Mapping China’s ‘One Belt One Road’ Initiative

INTERNATIONAL POLITICAL ECONOMY SERIES SERIES EDITOR: TIMOTHY M. SHAW

Mapping China’s ‘One Belt One Road’ Initiative Edited by  Li Xing

International Political Economy Series Series Editor Timothy M. Shaw Visiting Professor University of Massachusetts Boston, USA Emeritus Professor, University of London, UK

The global political economy is in flux as a series of cumulative crises impacts its organization and governance. The IPE series has tracked its development in both analysis and structure over the last three decades. It has always had a concentration on the global South. Now the South increasingly challenges the North as the centre of development, also reflected in a growing number of submissions and publications on indebted Eurozone economies in Southern Europe. An indispensable resource for scholars and researchers, the series examines a variety of capitalisms and connections by focusing on emerging economies, companies and sectors, debates and policies. It informs diverse policy communities as the established trans-Atlantic North declines and ‘the rest’, especially the BRICS, rise. More information about this series at http://www.palgrave.com/gp/series/13996

Li Xing Editor

Mapping China’s ‘One Belt One Road’ Initiative

Editor Li Xing Department of Culture and Global Studies Aalborg University Aalborg, Denmark

International Political Economy Series ISBN 978-3-319-92200-3    ISBN 978-3-319-92201-0 (eBook) https://doi.org/10.1007/978-3-319-92201-0 Library of Congress Control Number: 2018950074 © The Editor(s) (if applicable) and The Author(s) 2019 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. Cover image © Rob Friedman/iStockphoto.com This Palgrave Macmillan imprint is published by the registered company Springer Nature Switzerland AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

Contents

1 China’s Pursuit of the “One Belt One Road” Initiative: A New World Order with Chinese Characteristics?   1 Li Xing 2 Understanding the Multiple Facets of China’s “One Belt One Road” Initiative  29 Li Xing 3 A Framework for the Study of the One Belt One Road Initiative as a Medium of Principle Diffusion  57 Anastas Vangeli 4 The One Belt One Road Initiative and China’s Multilayered Multilateralism  91 Feng Yuan 5 The One Belt One Road Initiative and the Changing Multi-scalar Governance of Trade in China 117 Erja Kettunen 6 China’s Momentum: The “One Belt One Road” Triple’s Securitisation 143 Paulo Duarte

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7 Unpacking Economic Motivations and Non-economic Consequences of Connectivity Infrastructure Under OBOR 167 Ritika Passi 8 The One Belt One Road Initiative: Reintegrating Africa and the Middle East into China’s System of Accumulation  197 Justin van der Merwe 9 Changing Regional Order and Railway Diplomacy in Southeast Asia with a Case Study of Thailand 219 Laurids S. Lauridsen 10 A Power Shift Underway in Europe? China’s Relationship with Central and Eastern Europe Under the Belt and Road Initiative 249 Dragan Pavlićević 11 Conclusion: The One Belt One Road in the Politics of Fear and Hope 279 Li Xing and Paulo Duarte Index  291

Notes on Contributors

Paulo Duarte  is Researcher on China and East Asian issues at the Oriental Institute in Lisbon, Portugal. He is a columnist for the Brazilian Revista Sociedade Militar and member of the Editorial Board of Ela Journal (IAPSS publication). Feng  Yuan is Researcher affiliated to Institut d’études Européennes (IEE) of Université Libre de Bruxelles, Belgium. Erja Kettunen  is Adjunct Professor (docent) and Senior Research Fellow at Centre for Collaborative Research, Turku School of Economics, University of Turku, Finland. Laurids S. Lauridsen  is Professor in International Development Studies at Department of Social Sciences and Business, Roskilde University, Denmark. Li Xing  is Professor and Director, Research Centre on Development and International Relations, Department of Culture and Global Studies, Aalborg University, Denmark. Ritika Passi  is Associate Fellow and project editor at Observer Research Foundation, New Delhi, India. Dragan  Pavlićević  is Lecturer in China Studies, Department of China Studies, Xi’an Jiaotong-Liverpool University, Suzhou, PR China

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Justin  van der Merwe  is Senior Researcher at the Centre for Military Studies of the University of Stellenbosch, South Africa. Anastas  Vangeli  is a Doctoral Researcher at the Graduate School for Social Research at the Polish Academy of Sciences and a Claussen-Simon Ph.D. Fellow at the ZEIT-Stiftung Ebelin und Gerd Bucerius.

List of Figures

Fig. 2.1 The internal-external nexus in China’s development strategy (1980s–2010s). (Author’s own drawing) Fig. 2.2 The flying-geese model of East Asian division of labor. (Author’s own figure) Fig. 2.3 The gradual return of China’s historical position as the region’s gravity. (cf Wong 2013: 288, Fig. 2.2) Fig. 2.4 Asia’s growing economic dependence on China. (Source: Schlesinger in The Wall Street Journal, May 12, 2014) Fig. 2.5 Reflecting the OBOR initiative from Cox’s historical structure of hegemony. (Left: Cox 1981: 136; right: author’s own figure to reflect the left side) Fig. 2.6 The OBOR initiative in the context of the Kautsky-Lenin debate. (Author’s own figure) Fig. 4.1 The silk road economic belt and the maritime silk road route. (Source: Xinhua News) Fig. 4.2 The percentage of each partnership type of China. (Author’s own figure) Fig. 4.3 China’s different types of partnership (updated until May 2016). (Author’s own figure) Fig. 4.4 Main countries (The One Belt and One Road project is planning to include 177 countries. In this chart I have included only countries that have agreed to participate in this project) involved in “One Belt and One Road”, AIIB. (Author’s own figure) Fig. 4.5 The integration of ASEAN+3 and SCO with the OBOR initiative on China’s main issues of multilayered multilateralism. (Author’s own figure)

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List of Figures

Fig. 4.6 Chinese crude-oil imports by country in 2016. (Source: China 109 Customs; illustration by the author) Fig. 5.1 China’s merchandise trade as a percentage of GDP, 2011–2015. 123 (Source: WTO 2016a) Fig. 7.1 China’s annual GDP growth rate (%). (Source: National Bureau 169 of Statistics, China. Available at tradingeconomics.com) Fig. 7.2 One container shipping cost and time from Chongqing in Western China to Western Europe. (Source: Image reproduced from Kapan, Zeynep (2016) “EATL: The Trade Prospects for EU and China.” Available at https://www.unece.org/ fileadmin/DAM/trans/doc/2016/wp5-eatl/WP5_GE2_2nd_ informal_session_Ms_Kaplan_1.pdf)175 Fig. 9.1 Railway lines negotiated with China. (Source: Kunapdamraks 232 2016, OTP/MoT) Fig. 9.2 Railway lines negotiated with Japan (Source: Attananda 2015: 71).233

List of Tables

Table 4.1 Table 5.1 Table 5.2 Table 10.1 Table 10.2 Table 10.3 Table 10.4

Countries that have signed bilateral SWAP agreements with China98 Ease of doing business (with selected sub-categories) in China, various years 125 Import tariffs of China, compared to USA, the EU, Japan, and South Korea 126 The leverage framework 257 Capital projects in the CEE region supported by China’s loans258 China’s investments in CEE, USD million 260 China-CEE trade volume (USD billion) 262

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CHAPTER 1

China’s Pursuit of the “One Belt One Road” Initiative: A New World Order with Chinese Characteristics? Li Xing

Placement of the Theoretical Discussion The year 2018 will mark the 170th anniversary of Marx and Engels’ masterpiece, Manifesto of The Communist Party (1848). Perhaps this booklet can only be found in secondhand bookstores today. However, if we read it again, we will be astonished to find that the manifesto can transcend space and time and continue to yield itself to our reading in a new light, despite

The “One Belt One Road” (OBOR) initiative—Yi Dai Yi Lu Chang Yi, in the Chinese language—is the standard term used within China. However, this is not the case abroad: In light of the fact that the OBOR initiative covers both a land belt that includes the countries on the original and historical Silk Road through Central Asia, West Asia, the Middle East and Europe, and a maritime belt that links China’s port facilities with the African coast, pushing up through the Suez L. Xing (*) Department of Culture and Global Studies, Aalborg University, Aalborg, Denmark e-mail: [email protected] © The Author(s) 2019 L. Xing (ed.), Mapping China’s ‘One Belt One Road’ Initiative, International Political Economy Series, https://doi.org/10.1007/978-3-319-92201-0_1

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the demise of the USSR and despite the end of the Cold War. The manifesto is of immense historical and contemporary importance with its enduring insights into capitalism and the endless expansion of this. It provides us with a profound analysis and explanation of the most fundamental phenomena on a global scale in the current era, that is, globalization and transnational capitalism. Seen from the global developments of the past decades and the direction toward which the world is moving, this is a historical moment in which it is most appropriate to bring back Marx. As one prominent scholar points out: We’re living in a moment when, for the first time, capitalism has become a truly universal system. It’s universal not only in the sense that it’s global, not only in the sense that just about every economic actor in the world today is operating according to the logic of capitalism, and even those on the outermost periphery of the capitalist economy are, in one way or another, subject to that logic. Capitalism is universal also in the sense that its logic – the logic of accumulation, commodification, profit-maximization, competition – has penetrated just about every aspect of human life and nature itself…. (Wood 1997: 1)

In line with culturalist and sociological studies (Weber 1958), the historical advancement of market capitalism and its overseas expansion is a historical process which includes cultural and religious dimensions (historical, divine, spiritual, miraculous). However, as many scholars, including this author, rigorously argue, the establishment of capitalism is not so much the result of cultural and religious dynamism, but rather the outcome of a political economy project (Li and Hersh 2004). The capitalist mode of production was born in Europe, and its starting point was the imposition of ruthless coercion through the compulsory enclosure and enforced formation of new property relations and legal systems. With the restrictive access to land accompanying industrial transformation began a new form of production relations based on primitive capitalist a­ccumulation. Simultaneously, Europe’s expansion overseas, which began with conquests Canal into the Mediterranean, the plural term “Belt and Road” initiative has entered into common use. The different authors of this book alternately make use of both the terms OBOR Initiative and “Belt and Road” Initiative. The editor of this book would like to point out that the most recent international expression to replace the OBOR Initiative is the “Belt and Road” Initiative.

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and trading relationships, resulted in the extension of the capitalist system of production. The globalization of the capitalist world system was realized through three historical development phases: a merchant phase of trade, a phase of industrial expansion and an expansive period of financial capitalism. Is China’s One Belt One Road (OBOR) initiative perhaps the contemporary expansion of the capitalist world system encompassing the three phases at the same time? Through slave trade, colonialization, “free trade”, and World Wars, the capitalist world system has successfully absorbed multiple cultural systems into a single integrated economic system and has incorporated various parts of the world into its division of labor (Wallerstein 1976). Historically, the system has been safeguarded by successive hegemonic system guarantors and has been maintained through fixed “social, political, and economic arrangements” (Strange 1988). These arrangements are what we know as the “world order”. Since “those arrangements are not divinely ordained, nor are they outcome of blind chance”, and since “they are the result of human decisions taken in the context of man made institutions and sets of self set rules and customs” (Strange 1988: 18), the international political economy (IPE) provides the framework for understanding the global “structural power” that preserves those arrangements. In this context, structural power refers to “the power to decide how things shall be done, the power to shape frameworks within which states relate to each other, relate to people, or relate to corporate enterprises” (Strange 1988: 25). Fundamentally, the hegemony of the existing powers is based on the possession of structural power. Strange’s analysis on the imperative of maintaining “structural power” and “global arrangements” was expressed clearly by George Kennan1 in the aftermath of the Second World War. Kennan advised the US to uphold its hegemonic power and maintain the patterns of global relationships that had been playing the role of maintaining the gross inequalities in the international order and the tremendous privilege and power this global disparity of wealth had brought for the US. This is why the US is watching carefully how the rising states, particularly China, are applying their power in the existing world order; the historical lessons suggest that emerging powers can generate a dramatic and even violent impact on the established order. The economic rise of China is an integral part of the continuously historical process of the global expansion of capitalism, and such a ­phenomenon must be understood within the capitalist world system rather than outside of this. This study of IPE calls attention to the historical formation of

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global social, political and economic arrangements and emphasizes that IPE does not only study global power relations underneath institutions or organizations but also the ideas, norms and values they reflect. The premise of IPE shows that all states and markets are connected in global systems of production, exchange and distribution, and IPE investigates the ways in which states and markets of the world are connected to one another and the arrangements or structures that have evolved to connect them. The rise of China and other emerging powers have indeed “disturbed” the conventional distribution of power and the ways in which states and markets are interrelated with each other. The existing global arrangements were shaped by power and politics, but also by history, culture and values. These are changing and will continue to change in the future. The end of the Cold War, the fall of the Soviet Union, the triumph of economic liberalism, the decline of the US unilateralism, the world financial crises and the rise of emerging powers in general and the rise of China in particular have been influencing almost every aspect of international affairs. Currently, these arrangements are continuously changing as a result of the “emerging powers”, t that is, “emerging states”, “emerging markets” and “emerging societies”. Is the world witnessing the end of Western hegemony? Is the world order transforming into more horizontal relationships? Will the rejuvenation of China lead to the emergence of an alternative conception of development, resulting in a stronger role for the state in the organization of local, national and world economies; a horizontal system of South-South relations; and a new type of East-West major power relations? Today we are witnessing movements toward new patterns of IPE in terms of new alliance formations resulting from global responses to the new situations (Christensen and Li 2016) as well as from a new type of hegemonic relations between the existing and the emerging powers (Li 2016). The “BRICS” and “Second World”, “Belt and Road”, “Silk Road”, “BRICS Bank” and “AIIB” are now part of international relations and international political economy vocabularies, symbolizing a growing phenomenon of the changing world order in which the system is no longer ruled and governed by the US-led postwar treaties. Seen from the perspective of realism, the rise of emerging powers in general, and the rise of China in particular, is perceived as a serious threat to the maintenance of Strange’s “structural power” and Kennan’s ­“patterns of global relationships”. Viewing the world as an anarchical state of affairs and all international relations as a zero-sum game, realist scholars tend to

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foresee the eventual conflict between the rise of China and the existing powers (Krauthammer 1995; Mearsheimer 2006, 2010). China’s ascent is seen as the repetition of a hegemonic transition during which a rising power would ultimately become discontent with the rules and institutions defined and set by the existing hegemon. Consequently, Chinese production and outward capital expansion would unavoidably challenge the geopolitical and geoeconomic status quo of the patterns of global relationships. However, emphasizing the interdependence of states through economic sum exchange and international institutions, and believing in positive-­ international relations (Keohane and Nye 2012), liberal scholars tend to acknowledge the fact that China’s economic rise is achieved on the basis of its expanding and intensifying integration within the international system. Hence, it is seemingly impossible for China to take a revolutionary departure from the existing capitalist world order. Liberalism tends to emphasize the fact that China’s national interests and foreign policy behavior increasingly reflect and embrace the status quo of the world order because its economic growth and wealth accumulation are generated from within and not without the capitalist world system (Ikenberry 2008, 2013). The world system theory (Wallerstein 1979, 2004) sees the rise of emerging powers from a long historical perspective. The modern world system is conceptualized as a capitalist world economy, which is governed by the drive for the endless accumulation of capital, also referred to as the “law of value”. This world system has been expanding over centuries, successively incorporating other parts of the world into its division of labor. Capital mobility and production relocation result in geographical shifts in accumulation and power, without changing the fundamental relations of inequality within the system. The world economy today is characterized by capital mobility, globally integrated circuits of wealth accumulation, regional and international segmentation of production and merger of national and global capital and investment. The emergence of a new global economic geography and the changing pattern of economic interdependence, as well as a new international division of labor, are the results of the cycles constituted by the rise and decline of successive hegemons of global order, with each rising power having its own particular mode of governance. The ascendance of new rising powers will redefine international relations and the international political economy in terms of upward mobility or downward movement among core, semi-periphery and periphery countries.

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The Research Inquiries and Questions The idea of China’s “One Belt One Road” (OBOR) initiative is derived from the ancient “Silk Road”, an overland route stretching from China’s inland and western provinces across central Asia, through the Middle East and ending in the heart of Europe. Another road is the “21st Century Maritime Silk Road”, which stretches from Fujian on China’s coast, through the Malacca Straits, around the horn of Africa and up through the Red Sea into the Mediterranean, ending in Venice. This Maritime Silk Road resonates the historical sea routes in China’s Ming Dynasty of the fifteenth century, in which the Chinese imperial fleet, under the command of Admiral Zheng He, set out on seven voyages under the banner of the “mandate of heaven” to explore and trade with the outside world. The central idea of the IPE of the “One Belt, One Road” initiative, which covers about 65 percent of the world’s population and one-third of the world’s GDP, is to create viable economic belts: (1) a land belt that includes neighboring countries surrounding China, especially those countries on the original Silk Road through Central Asia, West Asia, the Middle East and Europe; and (2) a maritime belt that links China’s port facilities with the African coast, pushing up through the Suez Canal into the Mediterranean. The Chinese official OBOR vision and plan were clearly spelt out in a central piece of documentation “Vision and Actions on Jointly Building Silk Road Economic Belt and 21st Century Maritime Silk Road”2 in March 2015. The key message of this document to the outside world is “peace, development, cooperation and mutual benefit”. The OBOR project involves billions of Chinese-led investment programs covering a web of infrastructural projects, including roads, railways, telecommunication systems, energy pipelines, ports and so on. This would serve to enhance economic interconnectivity and facilitate development across Eurasia, East Africa and more than 60 partner countries. Beijing sees OBOR as a great potential for economic gain and increased border security and peace, while positioning China’s western regions as its future center of economic gravity. In a world, the OBOR’s utmost objective is no doubt to reposition the global economy, with China as one of the dominant players in the coming new world order. China’s overall nationwide reaction to the country’s grand cross-­ continental economic project is both positive and enthusiastic. Despite some criticism and worries expressed by a minority of opinion makers, the majority of Chinese academics, policy makers, think tanks and business

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communities see the OBOR initiative as a new platform for realizing the objective officially stated by China, that is, to “inject new positive energy into world peace and development”. Moreover, it is seen as an effective instrument to achieve the “Chinese Dream”, a dream of restoring and legitimizing the reemergence of China as a world power. In recent years, the OBOR initiative has been one of the hottest topics both in Chinese media and academia (Feng 2016; Zhao 2015; Zou 2015). One of China’s most active academics in writing about and legitimizing the OBOR initiative is Wang Yiwei (2015, 2016, 2017a, b, c), who sees the initiative as China’s fundamental transformation from being a rule-follower to becoming a rule-settler or norm-shaper. Wang sees the initiative as a global public good created through international cooperation and anticipates that the neighboring countries and regions will greatly benefit from China’s economic outward expansion. On May 14 and 15, 2017, the Chinese government held an international summit on the “One Belt, One Road” initiative. Twenty eight heads of state and top officials from more than 60 nations and a dozen international organizations attended the summit, whose aim was to discuss China’s new Silk Road initiative. The summit, equally important as the G20 and the APEC, was China’s major diplomatic event that year. The Chinese President Xi Jinping first announced his grand idea of the “Belt and Road Initiative” in 2013, followed by the launch of a series of infrastructure projects across Asia, Europe and Africa. With the new OBOR initiative, China is seeking to portray itself as a new champion for free trade and globalization at a time when the world economy has been constrained by economic/financial crises as well as by the isolationist policies and inward orientations of the new US administration. Summit participants expressed both hopes and fears. The prevailing questions in the minds of Western leaders are “What are China’s strategic objectives for the OBOR?”, “Are there any hidden Chinese agendas?”, “How will China benefit from the OBOR?”. Their miserable experiences with Western powers cause developing countries in Southeast Asia and Central Asia, to wonder “Will the OBOR be another repetition of a historical colonial pattern in the twenty-first century?” “Will Chinese cheap loans be payment for submitting to China’s leadership and hegemon?” After all, the ­consensual concern is that the potentials to realize the OBOR project seemingly depend on the nature of China’s objectives. Despite Beijing’s emphasis on the “win-win” prospect for the OBOR project, this is still seen by the realist line of the IPE rationale as a strategy

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that is derived and extended from China’s geopolitical and geoeconomic interests. The ultimate goal of the OBOR initiative is often interpreted as a way to redirect the country’s domestic overcapacity and capital for regional infrastructure development in order to, on the one hand, continue to keep Chinese industry and production robust, and, on the other hand, to maintain a low unemployment rate through retaining an acceptable GDP growth rate. Externally, the goal is to continue to pave the way for the transmission of Chinese goods and services to new markets and to improve trade and other relations with Southeast Asia, Central Asia and the European countries. One Chinese scholar probes into the Chinese “geo-political” and “geo-economic” rationale and driving force behind the pursuit of the OBOR initiative: The combination of “capital logic” and “territorial logic” in Giovanni Arrighi’s framework gives both the Chinese state and Chinese capital strong incentives and pressure to actively engage in a “spatial fix” by reconfiguring its geographic vision in order to further capital accumulation and expansion on a larger spatial dimension, culminating in the “One Belt, One Road” Initiative, including the Maritime Silk Road Initiative (MSRI). (Zhang, Xin 2017: 310)

Drawing lessons from history, realist analysts argue that as a rising economic power, China will unavoidably become a rising military power. China’s extraordinary economic growth has been coupled with the “world’s largest military build-up” (Economist 2012). A country that has a large merchant fleet, that is, capital and production outward expansion, definitely needs a military navy and support points (security for capital and production) across land and ocean. The fact that China is expanding its Marine Corps for deployment in Gwadar port in Pakistan and Djibouti port in the Horn of Africa is seen as a repetition of the history of imperial expansion (Financial Times 2017, January 12). The expansion seems to be imperative in order to protect China’s maritime lifelines and its growing interests overseas, such as the OBOR initiative. In many ways, the OBOR initiative does pose many challenging questions to researchers, academics, policy makers and think tanks. Does the Chinese OBOR initiative further demonstrate the uninterrupted intensification and expansion of global capitalism envisioned by the Manifesto? Does Beijing’s “multilateral approach” to promoting development strategies including the OBOR initiative aim to achieve “coercive power and

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political influence” (Moore 2008: 48) and to advance its own national interests, as realist thinkers always believe? Or, does OBOR actually show the world that through the integration with the “rules and institutions of international order” China’s own success will be extended outward to benefit the regions beyond its territory (Ikenberry 2013: 71)? Does realism have a point in claiming that through infrastructures and trade agreements with weaker and less influential states, the OBOR initiative will place China in a position to dictate economic and political policies in the OBOR countries/regions? Or taking a middle ground between realism and liberalism, does the OBOR initiative represent the dual reality of adopting a grand strategy to gain market access for regional growth while maximizing the interdependent opportunity to increase China’s regional influence (Economy 2010; Holslag 2004)? Seen from the perspectives of the world system theory, the outward expansion of Chinese production and capital is a continuous part of the system’s “rhythmic cycles” in upward mobility. Accordingly, the Chinese OBOR initiative reflects the endless systemic cycles of accumulation. By paraphrasing Marx’s logic of capitalist production M-C-M’ (M’ must be larger than M), Arrighi (1994: 33) develops the notion of “capitalist logic”, in which he differentiates two opposing logics of power: T-M-T’ vis-à-vis M-T-M’. The former depicts the territorial logic of power, portraying territory (T) as a means of wealth accumulation (money is a means to expand the Territory), whereas the latter treats money (M) as an intermediate link aiming at the acquisition of additional territories (seizing territory only in so far as it provides greater profits). As described in the Manifesto, the history of the evolution of the capitalist world system shows that in different parts of the world, the expansion of capitalism went hand in hand with territorial annexation and colonization. China’s contemporary history itself also includes significant events such as the Opium War and the Japanese invasion under the so-­ called Greater East Asia Co-prosperity Sphere. In the current context of China’s rise is the OBOR initiative packed with the abovementioned “capital logic” and “territorial logic” of power (Zhang 2017)? While Liberalism believes that China’s outward expansion in the form of OBOR will inevitably be shaped and molded by the system’s law of value, and that OBOR is an extension of China’s internal economic, political and cultural structures and it will not alter the core architecture of the liberal world system, realism takes it for granted that through the OBOR project, China will combine political, economic and socio-cultural innova-

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tions in developing and exporting the political economy of capitalism with “Chinese characteristics”. If “world order” (politics, institutions and ideas) is understood in a specific historical context, does the world see the emergence of a new historical context in which globalization and transnational capitalism are generating new social and political forces and actors that are shaping new politics, institutions and ideas in a dialectic and dynamic nexus? Does China’s rise and its OBOR initiative reflect the neo-­ Gramscian understanding that the interplay of ideas, institutions and material capabilities will shape the specific contours of the world order? Since world orders are shaped by a combination of particular constellations of social forces, the state and the neo-Gramscian dominant ideational configuration (Cox 1981, 1983), does the OBOR initiative aim to create “China’s New World Order” (CNN 2017) or a world reorder with Chinese characteristics?

Global Debate on China’s “One Belt One Road” Initiative In the second decade of the new millennium, the impact and implication of the rise of China have been globally debated. What will China become? What implication and impact will China’s ascent have on the world? Will China ever be able to fulfill Western expectations, whatever these may be? How will China’s rise affect the underlying rules of the game of the existing world order? Ever since Napoleon warned the world that it would be better not to wake the “sleeping giant,” China has been a source of fascination and opportunities as well as of uncertainties and disturbance for the existing world order. The great difficulty facing the existing Western powers which are the creators and the stakeholders of the existing world order is how to respond and adjust to the impact brought about by the rise of China. Periodically, the failure in forming a comprehensive understanding of China and China-­ related policies in the West has been translated into a chronic symptom, the “China syndrome”, which can be characterized as a mixture of psychological anxiety, emotional hysteria and emphatic demonization. In the past decades, either fascination or irritation with China has influenced Western scholarship and journalism to such an extent that it often produces abrupt attitudes ranging from excessive approval and optimism in claiming China as a “superpower” (Subramanian 2011; Scissors and Subramanian 2012)

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to unwarranted revulsion and pessimism in foreseeing the coming collapse of China (Chang 2001; Masoud 2014; Shambaugh 2015). Nowadays, various books and media reports are full of speculative theories and assumptions that describe China’s future scenarios, such as the “China opportunity theory” and the “China contribution theory”, the “China threat theory” and the “China collapse theory”. From time to time, Western politicians, opinion makers and academics use China’s successes and failures selectively to justify existing theories and prejudices in line with their own assumptions and perceptions. Despite Beijing’s consistent commitment to embracing economic globalization and improving relations with the rest of the world, especially with the Western powers, China still finds itself to be a “middle kingdom” surrounded by jealousy, admiration, anxiety, worry and even resentment. At the superficial level of global discussions on the OBOR initiative, a consensual interpretation is that the Chinese objective is to “reshape the global trade” (McKinsey 2017) and “to redefine the global economy of the 21st century by integrating the economies of Europe, Asia and Africa through an unprecedentedly powerful network of transport and communications infrastructure” (White 2017). However, one of the central debates is on the relationship between the existing US-led world order and the rise of China. More specifically, this debate is about whether China should be seen as a “status quo” power or as a “revisionist” power in relation to the established “rules of game” of the existing world order. The existing powers in general and the US in particular perceive many of China’s foreign policy orientations and ways of behaving as “revisionist” when it comes to the defined rules, norms, values and systems. It is on the basis of these established rules, norms, values and systems that Chinese foreign policies, including the OBOR initiative, are often judged to be either challengers or contributors to the existing world order. As China is planning to forge a new global economic order by drawing on the millennia-old legacy of the Silk Road trading route, global attention on its OBOR initiative has been linked with Beijing’s proactive engagement in financial “minilateralism” in recent years as an attempt to create global alternative financial institutions, such as the BRICS Bank, the New Silk Road Foundation, and the Asian Infrastructural Investment Bank. At the present time, China is not just investing in developing countries but in developed economies as well. China’s relationship with international institutions has been controversial for many years. Early disagreement on China’s role and position in international institutions either as a “free-

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rider” or as a “stake-holder” is being turned into a dispute about whether China is a “status quo” or “revisionist” power in the current world order. Being a “status quo” power refers to the extent to which Beijing respects international relations, seeing these as elements in a system based on the acceptance of norms. Being a “revisionist” power denotes the opposite, that is, that the China-led financial institutions providing financial support to the country’s OBOR strategy are seen by some Western mainstream media as good examples of “Beijing’s challenge to the world of Bretton Woods” and “China’s New Way of Integration with the World”. In addition, the OBOR strategy can possibly revive the reincarnation of the “dependency theory”, in which developing countries were seen as victims of unequal exchange systems imposed by external mercantilist forces and driven by neoimperialist and neocolonialist powers. A “Marshall Plan” with Chinese Characteristics? Since China’s OBOR initiative was announced in 2013, most global opinion makers have been concentrating on the nexus between China’s internal development constraints and its search for external spatial solutions. Some opinion makers and researchers adhering to the geopolitical and geoeconomic line of thinking draw a historical analogy between the current Chinese OBOR initiative and the US Marshall Plan in the aftermath of the Second World War. Such a comparison appears in newspaper headlines, such as “China’s Marshall Plan” (Bloombery 2016, August 7), and “One Belt, One Road: China’s 21st Century Marshall Plan?” (CaiXin 2017, March 17). First of all, Chinese state media have declined such an analogy (Global Times, May 7, 2017). The Chinese rejection was based on the following arguments (Xinhuanet, May 13, 2017): First, for the postwar reconstruction of Europe, the Marshall Plan was designated as part of the US-led attempts to contain the expansion of the Soviet Union. This type of Cold War geopolitical and geoeconomic premise has no resonance with the current OBOR initiative. Second, OBOR was not designed to form any kind of economic coalition/alliance for political purposes in order to confront any other country. Third, unlike the Marshall Plan, which was packed with political conditions, the current OBOR has no political conditionality and no objective to form political and security-related alliances. However, history tends to repeat itself in many ways, and China’s OBOR, in one way or another, does share similarities with the US postwar

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“Marshall Plan”, the extensive development assistance initiative undertaken by the US to rebuild Western Europe in the aftermath of the Second World War. The “Marshall Plan” was coined as the first major “international aid” program initiated by the US, a country that had emerged as a global superpower. According to the analyses by Simon Shen (2016), the OBOR initiative is driven by a number of political, economic and security-­ related logics similar to those upon which the Marshall Plan was initiated: 1. The Marshall Plan aimed at boosting US exports in order to cope with overcapacity through investments in and exports to Western Europe, while one of OBOR’s rationales is to deal with the similar internal overcapacity problems and to externalize the absorption of the overcapacity. 2. The Marshall Plan had the clear objective of exporting currency in order to allow the US dollar to become a tool for global/regional stability and to be used for the subsidies, while OBOR is an ideal channel for China to seek to increase the international use of its currency. 3. The Marshall Plan targeted at countering the Soviet Union as a potential security rival through aiding Western Europe to become an effective power for balancing the Soviet Union, while the OBOR is an effective way for China to outcompete the US through enlarging regional/global trade networks and investment relationships so as to secure its commodity export and energy import. 4. The Marshall Plan was designed to foster a strategic division between West and East Germany, while the OBOR signifies Beijing’s response to the US “rebalance to Asia” policy under President Barack Obama (Clarke 2015), such as the US-initiated TPP economic alliance (Trans-­Pacific Partnership). OBOR presents an alternative and is an attractive project to compete with the US regional and global economic and security alliances in the Eurasian and Asia-Pacific regions. Outward Expansion of a “Development Model” with Chinese Characteristics? According to the World Bank’s estimation, about 600 million Chinese citizens have been taken out of poverty in the past 30  years. The UN World Food Program believes Beijing’s success with its indigenous meth-

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ods of poverty alleviation and food production security is a source of great inspiration to other developing nations. In the Chinese understanding, the root causes of global insecurity, conflict and wars, such as the endless conflicts in the Middle East and in many parts of Africa, are poverty, underdevelopment, and a lack of economic growth. An effective method of bringing about economic growth is to resolve the problem of infrastructure deficiencies. China’s own economic success and the lessons it has brought to developing countries in general and Africa in particular are that infrastructure is a vital means of boosting economic growth. Infrastructure construction has become the “Chinese solution” in promoting regional economic integration. China’s pivotal emphasis on the priority of infrastructure as the precondition for development can be comprehended by the popular saying, “If you want to get rich, first build a road (要想富先 修路);” and “if you want to get rich, build roads; if you want to get rich quickly, build highways, if you want to get rich immediately, build internet networks”. More importantly, infrastructure construction has become a Chinese norm that is accepted as the policy framework for the China-led AIIB Bank (Peng and Tok 2016), and is without doubt the key component of the OBOR initiative. For developing countries, the global expansion of China as their alternative economic partner seems to be the major source of attraction. However, it is impossible to separate material factors from attraction to values and worldviews (Breslin 2011). Therefore, China’s economic success allows for multiple interpretations and explanations regarding the mechanisms that cause nations to grow and the set of mutually dependent relationships between property ownership and economic growth, between rule of law and a market economy, between a free currency flow and an economic order, and most importantly, between democracy and development. These norms and values used to be defined by the existing hegemonic powers alone, and now they are increasingly becoming “interdependent” – open, less rigid, and non-universal. For example, one crucial lesson to be learnt from China’s economic success is that economic development is conditioned by professional ­management and good governance rather than by the political architecture of Western liberal democracies and free market capitalism. Perhaps the Chinese attraction in this context has less to do with the fascination of the Chinese political system and China’s cultural values than with China as a metaphor for “doing it your own way” or as an example of what can be achieved (Breslin 2011). OBOR is a best example of what can be done, and a concrete one!

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Accordingly, OBOR is providing Beijing with emerging “normative power”, enabling the Chinese government to influence the policy behavior and attitudes of other states regarding trade, investment, commodity pricing, tourist markets and so on, especially in the developing world. OBOR represents the effort China is making today in socializing various actors into the “Chinese way of doing things” and integrating them into the current international structures. Reintegrating the OBOR Countries and Regions into a Chinese System of Accumulation? First, OBOR signifies China’s shift toward a more proactive development strategy and foreign policy as extension of domestic power accumulation. One worldwide heated discussion on the “rationale” behind China’s OBOR initiative is the internal-external linkage. Some consider it to be an attempt at economic calculation by a Chinese economy looking for a new growth model, a new system of capital accumulation designed and structured beyond China’s borders. Externalizing the Chinese system of accumulation would imply reorganizing its economy (production and trade) sectors, which have been facing the problem of overcapacity. The OBOR initiative is precisely advocating “production capacity cooperation” (产能合作) to various international partners, particularly the Central Asian countries, in the hope to resolve China’s domestic overproduction problem through intensified international cooperation, for example, by transferring overproduction and overcapacity to new markets in neighboring countries. By facilitating connectivity through massive infrastructural construction and the free flow of trade, labor, capital, people and information, OBOR is aiming at achieving deep market integration and expansion, and at creating multiple cross-regional economic cooperation frameworks. By enhancing Eurasian economic connectivity, the OBOR project has positioned Eurasia as one of the pivotal centers of China’s foreign policy ­strategy. Beijing will be able to not only turn its historical vulnerability (a border with 14 nations) into a strategic asset but also consolidate its partnership with Russia and integrate Eurasia into a system of accumulation with Chinese characteristics, that is, “authoritarian state-centric capitalism” (Clarke 2015). Moreover, OBOR can be perceived as one of Beijing’s major political projects, that is, occupying a hegemonic position in the world order in

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trade, production and finance and providing financial and infrastructural “public goods” to pave the way for an emerging world order with Chinese characteristics. As one European Parliamentary report states, OBOR will enhance China’s “regional and international profile as a responsible global power by providing public goods…., and by assuming significant financial risks involved in individual projects from which other investors would have shied away” (Grieger 2016: 6). OBOR has the potential to grow into a model or a vision for alternative rule-making within international politics and economics. However, another debate taking place both inside and outside of China is whether it is economically rational to pour such huge investment into slow-return projects and high-risk countries/regions, especially with regard to the massive infrastructural projects which are being planned. Although a seemingly solid rationality is found behind the reconfiguration and restructuring of China’s economic landscape, as a grandiose foreign policy ambition, OBOR may overstretch China’s strategic resources. Is China overreaching in its global power play? Will the OBOR create an uncertain future for China? In addition, as is well known, the Middle East, South Asia, Central Asia and the South China Sea are the areas and regions in which the interests of major powers regularly clash, and political and security challenges are rampant. Historically, China has no rich experience and involvement in dealing with geopolitical and geoeconomic problems in these regions.

The Objective of the Book and Chapter Contributions Acknowledging the fact that the rise of China poses the most serious challenge to the hegemony of the existing world order, the editor of this book has, over the past eight years, published a series of edited volumes around the themes of the rise of China and the impact of this on the existing world order (Li 2010, 2012, 2013, 2014, 2016). The latest Chinese impact, and perhaps the most significant, is the “One Belt, One Road” initiative. Obviously, it is beyond the editor’s and the book’s capacity to cover the research inquiries/questions of the theoretical discussions and global debates on the OBOR initiative presented in the extensive literature in the field. The book is an attempt to cover a range of aspects involved in these questions, discussions and debates. The explicit premise of this book is

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that the rise of China and its OBOR project will invariably “affect” and “disturb” a number of existing “global relationships” and “global arrangements” as well as the “structural power” of the existing world order. The aim of this book volume is to join the global discussions on China’s OBOR initiative, focusing on the implications and impact of this initiative on China, its neighbors, the extended regions and the world at large. With its chapter contributions, the book, intends to cover aspects that deal with a number of burning questions: How to understand China’s OBOR initiative? How will China’s OBOR initiative influence the global geopolitical and geoeconomic environments across the Belt and Road countries and regions? What opportunities does OBOR offer for the countries and regions along the OBOR economic corridor, and what challenges and constraints will they face in terms of security issues, for instance? What are the possible barriers that will keep some actors from fully participating in the initiative? And what can be done to address the tensions and conflicts along the “Belt” and the “Road”, such as the Middle East turmoil and the South China Sea crisis? What will be the reaction of the US and other economic powers when OBOR inevitably brings about capital competition? The OBOR initiative will no doubt generate complex interactions of opportunities and alternatives as well as challenges and contradictions that will coexist dialectically and at the same time contest each other. Since OBOR is indeed a multidimensional strategy linking all components of power, how will OBOR help enhance Beijing’s hard and soft powers? Chapter 1 (Introduction) by Li Xing, who is also the editor of the book, places the OBOR initiative in the thematic context of the international political economy discussions, which include the debates between different schools of IR theories on emerging powers. It functions as a general background setting, providing historical, IR and IPE frameworks for a holistic understanding of the rise of China and the OBOR initiative as an inherent part of the continuous expansion of the capitalist world system driven by endless capital accumulation. One of the essential “messages” disseminated from this chapter is that the rise of China and the OBOR initiative are altering the existing “global arrangements” and the “structural power” that preserves those arrangements. Thus, the crucial question raised in this chapter, which is also the central background question for all chapters in the volume, is whether the OBOR initiative symbolizes the emergence of a “new world order with Chinese characteristics” by integrating the OBOR countries and regions into a Chinese model of capital accumulation. The author sees the OBOR initiative as a representa-

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tion of Chinese hard power in that, similar to the postwar US Marshall Plan, it provides global “public goods”, and as the outward expansion of Chinese soft power, that is, a type of symbolic power derived from the Chinese economic success and diffused from in the interactions with Chinese policy makers and intellectuals. Finally, the chapter also summarizes the core analyses and contributions of each chapter in this volume. Chapter 2, again by Li Xing, aims to provide a theoretical framework for understanding the multiple facets of China’s OBOR initiative. Firstly, the chapter sees the OBOR initiative as Beijing’s shift toward a more proactive foreign policy and strategic repositioning following a few decades of maintaining a “keeping a low profile” policy. The author argues that China is changing its position from being a passive rule-follower and from joining the regional and global division of labor to becoming a proactive rule-­ settler through external capital expansion and production outsourcing in line with China’s internal economic restructuring. Secondly, through the analytical lens of combining both Neo-Gramscian IR theory and the world system theory, the chapter provides a framework for understanding the nexus between China’s internal capital accumulation and hegemonic consolidation and its inevitable outward expansion. The author claims that the OBOR project will dialectically enlarge the “room for maneuver” and increase the “upward mobility” of the countries and regions along the OBOR economic corridors, enabling them to seize the chance of this external “promotion by invitation” and to increase their upward mobility by finding the strategic convergence with China’s OBOR strategy. Thirdly, the author places the OBOR project in the context of the Kautsky-Lenin debate on capitalism and imperialism, in which China’s roles take on two contrasting faces: that of a historical victim of external capital penetration and exploitation and that of a current dominant force for capital accumulation and outward competition. The chapter concludes that OBOR is Beijing’s hegemonic project that will bring China potential prospects as well as constraints and risks. Chapter 3 by Anastas Vangeli presents a deeper level of analysis on the One Belt One Road initiative different from the mainstream discussions on its economic and security components. The author sees the OBOR initiative as a facilitating process in which normative matrices and decisions in countries involved in the initiative are influenced by the thinking and practice of Chinese policy makers and intellectuals. To grasp this process, the chapter applies the theory of diffusion, discussing the appropriateness of the diffusion approach to the OBOR initiative with regard to

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the object and logic of diffusion. The author argues that the OBOR initiative serves as a medium of non-coercive diffusion of policy principles rooted in “state neoliberalism”. These are principles of state-led economic cooperation, that is, sovereignty-first, rule by law, “flexible means to a common end” and priority of growth and stability but with the end goal being to advance the world market. Normative, utilitarian and bounded rationality in isolation, or in combination, create the demand for such principles in countries along the OBOR initiative, which also contributes to the process of diffusion. The study concludes that as a cumulative outcome, the OBOR initiative is both inside and outside of hegemonic market neoliberalism, seeking a way to advance economic globalization through state-led cooperation. While respecting the national sovereignty and the choice of development path, the OBOR initiative facilitates norms, ideas and principles of policy-making that have the potential to affect the behavior of others and alter their trajectories, contributing to a process that Chinese scholars and policy makers often dub “diversification” of governance, policy-making and legislation paradigms. Chapter 4 by Feng Yuan relates the OBOR discussion to a broad global discussion on the rise of China and its possibility of becoming a new hegemon, especially in terms of institution-building. The author contends that the OBOR initiative is an important and comprehensive project that touches many aspects of China’s international relations policies, including the objective of constructing a new set of institutions in order to support a new set of ideas and norms. By analyzing the relationship between the OBOR countries, the Asian Infrastructure Investment Bank’s (AIIB) founding members and China’s bilateral relations and multilateral institutional arrangements, the chapter suggests that China is developing a “multilayered multilateralism”, which is to become its institutional tool for realizing the OBOR initiative. “Multilayered multilateralism” implies an active combination of China’s bilateral relations and its newly established multilateral institutions while emphasizing the active interaction between the two layers. This China-led institutional arrangement is both new and innovative in its international relations, marking Beijing’s adjustment to a more proactive approach in its foreign policies. It also denotes that China’s pursuit of the OBOR initiative through multilayered multilateralism will consolidate China’s new role in norm-setting and norm diffusion. At the same time, “multilayered multilateralism” is also a phenomenon that relates closely to the rise of regionalism, especially among China’s neighboring countries.

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Chapter 5 by Erja Kettunen-Matilainen looks into the OBOR initiative by focusing on policies and regulations for China’s institutional environment for trade and analyzes how China’s OBOR initiative might be changing the multiscalar governance of trade in the future. In order to reduce regional imbalances due to the rising cost levels in its coastal cities, and because of intense competition from other emerging economies, China is actively promoting foreign investments in its interior. The OBOR initiative can be seen as a good strategy to encourage companies to settle in western and central China, leading to an increase in the transportation of goods between inland locations and the major ports in coastal cities that are the cross-border points for China’s foreign trade. At the same time, China is planning to engage in free trade agreements (FTAs) with the over 60 countries in Europe, the Middle East, Central Asia and South Asia that are part of the OBOR initiative, in addition to its existing FTAs. The author argues that through policies affecting foreign trade, both of these developments are aimed at shifting the regional balance of China’s economy from congested coastal regions toward inland regions. Drawing from the notions of formal and informal institutions, and from the institutional approach to business studies and multiscalar trade governance, the author elaborates on China’s subnational, national and international trade policies. The chapter’s empirical analysis is based on multiple sources of data, including company surveys and interviews, as well as reviews and indicators of China’s regulatory environment. Its analytical discussion focuses on the regional development aims of the current five-year plan and the OBOR initiative, the institutional environment of trade for foreign firms in China and the case of Chengdu as a host city for foreign investment. The findings provide a basis for sketching prospective changes in the regional emphases of China’s trade policy. By addressing OBOR in the context of multiscalar trade policies, the chapter provides a framework for understanding the changing institutions affecting cross-border trade in China and beyond. Chapter 6 by Paulo Duarte explores the security implications of China’s OBOR initiative in the context of Chinese (re)emergence. Based on a hermeneutic analysis and through the conceptual lenses of the Copenhagen School, the author analyzes the securitization logic inherent to OBOR. The chapter’s assumption is that OBOR can be perceived as a perfect securitization instrument for the expansion of China’s interests worldwide. It sees the OBOR project as being embedded with the triple securitization of Chinese interests: economic, physical/military and soft powers. It

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argues that at the political level, OBOR is a narrative aiming to mitigate the international community’s concerns over China’s rise as well as to legitimize the Party’s continuity. Besides, the author sees a soft power component in the OBOR initiative that is aiming to ensure that economic development is driven in a way that is advantageous for Beijing. At the financial level, OBOR intends to provide momentum to the competition of the Chinese yuan vis-à-vis the US dollar. Part of the OBOR objective is perceived to be to (re)bring Europe closer to “Mackinder’s Heartland”, thus weakening the long transatlantic momentum. At the military level, transportation projects attached to the OBOR initiative offer Beijing the advantage of projecting extraordinary hard and soft powers, for instance, to mobilize the People’s Liberation Army for several theaters, including the preparation for armed conflicts or war. In the maritime context, China’s renting of the two maritime ports of Gwadar and Djibouti can be seen as an initiative to provide logistic hubs for navy operations in order to protect the Chinese merchant fleet and to overcome the US-led “1st and 2nd Island Chains”. OBOR is the initiative of a pragmatic and nostalgic China to maintain internal stability and to deal with the economic downturn. At the same time, it might provide leeway for Beijing to move west in a context where its eastern frontier is faced with many uncertainties and even tensions. Chapter 7 by Ritika Passi intends to explore the geopolitical motivations behind China’s OBOR initiative. The initiative has been presented as primarily an economic initiative: a trade and infrastructure network that will boost economic prosperity, especially in the face of sluggish global economic growth. While its true nature remains elusive and conjecture is rife, the author argues that OBOR represents the twinning of globalization and geopolitics. China’s push for expanding value chains beyond its borders through connectivity is a result of its participation in the global economy and its desire to play a bigger role in this. At the same time, China is expected to be seeking geopolitical gains through this economic agenda. The chapter intends to unpack the extent to which OBOR is an economic enterprise that is embedded with geopolitical motivations. The chapter focuses primarily on the Silk Road Economic Belt that has been continuing apace and for which figures are readily available. Likewise, given the breadth and scope of OBOR, primarily the commercial merit of the tangible connectivity infrastructure being built is in question, and not the value Beijing will derive from the non-physical layers. The author explores (1) the economics of the Iron Silk Roads that form part of the

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SREB to illustrate the kind of commercial gains that will accrue to China through OBOR; (2) the Chinese economy vis-à-vis the current global economic situation and sentiment regarding globalization, in order to determine to what extent OBOR as a policy is expected to drive forward China’s “new normal”; and (3) the financing of the venture in order to address the financial viability of the project. A frank appraisal of the economics of OBOR will help determine, to the extent possible at present, where the economics of OBOR stops and geopolitics begin. Chapter 8 by Justin van der Merwe adopts a historical-geographical materialist approach to illustrate how China’s Belt and Road initiative can be understood as part of a broader system of accumulation based on what may be called the government—business—media (GBM) complex. The analysis follows a critical rewriting of China’s regional and transnational relations as seen through the lens of the GBM complex, with special attention paid to its involvement in Africa and the Middle East. Thus, this paper seeks to lay the foundations for an alternative understanding of China’s political economy. The chapter suggests that through the provision of China-led public goods, the OBOR initiative is an opportunity to reintegrate Africa and the Middle East into China’s system of accumulation, arguably as a countermeasure or an alternative system to the dominant Western-led system of accumulation. Chapter 9 by Laurids S. Lauridsen applies a Chinese proverb saying that “two tigers cannot occupy the same mountain” to describe the situation related to the stronger participation of China in the evolving regional order. For more than half a century, American hegemony in East and Southeast Asia has remained unchallengeable, while Japan has been playing a leading role as an investor, aid provider and promoter of regional cooperation. During the 2000s, especially during Xi Jinping’s leadership, China has been seeking to expand its regional influence by engaging in regional rule-making and institution-building activities. The two-pronged strategy of setting up new multilateral investment banks, especially the Asian Infrastructure Investment Bank (AIIB), and playing active roles in overseas infrastructure projects under the One Belt One Road initiative have taken regional competition and infrastructure diplomacy to an elevated level. By examining an empirical case of high-speed railway projects in Thailand, the chapter seeks to analyze regional rivalry and the evolving alternative regional order in terms of tangible forms of infrastructure development. China and Japan are competing to secure overseas infrastructure projects in Asia, and both countries are deploying considerable

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financial resources to attract orders. Railways, and especially high-speed railways (HSR), are a key element in the China-Japan rivalry taking place not least in their regional backyard. The author examines the following questions: What are the rationales behind the Chinese and Japanese HSR competition/diplomacy in the region, and how does regional competition come to light in the case of HSR projects in Thailand? Chapter 10 by Dragan Pavlićević perceives the One Belt One Road initiative to be a vehicle for China to expand its influence on the Eurasian continent and beyond. This chapter examines the current trends in the relationship between China and Central and Eastern Europe in connection with the OBOR initiative. China’s engagement in the region has resulted in widespread concerns that Beijing is accumulating leverage over the countries in the region and pursuing goals detrimental to the interests of the region and the dominant regional power, that is, the EU. This study explores economic, political, security-related and normative aspects of China’s engagement in the region in order to determine whether these concerns are well-merited. The findings suggest that China does not possess the leverage to alter significantly the strategic and policy choices of Central and Eastern European states and erode the EU’s dominant position in the region. Even if the substantial deepening of ties between China and the region under the OBOR framework continues, Beijing is lacking both the incentive and the means to compete with the EU and pursue the role of a major regional power. Chapter 11 is the concluding chapter by Li Xing and Paulo Duarte. The authors summarize the various debates on the Chinese OBOR initiative presented in each chapter and find that, although the OBOR initiative generates a mixture of hope and fear, it is nevertheless altruistic to the extent that pragmatism and the fulfillment of China’s national interest cause the country to adapt its foreign policy to the requirements of domestic and international realities. China is becoming an important global role-­ player, and the country does not want to be a bystander. The message from this book is that, on the one hand, China has a growing interest in adapting to the international system, and it is expected that the OBOR initiative will be constrained by geoeconomic and geopolitical complexities within the OBOR countries and regions. On the other hand, the OBOR initiative is part of an emerging new order characterized by made in China and the growing role of the Chinese yuan, and by the inspiration of a normative power to project an alternative development model. In conclusion, the OBOR initiative reflects, therefore, a multifaceted inter-

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play of realism, liberalism, constructivism, altruism, hope and fear between China and the rest of the world. Rather than looking for answers, this book wants to bother the reader who is eager for knowledge of a grand project that is extremely complex and heterogeneous. After all, the rise of China and the principal powers of the existing world order will have to go through a considerable period of struggle, adjustment and tension.

Notes 1. George Kennan was the former Head of the US State Department Policy Planning Staff. His selective quotations are taken from the complete text of the section of Policy Planning Staff/23 (Kennan 1948). The complete paper was published in 1976 in Foreign Relations of the United States 1948, Vol. 1, No. 2. 2. “Vision and Actions on Jointly Building Silk Road Economic Belt and 21st Century Maritime Silk Road,” issued by the People’s Republic of China’s National Development and Reform Commission, Ministry of Foreign Affairs, and Ministry of Commerce of the People’s Republic of China, with State Council Authorization, March 2015. Available at http://en.ndrc.gov. cn/newsrelease/201503/t20150330_669367.html

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———. 2014. The Rise of the BRICS and Beyond: The Political Economy of the Emergence of a New World Order? Farnham: Ashgate Publisher. ———. 2016. From “Hegemony and World Order” to “Interdependent Hegemony and World Reorder”. In Emerging Powers, Emerging Markets, Emerging Societies: Global Responses, ed. Steen F.  Christensen and Xing Li. London: Palgrave Macmillan. Li, Xing, and Steen Fryba Christensen, eds. 2012. The Rise of China and the Impact on Semi-Periphery and Periphery Countries. Aalborg: Aalborg University Press. Li, Xing, and Osman Farah, eds. 2013. China-Africa Relations in an Era of Great Transformation. Surrey: Ashgate Publisher. Li, Xing, and Jacques Hersh. 2004. The Genesis of Capitalism: The Nexus Between ‘Politics in Command’ and Social Engineering. American Review of Political Economy 2 (2): 100–144. Masoud, Fahim. 2014. The Coming Collapse of China. International Policy Digest, February 2. Available at https://intpolicydigest.org/2014/02/02/ coming-collapse-china/ McKinsey & Company. 2017. China’s One Belt, One Road: Will It Reshape Global Trade? Available at http://www.mckinsey.com/global-themes/china/ chinas-one-belt-one-road-will-it-reshape-global-trade Mearsheimer, John. 2006. China’s Unpeaceful Rise. Current History 105 (690): 160–162. ———. 2010. The Gathering Storm: China’s Challenge to US Power in Asia. Chinese Journal of International Politics 3 (4): 381–396. Moore, Thomas G. 2008. Racing to Integrate, or Cooperating to Compete? Liberal and Realist Interpretations of China’s New Multilateralism. In China Turns to Multilateralism: Foreign Policy and Regional Security, ed. Guoguang Wu and Helen Lansdowne. London/New York: Routledge. Peng, Zhongzhou, and Sow Keat Tok. 2016. The AIIB and China’s Normative Power in International Financial Governance Structure. Chinese Political Science Review 1 (4): 736–753. Scissors, Derek, and Arvind Subramanian. 2012. The Great China Debate Will Beijing Rule the World? Foreign Affairs, January/February Issue. Available at https://www.foreignaffairs.com/articles/china/2011-01-01/great-chinadebate Shambaugh, David. 2015. The Coming Chinese Crackup. Wall Street Journal, March 6. Available at http://www.wsj.com/articles/the-coming-chinesecrack-up-1425659198 Shen, Simon. 2016. How China’s ‘Belt and Road’ Compares to the Marshall Plan? The Diplomat, February 6. Available at http://thediplomat.com/2016/02/ how-chinas-belt-and-road-compares-to-the-marshall-plan/ Strange, Susan. 1988. States and Markets. Santa Barbara: University of California.

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Subramanian, Arvind. 2011. The Inevitable Superpower: Why China’s Dominance Is a Sure Thing. Foreign Affairs, September/October Issue. Available at https://www.foreignaffairs.com/articles/china/2011-08-19/inevitablesuperpower Wallerstein, Immanuel. 1976. The Modern World System I: Capitalist Agriculture and the Origins of the European World-Economy in the Sixteenth Century. New York: Academic. ———. 1979. The Capitalist World-Economy. New  York: Cambridge University Press. ———. 2004. World-Systems Analysis: An Introduction. Durham: Duke University Press. Wang, Yiwei. 2015. One Belt One Road: Opportunities and Challenges [Yidaiyilu: Jiyu Yu Tiaozhan]. Beijing: People’s Press. ———. 2016. The Belt and Road Initiative: What Will China Offer the World in Its Rise. Beijing: New World Press. ———. 2017a. Belt and Road Initiative: China’s Responsibilites in Its Rise [Yidaiyilu: Zhongguo Jueqi de Tianxia Dandang]. Beijing: People’s Press. ———. 2017b. China Connects the World: What Behind the Belt and Road Initiative. Beijing: China Intercontinental Press. ———. 2017c. The World Is Connected: The Logic of Belt and Road Initiative [Shijie Shitong de: Yidaiyilu de Luoji]. Beijing: The Commercial Press. Weber, Max. 1958. The Protestant Ethic and the Spirit of Capitalism. New York: Scribner’s Press. White, Hugh. 2017. China’s One Belt, One Road to Challenge US-led Order. The Straitstimes, April 25. Available at http://www.straitstimes.com/opinion/ chinas-one-belt-one-road-to-challenge-us-led-order Wood, Ellen. 1997. Back to Marx. Monthly Review 49 (2): 1–9. Xinhuanet. 2017. Commentary: Can We Equate Marshall Plan with Belt and Road Initiative? May 13. Available at http://news.xinhuanet.com/english/201705/13/c_136279009.htm Zhang, Xin. 2017. Chinese Capitalism and the Maritime Silk Road: A WorldSystems Perspective. Geopolitics 22 (2): 310–331. Zhao, Lei. 2015. One Belt One Road: China’s Civilizational Rise [Yidaiyilu Zhongguo de Wenmingxing Jueqi]. Beijing: China Citic Press. Zou, Lei. 2015. Political Economy of China’s One Belt One Road Strategy [Zhongguo Yidaiyilu Zhanlue de Zhengzhi Jingjixue]. Shanghai: Shanghai People’s Press.

CHAPTER 2

Understanding the Multiple Facets of China’s “One Belt One Road” Initiative Li Xing

The Placement of the Discussion During the last four decades, China has grown from a poor agricultural country into a global manufacturing powerhouse. The “Chinese model” is based on internal infrastructure investment and production in combination with external export promotion, and it has made the country the second largest economy and one of the largest trading nations in the world. In recent years, however, the Chinese model has faced a number of challenges and constraints such as slowdown in economic growth, excessive debt, overcapacity, constraints on resources and environment and lack of new sources of growth. Now the Chinese leadership is looking for new sources to sustain economic growth. One of the most important shifts in the orientation of China’s development is the attempted transition from export-oriented growth to a new model based on consumption and outward investment.

