capacity overseas, opening doors for bloated steel and cement industries to offload production and pollution consequences onto developing countries to escape downsizing pressure at home.

Supporters say OBOR is nothing of the sort.

"The Belt and Road Initiative is by no means a strategy to export China's industrial overcapacity, but a proposal that brings shared benefits to all," the Xinhua state news agency reported on May 4, citing Wang Yiwei, a professor at Renmin University's School of International Relations.

In a commentary on May 11, Xinhua also denied any connection, while conceding that China is "troubled by industrial overcapacity" and that "a good number" of OBOR projects will involve Chinese suppliers.

"To use such an unsophisticated link to discredit the initiative, in and of itself, says more about the inadequacy of the observer to acknowledge the wider benefits of the project," the official commentary said.

Yet, on the same day, China Daily drew just such a link in comments of a top rail official in a report on last month's Belt and Road Forum.

"Infrastructure projects and international capacity cooperation will boost economic growth and employment, ... in different countries or regions along the initiative," said Liu Hualong, chairman of China Railway Rolling Stock Corp. (CRRC).

Two days later, a top government planning official drew an even closer connection at a press preview of the Belt and Road Forum.

"Expanding cooperation in production capacity is an important vehicle for promoting the Belt and Road Initiative," said Ning Jizhe, vice minister of the National Development and Reform Commission (NDRC), in remarks paraphrased by Xinhua.

Two foreign policy initiatives

The controversy over the linkage is the result of the government's effort to promote two foreign policy initiatives simultaneously, even if not in coordination.

The first, Belt and Road, has drawn widespread publicity, thanks in part to last month's forum, attended by 29 heads of state and government.

The second, industrial capacity cooperation, emerged in 2014 during Premier Li Keqiang's visit to neighboring Kazakhstan, where China agreed to take part in U.S. $14 billion (95 billion yuan) of projects using its surplus capacity to build infrastructure, highways, and housing, according to Xinhua.

In 2015 during a four-nation South American tour, Li offered to build entire industries in developing countries from scratch, using machinery and manufacturing processes threatened with shutdowns at home.

"Capacity cooperation means more than export of finished products, but also the transfer of the whole industrial chain to help other countries beef up their manufacturing capability," an NDRC official said at the time.

The concept of industrial capacity cooperation surfaced at a time when China faced intense pressure to cut its own enormous overcapacity in industries including coal, steel, and building materials, which has been blamed for low prices, pollution, and unfair competition.

The government's support for transplanting entire industrial processes overseas gave Chinese manufacturers an incentive to comply with domestic capacity-cutting targets.

But critics charged that industrial capacity cooperation would only export overcapacity and pollution. Proponents of the Belt and Road Initiative now seem concerned that OBOR may be painted with the same brush.

David Bachman, a China scholar and University of Washington professor of international studies, suggested that it will be hard to separate OBOR from industrial capacity cooperation.

"My sense is that it's an important factor," said Bachman.

"But this is a classic example of political maneuvering where, on the one hand, Xi is extending the grand vision of China in the world," he said. "On the other hand, it's an effort to deal with a number of China's internal problems."

Bachman sees a mix of motives behind the drive for Belt and Road engagement, which spills over the lines between the two initiatives.

China is eager to advance its standing in the world and win international support in relation to U.S. influence, while addressing a host of domestic concerns including excess capacity, employment and productive use of its foreign exchange, he said.

In addition to manufacturing, China is seeking to employ its countless construction firms, "now that China has built all the infrastructure they could possibly need," Bachman said.

Arguments over the links between the two initiatives and their motivations may inevitably devolve into debates over the formation of Communist Party political concepts, ideological campaigns and the succession of slogans.

"It's almost a fool's errand to try and disentangle all of this and figure out what really is Belt and Road and what is other stuff," said Bachman.

"Whatever it is, people are going to say it's Belt and Road, and that will give them legitimacy in some way to do what they want to do," he said.

The map shows Rongchen, Xiongxian, and Anxin counties in northern China's Hebei province, where officials are building the Xiongan New Area.
The map shows Rongchen, Xiongxian, and Anxin counties in northern China's Hebei province, where officials are building the Xiongan New Area.
RFA graphic
The same issues

Some of the same issues were raised in April after the government announced plans to develop the Xiongan New Area in three relatively low-intensity counties of Hebei province southwest of Beijing.

Xi's plan to build a special economic zone that would reduce congestion, pollution and property speculation in the capital city touched off a gold rush among real estate and industrial interests to invest in Xiongan.

Despite a government crackdown on speculation, developers and state-owned enterprises (SOEs) saw the effort to ease environmental pressures as a golden opportunity that threatened to create some of the same problems in a new location.

Within days of the announcement, more than 30 centrally-administered SOEs made plans to pursue business and development projects in the Xiongan area, although its exact location had yet to be disclosed, state media said.

SOEs expecting big government-backed infrastructure investments included China Telecommunications Corp., China Eastern Airlines, China National Machinery Industry Corp. and China Energy Engineering Corp., China Daily said.

In one unusual corporate response that may be a measure of the development pressures, state-owned China Shipbuilding Industry Corp. said it had already started to relocate some of its core businesses to the nearby city of Baoding, although it is well inland.

"This relocation process will now be expedited and intensified in the wake of the new area announcement," said China Daily, citing the company.

In 2015, the Ministry of Environmental Protection ranked Baoding as China's most polluted city based on 2014 air quality readings, Britain's The Guardian reported.

It is unclear how moving more industrial operations to Baoding will help.


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