L. Xing (*) Department of Culture and Global Studies, Aalborg University, Aalborg, Denmark e-mail: [email protected] © The Author(s) 2019 L. Xing (ed.), Mapping China’s ‘One Belt One Road’ Initiative, International Political Economy Series, https://doi.org/10.1007/978-3-319-92201-0_2

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The “One Belt One Road” initiative (hereafter the “OBOR” initiative) covers about 65 percent of the world’s population and one-third of the world’s GDP, and the central idea is to create viable economic belts: (1) a land belt that includes neighboring countries surrounding China, especially those countries on the original “Silk Road”1 through Central Asia, West Asia, the Middle East and Europe; and (2) a maritime belt that links China’s port facilities with the African coast, pushing up through the Suez Canal into the Mediterranean. The OBOR seems to revive the ancient Silk Routes with a twenty-first-century twist. The OBOR initiative is an ambitious project that aims to link interregional trade across more than 60 Asian and European countries along a new Silk Road. It is China’s most important and grand initiative and a crucial component of President Xi Jinping’s foreign policy strategies. Whereas the conventional hegemonic tradition sees the world through the prism of the Atlantic, with the United States on the one side and Europe on the other, the OBOR initiative attempts to provide a new prism that will allow us to view the world economy and the global balance of power as they relate to China and its nearby regions. As the OBOR initiative gains momentum, international relations (IR) and international political economy (IPE) scholars and policy makers worldwide are engaged in passionate debate about whether such an initiative could potentially reshape the world order. In historical retrospect, rising powers repeatedly struggle to redefine the global economic and political order, and each shift in the balance of power has been followed by conflicts and wars. For many years now, global debate on the rise of China and on Beijing’s relationship with the existing US-led world order has been controversial and has divided realists and liberalists (Mearsheimer 2006; Ikenberry 2008). Early disagreement on China’s role and position in international institutions as a “free-rider” or as a “stake-holder” has now turned into a dispute about whether China is a “status quo power” or a “revisionist power” when it comes to the current world order (Zhao and Korbel 2016). The term “status quo power” refers to the extent to which Beijing respects international relations as a system based on the acceptance of the existing norms. On the other hand, “revisionist power” is a concept derived from conventional power transition theory which automatically assumes that rising powers are revisionist (Organski and Kugler 1980; Gilpin 1981). Although it is not easy to put China into one of the two categories, the country is nevertheless considered to have a “revisionist orientation” (Åberg 2014).

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Beijing’s revisionist orientation has already been linked with its proactive engagement in financial “minilateralism”, which is an attempt to c­reate alternative global financial institutions, such as the BRICS Bank,2 the AIIB3 and the New Silk Road Fund.4 Some Western mainstream media see Chinaled minilateral financial institutions as good examples of China’s move toward revisionist power. They symbolize “China’s Great Game: Road to a new empire” (Financial Times 2015, October 12). In a similar way, the OBOR is seen as part of China’s own global “public goods” efforts in the process of constructing a post-US economic order (Li 2016b). Another heated debate on Beijing’s OBOR initiative is related to the revived reincarnation of “dependency theory”. The debate touches upon the most important question concerning China’s economic relations with the developing world: South-South partnership or North-South dependency (Li 2016a). Dependency theory posits that the underdevelopment of developing countries is caused by unequal exchange imposed by external mercantilist forces and driven by imperialism and colonialism. Thus, much of the literature focuses on China’s external trade relations and draws on the “unequal exchange” thesis of dependency theory. The thesis is that “the economy of certain countries is conditioned by the development and expansion of another economy to which the former is subjected”, and consequently, “some countries (the dominant ones) can expand and can be self-sustaining, while other countries (dependent ones) can do this only as a reflection of that expansion” (Santos 1970: 231). Hence, it follows that China’s economic relations with the developing world replicate the historical North-South dependency and that the Chinese government is mainly aiming at the strategic pursuit of resources and raw material supplies. Both Africa and Latin America are seen as good examples of “economies of dependency”: both are dependent on commodity export to the Chinese market (Ferchen et al. 2013; Pereira and Neves 2011; Li 2016a). At a global level, China is perceived as “laying the groundwork for potentially securing regional hegemony by creating a neo-Sinocentric periphery structure” that will eventually lead to its objective for global hegemony (Durani 2016).

The Objective and Theoretical Considerations This chapter aims to provide a conceptual and theoretical framework for understanding the multifaceted aspects behind China’s “One Belt One Road” initiative. First, the OBOR initiative is seen as a shift from a “Tao

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Guang Yang Hui” (韬光养晦)5 foreign policy to a more proactive “You Suo Zuo Wei” (有所作为)6 strategic repositioning. The OBOR also demonstrates that China has transformed itself from being a “rule-follower” in joining the regional and global division of labor to becoming a “rule-­ settler” through its proactive global financial role, its overseas capital expansion and its production outsourcing. The initiative also reflects China’s internal economic restructuring as shaped by Beijing’s 13th five-­ year national plan. Second, through a theoretical perspective produced by combining neo-­ Gramscian IR theory and world system theory, the OBOR initiative is understood as the logical nexus between the accumulation and consolidation of China’s internal achievement (hegemony) and its inevitable outward expansion. The initiative can also be interpreted as part of the capitalist world system’s continuous cyclical rhythms, which always result in regular and slow-moving but significant geographical shifts in accumulation and power without changing the fundamental mode of production and relations of inequality within the system. Each new round of capital and production relocation dialectically enlarges/reduces the “room for maneuver” and increases/decreases “upward mobility” for various countries and regions. The OBOR initiative represents the latest round of cyclical rhythm and geographical shift of accumulation and power in the current era of the world system, and it calls for the regions and countries along the Belt and Road to seize the opportunity offered by this external “promotion by invitation” and to increase their upward mobility by promoting strategic convergence with China’s OBOR project. Third, inspired by disputes between Kautsky’s ultracapitalism theory and Lenin’s ideology of imperialism, the chapter explains that the OBOR initiative has dual characteristics: on the one hand, it can be seen as an example of China’s participation in the formation of a partnership “cartel” with international capital to jointly “exploit” the world. This would be in line with Kautsky’s understanding. On the other hand, it can also be conceptualized in terms of Lenin’s view that the expansion and intensification of competition among the core capitalist states would lead to chronic conflicts and even to wars. To put the OBOR in the context of the Kautsky-­ Lenin debate, this chapter argues that China is facing a contradictory situation: a self-identified “developing” country is cooperating with international capital, while at the same time acting as a strong force for the capital accumulation and outward competition that may lead to recurrent crises and conflicts among major capitalist powers.

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The Internal-External Nexus of the OBOR Strategy The post-Mao development strategy adopted during early periods of economic reform in the late 1970s was heuristically underlined by Deng Xiaoping’s maxim, “watch cautiously, hold our ground, meet the danger calmly, hide our capacity, while also getting something done” (冷静观 察、稳住阵脚、沉着应付、韬光养晦、有所作为). Deng’s words implied a strategy of concentrating on China’s internal development while waiting for the right time for the country to assert itself in the global sphere and to achieve an accomplishment. The slogan under which Beijing has chosen to project its development objectives during recent decades has been “peaceful ascent” (和平崛起),7 or “peaceful development” (和平发展). Figure 2.1 shows the internal-external nexus of China’s economic development strategy during various periods of the past four decades in which China gradually moved from the “Tao Guang Yang Hui” policy as a passive rule-follower and recipient of international institutional norms and rules to the “You Suo Zuo Wei” strategy. With the “You Suo Zuo Wei” strategy, China became an indispensable contributor to global economic growth and a proactive rule-shaper in global governance. Internally, the OBOR initiative is a further extension of China’s “go out” and “go global” strategies in an attempt to improve the quality and equality of economic growth rather than to pursue quantitative growth at any cost. Quite apart from economic considerations, the OBOR initiative is Beijing’s foreign policy tool to shape its international leadership and to provide an

•Joining regional/global division of labour •Deng’s maxim and pragmatism Tao Guang Yang Hui Rule-follower

You Suo Zuo Wei Rule-player •Market/resource occupation •BRICS, capital expansion •Go out, and go West

•OBOR and new Silk Road •Global finance, AIIB •13th 5-year plan and new growth model Chinese Dream and global re-ordering Rule-shaper

Fig. 2.1 The internal-external nexus in China’s development strategy (1980s–2010s). (Author’s own drawing)

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internal-external channel for Chinese industrial and capital expansion by leveraging China’s comparative advantages in infrastructure development, financial power and manufacturing capacity. Joining Regional and Global Division of Labor The “Tao Guang Yang Hui” strategy in the early period of China’s economic reform reflected Beijing’s willingness to accept the regional division of labor and to be part of the regional flying-geese economic order based on dynamic comparative advantage. The concept of the East Asian “flying-­ geese” pattern of regional economic integration was coined in the 1930s by Japanese economist Kaname Akamatsu (1935). Akamatsu developed the theory of a multitier hierarchical “flying geese” model in which industrialization could be promoted and spread from developed countries to developing countries as costs in the former rose. The hypothesis of the flying-geese pattern was that a group of nations in this region were flying together in layers with Japan at the forefront. The layers signified the different stages of economic development of various countries. The flying-­ geese model of regional economic integration implied a life cycle of industries in which older technology and know-how were passed down to the next generation of developing economies. It also entailed a product cycle theory of trade and investment (Fig. 2.2). After China’s economic reform in the early 1980s, its production and division of labor within the region reflected the flying-geese model. However, what was unique about China’s role in the flying-geese model of regional development was that the nation’s vast size and the unbalanced development between its interior regions indicated that the Chinese

Fig. 2.2  The flying-geese model of East Asian division of labor. (Author’s own figure)

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e­conomy was flying in different layers simultaneously and had multiple production and labor relations with many countries (Li 2007). On the one hand, China’s domestic development in the past three decades resembled certain flying-geese characteristics, as manifested by its coastal and inland economic interactions (Yue et  al. 2012), and its economic success was a result of its integration in intraregional flying-geese dynamics. On the other hand, China’s vast size and the unbalanced development between its own regions enabled the country to cooperate and compete in both high-tech and labor-intensive industries with the rest of the countries of the region and even the whole world—core, semi-periphery and periphery countries. Economic zones in China’s coastal regions were capable of competing with the West, Japan and other East Asian newly industrialized economies (NIEs) in high-tech industries, while other provinces and regions could absorb the global outsourcing of labor-intensive industries. Outsourcing of industrial production also took place within China as coastal areas passed on their labor-intensive production to the inland regions. The Emergence of China-Centered Regional Economic Order The effect of the “You Suo Zuo Wei” strategy since the 2010s is witnessed by the fact that East Asia has experienced a gradual shift away from the flying-geese model to a new model of regional economic integration. The rise of China as a new regional economic hegemon has changed the traditional dynamics of flying-geese economic relations. Recently, China’s economic power in general and its growing domestic market in particular have acted as a major engine for growth in East Asia, boosting regional trade growth and economic integration. China is now the most important trading partner for most East and Southeast Asian countries, and only in 2013 did the United States take over China’s position as Japan’s largest trading partner (due to the China-Japan crisis over territorial disputes). Figure 2.3 reveals the interplay of various economic relations underlying the Chinese development model, combining the input of external technology, resources, investment and markets with the output of Chinese manufacturing. It indicates that for many years, China has been looked upon as the locomotive of the region’s economic growth and development. When the analytical perspective is extended to include the regional “economic order”, recent studies show that the Chinese economy plays a pivotal role, not only as an engine of growth for East and Southeast Asia but also as a hub for regional economic integration (Fig. 2.3):

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Fig. 2.3  The gradual return of China’s historical position as the region’s gravity. (cf Wong 2013: 288, Fig. 2.2) China has in fact become an important regional ‘integrator’ through its many global and regional production networks. China’s exports (over 50% being processing trade) embody raw materials, parts and components, technology and equipment, and financial and economic services from different Asian economies, converting ‘Made-in-Asia’ into ‘Made-in-China’ products for the world market. (Wong 2013: 288)

Today, virtually all East Asian countries count China as their largest trading partner and largest market (Fig. 2.4). The OBOR Initiative and China’s Internal Economic Restructuring There is an internal aspect behind the OBOR strategy in which the Chinese government is looking for a new growth model fueled by consumption and services instead of fixed-asset investment. China’s high economic growth during the past decades has been based on massive state-led fiscal stimulus projects that also aimed to shield China from the destructive effects of the global financial crisis. However, the adoption of this

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Fig. 2.4  Asia’s growing economic dependence on China. (Source: Schlesinger in The Wall Street Journal, May 12, 2014)

investment-­driven growth model also intensified economic imbalance and wasteful spending. In addition, some of China’s production sectors have been facing the problem of overcapacity since 2006, and the OBOR ­initiative is intended to transfer overproduction and overcapacity to new markets in neighboring countries (Zhang 2016). One of the crucial goals of the grand OBOR initiative is to redirect the country’s domestic overcapacity and capital for regional infrastructure development in order to keep Chinese industry and production robust,

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keeping down unemployment by maintaining a decent GDP growth rate. One concrete aim of the initiative is to resolve China’s internal overinvestment problem by exporting the production of products, such as steel, cement and aluminum, to the construction of overseas infrastructural projects, such as railways, sea ports, highways and airports. In doing so, the OBOR project will help Chinese goods and services to enter new markets and will improve trade and relations with Southeast Asia, Central Asia and European countries. It is an effective way to boost China’s regional influence and leadership. The OBOR initiative will provide extra opportunities for the development of China’s less developed border regions. China also intends to explore new investment options that will preserve and increase the value of the capital accumulated in the last few decades. The OBOR project has the potential to grow into a model for an alternative rule-maker in international politics and could serve as a vehicle for the creation of a new global economic and political order. The OBOR initiative is also inextricably linked with China’s 13th Five-­ Year Plan (2016–2020). The new five-year plan will function as a national guide for countrywide development and investment strategy throughout the period. It marks a dramatic shift in China’s growth model from capital accumulation-led growth to innovation-led growth combined with integrated urban-rural development and green development. The Plan echoes the OBOR initiative, urging metal, steel and heavy machinery companies with overcapacity (particularly those with declining domestic demand) to find overseas markets. From the OBOR point of view, the regional dimensions of the five-year plan involve a long-term economic strategy to boost economic integration across the Belt-Road countries and regions.

The OBOR Initiative and the Neo-Gramscian Perspective The connection between a state’s internal accumulation of power and consolidation of hegemony on the one hand and its projection of external power to shape the regional and global order on the other can be conceptualized through the lens of the neo-Gramscian school of international relations represented by the theory’s leading proponent Robert Cox. Cox raised the level of the hegemony concept from the national to the international level, seeing the formation of global hegemony as an outward expan-

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sion of internal (national) hegemony. He developed a critical theory to explore the nexus between hegemony, world order, and historical change. Such a nexus explains how internal hegemony, driven by dominant class and social forces within a nation-state, is then extended and projected outward on a world scale to shape the international order (Cox 1981, 1983). Bieler and Morton (2003) provide a useful description of the domesticinternational interplay between ideas, material capacities and institutions: Yet once hegemony has been consolidated domestically it may expand beyond a particular social order to move outward on a world scale through the international expansion of a particular mode of social relations of production …. This can further become supported by mechanisms of international organisation. Finally, within each of the three main spheres it is argued that three further elements reciprocally combine to constitute an historical structure: ideas, understood as intersubjective meanings as well as collective images of world order; material capabilities, referring to accumulated resources; and institutions, which are amalgams of the previous two elements and are means of stabilising a particular order. (Bieler and Morton 2003)

Figure 2.5 places China’s internal power constellation and its external expansion (right) in the context of Cox’s historical structure of hegemony (left, Cox 1981: 136). The rise of China and the OBOR initiative neatly reveals the structural connections between material capacities (accumulated resources), ideas (collective images of social/world order) and institutions (means of perpetualizing a particular order). It implies

Fig. 2.5  Reflecting the OBOR initiative from Cox’s historical structure of hegemony. (Left: Cox 1981: 136; right: author’s own figure to reflect the left side)

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that change can come from any one of the three spheres: for instance, the rise of contending socio-political and socio-economic forces may be linked to changes in production and lead to the transformation of state and world order. Cox’s theory of hegemony initially aimed to explain how the United States, driven by domestic power relations and social forces, was able to shape and lead the postwar world order. Cox’s empirical ground was his study of how US hegemony was institutionally sustained by the US-led international organizations (the Bretton Woods order) that enabled the United States and its allied regimes to perpetuate their favorable position in the world order and to shape the development of the system as a whole. Multilateral international institutions are an important instrument through which the norms and values of a global hegemony are expressed. They act as legitimizing mediators of the hegemonic order and as an embodiment of the essential norms around which the international order is constructed. These US-led multilateral international institutions are in themselves sustained by Western hegemonic norms, also termed “universal norms”, which define the rules of behavior for both institutions and states. In neo-Gramscian terms, the OBOR project can be seen as an attempt to create an alternative historical bloc to challenge the existing order, with China seemingly striving to assume ideational and material leadership (Yilmaz 2014). The OBOR strategy reflects the Gramscian notion of “war of position”,8 in that Beijing is developing alternative “multilateralism” (China-led international financial institutions) as an institutional tool to realize the OBOR initiative. This China-led institutional arrangement is innovative in terms of international relations, marking Beijing’s adjustment to a more proactive approach in its foreign policies. It also indicates that China’s pursuit of the OBOR initiative through multilateralism will consolidate its position as a new player in the game of norm-setting and norm diffusion. Chinese Capital Expansion and Financial Hegemony According to Cox’s analytical method (1981, 1983), to understand and measure the way in which hegemony is exercised and maintained at the global level by a leading hegemon is to examine how international organizations are led to function in a way that reflects the hegemon’s internal ideology, interests and objectives. World system theory would assumedly recognize the importance of international organizations, especially interna-

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tional economic and financial institutions, where the core features of the capitalist world system are produced/reproduced, maintained and expanded. During the early reform periods driven by the “Tao Guang Yang Hui” (韬光养晦) strategy, Beijing’s goal was to become a “good citizen” and a “loyal member” of various international organizations that deal with economic, political, security, cultural and environmental issues, and so on. With its membership of the World Trade Organization from 2001, China further integrated itself into the global economy and benefited from the existing international economic and financial institutions. China has learned to be more effective in utilizing international organizations to advance its national interests as well as to extract what it needs from these institutions. One Chinese scholar pointed out that “China’s growing role in all kinds of international organizations is part of the story of China’s rise” (Xie 2011: 85). As another scholar argued, “… globalization works only because of a high degree of institutional and legal interdependence, and China’s growing prosperity depends on tightening these bonds and participating in those global and regional institutions” (Agnew 2010: 578). However, since the devastating effects of the global financial crisis and the stalemate of the “Doha Round” negotiation, the US-based institutions—the World Bank, IMF and WTO—have been subject to criticism and questioning about their authority, capability and legitimacy. More broadly, the existing world order with these economic institutions as supporting pillars is experiencing crises in four comprehensive dimensions: functionality, scope, legitimacy and authority (Flockhart and Li 2010). Ironically, while the United States and much of Europe were plunged into a serious recession, China emerged to become a global economic power and a pivotal stakeholder in international economic and financial institutions: (1) the largest trading nation and the largest trading partner for a global majority of countries; (2) an important source of aid and development assistance; and (3) a relevant and attractive model of economic development. Beijing’s presentations and roles are being increasingly recognized and appreciated: China’s remarkable growth story, and its strengthened relative position as result of the GFC cannot help but deeply impact the make-up and functioning of the international institutions in which it participates, many of which have traditionally mirrored a US view of the world. In the aftermath of the economic crisis, China’s calls for greater representation in institutions such as the World Bank and the International Monetary Fund became more

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vociferous, and other nations, including western developed nations, have seemed to signal a greater receptivity to this notion. The moral authority and credibility the Chinese can now carry into a variety of international economic institutions is greater than it ever has been. (Olson and Prestowitz 2011: 6)

In recent years, China’s proactive engagement in financial minilateralism has attracted global attention (Wang 2014). China’s relationship with international financial institutions has long been controversial. As it is pointed out before, early disagreement on China’s role and position in international institutions as a “free-rider” or as a “stakeholder” is turning into a dispute about whether China is a “status quo” power or a “revisionist” power when it comes to the current world order. It is a “status quo” power to the extent that Beijing respects international relations as a system based on the acceptance of norms. It is a “revisionist” power to the extent that it does the opposite, and the China-led minilateral financial institutions are seen as good examples that demonstrate “Beijing’s challenge to the world of Bretton Woods” (Financial Times 2014). The Soft Power Components of the OBOR Initiative The OBOR initiative is perceived as an outward expansion of Chinese influence that is primarily driven by its economic power, but its ideational and normative constituents (soft power) in terms of order-shaping, norm-­ negotiating, agenda-setting and policy-institutionalizing will eventually become systematized or internalized. The OBOR initiative also includes a heavy dose of expanding Chinese soft power influence. It is an ideational resource to show the communities of Eurasia that China is a benign rising power and a reliable partner, a different type of global hegemon. The OBOR initiative is portrayed as a means to create a “win-win” situation for Eurasia, and it depicts a prosperous future with China leading a “community of common destiny”. The phrase “community of common destiny” was popularized by Chinese President Xi Jinping, who intended to construct a regionally shared narrative and who particularly stressed “letting the awareness of community of common destiny take root in the neighboring countries” (Jin 2013). The concept of “community of common destiny” is one of three core components of a well-designed and carefully constructed new diplomatic strategy for Xi’s era (Jin, ibid.), consisting of (1) the “China

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dream” of maintaining domestic unity and stability; (2) the “new type of great power relations” involving the search for alternative means of peaceful coexistence with major powers; and (3) the “community of common destiny” to ensure a peaceful and stable neighboring environment, which is essential for China’s continued rise. Since soft power presupposes a value-laden identity capable of setting certain standards of social and political behavior on the basis of externalizing successful domestic norms and projecting them beyond national borders, the OBOR initiative is a good way to export the Chinese model of economic success. China’s economic success is generating global rethinking on the question of whether economic development is more conditioned by the political architecture of Western democracy or by the professional management of Chinese governance. China’s economic success as an alternative development model seems to be the major source of attraction for developing countries; nevertheless, it is impossible to separate hard material factors from soft attraction to values and worldviews (Breslin 2011). The Chinese development experience invites multiple interpretations and explanations regarding the mechanisms that cause nations to grow and regarding the set of mutually dependent relationships between property rights and economic growth, between the rule of law and a market economy, between a free currency flow and economic order, and, most importantly, between democracy and development. These norms and values should not be defined by the existing hegemonic powers alone, and they are becoming “interdependent”—open, less rigid, and non-universal. There are many underlined values that are diffused from the “Chinese model” (Ramo 2004), such as adherence to national self-determination, a strong role of the party and state, gradual reform and innovation to achieve economic growth, and international non-intervention and so on. They have been normalized as “Beijing Consensus”, which “has begun to remake the whole landscape of international development, economics, society and, by extension, politics” (Ramo 2004: 3). The OBOR was conceived as an important test case for the universalization of the “Chinese Dream” concept (Li 2015). The concept is claimed to have universal relevance as a dream of peace, development, cooperation and mutual benefit for all. It is connected to the dreams and aspirations of the people of the Eurasian regions in which the OBOR aims to increase economic wealth, and to strengthen cooperative relations by reviving the legacy of the historical Silk Road era. The OBOR is argued to be “a key

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instrument in achieving the Chinese Dream” in terms of “restoring and legitimizing the re-emergence of China as a world power and once and for all overcoming the nightmares experienced after the Opium Wars of the 19th century and their resulting humiliations by the European colonial powers” (Müller-Markus 2016).

The OBOR Initiative from the World System Perspective The world system theory developed by Wallerstein (1974, 1979, 1997, 2004) provides a broad theoretical perspective on the historical evolutions and changes involved in the rise of the modern capitalist world system. This system expanded over a long historical period and brought different parts of the world into its division of labor, leading to a perpetual condition of economic core-peripheral relations. Under this single division of labor within one world market, a political structure consisting of sovereign states and multiple cultural systems interacts within the framework of an interstate system (1974). The world system is conceptualized as a dynamic one in which changing positions within the system’s structural morphology is rendered possible by taking advantage of global capital mobility and the relocation of production. Historically, the division of labor within the capitalist world economy resulted in flows of commodities, labor, and capital across different geographical areas through chains of production, exchange and investment. China and India are seen as the last reserves (unexploited areas) that have been brought into the capitalist world system (Li 2008). World system theory attempts to explain the embedded inequalities of a system in which nation-states have quite different development stages and positions within a seemingly integrated world economy. According to this theory, the variety of positions in the global division of labor and changing patterns of competition and competitiveness have planted contradictions in the system from the very beginning, leading to the perpetual dichotomy of development and underdevelopment. According to world system theory, the capitalist world system is characterized by a series of cyclical rhythms and by recurrent features such as economic prosperity or crisis, and upward or downward mobility. More importantly, this series of cyclical rhythms is followed by the rise and decline of new guarantors (new hegemons) of the world system, each with its own unique pattern of control (Wallerstein 1997). The emergence of

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China can be perceived as part of the system’s rhythmic cycles in a phase of upward mobility as China continues to follow the core features of the world capitalist system. China would thus be seen as motivated or driven to act as a new political and economic system guarantor due to its economic integration and its market dependence on the system’s mode of production and capital accumulation. Nevertheless, new emerging powers are also described as challengers to the system’s existing dominant guarantor and to other core powers because they have different political and economic governing cultures. China is currently seen as having the intention of establishing a “Sinicized” world order—an order with “Chinese characteristics”. To follow world system theory thinking, however, even if the future world order were to be injected with Chinese characteristics, it would simply be a reflection and extension of China’s internal economic, political and cultural structures without altering the core architecture of the world capitalist system. Thus, contrary to the pessimism of conservative realism, world system theory does not view the rise of new guarantors (latecomers) as a threat as long as they maintain the fundamental core features of the system—the mode of production and the logic of capital accumulation. This is because the advance of the latecomers hugely benefits from their integration into the international division of labor and active participation in the process of capital and wealth accumulation. Accordingly, the rise of China and its OBOR initiative are understood as part of the cyclical rhythms of the system. This reflects the strength of the world system and its success in bringing relatively “untapped” parts of the world to the logic of capitalism without changing the fundamental relations of inequality within the system. The world system theory argument is clear: while China is successfully moving toward the core, it still needs a periphery. This argument has been reinforced by recent studies of Latin America’s growing commodity dependency on China (Ferchen et al. 2013; Pereira and Neves 2011). According to this point of view, the OBOR initiative and the emergence of a China-led financial order do not represent a menace; rather, they reflect China’s internal economic imperatives and extend them externally without altering the core architecture of the capitalist world system. In other words, the OBOR project, while assisted by an emerging financial order with “Chinese characteristics”, will still be shaped and molded by

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the system’s law of value. It will revitalize the continuous rhythmic cycles of the world system in terms of “upward mobility” and enlarge the “room for maneuver”. Through the lens of world system theory, we can understand the multifaceted roles and benefits that the OBOR initiative can bring to China and the rest of the world. “Promotion by Invitation”, “Room for Maneuver” and “Upward Mobility” “Room for maneuver” refers to the external conditions for the “upward mobility” in the world capitalist economy that is conducive to internal development. In a long historical perspective, the global core-semi-­ periphery-­periphery hierarchy defined by world system theory has been a relatively stable structure for centuries. The system’s rhythmic cycles and the rise or decline of hegemonic powers provide both upward and downward mobility. The postwar United States provided the world with “upward mobility”, as has China since the 1980s. A positive effect of upward mobility is reflected in the combination of “promotion by invitation” (external forces) with “seizing the chance” (internal responses). “Promotion by invitation” refers to the path of upward mobility enjoyed by a semi-periphery or periphery country whose geopolitical position is vital during a period of global power struggles or whose internal conditions are conducive to global capital mobility and production relocation. This upward mobility is stimulated by a favorable external environment created by the existing hegemon or by a group of core nations, for the sake of their own geopolitical and geoeconomic interests. In East Asia, Japan and the East Asian NIEs are good historical examples of how upward mobility can be achieved taking advantage of external promotion.9 “Seizing the chance” refers to a country’s internal ability to take advantage of a new situation or condition (such as the Chinese OBOR initiative) in the international political economy and to adjust its internal mobility accordingly. In terms of world systems analysis, the OBOR initiative seemingly represents another rhythmic cycle of the rise of a new hegemon. It is a strong “invitation” to the countries along the Belt and Road to knit together with roads, railways, cyber-connected hubs, smart cities and industrial parks. It provides a valuable “invitation” for the Eurasian countries to enlarge their “room for maneuver” and increase their “upward mobility”.

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The Two Sides of the “OBOR Coin” from the Kautsky-Lenin Debate In his “Ultra-imperialism”, Karl Kautsky (1914) claimed that core capitalist countries could find a way out of the vicious competition and destructive wars between the imperialist powers. Kautsky believed in the emergence of a new stage, which he termed “super-imperialism”, in which monopoly had reached such a high stage that it could effect “the joint exploitation of the world by internationally united finance capital” (Kautsky, ibid). As he wrote, “On the contrary, the capitalist economy is seriously threatened precisely by the contradictions between its states. Every far-sighted capitalist today must call on his fellows: capitalists of all countries, unite!” (Kautsky, ibid). According to Kautsky’s analysis, the only way for core capitalist countries to sustain the basic profit of the exploitation system while avoiding stagnation was for these nations to form a “cartel” in order to maintain their export markets and super-­ exploitation and to divide the world between them. As a result of this capital alliance, no economic necessity for imperialist war would arise from the capitalist system itself. He postulated that war and militarism were not necessarily inherent features of capitalism and that a peaceful “ultracapitalism” (imperialism) was likely. In this stage of ultraimperialism, core powers would understand the importance of coalitions and cooperation as well as the necessity of subsuming their economic contradictions and antagonisms into a system of coordination, whereby they would jointly exploit the underdeveloped world. However, Lenin’s theory of “The Highest Stage of Capitalism” (1948 [1917]) strongly criticized Kautsky’s “ultraimperialism” as a postulated world order. Lenin understood capitalism as being in transition from the stage of free competition to the stage of monopoly. He argued that capitalism had transformed itself from the nation-based competitive system of Marx’s day into imperial capitalism, which was now characterized by huge monopolistic or oligopolistic corporations. Imperialism as defined by Lenin was “the monopoly stage of capitalism” (Lenin, ibid), in which Kautsky’s ultraimperialist amalgamation was impossible. Lenin’s view was similar to John Hobson’s vision in Imperialism (Hobson 1902), and Lenin argued that the colonial exploitation of periphery states was a natural consequence of capitalism and that colonialism was driven by economic competition between the core states. In line with this understanding, Lenin argued that there was an economic tendency toward the formation

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of a single world trust, which was driven to expand beyond the framework of the nation-state by productive forces and financial capitalism. Today, these familiar phenomena are known as globalization and global capitalism. As core capitalist countries competed to expand their capital ­accumulation and exploitative sphere in overseas markets and resources, their interests would intersect and conflict, inevitably leading to war. To put China’s OBOR initiative in the context of the Kautsky-Lenin debate (Fig. 2.6), we can observe the two faces of China. On the one hand, many aspects of Chinese capital accumulation and economic development resemble the historical experiences of most developing countries in nineteenth-century capitalism: foreign penetration or domination of key industries, enclave patterns of unevenly distributed industrialization, massive rural migration, rural stagnation and urban overcrowding, environmental and ecological degradation, severe inequality and exploitation and pervasive corruption. The economic rise of China is derived from its participation in the global division of labor and market competition in the US-led capitalist world system and from its adaptation to the system’s mode of production and law of value. China has been the site of capital relocation and production outsourcing

Fig. 2.6  The OBOR initiative in the context of the Kautsky-Lenin debate. (Author’s own figure)

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from core Western imperialist countries (the United States and EU) and Japan. Foreign direct investment in China has reaped massive superprofits from China’s cheap resources and labor power. Even though, historically, China has enjoyed a trade surplus from its commodity exports to the core countries, its share of the total profit percentage has been very marginal due to its position at the lower end of the global supply chain. For a long time, China was a profitable destination for core capitalist countries’ production outsourcing and capital relocation. Seen from Lenin’s perspective, China was a victim of capital exploitation by core capitalist countries and of the competition between them. On the other hand, many characteristics of Chinese economic achievements may well place the country in the category of core capitalist countries: (1) China is the world’s second largest economy; (2) it is the world’s largest trading nation (import-export) and the largest high-tech export country (worldatlas 2017); (3) it is the largest energy and commodity consumer; (4) its foreign exchange reserve was estimated at $3.20 trillion in July 2016 (Reuters, August 6, 2016); (5) China owns $1.24 trillion of American Treasury bills, notes and bonds (USgovinfo.about.com) while it is financing American imports and spending; and last but not least, (6) the Chinese currency (yuan) has recently become one of IMF’s major SDRs.10 From these perspectives, China is no doubt a core country, a “North” country, in the global financial system in terms of overseas lending and investment. Moreover, it is a “developed” country in the global trading system in terms of unequal exchange (exporting manufactured products vis-à-vis importing raw materials), as described by dependency theory. China’s strong status as a vital part of the global capital “cartel” was firmly established recently, when the IMF approved the Chinese yuan’s Special Drawing Rights (SDR), making the Chinese currency a major world currency. In these connections, the OBOR strategy aims to provide new platforms to facilitate China’s emergence as a new generator of production relocation and capital mobility in the capitalist world system. This development will inevitably intensify global competition in relation to production relocation, capital expansion and market share, especially among the core capitalist countries. China’s OBOR blueprint is supported by Beijing-led financial institutions such as the Asian Infrastructure Investment Bank (AIIB) and the New Silk Road Foundation. The situation reflects Kautsky’s ultra-­ imperialism theory: Chinese and global capitals intersect and merge in order to jointly exploit the rest of the world in a form of amalgamated

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finance. One scholar even convincingly argues that the rise of China/BRICS will not lead to a substantial change in world order; rather, what the world is experiencing is a process of adaptation and cooptation of the emerging powers, especially their economic elites, by traditional core powers and leading transnational economic classes (Taylor 2016). However, the incorporation of Chinese capital and its global expansions is leading the world into a stage of oligopolistic imperialism in which core capitalist countries, including China, are accelerating the conflict over profit distribution, market share and resource security. In this context, China is obviously torn between coalition and cooperation with the United States and other core capitalist countries on the one hand, and competition and conflict with the very same countries on the other.

Concluding Remarks: Prospects and Constraints The OBOR initiative is a gigantic cross-continental project which is sure to have significant worldwide geopolitical and geoeconomic consequences. It is a strong policy strategy to revolve around economic initiatives which place China at the center of the regional dynamics. It marks the beginning of a new economic diplomacy for China as the country sets out to become a driver, determining the direction in which the regional and global economy will lead. The implications and impact of China’s new development strategy and policy orientation are far-reaching not only for the core but also for the semi-periphery and periphery countries. Through the analytical lens of the various theoretical perspectives applied, I conclude that the OBOR initiative can be seen as an “unintended consequence” of China’s development trajectory in the past four decades. It represents China’s shift toward a more proactive development strategy and foreign policy in the face of new challenges and constraints resulting from internal overproduction and overinvestment and from external competition with the US-led hegemony. It is a clear reflection of China’s growing need for deeper engagement with the regions surrounding it. One phenomenon of unintended consequence is manifested by China’s transition from passive capital and production recipient to proactive exporter, from passive rule-follower to active rule-maker, and from periphery country suffering from foreign capital exploitation to a rising core country competing for global capital accumulation. Another consequence brought about by the OBOR is the fact that China’s economic success will

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eventually lead to the outward expansion of Beijing’s hegemonic position in the world order in terms of trade, production and finance, and of providing financial and infrastructural “public goods”. There are significant risks associated with China’s OBOR strategy. The countries and regions along the OBOR remain unstable and unpredictable, especially South Asia (India and Pakistan), Central Asia and the Middle East, where the interests of major powers regularly clash and where the political and security challenges are considerable. Although China intends to define the OBOR as an economic project, its impact is unlikely to be confined to economic domains. It has to match Beijing’s fundamental geopolitical and geoeconomic interests. For example, the OBOR does not and cannot provide an equal opportunity for all states, and Pakistan receives far more investment than India. China still lacks mature global experience and sensitivity in addressing religious, socio-political, socio-­ cultural and security issues in host countries, particularly regarding religion, culture, environment and ethnicity. Notwithstanding its great success within China, Beijing’s state-led development model may be difficult to duplicate elsewhere and may impede effective cooperation with countries that are shaped by democratic rules and by various contending socio-political and socio-economic forces.

Notes 1. The conception of the “Silk Road” refers to the ancient Silk Road, a historical network of trade routes started during the Han Dynasty (206 BC–220 AD) between Europe, China, Africa and many other countries on the Afro-­Eurasian landmass. It had both land and sea routes, where trade in goods and cultural exchanges between China and regions and countries along the routes was vibrant. 2. China is the largest stakeholder of the BRICS Bank contributing 41% of the total 100 billion US dollars capital base, at the 6th BRICS summit in Fortaleza, Brazil. According to the official published Fortaleza Declaration, “the BRICS Development Bank is designed to mobilize resources for infrastructure and sustainable development projects in BRICS and other emerging and developing economies” (BRICS  – Fortaleza Declaration 2014). 3. It refers to the “Asian Infrastructure Investment Bank” (AIIB), an initiative led by the Chinese government in 2015. It is an international financial institution with a pivotal aim to support and finance infrastructural projects in the Asia-Pacific region.

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4. During the APEC Summit in Beijing in November 2014, China’s President Xi Jinping announced that China would contribute 40 billion US dollars to set up a Silk Road Fund at a dialog meeting on strengthening connectivity and improving cooperation in the country’s neighborhood. According to Xi’s explanation, “the new Silk Road Fund will be used to provide investment and financing support to carry out infrastructure, resources, industrial cooperation, financial cooperation and other projects related to connectivity for countries along the ‘One Belt and One Road’ initiative” (Xinhua, May 14, 2017). 5. It is a Chinese idiomatic expression, which literally means “to hide brightness, and to nourish obscurity.” The notion reflects an implicit strategic way of thinking, namely “to be patient and to wait for a time when one is ready to assert a big role and to make a challenge.” 6. The notion is often applied in connection with Note 3. It implies that one is ready to strive for achievement after a period of accumulating strength. 7. The concept of “peaceful ascent” was formulated by Zheng Bijian in a series of speeches and articles from 2002 onwards when he functioned as a spokesman for Chinese government viewpoints. The notion aimed to counterbalance two worldwide perceptions on China—“the threat of China” and “the collapse of China”. However, the word “ascent” (崛起) can also imply “challenge” in a revisionist manner, causing the concern led by the US-led world order. Therefore, the term “peaceful development” is more often applied in Chinese media and academia as a replacement of “peaceful ascent”. 8. The original concept is derived from Antonio Gramsci, who refers to the stage of class struggle aimed at gaining positions of influence and at developing counterhegemonic forces. It is a slow, hidden and protracted struggle in an attempt to seek to gain influence and power. The concept intends to be distinguished from another notion termed by Gramsci as “war of maneuver”, which refers to a direct, violent and immediate assault on the state in order to gain political power (Gramsci 1971). 9. The economic success of Japan and East Asia attributes to the interplay of many mutually related external and internal factors. It is the synergy of external factors, such as the US security umbrella, the favorable postwar international environment, the US military aid and foreign direct investment, correlating with internal factors, such as the role of the state, cheap labor, export-led development policy, the role of education and cultural aspects. 10. SDR refers to Special Drawing Rights. They are supplementary foreign exchange reserve assets defined and maintained by the International Monetary Fund (IMF). Currently, the existing SDR currencies are the US dollar, the euro, the British pound sterling and the Japanese yen. According to the IMF’s recent decision, the Chinese yuan became part of the SDR currencies as of October 2016. It is the third largest SDR currency after the dollar, the euro, and is followed by the British pound and Japanese yen.

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CHAPTER 3

A Framework for the Study of the One Belt One Road Initiative as a Medium of Principle Diffusion Anastas Vangeli

Introduction In recent years, and in particular after the leadership succession in 2012, Chinese policymakers have reconceptualized Beijing’s new global role and announced a proactive approach on the world stage (Burnay et  al. 2015; Zhang 2015). This in itself has been a surprise, as—prior to the leadership succession in 2012—many believed that, given the domestic concerns of China, the incoming leadership spearheaded by Xi Jinping would not have an ambitious foreign policy. Yet,  in the words of Yan Xuetong (Yan 2014), in the last several years China underwent a process of transition from “keeping low profile” to “striving for achievement”. China’s proactive approach on the global scene is shaped, of course, in accordance with the changing circumstances and the contradictions which

A. Vangeli (*) Graduate School for Social Research, Polish Academy of Sciences, Warsaw, Poland © The Author(s) 2019 L. Xing (ed.), Mapping China’s ‘One Belt One Road’ Initiative, International Political Economy Series, https://doi.org/10.1007/978-3-319-92201-0_3

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emerge elsewhere. The shift in China’s global role comes at a time when most developed countries are coping with the limitations of their own models, a lack of competitiveness, and the eruption of mass discontent. One of the central questions for the future trajectory of China as a global power is whether China will successfully promote its own norms and values, and whether they will be embraced by others. In a world with an ever more active and relevant China, as Beeson and Li (2016) argue, “nothing approximating global or even regional governance is no longer possible without (its) participation and cooperation”. With the growing number of problems experienced at home, key promoters of the hegemonic liberal democratic normative blueprint—the US and the EU—have backtracked in terms of their efforts to promote their values abroad (Carothers 2015). This has turned the tables and enabled the proliferation of non-Western, non-liberal democratic ideas of development and cooperation, and—in particular—opened a maneuvering space for China in the process (Ignatieff 2014; Micklethwait and Wooldridge 2014). One of the features of China’s new diplomacy is precisely that it is actively “offering to the pluralistic world a non-Western alternative that features new thinking and practice” (Yang 2015: 7). This is, however, not an abstract phenomenon, but a very concrete one: Beijing completes the “offer” by establishing novel China-centered institutional mechanisms of international cooperation and regional and global governance that supplement the existing global order, while aiding China’s foreign policy core principle of “striving for achievement” (Heilmann et al. 2014). Today, a central concept of China’s new diplomacy is the landmark “One Belt One Road” (OBOR) initiative. It synthesizes and systematizes a number of existing, as well as novel, foreign and domestic policies (Pantucci 2016), and provides a focal point for China’s resources, institutions, and ideas. After the OBOR International Cooperation Forum in Beijing held in 2017, it is now clear that it is indeed a global vision that covers not only Asia, Europe, and Africa but also Oceania and the Americas. While the OBOR initiative has a significant political economic component and can significantly affect the global economy and power relations, this chapter emphasizes its potential to have a significant normative impact as well (see Vangeli 2018b). Building upon the lessons of its own experience, as well as highlighting the symbolic capital of the ancient Silk Roads not only as trade routes but moreover as a historical platform for intercivilizational dialogue and flow of ideas (Ma 2015),1 China has transformed its external

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approach to state-level cooperation moving from a “business as usual” or “no strings attached” engagement approach to one of cooperation that takes place under a certain set of normative assumptions, which are purposefully concerned with changing policy frameworks and governance principles (Liu and Dunford 2016) through the OBOR initiative. These normative assumptions are rooted in Sinified Marxism and revolve around the ideas of state-led economic cooperation and the sanctity of national sovereignty. Can these normative assumptions that inform the OBOR initiative then be promoted beyond China’s boundaries and internalized by other actors? As seen in the existing literature, there is a common understanding that China is indeed already changing the thinking and behavior of others. Over the years, China’s growing economic, political, and symbolic clout have inspired a debate on its potential to influence changes in the thinking on and practice of governance, policymaking, and legislation around the world. Authors have written extensively on the so-called China Model (Zhao 2010; Breslin 2011) the Beijing Consensus (Ramo 2007; Li et al. 2010) and its diffusion (Ambrosio 2012), the tianxia model of global governance and the Chinese concept of the world order (Godehardt 2016), and the rise (and recognition) of the “Normative Power China” (Womack 2008; Kavalski 2013, 2014). Recently, the concept of symbolic power was also introduced to the study of China’s new foreign policy through a case study of the platform “16+1” (Vangeli 2018). This chapter proposes that one approach that could offer insight into these aspects of global China is applying theories of diffusion to the case of OBOR. Diffusion is the process through which one adopts and adapts the beliefs and practices of others.2 According to the diffusion perspective, normative matrices and decisions in a given political unit are updated based on the choices that had been previously made in different political units elsewhere. This chapter starts from the premise that the OBOR initiative creates the conditions for a process in which normative matrices and decisions in countries involved in the initiative are influenced by the thinking and practices of Chinese policymakers and intellectuals, and that this constitutes a process of policy-principle diffusion. By critically examining the normative setup of OBOR, the chapter outlines an analytical framework for the study of the OBOR initiative as a medium of the diffusion of normative principles that serve as the ground for developing novel governance, policy, and legislative thinking and practices outside of the hegemonic liberal democratic blueprint. OBOR is comprised of asymmetrical relationships, where China has leverage expressed in political, economic, and symbolic power; that China is pri-

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marily on the normative supply side of the process, but the process itself is at least equally driven by the demand side, as well as by misrecognition and bounded rationality.3 In other words, key to the impact of OBOR is not only China’s “offer” but also what regional actors make of it. The component of OBOR formally expressed as “policy coordination” and “mutual learning” in the official documents (National Development and Research Commission 2015) constitutes the apparent dimension of diffusion. At the same time, the level of the political practice of OBOR— the creation of new venues of interaction and the process of the exchange of ideas and deal-making—constitutes the substantial dimension of that same process of diffusion. Diffusion under the OBOR initiative is largely a voluntary process, one which depends on the demand side of the interaction. The dispositions and logic of political and intellectual elites in countries that are partners of China in construing the OBOR vision and its implementation determine the scopes and characters of the diffusion processes. The chapter develops a taxonomy based on the different possibilities for the manifestations of normative, utilitarian, and especially bounded rationality among the various political and intellectual elites, all of which lead to different processes and outcomes. One of the key questions in diffusion research is whether “the goal is to improve the understanding of diffusion itself or to use diffusion research to explain another phenomenon” (Gilardi 2016: 8). My project belongs to the latter group—I use the concept of diffusion to contribute to our understanding of the OBOR initiative and the ideational complex that underpins it. To do so, I first briefly outline the context and the main features of OBOR in this chapter. Then, I link some of the features of OBOR with a more general theory of diffusion. I then discuss the particularities of principle diffusion and answer the questions “principles of what” and “what principles” are diffused by OBOR. I close the analysis with an overview of the varying logic of diffusion via OBOR. The chapter is conceptualized as a guideline for future studies. Aside from theoretical literature on diffusion and secondary literature on OBOR, the insights here are informed through an analysis of primary sources issued by the Chinese government, media sources, as well as a number of interactions within scholarly and “track 1.5” forums in which OBOR cooperation has been conceptualized and analyzed.

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Unpacking the OBOR Initiative The OBOR (一带一路  - yidai yilu) initiative, also commonly known as China’s New Silk Road (NSR – 新丝绸之路- xin sichou zhilu), is a landmark project of utmost priority for China’s current leadership. OBOR consists of two components: the Silk Road Economic Belt (丝绸之路经济带 – sichou zhilu jingji dai) and the Maritime Silk Road for the twenty-first century (二十一世纪海上丝绸之路- ershiyi shiji haishang sichou zhilu), officially announced in 2013. The OBOR initiative is a concept “with Chinese characteristics”, meaning that it is being developed incrementally, and with a long-term outlook, and it is a concept that demonstrates the convergence between different foreign policy initiatives and China’s domestic development (Vangeli 2017). Different sources have used different terms (such as a vision, doctrine, strategy, framework, project, plan, policy or umbrella of different domestic and foreign policies of the Chinese government) to describe it. The Chinese government uses the word “initiative” as an official term (Berzina-Cerenkova 2016) in the document “Vision and Actions on Jointly Building Silk Road Economic Belt and 21st-Century Maritime Silk Road”. This choice of words is not innocent: OBOR is intended to be a Chinese “contribution” or “proposal” and is therefore formally labeled an initiative (倡议 changyi), rather than a strategy (战略 zhanlue): Changyi 倡议 simply means a call for action, usually in the name of a public good. It is a unilateral move that requires willing cooperation from others who also have stakes in the provision of the public good. […] By contrast, a strategy is a deliberate plan of actions that aim to achieve specific goals, and these goals are usually exclusive (such as security or free trade), as opposed to public goods, which are inclusive. (Xie 2015)

There are other conceptual concerns as well. OBOR, in terms of its branding, extensively draws on the idea of the ancient Silk Roads, which as Ma Junjie argues, was neither centered on silk, and nor was it a physical road, but was rather a medium for the diffusion of ideas and innovations across civilizations (Ma 2015). In that sense, this characteristic matters greatly to the New Silk Road as well—it is, first and foremost, a medium for the travel of ideas, innovations, and inspirations. Arguing a tangential point, Wang Yiwei (2016) suggests that one should take into account the meaning of the Chinese concept of daolu, which means a physical road

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(lu) and also a way of practicing (dao—in this case of pursuing development); that in the OBOR framework, “Lu is the method to realize Dao”— meaning that physical infrastructure is central to the development practice  (the development path) the OBOR initiative promotes (Chen 2016). While rooted in China’s own experience, OBOR is conceptualized as an “open-ended” and inclusive initiative, meaning that whoever accepts its vision may become part of it. It is therefore a global initiative, even though at the early stage of development it is primarily focused on Asia, northern and eastern Africa, and Europe. In the process, aside from applying concepts idiosyncratic to China’s development experience, Chinese policymakers have also applied their own taxonomies and mental maps, and (re) constructed regions based on the country’s own convictions and convenience. In terms of its global orientation, OBOR was initially formulated in the context of the post-crisis global recovery as a Chinese contribution to efforts to alleviate the negative effects of the crisis itself. However, as changes have occurred in the global political economy—primarily with the rise of antiglobalist forces in the US and the UK, the beacons of liberal democratic globalization—China has gradually assumed the role of a vocal proponent of economic globalization. Symbolically, this transition was marked with Xi Jinping’s speech at the World Economic Forum in Davos, days in advance of the inauguration of the new American president Donald Trump, a strong proponent of antiglobalism. Xi presented a vision for the advancement of the process of economic globalization, drawing primarily on China’s experience and achievements. These new developments have also helped China to fine-tune the presentation of OBOR as a proposal for advancing global cooperation by reinventing and revising some of the key tenets of economic globalization. After all, OBOR is rooted in the normative assumption of the state-led cooperation of sovereign nations. Developed in line with the tendency of China’s new diplomacy to “deliberately target and address concerns and policy gaps which could not be solved by existing international institutions and multilateral arrangements” (Qiu 2015), OBOR has often been called a proposal for an alternative pathway of globalization, or a Chinese vision of globalization. Authors have referred to it as a blueprint for “inclusive globalization”, a term originally coined by the former UN Secretary General Kofi Annan, addressing the need for a more equitable global order that would offer better provisions for developing countries. The

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discourse on OBOR as a vision for globalization has been coupled with a less elaborate, but more symbolically rooted discourse, in which the OBOR initiative has been almost exclusively associated with the large infrastructure projects that symbolize China’s growth and by now are famous brands of China’s economic diplomacy, such as the high-speed railways, highways, bridges, and seaports constructed, planned, or purchased by China all around Europe and Asia. Infrastructure is indeed an important tenet of OBOR, not as goal in itself but rather as part of a broader developmental agenda that rests on the lessons of China’s own experience (“build the roads first”). Officially, as an institutionalized platform for international cooperation, the OBOR initiative rests on five “priorities” or “major goals”: policy coordination, facilities connectivity, unimpeded trade, financial integration, and people-to-people relations (National Development and Research Commission 2015). The initiative’s comprehensive approach to refashioning international cooperation and aligning development agendas along the areas of the New Silk Road, its aim of alleviating the consequences of the global financial crisis of 2008 onward, its emphasis on the mitigation of uneven development and inter-regional inequalities, and its intent to promote a new, inclusive way of cooperation is why some scholars have even called it a proposal for a new type of globalization (Liu and Dunford 2016). Its emphasis on policy coordination as a number one priority makes OBOR a concept worth examining from a normative perspective, and particularly through the lenses of diffusion. As the Action Plan stipulates: Enhancing policy coordination is an important guarantee for implementing the Initiative. We should promote intergovernmental cooperation, build a multi-level intergovernmental macro policy exchange and communication mechanism, expand shared interests, enhance mutual political trust, and reach new cooperation consensus. Countries along the Belt and Road may fully coordinate their economic development strategies and policies, work out plans and measures for regional cooperation, negotiate to solve cooperation-related issues, and jointly provide policy support for the implementation of practical cooperation and large-scale projects. (National Development and Research Commission 2015)

International policy coordination is crucial to the concept of global governance and its study. It is defined as the “mutual adjustment of the interests, goals and actions of collective actors in the international system” (Busch and Jörgens 2012). Diffusion is therefore a mode of governance, policy, and legislation coordination. As Busch and Jörgens (2012: 224) argue:

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Policy coordination is achieved by the fact that national governments observe the decisions of other governments and react to these unilaterally, without expecting other states to do the same, without centrally given rules and without setting goals for the development of the overall system. Policy diffusion corresponds largely to this basic logic of “partisan mutual adjustment,” but constitutes a special case insofar as it comprises only imitative behaviour. Thus, diffusion comprises all those cases of “adaptive adjustment” that show a homogenizing effect.

As a phase in the interaction, diffusion is often considered a consequence of economic cooperation; however, for diffusion to happen, economic interdependence is a necessary but insufficient condition (Starke 2013). The OBOR initiative, in that sense, should be seen as raising the stakes and transforming China’s relationships with partner countries from mere economic cooperation to ones of a substantial normative nature. This follows the general logic of the evolution of China’s global role, as described by Yan Xuetong: whereas formerly China was primarily focused on its own economic benefit and avoided showing its true capacity, after 2012 it not just openly displays its capacity but utilizes it to achieve its desired political goals. In my chapter, however, I add that these are not traditional political goals but rather comprehensive policy goals, whereby politics and economics are enmeshed  and therefore cannot be analyzed separately. In practice, OBOR is being implemented through several types of mechanisms: bilateral cooperation between China and its partner countries; bilateral cooperation through “multi-level and multi-channel communication and consultation” (including innovative mechanisms such as the “16 + 1” platform for cooperation with Central, East, and Southeast Europe); previously existing international organizations (Shanghai Cooperation Organization, Asia-Europe Meeting); and old and new international financial institutions led by China (the ExIm Bank, the Asian Infrastructure Investment Bank, the New Development Bank, the Silk Road Fund). Think tanks and academic institutions and networks have been also crucial in providing intellectual input for its development. Through all of these mechanisms, governance, policy, and legal innovations find a solid and coordinated platform that provides much better conditions for their diffusion than ordinary bilateral or multilateral cooperation does. While these innovations could possibly spread independently, the OBOR initiative provides the means to facilitate, streamline, and amplify this process.

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The Concept of Diffusion At the core of the study on diffusion lies the idea of interdependence of trajectories of political development and an explicit rejection of the “notion that processes of policy and political change can adequately be understood by conceiving of national governments as making decisions independently of each other” (Simmons et al. 2008: 7). Similar concepts to diffusion when describing the movement of ideas and practices of governance, policymaking, and legislation are “transfer” (Stone 2001), “transplantation” (Peerenboom 2013), “translation” (Clarke et al. 2015), and “dissemination”. Moreover, a myriad of mechanisms has been associated with the study of diffusion, “ranging from Bayesian learning to rational competition through hegemonic domination to unthinking emulation of leaders” (Simmons et al. 2008: 7). The term used in the official documents of the OBOR to describe the core concept of the initiative, “policy coordination”, as argued above is also conducive of diffusion and sometimes used interchangeably. The selection of the term “diffusion” in this chapter, however, is owing to the fact that it is a concept that is equidistant to all others, allows for developing different typologies, and thereby can be used as an umbrella concept, that has different manifestations and mechanisms through which it takes place. The process of diffusion is one of dynamic interaction centered on a particular innovation (message), thereby essentially being a process of interaction between different actors.4 Novel world views, ideas, and approaches to governance, policymaking, and legislation as well as new approaches to legitimizing and repacking old ideas are the innovations being diffused; they are innovated primarily through the symbolic labor of political and think-tank elites, and often the process of innovation itself is a process of interaction with other actors. Particular institutions, organizations, or organization-like settings (such as OBOR) serve as platforms or rather channels or mediums through which diffusion is facilitated. The novelty that is central to the process of diffusion, however, does not necessarily stem from the newness of the message, but rather from the fact that now the message is seen as legitimate and desirable in the eyes of others— or from the fact that the message is now communicated in a way that makes it diffusible. For example, many of the ideas that shape China’s economic policy have largely remained the same over time, but with the OBOR initiative, they are presented in a way that makes them more understandable to others, while being associated with China’s success story and a global vision that is said to benefit everyone.

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The role of political and intellectual elites and the transnational effects on the agency of elites in (re) shaping normative blueprints and orientations is central to the process of diffusion. Building on the seminal work of Levitsky and Way (2006) on the role of external influence on domestic political change, Tolstrup (2013, 2014) argues that political and other types of national-level elites play a special gatekeeping role, which provides them the opportunity to tune the level of linkages with global actors in order to steer national development in a particular direction. While, in the literature across various disciplines, authors have focused primarily on the US and the EU as external actors who promote liberal democracy, based on the teleological assumption of the “end of history” after the end of the Cold War, here we adopt an “open-endedness” perspective: there are different kinds of external influences, different ideologies, and a different direction of normative change. National elites thus have the ability to tune the diffusion of external ideas, in particular to choose the “role-models”, to select the specific ideas, and to steer the direction of normative change in various directions. They have the role of “double brokers” (Dezalay and Garth 2002)—they convert policy practices into ideas to be discussed and presented in non-policymaking settings (i.e. in think tanks or in popular media), and vice versa—they convert domestic or external ideas into policies. In such an approach, however, one has to account for the possibility that different national elites (i.e. incumbents) may make different choices based on structural predispositions at the international and national levels, having different material resources, and having different intellectual and ideological dispositions. Such framing is also in congruence with other studies of diffusion, such as the one by Weyland (2007) which analyses diffusion with regards to the cognition of policymakers and experts. This also means taking into account Bourdieu(s)ian approaches to global politics, and in particular to diffusion, that emphasize the role of symbolic power, and symbolic domination, the (almost) subconscious adaptation that results in the internalization of certain norms (Bigo 2011; Adler-Nissen 2013). Asymmetrical institutionalized relationships are conducive to symbolic domination: the dominated in those contexts perceive and respond to the organizational structures and processes that dominate them through modes of thought (indeed, also of feeling) that are themselves the product of domination: the “order of things” comes to seem to them natural, self-evident, and legitimate. (Emirbayer and Johnson 2008: 31)

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Thus, particular apparent and covert elements of subordination are inbuilt in institutionalized relationships through a particular frame of reference. By repetitive practice, the world view and the language of the setting for the cooperation is gradually normalized and naturalized as an integral part of the habitus of those that are exposed to it. In essence, this is how symbolic domination takes place. As such, it serves as a preparation stage for the process of diffusion—once the power relations are established in a way that the subordinate actors start speaking the language of the dominant one, they will soon start adopting the norms and ideas of the dominant side as well.

Appropriateness of the Diffusion Approach to the Study of the OBOR Aside from being rooted in the scholarly literature, the approach that emphasizes the actors and their relationships in studying diffusion is also in accord with the practices of developing OBOR. The initiative is conceptualized as being aimed toward the alignment of development agendas and at achieving policy coordination, which comes into being through the signing of bilateral Memoranda of Understanding between China and partner countries. The first and foremost measure the Chinese government foresees in the promotion of OBOR therefore is “high-level guidance and facilitation” with a pronounced role for national elites (Qiu 2015). Relationships between governments, often personified by exchanges between Chinese and foreign officials and scholars have been central in the development of China’s global relations, and play an important role in the Chinese concepts of the global order. This logic of relationships is different from the depersonalized, rules-based logic of norms typical for global players such as the EU (Kavalski 2013). The most important implication of this is that while certain general rules exist, Chinese policymakers try to tailor a unique approach based not only on their counterpart’s objective conditions but also on the quality of their mutual relationship, which is also a goal worthy of being pursued in itself. Political elites, as well as the think-tank elites who advise them and play a role in the ideational grounding of OBOR, have a pronounced role in what is known as “people-to-people exchange” in the Chinese discourse.5 Promoting “track 1.5” diplomacy, and the exchanges between mixed delegations with participants both from government and think tanks (most often

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official state-affiliated think tanks), has been one way to create so-called contact zones that facilitate the diffusion of ideas.6 Indeed, think tanks play an important part in China’s foreign policy (Shambaugh 2002; Jakobson and Knox 2010), and this role has been amplified since 2012 (Menegazzi 2014). Today they are perceived as being institutions at the intersection between the political and intellectual elites in China. New think tank and expert associations that facilitate exchange of ideas, such as the Silk Road Think Tank Association or the 16  +  1 Think Tank Network have been established in recent years. The significant involvement of think-tank elites (or “intellectual” elites) also matters for the processes of diffusion, as in the OBOR framework they have particular venues to discuss existing ideas and conceive new concepts, and at the same time, interact and potentially influence (or be influenced by) policymakers, thus performing the role of double brokerage. As a new type of institutionalized, organization-like international platform, OBOR promotes a rather loose and voluntary mode of cooperation. The partner countries all agree to the shared vision, the commitments to OBOR, but in general, the level of interaction with China varies across cases following the above-mentioned logic of relationships. At the same time, the OBOR initiative does not foresee any explicit conditionality or coercion mechanisms to ensure a certain normative blueprint is implemented by the partner countries, even though, in theory, China has instruments for pressuring others if it decides to, given that OBOR is predominantly financed with loans made by Chinese or Chinese-led financial institutions. Nevertheless, the absence of explicit conditionality is why the concept of diffusion is more appropriate than concepts of coercion or the imposition of a certain world view. Diffusion is a process that occurs at the intersection between the national and international domains. OBOR, one must not forget, acts as an extension of China’s Western development program and is a way of engaging Western regions and provinces, and upgrading part of China’s production capacity toward a more complex economy. However, in order to understand the demand side of diffusion, the national contexts of partner countries also matter. The countries that are so far involved in OBOR have different characteristics in terms of their level of economic development and complexity, type of political system, level of political stability, as well as across the size of their territory, population, and economy—however the majority of them happen to be countries that have not greatly benefited from neoliberal globalization. At the same time, while for many countries there are some generally assumed benefits such as the flow of

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capital, the improvement of infrastructure, and the boosting of international status, there are many region- and country-specific features, as well as features that may be seen as potential benefits by certain political actors, but not by others even within the same country, or even within the same party/institution, as this is the basis of policy dialogue. With the emphasis on local cooperation, likewise, OBOR may be seen differently by different levels/branches of the government. Through their continuous engagement within the initiative, the representatives of participant countries are directly exposed to the dominant discourse and logic presented by their Chinese counterparts, which interacts with their own dispositions and practices. Structural predispositions (such as the asymmetry in a given moment), the level of linkages and leverages, the degree of political will, as well as the individual characteristics of potential adopters determine to what extent and how this interaction transforms into a process of diffusion. Putting China at the center of the diffusion processes as a main source of inspiration and a main coordinator of OBOR implies that all of the interactions, and in particular those of diffusion, occur primarily by China influencing others. Hypothetically, however, elites from other countries that partake in the initiative’s cooperation may also influence each other, and individually stimulate the diffusion processes. Similarly, other countries may even influence China and inspire a diffusion process in the opposite direction. In fact, in the case of China, experimentation (Heilmann 2008) and lesson-drawing from abroad have been crucial for the normative evolution of the Chinese Communist Party (Shambaugh 2009). “Mutual learning”, which also includes the possibility of diffusion from the outside into China, is one of the frequent themes of OBOR in the official texts of the Chinese government, which plays into these possibilities (National Development and Research Commission 2015). However, notwithstanding these potential scenarios, the crucial diffusion processes, however, do follow the direction from China toward everyone else.

The OBOR Initiative and Principle Diffusion In the section above, the chapter has specified the actors and the directions of the flows of the process of diffusion via OBOR, and in this section, I discuss the object of diffusion. Diffusion can occur as a by-product of ideological debates, policy proposals, legislation, and political outcomes at

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home and abroad. In a more detailed division, the objects of diffusion can include “(i) policies, (ii) institutions, (iii) ideologies or justifications, (iv) attitudes and ideas, and (v) negative lessons” (Stone 2001). A more collapsed approach divides the objects into two categories: model diffusion and principle diffusion (Weyland 2007). The term “model” here does not reflect a national development model, but rather a concrete policy that is championed by one government, and later on diffused among others. Model diffusion is the process of the “wavelike spread of a compact policy model” (Weyland 2007) whereby the emulators import a neat, concrete, well-defined blueprint, and the outcome largely replicates the original model. The innovation spreads in a rapidly expanding wave that sweeps across whole regions of the world. In reality, model diffusion is less likely to happen, but it has gained a lot of attention in the literature, as almost all studies on policy diffusion are studies of the diffusion of certain models. Principle diffusion, on the other hand, happens when there is an emulation of a new guideline, but it is enacted in various concrete incarnations; the outcome is that there is a recognizable wave of reforms, but specific design features and institutional characteristics differ: the pattern of change is not as profound and uniform. This type of diffusion is more common in practice. However, it is less researched in the literature. It is important to say that such an approach to model versus principle diffusion transcends the rhetoric of the so-called China Model. The common-sense assumption in the study of China as a source of diffusion is that what diffuses is the so-called China Model, where the object is a comprehensive national model of development. Authors have theorized the possible diffusion of the China Model (Ambrosio 2012) and have pointed to OBOR as a platform for the “exporting of the China Model” (Fukuyama 2016). However, a number of interlocutors from China have stipulated that firstly, it is very hard to define the China Model, and secondly, even if we take it for granted, it is still an outcome of China’s particular historical, cultural, and societal context which is impossible to copy. One inference, therefore, is that instead of copying China or anyone else, policymakers elsewhere should themselves seek to design the models that would be most adequate for their own circumstances. The principle diffusion approach corresponds better to the case of the OBOR initiative which discusses principles and foundations, but no specific measures; it is closer to the logic of the initiator (China) which emphasizes the inability of concrete policy and legislative blueprints to be

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copy-pasted and encourages tailor-made solutions, and the logic of a loose, asymmetric constellation such as OBOR where interaction and the logic of relationships has primacy over rules, regulations, and institutional procedures. In this sense, a principle is a discursive construct that serves as a “general guideline for designing programs or institutions” and “provides a broad orientation for policy-makers that encompasses several specific design options”, but no “specific course of action” (Weyland 2007: 8). Moreover, in practice, principles (e.g. “sovereignty-first”) are more likely to be diffused than models (e.g. “China’s diplomacy reform” or “Foreign Trade Law of the People’s Republic of China”). This choice, however, is only made for methodological reasons, and does not imply that potential policy models of some sort cannot be diffused via OBOR. Having laid out the contours of the initiative as a medium of principle diffusion, we now turn to the specific questions: to what normative set do the principles underpinning OBOR belong, and what are those particular principles? Principles of What? The principles diffused via OBOR are identifiable in the initiative’s core documents and the practices associated with its conceptualization, implementation, and promotion—which means that they are principles that are found, first and foremost, in Chinese policymaking and legislation. However, rather than being associated with what we call the China Model or the Beijing Consensus, they are better understood if it is taken into account that, once they become the object of diffusion, they are not exclusively Chinese and so carry a certain level of generalizability, that even throughout the process they may be translated and thus adjusted to local contexts, cultures, and practices (Clarke et al. 2015). Yet, policy principles lie on a particular normative plane that has its own logic and taxonomy, which transcends the national and cultural contexts of their practice. In linking OBOR as a product of China’s new foreign policy orientation to a particular normative matrix, I build upon the work of Alvin Y. So and Yin-wah Chu (2012, 2015; also see Chu and So 2010), who coined the purposefully self-contradicting term “state neoliberalism” to describe the normative grounding of China’s governance, policymaking, and legislation. Taking into account the logic of Chinese Marxism in thinking and policymaking, the self-contradiction here aims to capture the reality that divergent—if not theoretically opposing—tendencies in practice not only

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do not exclude each other (either/or), but are even in some ways mutually complementary (both/and). The term “state neoliberalism” thus aims to translate the idea of dialectics between market and state, or even the concept of “socialism with Chinese characteristics” based on the idea of creating the optimal conditions for unleashing productive forces into the non-Marxist terminology of Western social science. At the heart of the concept of state neoliberalism is the contradiction, as well as the complementarity, between the neoliberalization of the development agenda on one hand, and the supreme role of the political elite in the economy of the other, and the “ongoing process of policy ebbs and flows between marketoriented and state-oriented policies” (So and Chu 2015). As a particular normative matrix, “state neoliberalism” is a more specific concept than the otherwise vague term “state capitalism” since it encompasses not only the mode of production and distribution but also the particular neoliberal governmentality, or rather political technology, built into the web of laws, policies, and official discourses (Ong 2012). It is distinct from the “developmental state”, as the state does not simply subject the market to state guidance, but rather plays an active role in its creation and maintenance. The main distinction between state neoliberalism and market neoliberalism is that, in the latter, neoliberalism is “a class project by capitalists to fight high taxation, regulation and redistribution”, as well as national boundaries of capital through a “shift from state domination to market domination”, and as such it is an ideological product of developed Western contexts (So and Chu 2015). In state neoliberalism, however, the political elite are in the “driver’s seat” in the economy and utilize the neoliberal agenda to build legitimacy and sustain their rule through economic performance, and by embedding the national economy in global capitalism, making foreign actors stakeholders in their survival. By the same token, state neoliberalism is distinct from the neoliberalism introduced in the post-socialist countries of Central-Eastern Europe after 1989 (which are often compared to China in terms of their reform trajectory). Aside from these countries dedicatedly following the Washington Consensus, and China for the most part rejecting it, the goal of the neoliberalization in transitional countries was dismantling the communist party-state and removing former elites from power; in China the goal of neoliberalization, in particular after Deng Xiaoping’s Southern Tour, was for the party-state to survive and become stronger, but also to advance its interlinking with foreign actors so that they have interest in a stable China. State neoliberalism is, in essence, an etatist, sovereigntist concept. It assumes a strong-armed state, prioritizes political stability, and discourages

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external pressures for socio-economic reform. In terms of political development, it is characterized by the hegemonic rule of a dominant political party, which enables it to establish control over the state and the regulatory institutions. In terms of economic and social policy and legislation, state neoliberalism is characterized by an uneasy agenda. The advancement of neoliberalization is often complicated by ambiguity, contradictions, and reversals in terms of both rhetoric and practice. These complications, however, are functional in nature: they serve, for example, to prevent or dilute social conflicts that can damage the political status quo, or help the ruling party and the state to align with the currents in global capitalism without weakening their positions. In terms of foreign policy, state neoliberalism is characterized by an adherence to national sovereignty and attempts to renegotiate the responsibilities of the state in global affairs, in light of evolving national interests and in the name of the democratization of international relations, while pursuing economic nationalist trade policy which—based on the national circumstances—can be pro free trade or protectionist. Outside of China, elements of state neoliberalism are found in most East Asian tiger economies, and in particular in Singapore (itself considered an inspiration for Chinese policymakers), but also in most of the postsocialist states in Asia and Europe, including both Russia and the Central-East European and Southeast European countries, often dubbed illiberal democracies or hybrid regimes. Discussing the various forms of capitalism and the relationship between the political elites and the market during and after state socialism, Ivan Szelényi has discussed several possible pathways and trajectories of change and convergence—“capitalism from the outside”, “capitalism from above”, “capitalism from below” (Szelényi 2015), as well as neopatrimonialism and (neo)prebendalism, which make these countries very fertile ground for the diffusion of the principles of state neoliberalism (Szelényi and Csillag 2015). State neoliberalism, however, as a model born out of the backlash against market neoliberalism, is taking root in the West too, the most prominent example being the new American administration under Donald Trump.7 What Principles? Just as the China Model cannot diffuse as a comprehensive model of development, neither can state neoliberalism diffuse as a wholesale ideological package. Principle diffusion works sequentially—first, some prin-

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ciples are diffused, and then others follow. Through the OBOR initiative, certain principles of state neoliberalism upon which the initiative rests come to the forefront and are more likely to be diffused than others. Sovereignty-First  The most basic normative point of OBOR is that it “upholds the Five Principles of Peaceful Coexistence”.8 This is a general reflection of China’s foreign policy, which has consistently repeated its commitment to peaceful coexistence for 60 years. By doing so, Beijing has become an important guardian of the idea of a global order in which there are countries with different, non-liberal democratic outlooks whose difference can be recognized and accepted as legitimate (Nathan 2015). The centrality of the set of sovereignty-first principles thus implies a recognition of the right of every state to pursue its own “path of national development” and to practice its own national “policy rights” (Li et al. 2010). This is also accompanied by an implicit and sometimes explicit rejection of what is considered “universal values” in the West (Bradford and Posner 2011). The sovereignty-first principle is also compatible with what some interlocutors have deemed the “diversification of political systems” and with countries proclaiming their own national development “models”. This also could go hand in hand with nationalist, nativist, and anticolonial discourses, with the goal of stating that no nation is morally superior to others. Adjacent to the sovereignty-first principle is the principle of noninterventionism abroad, or rather the respect of others’ sovereignty. This has several implications. First, in terms of official contact, there is a strong preference for official, state-controlled channels (and state-framed discourse) of communication, even in areas such as “cultural cooperation” or “people-to-people contact” that are part of OBOR.  Second, the “nonintervention” principle implies that cooperation, in particular in terms of economic and cultural exchange, is to be developed regardless of each party’s domestic circumstances. In other words, the determinants of cooperation are blind to moral concerns—every sovereign state, regardless of its political system, is a potential partner and is to be judged solely through the lens of the cooperation itself and not by moral standards. The underlying logic of this, however, is not political, but economic. OBOR is an initiative for state-led economic cooperation. The role of state in the economy, and in international economic cooperation has been greatly constrained by the present hegemonic models of global governance. In order for the states to be able to act as key economic actors, and

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to steer balance with market forces, they have to retain a high degree of sovereignty and immunity from other states and international organizations for doing so. Rule-by-law  The OBOR Action Plan speaks of law enforcement, and the lawful rights and interests of investors, but does not mention the rule of law or legal frameworks. This potentially reflects a functional understanding of the law, whereby the law is a means in the hands of the authority through which they govern (rule-by-law instead of rule of law, which touches upon the ambiguity of the Chinese concepts 法制 and 法治  – both pronounced fazhi) (Castellucci 2007). Law, in this sense, which approximates to 法制, is the moral expression of political power. It is not an outcome of proactive law-making, but rather a reactive one: it is not a prescription of an ideal model, but rather the transcription of an already existing reality. As such, it is devised only after a political framework has been set. This, however, does not mean that laws are not enforced or that they are ignored. The intensity and scope of law enforcement can also be a matter of fine-tuning, and can vary from a selective manner of enforcement to a thorough and consistent one. In an international context, rule-by-law means a pragmatic, case-bycase approach. In dealing with international partners and in devising economic cooperation, law can be sidelined on account of the quality of relationships between the different partners. Cultural and political dispositions, as well as material interests, matter more than the law in making a partnership work; when a legal obstacle exists, the law is amended. This can play both a facilitating and impeding role in developing cooperation via OBOR—on the one hand, elites who internalize such an understanding of the law could distort legal terms in order to increase their benefit; on the other hand, unsystematic application can weaken accountability, leading to potential breaches, which could create a lack of legal mechanisms for solving any disputes that arise, which would mean that the solutions would be left to politics. Another aspect of this is OBOR will also be advanced with a reliance on special legislation (lex specialis), especially in countries where existing legal frameworks are not fit for state-led economic cooperation. Special legal instruments that override general laws can be utilized to pass economic or other types of cooperation, through parliament or executive power, through

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the justification of national interests or special priority. So far, this has been the case with many Chinese-financed projects in all parts of the world. “Flexible Means (to a Common End)”  This principle, besides that of rule-by-law, was originally identified in an attempt to define the principles of the so-called Beijing Consensus (Li et al. 2010). It denotes the practice of pursuing a pragmatic, flexible, and incremental step-by-step reform, often in an unconventional way, with a lot of experimentation and improvisation along the way—without ever reaching a concrete policy model, but rather fulfilling common visions of prosperity. Elites, in this respect, while guided by an ideal shared across countries, promote ambiguous and possibly contradictory social and economic policies, depending on structural pressures, their interests, and the domestic as well as international political contexts. This principle reflects the neoliberal in state neoliberalism and the particular mentality or “particular political technology that actively seeks to create optimal conditions for entrepreneurial activities” (Ong 2012). Instrumental here is the use of “exceptions”—at one time, a particular ruling elite may have an approach that seems to deregulate some sectors of the economy, and (re)regulate others; it can overall regulate a number of areas, but then create Special Economic Zones (SEZs) as spaces of exception. It may abruptly reverse its own policies, or disrupt policy sequences. The only constant in the policymaking and legislation process is the pronounced role of the state and its capacity to assert its will and to create exceptions, regardless of the direction of reforms at a certain point in time. This principle is visible in both the letter and the practice of OBOR, as it heavily promotes the logic of exceptions and flexible means in pursuit of a common vision, and it promotes the creation of SEZs.9 The SEZs also combine the “flexible means” principle with that of rule-by-law, as they are framed as a “way of resolving and overcoming differences” rooted in conflicting legal frameworks and cultures (Vasiliev and Shmigelskaia 2016). Priority of Growth and Stability  In state neoliberal polities, the ideological mediation of “material realities such as ‘economic performance’ and ‘economic crisis’” is a way of establishing political hegemony, legitimizing one’s rule, and manufacturing public consent (Sim 2006). In order to maintain the capacity to steer the economic agenda toward success, sometimes even arbitrarily, a ruling elite requires a dominant, uncontested

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position in the political arena, regardless of whether or not political competition is allowed. All forms of counterhegemonic discourse, be it in the realm of politics or society, are thus taken not only to be threatening to the incumbents, but to be bringing into question the prospects for growth, and thereby social well-being. Therefore, the legitimization strategy of regimes and ruling elites in such polities—which include China and much of Asia, including the post-Soviet states—is often built around the idea of a trade-off between political rights and economic security (Ahrens et al. 2015). In other words, the state neoliberal project tends to be inclined toward authoritarianism or “democracy with adjectives” (such as sovereign democracy, managed democracy, consultative democracy, democratic centralism, or illiberal democracy, whereby the use of the term “illiberal” is not meant to be derogatory), as it prioritizes economic performance and political stability. This does not mean that state neoliberalism is essentially opposed to the idea of democracy; however, unlike market neoliberalism, it is ready to sacrifice it to ensure stability. OBOR itself is a platform that disregards the question of democracy and democratization as defined and enshrined as a guiding principle by the West and in many indirect ways challenges it. For instance, insights from the primary mechanism to be “fully used” for its implementation, the Shanghai Cooperation Organization, have so far served as coordination platforms to circumvent the values of liberal democracy, fend off external (and domestic) regime change attempts, and to legitimize non-Western types of political order in Eurasia (Ambrosio 2008; Cooley 2009, 2015). Authors have already explored the link between OBOR and the notion of the “promotion of autocracy”, although, similarly to this chapter, they have argued that whatever values are promoted or diffused via the initiative, the main characteristic of the process is its novelty (Bryant and Chou 2016).

The Logic of Diffusion Via the OBOR Initiative While OBOR is not a top-down hierarchical structure, it is also not truly a horizontal one, as it does not occur in a relationship of equals nor through a decentralized network. The relationships between actors in the context of the initiative are thus asymmetrical given the size, clout, and resources that are self-evident when one compares China to other participant countries. One particular asymmetry at the core of OBOR is in terms of symbolic power, or the power of recognition, which also provides the

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capacity to shape discourses and set paradigms. Utilizing its resources, China institutionalizes a myriad of asymmetrical relationships, thereby establishing OBOR as a “structuring structure” that silently creates a dominant code of communication and practices.10 Thus by projecting China’s symbolic power, Chinese policymakers and experts are the only legitimate “spokespersons” for OBOR, and the initiative can only develop through their own discourse and practice.11 Diffusion through OBOR thus represents a particular type of asymmetrical, multilateral relationship, with China at the center and the adopters revolving around it. Diffusion via OBOR is thus driven by China’s particular global vision, by providing an institutional setting for new practices of international cooperation, and by incentivizing rather than pushing others into taking part in the process. As argued above, participation in the platform is nominally voluntary, within the limits of one’s economic rationale to reject China’s proposals. The process of diffusion is asymmetrical, but noncoercive, as there is no conditionality imposed by China on the others. This is what makes the diffusion through OBOR a process distinct from, for example, the diffusion through the process of cooperation with the International Monetary Fund, the World Bank, or the diffusion through being a member, candidate, or associate country of the European Union. However, the question we need to answer before proceeding further is, if not an authoritative “stick and carrot” behavior, what motivates the diffusion of the OBOR? In answering this question, we need to take into account the fact that not all actors involved in the process share the same predispositions, motivations, and courses of action. Important insights regarding the logic of diffusion can be found in the work of Börzel and Risse (2009), who discuss two dimensions of diffused innovations: a cognitive and a normative one. The cognitive dimension refers to the “causal beliefs and knowledge” on how the world works, while the normative dimension refers to “principled beliefs or norms” that are shared by a particular community of practice and grounded in an assumed identification. Defined like this, the object of diffusion is interdependent with the logic of the process of diffusion, but also with the actors involved in the process and their predispositions. The former “cognitive” dimension refers to a rather pragmatic or rational choice aspect of politics and policy—while an idea can be diffused due to its effectiveness in dealing with particular challenges or its proven success elsewhere, it can also be diffused because of certain external impulses (incentives or conditional-

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ity). The latter “normative” dimension refers to ideas promoted and perceived as legitimate. In a similar fashion, Heinze (2011) provides a twofold explanation. One path of understanding diffusion is the “rationalist” or “instrumentalist” one—to which the “material preferences, interests, and desires” of the actors involved are central. This rationalist-instrumentalist explanation assumes that policymakers are utility-maximizing, goal-oriented agents who make certain pragmatic policy choices that better serve their own predefined goals. Another way of analyzing diffusion is through the “constructivist” lens, which assumes actors’ interests are “constituted by social expectations, values, and rule-driven behaviour”. According to this perspective, actors adopt innovations based on moral and situational interpretations, where context, justification, and ideology play the key roles, with less emphasis on actual outcomes. Following this approach, one can argue that the principles of state neoliberalism as an innovation diffused through OBOR have a particular appeal for those who consider alternative approaches, and who consider, in the first place, that the hegemonic blueprint of market neoliberalism is (a) ineffective, and/or (b) morally unjust. The crisis in and the  relative decline of the West has also encouraged actors who rejected the post-1989 consensus to use the opportunity to look outside of the West for inspiration. This essentially is the normative-constructivist logic of diffusion through OBOR.  However, at the end of the day, policymakers have to answer a concrete question: what policy approach is most efficient? If the goals are growth, stability, and the pursuit of sovereignty, then one can find answers in Chinese practice. This would be the basis of the rationalist logic of diffusion through OBOR. These two dimensions of diffusion, however, assume that actors behave in an ideal-type way (they are smart, well-informed, responsible, etc.), and that they have sufficient resources on their side to help them make informed decisions. The normative-constructivist logic presupposes that actors also have a rather solid set of normative convictions that they follow. The rationalist-instrumentalist logic presupposes a well-informed and, overall, very rational pragmatic reasoning on the efficiency of policies. One blind spot of these two approaches is the power-centered, interestdriven, and often corruptible nature of policymaking processes. Regarding the former, it is useful to invoke the suggestion by Bremmer that “political leaders looking to build wealth and micromanage markets” are particularly interested in China-inspired policy innovations (Bremmer 2013).

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This is, in a way, a subcategory of the rational-instrumentalist logic, which has a pronounced utilitarian element, as efficiency here is not measured through a benefit to the public, but through the possibility of a benefit to the elite. Another blind spot is the potentially haphazard, somewhat unprofessional, or, simply, human element of practicing politics.12 This is an approach that argues that, more often than not, elites are neither too rational or in possession of sufficient resources nor are they guided by strong normative convictions when it comes to processing external impulses that may lead to diffusion (Weyland 2007). This means that, in their external interactions, elites could be rather complacent (not actively seeking sources of inspiration, but once a proper impulse appears, they react), they have sometimes imperfect and uncritical understanding of the matters at stake (sometimes because of an obvious lack of resources and knowledge), or, simply, somewhat unconsciously internalize dominant discourses served to them by actors with an exceptional level of symbolic power, through repeated practices of interaction within a particular framework. As a result, they display tendencies to simplify complexities, generalize from a small sample size of outcomes, jump on the bandwagon, and possibly to execute the innovation poorly. Such a reading is closer to the assumption of mimetic theories of politics and society. The logic of diffusion here is one that approximates the concepts of “bounded rationality” and Bourde(s)ian symbolic domination in cases where there is an unintentional or even subconscious internalization.13

Concluding Remarks The global role of contemporary China is shaped by several contradictions. In the last four decades, China has become an economic giant and has achieved an economic growth that many consider “miraculous” but, at the same time, China is threatened by an economic slowdown as a result of an adjustment toward its new circumstances (or what analysts call the “new normal”), making its policymakers pursue new ways of sustaining China’s growth ever more vigorously. China’s success so far has been greatly owing to its ability to gain from a Western-led market neoliberal global order, yet China has been actively working on amending the very same order it benefited from. China champions global trade, calls for a “community of shared destiny”, and sees its own fate as interlinked and interdependent with the fate of the rest of the world, but at the same time it insists on

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upholding national sovereignty and negates the existence of a universal system of values and universal blueprints of development as defined in the West. While upholding a strict ideal of non-interference, China does growingly promote a discourse of leading by example, and argues that socialism with Chinese characteristics now offers wisdom and solutions to problems not only in China but in other countries as well. Cumulatively, despite the perpetuation of the image of China as internally troubled in the last few years, the perception of China as ever more relevant outside its own borders increases in different corners of the globe. Contradictions can lead to different outcomes—they can amplify or extinguish effects, when different social forces contradict one another. When it comes to China’s foreign policy, authors have historically argued that some of the above-mentioned—and other—contradictions have had the effect of constraining China’s global role (Wu 2001). Nowadays, however, these contradictions produce different outcomes, as instead of a constraint they act as an opportunity for making crucial advancements toward the proclaimed goal of national renewal. Essentially, the OBOR initiative is a concept that is a direct outcome of the above listed contradictions: it is an effort that both capitalizes on China’s four-decade long growth and also provides the necessary impetus for a new round of reform and opening up. As a medium of principle diffusion, it is also a self-contradicting concept that is both inside and outside of the hegemonic market neoliberalism, seeking a way to advance state-led cooperation—but with the end goal of advancing the world market. Respecting national sovereignty and the choice of development path, OBOR at the same time facilitates norms, ideas, and principles of policymaking that have the potential to affect the behavior of others and alter their trajectory. Discussing its potential to change the global landscape, Francis Fukuyama argued that, because of OBOR, “the whole of Eurasia, from Indonesia to Poland will be transformed in the coming generation”. He goes on to argue that “China’s model will blossom outside of China [a]nd China’s form of authoritarian government will gain immense prestige, implying a large negative effect on democracy worldwide” (Fukuyama 2016). By providing a comprehensive theoretical framework for understanding OBOR as a medium of the diffusion of principles of state neoliberalism, in some ways my chapter reiterates the assessment that the consequences of China’s OBOR is not only an immediate economic and political gain for China and/or its partner countries but also the reshaping

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of the world order in subtle, inconspicuous ways. Instead of a normative battle inside existing mechanisms and institutions, China circumvents the potential conflict zones with “major powers” by establishing contact zones with less powerful actors in the form of parallel mechanisms and institutions of cooperation, of which OBOR is crucial. This having been said, it is important to note that predictions such as Fukuyama’s contain hyperbolic elements. Even if the diffusion of principles of state neoliberalism through the OBOR initiative picks up intensity, this does not mean that these principles are going to one day fully replace or marginalize those of Western-style liberal democracy. Diffusion of principles does not necessarily have to be part of a zero-sum game that ends with “China replacing (or being sidelined by) the West” as a dominant normative power. The OBOR initiative, moreover, has a twofold and somewhat contradictory nature: on the one hand, it is oriented toward the same goals as initiatives pursued by the major global actors such as the US and the EU—that is, to advance the world market (OBOR is officially framed as “an ambitious economic vision of the opening-up of and cooperation among the countries along the Belt and Road”),14 while, on the other hand, being a brainchild of the Chinese leadership, it belongs to a context that is not only distinctive, but its normative foundations are in many ways at odds with the Western hegemonic ones. This ambiguous and contradictory context of the initiative thus reflects the very role China plays in the world today, which can be described as neither strengthening the hegemonic order nor subverting it. I therefore propose a more modest formulation of merely “altering the trajectories of change” and contributing to a process that Chinese scholars dub the “diversification” of governance, policymaking, and legislation paradigms. This, however, does presuppose some weakening of the leverage and the appeal of Western blueprints in the regions along OBOR and beyond, and the emergence of global pluralism in terms of approaches to governance, policymaking, and legislation (Beeson and Li 2016). Importantly, China does not always have to actively promote an idea for it to be diffused via OBOR. The initiative can also be a platform for “non-relational” mechanisms, or through processes of spurious diffusion.15 However, creating new China-centered institutionalized channels of communication certainly facilitates the process. Likewise, China may not have a direct interest in diffusing state neoliberalism abroad but, in a world that demands new ideas, China gains legitimacy and neutralizes external normative influences. Yet, at the end of the day, political and

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intellectual elites of partner countries whose beliefs, rationality, (self)interests, (mis)recognition of what they see abroad, and their internalization of the “spirit” of the OBOR initiative as a form of cooperation are some of the overlooked driving forces of the process of diffusion. What will the state of global governance in the years to come then be, provided that China maintains the same pace of promotion of the OBOR? For one, there will certainly be a weakening of the so-called Washington Consensus and the proliferation of various versions of state-led economic models, many of them rooted in the matrix of state neoliberalism. Economic development driven by political will and geoeconomic planning will flourish in the regions involved in OBOR, but also in places where actors will want to compete with the Chinese vision (currently there is a contemplation of a joint Indo-Japanese initiative for cooperation with Africa). There will be a proliferation of projects and modes of cooperation that transcends legal frameworks—in the form of Special Economic Zones, or projects carried by special legislation. Last but not the least, the ideal of state-led economic development will gain priority and will become the main source of legitimacy, significantly diminishing the relevance of the Washington Consensus. Acknowledgments  The author would like to thank the ZEIT-Stiftung Ebelin und Gerd Bucerius for the support of their work in the period 2015–2018.

Notes 1. It is also important to note that the concept of the ancient Silk Road is itself a construct as well, dating to the work of nineteenth-century Western European scholars. 2. Some relevant works on diffusion are those by Simmons, Dobbin and Garrett (2008), by Ambrosio (2010), Gilardi (2010, 2013). 3. The supply-demand interaction in terms of the logic of legal transplants has been discussed in Peerenboom (2013). 4. A particular work that has popularized the concept of diffusion is one by Rogers (2003). 5. This concept was discussed at great lengths by Liu Zuokui (2015). 6. The concept of the “contact zone” was first developed by Pratt (1991). It was introduced in policy translation studies by Lendvai and Stubbs in Clarke et al. (2015). 7. On Trump and “national neoliberalism”, see Breger Bush (2016). On Trump, neoliberalism and China, see Lagerkvist (2016). 8. Those are mutual respect for each other’s sovereignty and territorial integrity, mutual non-aggression, mutual non-interference in each other’s inter-

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nal affairs, equality and mutual benefit, and peaceful coexistence. For a critical overview, see Panda (2016). 9. SEZs are explicitly mentioned in the Action Plan on the OBOR initiative. 10. For the effects of symbolic power and processes of symbolic domination, see (Bourdieu 1989, 2000). 11. For the concept of “spokesperson” and “charisma” in international affairs, see Williams (2013). 12. Or, what has emerged in a discussion with a former European diplomat —“the variable of vanity.” 13. For a discussion on the link between bounded rationality and Bourdieu(s) ian sociology, see Collet (2009). 14. National Development and Research Commission, “Vision and Actions on Jointly Building Silk Road Economic Belt and 21st-Century Maritime Silk Road.” 15. For “non-relational diffusion”, see Tarrow (2010); for “spurious diffusion”, see Gilardi (2003).

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Clarke, John, Dave Bainton, Noemi Lendvai, and Paul Stubbs, eds. 2015. Making Policy Move: Towards a Politics of Translation and Assemblage. Bristol: Policy Press. Collet, Francois. 2009. Does Habitus Matter? A Comparative Review of Bourdieu’s Habitus and Simon’s Bounded Rationality with Some Implications for Economic Sociology. Sociological Theory 27 (4): 419–434. Cooley, Alexander. 2009. The League of Authoritarian Gentlemen. Foreign Policy. Available at: http://foreignpolicy.com/2013/01/30/the-league-of-authoritarian-gentlemen/ ———. 2015. Countering Democratic Norms. Journal of Democracy 26 (3): 49–63. Dezalay, Yves, and Bryant G.  Garth. 2002. The Internationalization of Palace Wars: Lawyers, Economists, and the Contest to Transform Latin American States. 1st ed. Chicago: University Of Chicago Press. Emirbayer, Mustafa, and Victoria Johnson. 2008. Bourdieu and Organizational Analysis. Theory and Society 37 (1): 1–44. Fukuyama, Francis. 2016. Exporting the Chinese Model. Project Syndicate. Available at: https://www.project-syndicate.org/commentary/china-onebelt-one-road-strategy-by-francis-fukuyama-2016-01 Gilardi, Fabrizio. 2003. Spurious and Symbolic Diffusion of Independent Regulatory Agencies in Western Europe. Conference Paper: The Inter­ nationalization of Regulatory Reforms. Available at: http://poli.haifa.ac.il/ ~levi/res/GilardiB.pdf ———. 2010. Who Learns from What in Policy Diffusion Processes? American Journal of Political Science 54 (3): 650–666. ———. 2013. Chapter 18: Transnational Diffusion: Norms, Ideas, and Policies. In Handbook of International Relations, ed. Walter Carlsnaes, Thomas Risse, and Beth A. Simmons. London: Sage. ———. 2016. Four Ways We Can Improve Policy Diffusion Research. State Politics & Policy Quarterly 16 (1): 8–21. Godehardt, Nadine. 2016. No End of History. A Chinese Alternative Concept of International Order? SWP Research Paper. Berlin: German Institute for International and Security Affairs. Available at: https://www.swp-berlin.org/ en/publication/no-end-of-history/ Heilmann, Sebastian. 2008. Policy Experimentation in China’s Economic Rise. Studies in Comparative International Development 43 (1): 1–26. Heilmann, Sebastian, Rudolf Moritz, Mikko Houtari, and Johannes Buckow. 2014. China’s Shadow Foreign Policy: Parallel Structures Challenge the Established International Order. China Monitor. Available at: http://www. merics.org/fileadmin/user_upload/downloads/China-Monitor/China_ Monitor_No_18_en.pdf Heinze, Torben. 2011. Mechanism-Based Thinking on Policy Diffusion. A Review of Current Approaches in Political Science. Working Paper 1, KFG Working

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CHAPTER 4

The One Belt One Road Initiative and China’s Multilayered Multilateralism Feng Yuan

Introduction The second decade of the twenty-first century seems to have witnessed an acceleration of world order change. The successful election of Donald Trump as president of the US and the rise of populism have caused the world order after the Cold War to become even more unclear. With the rise of China and its possibility of becoming a new hegemon, the conflict between different actors has appeared in many aspects of the international community, but especially in institution building. As indicated in Chap. 1, the One Belt One Road initiative (the OBOR initiative in the following) represents the capitalist world system’s new round of capital and production relocation, which will dialectically enlarge/ reduce the “room for maneuver” and increase/decrease the “upward mobility” of the countries and regions along the Belt and Road. In this

F. Yuan (*) Institut d’études Européennes (IEE), Université Libre de Bruxelles, Brussles, Belgium Chahar Institute, Beijing, China e-mail: [email protected] © The Author(s) 2019 L. Xing (ed.), Mapping China’s ‘One Belt One Road’ Initiative, International Political Economy Series, https://doi.org/10.1007/978-3-319-92201-0_4

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sense, the OBOR initiative has been one of China’s most important foreign policy strategies since Xi Jinping became Chinese president. China has deployed many political and economic resources to promote this ­initiative. Within the context of the newly elected US president’s decision to drop the Trans-Pacific Partnership (TPP) project, the process of regional economic order led by the US is currently at a halt. In this context, the OBOR initiative might obtain more opportunities and room to develop. However, one of its most critical functions is to construct a new set of institutions to support a new set of ideas and norms for the new hegemon into which China might develop. This makes the OBOR initiative a more valuable subject of research regarding China’s foreign policy. What merits attention is the question as to how China would realize the OBOR initiative. In this chapter, I wish to discuss the multilayered multilateralism which is emerging in the process of China’s promotion of the OBOR initiative. This is a phenomenon to which attention should be paid as it is a new model for China’s foreign policy. I will mainly include empirical material to support the discussion, including Chinese government’s foreign policies and discourses of Chinese government leaders. I will also employ some data concerning China’s trade and international relations to nurture this discussion.

The Context of China’s OBOR Initiative General Introduction to the “Silk Road Economic Belt” and the “Maritime Silk Road” The Silk Road economic belt is a new economic growth initiative proposed by Xi Jinping during his visit to Kazakhstan in September 2013. This is an ambitious initiative that aims to boost regional economic growth with new ideas containing propositions for central Asian countries to promote “local-currency settlement so as to improve their immunity to financial risks and their global competitiveness”.1 Like the Silk Road economic belt, the Maritime Silk Road is a completely new proposition from Xi Jinping’s visit to China’s neighbouring countries in Southeast Asia in October 2013. The project covers an area completely different from the Silk Road Economic Belt: It reaches out to ASEAN countries and aims to provide deeper and more profound ­cooperation with ASEAN on maritime matters, which allows China to manage, develop and exploit maritime territories under dispute (Zou 2014: 40).

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As China has a wide strategic partnership network and multilateral institutions based on this network, the country enjoys both economic and political advantages as regards the promotion of new economic projects in accordance with its long-term interest. The “Silk Road Economic Belt” and the “Maritime Silk Road” are projects aiming to rearrange China’s economic interests in Asia and also to try to connect the world. As Li Xing has pointed out in Chap. 1, the OBOR initiative is understood as the nexus between China’s internal capital accumulation and hegemonic consolidation and its inevitable outward expansion. Thus, China’s One Belt Road and One Road Belt project has both a domestic and an international context, and I will begin by discussing the international context. Figure 4.1 outlines the routes designed for “The Belt and the Road”. This can be understood as an extension from China’s neighbouring regions to the “pan-peripheral” regions, thus building an economic body with China as the centre. Compared to China’s partnership network, it is also easily discernible that both the two routes pass over countries that are China’s partner countries.

Fig. 4.1  The silk road economic belt and the maritime silk road route. (Source: Xinhua News)

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In the following sections, I will introduce the international and domestic contexts of the OBOR initiative. The International Context of the OBOR Initiative First, the OBOR initiative is related to China’s international policies in that it is pivoting towards its neighbouring countries. Since Xi’s accession to power, China has directed many of its diplomatic resources towards it neighbouring countries. A series of China’s initiatives to strengthen the importance of neighbouring countries in its foreign policy may be observed. Starting from the meetings with diplomats from neighbouring countries ordered by himself, Xi has extended the idea of a Chinese Dream into an Asian Dream2 and incorporated the new concept of common community (共同体), which has been followed by a large variety of grand vision vocabulary, such as common community of fate3 or community of responsibilities. Following these ideas that are trying to sum up a sense of belonging in Asia, Xi has begun to conceive new institutions that can strengthen China’s influence and decision-making power in Asia. The first initiative was China’s proposition to strengthen ASEAN-China FTA, followed by China’s proposition to set up the Free Trade Area of Asia-Pacific (FTAAP)4 in order to win over Asian countries from the US negotiation table of the TPP. This was followed by the OBOR initiative to integrate grand economic projects with China’s power, and finally by the initiative to establish the “Asian Infrastructure Investment Bank” to challenge the IMF and the Asian Development Bank. Second, the initiative strengthens China’s ability to consolidate and integrate the multiple multilateral institutions in the region. From China’s perspective, the Silk Road Economic Project is playing a prominent role in supporting the Shanghai Cooperation Organization’s development and strengthening China’s collaboration with the ASEAN.  I will elaborate each of these two aspects: (a) The initiative justifies China’s presence in Central Asia. As Central Asia has been ruled under Russian Tsardom and the USSR in contemporary history, and has become highly Russianized, China finds it important to justify, at both historical and cultural levels, that China is an interest holder in this region as it has always kept a close link with it. The adoption of the “Silk Road” avoids the period when Central Asia was integrated into the USSR and had no diplo-

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matic relations with China. As Russia is worrying about China’s growing influence in Central Asia, a larger realm covered by this project will be able to dilute the worries about China’s grip on the region: The OBOR initiative expresses that China’s vision is beyond the competition of influential spheres and is only aiming for closer cooperation. The OBOR initiative is also a concept that can be easily expanded in a cultural perspective in order to nurture an identity of integration and connection. This concept recalls a friendly, peaceful, and mutually beneficial world order under China’s influence (Wen 2014). It also corresponds to Xi Jinping’s idea of a “fate community” that calls for a deeper mutual understanding and concern about the common issues confronting the world. (b) The initiative guarantees China’s leading role in promoting Central Asia’s economic integration. Xi Jinping’s Silk Road Economic Belt project is essentially different from the US’ strategy. It aims to expand collaboration between China, Russia and Central Asia but excludes Afghanistan. On the other hand, Xi Jinping has invited the EU to collaborate in this project as an international organization. (c) This project aims at integrating multilateral collaboration initiatives already conducted by the Shanghai Cooperation Organization (SCO) through a process facilitated by an extensive infrastructure construction: The project itself aims not to establish new institutions to conduct these constructions but to strengthen and concretize the function of the SCO, the existing institution (Wang 2014). The SCO is an important institutional instrument as it is the only multilateral arrangement in Central Asia that includes both Russia and China, and its function is expanding gradually from security collaboration towards economy collaboration. As the first multilateral institution initiated by China, the SCO serves the OBOR initiative to regulate the multilateral relations between China, Russia and the Central Asian countries. (d) The OBOR initiative is important for the promotion of interregional cooperation. Following this project, it would be possible for China to coordinate global-level cooperation projects with partners in Central Asia, East Asia and South Asia, as well as in Europe and Africa. This would provide an opportunity to mobilize these partners in both bilateral and multilateral arrangements. Third, the realization of the OBOR initiative promotes the formation of new multilateral institutions following China’s norms and principles.

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The Maritime Silk Road, in combination with the Silk Road Economic Belt and the Asian Infrastructure Investment Bank designed to finance them, is an ambitious project aimed at establishing a regional economic order. As the second largest economy in the world, China is attempting to translate its economic power into political advantages by reshaping the regional institutions and their economic orders. The reshaping of the economic order in East Asia is an opportunity for China to establish an economic order that complements the deficiencies and unsatisfactory elements in the global economic world order, especially the WTO.  This aspect has become especially prominent as the US has decided to withdraw from the TPP following Trump’s election as the new American president. The US’ withdrawal signifies that the US believes bilateral negotiation would protect its interests better than multilateral negotiations. This change in US foreign policy leaves many impacts on the world order, especially that of Asia-­Pacific. A direct impact is that it leaves China as the strongest actor, capable of reconstructing a multilateral order in this region. Domestic Context Besides the international context, the OBOR initiative is also an answer to many domestic demands. Here are the main aspects of the domestic contexts of the OBOR initiative. (a) Arrangement of excess production capacity China possesses excess production capacity in electrolytic aluminium, iron and steel; moreover, China has abundant foreign currency reserves. Through the OBOR initiative, China might establish an appropriate way to enable the consumption of its excessive ­production capacity and foreign currency reserve, which would facilitate China’s contribution to Central Asia’s infrastructure investment (Liu and Wang 2014) (b) Internationalization of the Chinese currency In order to support the development of this project, the Asian Infrastructure Investment Bank (AIIB) will be established, and this will cooperate with the BRICS Development Bank, within which China is an initiator. As soon as the AIIB has been established, China can, on the one hand, regulate regional economic development with its norms, and, on the other hand, promote the Chinese

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yuan as the regional currency, replacing the US dollar. From the following list we see that China has endeavoured to internationalize its currency among its neighbouring countries, which include many SCO member-­states, observer-states and dialogue partners. Most importantly, Russia and China concluded the yuan-rouble settlement during the 2014 APEC meeting, and as Russian President Putin has pointed out, this settlement would make Russia less dependent on the dollar5 and would boost the role of the Chinese regional currency.6 Table  4.1 summarizes the countries that have signed the SWAP agreement with China. This table shows that the Shanghai Cooperation Organization and its strategic partner network have played an important role in promoting the internationalization of the Chinese currency. Table 4.1 lists 37 countries that had signed Bilateral Swap Agreements with China by 2016. Among these 37 countries, 30 countries had signed strategic partnership agreements with China. Some other countries, such as Armenia, which currently share “partnership agreements” with China, would probably upgrade into a strategic partnership agreement in the future. As indicated in the table, many SCO members have also signed Bilateral Swap Agreements with China. This shows that China’s bilateral and multilateral networks are serving China’s domestic priorities. (c) Guarantee of China’s energy supply As China needs to import 60% of the oil it consumes (Chen 2003), its resource security is considered to be very fragile. As China depends heavily on the Gulf Region countries to provide its oil (Wu 2003), most of the imported oil is transported to China via the Strait of Hormuz and the Strait of Malacca, which have been identified by many Chinese scholars as unstable transportation pathways that are subject to the US influence and to emerging security issues such as pirates and terrorists (Wang 2006; Xue 2010; Zhang 2005). Yet China estimates that in order to protect the country’s energy security, a new tunnel for oil transportation is far from sufficient: Thus, strengthening China’s sea power is the longterm strategy, especially vis-à-vis traditional maritime powers such as the US (Wu and Zhu 2009: 36). As Xi Jinping has proposed, the great revival of the Chinese nation as a sea power is connected with the Chinese nation’s general revival, as it is believed to be the key

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Table 4.1  Countries that have signed bilateral SWAP agreements with China

(continued)

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Table 4.1 (continued)

Data source: Garcia-Herrero and Xia (2013) *Countries in red letters are Strategic Partner Countries of China *Framed countries are SCO members (Author’s own table)

to its transformation into a global power.7 At the same time, China’s main strategic conflicts with foreign countries all concern maritime issues: territorial conflicts exist between China and Japan, China and the Philippines, China and Vietnam. The US’ “Back to Asia” strategy also leaves China with very little alternative but to develop its sea power as quickly as possible; the pending Taiwan issue is also a key problem related to China’s sea power. China’s urgent need for more sea power and its imminent conflicts with its neighbours require that China seeks to collaborate with countries situated on the maritime passage to the South China Sea, which China considers as “the second Persian Gulf” and which directly concerns China’s national interests (Chen 2010; Zhou and Yu 2014).

Multilayered Multilateralism: The Combination of Bilateral Partnership and Multilateral Initiative From the previous introduction and analysis, it is evident that the OBOR initiative is an ambitious project whose realization requires tremendous political and financial resources. The core interest of my chapter is to explore which tools China would need to use to make this project work? I argue that multilayered multilateralism is coming into formation. My definition of multilayered multilateralism is a combination of China’s bilateral (especially the partnership networks) and multilateral relationships. In the following section, I will introduce and elaborate this definition.

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Partnership Networks Writers of The Economist have quite reasonably and understandably sensed that China has been trying to establish a new order, starting from Asia (The Economist 2014). The relevant question is: By which means could China create this new order? Since Xi Jinping took power, the number of strategic partnerships has skyrocketed, and most of the new partners are neighbouring countries. Figure 4.2 presents the percentage of each type of Chinese partnership. These types are defined by the Chinese government and are accepted by each partner before their signing of the strategic partnerships. The Chinese government has emphasized that no rankings exist among different partnerships. However, some types of partnership are certainly more honoured than others. The figure shows that most of them are comprehensive strategic partnerships and strategic partnerships. Countries which have their own partnership title are often the most distinguished partners. These 59 countries include almost all the countries in the OBOR initiative.

Fig. 4.2  The percentage of each partnership type of China. (Author’s own figure)

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Figure 4.3 presents the countries in each category. These strengthened bilateral relations have been combined with existing multilateral institutions in the region and are expected to support greater projects. With a large strategic partnership network and multilateral institutions based on this network (the most important networks being the Shanghai Cooperation Organization and ASEAN+3), China enjoys both economic and political advantages with regard to the promotion of new economic projects in accordance with its long-term interests. As pointed out by Zhang Xiaotong from Wuhan University, economic diplomacy has become increasingly important for China to realize its goal of becoming a “major country” (Zhang 2014: 78). When implementing its economic diplomacy, China chooses to launch grand economic projects in a multilateral way based on its strategic partnership networks. The “Silk Road Economic Belt” and the “Maritime Silk Road” are typical examples of China’s aim to rearrange its economic interests in Asia and also to connect to the world.

Fig. 4.3  China’s different types of partnership (updated until May 2016). (Author’s own figure)

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Multilateral Relationship China has gradually become favourable to multilateralism since the Opening Up and Reform in 1978 and has accelerated the embracement of multilateralism since 2002, with the integration of “multilateralism as a platform” into China’s foreign policy strategies. This phenomenon is related to China’s attention towards institution building as a critical competition factor in the new era. As John Ruggie observed as early as 1993, institutions are “in demand” because they are “robust and adaptive”, both in economic and security affairs, and “a core feature of the current international institutional order is its multilateral form”, which “appears to have characteristics that enhance its durability and ability to adapt to change” (Ruggie 1983: ix). Multilateralism has become “increasingly accepted as the modus operandi in world politics” (Powell 2003: 3), as nations have gradually realized that many issues pose challenges to several nations at the same time, thus demanding multilateral cooperation to deal with them. Moreover, many issues also have linkages with different aspects of human activities,8 requiring multilateral cooperation to provide a comprehensive solution. Keohane defines multilateralism as an “institutionalized collective action by an inclusively determined set of independent States” and “persistent sets of rules that constrain activity, shape expectations and prescribe roles” (Keohane 2005), while Ruggie defines multilateralism as “an institutional form that coordinates relations among three or more States on the basis of generalized principles of conduct” (Ruggie 1993). Multilateralism has developed through three different epochs: the nineteenth-­century arrangements and conferences within the context of the evolving multipolar concert of the “Great Powers”; the institutionalized multilateral system set up at the political and economic levels under the hegemony of the US after the Second World War; and the heterogeneous and uncertain development of multilateral cooperation following the termination of the Cold War and within the multipolar world of the twenty-first century (Telò 2014: 35). It has been believed that hegemony is a decisive factor in the formation of multilateral cooperation, as it shoulders the responsibility of providing public goods. Yet, in After Hegemony, Keohane has predicted that it is possible to have multilateral cooperation without the coordination of a hegemonic power: “International institutions help to realize common interests in world politics” as the “complementary interests” make “certain forms of cooperation potentially beneficial” (Keohane 2005). It seems that the emerging multilateral institutions which are rising with new

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regionalism confirm Keohane’s statement. According to Telò’s observation, multilateralism is developing into pluralistic multilateralism with the following characteristics: (a) a decentralized multipolarity has proven to be compatible with multilateral cooperation, provided that power balance and security alliances are no longer the priority. Hegemony is not necessary for multilateral cooperation, but leadership (either as an individual or a collective driving force) would be needed; (b) a shift from specific to diffuse reciprocity occurs, in which any exchange takes place in the context of an issue-linkage and in which gains are expected over a larger time span through enhanced trust. Another important phenomenon is the rise of regionalism. Primarily since the focus of China’s foreign relations has shifted to its neighbouring countries, the development of regionalism, especially in combination with multilateralism, is an important issue for discussion (Wang 2002: 7). This new round of regionalism after the Cold War has become an important phenomenon for research in international relations: New regionalism has developed in the shape of multilateralism in order to oppose unilateralism, limiting the old-fashioned logics of balance of power and preventing local conflicts and fragmentation. The balance between the regional and global dimensions of multilateral cooperation is an important source for the development of multilateralism (Telò 2014). Thus, the post-hegemonic era and the development of pluralistic multilateralism, combined with regionalism, leave China room to manoeuvre its foreign relations through multilateralism. China’s rise and its engagement in multilateralism are developing hand in hand. This means that China has chosen multilateralism as its integration pathway into international affairs. The importance of institutions has increasingly attracted the attention of Chinese scholars as China has become increasingly involved in reshaping the world order after the Cold War, and China has long realized that its real challenge and opportunity lie in how much it can influence the formation of new institutions in the wake of US hegemony (Yu 2013). China has realized that to form a new set of international institutions requires governments to redefine their national interests within this new framework (Qin 1999: 279–80). Thus, how to justify and legitimize China’s ideas about the new world order is a critical issue. Men Honghua argues that the fundamental value of international institutions still lies in their ethnical values, as they represent human beings’ pursuit of common interests and common justice and provide a platform to realize them (Men 2005: 48). In this perspective, China’s participation in institution building

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has taken a strong normative orientation since the beginning, in order to achieve consensus with other regimes on a new set of values (Li 2014; Yang 2007). To phrase it differently, China is constructing a new institution in order to convey its norms and values, and through this institution, it can achieve consensus with other countries which are willing to join and accept the norms and values proposed by China. The Dynamism of Multilayered Multilateralism China’s multilayered multilateralism is a combination of bilateral relationships constituted by a partnership network and multilateral institutions in which China participates. The bilateral and multilateral sides are not divided but share active interaction. As suggested above, the “partnership” that defines China’s bilateral relations is not an alliance. Rather, it is a type of convergence concerning certain issues and shows a willingness to collaborate. I will elaborate this dynamism according to the different subjects that are due to be resolved by multilayered multilateralism. The first issue is the internationalization of China’s currency. As mentioned above, almost all countries that signed SWAP agreements with China are countries that have established partnership relations with China, and almost all the members of the Shanghai Cooperation Organization have also signed the same agreement with China. The second issue is of China’s energy security. The Shanghai Cooperation Organization is a good example that within a multilateral institution where many members are China’s strategic partners, it would be easier for China to coordinate the exploitation of the energy resources needed. At the same time, the SCO is also supporting China’s strategy by promoting the economic development in its western parts. ASEAN+3 is not only of great significance in the internationalization of the Chinese yuan (though the negotiation with Japan could be tough); by establishing FTAs, it has also become an important terrain for the development of China’s new economic rules, and it is important for China’s sea power development. Especially with the design of the AIIB, the OBOR initiative is the ultimate attempt so far to coordinate all these issues within one large strategy. The “One Belt and One Road Initiative” incorporates ASEAN+3 and the Shanghai Cooperation Organization instead of replacing them. It tries to establish a new collaboration tool by combining financial cooperation, development of natural resources and construction of infrastructures (Zou 2015: 128). China provides financial support to countries included in

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these two projects in order to finance Chinese companies involved in the construction of infrastructure. Once completed, the infrastructure projects would mainly serve the transportation of Chinese products to these countries and of natural resources from the countries to China. The export of infrastructure construction provides domestic enterprises with new contracts, and the natural resources imported would quench China’s thirst for energy. The circulation of money provides more chances for the internationalization of the Chinese yuan. The development of ports among China’s strategic partners diminishes China’s “Malacca Dilemma”, while at the same time promoting China’s control over maritime transportation and enhancing China’s sea power (Zhang et al. 2015). Thus, the strategic partnership networks and multilateralist regional institutions (ASEAN+3 and Shanghai Cooperation Organization) are linked and coordinated in the context of the OBOR initiative, which is explained in Fig. 4.4.

Fig. 4.4  Main countries (The One Belt and One Road project is planning to include 177 countries. In this chart I have included only countries that have agreed to participate in this project) involved in “One Belt and One Road”, AIIB. (Author’s own figure)

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–– Countries in green boxes are founding members of the AIIB. –– Countries in boxes with black lines are in partnership relations with China. –– Countries in yellow boxes of ASEAN+3 and SCO are involved in the two regional arrangements respectively –– Countries in purple boxes are included in “One Belt and One Road” but are not founding members of AIIB Figure 4.4 presents the relations between (a) the partnership networks established by China; (b) ASEAN+3 and the Shanghai Cooperation Organization—the two most important multilateralist regional institutions in which China participates; (c) the “One Belt and One Road” project9; and (d) the Asian Infrastructure Investment Bank. This figure gives a clear indication that the countries that have established partnership relations with China are the most important ones that cooperate with China in its new grand strategy. At the same time, almost all the member-states in ASEAN+3 and SCO have already established partnership relations with China. Partners also constitute the majority of the founding members of AIIB. “One Belt and One Road” was clearly designed to expand the realm of cooperation and economic development of ASEAN+3 and SCO: hence, West Asia, the Middle East and Europe are connected. China is building a “horizontal institutionalized structure rooted in organized regions linked to each other” (Hettne and Ponjaert 2014: 124) through the combination of different layers of relations: bilateral partnership networks as the first layer, regional multilateral arrangements as the second and, most importantly, the third layer of more expanded economic development projects. I will use another figure to illustrate how the OBOR initiative combines with SCO and ASEAN+3 in tackling the main issues in China’s multilayered multilateralism development. Figure 4.5 shows that AIIB is the economic part of the grand OBOR initiative. It finances the infrastructure construction in the “Silk Road Economic Belt” (One Belt, i.e. OB) region, which comprises the SCO countries but may eventually reach Europe, and West Asia and the “Maritime Silk Road” (One Road, i.e. OR), for which the centre is the ASEAN+3 countries but may extend to Africa. The strategies that China uses to reach the goals set by the four main issues are related to SCO and ASEAN+3. The small circles at each intersection in the figure specify how these main issues are connected with the two multilateral institutions in

Productivity Consumption

SCO Energy in Central Asia

Energy Security

OROB Fate Community

AIIB

SWAP Agreements

Malacca Dilemma

Fishing Resources

Sea Power Development

Loaning in Yuan

ASEAN+3

Internationali -zation of Chinese Yuan SWAP Agreements

Fig. 4.5  The integration of ASEAN+3 and SCO with the OBOR initiative on China’s main issues of multilayered multilateralism. (Author’s own figure)

Extra Productivity

West China Development

Domestic Development

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which China participates. With the establishment of AIIB to finance the infrastructure development in the corresponding regions, the OBOR initiative supports the pursuit of the four main issues, the AIIB projects, SCO and ASEAN+3 so as to form a complete and interacting circle. The financial support provided by AIIB enables the infrastructure projects to develop, through which the excess productivity in China will be consumed. The development of infrastructure projects will promote the internationalization of the yuan as China will prioritize the yuan as the principal currency for lending (Huang 2015). This development will elevate the yuan’s importance in world capital markets and promote its internationalization, especially by making the Yuan the regional currency (Liu 2015). The infrastructure construction realized through AIIB will reinforce China’s influence in the regions that are strategically included in the OBOR initiative. The construction and management of important infrastructure projects, for example, ports, railways and oil pumps, will also strengthen China’s influences and provide privileges for China as regards the exploitation of energy and maritime resources. Although economic development is very important, this is not the only element in the OBOR initiative. The “fate community” concept is trying to provide an alternative understanding of international relations. With an economic order that is different from the Western pattern, this alternative concept provides a different world view and a different value recognition of China’s multilayered multilateralism. Chinese president Xi Jinping’s visits to Saudi Arabia, Egypt and Iran from 19 to 23 January 2016 provided a very vivid illustration as to how China is adopting the OBOR initiative to promote its multilayered multilateralism. Xi Jinping had chosen a very critical time to visit the three most important countries in the Middle East: The bilateral relationship between Saudi Arabia and Iran had deteriorated drastically;10 terrorism continued to menace the regional security and political stability; and Iran’s economic isolation had just been terminated as the UN and the US had lifted their sanctions on 16 January (Al Jazeera 2016a; Wroughton and Torbati 2016). During his visits, Xi Jinping signed 52 agreements: 14 with Saudi Arabia, 21 with Egypt and 17 with Iran; all three countries have also signed the memorandum to participate in “One Road One Belt” with China, and the collaboration agreements cover trade, energy, communication, aeronautics and climate change (Sina News 2016).

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It is not wrong to link Xi’s visit with China’s energy resources (The Economist 2016), as the Middle East is an important oil supply region for China (see Figs. 4.5, and 4.6). However, concluding that China’s only motivation to maintain a good relationship with the Middle East is its need for oil would compromise the richness of China’s foreign policy. The guiding idea in China’s promotion of its multilayered multilateralism in this region is that of a “community of common destiny”, and the OBOR initiative serves as the main structure to realize this goal. By combining energy supply and collaborations in different domains under the OBOR initiative, China is trying to develop new common interests in this region. China’s provision of investment and technology to its Middle Eastern partners is expected to retrieve energy supplies and political support from them via diffused reciprocity. Another clear signal is that China published its first Arab Policy Paper five days before its president’s departure to the Middle East (The Ministry of Foreign Affairs of PRC 2016). This states clearly that China is looking forward to establishing a new pattern of collaboration based on the OBOR initiative,11 which, if realized successfully, will greatly increase China’s presence in the region. China’s plan for its approach to the Middle East is a good example of the multilayered multilateralism in formation: adopting the structure of multilayered reaction (built on and supported by the partnership network), following the principle of diffused reciprocity and aiming to Fig. 4.6  Chinese crude-oil imports by country in 2016. (Source: China Customs; illustration by the author)

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strengthen the institution by nurturing mutual interests. At the same time, multilayered multilateralism is also an important path to promote China’s ideology and establish its own political value system.

Conclusion Chapter 1 discussed the theoretical framework of analysing the OBOR initiative based on Cox’s historical structure of hegemony (the interrelation between ideas, material capacities and institutions). In this chapter, I have focused on the analysis of the institutional aspect of this structure, and I have found that a multilayered multilateralism is forming. This combination of bilateral and multilateral relations will become an important tool to institutionalize the OBOR initiative. The OBOR initiative is the most evident example of this multilayered multilateralism in China. It is developing into the most exquisite design of institutions that should enable positive interaction between the bilateral and multilateral sides. China’s OBOR initiative combines its neighbouring countries and expands the economic collaboration in order to reach out to China’s “grand periphery”, and consolidates regionalization by nurturing “mutual interests” based on China’s provision of infrastructure construction and coordinated financing. It is a cooperation model that is capable of continual expansion and growth (as partnership countries can continue to grow, and the AIIB model could well be replicated), and it represents China’s approach of constructing multilateralism via economic spill-over effects rather than values or forces. We can expect a new set of institutions to be consolidated and new values and norms to be established, and public goods will be provided in a different way as China becomes the regional hegemon.

Notes 1. For more information about Silk Road Economic Belt, please refer to Xi Jinping’s speech at Nazarbayev University, 7 September 2014. http:// news.xinhuanet.com/english/china/2013-09/07/c_132700695.htm 2. See China News: Xi Jinping’s new foreign policy idea: Community of interest, responsibility and fate: http://www.chinanews.com/gn/2014/1010/6660509.shtml 3. See Xi Jinping’s speech: Community of common fate and a favourable environment for China’s development: http://www.fmprc.gov.cn/mfa_ chn/zyxw_602251/t1093113.shtml

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4. See Li Keqiang, Chinese prime minister’s propositions on East Asia Summit: 13 November 2014 http://news.xinhuanet.com/201411/14/c_1113240192.htm 5. See Reports on 24 Ore « Putin Scommette sullo yuan: la conversione con il rublo ci rendera meno dipendenti dal dollaro: http://www. ilsole24ore.com/art/notizie/2014-11-10/putin-scommette-yuanconversione-il-rublo-ci-rendera-meno-dipendenti-dollaro-101845. shtml?uuid=ABngOECC&fb_action_ids=10153304259468976&fb_ action_types=og.recommends 6. See reports on Russia Beyond the Headlines « Yuan settlements with Russia could boost Chinese currency’s regional role: http://rbth.co.uk/ news/2014/11/09/yuan_settlements_with_russia_could_boost_chinese_currencys_regional_role_41260.html 7. Chinese scholars are especially interested in and influenced by Alfred Thayer Mahan’s theory about the importance of sea power in a nation’s development, mainly presented in The Influence of Sea Power Upon History, 1660–1783, The Influence of Sea Power upon the French Revolution and Empire, 1783–1812, Sea Power in Its Relations to the War of 1812. For example, Li Jiacheng and Li Puqian from Liao Ning University argue that China should pay attention to Mahan’s argument about the causal relationship between the command over the sea and the status of a great power (Mahan 1890), and the indispensability of a nation’s revival to be a great power (Li and Li 2013: 88). Reference is also made to the history of the USA’s rise and its sea power as the most successful case of Mahan’s theory (Cao and Li 2006; Li 2006). Besides acknowledging the importance of sea power pointed out by Mahan, many Chinese scholars believe that Mahan has overemphasized the deciding factor of a country’s geographical and natural situation, neglecting the influences of technology development (Li 2004; Jia Zhang 2000). 8. For example, Kevin C. Kennedy has used the case of trade environment disputes to point out that unilateralism is not at all legitimate in regulating global issues as national law is only applicable in a given territory. Multilateralism is the correct way to addressing global issues as it requires coordination among nations involved to provide legitimate solutions (Kennedy 2001). 9. It is important to point out here that “One Belt and One Road” is described as a “project” and a “policy” in the Chinese government’s rhetoric. It is not an institution, and, as Prof. Sun Zhuangzhi has pointed out, it is a completely new concept that cannot be defined yet, and China is in no hurry to provide a definition to it.

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10. On 3 January 2016, Saudi Arabia announced that it would cut off its diplomatic relationship with Iran because Iran had allowed attacks on Saudia Arabia’s embassy. The attack was due to the anger aroused by the Saudia Arabia’s execution of Iran’s religious leader as a terrorist (Fitch et al. 2016; Al Jazeera 2016b). 11. China’s Arab Policy Paper states: “China’s proposed initiatives of jointly building the “Silk Road Economic Belt” and the “21st Century Maritime Silk Road”, establishing a “1+2+3” cooperation pattern (to take energy cooperation as the core, infrastructure construction and trade and investment facilitation as the two wings, and three high and new tech fields of nuclear energy, space satellite and new energy as the three breakthroughs), and industrial capacity cooperation, are well received by Arab countries. Both sides have broad consensus on safeguarding state sovereignty and territorial integrity, defending national dignity, seeking political resolution to hotspot issues, and promoting peace and stability in the Middle East” (The Ministry of Foreign Affairs of PRC 2016). Also, it is worth mentioning that eight countries in the Middle East are founding members of AIIB, which increases the possibilities of comprehensive collaboration (Jiang 2016).

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CHAPTER 5

The One Belt One Road Initiative and the Changing Multi-scalar Governance of Trade in China Erja Kettunen

Introduction Although China is the world’s largest trader and one of the largest recipients of foreign direct investment (FDI), since 2010, it has been facing slower economic growth, combined with declining foreign trade (World Bank 2017; WTO 2016a, 2017a).1 To tackle this, the Chinese leadership is aiming to shift the base of the country’s economy from its reliance on investments and external trade toward domestic consumption, as well as from manufacturing toward services. A concurrent challenge has been The author wishes to thank Claes G. Alvstam and Lucía Gómez for valuable comments on an earlier version. Research funding from the Foundation for Economic Education, Finland, and funding for fieldwork in China from the Centre for International Business Studies, School of Business, Economics and Law, University of Gothenburg, Sweden, are gratefully acknowledged. E. Kettunen (*) Centre for Collaborative Research, Turku School of Economics, University of Turku, Turku, Finland e-mail: [email protected] © The Author(s) 2019 L. Xing (ed.), Mapping China’s ‘One Belt One Road’ Initiative, International Political Economy Series, https://doi.org/10.1007/978-3-319-92201-0_5

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China’s regional economic imbalance—the overly strong economic weight of Eastern China’s first-tier cities—that has resulted in rising cost and congestion in the coastal regions, and sluggish development in the peripheral inland regions. In recent years, China has strived to balance regional disparities through a number of policies that affect its provinces, including rules on inward FDI and various regulations steering different industries. This is paralleled with China’s changing foreign trade policies and a geographical shift in its regional trade agreements. All of these policies aim at actively keeping investment inside China. From the investing companies’ perspective, moving or expanding operations from China’s major coastal cities to inland cities has become a viable option due to the cost advantage of the latter. The majority of multinational firms, however, are engaged in global production chains, importing components and/or exporting intermediate or finished products from their bases in China. Therefore, companies that are located in Western or Central China, for example, need to transport their exports and imports across the country to reach the Eastern coast harbors that are the main cross-border points of China’s international trade. The aim of this chapter is to assess the prospective effects of China’s new policy, in particular, the “One Belt One Road” (OBOR) initiative, on the regional orientation of its foreign trade. The main question is how are China’s regional development aims related to the OBOR initiative reflected in the multi-scalar governance of trade in China and beyond? Taking the perspective of European companies, this question will be discussed by analyzing the business response to China’s sub-national and foreign trade policies. The analysis focuses on the current institutional environment for trade in China, including formal and informal institutions (North 1990; Holmes et al. 2013), and considers the prospects for the changing multi-­ scalar governance of trade in the future. Multi-scalar indicates governance on many scales that are not hierarchical but coexist in complex ways (Jessop 2005), different from multi-level that implies super- and subordination (Neuman 2007). Therefore, multi-scalar governance of trade refers to trade policies at different scales—sub-national, national, and international—that coevolve in relation to each other (cf. Kettunen 2004, 2016). It encompasses possible interprovincial trade barriers, national trade policies affecting the country’s imports and exports, and the international trade negotiations and agreements in which a country may be engaged. Trade policies are part of the institutional framework that constrains the

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operations of companies, and informal institutions (i.e., practices and social codes) impact strongly on firms, especially in emerging economies (Peng 2003; Peng et al. 2008; Meyer and Peng 2016). Two underlying aspects motivate the analysis. First, sub-national trade policies refer to the question of the potential cross-provincial trade barriers that companies may encounter in transporting goods across Chinese provinces. It has been suggested in prior literature that various restrictions and costs are introduced at provincial borders because of the economic competition between the provinces. This could be the case even more so with the debt problem that Chinese provinces currently face. Prior research on the topic has been conducted mainly using quantitative methods, such as by Young (2000), Poncet (2003, 2005) and Wong (2012), who studied domestic trade barriers and market integration in China. Others have estimated, for example, the level of local protectionism (Bai et al. 2004), or spatial spillovers in China (Bai et al. 2012). In the absence of reliable data on China’s cross-provincial trade, indirect measures of domestic trade barriers, based on various data sources such as provincial input-output data, were often applied. The other way to study trade barriers, suggested here, is to take a qualitative approach and interview company representatives based in China. This approach has the advantage of getting information about real-life business experiences on cross-provincial trade policies. There appears to have been little such research, and a gap can be found as to firm-level analyses on sub-national trade barriers. Second, China’s external trade policies are also expected to change because of OBOR-related developments, such as the New Silk Road linking China with Europe and the Middle East (e.g., Kuester 2017). The OBOR brings a strategic focus to the Chinese government’s “go out” initiative that encourages Chinese companies to search for new markets and investment opportunities abroad (EIU 2015). Led by the highest levels of the government, this initiative will be facilitated by engaging in trade and investment agreements with OBOR trade partners. The free trade agreements (FTAs) would support China’s transboundary projects that are planned to be financed through the China-initiated Asia Infrastructure Investment Bank (AIIB). If these FTAs are successfully concluded and put into force, they will further shift the regional balance of China’s economy from coastal regions toward inland regions, by way of increasing China’s trade with its Eurasian neighbors. These two aspects related to OBOR are examined in this chapter, drawing from different sources of data including the WTO’s trade policy

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reviews, the World Bank’s Doing Business indicators, and the European Chamber of Commerce’s business surveys from China. In addition, the author conducted seven complementary personal interviews with core informants on the topic (either on location or over the phone) in 2015–2017, namely the representatives of companies and support organizations based in Chengdu, Beijing, and Shanghai. The interviewees are Finns, Swedes, or Chinese, and all are at the management level in their respective organizations, such as general managers. They are referred to anonymously in the text, indicating the type of organization that they represent. It is argued here that the OBOR-related changes in China’s regional policies would have marked implications for the regional orientation of its foreign trade. While nowadays most of China’s exports and imports pass through the major ports in Eastern and Southern China that are the main entry and exit points for foreign trade, the OBOR initiative might rather shift trade flows to pass through the Eurasian continent, transported on rail or land between China and Europe. This would positively affect companies located in China’s interior—along the Belt—since they would have an advantage because of shorter transport times. In the section that follows, China’s trade policies are discussed first by glancing at the regional development aims of the current five-year plan (FYP) and the OBOR initiative, and then by analyzing the institutional trade environment for foreign firms in China, regional differences, and the case of Chengdu as a host city for foreign investment especially by European firms. The chapter ends with sketching the prospective changes in the regional emphases of China’s trade policy that will possibly affect the geography of Asiawide international trade policies and trade flows.

The OBOR Initiative, Regional Development, and Trade Facilitation The OBOR initiative was launched in late 2013 to develop infrastructure for new trade routes. These include the “Silk Road Economic Belt” connecting China through railway with Central Asia, Europe, and the Middle East, and the “21st Century Maritime Silk Road” to develop marine routes from coastal China to the Indian Ocean and the Mediterranean (FBIC 2016). Being part of China’s global economic strategy, the geographical scope of OBOR is ambitious, with 64 countries taking part in

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the plan in Europe, the Middle East, Central Asia, and South Asia.2 Infrastructure development focuses on railways, roads, ports, and airports to enhance transport between continents and to speed economic development in the region. The initiative is backed by the newly established Asia Infrastructure Investment Bank to finance the planned large-scale infrastructure development (AIIB 2017; ECN 2016a, b;  Tang 2015).3 The OBOR plan is important in China’s national strategy, which intends to connect China with its major trade partners. Within China, OBOR is one of the major regional integration plans that are China’s priorities for regional economic planning in the current 13th Five-Year Plan (2016–2020). The FYP delineates the plans to coordinate regional development to achieve balanced growth by developing infrastructure in Western China and shifting excess industrial capacity from coastal cities to the western regions (PwC 2015: 6). Besides the OBOR initiative, the other two plans are the integration of the Beijing– Tianjin–Hebei region, and developing the Yangtze River Economic Belt, all of which are presented in their own sections in the FYP for the first time (ECN 2016a). The Yangtze River Economic Belt is particularly relevant for the OBOR initiative, as it focuses on industry transfer from coastal to inland regions, with the idea of enhancing differentiated industrial clustering around key urban centers in 11 provinces: Guizhou, Yunnan, Sichuan, Chongqing, Hunan, Hubei, Jiangxi, Anhui, Zhejiang, Jiangsu, and Shanghai. The aim of the plan is to encourage collaboration in economic development between provinces and a more integrated approach to infrastructure planning in China (ibid.: 4). This is noteworthy, given the long history and the still prevailing state of competition between the provinces. These plans are being quickly followed in the provinces. China’s provinces are currently putting forward different kinds of infrastructure and other project plans “dressed in an OBOR gown” in order to receive “political blessing” for them, as one of the interviewees put it.4 However, it can be expected that the plans will be followed more on paper than in practice. This is based on the earlier experiences of foreign firms on these kinds of policies: for example, the European business circles in China anticipate that the provincial bureaucracies will “demonstrate little willingness to enact centrally-planned reforms” (ECCC 2016a: 30). In spite of the central government aiming to coordinate cross-provincial planning, the foreseeable availability of subsidies for particular sectors ensures that local governments will compete with one another for resources, which

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potentially leads to overcapacity and “price wars” (ECN 2016a: 15). This is referred to by the Economist Corporate Network as “persisting localism”, indicating that provinces will continue to compete rather than cooperate with each other. Previously, localism has been evident in industries such as steel or solar panels and can be expected in the future in emerging industries, such as cloud computing and semiconductors (ibid.). In addition to developing the inland provinces, China also aims to reform the foreign trade environment in major coastal cities and provinces by establishing free trade zones. It launched the first national free trade zone (FTZ) in Shanghai in 2013, and three others in Tianjin and the Guangdong and Fujian provinces in 2015, and more are expected in the future (ECN 2016a: 8). The 13th FYP intends to open up trade and investment by adopting a “negative list” approach to market access. This approach means that, if a foreign investment project is not included on the negative list, it will be granted national treatment, that is, similar to domestic firms. The reform is piloted in the FTZs until end-2017 with nationwide implementation expected in January 2018 (ibid.: 9). However, the response among foreign businesses still seems to be moderate. For example, according to a survey among companies originating from the European Union (EU) countries, about 15% of the over 500 respondents had established a presence in the FTZs by 2016, indicating a somewhat cautious interest (ECCC 2016a). Furthermore, in order to overcome China’s regionally diverse practices in trade facilitation, reforms are ongoing to eliminate regional differences in customs procedures. China has worked on harmonizing customs clearance across its 42 customs areas since 2012. However, “special customs supervision areas” still exist, and different customs procedures are applied in different areas—in some instances this is done on a trial basis to assess if they work. In 2014, China started to integrate the 42 customs areas into fewer larger clusters to harmonize the clearance processes. According to authorities, this integration has taken place, resulting in the creation of five clusters, including Beijing/Tianjin/Hebei, the Pearl River provinces, and the Yangtze River Economic Belt (WTO 2016a: 48). The latter should have implications in harmonizing trade facilitation between the Chengdu and Shanghai customs points, for example.

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China’s Institutional Environment for Trade: National Trade Policies As China remains the world’s biggest trading nation, developments in its regulatory environment for foreign trade are relevant for the whole global trade regime. However, China’s foreign trade has been affected by the recent slowing down of the global economy. Both exports and imports declined in China in 2015, while the importance of foreign trade in its overall economy has also somewhat diminished. The share of China’s exports in its gross domestic product (GDP) was 21% in 2015, after having been 27% in 2010 (WTO 2016a: 26). Figure  5.1 below shows the downward trend of the share of merchandise exports and imports in China’s GDP. This is partly explained by the decline in import oil prices, as well as the strengthening of China’s domestic demand (WTO 2016a: 15). China’s main trade partners have remained much the same over the last few years. The main destinations of China’s exports are the United States, the EU, Hong Kong, the countries of the Association of Southeast Asian Nations (ASEAN), Japan, and South Korea. The main sources of China’s imports, in comparison, are the EU, the ASEAN countries, South Korea, the United States, Taiwan, and Japan. During the last decade, China’s trade with its regional neighbors has grown the most rapidly. Much of China’s foreign trade is foreign investment induced. For several years, China has been among the largest recipients of inward FDI

30 25 20 15 10 5 0

2011

2012

2013 Exports

2014

2015

Imports

Fig. 5.1  China’s merchandise trade as a percentage of GDP, 2011–2015. (Source: WTO 2016a)

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globally. It was the third largest destination for FDI inflows in 2015— behind only the United States and Hong Kong— while it had ranked first for the two preceding years, in 2014 and 2013 (UNCTAD 2016: 5). It can be expected that China will retain this position also in the future. According to an international survey on investment prospects, both multinational enterprises and investment promotion agencies regard China as the second most promising destination for FDI for the years 2016–2018, while in the previous year, it was ranked as the number one destination for FDI (ibid.: 27–28.). This trend has been complemented by the more recent rapid growth of outward FDI, China having become one of the largest sources of foreign investment globally. Therefore, as China is assumed to remain a leading foreign trader, the institutional framework governing its trade—and the possible impact of OBOR—is of key interest for business and policy alike. When analyzing the institutional environment for trade, attention is paid here both to formal and informal spheres of the trade regime. These refer to the laws and regulations (i.e., formal institutions) governing foreign trade, as well as to the everyday practices, norms, and social codes (i.e., informal institutions) of the authorities in enforcing the regulations (cf. Holmes et al. 2013). To put it briefly, institutions are “the rules of the game” (North 1990), and the institutional approach to business studies maintains that the strategic choices of companies are driven not only by their resources, capacities, and industrial dynamics but also by the institutional constraints that they face in a particular business environment (Peng 2003). Especially in emerging economies, institutions have a strong impact on the performance of firms (Peng et al. 2008; Meyer and Peng 2016). Next, formal institutions are analyzed based on international comparisons of regulatory environments, and informal institutions are discussed by drawing from business surveys and interviews regarding business sentiment in China. The latter refers to the experiences of foreign firms on how host-country authorities implement laws, regulations, and policies and how local officials treat foreign firms. Regulatory Framework Regarding the formal institutional framework at the national scale, China does moderately in international comparison, being in between the easiest and the most difficult global regulatory environments. Since 2004, the World Bank has assessed changes in national business environments globally

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among a large number of countries, in order to rank them according to the ease of doing business. The assessments focus on regulations that either enhance or constrain business activity, and result in quantitative indicators by comparing the (at present) 190 economies of the world. The rankings can be seen as indicative of the formal regulatory environment in the respective economies. In these comparisons, China has performed variably during the last few years, its position improving to 78 in 2017. Table 5.1 shows the overall rank and selected sub-categories relevant to firms engaged in foreign trade in China. Throughout the years, trading across borders has become relatively more difficult. In the other facets of the regulatory environment, China performs best in enforcing contracts, while starting a business remains highly bureaucratic and burdensome for firms. If we compare China with other economies in the world, such as the three other BRIC countries (Brazil, Russia, and India), its business environment in 2017 appears to be somewhat easier than that of Brazil (rank 123) or India (rank 130), but more difficult than in Russia (rank 40). Other East Asian economies also seem to perform better, namely Japan (rank 23) and South Korea (rank 5), not to speak of the Nordic countries (Denmark 3, Finland 13, Iceland 20, Norway 6, and Sweden 9). However, it must be noted that the indicators only assess the formal regulations (e.g., the procedures, time, and cost to complete all formalities for exports or imports). The informal practices by the authorities in enforcing and implementing these regulations are not considered. When it comes to the foreign trade environment, China is relatively open for a developing economy. China became a member of the World Trade Organization (WTO) in 2001 and has reportedly improved its external trade regime since then. As can be seen in Table  5.2, China’s Table 5.1  Ease of doing business (with selected sub-categories) in China, various years

Overall rank  Starting a business  Trading across borders  Enforcing contracts Source: World Bank (2010, 2013, 2016)

2011 N = 183

2014 N = 189

2017 N = 190

79 151 50 15

96 158 74 19

78 127 96 5

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Table 5.2  Import tariffs of China, compared to USA, the EU, Japan, and South Korea China

Simple average tariff (%)  Agriculture  Non-agriculture Duty-free tariff lines (%)

USA

EU

Japan

Korea

MFN

APTA

ASEAN

MFN

MFN

MFN

MFN

9.5 14.8 8.6 9.7

8.8 13.8 8.0 10.0

0.7 1.7 0.6 94.8

4.8 9.1 4.0 36.8

6.3 14.1 4.3 26.1

6.1 16.3 3.6 40.1

14.1 60.0 6.6 15.9

Note: APTA refers to preferential tariffs for imports under Asia-Pacific Trade Agreement. (Member-­ countries: Bangladesh, China, India, Laos, South Korea, and Sri Lanka.) ASEAN refers to preferential tariffs for imports under China-ASEAN FTA (Imports from Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam.) Source: WTO (2016a, b, c, 2017b, c)

overall tariff level (the so-called Most Favored Nation tariff)5—referring to the average tariff for all imports from all countries except those with which China has a free trade agreement—is 9.5%. The tariffs can vary considerably in different product categories, depending on the protection level for the industry in question. For agricultural products, China’s average import tariff is notably higher than for non-agricultural ones, that is, all other sectors combined. Table 5.2 also presents two examples of China’s trade agreements, that is, the Asia-Pacific Trade Agreement (APTA) and the FTA with ASEAN. It is noticed that the tariff reductions are quite modest in APTA, reflecting a loose agreement with less ambition toward trade liberalization. In contrast, imports from the ASEAN countries are largely free, the average tariffs being close to zero. This indicates that trade between China and the ASEAN countries has been notably liberalized, thanks to the free trade agreement since 2004. Concerning OBOR, the implication is, if China manages to sign effective FTAs with partner countries, a real liberalization will occur, and a change in the geographical emphasis of trade is assumed to follow. When China’s current tariff levels are compared with its major export destinations, import protection in China (average tariff at 9.5%) is clearly at a higher level than in the United States, the EU, or Japan, all of which are developed economies with average import tariffs of around 5%–6%. This is opposite for the case of South Korea, which has a distinctly high tariff protection for agricultural products, 60%, resulting in a total average

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rate of over 14% (Table 5.2). In addition, tariff rates are the lowest in the United States, and slightly higher in the EU and Japan. The share of duty-­ free tariff lines indicates the percentage of zero-tariff product categories, which is clearly highest in the China–ASEAN FTA. While China’s tariff levels reflect it as being an emerging economy, there is an ongoing debate over how its status is regarded in the WTO. When China joined the WTO in 2001, it requested to be considered a ‘market economy’ after 15 years, that is, in December 2016. However, this has been opposed by other major WTO members, notably the EU and the United States who do not regard it as feasible. Giving a trading partner market economy status implies that its economy is based on open competition (e.g., domestic prices are set by competition, not the government), which is not the case in heavily subsidized Chinese export industries (FT 2016). Overall, China seems to have moderate trade barriers when it comes to formal policies and regulations affecting trade. This is especially so considering China’s level of economic development, its tariff barriers being notably lower than those of South Korea, for example. It can be expected that the level of China’s overall tariff protection will be lowered because of its newly negotiated FTAs and OBOR-related FTA initiatives that will add to the volume of zero-tariff trade, and because of the simultaneous multilateral processes in trade liberalization. Enforcement of the Regulations As noted above, it is not only the formal legislation but also the informal practices of authorities in the implementation of regulations that affect foreign trade. These refer to the social codes and norms of local authorities in enforcing and executing trade policies, including how efficiently and lawfully customs officials carry out customs clearance, how they interpret the rules and regulations, whether they treat all companies ­ equally according to the law, and whether arbitrary practices—such as the favoring of domestic companies, or the demands caused by corruption— exist. These informal institutions are deeply culturally rooted in everyday norms and social codes that often affect the business environment more than the legislation itself, particularly in emerging economies (Peng 2003). They may also have regional variations, as discussed later in this chapter. Data on the enforcement of regulations can be acquired from, for example, business surveys, as well as from directly interviewing representatives of companies that operate in China. According to the latest business

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confidence survey of the European Chamber of Commerce in China (ECCC 2016a), European companies perceive that the business outlook has become gloomier in China. Altogether, 506 companies responded to the survey, and over half of them (56%) considered that the Chinese business environment had become more difficult in the previous year. The most significant regulatory obstacles are administrative issues, an unpredictable legislative environment, and the discretionary enforcement of regulations. Other major problems are the perception of being less welcome than ten years ago, the recent tightening of Internet controls, foreign companies receiving unfavorable treatment compared to Chinese companies, environmental regulations being strongly enforced against foreign firms, and foreign companies being discriminated against through national-security-related legislation (ibid.: 8). These challenges, as well as the slower growth of the Chinese economy, have resulted in the expansion plans of European firms being significantly lower than just three years ago. In 2013, as many as 86% of firms planned to expand in China, whereas in 2016, only 47% did (ibid.: 52). Similarly, in a survey conducted among 104 Nordic firms (mainly Swedish, Finnish, and Danish) in China, the major business challenges included a perceived preference for domestic companies and unfair procurement practices by Chinese officials (CEMAT 2014). Both of these were expected to either remain the same or worsen in the near future. However, the majority of the firms still perceived their five-year business outlook in China as optimistic (74 out of 104 firms), and more than 90 firms are planning further investments in the country. When asked about legal and regulatory challenges hindering business, the biggest problems were in customs delays and trade regulations, heavy bureaucracy, unclear legislation, and tax administration. All were expected to remain the same in the next one to two years by the majority of respondents. It is quite significant that problems related to foreign trade were regarded as the worst among all regulatory challenges. Protectionism appears to be a major challenge in the enforcement of regulations, informally, and is manifest in the favoring of local firms, and in the discrimination against and unfair treatment of foreign-invested firms. This was indicated in an earlier study on the protectionism encountered by foreign companies, based on 14 interviews with Finnish firms in China (Kettunen 2014). The main forms of protectionism appeared to be informal practices from the side of the authorities and included:

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–– being monitored more strictly than local companies, –– Chinese firms being able to circumvent the rules, –– foreign firms not being treated the same as local ones, for example, in getting permits or large investment projects, –– foreign firms’ intellectual property rights (IPR) leaking to Chinese competitors through the authorities, –– only Chinese firms receiving the government’s support packages, –– strict, slow, or unclear procedures in exports and imports. In exports and imports, the interviewees referred to the unfair practices by local customs authorities and the generally unpredictable customs clearance. Problems include the slow clearance times and the loss of value-­ added-­tax (VAT) refund in exports, in spite of formal policies (ibid.: 411). Therefore, informal institutions seem to pose at least as high a barrier to trade as formal institutions in China. An additional problem for foreign firms is that the informal rules appear not to be the same for them as for local companies. As informal institutions are slow to change—even if the formal rules are changed—it can be expected that they will remain constant for the foreseeable future. However, there seem to be regional differences in this respect, as discussed in the next section.

The Case of Chengdu: Sub-national Trade Barriers? Chengdu is a growing hub, being the capital city of Sichuan province and the economic and political center of southwest China. It has a population of over 10 million (estimates varying between 11 and 14 million) and is an important financial, commercial, and transportation hub of the region. Chengdu hosts a large number of international companies in its main industries—automobile, machinery, electronics, information technology (IT), medicine, as well as finance and logistics. The region of southwest China is of interest regarding OBOR, particularly as the city of Chengdu is an OBOR railway hub and one of the centers where China applies its policy to develop inland regions. Besides hosting huge industrial parks to attract foreign businesses, such as in the automobile or IT industries, Chengdu also aims to develop the innovation capacity of the region, which is still lagging behind that of major coastal cities (Wang and Yuan 2015). However, recent urban planning for Chengdu’s “new district” ambitiously combines science, enterprises, housing, and recreation, in order to nurture innovation (China Daily 2016). The plans reflect the idea of innovation

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districts that promote sustainable urban development and simultaneously upgrade the economy (Katz and Wagner 2014). The institutional environment, both formal and informal, appears to be more supportive of foreign businesses in Chengdu than that in the cities of Eastern China. This regional variation is evident in the company surveys of the European Chamber of Commerce. Its chapter in Southwest China has ca. 140 member-companies, of which two-thirds are located in Chengdu and one-third in Chongqing (ECCC 2016b). Several points in the survey indicate that European firms in Southwest China observe being treated more favorably than those located in major coastal cities. In addition, they consider having less frequently encountered missed business opportunities due to regulatory difficulties. In contrast to firms in Beijing, Tianjin, Shanghai, or South China, European firms located in Southwest China perceive: –– being more welcome now than ten years ago, –– receiving favorable treatment more often, –– having fewer missed business opportunities due to market access restrictions or regulatory barriers, –– there being less overcapacity in their sectors, –– less often that the “golden age” in China is over for multinational companies (ECCC 2016a). Similarly, for Nordic firms, Chengdu is a preferred location especially concerning future operations, whereas existing operations in Southwest China are still relatively rare (CEMAT 2014). In the survey of 104 companies, the southwest region (mostly Chengdu and Chongqing) hosted only 17 of the respondents’ units, whereas Shanghai hosted 146 different kinds of units (e.g., China headquarters, sales offices, or Asia-Pacific headquarters). However, it is notable that Chengdu appears to be the most popular prospective location to open new operations in, or to which to transfer existing ones when moving to non-first-tier cities. Most of the respondents were planning to open a sales office in Chengdu, but some were also planning a China regional office. The foremost factors for expanding into China’s non-first-tier cities were increasing market reach, decreasing manufacturing costs, and obtaining distribution channels, as well as reaching partners or facilities already located there. Apart from Chengdu, other preferred future locations include Nanjing and Xi’an. A more recent phenomenon is the moving of operations to a new locality after being acquired by a Chinese company.6 While Chengdu has been

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increasingly attracting foreign firms, some have also moved to other locations in China. This may happen not only because of problems in the local business environment but also because of changes in the organization of a global production chain.7 In one case, a lead firm in an industrial cluster was reorganized, which left some of its subcontractors to find new customers, and some a new business altogether in another location in China.8 The challenges that foreign firms encounter in Chengdu’s business environment are partly related to fast economic growth and partly due to the regulatory environment. The major problems for European firms include low air quality, a difficult regulatory environment, reduced communication between firms and the local government, procedures in customs clearance, difficulties in healthcare services and registration processes for foreigners, restricted government procurement, and slow Internet speed and poor Internet access (ECCC 2016b). These inhibit the growth of investments in many respects, such as attracting the necessary workforce for innovation-driven businesses and research and development operations. Yet it is noteworthy that, in comparison with other Chinese regions, firms perceive Chengdu as an easier business environment, as shown above. For firms located in Chengdu, engaging in foreign trade involves transporting goods to and from major port cities, such as Shanghai, passing through several provinces. Most deliveries take place by road, as China has invested heavily in the construction of highways in the midwestern region for the last two decades.9 This is also backed by the government subsidies for road and rail traffic that have resulted in partly concealed transport costs. Other forms of transport include air and waterways, which are the opposite ends of the spectrum where price and size of products are concerned. Air transport is suitable for high value-added light and small goods, whereas inland waterway routes are cost-efficient for bulky and less expensive goods. Waterway transport along the Yangtze River is considered reasonably mature with related services, with the Luzhou Port as Sichuan’s biggest port located between Chengdu and Chongqing.10 It is also one of the aims of the 13th FYP and the OBOR initiative to connect the provinces along the Yangtze River more closely to each other, which would ease the moving of exports and imports across the country. When it comes to sub-national trade barriers, there appear to be no specific tariffs, fees, or bureaucracy when crossing provincial borders. The question of interprovince transport and trade barriers were discussed in company interviews in Chengdu and other parts of China. According to

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informants, the choice of transportation mode depends on the distance, time limitation, and size and value of the delivery. An engineering company that transports large semifinished products from factories to delivery sites, for example, between Shanghai and Chengdu, uses fast delivery trucks because of the too long lead time by train.11 In general, there are no difficulties in moving goods between provinces. Some sector-specific regulations apply, such as special packing for chemical goods. In addition, transportation requires authorized enterprises, carrier insurance liability, qualified drivers, and registered special vehicles, which can be quite complicated.12 However, the need for transport varies between industries. For companies in services, such as IT and software, there is rarely a need to transport tangible goods—usually only when importing investment goods. One company, for example, bought the laboratories for its new unit from abroad, and the foreign supplier took care of the shipments to Chengdu.13 Similar findings that there are no particular trade barriers on China’s provincial borders were found in Svensson’s (2013) interviews with eight companies, including Alfa Laval, SKF, and Nissan Motor. None of the respondents had experienced, or heard of, specific obstacles to cross-­ provincial trade. Many commented that the Chinese market is “unified”, and there are no formal restrictions for selling across provinces (ibid.: 32–35).14 Regarding customs clearance for foreign trade in Chengdu, there are three main entry/exit ports in Sichuan province: at Shuangliu International Airport, the Chengdu International Container Logistic Zone, and at Luzhou Port. According to the Dutch business support office, Chengdu Customs provides companies with one-stop clearance services. “Fast track” procedures allow imported goods to be conveyed to bonded zones directly after a one-time customs clearance at Shuangliu Airport (CG 2014). This concerns exports and imports from abroad directly to and from Chengdu. When goods are on their way, there is no customs clearance or quarantine procedure at other provincial borders.15 However, there may be additional costs due to road maintenance fees and charges for the use of the maritime harbor. To sum up, while China formally aims to improve its regulatory environment, the realities as seen from the business level give a somewhat more pessimistic outlook. European firms observe an increasingly difficult environment with discriminatory policies and practices, as well as deteriorated circumstances for foreign trade, especially in major coastal cities. In comparison, the inland growth hub Chengdu—one of the nodes of the

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OBOR New Silk Road—appears to have a more favorable institutional environment for firms. This indicates a potentially continuing shift of economic activity from coastal regions to China’s interior, one of the aims of the OBOR.

China’s International Trade and Investment Agreements The Chinese government considers FTAs important in integrating the country into the global economy and, at the same time, speeding up domestic reforms (MOFCOM 2017). One of China’s earliest FTAs was signed with ASEAN in 2004, whereas most of its existing 15 preferential trade agreements were launched in the 2010s. Half of the FTAs are bilateral agreements with Asia-Pacific countries, such as Singapore, South Korea, Pakistan, Australia, and New Zealand (WTO 2017d). In regional Asiawide constellations, China has been a member of the Asia-Pacific Economic Cooperation (APEC) forum since 1991, and a signatory to APTA since 2001 and to the China-ASEAN FTA since 2004. However, APEC is essentially a discussion forum, and APTA has not reached significant liberalization in trade, as was noted earlier. Only the FTA with ASEAN appears to have proven results in eliminating formal trade barriers, as was observed concerning tariff protection in China. From this, it is clear that FTAs with a sound tariff reduction scheme will have a real impact on trade flows. Some of the recent developments in China’s FTA front are directly related to the OBOR initiative. In 2017, China and Russia had negotiations on a China-Eurasian Economic Union trade and economic cooperation agreement and decided to carry out a feasibility study on a Eurasian Economic Partnership Agreement (MOFCOM 2017). It has been further reported that China aims to negotiate FTAs with many—if not all—of the trade partners that are part of the OBOR plan, that is, 64 countries in Europe, the Middle East, Central Asia, and South Asia (Tekes 2016). In line with the OBOR initiative, China will pursue new FTAs with countries related to transboundary projects. The most important negotiations in this respect are for the Regional Comprehensive Economic Partnership (RCEP) that China aims to accelerate with its regional neighbors. The RCEP is a proposed free trade agreement between the ten ASEAN countries and the six countries with which ASEAN has FTAs in

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force, namely Australia, China, India, Japan, South Korea, and New Zealand. This agreement would increase China’s reach to markets and regions within the OBOR initiative, while also strengthening its role in the Asia-Pacific economy. In contrast, China is not a member of the Trans-­ Pacific Partnership (TPP), and its latest FYP does not mention the TPP. Instead, China has openly promoted only the RCEP (ECN 2016a). The prospect for speeding up RCEP talks has since increased due to the changes in the US administration and the withdrawal of the United States from the TPP in early 2017. As a result, several rounds of negotiations have been held for the RCEP in 2017, with China and Singapore reportedly striving to speed up the process even further (Reuters 2017). The RCEP would complement China’s existing 15 preferential trade agreements, many of which were signed with small economies that are not significant in China’s external trade (e.g., Jiang 2010). During the last two years, however, China has signed FTAs with Australia and the Republic of Korea, both important trade partners (WTO 2016a; MOFCOM 2017). Some of the other FTAs under negotiation that China might want to push forward with include the China-Gulf Cooperation Council FTA and the upgrading of the China-Pakistan FTA, as both are relevant for the OBOR initiative. Furthermore, in recent years China has been one of the most active countries in the world in concluding International Investment Agreements that are highly relevant in light of the infrastructure investment projects along the OBOR. The purpose of investment agreements is to liberalize and protect cross-border investments, and to define procedures for dispute resolution if mutual commitments are not met (UNCTAD 2016). The most common type of these agreements is the Bilateral Investment Treaty (BIT), which aims to promote and protect investments made by enterprises or individuals from the respective countries in each other’s territory. China has 110 such BITs in force, and several more signed but not yet in force (UNCTAD 2017). The other type of agreement is called a Treaty with Investment Provisions (TIP), such as China’s TIP with the ASEAN countries. They can be treaties with limited investment-related provisions, treaties that contain framework clauses only, or FTAs and economic partnership agreements that encompass investment issues. Recent examples of the latter are China’s FTAs with Australia and with the Republic of Korea (UNCTAD 2016: 102). In addition, China is working to negotiate investment agreements with two major trade and investment partners, the EU and the United States

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(ECN 2016a). The possible agreement with the EU has the potential to facilitate and protect investments made under the OBOR initiative for a railroad connecting the two continents. The EU and China have been negotiating a bilateral investment agreement since 2014, and they agreed on the scope of the deal in 2016 (DG Trade 2016). The future agreement would aim to ease the regulatory environment, including transparency, licensing, and authorization procedures on FDI. Moreover, China’s activity in the OBOR initiative has been noted, and has gotten a reaction within Europe. One such response is the EU’s launching of the EU-China Connectivity Platform in order to counterbalance the situation so that China does not “hurry alone with the initiatives”.16 The Connectivity Platform aims to foster transport connections between the EU and China based on the Trans-European Transport Network (TEN-T) framework and OBOR, and to promote green transport with projects based on sustainability (COM 2017).

Discussion: The Prospects for Changing Multi-­scalar Governance of Trade China is striving to develop its inland provinces, as well as infrastructure and transportation between major coastal cities and selected regions and cities in its interior. Its objective is to balance regional differences, and to shift some of the economic emphasis from congested first-tier cities to second- and third-tier cities in the provinces. These regional development goals are included in China’s current FYP and are brought into its international initiatives, such as OBOR. This chapter has discussed China’s sub-national and international trade policies related to OBOR, particularly the regulatory environment for trade from the perspective of foreign businesses in China. The business sentiments are understood as reflecting the ease of cross-border investments, which are at the heart of the OBOR initiative with its international reach. The institutional framework affecting company-level operations in China has been explored by analyzing the formal and informal institutional constraints (North 1990; Peng 2003; Holmes et  al. 2013) that firms encounter in their trade-related activities. It has been found that the business outlook has recently become somewhat gloomier. Problems include China’s security-related legislation, burdensome bureaucracy, arbitrary enforcement of regulations, and worsened Internet access, all of

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which make the regulatory environment more difficult for foreign companies. Business surveys and company interviews indicate that firms perceive the enforcement of regulations, informal practices, and the treatment of foreign companies as more unfair than the legislation itself. This points toward informal institutions being a more relevant constraint than formal ones for foreign firms in the Chinese business environment. However, there are distinct regional differences in China as to the firms’ perceived business confidence. European firms located in southwest China, for example, observe being “more welcome” than firms in coastal cities. They perceive less protectionism, unfair treatment, and discrimination by the local authorities than firms located in first-tier cities. This potentially enhances regional development in China’s interior, especially in the transportation hubs along the “Belt”, such as Chengdu. Being a significant air, rail, and highway transportation hub, the physical infrastructure for foreign and domestic trade in Chengdu is developing fast. Furthermore, it is argued that the OBOR-related changes in China’s regional policies will have marked implications on the regional orientation of its foreign trade. For the OBOR initiative, there are three specific developments that can be discerned with regard to the possible changes in the multi-scalar governance of trade in China. First, economic activities— including foreign investments—continue to shift from China’s Eastern coast toward the FDI hubs in its interior, such as Chengdu. This will further increase China’s internal transport and cross-provincial trade. However, the first-tier cities remain important major hubs as well. Second, cross-provincial trade barriers are at a notably low level, and will be further reduced along with the development of the inland provinces and the transportation routes to and from major ports. At the same time, China’s formal trade environment continues to improve, while informal constraints remain. Third, trade flows between China and Europe through the Eurasian continent are expected to grow because China and the EU are the two biggest markets in the OBOR initiative. This is an opportunity for firms in inland provinces as it reduces the transport time for exports and imports between China and Europe when compared to existing maritime routes. However, the eventual operability of the “Belt” route will be subject to geographical and potentially political challenges. In addition, in line with the OBOR policy, China is pursuing new FTAs related to its transboundary projects, which it will facilitate through international cooperation within the AIIB. These FTAs, if concluded, will provide a transnational framework for the initiative at both political and

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business levels. When it comes to regional development—and improving the transport infrastructure as part of it—China’s previous priorities have focused on developing its domestic network of roads and railways. Its future priorities, in turn, focus on developing the rail and marine routes abroad, connecting China’s inland hubs to foreign trade hubs in its OBOR partner-countries. The findings of this chapter support the idea that the regional development aims of the OBOR initiative are reflected in the multi-scalar governance of trade in China. Striving to develop its interior, China wants to ease the sub-national trade environments in inland hubs along the railway routes that cross the mainland and extend into OBOR partner countries. Inland hubs, such as Chengdu, compete for investments by offering a more favorable business environment compared to coastal cities where business is becoming tighter. National trade policy, reflected in the average tariff levels, remains somewhat protective. Internationally, governments in Asia and elsewhere seek bilateral FTAs to overcome the slow multilateral process. China pursues new free trade agreements with selected priority trade partners—the OBOR partner countries—in order to liberalize trade and thus facilitate cross-border infrastructure investments for its OBOR initiative.

Notes 1. The growth rate of China’s real gross domestic product (GDP) was 7.8% in 2013, 7.3% in 2014, 6.9% in 2015, and 6.7% in 2016 (World Bank 2017). China’s merchandise exports declined by 3% in 2015 and further by 8% in 2016, and, at the same time, merchandise imports declined by 14% and 5%, respectively (WTO 2017a). 2. For the list of countries, see FBIC (2016). 3. The AIIB was established by China and 20 countries from Asia and the Middle East in late 2014, and later extended to over 50 member-countries including those from Europe (AIIB 2017). 4. Interview at a support organization, Beijing, October 19, 2016. 5. MFN is a tariff with Most Favored Nation status, that is, the lowest tariff a country can apply to imports from another country. WTO members are required to grant MFN status to other members. 6. Interview at a vehicle manufacturing company, Chengdu, April 9, 2015. 7. Interview at an IT services company, Chengdu, April 7, 2015. 8. Interview at a software company, Beijing, April 27, 2015. 9. Interview at a support organization, Shanghai, October 26, 2016.

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10. Interview at a support organization, Shanghai, November 8, 2016. 11. Interview at an engineering and service company, Shanghai, 19 June 2017. 12. Interview at a support organization, Shanghai, 8 November 2016. 13. Interview at an IT services company, Chengdu, 7 April 2015. 14. It remains unclear, however, whether the company representatives were asked about the concrete procedures at provincial borders, such as any possible payments collected, burdensome paperwork, or any other practices that the cross-provincial checkpoints may have when goods are transported from one province to another. In addition, it may be that the respondents have no direct experience of the matter if their distributors take care of cross-provincial transport. 15. Interview at a support organization, Shanghai, 26 October 2016. 16. Interview at a support organization, Beijing, 19 October 2016.

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CHAPTER 6

China’s Momentum: The “One Belt One Road” Triple’s Securitisation Paulo Duarte

Introduction This chapter aims to understand how China is seeking to promote its economic, political, military and cultural objectives in this new century. Based on the assumption that the Chinese New Silk Road (called the One Belt One Road—OBOR) is the instrument par excellence used by Beijing to achieve such goals, I will analyse the geopolitical and geostrategic contours embraced by the OBOR in both its maritime and land components. To this end, I have adopted, at the methodological level, the conceptual lenses of the so-called Copenhagen School, in particular the term securitise. Thus, through a qualitative analysis, which focuses on understanding rather than quantification, this chapter approaches the concept of securitisation, while making clear that according to the Copenhagen School, in this respect “the securitisation and the criteria for the securitisation are intersubjective practices, whereby a securitising agent tries to establish, socially, the existence of a threat to the survival of a unit” (Duque 2009: 477).

P. Duarte (*) Centro de Investigação em Ciência Política, The University of Minho, Braga, Portugal © The Author(s) 2019 L. Xing (ed.), Mapping China’s ‘One Belt One Road’ Initiative, International Political Economy Series, https://doi.org/10.1007/978-3-319-92201-0_6

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Marina Duque explains that “when a subject is securitised, it comes out of the scope of normal policy and moves into the scope of emergency policy, characterised by the confidentiality and the disregard of the normal institutional mechanisms —which usually legitimates, for example, the use of force” (2009: 479). On the other hand, according to Buzan, Waever and de Wilde, “a successful securitisation has three components (or steps): threats to existence, emergency action and effects on the relations between the units through the breaking of rules” (1998: 26). Having said this, what is the conceptual relationship between that which the School of Copenhagen establishes for the securitisation cases and the logic inherent to the OBOR? Could one not argue, instead, that the OBOR is a desecuritisation move? As regards the first question, it is also important to find answers to the following questions: What is the perceived threat, what is the securitising agent, what is the audience and what is its reaction towards the construction of the threat? And, finally, what are the extraordinary means to securitise? In the case of the OBOR, the securitising agent is the Chinese government. However, the perceived threat is not one factor, but a set of factors. In the political sphere, the threat perceived by the government is that of the beginning of the collapse of the regime. The fear that the Chinese Communist Party is pursuing the same dangerous path that led to the sudden and unpredictable end of the Soviet Union is, in fact, omnipresent in the minds of the Chinese political leaders. Moreover, we notice when studying both political elites and the Chinese society that the Party has, to a large extent, lost the mobilising function it once held; today, it mainly assumes a role of regulation and distribution, and its nature has become more state-run than partisan (Duarte 2017). Another factor which is detrimental to the Party’s credibility relates to the sociological change it has undergone. In fact, if the Party once presented itself as the vanguard of the peasants and the proletariat, it has presently become heterogeneous and strangely ambiguous, and is now aiming to incorporate the ruling classes, which are often seen as parasitological and outrageously corrupted groups (Pei 2015). To circumvent the difficulties that undermine the future of the Party, that is, the perceived threat according to the Copenhagen School, the government sees the OBOR as an extraordinary means to overcome the reasons for internal discontent through an “ideological” effort. The Chinese society (the audience) seems to comply with the OBOR’s appeal towards China’s rejuvenation, concentrating the divergence factors not around the Party, but around “noble” ideals such as the Space race, Taiwan, the Olympic Games, the Chinese Dream and the win-win philosophy (Chang 2015).

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At the economic level, the threat perceived by the securitising agent is clearly the current state of China’s economy, which needs a boost to resume the growth of recent decades. Everything is indeed connected. The maintenance of the regime depends on its ability to maintain prosperity, development and access to energy and food resources by a China that is, in the end, the most populous country in the world. The government therefore has devised the OBOR as a going abroad, with tacit approval of the society which sees in this a legitimate and extraordinary means to get from the world what China needs to achieve the Chinese Dream, imbued with nostalgia and pragmatism, and, at the same time, to recover growth (Cohen and Dalton 2016). At the military level, in turn, China is not a country predisposed to war. It never was in the past. Above all, China supports a regional peace environment (the inevitable issues of Xinjiang and the Central Asian periphery, or the troubled South China Sea, or even the Koreas), conducive to the fulfilment of its economic and social goals. The “harmonious society” and the “Community of Common Destiny” are unlikely to be achieved in war-­ mongering environments. However, being a pacifist does not mean adopting a laissez faire attitude. The government is aware that the armed forces are a source of prestige and deterrence, but may also provide a rapid response to situations potentially triggered by third parties. Thus, the fact that this article presents the vision of other authors on the militarisation of railroads or ports (the case of Djibouti, or the String of Pearls) does not necessarily mean that the OBOR is, in its essence, war-mongering. On the contrary, this is simply to acknowledge that the OBOR is a multifaceted strategy by which to respond to threats in the economic, political, cultural (to promote a better image of China) and military spheres. As this author conceives it, in this context, militarising means ensuring the security of supply lines by land and sea, not opening an attack, but knowing how to defend oneself if attacked. After all, what does the first Chinese anti-­ terrorism Act, approved in late 2015, signify? It recognises that the country needs to adapt to the new era, providing the armed forces with the right and duty to act abroad in defence of Chinese interests when and if threatened by terrorist winds (Annual Report to Congress 2016). For all these reasons, and thus responding to the second question raised above, it does not seem plausible to this author to suggest that the OBOR is an effort of desecuritisation, in so far as desecuritising involves returning to normality, abandoning the extraordinary means and the legitimacy of the threat. At least for now, this does not seem credible. Politically, the

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regime is facing several disputes (the case of Hong Kong) and a perception of vulnerability (as explained above). In the economic sphere, the threat is as evident, or even more so: the OBOR aims, therefore, at exploring new markets and maintaining the existing ones to improve the economy (Stone 2016). In the military context, the evolution of the economic situation is presently uncertain: Taiwan, Xinjiang, the South China Sea, among others, require a response ability (never attacking in the first place, it should be noted), if national interests are compromised. It certainly makes sense to speak of desecuritisation, but only when the threat disappears or, at best, is substantially mitigated. My analysis is structured in four stages. I will start by investigating the reason for a New Silk Road, and continue by highlighting the soft nature of the Chinese strategy. In the third and fourth sections, I will seek to understand the challenges of the land component of the OBOR, studying, in the final section, the characteristics of its maritime component. In anticipation of the main conclusions, I will try to demonstrate that the OBOR is a strategy of hybrid securitisation, the fruit of the harmonious interdependence between the land and maritime aspects, as well as of the soft and hard powers inherent in them. However, it is not unreasonable to speculate that this will remain a project for decades, if not generations. The latter aims at developing a high-speed connection between China and the other world countries, by land and sea, allowing us perhaps, as in the famous maxim “all roads lead to Rome”, to predict that, in the future, all logistical ties will contribute to making China a global mega-hub. Furthermore, we can anticipate a (re)union of Europe with the heartland, with all the geoeconomic and geopolitical implications resulting from this, to the detriment of the long transatlantic supremacy, which may thus be weakened. This is, in fact, the great contribution of this chapter at a time when studies on the Chinese New Silk Road are still scarce, since after all, the Chinese project is itself of a recent date.

Why a New Silk Road? In order to understand the essence of the concept of the New Silk Road (which is fundamental in the present chapter), it is important, first of all, to go back to its historical roots, that is, to return briefly to the glorious past of the ancient Silk Road. In one sentence, the so-called Silk Road, whose name derives from the lucrative silk trade during the Han dynasty, consisted of a series of trade routes—approximately 8000 km long linking,

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more than 2000 years ago, the economies of South, East and West Asia to the Mediterranean and the European continent, as well as to a part of North and East Africa (Duiker and Spielvogel 2015). Products such as tea, porcelain and silk but also philosophies, religions and technologies left Chang’an (today Xi’an, the capital of China’s Shaanxi province) and travelled across Central and Western Asia to the European continent (Beijing Review 2014), which explains why the Silk Road was an important economic and cultural link between the different civilisations. By constituting a bridge between East and West where traders, pilgrims, monks and soldiers travelled, the Silk Road being the largest and the most prosperous trade route of its time played a key role in the development of the Indian, the Chinese, the European, the Egyptian and the Persian civilisations, among others (Frankopan 2015). In fact, contrary to the maritime routes, land routes enabled caravans to interact with different cultures and communities until they reached their final destination, thus facilitating the exchange of knowledge, experiences and beliefs (Chanda 2015). Authors such as Sibal suggest that the ancient Silk Road evoked “China’s role in world trade [of the past]” and also “China’s economic superiority of long ago”, which the country wants to recover in the current context (2014: para. 5–6). In this regard, Sibal stresses that “the ancient Silk Road symbolised China’s connectivity to the outside world”, which, according to the author, is today “the focal point of the current economic and commercial strategy” of the country (2014: para. 7). In modern times, trade along the Silk Road would gradually decrease, and developments related to maritime transport would cause the cost of transport by sea to become lower than that by land. On the other hand, the political situation in the region was also decisive for the decline of the Silk Road. All these factors dictated the gradual replacement of camels and mules by vessels, concomitantly with the preference for sea routes over land routes through Central Asia (Chanda 2015). Therefore, the Silk Road crashed as a trade route around the year 1400, although some six centuries later, as I will discuss below, the concept seems to re-emerge. In practice, the aim of the revival of the corridors between the East and the West is to achieve full and multiple securitisation in the political, economic, military and soft power spheres. At the same time, Snelder’s remark is interesting and relevant, stating that “the revival of the Chinese Silk Road is not only reminiscent of the mythical history, but it also says a lot about the strategic direction of the country” (2014: para. 2). Beijing sees it as a way to find new markets (while preserving the existing ones),

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to reduce the imbalance of development between its coastal provinces and the poor interior regions, and to preserve national stability and that of the surrounding areas. Besides the focus on the development of China’s inland provinces, another major goal of the New Silk Road is the issue of stability, as Snelder noted above; however, these objectives are inseparable in practice as development is hardly possible without ensuring stability first. In this respect, the New Silk Road development is largely led by Xinjiang’s development and stabilisation strategy, which Beijing wants to protect from any terrorist or separatist aspirations, ensuring that, at the same time, this province will continue to provide the rest of the country with the natural and energy resources essential to the growth of its economy (Zhao 2015). This Chinese attempt to securitise the western flank is now reaching a moment that is particularly marked by tensions and maritime disputes in China’s eastern flank. But unlike what is happening in the South and East China Seas, where, from a military point of view, the United States is (more) present, Chinese incursions in Central Asia have quite an open path, as long as they are not involved in a geostrategic conflict with Russian interests, since, after all, this is not only China’s near abroad, but also Moscow’s. This is indeed the understanding of experts such as Sharma, according to whom “with the U.S. and NATO withdrawal from Afghanistan underway […], and the Russian economy under sanctions for its role in the Ukraine crisis, China appears comfortably placed to pursue its interests in the region” (2015: para. 2). Alongside the dialogue, high-level meetings and the strategic partnerships mentioned above, the New Silk Road diplomacy largely uses economic cooperation as an essential tool to build bridges with neighbouring countries. This implies, among other things, the signing of preferential agreements, including Free Trade Agreements, but also the granting of credits and preferential loans, which favour mainly the areas of energy, infrastructures and cooperation through the construction of “railways, highways, gas pipelines and oil pipelines” (Future Watch Report 2016: 3). Focusing on an integrated network of regional transport, as in the case for the high-speed rail projects, the aim is to develop the Chinese western provinces and also meet the needs of the country in terms of natural resources. Another reason that justifies the importance of the New Silk Road as an instrument for securitisation of Chinese interests, concerns the momentum that this mega-project will bring to the Chinese economy, regarded in

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a holistic way (i.e. not only at the level of remote provinces such as Xinjiang). In this regard, Esteban and Otero-Iglesias identify four ­economic areas in which the New Silk Road can be decisive: “driving the internationalisation of its construction industry, encouraging exports, reducing risks in the supply chain and attracting investments towards the interior of the country” (2015: 6). Metaphorically, the New Silk Road is a two-way route, either by means of the inducement to expansion of Chinese companies around the world, or in the invitation to foreign investors to privilege the Chinese market. On the other hand, Cohen and Dalton (2016) predict that the New Silk Road might become an important alternative and lever for the economy at a time of a slowdown in the construction sector in China, in that it may provide Chinese construction companies with promising profitability opportunities abroad.

A Soft Strategy The idea—which remains in China—that “[soft power is] an aspect of the “comprehensive power”, an important indicator of a state’s international status and influence, and a tool for maintaining advantageous positions in international competition”, (Sanguanbun 2015: 22) has gained in importance among Chinese strategic circles. It is in the light of this understanding of soft power as an instrument “inseparable from China’s rise”, and likely to help to achieve “a peaceful and stable international environment”, that we understand the importance of this in Xi Jinping’s foreign policy (Sanguanbun 2015: 22). In fact, it is President Xi Jinping himself who recognises the soft power potential: “We should increase China’s soft power, give a good Chinese narrative, and better communicate China’s message to the world” (Xinhuanet 2014: para. 4). Xi Jinping’s message assumes a holistic perception of soft power which is likely to include the aspects of the Chinese foreign and domestic policies in an organic whole, leading to the idealisation of the concept of a “harmonious society” (Sayama 2016). This is the opinion of authors such as Sanguanbun, according to whom “China’s development of soft power is an important task in its highest development strategy of building comprehensive national strength while ‘maintaining internal stability’” (2015: 22). Therefore, it is in this perspective that Beijing has announced its New Silk Road to the world, that is, in a holistic dimension, according to which the securitisation of the periphery (e.g. Central Asia) at the same time enables the ensuring of access of the remote provinces (such as Xinjiang) to a network

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of transport and multimodal services aimed at breaking its isolation (Clover and Hornby 2015). As a result, the logistics behind the New Silk Road will encourage economic development and stability at the national level, as well as at a “more macro” level, that is, extending to other Chinese provinces, as well as to the countries which are receptive to the spirit of the New Silk Road (Brown 2015). That said, Beijing conceives soft power as a tool that can help mitigate, in the long term, the theory of a “China threat”, quite widespread not only regionally but also globally (Severson 2012: xix). As Gao says, “China’s use of soft power abroad is characterised by defensive purposes such as cultivating a better Chinese image, correct misperceptions of China and deter Western cultural and political incursions in China” (2015: 10). The Chinese “charm strategy” encompasses diplomacy, cooperation, and a more active role within the framework of regional organisations, or at the level of multiplication of multilateral cooperation forums with Asian partners. In addition, there is a growing interest in reshaping the international financial institutions in order to strengthen the global economy and offer China a more powerful voice in such institutions (Tiezzi 2015). The goal is clear: “to promote an environment conducive to economic cooperation, to the strengthening of political confidence and regional security” (Zhang 2012: para. 6).1 After all, the New Silk Road provides China with a securitisation model characterised by a set of interests, ranging from politics to the military plan, through energy security (inserted into the economic objectives lato sensu), among others. As Grimm notes: “China made a wise choice in using the strong appeal and confidence-inspiring symbolism of the Silk Road as its sole strategy for developing its soft power” (2015: 2). Although the New Silk Road project is a great means of Chinese soft power (providing it is successful), another aspect not to be overlooked in what concerns the effort of the Chinese “charm offensive” has to do with the fact that “the number of Confucius Institutes established abroad has grown from more than 40 in the United States, and 260 in 75 countries in 2009, to 896 in 108 countries in 2014” (Sanguanbun 2015: 22). Moreover, since Hu Jintao, in 2007, recognised the need for a strong focus on soft power, “China has spent billions of dollars in the years since on ‘soft’ initiatives” (ICEF Monitor 2016: para. 4). Xie Tao points out here, as examples, “improving the communication capabilities of [Chinese government’s] media outlets like CCTV, organizing mega events such as the Olympic Games and Shanghai Expo, […], hosting summits attended by dozens of

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world leaders (e.g. APEC), and sponsoring forums on regional security and prosperity (e.g. the Boao Forum)” (2015: para. 6). In addition to this, initiatives such as the cancellation of external debt, the organisation of exchanges of students and technicians, the granting of scholarships and loans often more advantageous than those provided by the “Western States”, the construction of logistics infrastructures in several countries, among other aspects, also attest a remarkable effort of soft power (Sárvári and Szeidovitz 2016).

The Securitisation of Land Routes The Chinese New Silk Road includes two complementary initiatives: land corridors and maritime routes. Since there are not only three routes, but a network of corridors either already in operation or being planned to connect the East and the West, it is therefore not surprising that different authors envisage different possible itineraries for the Chinese New Silk Road, whose contours still need a (broader) definition. In addition, it remains uncertain whether the New Silk Road will be implemented through a series of bilateral agreements with individual countries or between China and regional bodies (Preston et al. 2016). In what concerns the other links within the New Silk Road, the railway networks are an important logistic alternative likely to help transporting more effectively Chinese products into European and Central Asian markets (Lanjian and Wei 2015). It is not accidental, therefore, that Sahbaz reports that “the Chinese Government has recently made railway connectivity a central feature of its new economic development strategy”, which focuses on the “development of inland connections to address the congestion in China’s eastern regions (i.e. congested ports and rising labour and land costs)” (2014: 3). Railways are an important logistic alternative within the framework of the Chinese New Silk Road since Chinese goods shipped by train to Western Europe take only 16 days (from Chongqing) to reach their destination, whereas sea transport requires about five weeks, with significant delays, in some cases (Stone 2016). The only disadvantage of transporting a container by rail is that it costs about 7000 dollars, which is almost three-and-a-half times the cost of sea transportation, although only a third of the price paid for transportation by air. The rail option allows more effective economic and logistics securitisation in the handling of goods “[which are] sensitive to humidity, perishable or of high value and are not worth transporting by air because of their volume or weight” (Esteban and Otero-Iglesias 2015: 3).

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Even if it is understandable at first sight that Beijing is seeking to securitise logistical access to its Central Asian periphery, in which “[high-speed railways] begin with China Urumqi via Kyrgyzstan, Uzbekistan, Iran and Turkey to Europe”, the Iron Silk Road does not stop there (Lanjian and Wei 2015: 317). In fact, this is a global project, likely to (re)draw and revolutionise the infrastructure of communications and the transportation of people, goods and capital across the globe, literally speaking. Therefore, even if it is a priority for China to begin by securitising its access to the European continent, Beijing is aspiring, in the long term, to more ambitious challenges, such as connecting China to North America2 by rail, or even joining the Pacific to the Atlantic3 (Lanjian and Wei 2015). Considering that Chinese engineers have proved repeatedly that they were able to overcome obstacles often considered as technically and logistically impossible, we can speculate that the Chinese strategy in the coming decades (not years) may not be limited just to the securitisation of the logistical links between East and West. Instead, China’s strategy aims at making the country a global “mega hub” where all paths/directions will tend to converge (Colakoğlu and Sakaoğlu 2015).4 In addition to the reasons already given, the railways play an extremely important role as regards military and logistical securitisation of the Chinese New Silk Road, insofar as they are part of the defence strategy and China’s projection of power in Eurasia, protecting supply lines and allowing possible militarisation (Minnick 2015). In the context of the “Great peripheral strategy”, Pandey and Kusum explain that China is willing to adopt “proactive military actions along several theatres” (2011: 2). In this sense, the “militarisation” of railways within the Chinese New Iron Silk Road aims to ensure rapid mobilisation of troops if necessary. This aspect of the military securitisation associated with the Chinese land New Silk Road makes the railways strategic instruments at the disposal of the People’s Liberation Army (PLA). In this respect, Christina Lin states that “[the latter] has already used the Shanghai-Nanjing express railway to transport troops at speeds up to 350 kilometres per hour, touting the practice as an ideal way to project personnel and light equipment in military operations other than war” (2013a: 37). Although Lin’s contribution is interesting in the securitisation debate, in practice, it is important to recognise that China seems to be more interested in the protection of the maritime supply lines (as I will analyse later) than in the militarisation of the railways. It is certainly possible to provide in advance some explanations concerning China’s priority focus on the

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securitisation of sea lanes, to the detriment of the choice of the railroad for troop transport at the regional level. Among the reasons that seem more plausible, I emphasise the fact that the overwhelming majority of world commodities and, therefore, most of the Chinese exports and imports circulate by sea, which explains why it is crucial for Beijing to maintain an uninterrupted use of sea lanes. It must be acknowledged that the transportation of troops by rail (although possibly effective as Lin suggests), depends on factors such as external authorisation (in particular of the issue of sovereignty) for the construction of high-speed railway lines, and also for the transit of troops and war material.

The Securitisation of Maritime Routes While China is promoting the revitalisation of the trans-Asian land corridors, it is also supporting the promotion of a maritime New Silk Road.5 Authors such as Chaturvedy (2014) suggest that the Chinese maritime New Silk Road should be understood as an instrument at the service of a “Grand Strategy”, which, in turn, is based on the defence of Chinese national interest and on the pursuit of, for instance, strategic access to natural resources, markets and flow and transport routes. Thus, we understand the importance of developing a logistics network, including seaports, corridors, maritime, land and even air routes. However, the maritime New Silk Road is facing a significant challenge, in that the process of modernisation of the Chinese Navy (inherent to the securitisation of maritime corridors) has aroused the apprehension of neighbouring countries regarding China’s intentions in the regional context (Swaine 2015). Therefore, despite the emphasis that Beijing is placing on the advantages of the maritime New Silk Road for ASEAN countries, the reality is that, paradoxically, the exacerbation of the maritime disputes in the South China Sea and the modernisation of the Chinese Navy have made the United States to approach ASEAN countries, while we are witnessing a race for naval rearmament in the region (Thayer 2015). Similar to what happened with the railways that incorporate the Chinese New Silk Road, China is also aiming to equip seaport infrastructures with a military dimension, in addition to their civil utility. In other words (and according to my assumption), the Chinese New Silk Road assumes complete securitisation, since, in addition to energy-related, cultural, commercial and financial (to expand the renminbi), logistical and political aspects, it also includes a military securitisation effort. In this regard, Lin explains

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that “Chinese naval vessels have embarked on active diplomacy in the far seas, with regular port calls and ‘show of flags’ in the Gulf of Aden where it conducts anti-piracy missions, as well as in the Mediterranean Sea and the Black Sea, where China has acquired various seaports in the littorals” (2013b: 12). However, in the context of the Chinese New Silk Road, militarising ports means equipping them with a set of tools that allow them to be used for “military operations other than war”. And what are these tools? As regards the need of mobilisation of Chinese troops for a zone of instability, as in Africa (where China has concluded, for instance, important energy and commercial agreements with local countries), Lin (2011: 20) stresses: The construction of secure, joint civil military use airfields with associated support facilities (hangars, terminals, fuel storage, etc.) capable of supporting heavy lift aircraft (e.g., C-17, Boeing 777s etc.); modernisation of strategic port facilities, especially in central regions of both Africa’s eastern and western coasts. […].

The “military operations other than war” have a double strand: “to both defend China’s overseas interests and provide public goods to the international community” (Ghiselli 2015: 14). When speaking of the maritime New Silk Road, it is essential to refer to the “String of Pearls”. Why? Because this is fundamental in the context of the militarisation of the port network, as well as of the securitisation of the Chinese New Silk Road maritime corridors. In the event of a conflict, China fears an oil embargo by the United States (the action of securitisation),6 and therefore Beijing has promoted the creation of onshore bases, responsible for the protection of its supply routes (Holmes 2016). The “String of Pearls” is an “artificial coastline”, formed by logistic and diplomatic support points along the main navigation routes (from Myanmar to the Strait of Hormuz), which allows China to monitor the Indian Ocean (Kleven 2015). By negotiating such a project with the Indian Ocean states, that is, ensuring permanent surveillance of the Indian Ocean maritime lines and of the long distance of Chinese bases, China is, however, entering a sphere that India considers as its near abroad. It follows that with every Chinese attempt to securitise the access to key ports of the Indian Ocean, New Delhi responds, in turn, through a diplomatic counteroffensive of soft power, which often includes economic support to the states in the region, in order to contain China’s logistic, energy and military securitisation

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(Pejsova 2016). In this regard, the “String of Pearls” is a sort of “cat and mouse” game between China and India in which each power is seeking to contain the advances of the other in the Indian Ocean. The main beneficiaries of this geopolitical and geostrategic competition are states such as Myanmar, Bangladesh, Maldives, Pakistan, Sri Lanka, Seychelles, which are seeking to maximise their economic interests (Mullen and Poplin 2015). Authors such as Singh (2015) argue that Chinese maritime incursions into the Indian Ocean are not recent, insofar as it has been a while since China was seeking to expand its strategic presence in the region. However, the operations to combat maritime piracy in the Gulf of Aden, as well as in the other sea routes linking the Indian Ocean to the Suez Canal and, more recently, the impetus for the expansion of economic ties between China and the rest of the world (as advocated by the Chinese New Silk Road) explain the increase of Chinese naval activities in the Indian Ocean (Philipp 2015). Or at least in part, as for experts such as Struye, “this presence hides an issue that goes beyond the fight against piracy: the domination of communication channels, because through this deployment, we notice a tacit dispute between great powers to control the sea routes that go from the Strait of Bab el-Mandeb to the Strait of Malacca, world trade arteries” (2009: 8). Blasko believes that “the shift to a more maritime-oriented mindset and force structure is an evolutionary step necessitated by growth in all aspects of China’s comprehensive national power” (2015: 6). In fact, the securitisation dynamics inherent in the String of Pearls in the Indian Ocean reflects, in my view, the economic imperatives described by Blasko. That is to say, China wants its Navy to be a guarantee that nothing fails at the economic level, in such a way that the military securitisation of Chinese incursions on land and at sea are complementary and intrinsic to the economic, energy-related, political and cultural7 securitisation that underlie the Chinese New Silk Road. Thus, any attempt at interpreting what China wants from the sea, or the purpose of a String of Pearls in the Indian Ocean or the reasons that lead Beijing to modernise its Navy or the construction of artificial islands in the South China Sea or, in a broad sense, the securitisation of maritime lines, should take into consideration the evolution of the Chinese naval doctrine. In fact, we are witnessing today a physical change, in the sense of an increasing modernisation of military means, which is accompanied by an evolution of the strategic reflection (Martinson 2016). This strategic reflection is inspired by, among other theoretical contributions, the thesis of American Alfred Mahan. For him, “the domination of the seas must be a priority given the freedom of the

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seas and the exploitation of the commercial maritime routes: trade needs a merchant marine and a navy to protect it, as well as support points (refuelling and reparation) on the maritime routes” (cited by Struye 2009: 11–12). Within the framework of the securitisation efforts inherent to the String of Pearls, which is, in turn, an important component of the Chinese maritime New Silk Road, I consider it pertinent to speak of two “pearls” which are particularly important: Gwadar and Djibouti. By analysing the geopolitical and geostrategic contribution of Gwadar, I expect, in fact, to understand how China is trying to securitise its energy supply. Gwadar is one of the Indian Ocean ports with overland links to western and southern China that would help the Middle Kingdom to avoid the Malacca Dilemma. If, in logistic and energy securitisation, the China-Pakistan Economic Corridor will include “the construction of highways, railways, and natural gas and oil pipelines” at the geopolitical level, “China’s participation in Gwadar will also allow it to expand its influence in the Indian Ocean, a vital route for oil transportation between the Atlantic and the Pacific” (Foreign Affairs 2015: para. 2). As explained by Carriço, “Gwadar will be an interesting alternative to the flow of energy reserves from Central Asian Republics, because the distance from Kusha (to Turkmenistan) until Gwadar is 1200 km, compared to the 3400 km which separate it from the nearest port of Odessa, on the Black Sea” (2011: 497). It should also be noted that Pakistan provides China with a trade and energy corridor by Gwadar, through which the oil from the Middle East stored in refineries in Gwadar will travel to China through pipelines and railroads (Bhattacharjee 2015). This corridor offers a shorter route between Western Asia and China, allowing “considerable savings in time and shipping costs”, since, as Ramachandran explains: The current route for transporting oil and other commodities from western Asia to Chinese ports, which is via the Straits of Malacca, is roughly 12 000 km long. It is another 3 500 km of overland travel from Chinese ports to Xinjiang. In comparison, the route from Gwadar Port to Xinjiang is just 3 000 km. (2015: para. 7)

In terms of “Military Operations Other than War”, the logistics inherent to the China-Pakistan Economic Corridor can help China securitise its interests through quick mobilisation of troops and military equipment from sea ports to the interior, or from the railroads towards ports for ships which will then displace to a theatre of war offshore (Sakhuja and Khurana

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2016). Still in the field of military securitisation, Gwadar can provide an observation post (and even a support station) for the Chinese People’s Liberation Army, as this is “strategically located just outside the Strait of Hormuz, through which 40% of the world’s oil traffic circulates” (Vandewalle 2015: 6). Now, let us analyse the importance of Djibouti in the context of the logic of securitisation inherent to the Chinese maritime New Silk Road. The choice of Djibouti for hosting the first Chinese naval base abroad was based on a technical, economic, political, military and soft power logic. First of all, the choice of the location, in the Horn of Africa, fits geostrategically in the operations of fight against maritime piracy and, therefore, in the securitisation of maritime lines. In fact, the geographic location of Djibouti with its maritime borders with the Red Sea and the Gulf of Aden makes this country a crucial traffic artery for ships passing through on their way to Africa, Asia and Europe (Orion 2016). From logistical and technical points of view, the first Chinese military base abroad will be built in a country (Djibouti8) that houses other foreign military forces simultaneously, that is, French, Japanese, German, Italian and American. In my opinion, the construction of China’s first military base abroad certainly provides various geopolitical interpretations, which, in turn, are still influenced by certain prisms of values and/or schools of thought (e.g. realist, liberal, constructivist, among others). However, if we look at the evolution of the Chinese naval doctrine towards greater pragmatism and the defence of China’s interests abroad, we may conclude that ultimately, the rationale inherent in the construction of the first Chinese base in Djibouti fits into a continuing effort to promote and ensure security. Indeed, if yesterday’s China had built its first aircraft carrier, Liaoning, or if Beijing had decided, although in operations coordinated with other superpowers, to send its Navy into waters affected by piracy, it is relatively likely that today’s China would maintain its pragmatism, adopting new measures. In this regard, Djibouti and, likewise, the essence of China’s New Silk Road must be understood in the light of the interests of a power which are inspired in Mahan’s thesis, by noting, as I have explained, that the trade needs a Navy to protect it. To find more elements that attest to the securitisation of naval interests and that help us understand the raison d’être of a Chinese naval base, as well as the reason for a Chinese aircraft carrier, we may study in particular the content of the 13th Five-Year Plan. Although the previous five-year plans recognise the ocean as a source of resources which are likely to stim-

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ulate China’s economic development, it is the 13th Five-Year Plan that introduces a new Chinese perspective on the sea (Martinson 2016). China, which until the emergence of the 13th Five-Year Plan had prioritised land over the sea, would become “a land sea hybrid State”, recognising, through “land-sea coordination”, introduced by this plan, that land and sea are complementary and part of an “organic whole” (Martinson 2016: 16). In operational terms, Beijing is increasingly investing in a sea denial9 strategy and therefore gradually moving away from the simple defence of the Chinese coasts. However, in order to carry out military operations in the open ocean (which requires a blue-water navy10), some quantitative, qualitative, spatial, and temporal stages must be gradually overcome. Although “the growth of China’s shipbuilding industry [is] more rapid than any other in modern history”, as acknowledged by Erickson, among others, this expert believes that “around 2030, the Chinese Navy would still be in the early stages of increasing operational proficiency and its ability to engage in high-intensity operations in distant waters” (2015: 2). According to Erickson’s projection, however, this does not prevent the People’s Liberation Army (PLA) from introducing, in 15 years, conditions to “actively oppose U.S. Navy operations in a zone of contestation for sea control in the Yellow, East China, and South China Seas, while extending layers of influence and reach far beyond” (2015: 2). Although the PLA modernisation occurs in a quantitative, qualitative and temporal way, the military securitisation of China’s maritime interests also requires progressive space overcoming. Therefore, even though Beijing’s military interests are concentrated in the South China Sea, the South Pacific, although distant, is important in the context of the securitisation of maritime routes and the so-called projection of power. Indeed, in a context in which the Chinese Navy has already indicated its intention to operate regularly beyond the first chain of islands, which separates the South and the East China Seas, and the Yellow Sea, from the Pacific Ocean, Yu reports that “the Pacific Islands serve as a second chain of islands, as the United States call it, to restrict the global freedom of manoeuvre of the Chinese People’s Liberation Army navy” (2015: 1). Therefore, from the point of view of geostrategy and the securitisation of military interests, overcoming the second chain of islands is essential for China. Because in a potential scenario of hostility that will allow Beijing to prevent any attempt to contain its Navy (by a rival power) and, then, because the control of the second chain of islands is essential for the transformation of the PLA’s Navy in a “blue-water navy” (Yu 2015).

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Final Remarks Despite India’s apprehension regarding the so-called String of Pearls, I do not consider this to be an “unusual” behaviour for a great power like China. In fact, if we take into account the Chinese (re)emergence and the strong nationalism that characterises today’s China, it can be expected that the country conceives the ocean not only as an instrument of securitization, since the great majority of the oil it imports crosses it, but also as a means of power projection. And, in this sense, China adopts a behaviour similar to that of other maritime powers in the past. Much has been speculated about the nature of Chinese interests in the port of Gwadar and in what will be the first Chinese naval base abroad (Djibouti). However, the great “surprise effect” that this causes, in my opinion, lies not so much in the desire to build overseas bases, but in the fact that the Chinese foreign policy is, in essence, a non-interference policy. But, even in this context, we must be prudent. Indeed, although the “new” Xi Jinping’s China has already given evidence that its conception of International Relations is dynamic and pragmatic, is it not acceptable for the country to worry about protecting the diaspora and the Chinese interests worldwide? In this sense, I consider Djibouti not as a real military base, or as a sort of war-­mongering provocation to military dominion of powers like the United States, but rather as a logistics facility likely to serve military operations other than war, and as a symbol of the legitimate interest of a power that is concerned with securitising the energy flows in a region mined by maritime piracy. Ultimately, the Chinese New Silk Road aims at the peaceful (re)emergence of a China nostalgic of its past of glorious feats, though imbued with exacerbated nationalism and the pursuit for legitimacy of a regime whose continuity and credibility are worrisome. In this sense, the New Silk Road is made not only of infrastructures and investments, connectivity and “thirst” for resources but also of a narrative that the government is constructing for “internal consumption” and in order to allay the fears of the international community regarding China’s real intentions in this century. It is essential that we begin by overcoming the bureaucratic obstacles and mistrust between states, in addition to China, which are involved in the revitalisation of all this network of logistic corridors so that this extraordinary venture may result in more intense accomplishments. The evolvement of the visions of the different actors towards Central Asia, and the initiatives associated with this, may (or may not) dictate the inversion of conventional theories that tend to consider the region as an “isolated

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island” in the world map. In fact, I believe that, in the context of the reconfiguration of the regional and world powers, the Eurasian heartland will gradually emerge from its isolation, which is quite telling about America’s future position in a world where more people may be travelling across Eurasia by rail than flying across the Atlantic to the United States. This may in fact be the beginning of an extraordinary geopolitical, geostrategic and geoeconomic world reconfiguration. I encourage other works and researchers to investigate to what extent Gwadar and the China-Pakistan Economic Corridor will help Beijing mitigate its dependence towards Malacca by operating a corridor which allows Xinjiang’s logistic and energy access to the Indian Ocean. Moreover, it will be interesting to understand what role the PLA can have within the Chinese New Silk Road, as well as to know whether Djibouti will be an “irreversible” precedent in the construction of several support bases for the securitisation of Chinese shipping supply lines.

Notes 1. More recently, China has sought to expand its soft power through a series of initiatives. Morrison, recalls, for example, that in July 2014 “China, along with Brazil, Russia, India, and South Africa, announced the creation of a $100 billion ‘New Development Bank’”, or that “in October 2014, China launched the creation of a new $100 billion Asian Infrastructure Development Bank”, or even that “in November 2014, China announced that it would contribute $40 billion to a new Silk Road Fund designed to improve trade and transport links in Asia”, and, that “in April 2015, China announced that it would invest $46 billion in infrastructure development in Pakistan” (2015: 42). 2. By building for this purpose an underwater tunnel of a length of about 200 km at the Bering Strait. According to Lanjian and Wei, “the whole line shall total about 13,000  km, if built, it will eventually connect Beijing, New York and even Washington D.C.” (2015: 318). 3. The Two Oceans Railway refers to a railway construction project of about 5000 km that passes through the South American continent, connecting the Pacific and Atlantic coasts (Lanjian and Wei 2015). 4. I am obviously in an area of pure speculation, but in geopolitics, I believe it is not inappropriate to exclude prospective scenarios, especially considering that the time scale for the implementation of global securitisation would be generations or decades, and that China has been able, as an ancestral power, to wait for its time.

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5. For this purpose, President Xi Jinping has focused, among ASEAN members, his speech on a “win-win” strategy, on the apology of a “shared destiny between China and ASEAN members”, explaining that “China is ready to open itself wider to ASEAN countries” and to enable them to “profit more from China’s development” (Wu and Zhang 2013: para. 11). 6. The perception of the threat, according to the theory of the Copenhagen School. 7. At the cultural level, I underline the aspiration to China’s rejuvenation, as advocated by Xi Jinping. 8. Whose area is less than that of the city of Chicago. 9. Sea denial is a military term that describes the attempt to deny, to the enemy, the use of the sea (usually through maritime and/or port blockades). 10. The term “blue-water navy” means a naval force capable of operating in deep waters of open oceans.

References Annual Report to Congress. 2016. Military and Security Developments Involving the People’s Republic of China, April 26. Office of the Secretary of Defense. Beijing Review. 2014. Silk Road to Prosperity. 57 (13): 1–19. Bhattacharjee, Dhrubajyoti. 2015. China Pakistan Economic Corridor (CPEC). Indian Council of World Affairs. Issue Brief, May 12, 1–15. Blasko, Dennis. 2015. The 2015 Chinese Defense White Paper on Strategy in Perspective: Maritime Missions Require a Change in the PLA Mindset. China Brief XV (12): 3–6. Brown, Kerry. 2015. The Security Implications of China’s Belt and Road. The Diplomat, November 27. Available at https://thediplomat.com/2015/11/ the-security-implications-of-chinas-belt-and-road/ Buzan, Ole Waever, and Jaap de Wilde. 1998. Security – A New Framework for Analysis. Boulder: Lynne Rienner Publishers, Inc. Carriço, Manuel. 2011. A Geopolítica das Linhas de Transporte na Ásia: Uma Incursão Analítica. Revista Militar (2511): 469–523. Retrieved from https:// www.revistamilitar.pt/artigo/645 Chanda, Nayan. 2015. The Silk Road – Old and New. Global Asia, Yale Global Online. MacMillan Center, October 26. Available at http://yaleglobal.yale. edu/content/silk-road-old-and-new Chang, Gordon. 2015. Will 2016 Bring the Collapse of China’s Economy? The National Interest, December 29. Available at http://nationalinterest.org/feature/will-2016-bring-the-collapse-chinas-economy-14753 Chaturvedy, Rajeev. 2014. New Maritime Silk Road: Converging Interests and Regional Responses. ISAS Working Paper, n.° 197, October 8. Institute of South Asian Studies National, 1–20.

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CHAPTER 7

Unpacking Economic Motivations and Noneconomic Consequences of Connectivity Infrastructure Under OBOR Ritika Passi

Introduction With the introduction of the One Belt One Road Initiative (OBOR), Chinese President Xi Jinping heralded a new era of Chinese integration into the global economy. The twin strands of the project, the overland Silk Road Economic Belt (SREB) and the twenty-first century Maritime Silk Road (MSR), beckon better connectivity across the Eurasian continent as well as outreach to Africa. Together, they cover 65 countries that account for 70% of the world’s GDP, are home to 60% of the world’s population, and lay claim to 75% of the worlds’ energy resources. From its public declaration in 2013, OBOR has seen ready traction: from the signing of the first original OBOR project in April 2015, 900 (and counting) infrastructure projects are stated to be underway, valued anywhere from $890 billion to $1.3 trillion; more than 200 enterprises have committed to

R. Passi (*) Observer Research Foundation, New Delhi, India e-mail: [email protected] © The Author(s) 2019 L. Xing (ed.), Mapping China’s ‘One Belt One Road’ Initiative, International Political Economy Series, https://doi.org/10.1007/978-3-319-92201-0_7

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participating; China already has or is in talks with 25 countries to establish free trade agreements; and Beijing signed the first memorandum of understanding (MoU) to cooperate on OBOR with an international organization in 2016. The intent behind the rolling out of a vast network of hard, physical infrastructure and soft, policy infrastructure remains an ever-present question. Existing literature assigns, broadly, either political/strategic or economic motivations to OBOR.  By turn, geopolitical, domestic political-economic, and hegemonic objectives are prioritized (Clarke 2017). This chapter does not ascribe to any one intent or interpretation. Instead, recognizing that there exists insufficient deconstruction of the economic objectives underpinning OBOR and an insufficient exploration of just how the economics result in non-economic consequences, this chapter responds to both needs. It shows how OBOR’s foundational and most visible element, infrastructure connectivity, itself a response to China’s domestic economic needs, is resulting in a number of non-economic consequences. These consequences are actually the very motivations regularly cited—OBOR as a bid to no longer hide and bide, but to grab greater regional power and claim greater space in global economic architecture, to secure energy supplies, to achieve geopolitical and strategic objectives, and to represent itself as an alternative to the US power in Asia-Pacific. This result—arrived at independently by unpacking the real economic underpinnings of the Chinese initiative and showing how infrastructure development, OBOR’s key calling card, answers these economic needs— underscores that, political intent, and desires notwithstanding, the political and strategic consequences of OBOR are functionally pegged onto the economics. Section 1 of this chapter delves into the economic motivations buttressing OBOR. Section 2 lays out how a key element of OBOR, infrastructure connectivity, is supposed to answer these motivations. Exploring the economics is aimed at allowing greater appreciation of the extent and scope of the economic underpinnings of the Chinese initiative. Section 3 finishes the equation by describing what kinds of non-economic gains China accrues due to infrastructure investment and connectivity. Looking closely at how a key component of the OBOR vision is affording China political and strategic gains makes this section  a timely addition to the growing literature that is looking at just such causalities, as progress on OBOR projects is tracked and report cards pour in. The conclusion in Section 4 identifies areas for further analysis.

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What Are China’s Economic Motivations Behind OBOR? When identifying economic drivers of China’s OBOR, the following are reiterated: restructuring its domestic economy from export-led, labor- and investment-intensive to one led by services, domestic consumption, and technology; offloading industrial overcapacity abroad; developing its underdeveloped provinces, such as the landlocked central and western regions; internationalizing its currency; and seeking to reform and shape the global economic and financial architecture to one that is more conducive to Chinese interests. The analysis largely stops here. Yet these are Chinese economic objectives that OBOR is pursuing. A deeper analysis of the Chinese domestic economy reveals the actual reasons behind these objectives. Before the global economic and financial crisis hit in 2007–2008, rapid trade growth and general economic liberalization characterized global interaction. It was in this heyday of hyper-globalization that China saw decades of phenomenal growth (Fig. 7.1). China began economic reforms toward a market-oriented economy in 1978 under Deng Xiaoping. Successive governments have continued China’s opening up and integration into the world’s global value chains— in the 1980s, China invited the world in; the coastal development strategy of 1988 built up coastal provinces as major export platforms; in the early 1990s, the government pushed Chinese (nationalized) companies to “go

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global”; and the beginning of the twenty-first century saw Chinese investments abroad dramatically increase. With an ample labor force, the result was that China became the world’s workshop—from producing less than 3% of global manufacturing output by value in 1990 (Economist 2015), it today accounts for almost an entire fifth of global manufacturing—predicating its growth on this manufacturing-, labor-, and export-led economic growth model. (It is, for instance, the world’s largest producer of Christmas decorations, computers, shoes, and cement; plastics, stainless steel, solar cells, and lubricant oils.) Its year-on-year growth reached double-digits. Trade boomed—from its volume of trade contributing a mere 7% of its national income in 1978 (Chow 2004) to accounting for 62.9% of the country’s GDP in 2005 (Thakuri 2015)—and China became the world’s largest exporter in 2009, and subsequently the world’s largest trading nation in 2013, overtaking the United States for top spot. China increased its investments abroad, and is today the second-largest cross-border investor, set to become the largest by 2020. Following a spectacular GDP growth rate high of over 14% in 2007, China’s economic growth dropped to 9.6% and started slowing down from 2012 onwards, reaching what China’s president Xi Jinping called the “new normal” in 2014: from averaging a 10% annual growth rate for three decades, it fell from 7.7% in 2012 to 6.7% in 2016, with forecasts set at near the same levels for 2017. Despite a slower growth rate, China became the largest contributor to world growth post the financial crisis (in 2016, it contributed to over 30%), as it and other emerging economies were instrumental in drawing the global economy out of the post-crisis downturn. To note is the extent to which China’s economy is integrated with that of the world’s. Flipped on its head, this means that Chinese growth is critically dependent on an open system of trade and investment. China’s economic slowdown is not only a function of the protectionism and low investor sentiment post-2008 that have resulted in slower global trade growth relative to global GDP growth (WTO 2016) and the lowest levels of cross-border financial flows seen in the past three decades. It is also a function of the growth pattern China adopted, based on energyand resource-intensive investment, manufacturing, and exports (WEF 2016). It is in this context that Chinese Premier Wen Jiabao’s statement made at the National People’s Congress in March 2017 must be understood:  “[t]he biggest problem with China’s economy is that growth is unstable, unbalanced, uncoordinated, and unsustainable” (Saran 2016).

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Effectively, the investment-, manufacturing-, and export-led growth model led to economic, environmental, and social imbalances that accumulated over time. The repercussions and the aftermath of the global financial crisis only exacerbated and precipitated an eventual economic restructuring, also given what many would argue were an unsound economic platform and policies to begin with. For instance, China’s overaccumulation of foreign reserves to keep the value of its currency low, and thus promote an export-driven economy, is a problem in these times of a slowing economy. As capital outflows increase, China has been looking to shrink its foreign reserves, among other policy efforts, to retain its currency competitiveness, since the Chinese economy still depends heavily on a trade surplus. Another example is capital misallocation through a doubtful government strategy of pumping in money over the years to grease the wheels of manufacturing, which has led to overcapacity in the Chinese economy—in coal, steel, cement, construction, labor—and the propping up of what have now become debt-ridden, inefficient state-owned enterprises, and ghost cities. Overcapacity may not have been an issue perhaps as early as 2007 if the financial crisis had not occurred: it was only in 2016  that industrial capacity outstripped actual industrial production given the slowdown in demand (Fulco 2016). Indeed, China’s response to the 2007–2008 economic and financial crisis has only led it to further “[kick] the can down the road” (Saran 2016). Its $600 billion stimulus package furthered the instability and unsustainability of the Chinese economy, seeing as it made available abundant and cheap credit to domestic entities who invested further in land, infrastructure, and manufacturing capacities: in short, it only served to increase overcapacity in the Chinese economy. Adding further stress to the Chinese economy are the effects of globalization on the Chinese economy itself. The very phenomenon that provided China an environment to grow and develop is now taking away from the Chinese economic miracle. Take, for example, rising labor costs in China as this particular comparative advantage moves to other countries around the world. Hourly wages in China have increased by 12% per year on average in the past 10 years; indeed, it is only 5% more expensive to produce in the United States than in China (Saxer 2017). As the Economist printed: Joerg Wuttke, a veteran industrialist with the EU Chamber of Commerce in China, predicts that the cost to manufacture in China could soar twofold or even threefold by 2020. Alix Partners, a consultancy, offers this intriguing

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extrapolation: if China’s currency and shipping costs were to rise by 5% annually and wages were to go up by 30% a year, by 2015 it would be just as cheap to make things in North America as to make them in China and ship them there… In reality, the convergence will probably be slower. But the trend is clear. (2012, March 10)

As manufacturing costs increase, this is compounded by the lower employment levels in the manufacturing industry that China is already seeing, which are strengthening concerns of premature de-industrialization— manufacturing output and employment that peaks at lower levels of income that has been the case traditionally. The International Monetary Fund’s Deputy Director of Asia and Pacific Markus Rodlauer has in fact declared: “That model that Asia had of relying on the trade channel – that’s gone” (Arnold 2014). This remains to be seen, as China is clearly vested in a continued pattern of growth via continued trade and globalization for itself and the world, albeit with course-correction, both internal and external: China is now promoting OBOR as the “China solution”1 for global economic revival, or, as per newer jargon, as “Globalization 2.0,” a more inclusive and equitable model than the heretofore West-led one. This approach to a new globalization is particularly pertinent, since the post-financial crisis period has been fraught with backlash against globalization and trade among the part of the world that has been the traditional torch-bearer of the phenomenon. Brexit and Trump’s election to the highest office in the country are testament to the anti-globalization sentiment, as is the fact that 27 countries and regions took out 119 trade remedies against China versus 21 countries and regions and 49 trade remedies in 2015. The total value of these remedies increased by 76% from 2015 to 2016 (East Day 2017). Protectionist attitudes are particularly worrisome given, as noted earlier, the co-dependency between China’s economy and the global economy. Moreover, it bears mentioning that there are ill sentiments even among China’s citizenry—an op-ed in the Global Times at the end of 2016 blamed globalization for China’s income inequality, housing and other asset bubbles, and deteriorating environment. What is more, automation and technical transformation of production processes threaten what are already diminishing levels of employment in the manufacturing industry, a fact made more sensitive by a social contract between the Chinese Political Party and Chinese citizens that rests firmly on promises of rosy growth. (Along with a “new normal,” talk of the “Chinese dream” and the “great Chinese rejuvenation” is to capture people’s imaginations

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of a yet again bright period in China’s future just around the corner.) The costs to social stability indicate the strong domestic political economy (state-building) rationale for pursuing OBOR that is beyond the scope of this chapter, but it suffices to conclude that, as China’s economy slows down, it cannot afford to abandon the trade rationale that is meant to nurture slower but stable growth, support faster reform, and eventually engender a healthier economic structure that will buttress long-term Chinese development and keep the Chinese population less inclined to agitate against the ruling Communist Party. In sum, the key economic driver behind Beijing’s pursuit of OBOR is effectively its model of growth—the implementation of which has engendered several problems which have worsened as the Chinese economy slows down, and as it faces adverse globalization effects and anti-globalization sentiment. Economically, therefore, OBOR is the second act in China’s opening up and reform process;2 a contemporary tool to revitalize its economy in the face of slowing growth; a policy prescription to foster a continued open global environment conducive to its growth; and an instrument through which to course-correct and restructure its economy.

How Does OBOR Address the Concerns of the Chinese Domestic Economy? Summing up, China needs to (1) maintain economic growth through continued economic globalization—increased trade and cross-border investment, further integration in regional and global value chains—and (2) course-correct and restructure its economy to sustain its development. It needs to do so while trying to resolve the consequences of both the brewing antipathy to globalization that could result in a more protectionist and inward-looking West, and globalization’s adverse effects that are becoming glaringly obvious in its own backyard. Sections 2.1  and  2.2 analyse how OBOR’s infrastructure connectivity, especially transport connectivity, is supposed to advance China’s domestic economic needs and raise questions along the way. To note is the starring role manufacturing, and manufacturing-led economic growth—that is, rising productivity—will still play, even as services became the largest contributor to Chinese growth instead of manufacturing in 2012 and even as China seeks to shift the manufacturing in question up the value chain.

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OBOR as a Vehicle for Continued Economic Globalisation: China’s Opening Up, Increased Trade, and Investment Opportunities OBOR hopes to address the push and pull between globalization and protectionism in the former’s favor—that is, further develop economic globalization—in order to allow China’s opening up to the world to continue. This sentiment has formed the crux of Xi’s recent messages at global platforms, such as at the Asia-Pacific Economic Cooperation summit in Lima in November 2016 and at the Belt and Road Forum in May 2017. The lone official vision document, too, repeats the sentiment of the deeper integration of China into the world economic system, and recognizes investment and trade cooperation as key “major task in building the Belt and Road”  (National Development and Reform Commission, People’s Republic of China 2015). The SREB and MSR represent the development of an ever-increasing trade and investment network that integrates China and an ever-broadening surrounding region into supply chains, and allow Chinese companies access to investment opportunities. As per the Chinese Ministry of Commerce, between 2014 and 2016 Chinese companies invested $50 billion in non-financial sectors, and signed projects worth over $300 billion in countries and regions along OBOR (Zhong 2017a). A key layer of OBOR, infrastructure connectivity and investment, that at minimum spans Eurasia (through the SREB) and the Indian Ocean and Western Pacific Region (by way of the MSR), is fundamentally a manifestation of economic globalization and regional economic integration. First, the cross-border initiative allows China increased access to markets and consumers. As one statistic notes, OBOR will add up to three billion new consumers in the next 30 years. Supply chains are being created that feed into a “consumer–producer network” (Netzley 2016) that primarily facilitates the movement of goods from China to the European Union, its largest trading partner. Under the SREB, there are now more than 20 Chinese cities that have regular cargo trains plying directly to 29 cities in 11 European countries (State Council, People’s Republic of China 2017). They carry goods such as light industrial products, IT and telecommunication equipment, retail and garments, automobiles, pharmaceuticals, wine, and spirits. More broadly, transportation connectivity is also linking up potential markets in developing countries across Eurasia, like Pakistan and Central Asian and Southeast Asian nations, with China’s production centres. (This will prove particularly advantageous for China if the future sees a continuing

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tepid global economic recovery and the West continues to shy away from globalization, strengthening the argument that Asian countries can no longer depend on traditional producer–consumer networks that peg the West as the consumer of the last resort. As it is, post-2008 data show more trade and investment among Asian economies than between Asia and the West.) Second, overland transport infrastructure offers China the advantages of shorter distances to these markets, faster transit times, quicker deliveries, and increasingly lower costs. As other countries begin to experience lower manufacturing costs, and as China is edged out as the most competitive manufacturing nation,3 logistics and trade routes that reduce distances between consumption and production centres via improved connectivity, such as through the China–Europe railways, allow Chinesemade goods one means by which to retain manufacturing competitiveness. Rail freight between China and Europe takes on average 14  days, one-third the time it would take to transport the goods by sea, and onefifth the cost of sending goods by air (Xinhua 2016a). Some lines boast of four times the reduction in time taken for products to be shipped from China to Europe, at a cost more than 65% cheaper than shipping by air (Shepard 2016c) (Fig. 7.2). But can these transcontinental rail lines be sustained on their economic merit? Maritime shipping still accounts for 90% of all trade worldwide and almost 60% of China’s trade by transportation mode (Garcia-Herrero and Xu 2016: 4). It is still currently about five times cheaper to ship via oceans than by railroads (JOC 2016). It has been estimated that the entire SREB, with its gamut of transport corridors and rail routes, will only account for 1–2% of overall maritime traffic, although it may snag market share from air cargo. For the moment, given advantages of higher frequencies and

Fig. 7.2  One container shipping cost and time from Chongqing in Western China  to Western Europe. (Source: Image reproduced from Kapan, Zeynep (2016) “EATL: The Trade Prospects for EU and China.” Available at https:// www.unece.org/fileadmin/DAM/trans/doc/2016/wp5-eatl/WP5_GE2_2nd_ informal_session_Ms_Kaplan_1.pdf)

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better services, various logistics companies attest to cargo volume increases and thus further decreasing transportation costs. The China–Europe route via Kazakhstan handled goods worth more than $8 billion in 2016: the Khorgos Gateway dry port, a special economic zone (SEZ) dubbed “miniDubai,” processed just under 50,000 twenty-foot equivalent units (TEU) in 2015 and is expected to process a million TEU worth of cargo per year within five years, far more than what many seaports in the world process (JOC 2016). Third, given access to more markets and cost savings, Chinese export volumes are expected to increase. China is already the largest or secondlargest trading partner of 78 countries; “[b]y some measures, China is now the first-, second-, or third-largest trading partner of nearly every nation on earth” (Auslin 2017: 9). China–EU trade is currently at $600 billion per year and expected to cross $1 trillion by 2020 (Shepard 2016c), meaning a third of what China currently produces is exported to the EU.  There has been a dedicated effort to increase traffic on the iron silk roads: between 2014 and 2015, the number of Europe-bound trains from China increased 165% (Xinhua 2016a); by April 2017, almost 2000 trains had crossed the Eurasian landscape (Shepard 2017). The Chongqing-Xinjiang-Europe railway line, for instance, began as a weekly service from Chongqing to Duisburg in 2011, but now makes the trip eight times a week. Forty thousand TEU were transported from China to Germany—top destination of Chinese exports in the EU— in 2016, and this record is set to increase to 100,000 TEU by the end of this decade (Smith 2017). But have the overland iron silk roads had an impact on Chinese exports to the EU? While China–EU trade volumes since the launching of OBOR have not shown any trends of commensurate increases, a recent study (Garcia-Herrero and Xu 2016) finds that a 10% decrease in transportation costs will increase China–EU trade by 1.3%. Furthermore, China has healthy trade ties with the Silk Road countries in toto—the past decade has seen a 19% annual growth in trade (Woods 2016)—and the expectation is thus that the infrastructure being built will happily sustain China’s increasing weight in international trade. Indeed, it is anticipated that from 2015’s value of $1 trillion, OBOR will result in $2.5 trillion of additional annual trade between China and other Belt and Road countries in a decade or so (Miles 2016). Effectively, a rewarding cycle of inducement is created: everrobust trade ties provide impetus to creating an infrastructure that facilitates further increases in China’s trade with other countries and regions.

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What is more, Garcia-Herrero and Xu (2016) concluded that trade increases due to transportation efficacy will be greater than the impact on trade due to tariff reductions. Any free trade agreements (FTAs) China signs with economies along the Belt and Road could, therefore, piggyback on transport infrastructure and multiply gains. China has entered into FTA deals with 11 countries and is pursuing talks with more than 20 Belt and Road countries (Zhong 2017b). The question to be raised here is what export opportunities partner countries can look forward to. There is, for instance, a significant problem of as-of-yet inadequate volumes of returning cargo on the China–Europe railways. Fourth, overland trade routes allow China to develop its hinterland, inland cities, and lesser-developed regions and integrate them into regional supply chains. (The vision document devotes an entire section to this.) Addressing chronic uneven development across China is a key objective of OBOR, and the connectivity initiative was officially adopted as one of the three regional development plans and thus incorporated into China’s national economic development strategy in 2014 (Cai 2017). A key OBOR connectivity project that relates to the development of China’s underdeveloped and restive northwestern region of Xinjiang is the China– Pakistan Economic Corridor (CPEC). As manufacturing epicentres move westward (an estimated one trillion renminbi has been earmarked by Chinese provinces for OBOR-related infrastructure projects [Cai 2017]), the SREB effectively reduces the redundancy of having to transport goods from the central and western regions east to the coastal areas where they would be shipped back westward to Europe. Xinjiang, for instance, is linked to the Port of Gwadar, 2000 km away at the end of CPEC; it is otherwise more than double that distance away from the Chinese coast. OBOR as a Vehicle for Course-Correcting and Advancing China’s Economic Restructuring Developing infrastructure—of which there is a need in the Asia-Pacific to the tune of $1.7 trillion per year through to 2030 (ADB 2017)—and investing in industrial projects in countries along the Belt and Road allows China an immediate outlet to ease its domestic overcapacity in construction, heavy, and other infrastructure-related industries. (The bilateral nature of implementing OBOR makes such a process more feasible.) For some context: China’s production of steel is more than double of that of

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the next four leading producers combined; its aluminium and cement production accounts for over half of the global supply. Indeed, “the 20,000 km of new railways…could create demand for as much as 85 million tons of steel,” diversifying such exports to not just Southeast Asian countries, Central Asia, and Europe, but also to Middle Eastern countries like Turkey, Iran, and Saudi Arabia (Holslag 2017). Yet there may be limits to the extent to which the vast trans-regional effort can diversify export channels that can absorb China’s excess capacity: David Dollar (2015) writes that OBOR, ironically enough, may not be large enough to make much of a macroeconomic difference: “In steel alone, China would need $60 billion per year of extra demand to absorb excess capacity…However, the economies of Central Asia are not that large.” Indeed, fears abound of “white elephant” infrastructure projects under OBOR that see frenzied construction often left uncompleted or which drum up no demand and thus reap no benefit. Sri Lanka’s Hambantota that China has been developing shows particularly bleak prospects: the deep sea port is running at severe under-capacity, and the nearby international airport is the world’s emptiest. Some observers like Shepard (2016a) believe that such “too big to fail” projects continue receiving government support and funding “until they eventually come to fruition.” While the situation in Sri Lanka is compounded by other factors, it bears contemplating whether “political exigency and investment hysteria [has] trumped economic calculus” (Mallone 2016), or whether China’s offloading of its industrial overcapacity in logistics and transport networks through OBOR eventually pays off. However, Cai (2017) offers a deeper insight into China dumping this overcapacity: OBOR is less about boosting exports of products such as steel and more about moving the excess production capacity out of China. OBOR projects are currently too small to absorb China’s vast glut of steel and other products. Instead, Beijing wants to use OBOR to migrate whole production facilities. Beijing wants to use OBOR to migrate whole production facilities.

This, then, becomes a manner in which China can move up the value chain and help fulfil the aim of restructuring its domestic economy. With China investing in countries like Poland and regions like Southeast Asia that

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offer more competitive labor costs, China itself can focus on transitioning from being the world’s hub of low-cost manufacturing to producing higher value-added products. Better infrastructure connectivity to such places, like Southeast Asia, could allow Chinese businesses to more efficiently offshore manufacturing. Cai’s analysis, however, warns of pitfalls that echo the earlier-mentioned concern of a lack of capacity to absorb China’s excess capacity, adding a lack of desire to do so as another loophole. Another major obstacle is the impact on Chinese labor. Along with jobs cuts (including 1.3 million coal jobs and 550,000 steel jobs), employment levels have already declined due to globalization effects (to say nothing of technology effects). Several factories in Datang, China’s so-called sock city that produced 26 million pairs of socks in 2014, have closed down as garment-making has shifted to more cost-effective countries in Asia (Economist 2016). Some low-technology, labor-intensive industries such as T-shirts and cheap footwear have already left China (Economist 2012). Pursuing a strategy of shifting labor-intensive manufacturing centres to cheaper locations externally will exacerbate unemployment levels domestically. Moreover, numbers of Chinese exported labor at infrastructure sites is nowhere near the number of jobs currently and eventually to be needed. Transport infrastructure also provides momentum to Chinese economic restructuring. The China–Europe iron silk roads, for instance, could help foster domestic consumption in the longer run by providing the means for the movement of goods from the West back to the East as consumption patterns interchange. There is already “a growing hunger” for European luxury goods among Chinese middle- and upper-class consumers (Shepard 2016b)—the luxury market in China saw steady demand in 2016, even amid falling consumption that is being driven by “rising disposable incomes and consumers’ pursuit of luxury products, desire for better quality and also the ability to showcase one’s social status” (Euromonitor International 2016). By 2030, the Asia-Pacific will account for 66% of the world’s middle class, a key driver of growth, with the region’s middle-class consumption accordingly accounting for 59% of total global middle-class consumption. China will account for a large share of this boom: by 2030, over 70% of its population is expected to join the middle class (from a mere 12% today), with consumption estimated at $10 trillion in goods and services. Not only will Chinese urban working-age consumers with middle-class levels of disposable monthly incomes rise from 4% in 2010 to more than 50% by 2030, these individuals between the ages of 15 and 59 will also have larger shares disposable incomes to

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spend than their parents did (Kharas 2011). McKinsey estimates that Chinese will account for 12 cents of every dollar spent by urban consumers by 2030 (ICEF Monitor 2016). Development of Asia as a strong consumer market may take time to gain a strong global foothold—currently, only a few China–Europe routes operate in both directions, and on such routes trains are currently returning from European cities with significantly lighter loads; in fact, the Yuxinou train only began bringing back goods two years into its service (Luo 2015). Indeed, as Shepard (2017) notes, the first China–Europe trains returned with more than 90% of their containers empty—not unsurprising, given China-favoring trade balances. But the situation is slowly changing; with China now Europe’s fastest growing export market (Smith 2017). Data reveal an increase in the number of returning trains bringing back goods to China—from 28 in 2014 to 264 in 2015 (Xinhua 2016a). Greater participation by European freight forwarders, manufacturers, industries, and governments is expected in the coming year and beyond as they begin to discern the trade potential: “European pharmaceutical, chemical, automative [sic], luxury, and food companies started jumping in throughout 2016—a movement that’s expected to grow in the coming year” (Shepard 2016a). The problem noted earlier of unsubstantial volumes on return journeys to China remains valid; it remains to be seen which way and how much trade flows. Second, the time advantage of overland transport can be taken advantage of. Officials running various Europe–China train services recognize the opportunity of becoming part of the “modern supply chain…characterised by smaller orders, multiple dispatches and high-delivery frequencies” (Chu 2016). Time-sensitive products like perishables are one answer. More importantly, modern supply chains are also distinguished by higherend technology or high value-added industries, such as high-end fashion, that value “speed over price when it comes to logistics.” Thus, items like smartphones, ATMs, industrial printers, 3D printers, robotic assembly arms, medical instruments, telecommunications, and aircraft equipment all make for viable cargo on both counts of (a) goods that can take advantage of the shorter distances, thus boosting economic viability and longevity of trans-Eurasian transport corridors, and (b) China climbing up the global industrial chain in terms of value. China has already overtaken Japan to become Asia’s biggest exporter of high-tech goods in 2014, from a share under 10% to over 40% during 2000–2014 (LiveMint 2015). Even as it remains a key exporter of many lower-technology products, it can pursue an increased share of high-technology products in its

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export basket by using cross-border transport connectivity. A case in point: traditionally, ATMs take six to eight weeks to arrive in Europe if being shipped by an ATM maker in China. But, as the CEO of East Asian operations for DHL, which is now able to rent out space in China–Europe train containers as well as shipping entire containers, stated: If you have an ATM out of order the customers start to complain and you have to replace it as soon as possible, so you can only fly it. One ATM machine is 800 kilos, so that’s going to cost you a lot of money. Now, you can ship by our service and in three to four weeks you can have the ATM machine ordered and installed. They don’t have to wait for a whole container load, they can ship just one ATM machine. (Shepard 2016c)

Furthermore, China’s high-speed railway technology is in itself a key product that Beijing is looking to export across the continent. It is building up its domestic high-speed railway network in a bid to promote internal connectivity—the world’s longest bullet train line recently commenced operation, connecting China’s wealthy east coast to its less-developed Yunnan province in the southwest—but also to market its high-speed rail technology and compete with Japan in the field, whether domestically in India or in cross-border projects with OBOR partner countries in Southeast Asia. There is also the interesting prospect of expanding e-commerce delivery through railways, something China is beginning to experiment with. While global trade growth has been slow to pick up, cross-border e-commerce is flourishing: China’s total transactions were valued at $810 billion in 2015 (Xinhua 2016b). This presents opportunities for Chinese entrepreneurs and small and medium businesses, as well as scope for automation, both of which aid and abet a restructuring of the domestic economy. A case in point of automation: the highly automated warehouse by e-commerce giant Suning that stores 20 million pieces of goods and dispatches 1.81 million packages every day (as shown on New China TV). Digital connectivity needs to be added to this point. This component of infrastructure connectivity is increasingly being studied,4 particularly as plans to implement digital corridors materialize.5 Not only will the Information Silk Road complement other regional connectivity components—China’s new satellite-navigation network, Beidou-2, will be made available to countries along OBOR to use (Moss 2016)—but China’s rolling out of Information and communications technology (ICT) infrastructure

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in partner countries will also expand China’s foray and export of highertechnology products in the field of telecommunications, such as fibre optics and satellites. Just the satellite services market will be worth $60 billion in the coming years, as per China’s Satellite Navigation Management System.

The OBOR: Where the Economics End and the Non-Economics Begin To finish the equation: what non-economic effects are infrastructure connectivities and investments under OBOR across the Eurasian space translating into? A Sino-Centric Global Economic Order Infrastructure investment and development is advancing the ‘Sinicization’ of globalization, and thus a Sino-centric global economic order, on the ground. OBOR is understood to be a crucial component within the “multipolar system of globalization” which is in the process of being created (Perraton 2017). China has become the prime champion of free trade, it remains the world’s workshop and the engine of global growth, and is now looking to be its primary bankroller too. Indeed, the formal vision document states that China is “committed to shouldering more responsibilities and obligations” and “making greater contributions” to global economic processes through OBOR. The logistics and transport infrastructure being created affirms Chinese centrality in regional and global flows and value chains. Most countries are in China’s economic sphere; physical linkages like roads, highways, and railways are geographically pulling an increasingly larger region toward China. In other words, China is becoming the hub of a hub-and-spoke system, literally reclaiming reins of power as the “Middle Kingdom.” The increasing physical linkages between China and Europe are furthermore diluting the transatlantic relationship, the traditional centre of the globalization, giving a fillip to China emerging as the beacon of economic globalization. Reinforcing the expression “all roads are leading to China,” and thus a Sino-centric economic order, is the alignment and synergy between the infrastructure network being created under OBOR and other trans-

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regional connectivity projects. Take, for instance, the Trans-Asian Railway network; the Bangladesh–China–India–Myanmar Forum for Regional Cooperation; a potential China–Nepal–India corridor; the Eurasian Economic Union, with which an MoU was signed to cooperate in coordinating the development of the Eurasian Economic Union and the SREB  (Fu  2016). At the recent Belt and Road Forum, Xi Jinping announced a number of infrastructure connectivity-related initiatives of other countries with which China has enhanced cooperation under OBOR, including Turkey’s Middle Corridor initiative, Mongolia’s Development Road initiative, Vietnam’s Two Corridors, and One Economic Circle initiative (Xinhua 2017b). Moreover, the linking of OBOR with the national economic plans of partner countries is further allowing China to bring them into its sphere of economic influence. Case in point: the linking of SREB and Kazakhstan’s Nurly Zhol (Bright Path) economic plan, which targets seven areas of infrastructure development, has resulted in joint work to integrate China and Kazakhstan into several transportation corridors as well as logistics infrastructure, such as the Khorgos SEZ. Strengthening a China-led economic order is the increased presence of Chinese companies across Eurasia that are put to work as part of infrastructure investments and loans, to say nothing of their acquisition spree abroad in recent years, which are “predominantly” in energy and infrastructure sectors (Wu and Chatterjee 2017). The accompanying funding infrastructure established by China—such as the Asian Investment Infrastructure Bank (AIIB), which has thus far given $1.7 billion in financing to nine projects in OBOR countries; the $40 billion Silk Road Fund, of which over $4 billion has been invested (Weimin 2017)—“demonstrate Beijing’s desire to harness surplus capital to support infrastructure projects and enhance China’s financial influence” (Clarke 2017), in short helping institutionalize Chinese centrality in global economic and financial processes. China has been clear in enunciating that AIIB is not an institution that is an alternate to the Bretton Woods system, but complements it; indeed, it has been the slow pace of reforms of the twentieth century financial governance architecture that reflects the twentieth century international order which prompted China and other countries to create options that will better and faster fulfill their needs. The BRICS’ New Development Bank (NDB) is another example of the parallel economic and financial infrastructure that is being created, which may also become involved in funding infrastructure projects under the OBOR umbrella. Even if these

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institutions do not directly challenge a Western-led order quite yet, there is little denying that the Bretton Woods system is losing its centrality in global economic governance. What is more, these institutions for addressing infrastructure investment and development needs are in turn offering China one more substantial manner in which to pursue the internationalization of its currency—increasingly more outbound OBOR investments are to be undertaken in yuan. (By the end of 2016, China had signed swap agreements with more than 30 countries and regions.) China-Advanced Norms and Rules of Engagement Implementation of infrastructure connectivity projects by Chinese stateowned and private enterprises is also advancing certain norms and principles that could influence global conduct. For instance, the mechanism of “International Capacity Cooperation” that fosters local economic activity through the relocation of manufacturing capacity is a departure from the traditional development cooperation mode that hinges on aid (Sanwal 2016). Already the term “Beijing Consensus” has been widely used and interpreted as a contrast to the neoliberal, market-oriented, and conditionality-based “Washington Consensus”; China’s state-owned enterpriseled infrastructure connectivity projects, seemingly conducted as equal-opportunity “win-win cooperation” irrespective of political and economic systems in place in partner countries, buttress the potential of China formulating an alternative value system in the area of economic development through what could turn out to be the biggest-ever global infrastructure initiative. “Chinese characteristics” could also become institutionalized and promoted through the four other connectivity layers (policy, trade and investment, finance, people-to-people) that are to be laid atop the physical infrastructure layer. At present, the “Chinese way” of working—that is, the day-to-day implementation—is receiving criticism as evidence comes to light. A 2017 United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) study has warned of economic, financial, social, and environmental risks triggered and exacerbated by OBOR infrastructure projects in partner countries (Chaudhury 2017). Operational non-transparency compounds the situation. Even as there is a narrative of Chinese companies, through OBOR, going abroad to gain international experience, learn quality and management techniques, and adopt best practices to become global

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brands, it remains to be seen who conforms to which vision and what rules of economic engagement become commonplace in the coming years. Political/Strategic Gains Another non-economic consequence is the political and strategic leverage China gains from its infrastructure investments. China has been known to leverage economic tools, such as trade, aid, and investments, to secure its “core interests”  (Blackwill and Harris  2016). Coming to OBOR, while details of loans and rates of interests in the various projects remain largely opaque, the UNESCAP report cited above has thrown light on the fact that Chinese infrastructure investments in relatively poorer Central and South Asian countries along the Belt and Road are creating unsustainable debt situations in the recipient countries. This is leading to China holding significant amounts of government debt: for instance, the Export–Import Bank of China holds 49 and 36% of Kyrgyz and Tajik government debt, respectively (Cooley 2016: 4). Worsening the likelihood of debt traps are high-interest rates on Chinese loans or white elephant projects not generating sufficient income to help pay back debt. For instance, China spent nearly $2 billion building the Sri Lankan Hambantota port, which has already hemorrhaged more than $200 million; Sri Lanka owes over 10% of its more than $60 billion debt—more than $8 billion at an interest rate of more than 6%—to China, which will take the island nation “at least a couple of generations” to repay (Meyers 2017; Sala 2017). The consequence of poorer countries binding themselves tighter in a relationship of economic dependency on China is Beijing potentially using its economic capacity to continue funding projects, to forgive debts, or renegotiate terms as leverage for political or strategic ends. These are increasingly being appreciated as OBOR implementation continues full force. Instances of gaining access and rights to resources, such as land and minerals—“unofficial debt writing-off agreements” (Lain 2016); getting a controlling stake of infrastructure placed in strategic geographies like the Indian Ocean (note, for instance, claims of China being in the “driving seat” in the negotiations to develop Myanmar’s Kyauk Pyu port in the Bay of Bengal; Lee and Myint 2017); or large recipients of Chinese investment taking courses of action in Chinese political interests—these have all been noted in OBOR countries, patterns that have been long witnessed in other parts of the world like Latin America and Africa. Case in point: land being rented or sold by Central Asian countries; debt-equity deals like the one

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that has given China a controlling stake in Sri Lanka’s Hambantota port; Greece and Hungary have blocked EU statements criticizing China’s human rights record, actions Chinese representatives have openly appreciated. (To note: this last example links back to the above-discussed consequence of perpetuation of normative values in broader global conduct.) In fact, China’s efforts to puppeteer events and decisions to suit its own political and strategic interests are likely to become more hands-on. Infrastructure investments have in the past been fed into the home grounds of politicians China backs (as in Malaysia); it has been noted that in the event infrastructure projects fail to procure expected returns, China may begin to interfere in local politics more aggressively: …when messy local politics begin to interfere with their construction and operation, then how will China’s companies and governments respond? Will they not blame the problems on failed local systems and attempt to correct those systems, to bring them into greater harmony with the successful system China has developed back home? (Sharma 2017)

Chinese-Led Security Architecture Another corollary of Chinese big-ticket infrastructure investments is greater Chinese security engagement. As China makes billions of dollars’ worth of investments in infrastructure and sends thousands of Chinese workers to these sites, Beijing will have a stake in securing them, particularly across unstable regions. CPEC makes for an illustrative case. A worsening law and order situation, aggravated by the presence of extremist elements, resulting in drive-by shootings and bomb attacks in Pakistan’s restive Baluchistan province is posing a security threat to Chinese labor, Pakistani labor working on CPEC projects, and CPEC infrastructure itself. Pakistan’s government raised special forces, the Special Security Division and the Maritime Security Force, to secure CPEC projects (Raza 2017). China and Pakistan are also boosting their military relationship to protect CPEC (Aneja 2017). While Pakistan has a strong military structure that is ready to provide troops to the cause, and is happy with any Chinese involvement on this front; where Belt and Road countries do not have the capacity to raise such forces, or are hesitant to do so, could it mean stationing of Chinese troops? One commentator pithily sums it up: “Infrastructure is vulnerable to local security threats. Forts – or more modern forms of power projection –

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are built to respond to those threats. Political interference follows power projection, and boots on the ground follow that” (Sharma 2017). The case for political interference has been made above; whether, as the above quote suggests, actual Chinese boots on the ground are likely in the future remains to be seen. What is certain is that, as China expands its reach through infrastructure projects across insecure regions like the Middle East and Central Asia, and in unstable countries like Afghanistan and Pakistan, it will face the necessity of creating deepening security relationships and regional security architectures. Building infrastructure that is dual-use becomes part of this security architecture, as discussed below. To note here is that Chinese-led bilateral and regional security architecture, coupled with China’s centrality to economic flows across Asia-Pacific (as explained above), leads to greater Chinese influence and dominance power in the region,6 one more cited objective of OBOR. Counter to US Hegemony/Encirclement in Maritime Asia Lastly, infrastructure connectivity can potentially result in China countering US hegemony and encirclement in maritime Asia-Pacific in two ways. First, energy infrastructure—oil and gas pipelines, such as the Central Asia natural gas pipeline—across Central Asia could diversify energy sources and limit Chinese vulnerability in the maritime sphere: 75% of its energy imports pass through the Malacca Straits in the South China Sea, vulnerable to US Navy intervention and blockade. China is also tapping Pakistan and Myanmar to build alternate routes from where to import its energy supplies. CPEC goes from Kashgar, Xinjiang, to the Gwadar port in the Arabian Sea; the port is supposed to act as a transit terminal, and an oil pipeline from Gwadar to Kashgar is to be completed by 2021, which is expected to deliver around 17% of its oil imports (Yousafzai 2016). In Myanmar, the Kyaukpyu port is now to be linked to the long-delayed cross-border oil pipeline that could supply near 6% of China’s crude oil imports (Hornby 2017). Infrastructure connectivity is thus responding to the oft-cited objective of OBOR—resolving China’s Malacca Dilemma. Second, China is building port infrastructure that could become dualpurpose and host Chinese military ships and submarines, and surveillance infrastructure. Not only could this serve aims to secure MSR infrastructure and routes, it is also breaking US hegemony as the security provider in maritime Asia, particularly as these commercial ports could provide the Chinese Navy with platforms to further its blue-water navy ambitions of

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securing presence and expeditionary capacity further afield—in the Arabian Sea and the larger Indian Ocean, for instance. China’s Doraleh Multi-Purpose Port at Djibouti opened in May 2017 and is described by Xinhua as “an important link in the Asian, African and European markets, as well as a transport hub on the west line of the [MSR]” (Xinhua 2017a). The Chinese Defence Ministry describes it as a “support facility” that “will be mainly used to provide rest and rehabilitation for the Chinese troops taking part in escort missions in the Gulf of Aden and waters off Somalia, U.N. peacekeeping and humanitarian rescue” (Jacobs and Perlez 2017). But it is readily recognized as an eventual base for the People’s Liberation Army Navy one day by observers around the world. In 2015, the United States confirmed that Chinese attack and ballistic missile submarines had begun to conduct regular patrols in the Indian Ocean; thus the idea is not farfetched (Panda 2017). Another example is Gwadar port, where a Chinese submarine surfaced at the end of 2016, and in early 2017, China handed over two warships “equipped with stateof-the-art guns” to the Pakistan Navy to safeguard the port (PTI 2017). Limited gains to China from the port (Li 2016) underscore an understanding of Gwadar as a naval base that provides ready access to the Arabian Sea.

Conclusion This chapter shows that it is the Chinese economic model of growth that is at the root of China’s economic problems. A slowing economy, globalization effects, and anti-globalization sentiment have aggravated the degree of concern. Chinese economic motivations thus boil down to two axes of action: further integration with the global economy, and coursecorrection and economic restructuring. How OBOR is supposed to address these motivations through its foundational layer—infrastructure connectivity—has been demonstrated. Said infrastructure development’s non-economic consequences have been explored, which turn out to be, or respond to, specific political and strategic motivations cited independently. Working backwards, this gives credence to the argument that the noneconomics are functionally pegged onto the economics. There is ample scope to explore this argument further, particularly as OBOR expands, evolves, and institutionalizes. First, other aspects of OBOR economics need to be explored: namely, Chinese ability to finance the venture. It is effectively Chinese deep pockets that are seeing OBOR projects through, but the first section identified a number of concerns

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(such as a slowing economy) that could adversely influence Chinese capacity to roll out OBOR in the longer term. The second section raised red flags over the extent to which OBOR groundwork answers to the needs of the Chinese economy; if infrastructure projects are unviable or unsustainable, how will that again impact the Chinese capacity to finance OBOR? If the economics are not foolproof, what will this mean for the political and strategic effects? A second avenue for further research is to look at other layers of OBOR and how they come into play, both in the context of whether and how they relate to economic motivations and the consequences they engender. OBOR’s ever-expanding scale and scope mean that there is a necessity to continuously gauge and extrapolate causes and effects. Lastly, this chapter has presented motivations and gains from a Chinese perspective. Seeing as the initiative is characterized as “win-win,” and requires buy-in from other countries to succeed, the economics and resultant non-economic effects from the perspective of participating countries also need to be delved into, to fully understand the prospects and consequences of OBOR.

Notes 1. An expression that began doing the rounds in 2016, after Xi Jinping 2016s New Year message, and particularly after Xi’s remarks at the G20 Huangzhou summit. 2. As expressed by several Chinese scholars during discussions. 3. As per Deloitte’s Global Manufacturing Index 2016, China remains the most competitive manufacturing nation, but is expected to lose its edge in the next five years. See: https://www2.deloitte.com/in/en/pages/manufacturing/articles/global-manufacturing-competitiveness-index.html 4. See, for instance: UNESCAP (2017) “A Study of ICT Connectivity for the Belt and Road Initiative (BRI): Enhancing the Collaboration in ChinaCentral Asia Corridor.” Available at http://www.unescap.org/sites/ default/files/ICT-Connectivity-for-Belt-and-Road-Initiative-in-ChinaCentral-Asia-Corridor.pdf 5. See, for instance: Siddiqui, Quratain and Jahanzaib Haque (2017) “The CPEC plan for Pakistan’s digital future.” The Dawn, October 3. Available at https://www.dawn.com/news/1361176 6. In fact, Tom Miller argues just this: through OBOR, China wants to restore what it considers “its natural, rightful and historic position as the greatest power in Asia” (2017). China’s Asia Dream. London: Zed Books.

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CHAPTER 8

The One Belt One Road Initiative: Reintegrating Africa and the Middle East into China’s System of Accumulation Justin van der Merwe

Introduction Adopting a historical-geographical materialist approach, this chapter illustrates how China’s One Belt One Road (OBOR) initiative can be understood as part of a broader system of accumulation based on what may be called the government–business–media (GBM) complex. The analysis follows a critical rewriting of China’s regional and transnational relations as seen through the lens of the GBM complex, with special attention given to its involvement in Africa and the Middle East. By so doing, this chapter seeks to lay the foundations for an alternative understanding of China’s political economy. This chapter argues that China’s OBOR initiative, as an outward extension of the Chinese political economy, aims to reintegrate Africa and the Middle East into a system of accumulation “with Chinese characteristics”.

J. van der Merwe (*) Centre for Military Studies, University of Stellenbosch, Stellenbosch, South Africa e-mail: [email protected] © The Author(s) 2019 L. Xing (ed.), Mapping China’s ‘One Belt One Road’ Initiative, International Political Economy Series, https://doi.org/10.1007/978-3-319-92201-0_8

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Yet, whether this system represents anything different from a Washington Consensus remains doubtful, as a supposed “Beijing ­consensus” seems stymied by accommodations and integrationist tendencies, and, like the other Brazil, Russia, India, China, and South Africa (BRICS) countries have done throughout their broader regions, is likely to merely reinforce the dominant Western-led system of accumulation, just on a larger scale. The analysis is informed by an understanding of the global political economy as a series of competing yet interconnected systems of accumulation. It is centred and builds on the notion of a “complex”, which is often said to embody a system or theory of accumulation. The analysis employs a two-level systemic understanding of global accumulation centred on the GBM complex. Synthesising Harvey and Gramsci, it will be argued that complexes, including state, capital, and information and knowledge systems, operate through hegemonic and transactional activities designed to facilitate capital accumulation across space and time. After an assessment of the global structure of accumulation and China’s role therein, China’s involvement in Africa and the Middle East will be discussed. But first, it will be necessary to describe what the GBM complex is and how it can be applied in descriptive and structural level analyses, along with a brief introduction as to why the Middle East and Africa were included in OBOR and their envisioned roles.

Integrated and Competing Systems of Accumulation: The GBM Complex as Unified “Complex” Theory? The GBM “complex” is effectively a network of elites based in the sectors of government, business, and media who support each other, collaborate, and collude for purposes of capital accumulation within a fixed space (Van der Merwe 2016a, b). These patterns of accumulation perpetuate the interests of the dominant class, achieving this through “infrastructural” and “affective” labour. Infrastructural labour is used to fix extractive and transactional arrangements within a particular space, whereas affective labour is used to buttress accumulation practices within target spaces. Infrastructural labour rests on formalizing exchanges through contractual arrangements—largely through the building of physical infrastructure, financial arrangements, and trade agreements, not to mention the threat of litigation linked to intellectual property rights.

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Affective labour is used to shore up consent for accumulation through processes of cultural imperialism or hegemonic practices. Generally, the media component of the GBM refers not only to the conventional media (as a collective noun for state-linked or commercially oriented print, broadcast, and other digital media) but also refers to think tanks, commercial research, academia, government platforms such as summits, foreign affairs divisions, or even Corporate Social Responsibility (CSR) initiatives. There are two heuristic applications of the GBM concept: in structural and descriptive analyses. Structural analysis is more suited to sectoral or systemic analysis of accumulation processes operating at the global and regional scales, whilst descriptive analysis is more focused on a bloc or the interaction between blocs (such as in the case of a particular country but not necessarily fixed to the borders of that country). Accordingly, one could say that countries have their own unique or dominant GBM complexes, such as in the case of South Africa (Van der Merwe 2014, 2016b), India (Taylor et al. 2016), and Russia (Arkhangelskaya and Dodd 2016). Thinking about the Chinese political economy as operating through a GBM complex has instinctive or intuitive appeal. Domestically, the strong connectedness between the Chinese state and capital stemming from the Chinese Communist Party’s control of society is well documented. For example, Taylor (2017: 10), drawing from Hart-Landsberg (2010: 27), avers, “more than 90 percent of China’s richest 20,000 people are reported to be ‘related to senior government or Communist Party officials’”. These strong and exclusive relationships between government and business also translate into an opaqueness or obscuring when viewed from the outside, and in relation to its relationship with the outside world. Hong Yu (2017: 355) notes: “As China is a one-party ruled country, the process of foreign policy formulation lacks transparency and is hidden from the outside world, although the other political Parties, academia and the business community may play a consultative role”. Because of these relationships, the Chinese political economy has been variously described as embracing or being the epitome of “state capitalism” similar to other strong Asian economies, or “Asian Tigers”. State capitalism was also said to be a potential rival to the existing neoliberal system (Bremmer 2009). It has also been suggested that the Asian Infrastructure Investment Bank (AIIB), which is a key component of OBOR (see discussion below), would advance some kind of maligned strategic intent by “promot[ing] a version of China’s state capitalism, not transparent markets” among its lenders (Wall Street Journal 2015). Other terms such as

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“network capitalism” expressed a similar focus on the ­state-­capital nexus at the heart of China’s system of accumulation (Boisot and Child 1996). These terms or similar ones have also been embraced in referring to other strong emerging powers such as Brazil, Russia, and South Africa. This chapter suggests that this is not necessarily the most useful way of observing these societies, or thinking about their unique state-capital configurations. Instead, to view countries as having greater or lesser mixtures of government, business, and media involvement may be more useful. Although it is sensible to talk about capitalisms that are driven or influenced by state-owned entities in a descriptive sense, the concept of the state itself is sprawling and ambiguous. Contained within the state are a multitude of actors with private or non-state interests. The notion of the “state” is also problematic in the sense that it is linked to a sovereign territory, perhaps indicating an implied territorial logic in its engagement with other countries. However, this is not necessarily the case today, as countries are increasingly able to overcome these physical limitations in a networked and technological environment of instant space-time compressions. As an agent in collaboration with business, it makes more sense to speak of the organ of governance — “government” — and how it is “postured” to facilitate and enable accumulation over space, through its networked interaction with the private sector and information spheres. More to the point, the common factor between analyses of state capitalism and those involving the GBM complex is their reliance on networks. This concurs with the work of Summers (2016: 1639) who, in relation to OBOR, argues that: “the spatial relations of Silk Road political economy reflect networks which have increasingly become a feature of contemporary global political economy”. Although the basic ideas are nothing new, what commentators and academics are attempting to describe is the type of capitalism propagated by emerging powers who have a keen awareness of the nature and power of networks, and exploit them to their advantage. OBOR merely represents the most overt form of this. In order to illustrate this point, one could say that the US-led system of accumulation was enabled and facilitated through the discourse of individual rights and freedom via globalization, whilst really seeking to promote the spread of neoliberalism (Harvey 2007). By contrast, what we may think of as “Chinese characteristics” within this Western-led system (a globalization 2.0) is a network-centric reliance on geo-economics to promote wealth accumulation and power through the system. The openness of the network could be said to ­represent a more straightforward and “honest” portrayal of geopolitical

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concerns and factors. However, attempts to argue that China’s model of capitalism represents a more “inclusive globalisation” seems flawed or naïve at best and propagandistic at worst. Speaking romantically about the state as the guiding hand and being insistent that, unlike Western-led neoliberalism, the Chinese way enacts “win-win” situations seems fallacious (Liu and Dunford 2016: 325). The debates concerning economic ideologies seldom offer clear answers as to what may work in practice, or what combination of macroeconomic elements developing countries should adopt. Perhaps a better framing of the debate would suggest that network economies that capitalize on their GBM linkages remain more open to leveraging overlooked players, sectors, and resources. Regrettably, the likelihood of actors exploiting and leveraging these resources for purposes of gain or accumulation by dispossession via these networks is also increased (see discussion below). What is certain is that government, business, and the media, and the elites within these sectors, are key to making influential decisions over resources, policy, and strategy. In its outwards expression (as a descriptive process of accumulation over space), understanding the Chinese political economy as operating through a GBM network is also useful. The manner in which information channels (affective labour) are mobilized to facilitate capital accumulation is a key characteristic of this system. An understanding of this is particularly important in the Middle East and Africa, where Chinese insertion into these spaces is blatantly extractive, using the cut-­ and-­thrust of government and corporate channels (infrastructural labour) to facilitate accumulation over space. As territorial blocs manoeuvre to form alliances and protect their interests, Africa and the Middle East emerge as particularly rich sites of analyses. This is particularly true now that the Chinese “gaze”, transfixed through OBOR, concentrates its capital accumulation efforts and crises of over-accumulation within this space. In order to provide context for these assertions, the following section describes the envisioned roles of Africa and the Middle East within OBOR.

Africa and the Middle East Within Belt and Road China’s OBOR initiative was devised to repurpose some of China’s accumulated capital and to harness its surplus of construction materials based in its state-owned enterprises (SOEs) to increase exports and to further internationalize the renminbi. OBOR is, therefore, a more forceful con-

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tinuation of China’s “going out” policy launched at the start of the century to increase outbound capital and enhance the global footprint of Chinese companies. Whether it will be able to achieve this is another question, however (Rolland 2017: 130). The land and maritime routes comprise a series of corresponding features including the development and expansion of inter-continental railway routes, freeways, ports, and energy pipelines. OBOR potentially involves over 60 countries with a total population of more than 4 billion, whose market share is approximately one-third of global GDP (Ferdinand 2016: 950). The underlying spatial and economic logic is that China will work with member states to build industrial parks in which Chinese companies can invest, especially as labour costs have risen in China (Du 2016: 31). These parks will then provide manufacturing “hubs” in areas closer to target markets, with OBOR’s infrastructure facilitating easy onwards distribution along its many transport connections and pathways. OBOR projects will largely be driven through Public Private Partnerships (PPPs), with the standard financing model being the provision of Chinese credit for Chinese contractors (Hayes 2017: 1). China’s GBM is, therefore, attempting to position OBOR as a proverbial “conveyor belt” for goods, services, and infrastructure said to boost economic development throughout designated land and maritime trading routes, whilst the real intention is to lock these countries and regions together into one big trade and investment network or spatio-temporal fix (see Harvey’s definition below). Africa and the Middle East were included in OBOR due to their natural resources and, to some extent, to provide cheap labour for manufacturing hubs along the OBOR circuit. The Middle East is also effectively the region where the maritime and land routes connect. For example, the Arab States in the Gulf region could be seen as a “crossing point” for the Economic Belt and the Maritime Road (Wang 2016: 183–185). OBOR spans the Middle Eastern countries via the Middle Corridor and through the Sea Route that passes through the Suez Canal, thereby involving several regional actors (Küçükcan 2017: 88). The Middle Eastern and North African interstices are, therefore, of geostrategic importance to OBOR in respect of providing safe passage for vital resources, ultimately over the Indian Ocean or the Arabian Sea, or as a “crossing point” to European and central Asian markets via land. In the instance of the maritime route, the major strategic chokepoints relating to Africa and the Middle East are the Suez Canal and the Gulf of Aden, with substantial levels of oil and gas moving through this route. The international energy transport system is susceptible to interference at

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crucial maritime chokepoints, and such occurrences could substantially increase energy prices and result in supply scarcities. The African states of Egypt and Djibouti are key to the maritime route, with Egypt being “indispensable” to the initiative. Djibouti hosts the first ever Chinese overseas military base (with the US and France already based there), acting as a strategic location to load cargo, refuel ships, and as a staging post for anti-piracy initiatives (ZiroMwatela and Changfeng 2016: 12, 14). In 2011, during the Libyan civil war, the Chinese navy evacuated 35,000 Chinese nationals from this strategic point (Len 2015: 5–6). The other key geostrategic area relates to China’s Xinjiang province and the opening of western territories in China to trade from the Middle East and Africa, notably through its Pakistan-China Corridor, which is linked to the construction of the deep-water port of Gwadar in Pakistan, not to mention the renewed interest in the Bangladesh–China–India– Myanmar Economic Corridor linking the Bay of Bengal and China’s Yunnan province. The Middle East is also considered the far western section of the so-called China–Central Asia–West Asia Economic Corridor, which stretches from China’s Xinjiang province through Central Asia, and to some extent, touches Iran and Turkey. The port of Gwadar, located on the Arabian Sea at the mouth of the Persian Gulf, is not far from another important supply chokepoint namely, the Strait of Hormuz. Although the port lies in the unstable Pakistani Province of Baluchistan, it remains a lucrative, albeit risky, development. If successfully developed, it would enable western China access to the Middle East and would presumably present the most direct route for overland oil imports into China, if a pipeline can be built and secured (Len 2015: 7). The Gwadar port in Pakistan is, therefore, seen as important for providing a connection between the railways and highways connecting Central Asia, Europe, and Xinjiang, and the resources flowing from the Middle East and Africa over the Indian Ocean and Arabian Sea (Chaturvedy 2017; Toops 2016: 354). Pakistan can, therefore, be said to play a pivotal role in OBOR relating to this transit route (Haiquan 2017: 143–14), whilst Xinjiang remains an important “bridegehead” for the opening of China in a western direction (Summers 2016: 1632). Similarly, in Southeast Asia, the China-financed US$2.5 billion deep-water port and pipeline project in Kyaukphyuon Myanmar’s west coast opened in early 2015. This “energy corridor” allows China to be less reliant on the problematic Strait of Malacca as it moves some of its Middle Eastern oil imports via a 771 km pipe running from the Bay of Bengal into Yunnan Province (Len 2015: 7).

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However, security concerns are rampant in these parts of the world as cultural and political divides in Xinjiang may well hamper the success of the initiative (Toops 2016: 354–356), not to mention the fact that instability at the Pakistan and Afghanistan border could also put a hold on the free movement of goods flowing to and from the ocean and Central Asia (Clarke 2016). OBOR travels through some of the most volatile regions on the planet, many of which are in Africa and the Middle East. As a result, there are significant risks associated with the strategy, which can potentially undermine its feasibility. The Middle East and Africa, in particular, are plagued by civil war and organized criminal syndicates. The land route travels through areas where the Islamic State (IS) was involved and through the war-torn Iraq and Afghanistan. The success of OBOR is also contingent on security in the waters around the Horn of Africa and in “fragile” states such as Somalia in East Africa and Yemen in the Middle East where groups such as Al Shabaab have a growing footprint. Furthermore, piracy poses a threat to trade, which can affect those territories well beyond the immediate seas in which these crimes occur. Therefore, securing access to these resources has an overt military and security dimension, not only invoking non-traditional security elements. However, Chinese experts and policymakers appear to be divided on how to deal with this (Swaine 2015: 9). One of the responses has been to seek to become a major naval power. Some have suggested that the Chinese have tied the Maritime Silk Road to China’s national revival and rejuvenation as a maritime power. As Liang (2015, in Sidaway and Woon 2017: 596) noted, in the minds of some analysts the intention is to turn the People’s Liberation Army Navy (PLAN) into “a robust blue water naval capability dedicated to sea lines of communication defense”. Some have argued that it is imperative for China to make arrangements for “friendly ports” and “turnaround facilities” in other nations that will help to increase the range of Chinese maritime endeavours (Chaturvedy 2017). This outlook roughly correlates with the “String of Pearls” plan that suggests that China is trying to build a series of ports that are linked to its quest for the maritime dominance of the South China Sea, also stretching into the Indian Ocean on the east coast of Africa. Along with the ports mentioned above, China is also involved in building several others spanning Cambodia, Bangladesh, Sri Lanka, Tanzania, Mozambique, and in the northern part of the Mediterranean close to the Suez Canal (Aoyama 2016: 18–19; Mustafic 2017: 117–118).

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Based on this, it would appear that China may be reconsidering its stance on non-interference and non-intervention (Mustafic 2017: 117). Without dismissing the potential benefits, a critical reading of OBOR raises certain questions. Is OBOR an extension of China’s espoused neutrality, as some have suggested? Is it a bold attempt at inserting “Chinese characteristics” into global public goods and broader capitalist development vis-a-vis a challenge to the Washington Consensus? China has not been the only country to suggest a revival of the Silk Road. A similar initiative was launched under Hillary Clinton in 2011 as a way to reintegrate post-war Afghanistan into trade networks. Comparing the aborted US version of the Silk Road and the Chinese version, one paper suggests that (Habova 2015: 66): Even if there are some similarities in strategies aimed at expanding political and economic influence in the region, the approaches applied by the United States and China are completely different. The former – relying on its soft power solidly backed by its hard power has tried to impose its influence and control as well as its values. The latter does not impose conditions and does not bind the participation in the initiative to any political criteria. It is aimed rather at gaining influence relying on the attractiveness of its own model of development.

More official Chinese sources have attempted to argue that OBOR provides a “public product provided by China to the world” (Zhu 2016: 111), and generally, this seems to be a line of argumentation adopted by Chinese state elites. Critics might argue that this is potentially a form of affective labour. “Public goods” are goods which are consumed publically or freely, and in a non-competitive and non-exclusionary manner, that is, consumption by party X does not impact upon party Y directly, and both parties have an equal opportunity to benefit (Kaul et  al. 1999: xii). Infrastructure such as bridge building, the building of roads and ports, and other key transport links, as well as the provision of security, especially where there is a history of its non-intervention, become decisive in allowing and welcoming countries into foreign territories. However, China’s systematized insertion into countries along the OBOR route will give rise to exchange values and functional values, which are clearly not neutral and not value-free—as exchanges in the international community are not without consequences. OBOR may yield direct and indirect benefits for affected countries. Who gets to consume the benefits accruing from security and

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stability, or enhanced infrastructure and economic development? Who gets to take the credit? Paradoxically, these public goods are effectively laying down infrastructural labour within these spaces. In effect, the infrastructural initiatives and financing are embedding China’s means of extraction within these states whilst operating under the magnanimous guise of providing public goods within these spaces. Furthermore, China’s involvement in Africa represents problems as well as opportunities: what Africa and the Middle East gain in technical expertise and infrastructure they may lose in human rights observance or financial accountability (Mustafic 2017: 120). There may also be a backlash from locals due to the growing presence of Chinese private security and military companies. African and Middle Eastern leaders would, therefore, need to think carefully about the supposed unconditionally of “public goods” within their spaces, if they are to protect their sovereignty and resources. The argument for a clinical insertion of public goods appears naïve in many respects, and is too heavily reliant on rhetoric or stated intentions of elites. Other attempts to argue that OBOR is actually an attempt to change the existing Western-led system of accumulation seem equally misguided. This argument follows the logic that the emerging powers led by China, and vis-à-vis the BRICS alliance, are attempting to challenge neoliberalism. In a column titled “China’s Silk Road challenges U.S. dominance in Asia”, Kemp (2014) argues that: The major financial and economic institutions, which experts sometimes call the ‘international financial architecture’, no longer correspond to the balance of power and the shifting centre of gravity in the world economy… Some western foreign policy specialists have naively assumed that emerging markets would become integrated into…western-dominated structures of power and governance.

From this perspective, OBOR is calibrated as a broader geopolitical gambit designed to challenge the “Washington Consensus”, especially with the help of the newly created AIIB and Silk Road Fund. Other reports reflect a similar perspective. Although OBOR would signal a substantial overture by a growing global power, what is overwhelmingly more likely is that OBOR will fit into the Western-led system of accumulation, particularly when assessed against the broader trends concerning the BRICS reinforcement of this

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system and their track record in places like Africa (Van der Merwe et al. 2016). The chances that OBOR will do anything other than reinforce the status quo concerning the broader systemic level and its preferred means of accumulation are unlikely. The BRICS generally have risen to prominence as supposed subverters of the prevailing global order, yet, in reality, have been subsumed into it (Van der Merwe 2016a). The reality is that the BRICS are positioned to support the system as agents of continued global uneven development, much like their Western counterparts before them, and the changes being rung in by OBOR are effectively style over substance, or just more of the same.

Emerging Powers Within the Global Structure of Accumulation As described above, we can speak about the GBM in structural analysis, which is more suited to a systemic global analysis focusing on “big picture” involvement between government, business, and media actors and sectors, and how their involvement is representative or an embodiment of transnational bourgeoisie interests. This draws inspiration from the restoration of class power, as captured in the turn to neoliberalism in the 1970s and strongly linked to the fortunes of Western economies. As Harvey asserts, if the neoliberal project had, at its heart, the restoration of class power globally (2007), then it certainly follows that the Chinese elites have subscribed very firmly to this way of life, following the opening of their economy in 1978. Thus, what appears to be a “new” way of doing business becomes very much part of, and is integrated into, the traditional system (see Taylor 2017 for an exposition of the restoration of class power in China). The ideas of competing yet interconnected systems of accumulation also echo Wallerstein’s (1979) world systems theory. World systems theory attempts to explain that nation-states have quite different positions within the global capitalist system, and more importantly, the system has been historically embedded with a series of cyclical rhythms. These cyclical rhythms are defined by the rise and decline of new global powers (new system guarantors) of world order, and each one has its own unique pattern of control and governance. Although it is not strictly the mandate of this chapter, theorizing the GBM complex is also an attempt to revisit some of the long-standing debates relating to the grand theories of capitalist development.

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Although China is a substantial power to all intents and purposes, and its reach has often been overtly global in scope, one thing that has been lacking in analyses of China at the regional scale is a focus on a concerted, and easily demarcated “spatial fix” for its capitalist crises. This sometimes gave the impression of a shotgun approach to its spatially expanded rounds of accumulation. Harvey’s (2007) idea of a “spatio-temporal fix” whereby imperialist states locate their geographical expansion and capitalist crises within a particular space, however, defined, is particularly useful in relating China’s involvement at the regional scale. Indeed, the assumption that Beijing would somehow act differently now that it has given its expansion a name and geographical location seems strange and illogical, as the initiative was designed precisely to give further focus to and help concentrate its already growing reach since adopting its “going out” policy in 1999. The OBOR initiative, viewed from this perspective, moves China closer to fit the criteria of an inter-imperialist power or sub-imperialist power (very broadly) because of its decisive moves within the middle tier of global capital accumulation and the ensuing uneven development within its extended neighbourhood and chosen spatio-temporal fix. The reason why China has always sat uncomfortably within this framework is, of course, its size and dominance on the global stage. Analysts and commentators were confused and not sure what to label such a power—giving rise to an assumption of China as carrying the same substance as an out-and-­out global hegemon. Given its communist leanings and the sheer scale of China’s rise, China was clearly not seen as even being part of the neoliberal Western-led system of accumulation, something which has been steadily revised with its inclusion into the World Trade Organization (WTO) in 2001, not to mention, by comparison, the current retreating of Western economies through more protectionist policies setting up China as a “new” globalization enforcer or system stabilizer. The abiding argument throughout this chapter is, therefore, that close and careful inspection of this strategy is needed, as what appears to represent a rival system, does not. A straightforward assessment of the situation suggests that much of this is semantics, and that what is operative is a clear-eyed assessment of movements within the middle tier of capital accumulation broadly, and what, if anything, we can learn from that level of accumulation. One could spend years attempting to “corner” an argument on the nature of recent power shifts in the international community, only to discover that these concepts are ultimately fluid. What is useful from the perspective of states involved

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in OBOR is to depart from a critical pragmatic point towards China’s involvement within their territories. What is certain is that China follows the typical model of facilitator and interlocutor for capital accumulation at the intermediary level, much like the other BRICS states, just on a much more substantial scale. This chapter argues that China’s system of accumulation is, therefore, not unlike other substantial powers at the intermediary level of global capital accumulation, in the sense that its outwards “gaze” and networked GBM are now well and truly immersed within a particular region which forms the primary site for its crises of over-accumulation, as well as a site through which regional extraction and accumulation is centred and focused. This “project” has been given new vigour and political importance as a set of policies and plans destined to move China’s system of accumulation outwards, and in an era of China as a major regional and global power. The workings and dynamics of China’s GBM complex, therefore, helps to shed light on the geopolitics of capital accumulation relating to this strategy and it is to this aspect which we now turn.

Accumulation Dynamics Over Space and Time: China’s Westward Gaze Having discussed the OBOR initiative in systemic global accumulation, the GBM complex will now briefly be explored as an analytical tool in describing accumulation practices over the African and Middle Eastern spaces. However, in order to grasp how this operates, it is important to understand that China (and the BRICS) have become some of worst perpetrators of actions which are roughly consistent with what Harvey would call “accumulation by dispossession”. This is the process whereby a GBM network operating within a spatio-temporal fix (defined by region or by no territorial logic other than the brazen opportunism leveraged by technologies of the GBM) is able to lift off or siphon wealth. This is perpetrated not only via government-to-government flows, but also through variations in government-to-business exchanges. China is, therefore, able to leverage its relative financial and manufacturing asymmetries in order to maximize returns in African and Middle Eastern markets. This is premised on the assumption that China will exploit the uneven development that inevitably arises from spatial exchange. Furthermore, an implicit assumption made in this chapter is that OBOR is an outward expansion of China’s

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internal mode of capital accumulation characterized by the GBM mode. It follows that such outward expansion is thus a synthesizing and replication of this internal success with “Chinese characteristics” (see, e.g., Li 2016). This section is an attempt to understand how China’s GBM complex is writ large across the African and the Middle Eastern spaces. The spatial-temporal impulses giving rise to and facilitating expanded rounds of capital accumulation usually follow a similar modus operandi. A crisis in the global economy and personal ambition collide to provide the necessary agency and a solution to a set of economic problems. In this case, President Xi Jinping adopted OBOR as his signature foreign policy, personally supervising the infrastructure plans, and making policy statements on OBOR. The initiative presented an opportunity to revive a sluggish global economy whilst allowing China the opportunity to “rebalance” its economy. Along with close supervision by Xi Jinping, the Central Planning Committee, China’s highest political body, is implementing the plans, which given the centralization of the party, should not struggle to maximize the party-state’s business opportunities along the route. The stature and backgrounds of the members of the committee confirm the importance of the initiative in the imagination of the Chinese elite, who were seemingly chosen because of their ability to connect Chinese investors and business with opportunities abroad. The plan will, as suggested, operate mainly through PPPs seeking to literally “fix” the infrastructure within Africa and the Middle East, adhering themselves to the organic processes of capital accumulation in these territories through manufacturing and industrial complexes, special economic zones, and various spatial development initiatives. The infrastructure plans expose the initiative as unashamedly colonial, as it reinforces the legacy of transporting resources towards ports—and not between neighbouring states. Even in the case where transport infrastructure is created between states, the assumption is still that this would facilitate the movement of Chinese remotely manufactured goods onto markets. Banks and special funds like the Silk Road Fund, the AIIB, and the New Development Bank would channel finances to Chinese ventures in these territories, and along with improved infrastructural development, hope to stimulate existing or create new markets. Chinese companies are well known for using their own labour in foreign territories, although there will be some input from locals as a low cost and largely unskilled or ­semi-­skilled workforce. Loans will also be extended to local service providers to be repaid over time, thereby introducing a temporal element.

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Although the rewards are to be reaped by Chinese elites, by providing interest-­bearing capital to local contractors, African and Middle Eastern citizens and governments will carry the majority of the risk. Moreover, as mentioned, the risks are significant given the security threats. The so-called geopolitical “God tricks” of the plan are demonstrated through the vague spatial markers used when outlining the plan and the numerous maps involved. The maps are of course purposefully vague, as they try to embrace a “catch all” along the routes and allow for revisionism along the way. By attempting to invoke the history of the old Silk Road in its landwards and seawards manifestations, the idea is that the borders of states and state sovereignty will sweep away in a grand gesture of the “Belt and Road”, as the deep differences between countries along the route are glossed over. Coupling China’s rise with the ancient Silk Road is intended to give OBOR a sense of inevitability and deeper historical significance. Three African countries are regularly discussed as involved in OBOR: Kenya because it is where the maritime route connects with Africa; Djibouti because it is where the Chinese military base is located; and Egypt because of the Suez Canal. Beyond that, it is generally difficult to know which other countries are explicitly included. None of China’s top trade partners in Africa are included. In fact, Africa was not originally included in the plan and its inclusion seemed to have been an easy way for the Chinese to retroactively tie a series of divergent bilateral initiatives together to make it look like that was their plan all along. OBOR was hardly mentioned at the last Forum for China–Africa Cooperation (FOCAC) meeting in 2015, if at all. The Middle Eastern routes are similarly vague, especially as they relate to the China–Central Asia–Western Asia route and its potential linkages. The terrain through which these goods would have to travel is prohibitive to modern travel and seems improbable. Such is the “God trick” of OBOR. Locally, in China, the OBOR vision undoubtedly found resonance with the rising middle class eager to continue, to consume, and to enjoy their lifestyles. Clearly, similar ambitions are harboured in Africa and the Middle East. Yet, whether these interventions are likely to do anything for the spurious “Africa Rising” is doubtful and would require greater detail and clearer plans. China’s GBM has also been effective in selling the idea. For a detailed unfolding of the idea and how it led to its being adopted both internally and externally, Min Ye describes how this process took place over four

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phases: leadership vision (September–October 2013); government consensus (October 2013–January 2014); publicity and mobilization (April 2014–November 2014); and implementation (November 2014–May 2015) (Min Ye 2015: 217–218). The plan was rolled out and aggressively marketed to foreign audiences, especially those who would play a key role but who are comparatively too underdeveloped to object. Through a succession of government reports, speeches, summits, diplomatic and state visits, the creation of the AIIB and Silk Road Fund, and engagements with local government, business and media, Xi Jinping, in particular, was able to drive the initiative, and concentrate and focus China’s spatial fix. The state broadcaster, Xinhua News Agency, which takes its lead from the Chinese party-state, was the first news organization to present an actual map for OBOR, helping to clarify and communicate the objectives of the initiative to foreign audiences. In this sense, OBOR becomes a carefully executed plan. Think tanks and the commercial research environment also played their role in mobilizing the elite and society, and helping to shape some of the initiative. For example, the idea of the AIIB was first mooted in 2009 by the China Centre for International Economic Exchanges, and then later adopted as policy. A slew of Silk Road events and fora were organized in key areas along the route to garner support and quell potential resistance. Several dedicated OBOR research institutes and centres have been founded, such as the International Silk Road Think Tank Association. Funding for students and research investigating aspects of OBOR will no doubt be provided, as African and Middle Eastern scholars and intellectuals will follow state discourses and donor interest. A similar mimicry of interest within the commercial research environment and think tanks has followed in Africa and the Middle East, signalling the beginning of many multiyear projects looking into the initiative. Taking the three channels of engagement via OBOR (government, business, and media) into account, it becomes clear how attempts are made to integrate the countries and regions into China’s GBM mode of networked capital accumulation. For example, the ports in Kenya have become a regional gateway to the Horn of Africa region. The OBOR financial institutions have financed pipeline construction, opening access for South Sudan, and Uganda to the Kenyan port of Lamu. This will ­facilitate the optimal exploitation of the oil-rich South Sudan as it bypasses conflict-prone regions to the north. Having secured maritime access to Kenya, China has also optimized the opportunity for OBOR expansion

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into the African hinterland via rail or roads (ZiroMwatela and Changfeng 2016: 12–14). A possible Eastern–Central–Western African Corridor or a “great equatorial land bridge” could just about connect Sudan, the two Congos, and Angola, an important oil partner to China, helping to move goods laterally across the continent (ZiroMwatela and Changfeng 2016: 17). The ports in Kenya could also function as security installations, scanning for potential threats along the Horn of Africa region. As one of Africa’s most technologically advanced countries, the reach of Kenya’s communications and the syndication of its media throughout the region might help to “grease the wheels” through the spreading of pro-­ OBOR stories, sometimes facilitated by engagement with, or events hosted by, Chinese state-linked media. Similarly, the shaping of a pro-­ OBOR outlook in Kenya would presumably be important, given its role in shaping and setting agendas for regional discourses in academia and commercial research. Generally speaking, China’s GBM has focused much of its diplomatic and financial resources within the East African space, further signalling its attempted encirclement of Africa’s Horn (Kenya to the South, with the Djibouti military base on the northern side). As the geostrategic importance of this region has grown, so has China’s troop contributions to African Union and United Nations peacekeeping missions. The bogus “Africa Rising” trope appeared to be closely related to the rise of this region, with a country such as Rwanda regularly registering growth in excess of 7 per cent. Ethiopia, with its large population and widespread poverty, was a particularly willing recipient of Chinese capital and infrastructure development. To sum up, as China’s GBM engages with Africa and the Middle East, we can expect the increase of information and official statements regarding the plan. However, a critical pragmatic stance towards the initiative should be adopted now, so that African and Middle Eastern citizens can weigh up critically if they are to truly benefit. African and Middle Eastern countries have cause for scepticism, as it appears that the initiative is a “broad sweep” under which anything vaguely relevant can be placed, exemplified by the iterative versions of the Action Plan, which grow in mandate and scope from previous editions. The overwhelming evidence suggests that the Middle East and Africa were included in the initiative more as an afterthought and following the logic of securing future energy supplies. Africa and the Middle East are also attractive to Chinese companies seeking to relocate labour-intensive

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industries. But, as was already alluded to, whether this leads to anything resembling meaningful employment opportunities remains questionable. The opportunities for countries to move higher up the global value chain also remain limited (at best getting them stuck in a so-called middle-­ income trap). Whilst in some places along the OBOR route countries may be able to resist the power of Chinese capital and manufacturing, African and Middle Eastern countries remain weak in their governance structures, rendering them vulnerable to exploitation. As argued, the relationship between China and Africa is deeply problematic for a number of reasons. Importantly, the OBOR initiative does nothing to address the valid concerns surrounding the contentious link between China’s infrastructure investment, on the one hand, and its interest in African natural resources, on the other. Nor does the initiative deal with Chinese companies’ socially and environmentally irresponsible conduct in Africa. Similarly, in the Middle East, involvement is likely to mirror that of the more established patterns in Africa.

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CHAPTER 9

Changing Regional Order and Railway Diplomacy in Southeast Asia with a Case Study of Thailand Laurids S. Lauridsen

Introduction An old Chinese proverb tells us that “two tigers cannot occupy the same mountain.” This should be borne in mind when it comes to the growing participation of China in the evolving regional order. For more than half a century, American hegemony in East and Southeast Asia has been unchallengeable, and Japan has played a leading role as investor, aid provider, and promoter of regional cooperation. In the 2000s, particularly under Xi Jinping’s leadership, China has been seeking to expand its regional influence by engaging in regional rule-making and institution building. The two-pronged strategy of setting up new multilateral investment banks and overseas infrastructure projects under the OBOR initiative has lifted regional competition and infrastructure diplomacy to a higher level.

L. S. Lauridsen (*) Department of Social Sciences and Business, Roskilde University, Roskilde, Denmark e-mail: [email protected] © The Author(s) 2019 L. Xing (ed.), Mapping China’s ‘One Belt One Road’ Initiative, International Political Economy Series, https://doi.org/10.1007/978-3-319-92201-0_9

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This chapter seeks to analyse regional rivalry and the evolving alternative regional order in terms of tangible forms of infrastructure development, focusing on a case involving high-speed railway (HSR) projects in Thailand. China and Japan often compete to secure overseas infrastructure projects in Asia and deploy considerable financial resources to win orders. Railways, and especially HSR, are a key element, and the rivalry plays out in the regional backyard of both countries. On the one hand, it is just commercial competition between Chinese and Japanese firms that are increasingly forced to look overseas for new markets. On the other hand, political involvement is unavoidable in such big deals, and building railroad facilities abroad also serves as a way of extending strategic influence. In recent years, the political leaders of both countries have travelled around Southeast and Central Asia as “HSR salesmen” and entered high-speed rail diplomacy. This Sino-Japanese competition leads to the question: can these two tigers occupy the same mountain—and will they? Rail is a major industry in Japan, and the country is famous for its network of high-speed bullet train lines—the Shinkansen. The construction of the Shinkansen started in 1964. Japan’s railroad industry is known for its first-rate safety record, its original technology, and its high reliability, as well as its comprehensive and integrated infrastructure solutions. China entered HSR in 2004 and, seven years later, launched a campaign to build HSR systems around the world. This involved overseas loan commitments made by the China Development Bank and the China Exim Bank. China’s competitive advantages are the low cost and fast construction of its railway systems. In Asia and Central Europe, Chinese infrastructure diplomacy became a critical part of the OBOR initiative, which comprises a land-based Silk Road Belt (SREB) and a sea-based “21st Century Maritime Silk Road” (MSR). HSR is a cornerstone of the former and has, therefore, become a central part of China’s infrastructure diplomacy. During the second Abe administration, Japan used railway projects to counter China’s commercial and geopolitical expansion and increasingly offered financial support under its huge “Partnership for Quality Infrastructure” (PQI) programme. Both China and Japan have economic and broader strategic interests in infrastructure development in Indochina. Both bilaterally and through the Asian Development Bank (ADB), Japan is engaged in improving infrastructure in the Greater Mekong Subregion (GMS), while China, besides being part of that sub-region, has also set up a new mechanism for subregional cooperation, including infrastructure development.

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Thailand is one of the front-runners in negotiating HSR with Beijing, and Japan has intensified its involvement in railway infrastructure upgrading and HSR construction. China and Thailand have reached an agreement on an 873 km HSR line from the eastern deep port Laem Chabang via Bangkok to Nong Khai (on the Laos border). Concurrently, Japan is involved in upgrading projects, and the Thai government has called on Japan to intensify and speed up the work on a 682 km HSR project connecting the country’s two biggest cities Bangkok and Chiang Mai (Theparat 2016). The aim of this chapter is to analyse the changing regional competition and order through the lens of overseas infrastructure export at the regional, sub-regional and national levels. The latter level is explored through a case study of the Sino-Thai and Japanese-Thai HSR projects. The analysis is guided by the following research question: what are the rationales behind the Chinese and Japanese HSR diplomacy in the region, and to what extent and in which ways is regional competition expressed in the case of Thailand? More specifically, this chapter addresses a number of subquestions: what is the nature of Sino-Japanese regional competition in the field of transport infrastructure in general? How are economic and security concerns linked, and how does the relation to the United States affect regional cooperation, competition, and order? What are the drivers behind Chinese and Japanese railway diplomacy in Indochina? How did SinoJapanese competition play itself out in the HSR field in Thailand? The rest of this chapter is organized in the following manner. Section 2 presents the analytical framework. Section 3 analyses the regional and subregional rivalry between China, Japan and the United States. Section 4 investigates Sino-Japanese competition in Thai HSR projects. Section 5 offers concluding remarks.

Understanding and Conceptualising Regional Competition in Asia Although this chapter focuses on the overseas infrastructure projects of China and Japan, it also addresses the extent to which we are witnessing an evolving change in the regional order. The literature on the rise of China is mostly preoccupied with the role of China as an upcoming global power. This chapter concentrates on more concrete processes at the regional level: regional competition, regional rivalry, and regional order.

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These notions all refer to “the region,” which here refers to a supranational subsystem. We follow Hettne (2005: 544) in stressing “that there are no ‘natural’ regions: definitions of a ‘region’ vary per the particular problem or question under investigation” and “that all regions are socially constructed and hence politically contested.” We are more preoccupied with regionalism than with regionalization. Regionalism is a top-down, macro-level political process driven by a body of ideas and a cooperation that promotes an identified geographical (or social) space as a regional project (Mansfield and Solingen 2010: 146–47). Regional cooperation may include some commercial preferences, as in Free Trade Agreements (FTAs), but they may just involve functional cooperation in an issue area, such as transport infrastructure and connectivity. East and Southeast Asia has experienced a proliferation of FTAs, leading to “competitive regionalism” through a complex “noodle bowl” of trade and investment agreements and a surge in the interest of regional powers in transport infrastructure. Infrastructure projects are a way to develop market opportunities for indigenous construction and transport companies, but they are also a way of becoming involved in linked economic corridors and expanding regional production networks. As Breslin has suggested (2010: 729), regionalism in East Asia is globally contingent, so the dynamics of the changing regional order must be seen in the context of bargains that involve the United States as global hegemon. Japan has explicitly subordinated itself to the imperatives of US hegemony and is a crucial node in US-sponsored regional security. Regional initiatives are tied to a dollar-based global financial order, and Japan is “the leading goose” in a regional foreign direct investment order and a core provider of advanced technology to regional production networks. Goh (2013: 16) emphasises the resilience of US hegemony and the complicity of regional powers (China and Japan) in sustaining it, but other scholars argue that Goh underestimates the resistance of China to a US-led regional order. Thus, Oba (2016: 571) states that the OBOR and AIIB initiatives “show China’s intentions to construct a new regional order that would at least weaken, if not replace, US hegemony.” Finally, Beeson and Li (2016: 495) argue that OBOR and AIIB initiatives together “amount to a sophisticated strategy that capitalizes on China’s economic strength in ways that may permanently transform the region and China’s place in it.” This is particularly the case because China’s ideational and institutional efforts are underpinned by “very tangible forms of investment and infra-

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structure development that are likely to make its policy influence and objectives more difficult to resist” (ibid: 497). In this chapter, we briefly touch upon the issue of FTAs in the region but the main focus is on overseas infrastructure export and regional competition between China and Japan for rail-infrastructure development in landbased Southeast Asia. How are we to understand these regional powers when commercial and security interests intersect? Competitive regionalism between Japan and China is undoubtedly in a state of zero-sum rivalry in the East China Sea disputes over the Senkaku/Diaoyu islands, but is this also the case when it comes to overseas infrastructure export? Economic and security aspects of regionalism are often tightly linked and tend to be under-researched (Mansfield and Solingen 2010: 153). As Jayasuriya has suggested (2003: 205), regional dynamics cannot just “be located in the changing dynamics of inter-governmental relations”; they are also rooted in the dynamics of the domestic political economy. This implies that the huge competing infrastructure initiatives of China (OBOR) and Japan (PQI) must be understood in relation to processes of economic transformation and crisis in the domestic political economies as well as in the different modes of internationalisation of capital. In looking at the infrastructure diplomacy of China and Japan, we might usefully distinguish between economic diplomacy and economic statecraft. The former can be defined as decision-making, policymaking, and the advocacy of broader nationally-defined economic strategies. During the age of globalization, economic diplomacy has turned diplomats into “agents of globalisation” and they are directly involved in the creation and regulation of markets and capital as well as in trade and finance diplomacy (Lee and Hocking 2010). As opposed to the use of state power to develop market opportunities and to support the global outreach of indigenous companies, economic statecraft is the use of economic tools to achieve foreign policy objectives, which in turn cover not just military security but also national strategic goals, such as energy security, guaranteed supply lines, access to cuttingedge technology, etc. (Norris 2016). Economic statecraft may take many forms. In overseas infrastructure investment, regional powers may try to outbid each other to obtain regional influence, regional stability, or a special regional order—by economic means. Using economic leverage to preserve and realize their national interests in the region may also involve the provision of regional public goods (e.g., economic assistance and infrastructure), where the regional power takes the lion’s share of the costs

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involved and commercial profitability is compromised. That is what Dent (2008) refers to as regional developmentalism. Regional competition and competitive regionalism are complicated matters for subordinate regional states, such as Thailand. They are complicated because the re-emergence of China as a central regional economic power is increasingly bifurcating security and economic dynamics, forcing subordinate states to find ways to balance the regional dualism and avoid being “forced to choose” between China and the United States, or between Japan and China (Wesley 2015: 480–82). For those caught between China and the United States, it is increasingly costly not to accommodate China but also costly not to follow the global hegemon. By way of comparison, Sino-Japanese competition is easier to handle and presents a wider range of choices. In short, overseas infrastructure export and related regional competition entail complex processes of interpretation, negotiation, and contestation. In this case, China, Japan, and United States are the key players. The analysis must cut across economic and security logics, just as it must reveal how regional rationales interact with global rationales. The study of OBOR/PQI and overseas infrastructure export must deal with aspects of economic diplomacy as well as economic statecraft. With this as the point of departure, Section 3 will explore the regional Sino-Japanese competition and, to some extent, the global competition between the United States and China.

Competing Orders and Physical Connectivity: China, the United States, and Japan In the following, we explore the competing regional orders, starting with Sino-American competition in trade and transport. Next, we examine Sino-Japanese competition in relation to transport infrastructure in Southeast Asia and GMS. Sino-American Rivalry: Trade Versus Transport The United States have made sustained efforts to advance trans-pacific economic integration (e.g., through APEC), and since 2010, they have attempted to counterbalance the increasing Chinese influence in East and Southeast Asia. In the wake of the Asian Financial Crisis (AFC), the United States

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began to lose influence in the area, and the “War on Terror” reinforced this tendency in Muslim states. Following these two events, China promoted its own agenda and advanced or joined more closed forms of regionalism centred on ASEAN and East Asia and excluding the United States where possible. To lessen worries among ASEAN countries about China’s WTO membership, China had already entered a “Framework Agreement on ASEAN-China Comprehensive Economic Cooperation” (2002), leading to the formation of the ASEAN-China Free Trade Area (ACFTA), which came into effect in 2010 (Breslin 2010: 719ff; Beeson and Li 2014: 97). Obama officially announced the “pivot” to Asia in November 2011, and the Trans-Pacific Partnership (TPP) became a major component in the rebalancing efforts. In his State of the Union address to Congress in January 2015, Barack Obama emphasised that it was crucial that the United States rather than China should “write the rules” (Obama 2015). Besides shaping integration through the TPP in terms favourable to the United States, Obama also tried to counter the Chinese model of capitalism by introducing advanced standards to suit highly developed countries and by setting up rules that restrained subsidies to Chinese state-owned enterprises—SOEs (Tow 2016: 37; Lin 2015: 589). The Chinese reaction to Obama’s pivot was to make its own pivot to the West (in China and beyond); just as China decided to set up the AIIB partly because the US Congress had delayed even modest voting reforms of the Bretton Woods institutions for years. With regard to mega-FTAs, China eventually decided to support the ASEAN-driven Regional Comprehensive Economic Partnership of East Asia (RCEP), which excluded the United States. However, it is not the RCEP but the OBOR initiative that constitutes the main Chinese template for a regional order. The OBOR is linked to Xi Jinping’s vision of a China-centred regional community. Xi Jinping became general secretary of the Chinese Communist Party (CCP) in November 2012 and state president in March 2013. In September 2013, he launched SREB, with the aim of building land-based economic corridors connecting China to Europe as well as to Central Asia, Southeast Asia, and South Asia. The following month, he launched MSR. Together they constitute the OBOR initiative. Embracing new forms of diplomacy, Xi Jinping’s new comprehensive foreign policy was debated at two CCP meetings—the October 2013 Work Forum on Peripheral Diplomacy and the November 2014 Central Conference on Foreign Affairs. Xi’s Chinese dream of a “the great rejuvenation of the Chinese nation” aimed to restore China traditional place

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in world affairs and in these debates, it was tightly connected to a Chinese-Asian dream of a regional “community of common destiny,” enabled by a range of infrastructure and socioeconomic connectivity initiatives with neighbouring countries. In relation to road and railway connections, Yunnan would serve as a bridgehead from China to Southeast Asia, with Kunming acting as the urban node (Xi 2015; NRDC 2015; Arase 2015: 37; Swaine 2015; Callahan 2016; Summers 2016; Ferdinand 2016). The OBOR initiative integrates a complex set of domestic and international goals and officially brings together economic, political, security, and cultural elements (NRDC 2015). The drivers are a mixture of foreign and domestic concerns and of strategic and economic motives. Besides the reaction to US containment, important strategic motives include OBOR as a gateway to neighbouring regions, allowing the country to protect energy and natural resource supplies originating in the region and beyond. Further, OBOR gives China the possibility of bypassing sea lanes in the South China Sea area that are subject to US naval dominance and prone to conflicting claims. In addition, OBOR introduces a friendship strategy to widen China’s manoeuvrability, to build trust and to safeguard regional stability; by entangling neighbours in an economic-infrastructural web, it may also raise the costs of any future confrontation with China (Wang 2016: 459–460; Rolland 2015: 3; Callahan 2016: 228). Even though the OBOR encompasses security agendas and has geopolitical consequences, the main drivers are undoubtedly economic; in other words, the OBOR is more about economic diplomacy than about economic statecraft. First, the deployment of the infrastructure project is part of the internationalisation of Chinese capitalism and a way to provide new business opportunities for SOEs. Next, due to its intense focus on investmentdriven economic growth, China has run into problems of overcapacity and low profitability. OBOR may be considered a way of exporting this overcapacity in areas, such as construction and steel industries and of enhancing the investment returns. Furthermore, OBOR is a way of tackling the problem of excessive foreign exchange reserves that are currently sent back to the United States and invested in American treasury bonds. The OBOR initiative is also linked to the gradual erosion of China’s comparative advantages in cheap labour and to the need to upgrade its production structure. OBOR makes it possible to relocate low value-added manufacturing facilities to neighbouring countries, to which China can then export higher value-added goods and services Finally, there is also an important internal developmental logic: the SREB can be used to develop the interior

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and western provinces of China (Lin 2015: 589; Minjiang 2015, Arase 2015: 31; Rolland 2015: 3). In a comparison of the United States and China between 2012 and 2016, two different templates of regional order emerge. First, whereas China was oriented towards its neighbours in Asia and argued that Asians should take care of Asian problems, the United States advanced a TransPacific template whereby it could shape the rules of economic interaction. Second, in contrast to the Western emphasis on regional/global integration through free markets, private entrepreneurship and financial liberalisation, China advanced state-driven initiatives, which used state-owned enterprises and financial institutions and which followed the principle of “seeking harmony but not uniformity”; they were concerned with dialogue and connectivity between distinct national societal models on the basis of respect for national sovereignty, diversity, and Sino-centrism. Third, while the United States preferred deep economic liberalisation and gave priority to services and investments via the TPP, China focused on physical infrastructure linkages and policy-led trade facilitation with its OBOR partners. Fourth, rather than seeking uniform and legal binding trade and investment rules, China sought to deepen interdependence and shape the preferences of its Eurasian neighbours through mutual respect, mutual interests, and negotiated, flexible rules. This was to be done through a mixture of regional institutions and individual case-by-case negotiations in which China could demonstrate its leadership (Larkin 2015: 8; Arase 2015: 33–34; Ba 2016; Ferdinand 2016: 946–48; Min 2015; Dian 2016; Wilson 2015). In early 2017, President Donald Trump decided not to seek ratification of the signed TPP agreement, thereby indicating that the United States would not take a leadership role in liberal trade and investment rule-making but would instead negotiate so-called fair bilateral trade deals  (Borger 2016). On the one hand, this gives China more space to advance its preferred version of regional order, but on the other hand, it is leading to a more aggressive US stance on Chinese trade surpluses (Panda 2016). Sino-Japanese Competition: Infrastructure Diplomacy When it comes to trade, Japan has chosen to follow its main ally, the United States, and has joined the TPP. Regarding infrastructure development in Southeast Asia, the ADB has pushed for further investments. In its “Infrastructure for a Seamless Asia” report, the ADB (2009: 167, 169)

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estimated a need for investments in transport in Asia between 2010 and 2020 amounting to US$2.5 trillion, of which US$38.6 billion would be invested in railways. In addition, funds of US$82.8 billion were needed for regional projects along the Trans-Asian railways. This adds up to railway infrastructure investments of about US$11 billion (national and international) per year. In the first year of his second term in office, Prime Minister Shinzo Abe launched a “proactive turn” with regard to Southeast Asia, marked by the decision to visit all ten ASEAN countries in 2013. John Lee (2015: 14) calls this an “unprecedented move by a Japanese leader” seeking “to play a much more proactive role in regional strategic affairs.” The main strategic aim here was to uphold and protect a regional liberal order with a significant American input. However, Japan also needs to boost its economy and protect its “turf” in Southeast Asia. In May 2015, attempting to reinvigorate its industry and counter China’s OBOR initiative, the Abe administration created a new development programme called “The Partnership for Quality Infrastruc­ ture” (PQI). The programme was based on collaboration between Japan and the ADB and would increase their combined infrastructure funding to Southeast Asian countries by around 25% to US$110 billion for the next five years. Prior to the G7 ISE-Shima Summit the following year, Abe announced the “Expanded PQI,” which raised the provision of financing to US$ 200 billion (US$40 billion per year), just as he won G7 support for his proposed Principles for Promoting Quality Infrastructure Investment. In this way, Japan tried to match Chinese infrastructure diplomacy with a funding pledge well beyond the founding capital of the AIIB. HSR projects are an important element in this infrastructural offensive. In 2015, these projects encompassed Indonesia (Jakarta–Bandung), Malaysia/ Singapore (Kuala Lumpur–Singapore), the Philippines, Thailand, Vietnam, and India. In May 2016, in the wake of the Indonesia case, in which Japan was outbid by China, the Japanese parliament softened regulations governing the Japan Bank for International Cooperation (JBIC), allowing it to make riskier investments by means of a special account through which it could compete more aggressively with China (Abe 2015; Koga 2016: 72–73; Hong 2016: 5; METI 2016; BMI 2016: 22). In brief, as the major source of foreign direct investments in Southeast Asia, Japan has tried to combine its interest in a stable and open regional order with its narrower commercial interests, and it has sought to match China’s infrastructural diplomacy. As explained by Yoshimatsu (2017: 14),

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there is a twin-goal orientation behind the overseas infrastructure export: “The export of integrated infrastructure systems was located as a main pillar to achieve an economic objective to reinvigorate the Japanese industrial sector. At the same time, geopolitical objectives to counter China’s growing influence in Asia and maintain Japan’s regional presence were pursued by forging closer ties with countries surrounding China and advancing original standards for infrastructure-building in rivalry with China’s institutional initiatives.” In short, the Japanese government has combined economic statecraft with economic diplomacy. Sino-Japanese Competition: Vertical Versus Horizontal Connectivity in GMS Japan’s engagement in infrastructure development in Southeast Asia has a long history. In 1992, the ADB started its “Greater Mekong Subregion” (GMS) Economic Cooperation Programme (ECP) involving the six GMS countries (Cambodia, China, Laos, Myanmar, Thailand, and Vietnam). The GMS-ECP was further developed in 1998, when the concept of three economic corridors was introduced: the East-West Economic Corridor (EWEC); the Southern Economic Corridor (SEC) and the North-South Economic Corridor (NSEC). The three economic corridors that were linked to transportation initiatives were formally launched in 2000. The corridors became a core part of the GMS-ECP 10-year Strategic Programme for 2002–2011 and were supposed to turn the former “battlefield” of Indochina into a dynamic market place (Ishida 2008: 121–25; Pham 2015: 88–89).1 Japan has prioritised the EWEC and the SEC, while China is concentrating on the NSEC. In other words, Japan is engaged in two horizontal connectivity projects. Japan has a strong interest in the EWEC, which is a 1450 km highway along the shortest link between the Pacific Ocean (Da Nang and Vietnam) and the Indian Ocean (Mawlamyaing and Myanmar). With an EWEC link, the time of coast-to-coast travel will be lowered from five to two days. The SEC links Ho Chi Minh in Vietnam with Dawei in Myanmar and passes through both Phnom Penh (Cambodia) and Bangkok (Thailand). In Thailand, it links up with two deep sea ports in Southeastern Thailand—the Laem Chabang and Map ta Phut—which have also received construction loans from Japan, as has the Cap Mep-Thi Vai Port in Vietnam. Moreover, the SEC covers the areas where Japanese TNCs in Thailand are located. Vietnam is increasingly a favoured destination for

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TNCs seeking to avoid too much dependence on locations in China (Pham 2015: 87–89; Singh et al. 2017: 110–111; JICA 2012: 3–4). The Japan International Cooperation Agency (JICA) has developed a comprehensive corridor development approach that combines an infrastructure development plan (hard plus soft infrastructure) with an industrial development strategy as well as a strategy that deals with environmental and social development (JICA 2016). In contrast to Japan, China has direct access to mainland Southeast Asia and sees its GMS involvement as a natural complement to its sub-national “going west” strategy. China’s engagement in the GMS has been along the NSEC that runs from Kunming via Chiang Mai to Bangkok. This vertical connectivity made Yunnan the land-based “Gateway to the South” and brought Laos and Cambodia closer into China’s sphere of influence (Singh et al. 2017: 110). China has decided to complement ADB by setting up the LancangMekong Cooperation (LMC) project as a focal point for a new mechanism for sub-regional cooperation under the ASEAN-China framework (Li 2015, 2016). One suggested area of cooperation is inter-connectivity, including upgrading of the China–Thailand and China–Laos railways. The latter was agreed upon in November 2015 and involves a 427 km railway entering Laos at the Mohan/Boten border cities and connecting to Vientiane to the south. China has promised to devote US$1bn to such sub-regional inter-connectivity projects. Another field of cooperation is the formation of cross-border economic cooperation zones under the framework provided by the ACFTA. The China Development Bank has set aside US$10 billion to support enterprises and industrial development in the sub-region (Lu 2016: 10–13). To match this, Japan has launched the new Tokyo Strategy for MekongJapan Cooperation (MJC2015), introducing four “pillars” to ensure regional stability and achieve “quality” growth. The first pillar deals with “hard” infrastructure development and its contribution to “quality growth.” It emphasises the “active participation of the private sector” and the promotion of public–private partnerships just as it explicitly refers to PQI, EWEC, SEC, and the Dawei development project (MOFA 2015). Further, in contrast to the Chinese version, the Japanese emphasis on the promotion of democracy and the rule of law highlights a Western regional order. In short, there seems to be a clear pattern of intensified SinoJapanese competition in relation to the planning, provision, and funding

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of physical infrastructure. This is linked to competing interests in economic zones/corridors and diverging views on the role of private and state-owned enterprises. Regional Competition and Ordering While China and the United States are clearly maritime rivals in the South China Sea and have conflicting views on the nature of twenty-first century mega-FTAs in the region (Pacific versus Asian), they are not yet rivals in relation to infrastructure. Japan and China have a long history of regional rivalry in the East China Sea, and Japan’s security policy is still closely linked to that of the United States. Japan has followed the United States by joining the TPP initiative. Southeast Asia has long been a natural destination for Japanese investments and for two-way trade. Japan has been the dominant economic power in the region for decades. Moreover, Japan has conducted developmental regionalism through the ADB and through bilateral ODA to the GMS sub-region by actively promoting a regional cooperation/integration process that sets out to close the developmental gap and bring stability as well as more cohesiveness to the region. In this endeavour, Japanese agents meet increasing competition from China. Japan is, therefore, eager to preserve its regional presence and counter China’s growing influence. This is also the case when it comes to regional infrastructure and development along the economic corridors. For China, its connectivity in Indochina involves access to resources, to trade, and to investment opportunities, as well as “good neighbourliness,” leading to favourable diplomatic outcomes. China supports the internationalisation of SOEs and uses OBOR, AIIB, and LMC to further a China-centred regional order. For Japan, the “pivot” to Southeast Asia involves the rejuvenation of domestic industries through further outsourcing and the protection of its economic interests in mainland Southeast Asia. Japan deepens its bilateral ties and uses PQI and MJC2015 to match China and protect the existing regional order, including private capital accumulation and the liberal order. While both regional powers are primarily driven by commercial interest and broader economic concern, an element of economic statecraft also plays a role. Finally, in terms of infrastructure expansion, this is not a cut-throat regional rivalry. There is a huge market and some complementarity, where Japan focuses on horizontal connectivity (EWEC and SEC) and China on vertical connectivity (NSEC). With that in mind, we will now leave the regional level and move to a national case which involves exploring China’s and Japan’s railway diplomacy in Thailand.

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Sino-Japanese Competition and Railway Upgrading in Thailand Improvement of the Thai railway network has been high on the policy agenda for many years and plays an important role in the country’s infrastructure plans. Expansion to a double-track rail network is an important priority, but another priority project is standard rail development, which, in contrast to the existing meter gauge, has a so-called standard gauge of 1.435 m and will allow HSR transport. The Sino-Thai HSR project goes from the Gulf of Thailand (the Map Ta Phut deep harbour) via Bangkok to Nong Khai on the border to Laos and is linked to similar projects in Laos and China. The Japanese HSR project will connect Thailand’s two main cities, Bangkok and Chiang Mai, and Japan is also involved in two East-West railways upgrading projects (see Figs. 9.1 and 9.2).

Fig. 9.1  Railway lines negotiated with China. (Source: Kunapdamraks 2016, OTP/MoT)

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The Railway Cooperation between Thailand and Japan

Chiangmai

Tak

233

1

Mukdahan

Route

3 1 Kanchanaburi

2

Aranyaprathet

2

Bangkok Laem Chabang

3

Distance (km.)

Development of BangkokChiangmai High Speed Rail (BCHSR) (using Shinkansen Technology)

715

Improvement of Kanchanaburi-BangkokChachoengsao-Laem Chabang and Bangkok-ChachoengsaoAranyaprathet

574

F/S for the railway project from Tak to Mukdahan Total

1,289

Fig. 9.2  Railway lines negotiated with Japan (Source: Attananda 2015: 71).

Sino-Thai HSR Negotiations The Sino-Thai negotiations on a possible HSR line started during the Abhisit government (2008–2011) and continued slowly during the government of Yingluck Shinawatra (2011–2014). However, it was after the May 2014 coup brought General Prayuth Chan-Ocha to power that the negotiations accelerated. Premier Li Keqiang had visited Thailand the year before and addressed the Thai parliament, where he presented the HSR plan. He also promised to import one million tons of rice and stated that he would consider importing more natural rubber (China Daily 2013). In late July 2014, the Junta decided to go forward with the two HSR projects, including the Bangkok—Nong Khai connection. This project would adopt Chinese technical railway standards with a standard gauge of 1.435 m, and the rolling stock was meant for a mixture of passengers and freight. The trains were presented as medium speed train (160–180 km/ hr), but they would be designed for a maximum speed of 250  km/hr, which would mean that they were high-speed trains.2 This agreement would involve three SOEs on the Chinese side. Two of these were con-

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struction companies: the China Railway Group Ltd. (CREC) and China Railway Construction Corporation Ltd. (CRCC). The third SOE was the China Railway Rolling Stock Corporation (CRRC). The mode of cooperation would be based on the EPC (engineering, procurement, and construction) system. China was generally in charge of high-tech complex tasks, while the simpler low-medium tech jobs were left to the Thai side (Attananda 2015: 67–68; Interview C). The Sino-Thai project was a government-to-government (G2G) project, and the negotiations took place in a joint committee on railway cooperation (hereafter the Joint Committee). During 2015, no less than nine meetings were held, but there was little progress. The following spring, Thailand started to backtrack, and at a meeting in China in March 2016, the Thai Prime Minister Prayuth stated that Thailand would stop the joint venture talks and go ahead alone in building the 253 km Bangkok–Nakhon Ratchasima part of the line with full Thai funding (the red line 1 and the blue line 3), while the remainder of the HSR line (green line 2 and line 4) would be suspended (Nopparat 2016; Yoon 2016). To soften the Chinese by showing less interest, the Thai government accelerated the negotiations with Japan (see below) and decided to speed up two other planned HSR lines—the Bangkok–Hua Hin line (211  km) and the Bangkok–Rayong line (193 km). The Bangkok–Nakhon Ratchasima line (line 1 plus line 3) was now split into four parts with different starting dates. The Sino-Thai negotiations continued, and at the 14th meeting of the Joint Committee in September 2016, an agreement was reached on the Bangkok–Nakhon Ratchasima track at a total cost of Bt179bn (US$5.15bn). The construction of the first 3.5 km section did not start in 2016 as planned, but funding was included in the budget for FY 2017 (TN, July 30, 2016; TN, August 24, 2016; TN, September 21, 2016; Parameswaran 2016, Amornrat 2016a; TN, November 1, 2016). The Sino-Thai negotiations were difficult, and they focused on several issues: construction costs, burden sharing, financing costs, development rights to land, rice-for-rail, and technology transfer. The Chinese were reported to have suggested constructions costs well beyond the estimated Bt400bn (US$ 11.7 billion) and closer to Bt500 billion. When it came to burden sharing, the financing structure and shareholding structure were repeatedly changed during the meetings. In the end, Thailand decided to bear the total construction costs, but China would provide funds for the technical systems (trains, signals, etc.). There was also disagreement on the

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financing costs: whereas the Thai side wanted a “friendly rate” of 2% or lower on a Chinese loan from the Chinese Exim Bank, the Chinese negotiators argued for a 2.5% interest rate, which was close to a commercial rate. Development rights to land are normally a sticking point in rail projects because they give rights to profitable ancillary development projects along the line. This was the case in Thailand, but it turned out that the Chinese had overlooked the fact that the King had long since given the land to the State Railway of Thailand (SRT). In a political situation involving hyperroyalist sentiments and a royalist junta, it was neither possible nor desirable for the Thai negotiators to include land rights in the negotiations. The rice-for-rail agreement was also negotiated, and it was agreed that China would import 1 million tons of rice and 200,000 tons of natural rubber from the huge stocks of these commodities. Finally, technology transfer was taken up several times by Thai negotiators because the Chinese SOEs were responsible for the high-technology aspects of the project, because they came with a full technology package, and because they were planning to use their own engineers and supply most of the workers (Interview A; Interview B; Pratruangkrai and Prasertpolkrung 2015; EiU 2016a). The unstable and unpredictable nature of the negotiations and the seemingly ever-changing conditions must have annoyed the Chinese, who see this project as a cornerstone in their land-based SREB. Thailand is of particular interest to China because the country is an important player in the fast-growing Mekong area and in relation to ASEAN. On the Thai side, however, public officials have had difficulty in negotiating with the Chinese, who have been less generous and less risk-willing than expected (Interview A). From the Thai point of view, this was a political project, a part of the economic stimulation packages, and not least a signal to a powerful friend. The HSR line will run through the Northeast of Thailand, which is one of the poorest regions in the country and the region where the Shinawatra and “the red shirts” have an electoral stronghold. Moreover, railways play a major role in the infrastructure-oriented economic stimulus package which is aimed at giving the junta output legitimacy. As the project bypasses most of the country’s population centres, its financial feasibility is insecure, but it is nevertheless a top priority for the military regime. Besides the issue of political legitimacy, this may also be because the incoming junta wanted to forge ties with China. Thailand is the United States’ oldest ally in the region and one of five formal US treaty allies in the Asia-Pacific region. Thailand has generally

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followed a strategy of balancing its relations with the United States and China and of adopting a pragmatic approach to suit specific circumstances. However, this has become more difficult in the new millennium—and with China’s increasing power. Thailand has clearly tilted towards China in the aftermath of the military coup. Whereas the Western countries condemned the military coup, downgraded its political ties, and slashed military aid, China welcomed the military junta, declared it would not interfere in Thailand’s internal affairs, and even intensified its collaboration with the junta. As well as cooperation on the HSR project, Sino-Thai defence collaboration developed, and Thailand decided to buy three Chinese submarines. In relation to mega-FTAs, Thailand prioritised the RCEP. Thailand did not join the TPP when the United States did, and the country had no interest in participating in the United States’ containment of China (Storey 2015; Busbarat 2016). China has gradually become a favoured and reliable partner that can be trusted during crises. The military could remember the strong support from China during the Cambodian Crises, and they have become increasingly pro-China. By 2014, the senior civil bureaucrats were those who had occupied junior positions during the AFC and had experienced how China did not devalue the RMB, instead it provided the financial support. This contrasted with the US, which had contributed little and had backed the unpopular IMF austerity policy. Further, Thailand has no overlapping territorial claims or maritime boundary disputes with China, and in ChinaASEAN matters, Thailand and Indonesia normally share the role of “the middleman.” In short, Thailand considers China an important security partner and a source of strategic stability (Storey 2015; Busbarat 2016; Interview D and E). The Sino-Thai HSR project can be seen as part of Thailand’s broader move towards China as a reliable partner in terms of economy and security. Against this background, the Thai junta had expected the Chinese to be more concerned about security than profit in their approach to the railway project, and thus to be willing to sacrifice profit to the achievement of foreign policy objectives. During the negotiation process, however, it turned out that the Chinese were much more business oriented than anticipated. The 2016-agreement is not necessarily a bad business deal for China. So far, it seems that the Sino-Thai HSR project will move forward step-by-step and will involve minimal risk should the project prove not to be financially viable. China faces no competition on the delivery of technology and rolling stock. Furthermore, Prayuth has promised that China

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will be invited to become involved in the coming phases of the HSR line.3 Although Thailand increasingly favours China, residual fragility in SinoThai relations led to the non-invitation of Thailand to the Belt and Road Summit in Beijing in May 2017 (TN 2017). Japanese-Thai Collaboration on Railway Infrastructure China is Thailand’s number one trading partner, accounting for 11.1% of Thailand’s 2015 export and 20.3% of its 2015 import (against Japan’s 9.4 and 15.4%). Nevertheless, Japan dwarfs China as an investor. In 2015, Japan accounted for 33.6% of all inward FDIs (China’s share was 2.7%) and Japan has a much larger stock of FDI than China (EiU 2016b: 13; BoT 2016). Consequently, Japan has a much greater commercial interest than China in infrastructure development and especially in infrastructure development that involves the greater Bangkok Area, the Eastern Seaboard, and other Japanese economic strongholds in Thailand. In contrast to Chinese involvement, Japanese involvement differentiates between passenger and freight transport. The Thai-Japanese HSR project from Bangkok to Chiang Mai is for passengers only and intends to out-compete domestic flights—as was the case in Europe after the introduction of HSR.  As shown in Fig.  9.2, Japanese involvement in the upgrading of freight lines is in East-West projects, more precisely along the lower E-W corridor (Kanchanaburi to Bangkok to Chachoengsao to Aranyaprathet bordering Cambodia) and the upper E-W corridor (Tak/Maesot to Mukdahan). In the upper E-W corridor (green line 3), most of the line starts from the ground. No plan or design has been made, so realization of the project will take a long time. Negotiations on the Japanese involvement in railway upgrading started in February 2015. Prime Minister Abe had previously followed the American practice of minimizing diplomatic exchanges with the military junta, but now he invited Prayuth to Japan on a three-day visit. During the meeting, Thailand suggested a J/V model, and the two leaders signed a memorandum of intent concerning the three railway routes mentioned above. In May 2015, this led to a “Memorandum of Cooperation” on the three routes, which was followed in September 2015 by a meeting between the state-owned Thai railway company and JICA about the lower E-W projects (red line 2 in Fig. 9.2). The project involves the improvement of a meter double-track rail link from Chachoengsao to Laem Chabang (deep sea port on the Eastern Seaboard) and has a total length of 574  km

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(Attananda 2015: 72; TN, February 11, 2015; EiU 2015; TN, May 26, 2015; EiU 2016a; interview A). The lower E-W project is of great importance for both Thailand and Japan. To the West, it can be extended to Dawei in Myanmar, where, in collaboration with Thai and Myanmar authorities, the Japanese are planning to establish a huge special economic zone with a deep seaport. To the East, it will link Thailand (and Japanese companies) with Cambodia and with Vietnam’s coast, and, to the South; it will give better access for cargo from the Bangkok area to be shipped out of Thailand’s main container port Laem Chabang (see the red line 2 in Fig. 9.2). In addition, ongoing negotiations at the bureaucratic level during 2015–2017 addressed the HSR line between Bangkok and Chiang Mai (blue line 1 on Fig. 9.2). The trains are expected to run 300 km/hr on this 682-km long track and will use high-standard Shinkansen technology. In contrast to the Chinese G2G approach, Japan prefers strong private sector involvement (including private Thai capital, too), so the project uses PPP financing and J/V company models. This HSR project was included in a MoU between the two countries that was signed during the visit by Japan’s foreign minister Fumio Kishida in May 2016. When the feasibility study was presented in June 2016, Japan recommended that the line be divided into two parts, so that the first phase would be a 386 km rail line from Bangkok to Phitsanulok with a detailed construction plan ready by 2017 and with construction scheduled to start in 2018. By June 2016, there was no agreement on who should operate the HSR service. As with the SinoThai project, this HSR was included in the four HSR projects that Deputy Prime Minister Somkid announced for accelerated planning and implementation in August 2016. The first phase, which will cost Bt224bn, was also included in the government’s FY 2017 investment plan (Attananda 2015: 71, 76–78; BP, May 3, 2016; Amornrat 2016b; TN, August 2, 2016; TN, November 1; interview A). It appears that the negotiations with Japan on HSR development and railway upgrading in Thailand have moved smoothly, and that the final extent of Japanese involvement will be larger than China’s. This is due to several factors. First, according to Thai officials, negotiation with the Japanese is easier because they are more flexible when it comes to solutions. Second, it is easier to justify because the Japan-Thai HSR project makes economic sense: the expected 2 hr and 46 min from the centre of Bangkok to the centre of Chiang Mai can compete in speed and costs with domestic flights. Third, the Japanese had already made a preliminary fea-

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sibility study of the Bangkok–Chiang Mai line several years earlier. Fourth, the lower E-W project is easier to construct because it can run on tracks that are already in place. Fifth, Japan has a competitive advantage in maintaining and upgrading railway lines. Finally, the two countries had already agreed to use a J/V model and to rely on private sector involvement (Attananda 2015: 78; interview A, interview B). However, Japan’s involvement in Thai HSR infrastructure is still being negotiated. On the one hand, the Thai government has decided to press ahead with the Eastern Economic Corridor to stimulate the stagnating economy. This will encompass huge infrastructure development projects, including the Bangkok–Rayong HSR project and the further improvement of existing rail lines. On the other hand, there are still obstacles to the Bangkok–Chiangmai HSR project. By early 2017, Thailand’s transport minister had announced that he wanted Japan to shoulder part of the investment in the JV and to lower the price (around Bt500 bn) by compromising on non-safety standards (Ono and Kotani 2017). Sino-Japanese Competition in Thai Railway Upgrading When it comes to regional competition, there is no doubt that Japan has increased its involvement in Thai railway upgrading and HSR to avoid being further side-lined in regional rail construction by China, to breathe new life into its HSR industry, and to take advantage of its superior railway upgrading technology. For China, Thailand is also important in its endeavour to internationalise its HSR SOEs and to stimulate the domestic economy. It should be noticed that in the Thai case, China and Japan are not in a state of strong rivalry. When it comes to railway infrastructure, they do not have mutually exclusive economic interests because they (mostly) compete along different lines and corridors in Thailand, and because of the infrastructure deficit and huge spending in this field. For Japan, there is a clear commercial logic, so the emphasis is on the two East-West corridors plus the Southern coast corridor. These are the corridors which are relevant for the logistics of Japanese companies in Thailand and/or regional connectivity to deep sea ports in the Bay of Bengal, the Andaman Sea, the Gulf of Thailand, and the South China Sea. Moreover, the Bangkok–Chiang Mai HSR project may well be commercially viable and turn out to be a clear yet complementary response to Chinese HSR diplomacy. For China, there is also a clear economic logic. The HSR project is of particular importance because it fits the NSEC, because it is a way to

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strengthen links to the Mekong countries (in particular Laos), and because it is part of the prestigious Singapore–Kunming Rail Link (SKRL) within the OBOR initiative. Of course, it is also a way of diversifying trade routes, in that it is both a means of gaining access to the Gulf of Thailand for the export of goods produced in Southwest China and an access point for the import of food and natural resources from Indochina or elsewhere. This gives China an interest in the future Bangkok–Kuala Lumpur section of the SKRL. The high degree of complementarity between Japan’s and China’s involvement in the improvement of Thai railways is thus partly due to a division of labour along different economic corridors. In turn, this reflects structural differences in the investment patterns of the two countries. Japan and China have invested in different sectors, often located in different places. Japan has invested in the auto industry and in the electronics industry, while Chinese investments so far have been directed into more resource-seeking industries (e.g., natural rubber). Moreover, China has focused exclusively on constructing new HSR lines, whereas Japan is also involved in upgrading existing lines to double-track. Finally, the complementarity reflects the priority that Thai leaders have given to balancing and leveraging the two regional economic giants.

Concluding Remarks To find out whether “two tigers can occupy the same mountain,” we asked two main questions: what are the rationales behind the Chinese and Japanese HSR diplomacy in the region and to what extent and in which ways is regional competition expressed in the case of Thailand? Partly as a reaction to Obama’s pivot to Asia, but mainly to obtain more flexible arrangements to accommodate its expanding economic interests, Beijing decided to prioritise its relations to its Southeast Asian neighbours and integrate them into the OBOR initiative. China’s use of economic statecraft has also led to stronger regional rivalry concerning the future regional order and in particular to rivalry with the United States about the regional rules of the game. Beijing’s growing economic and political influence has forced Japan to match Chinese offers and to defend its position as the dominant regional economic power. Both countries have intensified their infrastructure diplomacy, and both utilise overseas infrastructure projects to serve foreign policy goals and to support and rejuvenate their own industries goals.

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Regional competition affects the GMS, where China has lost influence in Myanmar to Japan (and to Western countries) but has retained Cambodia and Laos as loyal allies. Competing regionalism is growing in this sub-region, as China has established an alternative regional institution (LMC) and Japan has followed-up by launching its MJC2015 strategy. At the same time, however, we have identified a certain complementary in infrastructure strategies along the different economic corridors, making it easier for the “two tigers” to find a place on the “same mountain.” The leaders of Japan and China are personally committed to securing HSR projects abroad and have devoted significant financial and diplomatic resources to support the internationalisation of their local state-owned or private companies. The analysis of the Thai case undertaken here has revealed some complementarity between projects from the two countries. The case study demonstrated that it was economic diplomacy rather than economic statecraft that prevailed. Thus, there were limits to Beijing’s willingness to forego profit in the pursuit of its foreign policy objectives, and the negotiations with Japan were also commercially oriented. Conversely, we saw that security matters were important for the Thai junta, but also that Thailand has been trying to turn Sino-Japanese competition to its advantage. Thailand is a front runner in China’s SREB-HSR strategy, but it is probably not typical of the Sino-Japanese race for HSR rail-projects. Even though the HSR competition is somewhat mitigated by the huge infrastructure deficit in the region, HSR companies from the two countries have been involved in cut-throat competition in other cases. The Japanese lost out in Indonesia, and the Jakarta–Bandung HSR project was awarded to Chinese (state-owned) enterprises. This setback led to an adjustment of Japan’s infrastructure strategy, and both countries are using their rail diplomacy in the attempt to win the Singapore–Kuala Lumpur HSR line. Sino-Japanese competition in rail-infrastructure is not inevitable, and under certain conditions, cooperation may even become possible. The election of Donald Trump as US President has not just changed the megaFTA landscape; it has also created uncertainty about the broader regional role of the United States. In this context of disorder, Japan has opened up to the possibility of cooperation with China’s OBOR. On June 5, 2017, Shinzo Abe gave a speech in Tokyo in which he declared that the OBOR “initiative holds the potential to connect East and West as well as the diverse regions found in between” and that under certain conditions (open access, transparency, economic viability, and financial soundness),

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Japan “is ready to extend cooperation from this perspective” (Abe 2017). Thus, it appears to be too soon to draw conclusions about the future nature of high-speed railway competition with any degree of certainty, just as it is difficult to predict the precise character of the competition between China and the United States. Despite intensified Sino-Japanese competition in HSR, the two tigers may be able to occupy the same mountain— not just in Thailand, but throughout the region.

Notes 1. In 2007, new economic corridors were added and special economic zones at border areas were programmed. Of relevance for this paper was a new Southern Coastal Corridor linking the Gulf of Thailand with the Andaman Sea (JICA 2016; Mazza 2015). 2. This strange procedure was due public concern about high-speed (Interview C). The following interviews were made during fieldwork in late February 2016: A: Dr. Pichet Kunadhamraks, Office of Transport Planning (OTP), Ministry of Transport (MoT); B: Danucha Pichayanan, Senior Advisor for Policy and Plan, Infrastructure project office, the National Economic and Social Planning Board (NESDB). C: Former MoT public official; D: Consultant George Abonyi; E: Professor Chulacheeb Chinwanno, Department of Political Science, Thammasat University. 3. On the other hand, by having Nakhon Ratchasima as the terminus, the Thai side still have some leverage in relation to China for whom the HSR line makes little sense OBOR-wise if the Nakhon Ratchasima – Nong Khai HSR route (yellow line 4 in Fig. 9.1) is not constructed.

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The Nation (TN). 2016a. Talks on Thai-Chinese Railway Hit Snags. July 30. Available at http://www.nationmultimedia.com/news/business/Economy AndTourism/30291712 The Nation (TN). 2016b. Somkid Pushes High-Speed Rail, Commercial Development. August 2. Available at http://www.nationmultimedia.com/ news/business/EconomyAndTourism/30291914 The Nation (TN). 2016c. Cabinet Backs Sino-Thai High-Speed Railway Deal. August 24. Available at http://www.nationmultimedia.com/news/business/ EconomyAndTourism/30293648 The Nation (TN). 2016d. Thailand, China Agree on $5 Billion Cost for Rail Project’s First Phase. September 21. Available at http://www.nationmultimedia.com/news/breakingnews/30295846 The Nation (TN). 2016e. 4 High Speed Rail Projects in FY 2017 Investment Plan. November 1. Available at http://www.nationmultimedia.com/news/business/macroeconomics/30298825 The Nation (TN). 2017. Fragility of Sino-Thai Ties Exposed. June 26. Available at http://www.nationmultimedia.com/news/opinion/kavi/30319094 The National Development and Reform Commission (NDRC). 2015. Visions and Actions on Jointly Building Silk Road Economic Belt and 21st Century Maritime Silk Road. March 28, First Edition. Available at http://en.ndrc.gov.cn/newsrelease/201503/t20150330_669367.html Theparat, Chatrudee. 2016. High Speed Rail: Japan’s Foreign Minister Visits Thailand. Bangkok Post, May 3. Available at http://www.bangkokpost.com/ learning/work/957849/high-speed-rail-japans-foreign-minister-visits-thailand Tow, William. 2016. U.S.–Southeast Asia Relations in the Age of the Rebalance. In Southeast Asian Affairs 2016, ed. M. Cook and D. Singh, 35–54. ISEAS– Yusof Ishak Institute. Wang, Yong. 2016. Offensive for Defensive: The Belt and Road Initiative and China’s New Grand Strategy. The Pacific Review 29 (3): 455–463. Wesley, Michael. 2015. Trade Agreements and Strategic Rivalry in Asia. Australian Journal of International Affairs 69 (5): 479–495. Wilson, Jeffrey D. 2015. Commentary: Mega-Regional Trade Deals in the AsiaPacific: Choosing Between the TPP and RCEP? Journal of Contemporary Asia 45 (2): 345–353. Xi, Jinping. 2015. Xi Jinping’s Keynote Speech at the Boao Forum for Asia Annual Conference 2015 on March 28. Available at http://usa.chinadaily.com.cn/opinion/2015-03/30/content_19946480.htm Ye, Min. 2015. China and Competing Cooperation in Asia-Pacific: TPP, RCEP, and the New Silk Road. Asian Security 11 (3): 206–224.

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Yoon, Suthichai. 2016. Thai-Chinese Rail Project: Next Stop to Nowhere Station. The Nation, March 31. Available at http://www.nationmultimedia.com/ news/opinion/suthichaiyoon/30282897 Yoshimatsu, Hidetaka. 2017. Japan’s Export of Infrastructure Systems: Pursuing Twin Goals Through Developmental Means. The Pacific Review 30 (4): 494–512.

CHAPTER 10

A Power Shift Underway in Europe? China’s Relationship with Central and Eastern Europe Under the Belt and Road Initiative Dragan Pavlićević

Introduction The relationship between China and Central and Eastern Europe (CEE)1 has made great strides forward following the establishment of the China– CEE Cooperation Framework, a China-initiated multilateral platform also known and referred to hereafter as 16+1 in 2012, and the launch of the One Belt One Road (OBOR) initiative in 2013. The CEE region and 16+1 occupy an important place within OBOR.  OBOR rests on five pillars, namely infrastructure development, policy coordination, trade facilitation, financial integration, and peopleto-people exchanges between China and the countries within the geographical space covered by OBOR.2 These same objectives have been pursued through various corresponding measures, initiatives, and priority areas defined under 16+1.3 Furthermore, at the time of writing, 13 out of D. Pavlićević (*) Department of China Studies, Xi’an Jiaotong-Liverpool University, Suzhou, PR China e-mail: [email protected] © The Author(s) 2019 L. Xing (ed.), Mapping China’s ‘One Belt One Road’ Initiative, International Political Economy Series, https://doi.org/10.1007/978-3-319-92201-0_10

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the 16 CEE participants of 16+1 had signed a declaration or another type of official document announcing their support for OBOR.4 The CEE region is a geographical point of entry of OBOR’s two broadly defined corridors stretching from China to Europe, propped up by the proposed large-scale development of transportation and energy infrastructure. Both land-based and maritime corridors stretch over parts of CEE, once they reach the geographical borders of Europe. Various related projects have been delivered or are under discussion between China and several CEE countries, including cross-border initiatives formulated in the context of 16+1—such as the “China Europe Land-Sea Express Corridor” (CELSEC) and “Three Areas Seaport Cooperation”— and the establishment of various cargo rail links connecting Europe and China. Accordingly, Beijing has extended loans for a dozen infrastructure projects in CEE and expressed interest in many more.5 Together with the growing volume of trade and investments from China in the CEE countries, these projects illustrate substantially deepening economic ties between China and the region. This trend is expected to further intensify under the trade and finance-related pillars of OBOR. Official declarations of support for OBOR by the CEE countries, in stark contrast with the refusal of the European Union (EU) to fully and officially embrace the initiative (The Guardian 2017), illustrate the early achievements under the “policy coordination” pillar of OBOR.  Various mechanisms for exchange between the media, businesses, higher education, and research institutions, to name just a few, now also provide venues for substantive people-to-people exchange.6 These developments have been met with widespread concern. Numerous influential research and media reports have predominantly understood them as having two inter-connected and reinforcing implications: First, that growing engagement between China and CEE states under 16+1 and now OBOR policy frameworks translates into China’s growing influence over their domestic and foreign relations policies and behaviour; and second, that it increasingly results in an erosion of the EU-centred regional order. This chapter provides an initial assessment of these viewpoints. The next section presents related assumptions and arguments to illustrate the main currents in the debate about the present and future of China’s relationship with CEE. In the subsequent section, I will lay out the analytical resources that will be used to evaluate these views. In the second part of

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the chapter, I will draw on the available evidence to critically assess them. I will look into economic, political, security, and normative aspects of the relationship to evaluate whether China has accumulated leverage over the CEE countries, in the process also drawing on comparisons to the region’s relationship with the EU—the dominant power in the region. The study then turns to the contextual analysis of the China–CEE relationship under the OBOR framework. This entails discussing the drivers of OBOR and assessing the China–CEE relationship specifically within the triangular relationship with the EU. For the empirical aspects of this study, I rely on the existing body of research and media reports on the topic.

China, CEE, and OBOR: A Quest for Influence? Observers have predominantly understood Beijing’s interest in developing relations with the CEE countries exclusively in the context of China’s grand strategy, in recent years spearheaded by OBOR. OBOR has been widely understood as a vehicle for a power-thirsty and influence-seeking China to assert itself globally. It has been referred to as a “Great Game”, a Chinese “Marshall Plan”, and a “Debt trap diplomacy” advancing China’s “neocolonial designs”, with the goal of “fashioning a hegemonic sphere of trade, communication, transportation, and security links” (Bloomberg 2016; The Economist 2016; Chellaney 2017). Moreover, China is understood as  deliberately creating and then “weaponising” interdependence through OBOR: “if others respect China, China will reciprocate with material benefits; but if they do not, China will find ways to punish them” (Leonard 2016). According to these views, OBOR aims to change the global geopolitical context at the expense of the established powers and the existing global order. Dominant interpretations of the China–CEE relationship within academic, policy, and media circles follow this line of thinking to a great extent, viewing the implications of China’s engagement with CEE in starkly negative terms. China is understood to be seeking influence over the CEE countries, which in turn results in a wide range of unwelcomed and damaging consequences not only for CEE, but also the EU. Overall, these perceptions view China as pursuing a “money for influence” and “divide and conquer” strategy.7 That is not to say that these are the only perceptions of the China–CEE relationship. Overall, the governmental discourse towards China in the

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CEE region is positive, hailing opportunities that may arise from closer ties with Beijing. There are media reports and analyses that view developing relations with China as beneficial for CEE countries and wider Europe. However, as the following paragraphs intend to illustrate, it is these “negative” perceptions that have established themselves as influential paradigms for understanding China–CEE relations. By prioritizing questions and issues that are discussed and providing the parameters within which the interpretations take place, these paradigms provide the context for thinking about China, shape the understanding of the China–CEE relationship, and influence the outcomes of policymaking. The authoritative semi-official publications from China (Liu 2016a), and the notable adjustments in China’s and the EU’s official rhetoric and policies over the time (Reilly 2017), offer tangible examples of how these paradigms influence the China–CEE relations. Within “money for influence” and “divide and conquer” paradigms, China is understood to be accumulating leverage over the CEE countries by making them to a high degree dependent on the Chinese economy through the financing of strategic projects, the extension of loans for these, and growing trade and investment. In return for such economic benefits, CEE countries are feared to be prone to “repay” them by following China’s line on issues of concern to Beijing (Die Zeit 2017). Numerous commentaries on China’s approach to CEE understand it as designed to ensure and result in the CEE countries’ alignment with and support for China’s policies and values. Furthermore, China’s success in developing its economy while maintaining the central role of the state and national interest in the formulation of economic and political agenda has been seen as facilitating anti-liberal and anti-democratic norms and practices within CEE. These span the reevaluation of the communist past, advocacy for the primacy of national over EU-level interests, reliance on state-level instruments for both making and implementing economic policies, and a disregard for clean and transparent governance (Grgić 2017; Makocki 2017). All of these stand in conflict with what is commonly perceived as the desired normative and organizing principles these countries should adhere to, often referred to in the relevant literature as “European values and norms”. In the context of the China–CEE–EU triangle, CEE is understood as space within which a geo-economic competition is played out between EU and China. China is said to be “financially meddling” in Europe’s

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“backyard” (de Jong 2017). It is also feared and that CEE is turning into “a contested geo-economic space between German and Chinese companies” (Pepe 2017). Moreover, it is widely assumed that “China’s political and security engagement in the 21st century is disguised in economic terms” (de Jong et  al. 2017). China is seen as having “dark motives” to “breach into Europe” by establishing “inroads” and a “backdoor” to the CEE countries to exercise political influence in the EU (RTS 2017; Deutsche Welle 2017). Seduced by Beijing, and increasingly dependent on economic exchange with China, CEE countries will take on lobbying for and pursue policies that are beneficial for China, but oppose the interests of the EU as a whole (Reuters 2016). Hence, CEE countries, whether current EU members or those expected to become so in the future, are seen as providing a platform to Beijing to access the inner workings of the EU and influence the EU’s policymaking, in the process undermining the interests of the EU as a whole, and its coherence and credibility (AlJazeera 2013). Accordingly, the European “project” is under threat from China. A German diplomat is on record saying that the “16+1 is a direct attack on European sovereignty” (Reilly 2017), a sentiment that is widespread in policy circles.8 Furthermore, China’s OBOR and engagement with CEE are feared to be causing deep frictions among European countries. For some, Beijing’s growing involvement “pits EU north against south” (Euractiv 2017), while others worry that “China’s inroads into CEE could become a dividing factor, one that may move the ‘German-Central Eastern European manufacturing core’ away from the rest of the EU” (Pepe 2017). At the same time, there are fears that some countries in CEE might use China as a “balancer” against the EU, or more broadly a strategic alternative to the EU (Pepe 2017). As such, China’s engagement with the CEE is feared to be a centrifugal force eroding the EU’s unity and integrity. As of recently, it has been increasingly suggested that China is challenging the normative foundations of the region and the EU. For example, Chinese projects in the Balkans—a part of the CEE region that has not yet been integrated into the EU—are perceived as serving as “a conduit for China’s political and normative influence” and as a vehicle for the “battle of principles” between the EU and China (Makocki and Nechev 2017: 2). China is “undermining the EU’s reformist agenda” while tilting “the balance between the market-oriented and the state-led model to the latter’s favor” (Makocki 2017). Here, clearly, the China–CEE relationship is understood as a battlefield for the ongoing “strategic competition of

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development models” brought about by OBOR (Fukuyama 2016). Overall, the EU’s normative appeal and dominance are perceived as being at risk due to the region’s improving relationship with Beijing and strength of China’s soft power. Specific examples of China’s influence on the CEE countries and the EU’s internal and foreign affairs featuring in these discussions include the case of the detention and deportation of Falungong activists during the China–CEE Leaders Meeting in 2014 in Belgrade; the “Sinification” of politics in Hungary; the corruption scandal surrounding a highway project awarded to a Chinese consortium in Macedonia; the support voiced for OBOR in the absence of the EU’s endorsement; the lack of support from Croatia, Slovenia, and Hungary for a strong critical statement on the issue of China’s territorial dispute with the Philippines in South China Sea, and the referencing of China as a positive example in various speeches made by the CEE political leaders (e.g., Pavlićević 2014; Nyíri 2013; Fallon 2016).

China’s Leverage: Analytical and Methodological Concerns Central to this assessment, albeit often implicitly, is the notion of leverage. China is assumed to be accumulating leverage by shaping relations with CEE in certain ways, in the process accruing forms of economic, political, and normative capital which are then employed to shape the CEE countries’ behaviour. However, what exactly constitutes leverage and would amount to sufficient leverage to enable China to alter the strategic and policy choices of the CEE states and erode the EU’s dominant position in the region is, by rule, left unaddressed. Rather, the existence of leverage is taken for granted, without structured and systematic attempts made to uncover its sources and the mechanisms through which it may be utilized. The evidence offered is often anecdotal or based on a limited number of high-profile cases that mostly assume, but not confirm, causal links. While a full-scope, detailed inquiry is beyond the scope of this study, this chapter attempts to close this gap by providing an analytical framework to investigate the potential sources and application, as well as conducting a preliminary assessment, of China’s leverage in CEE. While often-used, leverage has been a rarely defined concept. In the international relations literature, leverage tends to be “less explicitly refer-

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enced”, and used interchangeably with influence or discussed as a means to generate influence (Friman 2015: 202). Operationalizing the concept is therefore necessary for the purpose of this study. Shell (2006) refers to leverage as the power to reach agreement “on your terms”.9 For Kirgiz, leverage can be best understood as a subset of power—in Dahlian terms, an ability to influence behaviours of others—as “power rooted in consequences” (Kirgiz 2014). Accordingly, leverage is an “ability to influence another party through the threat of or the imposition of consequences on that party”. As such, leverage can be positive, deriving from a party’s ability to satisfy the counterparty’s interests, or negative, referring to a party’s ability to impose costs on the counterparty if the counterparty refuses to agree to a set of terms. Friman (2015) notes rich literature on how military capabilities and economic resources can be used as leverage for achieving political goals. However, drawing on Nye’s distinction between “hard” and “soft” power, Anderson (2010) recognizes that resources that can be used for achieving an objective in international politics go beyond military and economic means. Anderson suggests that China has deftly deployed soft power strategies and was very effective at leveraging its cultural resources throughout Southeast Asia, Africa, and Latin America to grow its economy and its stature in global politics. Friman (2015: 203) also recognizes the limitation of focusing on material capabilities and military and economic instruments as the sources of leverage. Even when held in relative abundance, these “do not automatically or necessarily influence the behaviour of others”. Along similar lines, Levitsky and Way (2005) argue that leverage—which they define as vulnerability to external demands—is dependent on the strength of the economic, geopolitical, communication, social, and civil society linkages that exist between parties. Tolstrup (2010) highlights the importance of gatekeeping elites for facilitating the depth and breadth of these linkages. Hence, a broader constellation of factors—related to the domestic context in countries which may pursue or have these capabilities, as well as in the target countries—must be taken into account when investigating the occurrence and use of leverage in international relations. Furthermore, the relationships do not exist in vacuum, but are a part of a broader set of relationships. Hence, it is necessary to assess a party’s leverage not only in the context of the relationship with the assumed target of the leverage, but also within the wider context involving other rel-

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evant actors and factors. Anderson (2010) also illuminates another important aspect by understanding leverage as “using resources and/or relationships in a creative way to bring about certain effects in the world”. Leveraging takes place only when there is a desire to do so, and in relation to specific objectives. Hence, a strategic intent to translate resources at one’s disposal into influence, in order to achieve set outcomes, therefore, is sine qua non for the exercise of leverage. What transpires from this discussion above is that sources of potential leverage in international relations are multidimensional, encompassing both “hard” and “soft” power elements. Furthermore, having resources is not enough to realize leverage—the broader context of the relationship must be taken into account as it may facilitate or prevent leveraging from taking place. Furthermore, a part of the broader context relates to whether there is a strategic intent of a party to leverage the resources it has on its disposal for achieving certain goals, and whether the existence of a causal link between resources and the ends to which they are utilized can be established. Hence, for China to possess and exercise leverage over CEE countries, China must have an ability to provide or withdraw things that other parties want, a strategic and goal-driven intent to do so, as well as operate in a context that would be conducive for leveraging to take place. For the assumptions and arguments of the above-discussed perspectives on China– CEE relations, including in the context of OBOR, to be well-grounded, I propose that four conditions need to be satisfied: In terms of capabilities, China has to have the capacity to be a vital provider of economic, political, and security benefits to the CEE states; and, it must have a developed “soft” power—the appeal of its ideas, institutions, and policies. To exercise leverage, and particularly for the ends envisioned in the literature reviewed above, two further contextual preconditions need to be in place: First, China has to outscore the EU on these accounts to be able to influence developments in the region more than the EU and against the EU’s preferences; Second, China has to have the intention to use its capabilities to the ends envisioned in the literature reviewed here. The following sections will investigate China’s engagement of CEE in the context of OBOR within an analytical framework based on these premises (Table 10.1).

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Table 10.1  The leverage framework Source of leverage

Indicators

Economy An ability to provide or withdrew economic benefits, such as financing, investment, and trade

 ubstantial dependence of CEE on China as a –S source of finance, investment, and trade

Politics/diplomacy An ability to provide beneficial political arrangements and diplomatic support Security An ability to provide beneficial security arrangements and affect counterpart’s security

–S  ubstantive integration of CEE into Chinafavoured organizations and mechanisms –C  onsequential support from China on key domestic and international issues  ubstantive integration into China-favoured –S security organizations and mechanisms –M  ilitary capabilities and security presence sufficient to increase or decrease CEE countries’ security or alter related perceptions

Soft Power Resources  ositive domestic perceptions of China An ability to shape behaviour of –P  pplication of norms and practices associated with others through attraction of ideas, – A China institutions, and policies Context China’s capabilities are greater than the EU’s Intention China aims to establish itself as a regional power

–C  hina outscores the EU on the above indicators

– China’s objectives are to influence internal and external affairs of the CEE countries and weaken the EU’s position in the region and the EU as a whole

China’s Economic Leverage The following sections will assess whether the state of the China–CEE economic relationship results in a high degree of dependence of the CEE economies on China. Loan-based financing of capital projects in the region, foreign direct investment inflows, and growing trade relations are widely assumed to serve as the three instruments China relies on to build up and exercise leverage in CEE. Capital Projects and Loans Table 10.2 presents the current scope of China’s loan-and-build capital projects in the CEE region. The model of implementation of these projects rests

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Table 10.2  Capital projects in the CEE region supported by China’s loans Country Albania

Project

European Motorway VIII: Arber motorway to FYRoM B&H Banja Luka–Split motorway B&H 450 MW unit at Tuzla thermal power plant B&H 350 MW Banovici thermal power plant B&H 300 MW Stanari thermal power plant Hungary Belgrade–Budapest high-speed railway link Montenegro Section of the European motorway XI Montenegro Renewal of the ship fleet Romania 500 MW unit at Rovinari thermal power plant Romania Mintia-Deva thermal power plant modernization Romania Tarnita-Lapustesti hydropower plant expansion Romania Units 3 and 4 at Cernavoda nuclear power plant Serbia Danube bridge Serbia Kostolac Phase I Serbia 350 MW unit at the Kostolac thermal power plant Serbia Belgrade–Budapest high-speed railway link Serbia Sections of the European motorway XI (to Montenegro) FYRoM Motorways construction

Value

%GDP

€200mn

2

€600mn €786mn

16

€400mn €350mn €1.5bn

1

€809mn

27

€100mn €1bn

4

€250mn €1bn €2bn €170mn €130.5mn €700mn

8

€800mn in Serbia (out of the total €1.5bn) €900mn €580mn

7

Source: European Bank for Reconstruction and Development (2016), based on Intellinews, 2016 with additional research by author based on various media reports.

on Chinese policy banks financing large majority of up to 85% of the projects’ values, and low interest rates, estimated for CEE at approximately 2.5–3% annually on average, with a few years’ grace period (Jakóbowski and Kaczmarski 2017). A minority of the projects listed here have been completed, while a majority are either in the discussion stage or a preliminary agreement has been reached. Others have been reported to be in early stages of discussion. This makes accounting for and analysing capital projects and the related loan arrangement a tricky task. Whether and when all or any of the projects still in the pipeline will be realized is unknown at this stage, as well as their

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final costs. Not everything reported is eventually delivered; parts of the larger projects are occasionally reported separately; and the costs can change dramatically over the course of negotiations or during the implementation of the project. For the purpose of the study, I select only projects reported to be in the pipeline by the end of 2016, and with an announced estimated or agreed value. It is assumed that all of the projects listed here will go ahead and be completed. Undoubtedly, both the price tag and significance for the developmental prospects of the CEE countries of these projects are very high. However, these projects overall still do not significantly increase the CEE economies’ exposure to China, nor do they occupy a disproportionally important place within the host countries’ economies, as measured by their value of the percentage of the host countries’ gross domestic product. Moreover, these projects are delivered over multiple years and repaid over longer periods, which moderate their impact on the balance sheet of the host countries. As such, even countries like Montenegro and Bosnia and Herzegovina are much less exposed to China’s loans than the figures might suggest at first glance. While further research based on comprehensive datasets is necessary to understand the implications of China’s loans for recipient countries, some available evidence suggests that at least some of the CEE countries own a much larger portion of their debt than in arrangements with traditional donors.10 In other words, at worst, Chinese loans can only be of secondary importance for CEE countries’ levels of indebtedness and for their ability to service their debts. It should be noted as well that the loan-backed infrastructure projects are, with exception of the Hungarian section of the Belgrade–Budapest highspeed railway, confined to the Balkan sub-region of CEE.  This is a likely consequence of the greater infrastructure needs in this part of CEE compared to the region as whole, as well as a higher likelihood that the non-EU member countries deliver public procurement projects without an open bidding process, as is required by the rules of the EU. Additionally, the EU member states do have access to financing on better terms through EU-mechanisms (Jakóbowski and Kaczmarski 2017). Hence, China’s “infrastructure diplomacy” in CEE does not amount to a source of leverage for China. Investments Table 10.3 provides an overview of the investment trend between 2009 and 2015 for all CEE countries. It should be acknowledged that some of the recent investment deals do not appear in the numbers, as well as that

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Table 10.3  China’s investments in CEE, USD million Country Hungary Romania Poland Bulgaria Czech Republic Slovakia Serbia Lithuania Croatia Bosnia–Herzegovina Albania Slovenia Estonia Macedonia Latvia Montenegro Total

2009

2015

97.4 93.3 120.3 2.3 49.3 9.4 2.7 3.9 8.1 5.9 4.4 5.0 7.5 0.2 0.5 0.3 411

571.1 364.8 352.1 236.0 224.3 127.8 49.8 12.5 11.8 7.8 7.0 5.0 3.5 2.1 0.9 0.3 1977

2009–2015 growth (%) 486 291 193 10,115 355 1265 1758 218 46 31 60 0 −53 955 74 0 381

Source: Author’s research, based on UNCTAD.

the numbers alone may not capture the importance that some these investments may have for the recipient countries, as they are taking place at a time of sluggish economic performance and widespread concerns that EU-based investments are falling short of desired levels. To illustrate, in 2016 China’s state-owned Hesteel acquired the Serbian steel mill Smederevo, one of the major industrial assets in Serbia. When at its full capacity, the steel mill is the second biggest exporter in the country, making up 14% of Serbia’s exports, and is an important contributor to the state budget. It was sold back to the Serbian state by its previous owner, US Steel, for 1 US dollar in the aftermath of the Global Financial Crisis and as the global demand for steel plummeted. Because of concerns about the social instability, political consequences, and long-term economic loss that may have resulted if the mill was closed, the Serbian government had been subsidizing it with over 200 million US dollars annually in the years which followed. In June 2016, Hesteel acquired it for 46 million Euros, committing to invest around 300 million US dollars and significantly increase its capacity in the coming years. Among others, Chinese enterprises also secured airport operations and oil exploration and production in Albania (2016), acquired an oil refinery in Romania (2016), and announced ambitious investment plans for the

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region (e.g., Huawei reportedly intends to invest 100 million US dollars in Romania by 2018). Of note, the China–CEE Investment Fund, backed by China’s EXIM bank—armed with a capital of 500 million US dollars and set up under the auspices of the 16+1 framework to facilitate Chinese investment in the CEE region—made its first investment in the region in 2015. The establishment of the Sino-CEE Financial Holding, which makes additional 3 billion US dollars, mostly from China, available for investment in CEE was also announced in 2016.11 There are expectations that a further investment influx in the region will follow. However, while the growth has been phenomenal when expressed in percentage points, and notwithstanding the limitation of available data in the light of recent developments, China’s investment inflows are still moderate, especially as, once these numbers are put in perspective by looking at China’s investment inflows into the non-CEE EU countries, it becomes clear that China is not pursuing a targeted “cash for influence” strategy in the CEE, as these are generally minuscule in comparison (Oehler-Sincai 2017). Overall, there is a strong correlation between the preferred destinations in CEE for investment from both the EU and China, suggesting that rather than these countries being targeted by China within such a strategy, other factors determine which destinations are most attractive for foreign directed investment (FDI) in CEE. Importantly, China’s FDI in CEE is dwarfed by the FDI inflows from the EU.  As an illustration, EU’s FDI accounts for 92% of all FDI stock in Poland, 91% in the Slovak Republic, 90% in Romania, 89% in the Czech Republic, 82% in Serbia, approximately 75% in Bulgaria, and close to 70% in Hungary. Hence, China’s growing investment flows are not providing China with leverage over CEE. Trade Table 10.4 presents trade volume between China and CEE for the period 2009–2015. Overall, there is a sharp increase in trade volume, with a continuous increase of imports from China relative to exports from CEE. However, the degree of China’s participation in the trade mix of the CEE states also suggests that China is still a minor player in the region, especially as compared to the EU, despite the substantial growth in trade volume in recent years. For example, trade with the EU still accounts for 63.8% of Serbia’s total, while trade with China amounted to only 4.4% of the total. Albania is among the three countries with the highest ratio of trade with China in CEE, standing at 7%, yet her trade with the EU accounts for over 67% of the total (European Western Balkans 2017). A

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Table 10.4  China-CEE trade volume (USD billion) Country Poland Czech Republic Slovakia Hungary Romania Slovenia Bulgaria Serbia Estonia Lithuania Croatia Latvia Albania Macedonia Montenegro Bosnia and Herzegovina Total

2009 Total

2015 Total

15.38 11.39 3.89 6.16 0.63 1.28 1.43 1.14 0.50 0.48 1.48 0.22 0.37 0.29 0.13 0.08 44.86

24.63 20.46 8.05 7.36 3.96 1.86 1.78 1.55 1.17 0.94 0.65 0.60 0.53 0.48 0.21 0.15 74.38

2009–2015 growth (%) 60 80 107 19 533 45 25 36 134 95 −56 174 45 65 70 81 66

Source: Vangeli (2017) based on UNCTAD.

similar ratio is seen in the case of other CEE countries, where the EU’s participation in the trade mix averages 64% in 2016 (Oehler-Sincai 2017). In summary, contrary to widely held assumptions, the initial analysis above suggests that the state of the economic relationship between China and CEE is insufficient to provide Beijing with a structural leverage over CEE, nor is it likely to do so in the short to medium term.

China’s Political and Security Leverage While beneficial political and security arrangements are generally less prominent in the debates about the China–CEE relationship and the implications of OBOR in the region, it must be acknowledged that they can serve as important sources of leverage. It is widely acknowledged that the United States and Russia, while falling far behind the EU in terms of its economic importance for the CEE, remain the major actors in the region due to their diplomatic and security clout. While a long-standing friendship is often emphasized as the basis of the relationship in official communications, China and CEE have not historically had close ties since the founding of the People’s Republic of China

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in 1949. With the exception of Albania, CEE countries did not have substantial relations with China during most of the Cold War era, as they belonged to either the so-called Eastern Bloc or the non-aligned Yugoslavia. This was followed by the almost complete absence of CEE from China’s foreign policy during the 1990s and the early years of the twenty-first century, as China focused on developing relationships with developed European countries in search of the capital and resources necessary for its economic development at home. At the same time, the CEE region was occupied by political and economic challenges brought about by the transition, and the integration with the EU: 11 out of 16 countries have since become members of the EU, and five are expected to gain membership in the coming years.12 However, the context of the China–CEE relationship has indeed dramatically changed since. Three CEE countries—namely, Serbia, Poland, and Hungary—currently have a Comprehensive Strategic Partnership with China in place, while the others have all intensified their diplomatic exchanges with China, mostly due to the establishment and subsequent proceedings under the 16+1 framework, followed by OBOR. As discussed, 13 countries have officially declared participation in and support for OBOR, which established policy coordination among its main objectives, and which appears to be developing in the direction of more formal institutionalization characteristic for other China-backed multilateral platforms, including 16+1. Party-to-party dialogues between the Communist Party of China and the political parties in CEE have also been intensifying in recent years. Notwithstanding these current developments, the mutual neglect over the previous decades resulted in relatively weak political and diplomatic links between China and the CEE countries. A shortage of personnel with competencies and knowledge relevant to the CEE countries, and the absence of developed networks in the CEE countries have a negative effect on the ability of China’s diplomats and enterprises to push forward with their desired policies and plans in CEE.13 In contrast, the EU and EU member states have forged wide variety of links in CEE since the 1990s, and particularly in the context of the process of the CEE countries’ integration into the EU, even if the historically deep and abundant intraEuropean links were, in some instances, cut off during the Cold War. More importantly, China’s ability to integrate the CEE states into beneficial political and security arrangements, provide diplomatic coverage, and act as a major political stakeholder in the region is limited by the

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region’s continuous integration in existing Europe-centric political and security frameworks. All CEE countries are members of the EU or are aspiring to EU membership, and, as such, their important policies and legislation are aligned with that of the EU. While foreign policy remains, to a great extent, delivered on the level of individual member states, the case of the relationship with Russia in the aftermath of the Ukrainian crisis testifies to Brussels’ ability to leverage EU membership, even over prospective candidates, for its own goals. The Moscow-backed “South Stream” project to establish a network of gas pipelines across the eastern and southern parts of CEE was abandoned under the pressure from Brussels, despite the expected benefits it would have brought to the CEE countries involved. While China’s growing participation in international organizations of various kinds, in addition to China-initiated multilateral initiatives like 16+1 and OBOR, does make China a more relevant player in international affairs, the structural factor of the CEE countries’ integration in the EU’s political and legislative mechanisms and frameworks places limits on how much influence China can hope to have over the CEE countries. Moreover, China does not have a military presence or security role in the region. There is not any evidence that Beijing has any intention of scaling up its regional involvement in this regard, as it has not integrated the CEE states into security arrangements, and security-level cooperation is not listed among the goals of either OBOR or 16+1. On the other hand, China also does not pose a credible military threat to the region to gain any leverage through deterrence. Most importantly, all CEE states are members of NATO or participate in NATO’s Partnership for Peace programme. Within the current geopolitical context, this makes it extremely unlikely that any of the CEE countries could potentially engage in substantive security cooperation with China if it were deemed inappropriate by major stakeholders in NATO.

China’s Soft Power China also lacks “soft” power capabilities in the region. While praise is occasionally directed at the success of the “China model”, and CEE governments refrain from criticizing China’s official ideology or political and economic system, this remains purely on a rhetorical level, without feeding back to the internal policies of CEE countries. As an example, Serbia, which is commonly understood as having the best relationship with China

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among the CEE countries—and whose leaders have repeatedly lavished praise on China’s achievements—has, at the same time, been aggressively pursuing neoliberal policies, such as divesting from the state-owned sector, cutting down public expenditure on social welfare, and maintaining and furthering its pro-business policies and environment. There is also no evidence that there are causal links between Hungary’s— seen to be at the danger of “Sinification”—and other CEE countries’ tilt towards “strongmen” and “illiberal” governing practices as inspired by or modelled on China. The official-level praise and positive rhetoric directed towards China is, by rule, balanced by the rhetoric and deeds reconfirming CEE countries’ commitment to the EU and its norms and polices.14 Overall, working with China is seen as compatible with EU membership and norms, not as an alternative to it, and cooperation with China is often specifically referenced as serving the wider EU-related agenda of the CEE countries.15 As such, engaging China should be understood as utilitarian— CEE leaders are rationally adapting to the emergence of China as a power with a global outreach and an interest in the region. By engaging Beijing, they aim to diversify their foreign relations and seek new sources of economic support while accepting the EU-centric normative and political order. Another structural factor that severely limits China’s soft power across much of the CEE is a strong resentment towards the communist past of the region. Mainstream contemporary interpretations of the region’s communist past perceive communism as forced upon the region by the Soviet Union or the iron fist of the local communist forces, as well as being responsible for low living standards, disregard for individual freedoms and rights, and the backwardness of the region during the Cold War period and since. In fact, communist symbols and ideology have been outlawed and even equated to Nazism in some CEE countries. Hence, the one-party system, communist ideology, state-controlled economy, and other practices associated with both historical communism and contemporary China are perceived negatively, and work against China’s “soft” power in the region. Accordingly, perceptions of China as a threat to the region are much more widely present than optimistic assessments of the relationship with China,16 also testifying to the limits of Chinese soft power. The data on public perception of the EU and China in the CEE countries shows a significant gap in the percentage of positive views, in favour of the former (Oehler-Sincai 2017). The multiplying number of Confucius Institutes around the region— coupled with the variety of people-to-people exchange programmes that,

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among others, create links between the media, higher education and research institutions, and businesses from China and CEE—may lead to the emergence of a more positive, or at least more evenly divided, view of China in long term. However, there is nothing at the moment to suggest that China will reach the point where its ideas, institutions, and diplomacy can become sources of leverage. On the contrary, the existing literature on China’s other asymmetric relationships suggests that more engagement with China may result in the “securitisation” of the relationship, diminishing China’s soft power and complicating the overall prospects of the relationship in the process (Reeves 2014). The perceptions of the China–CEE relationship addressed in this article suggest that such a process may already be underway.

OBOR and China’s Strategic Intentions in CEE While the preceding analysis suggests that China does not have “hard” and “soft” power resources sufficient to gain structural leverage over CEE, it is reasonable to suggest that intensifying ties under OBOR may result in China acquiring more capabilities in the future. However, will China want to and be able to leverage them for the ends feared by the critics? The chapter turns now to a contextual analysis of OBOR and China–CEE relations, to provide a perspective on this question. The goals of OBOR and China’s foreign policy towards CEE determine to what ends China might want to leverage its present and future resources. In contrast to the views presented at the beginning of the chapter, my analysis suggests that the drivers of China’s OBOR, as well as its policy towards CEE, are found among China’s domestic priorities, and that their success hinges upon a cooperative, rather than conflictual, relationship with the EU. For one thing, the long-standing “Go Global” policy reinforced through OBOR encourages Chinese enterprises to participate in the global market to grow their businesses and improve their competitive edge (The State Council 2016a). OBOR and 16+1 aim to create opportunities for Chinese enterprises, including the state-owned enterprises (SOEs) dominating strategic industries, to diversify portfolios and gain a foothold in Europe, as such establishing new foundations for their growth and development. Additionally, infrastructure projects allow SOEs to test their technology and know-how in less-developed European countries, as well as famil-

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iarize themselves with the European business environment and practices, while getting closer to the lucrative markets in Western Europe in the process. At the same time, they offer an entry point for a diverse group of economic actors, including policy banks, various SOEs, and private enterprises, to also gain access to these markets. The importance of overseas infrastructure projects for the Chinese domestic economy is magnified when one takes into account the overcapacity issues China faces in several sectors, including steel and aluminium, and associated industries, such as construction. Railway and shipping industries also face grave overcapacity challenges, with existing production capacities by far outstripping current market demand. As an illustration, the internal demand for cargo rolling stock dropped 87.5% from 40,000 to 5000 units between 2012 and 2015. For ordinary passenger wagons, the demand fell approximately 68% from 2700 to 1143 units over the same period. A similar trend is expected to take place from 2017 for high-speed rail rolling stock (Caixin 2015). At the time of writing, the combined production capacity of CRRC—China and the world’s largest rolling stock manufacturer—is over half the level of demand (Caixin 2017). Hence, industrial overcapacity has been deemed a major threat for both the immediate and medium-term health of the Chinese economy and has been a top priority for economic policymakers in recent years. Chinese policymakers hope that the overseas infrastructure projects advocated under OBOR, including those related to seaborne logistic corridors and railways, can absorb some of this industrial overcapacity and maintain and expand the profits of related industries by creating demand for their products, equipment, and services. The improved transportation links envisioned under the OBOR scheme also aim to keep Chinese imports competitive in the European market, as reduced shipping times and lower costs of shipping will, at least to an extent, offset the rising costs of production in China. Finally, escaping the “middle-income trap” and restructuring its economy from one mainly based on low-added value products towards one which to a greater extent relies on the higher-added value products has been one of the main objectives of current government’s economic policy. Participation in overseas markets, as well as the export of technologically advanced equipment and related services already owned by China, such as those related to high-speed railway and energy technology, is meant to facilitate such a transition, as well as create a healthy long-term demand from overseas for related Chinese industries. All of the above is of paramount importance for the legitimacy of the ruling party in China which,

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to a substantial extent, rests on its ability to deliver economic development and better living standards at home. In summary, OBOR’s goals are primarily economic in nature.17 Within such a context, stable and cooperative foreign relations conducive to the uninterrupted development of economic ties are required. Hence, powerseeking in OBOR countries within a geopolitical competition with the established powers, as envisioned by the paradigmatic “money for influence” and “divide and conquer” perceptions of the China–CEE relationship, is not in the cards, as it would destabilize the environment and cause a backlash against China, complicating its efforts to achieve Beijing’s objectives. On the contrary, the political goals inherent to OBOR are to develop relationships that facilitate positive trends in the volume and quality of economic exchange. China hopes to leverage favourable political relationships to which, it is hoped, OBOR will contribute, to achieve economic goals, and not, as widely assumed, economic relationships to achieve political ends such as changing the balance of power in Europe and globally.

The Dynamics of China–CEE-EU Triangle: Adaptation and Contention Ironically, at least in part due to the “self-fulfilling” quality of the dominant narratives discussed earlier, the backlash is already taking place, producing confrontational attitudes and policies. On the back of these narratives, the EU has resorted to using behind-the-door pressures on the CEE countries, hostile rhetoric, and legislative instruments to slow down development of China–CEE ties (Reilly 2017). On an official level, it has mostly ignored the 16+1 initiative, while it has simultaneously withheld official support for the OBOR initiative. It is, therefore, sound to examine the possibility that China might deem it necessary to change the international political environment, including in CEE, to overcome obstacles such as these put in the way of its implementation of OBOR.  The forthcoming analysis in this section argues that, rather than wanting to acquire the position of a regional power at the expense of the EU, China is interested in harnessing its relationship with the EU to advance OBOR in CEE. For one, China has sought to soothe the EU’s concerns, repeatedly emphasizing that 16+1 is “part and parcel” of China–Eu relationship in its official documents, the speeches of its top-level officials and diplomats, and “second track” diplomatic mechanisms. On a strategic level, Premier Li explicitly called for the 17 countries participating in the 16+1 format to

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“align our respective mid- and long-term development goals and the China-EU 2020 Strategic Agenda for Cooperation” (Pavlićević 2014). On an operational level, there are calls for the Chinese entities pursuing opportunities in the CEE region to abide by the EU’s regulations, enlist the cooperation of EU companies, and pursue a strategic three-party framework, while addressing the EU’s “doubts” and “concerns” and seeking cooperation. New rules should be put forward only if they are “acceptable to both sides” and if they “satisfy the needs of Europe”. On the project level, China has been promoting a tri-partite cooperation with the EU and CEE, advocating that China and the EU should jointly and strategically identify and deliver projects in the CEE region (e.g., Zhen 2016; Liu 2016b: 88–95). That China adjusted its approach to a couple of flagship projects under 16+1 initiative in order to comply with the EU’s regulations and preferences, testify that Beijing seeks engagement and accommodation, not conflict (e.g., SeeNews 2017). The EU and China’s agendas towards the region overlap to a significant extent in their intentions to improve the region’s infrastructure and exert a positive impact on local economies. On both the policy and project levels, China’s plans also fit well with the EU’s. The pillars and objectives of the so-called Juncker Plan and OBOR both prioritize investment in transportation and energy infrastructure, among others (Pavlićević 2015). For example, a recent study by the European Bank for Reconstruction and Development (EBRD), one of the main actors and stakeholders in the EU’s development agenda, has proposed six projects in the Balkans region that could be co-delivered by the EU and China (EBRD 2016). Furthermore, a joint loan programme between the EBRD and Intensa Bank has been launched to support small and medium enterprises’ participation in China-financed projects in the Balkans (ANSAmed 2016). Further illustration is offered by CELSEC (People’s Daily 2014), a plan envisioned to establish a logistics corridor stretching from the port of Piraeus to Budapest in Hungary. CELSEC corresponds to the route of Corridor X of the Pan-European Transportation Network Plan (Politika 2013) which, in turn, aims to enhance connectivity across the European continent through an improved network of railways and roads. In fact, the transportation infrastructure projects that China is involved with, by rule, correspond to the various links envisioned under this master plan, or to the plans of the individual states put in place long before China expressed an interest in the infrastructure works in the region. Of note, 14 European countries joined the Asian Infrastructure Investment Bank, while China almost simultaneously gained membership

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in the EBRD.  Furthermore, the contribution of Chinese funds to the Juncker Plan, the establishment of the so-called Connectivity Platforms between some EU countries and China, as well as other cooperative arrangements, testify that important stakeholders within the EU recognize the commonalities and space for constructive engagement between China and the EU (Reilly 2017), as well as that China seeks cooperation rather than competition with the EU in the CEE region. This viewpoint is often articulated in the official documents and statements on both sides, as well as in authoritative and influential policy briefs, reports, and commentaries in the EU (e.g., Grieger 2016; Bastian 2017). Hence, evidence points that China is interested in leveraging its relationship with the EU to achieve success with OBOR, rather than leveraging OBOR to weaken Brussels’ position in the region.

Conclusion: Is Power Shift Underway in Europe? Engagement between China and the CEE states is rapidly deepening, and that trend is likely to continue in the short term. However, the initial assessment in this chapter suggests that the fears that this would result in China’s leverage over CEE are not backed by available evidence. China not only lacks the capacity to alter the strategic and policy choices of the Balkan states, particularly at the expense of the EU, but also an intention to do so. For one, China lacks the depth and breadth of the EU’s relationship with the region in all of economic, political, and security domains. Economic interactions have not, as of yet, produced the dependence of the CEE countries on China, as China’s participation in the CEE economies, whether looked at on the regional level or the level of individual CEE states, is still at best moderate. Furthermore, notwithstanding the institutionalization of the 16+1 framework and the possibility that OBOR will also take an institutionalized form in the future (Xinhua 2017), China’s ability to integrate the CEE countries into beneficial political and security arrangements, and extend related benefits or impose costs, remains non-existent to limited. China is also found to lack the “soft” power resources. On all of these accounts, the CEE region remains firmly dependent on the European and EU-centred sources, frameworks, and structures. Given the lack of resources to effectively shape development in the CEE and the primacy of China–EU relations over China–CEE relations,

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there is no incentive for China to purposely seek to undermine the EU and seek to influence the region against the EU’s preferences. To be sure, China will seek to enlist the support of CEE countries for its policies and mobilize support on the issues that matter to China. But, it is clear that the overall context of the China–CEE relationship places clear limitations on what China might want and can expect to achieve in the region. As recent trends suggest, China has not only repeatedly reiterated its support for a unified Europe, but Beijing has been increasingly seeking compliance with such a “European order” rather than contending it with an alternative set of norms and practices. The EU remains, by far, a more important partner to China on all vectors of its foreign policy than CEE, and hence China would be careful not to “trade a horse for a donkey” by courting CEE with policies that are granted to weaken its relationship with the EU. Overall, the content and trends in the China–CEE relationship will hence remain greatly dependent on the priorities defined under the China–EU relationship. As the legitimacy of the ruling party in China rests and will continue to rest on its ability to navigate the treacherous waters of economic reforms back home, keep the economy growing, and provide continuous improvement in the standards of living for the Chinese people, China will seek to develop its diplomatic relationship with CEE under the OBOR framework to create the conditions to realize such goals. Confrontational and dominance-seeking policies towards the EU and CEE respectively, so feared by many, cannot serve such an agenda and hence are unlikely to be pursued. If China does not have a structural leverage over the CEE nor intention to pursue an influence over region affairs, how should the often-touted examples of its influence be accounted for? In many cases, the existing explanations are lacking in nuance and/or do not adequately interpret the domestic context in the CEE.  For example, Slovenia and Croatia were reluctant to support the international arbitration in South China Sea as they have a maritime territorial dispute between themselves that they do not wish to be resolved through international arbitration. Serbia’s support for China’s stance on Falungong and South China Sea should be seen as the expression of the country’s commitment to principles of “territorial sovereignty and integrity” and distaste for international-level mediation in its own domestic affairs. In the context of the secessionist and interventionist issues related to the status of its runaway province of Kosovo, it is also a way of saying “thank you” to China for supporting Serbia on these

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issues, with Beijing’s behaviour driven by domestically driven commitment to the same principles in relation to the sovereignty over Tibet, Xinjiang, and Taiwan, rather than influence-seeking in relation to Serbia. While Chinese companies might engage in corrupt practices, so do European ones—there is no evidence that Chinese enterprises are more likely to be involved in corrupt practices than those from other countries. There is a lack of evidence that China has anything to do with “illiberal tendencies” in Europe—references to China in speeches and statements are more likely to be cases of positive diplomacy towards China calculated to improve the relationship with Beijing and possibly send signals to both the EU and the domestic electorate, but not to “trade” China for the EU. However, the limits of this study should be recognized. Further developments in the relationship between China and the CEE, the state of affairs within the EU, and various other factors may dramatically change the context in the future. After all, OBOR is touted as multi-decade initiative and, should it be able to deliver, China’s capabilities will certainly be substantially improved in the long term. On the other hand, the EU is facing grave challenges, including those related to the emergence of rightwing and anti-European parties and the growing Euroscepticism across the continent. These may indeed in the long-term erode the EU’s coherence and attractiveness to member and potential member countries. In that context, the impact of the burgeoning economic relationship between China needs further study. Not only may its effects take years to show, but more comprehensive and systematic efforts are needed to understand the implications of the related trends, especially as this aspect of the relationship is expected to experience a most rapid development in the short term. The lack of comprehensive data and the very brief treatment of the available data on the economic ties between China and CEE found in this chapter can only serve the goal of this study to provide an initial evaluation of China’s economic presence in CEE.  Further research should not only uncover new data, such as those related to the debt structure and prospects of CEE countries, and rely on comprehensive datasets of higher quality, but also give them a more systematic and context-aware treatment. Furthermore, this study treated the CEE region uniformly, without analytically acknowledging that different CEE countries develop their relationships with China at different speeds, with different levels of commitment, and with different outcomes. Critics of the China–CEE relationship also tend to conflate what happens on certain issues, or within certain bilateral relationships, with the trends relevant to all of the 16 CEE countries. However, it is clear that some of the CEE states might be building

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metaphorical bridges with China more quickly. In China, there are also influential proposals to focus on building relationships with a number of selected countries as a springboard for a better relationship with the entire region (Liu 2013). Studying developments between these countries and China closely might provide clues as to where China’s regional policies towards CEE are heading. Finally, more methodological rigour is required to isolate the “China effect” on the developments in the region and establish causal links between China, OBOR, and China’s other policies on the one side, and developments and trends in CEE on the other. Approaching related research questions based on sound methodological tools is a challenging, but certainly necessary, task for taking the research agenda on the subject forward.

Notes 1. Central and Eastern Europe refers to the countries participating in the 16+1 framework: Albania, Bosnia and Herzegovina, Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Macedonia, Montenegro, Latvia, Lithuania, Romania, Poland, Serbia, Slovakia, and Slovenia. 2. “Vision and Actions on Jointly Building Silk Road Economic Belt and 21st Century Maritime Silk Road,” issued by the People’s Republic of China’s National Development and Reform Commission, Ministry of Foreign Affairs, and Ministry of Commerce of the People’s Republic of China, with State Council Authorization, March 2015, Available at: http://en.ndrc. gov.cn/newsrelease/201503/t20150330_669367.html 3. See, for example: “The Riga Guidelines for Cooperation between China and Central and Eastern European Countries” (2016), November 2016, Available at: http://english.gov.cn/news/international_exchanges/ 2016/11/06/content_281475484363051.htm 4. As relayed by Prof. Liu Zuokui, October 2017. 5. While some of the infrastructure projects in the region have been discussed or implemented prior to the launch of OBOR, they have since been interpreted both in China and abroad within the context of the initiative. 6. See note 4. 7. Paradigmatic titles and analysis can be seen here: Worldcrunch (2016) “Divide, Conquer, Aim East: China Has A Sharp New European Trade Strategy”, November 11, Available at https://www.worldcrunch.com/ world-affairs/divide-conquer-aim-east-china-has-a-sharp-new-europeantrade-strategy; Stanzel, Angela, Kratz Agatha, Szczudlik, Justyna and Pavlićević, Dragan (2016) ‘China’s investment in influence: the future of

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16+1 cooperation”, China Analysis, December, 14, Available at: http:// w w w. e c f r. e u / p u b l i c a t i o n s / s u m m a r y / c h i n a s _ i n v e s t m e n t _ in_influence_the_future_of_161_cooperation7204 8. Personal observation from various 16+1 related events and conversations with experts from Europe. 9. As quoted in: Kirgiz, Paul F. (2014) “Bargaining with Consequences: Leverage and Coercion in Negotiation”, Harvard Negotiation Law Review 19(69): 69–128. 10. For the case of Serbia, among the top destinations in CEE for China’s loans, see: Ministry of Finance of Republic of Serbia (2017). 11. See, for example: “The Riga Guidelines for Cooperation between China and Central and Eastern European Countries”. 12. The Sino–Serbian relationship is an exception in this regard as it witnessed a substantial bilateral exchange during this period, and especially in the period following the 1999 NATO campaign against Serbia during which the Chinese embassy in Belgrade was bombed by NATO. 13. Numerous conversations with Chinese diplomats and researchers in-the-know. 14. I am thankful to Dr. Marcin Grabowski for drawing my attention to this phenomenon, which is in line with the practices across the Europe: For the latter, see: Reilly (2017). 15. Various formal and semi-formal statements and documents, as well as media interviews of the officials from CEE. 16. Conversations with scholars and researchers from the CEE countries and participatory observations from China-CEE events of various kinds. 17. For an authoritative, although poorly translated, semi-official arguments, see: Liu (2016a, b).

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Friman, Richard H. 2015. Conclusion: Exploring the Politics of Leverage. In The Politics of Leverage in International Relations, ed. Richard H.  Friman. New York: Routledge. Fukuyama, Francis. 2016. Exporting the Chinese Model. Project Syndicate, January 12. Available at: https://www.project-syndicate.org/commentary/ china-one-belt-one-road-strategy-by-francis-fukuyama-2016-01 Grgić, Mladen. 2017. Chinese Infrastructural Investments in the Balkans: Political Implications of the Highway Project in Montenegro. Territory, Politics, Government (online first): 1–19. Grieger, Gisela. 2016. One Belt, One Road (OBOR): China’s Regional Integration Initiative. Briefing, European Parliament Research Service, July 2016. Available at: http://www.europarl.europa.eu/RegData/etudes/BRIE/2016/586608/ EPRS_BRI%282016%29586608_EN.pdf Jakóbowski, Jakub, and Marcin Kaczmarski. 2017. Beijing’s Mistaken Offer: the “16+1” and China’s Policy Towards the European Union, OSW Commentary, September 15. Available at: https://www.osw.waw.pl/en/publikacje/oswcommentary/2017-09-15/beijings-mistaken-offer-161-and-chinas-policytowards-european Kirgiz, Paul F. 2014. Bargaining with Consequences: Leverage and Coercion in Negotiation. Harvard Negotiation Law Review 19 (69): 69–128. Leonard, Mark. 2016. Weaponising Interdpendence. European Council on Foreign Relations. Available at: http://www.ecfr.eu/europeanpower/geoeconomics Levitsky, Steven, and Lucan Way. 2005. International Linkage and Democratization. Journal of Democracy 16 (3): 20–34. Liu, Zuokui. 2013. The Pragmatic Cooperation Between China and CEE: Characteristics, Problems and Policy Suggestions. Working Paper Series on European Studies, 7(6). Chinese Academy of Social Sciences. Available at: http://ies.cass.cn/webpic/web/ies2/en/UploadFiles_8765/201311/ 2013111510002690.pdf ———. 2016a. China and CEEC Cooperation and the “Belt and Road Initiative” –Misunderstandings Reconsidered. In Afterthoughts Riga 2016 International Forum of China and Central and Eastern European Countries, ed. Maris Andžans. Riga: Latvian Institute of International Affairs. ———. 2016b. Europe and the “Belt and Road” Initiaitive; Responses and Risks. Beijing: Chinese Social Science Press. Makocki, Michal. 2017. China in the Balkans: The Battle of Principles, European Council on Foreign Relations, July 21. Available at: http://www.ecfr.eu/article/commentary_china_in_the_balkans_the_battle_of_principles_7210 Makocki, Michal, and Zoran Nechev. 2017. Balkan Corruption: The China Connection. Issue Alert 22/2017, July 18. Available at: https://www.iss. europa.eu/publications/detail/article/balkan-corruption-the-china-connection/

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Ministry of Finance of Republic of Serbia. 2017. Public Debt and Its Structure (In Serbian). Available at: http://www.javnidug.gov.rs/upload/Stanje%20i%20 struktura%20za%20mesecni%20izvestaj%20o%20stanju/Web%20site%20 debt%20report%20-%20SRB%20LATINICA.pdf Nyíri, Pál. 2013. The Philosophers’ Trial and the Sinification of Hungary. EspacesTemps.net, In the air, February 18. Available at: https://www.espacestemps.net/en/articles/the-philosophers-trial-and-the-sinification-hungary/ Oehler-Şincai, Iulia M. 2017. The 16+1 Process: Correlations Between the EU Dependence/Attitude Matrix and the Cooperation Intensity with China. Unpublished Manuscript on File with Author. Pavlićević, Dragan. 2014. China’s Railway Diplomacy in the Balkans. China Brief 14(20): 9–13. Available at: https://jamestown.org/program/chinas-railwaydiplomacy-in-the-balkans/ ———. 2015. China, the EU and the One. Belt, One Road Strategy. China Brief 15(15):9–13. Available at: https://jamestown.org/program/china-the-euand-one-belt-one-road-strategy/ People’s Daily. 2014. China, CEE Countries Eye Land-Sea Express Passage to Speed Up Delivery. December 18. Available at: http://en.people.cn/n/ 2014/1218/c90883-8824383.html Pepe, Jacopo Maria. 2017. China’s Inroads into Central, Eastern, and South Eastern Europe: Implications for Germany and EU. DGAP Analyse 3/2017, The German Council on Foreign Relations. Available at: https://dgap.org/ en/article/getFullPDF/29245 Politika. 2013. Foreign Carriers Circumvent Corridor 10 ( In Serbian). May 25. Available at: http://www.politika.rs/sr/clanak/258866/Strani-prevoznicizaobilaze-Koridor-10 Radio Televiza Srbije. 2017. Politico: China Invests in Serbia for Influence (In Serbian). July 18. Available at: http://www.rts.rs/page/stories/ci/story/5/ ekonomija/2808124/politiko-kina-investira-u-srbiji-radi-uticaja-u-eu.html Reeves, Jeffrey. 2014. Structural Power, the Copenhagen School and Threats to Chinese Security. The China Quarterly 217: 140–161. Reilly, James. 2017. Leveraging Diversity: Europe’s China Policy. EUI Working Papers RSCAS 2017/33, European University Institute. Available at: http:// cadmus.eui.eu/bitstream/handle/1814/47144/RSCAS%202017_33. pdf?sequence=1 Reuters. 2016. CEE States Jostle for Chinese Cash as China Expands Footprint. August 6. Available at: in.reuters.com/article/us-eeurope-summit-china-idINKCN0YU08K SeeNews. 2017. Hungary opens tender for overhauls of its section of railway to Serbia. November 27. Available at: https://seenews.com/news/hungaryopens-tender-for-overhauls-of-its-section-of-railway-to-serbia-592542#sthash. r8Yg22sP.dpuf

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Shell, Richard G. 2006. Bargaining for Advantage: Negotiation Strategies for Reasonable People (2d ed.). Penguin. Stanzel, Angela, Kratz Agatha, Justyna Szczudlik, and Dragan Pavlićević. 2016. China’s Investment in Influence: The Future of 16+1 Cooperation, China Analysis. December. European Council on Foreign Relations 14. Available at http://www.ecfr.eu/page/-/China_Analysis_Sixteen_Plus_One.pdf The Economist. 2016. Our Bulldozers, Our Rules. July 2. Available at: http:// www.economist.com/news/china/21701505-chinas-foreign-policy-couldreshape-good-part-world-economy-our-bulldozers-ourrules The Guardian. 2017. EU Backs Away from Trade Statement in Blow to China’s ‘Modern Silk Road’ Plan. May 15. Available at: https://www.theguardian. com/world/2017/may/15/eu-china-summit-bejing-xi-jinping-belt-androad The State Council of the People’s Republic of China. 2016a. Chinese Enterprises Enter ‘Go Global’ Era 4.0. Available at: http://english.gov.cn/news/top_ news/2016/04/11/content_281475325205328.htm Tolstrub, Jakob. 2010. When Can External Actors Influence Democratization? Leverage, Linkages, and Gatekeeper Elites. Working Paper No. 118, Center on Democracy, Development and the Rule of Law, Stanford. Vangeli, Anastas. 2017. China’s Engagement with the Sixteen Countries of Central, East and Southeast Europe Under the Belt and Road Initiative. China and World Economy 25 (5): 101–124. Worldcrunch. 2016. Divide, Conquer, Aim East: China Has a Sharp New European Trade Strategy. November 11. Available at https://www.worldcrunch.com/ world-affairs/divide-conquer-aim-east-china-has-a-sharp-new-european-tradestrategy Xinhua. 2017. Full Text: List of Deliverables of Belt and Road Forum. May 15. Available at: http://news.xinhuanet.com/english/2017-05/15/c_136286 376.htm Zhen, Yin. 2016. “Tuijin sanhai gangqu hezuo yaozhan de gao, kan de yuan, zou de wen” [Stand High, Look Far, Go Steady to Promote Three Seas Seaports Cooperation]. Zhongguo yuanyang chuanwu (3): 54–55.

CHAPTER 11

Conclusion: The One Belt One Road in the Politics of Fear and Hope Li Xing and Paulo Duarte

Ever since Napoleon warned the West that it would be better not to wake the “sleeping giant”, China has been a source of fascination and opportunities, as well as uncertainties and disturbance, for the existing West-­dominated world order. The great difficulty facing the West, especially the United States—the order’s creator and key stakeholder—is how to perceive, respond, and adjust to the global impact brought about by the rise of China. The failure in the West, and in the United States in particular, in forming a comprehensive understanding of Chinese development strategy, motivation, policy, and objectives has been periodically translated into an ailment—“China syndrome”. The ailment can be characterized by a mixture of psychological anxiety, emotional hysteria, and emphatic demonization against China, which has generated a spill-over effect to different L. Xing (*) Department of Culture and Global Studies, Aalborg University, Aalborg, Denmark e-mail: [email protected] P. Duarte Centro de Investigação em Ciência Política, The University of Minho, Braga, Portugal © The Author(s) 2019 L. Xing (ed.), Mapping China’s ‘One Belt One Road’ Initiative, International Political Economy Series, https://doi.org/10.1007/978-3-319-92201-0_11

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parts of the world. On the one hand, in the past four decades either fascination or irritation with China has influenced Western scholarship and journalism, which often produce abrupt sentiments ranging from excessive approval and unqualified optimism to unwarranted revulsion and deep pessimism. On the other hand, after four decades of economic integration into the existing world order, China still finds itself to be a “Middle Kingdom” surrounded by jealousy, admiration, anxiety, worry, and even resentment. The theme of the volume, together with the chapters included in this volume, covers a whole series of issues and analyses on China’s most recent grand “One Belt One Belt” initiative, ranging from (geo)economic and (geo)political competition to security and energy rivalry, and so on, and from country-based, regional, and global perspectives. The chapters of the volume display a clear gap between a strong awareness of a rising China with the outward expansion of its political, economic, and cultural influences and, subsequently, an unpreparedness to respond to China’s ascendance in general, and Beijing’s One Belt One Road (OBOR) initiative in particular. Western perceptions of China are largely found in two “fundamental images”, a dichotomy between “China [as a] threat” and “China [as an] opportunity” (Pan 2012). Such a set of “bifocal lenses” provides a framework through which China is supposed to be conceptualized, and it functions as a shared paradigm, defining “what should be studied, what questions should be asked, how they should be asked, and what rules should be followed in interpreting the answers obtained” (Ritzer 1996: 637 cf.; Pan 2012). As this collection shows, the “worry/threat” paradigm tends to see that China’s politics, economic activities, and foreign policies are wrapped with worrisome and menacing calculations. China’s economic diplomacy (such as the OBOR initiative) is largely perceived as having negative effects on all but China. Historically, the “China threat” has been associated with China’s market size and its integration in the world economy. This is because the rise of China is seen to have contributed to many worrisome uncertainties: its currency has been a subject of contention; its global trade has raised concerns for workers and companies in both developed and developing countries in connection with mercantilism, dumping, and trade surplus; its hunger for energy has led to competition and price increases; its policies on finance, currency, trade, security, environment, resource management, food security, raw materials, and commodity prices are increasingly seen as impinging upon the economies of millions of peo-

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ple outside China’s boundaries. China’s intensifying economic expansion (such as the OBOR initiative) will inevitably translate Chinese economic weight into political, economic, security, and diplomatic leverage. In addition, a biased perception of China’s one-party political system, its state-­ governed market economy, its “in-born” nationalism, and even China’s cultural civilization is perceived as inevitably putting China a collision course with the norms of the existing world order (Pan 2012). As for the “China opportunity paradigm”, on the other hand, China has been seen as the biggest saviour of the capitalist world system since its economic reform in the 1980s and its gradual integration into the world economy. There were optimistic writings about China’s post-Mao “second revolution” for most of the 1980s. The irony underlining the “China opportunity paradigm” lies in the fact that “the domination of capitalism globally depends today on the existence of a Chinese Communist party that gives de-localised capitalist enterprises cheap labour to lower prices and deprive workers of the rights of self-organisation” (Jacques Rancière, cf. The Guardian 2013). Today, the indisputable fact is that the Chinese market, investment, trade, and purchasing power are an indispensable “opportunity” for the whole world. Drawing on different literature by various prominent scholars and analysts, Pan shows how China has been identified as “an ideal production base, investment destination, export platform in the global supply chains, and an excellent destination for outsourcing”, and by “offshoring to China … Western businesses [have been enabled] to free up talent, machinery, and capital to higher-value industries and cutting-edge R&D, thus allowing them to capture even greater profit margins” (Pan 2012: 33). “China as opportunity” is self-fulfilling as a political and moral opportunity to confirm one’s own values. As neoliberalism believes, the reason why China is currently a winner in the era of globalization is precisely because its economic growth and wealth accumulation is generated from within—not from without—the capitalist world system (Ikenberry 2008). However, what needs to be emphasized is the fact that Chinese economic success is attributed to the role of the socio-cultural and political “embeddedness” reflected by a unique embedded integration of state-market-­ society relations (Li 2016). The power diffusion of Chinese success in this context perhaps has less to do with the attraction of the Chinese political system and cultural value, and more to do with China as a metaphor for “doing it your own way” or an example of what can be achieved. The underlined values diffused from the “Chinese model” (Ramo 2004), such

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as adherence to national self-determination, a strong role of the party and state, gradual reform and innovation to achieve economic growth, and international non-intervention, etc., are normalized as the “Beijing Consensus”, and it “has begun to remake the whole landscape of international development, economics, society and, by extension, politics” (Ramo 2004: 3). China’s emergence as an alternative aid donor, investor, and economic partner seems to be one of the major power sources of attraction for other developing states. The absence of conditionality in China’s international aid policy can be seen as a feature of Beijing’s emergence as a norm-­settling power, because such a norm of unconditionality refuses to build aid policies upon other countries’ sovereignty, economic model, governance pattern, or political culture (Hubbard 2008). Heuristically, the phenomenon of a set of persistent “bifocal lenses” of opportunity-threat in studying the impact and implication of the rise of China, as reflected in this volume, helps us to develop a multi-dimensional approach to understanding the multi-facets of China’s “One Belt One Road” initiative. The OBOR initiative is nothing more than a powerful and full instrument that China has outlined to project its economic power far beyond its borders. On the one hand, the initiative is packed with normative/soft power so as to reduce the fears that the international community has about China’s intentions in an international context. On the other hand, Beijing intends to develop its most remote provinces, logistically placing them at the heart of the major routes that aim to connect China to Europe, but also to the Indian Ocean, as part of the “China-­ Pakistan Economic Corridor” project. Both of its maritime route and land routes are, for that purpose, two geopolitical and geostrategic platforms of extreme importance for China’s ambitions to be fulfilled, making it not only a maritime power, but also as a land power, the guide of a more effective connection between East and West (Duarte 2017). In this sense, the securitization1 that underlies the ambitions of a China that is nostalgic about its glorious achievements, and is marked by a strong patriotic nationalism, has a hybrid and holistic essence. That is, the national interest is likely to be better served if China gets the ingredients for global security from the sea and the land. The country struggles to overcome its domestic difficulties, as well as to achieve stable and uninterrupted access to the mineral and energy resources it urgently needs. The same applies to the maintenance of the prosperity of the millions of Chinese people who are ascending to the middle class, but also to the promise that the other

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millions of Chinese who remain underdeveloped will come out of it as soon as possible. And, finally, curiously and paradoxically, the fate of the Chinese Communist Party itself—whose credibility and legitimacy is, after all, intertwined with the fulfilment of the aforementioned goals—also depends on this (Shambaugh 2015). Dealing now with the subjects discussed throughout the volume which ends here, the conclusion intends to echo the introductory words, in particular, when this book’s introduction speaks of OBOR as the instrument to shape a “new world order with Chinese characteristics”. This book predicts that the new order is about to come, an order entailing the gradual outlining of Pax Sinica, where China has achieved the reunion with its ancient glorious history. In other words, China seeks the essence of its glorious past, the gravity centre that turned it into the “Middle Kingdom”. One of the ways to achieve this past status is to shape the geoeconomics and geopolitics of regional and global integration. That is, to adapt the logistical land and maritime links to the (re)emergence of a power it needs to ensure trade with the great world periphery and uninterrupted access to mineral and energy resources. The keyword is connectivity (Wang 2016). If once all roads lead to Rome, today Beijing strives to ensure that all roads lead, in the medium and long term, to China, making the country a kind of global mega hub. The high-speed railways which aim at connecting East and West, via Central Asia, play a crucial role here. Furthermore, the sea, the maritime supply and communication lines, the so-called String of Pearls, the South Pacific, the Arctic and Antarctica and, ultimately, Space, are not stationary borders: they are susceptible to expansion, exploitation, and incursion to accommodate China’s national interest. There are no forbidden borders to China. There cannot be. The country needs to feed one-fifth of the world’s population and to get resources wherever they are. This is why, given all these energy, food, and political circumstances and requirements (the abovementioned maintenance of the regime), Xi Jinping’s China bets on the OBOR as an instrument which aims to support the (re)emergence of the country, fighting domestic weaknesses and accommodating—at the same time—the integration of the world into China and China into the world. It is also an instrument to promote the Chinese Yuan, because a great plan needs a great currency (Shen 2016; Kynge 2015). The OBOR initiative is driven by a number of similar political, economic, and security calculations to those upon which the US Marshall Plan to Europe was initiated in the aftermath of the Second World War.

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This book demonstrates that there is nothing new in what China is doing in retrospect of the history of the international relations and the history of the capitalist world order. In fact, there is a realpolitik, an imperialist and expansionist logic inherent in OBOR, a logic that was heatedly debated between Kautsky (1914) and Lenin (1917). China seeks space, connectivity, access, mineral and energy resources and, in short, an expansion that will enable it to sustain its population growth and the continuity of its political regime. China is building itself upon its Chinese Dream, made of nostalgia, but at the same time, of a lot of pragmatism and innovations. The OBOR initiative seemingly looks to the past and is hungry for the future. After all, a considerable part of Chinese foreign policy is made up of nostalgia and of the repression of the historical humiliations inflicted on it by the West and by Japan. The time of the Chinese new “Silk Road” is a time of déjà vu, of a power that aspires to be, once again, the “Middle Kingdom” it had been before. China wisely combines a mixture of bilateralism and multilateralism, and even a growing regionalism with a more proactive approach in its foreign policy. In fact, more and more proactive and self-confident, Chinese foreign policy is characterized by a new attitude vis-à-vis regional affairs. On the basis of such an attitude, there is a combination of assertiveness, pragmatism, nationalism, and urgency in protecting its national interest. Therefore, China recognizes that to be a still more influential power in the game of world power, as well as to protect its vital interests, the country needs to boost and (re)set its diplomacy. At the regional level, China’s intervention doctrine seems to be endowed with a certain ambivalence. Depending on the subject matter, China adopts different foreign policy strategies. In fact, when the critical interests of the country are concerned, Beijing may opt, if necessary, for a more assertive foreign policy. But with regard to other matters, the Chinese position has often proved indecisive, although flexible, responding to changing circumstances. In these cases, China adopts a passive attitude in terms of foreign policy (Ekman 2016; Tiezzi 2015). This book reveals a remarkable change in China’s foreign policy, which consists of the transition from a purely bilateral conception to the acceptance of multilateral relations. In fact, except for the case of the United Nations, Beijing has always supported bilateral relations, to the detriment of any multilateral involvement, although it has realized that there are advantages in its participation in multilateral organizations. That is why China has approached the Association of Southeast Asian Nations, or rec-

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ognized the growing importance of the Asia–Pacific Economic Cooperation. The fact that China joined the World Trade Organization (WTO) in 2001 represented a turning point, as WTO membership implies an adherence to rules and openness, which, in turn, compels the Chinese to “search for prejudice” (Romana 2010). The change in Chinese foreign policy, which came after China’s integration in the liberal world order three decades before, can be clearly observed in Beijing’s changing global role from being a passive rule-­ follower (“Tao Guang Yang Hui”)2 to becoming a proactive rule-setter (“You Suo Zuo Wei”).3 The OBOR initiative is seen as Beijing’s shift towards a more proactive foreign policy and strategic repositioning. It signifies that China is moving from being a passive role-player through joining the regional and global labour division to being a proactive rule-­ setter through capital outward expansion and production outsourced. Much literature in recent years has already begun to discuss the phenomenon in which the rise of emerging powers, particularly China, is leading the world order towards the diffusion of international norms and is shaping the evolution of international norms and institutions (Pu 2012). Thus, this book has an explicit premise that the OBOR initiative facilitates a process in which normative matrices and decisions in the countries involved in the initiative are influenced, or even shaped to a certain degree, by the thinking and practice of Chinese policymakers and intellectuals. China has been actively working on amending the very same liberal world order it benefited from. Understanding its own fate as being interlinked with and interdependent on the rest of the world, but at the same time insisting on upholding national sovereignty and rejecting Western “universal values” and “universal blueprints” of development, Beijing is using multilateral organizations to promote its interests and to bring various partners into its hegemonic project under commonly-acceptable phrases in the discourse, such as “win-win situation”, “South-South cooperation”, “common prosperity”, and a “community of common destiny”, etc. These are not just rhetoric, they represent a strong awareness that it will only be possible to achieve China’s re-emergence through the sharing of the fruits of development and progress with its surrounding countries and regions. There is, in fact, a Chinese proverb that clearly illustrates the evolution tendency (towards a greater dynamism) of China’s posture vis-­ à-­vis regional affairs: “a near neighbour is better than a distant relative”. The strengthening of regional cooperation continues, in parallel, with the Chinese ambition to reinforce multilateralism at the global level.

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Although, as this book suggests, OBOR is an instrument through which China actively promotes foreign investments in its interior, it makes sense to relate this looking inside with the Chinese vision regarding “globalization” and “free trade”, something that the Chinese president has been advocating in various international forums, such as the one that occurred in Davos last January. China presents itself as a kind of vanguard of a world without barriers, without protectionism. China defends the win–win to dispose of its products. In fact, as this book argues, China may be successful in promoting its own norms and values and in offering a non-Western alternative that features new thinking and practice to the pluralistic world. Slowly, a renewed “Beijing Consensus” has a strong potential to implement several China-centred institutional mechanisms of global governance that supplement the existing global order (Chan 2016). This book supports the thesis that the OBOR initiative is the privileged instrument that China uses to defend its interests and achieve its goals in the regional and global spheres. In this sense, it may be promising to keep on monitoring how hard power, normative power, and soft power components, including those of Chinese politics, economy, and culture, will tend to interact within OBOR.  The triple securitizations inherent to the Chinese grand strategy can be, simultaneously and paradoxically, key roles in the domestic and regional stabilization, but also in accelerating the destabilization of the balance of the world power. Reconnecting Europe with China’s extended great periphery to the Central Asian Heartland inevitably weakens its long transatlantic momentum. This is perhaps the reason why the United States has so far been very hostile to Beijing’s OBOR initiative. One chapter of this book correctly associates the Western worry with its suspicion that the OBOR initiative aims to reintegrate Africa and the Middle East into a counter system to the dominant Western-­ led system of accumulation. Asian powers such as India and Japan, and also the United States, are staying away from the Chinese OBOR project, seeing it as a Chinese plan to “encircle the world” (Financial Times, May 4, 2017). Both countries are together embarking upon multiple infrastructure projects across Africa, Iran, Sri Lanka, and Southeast Asia in competition with China’s grand and unilateral infrastructure across the Eurasian continent. Viewing the OBOR initiative as a Chinese way of seeking geopolitical gains through this economic agenda, the recent India–Japan alliance aims to create an alternative “Asia-Africa Growth Corridor” to counter the OBOR initiative. The situation ironically echoes an old Chinese proverb: “two tigers cannot occupy

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the same mountain”. This clearly indicates that the OBOR initiative is identified by the regional rivalries as China’s move to restructure the ­political economy of the regional order. This book acknowledges that the OBOR initiative, together with its overseas infrastructure projects, has elevated regional competition and infrastructure diplomacy. To conclude, the diplomacy of emphasizing infrastructural projects advocated by the OBOR initiative extends to all continents. There are no neglected regions and the Chinese invitation is open to everyone. The new “made-in-China” world order will continue to emerge. Based on the assumption that the “world reordering with Chinese characteristics” will be China’s “new normal”, this book invites readers to join the debates between different international relations schools: Will China be a destructive or constructive world power? A status quo or a revisionist one? A force for continuity, or a force for change? Liberal scholars, in general, see China as a status quo power on the basis of the assumption that China is satisfied with the existing capitalist world order and China’s economic success is achieved through its integration in the world market (Ikenberry 2008, 2011), whereas realists firmly anticipate China to be a revisionist power, and China will unavoidably seek to change, if not overturn, the regional and the world order, bending and shaping it in line with its interests (Mearsheimer 2006, 2010). For the time being, the OBOR initiative is seen as a good test case to judge whether China is a “status quo” or “revisionist” power. Although there is no clear answer to the above questions, the editor, Li Xing, is apparently right in his basic postulate, fundamental in this volume (see Introduction ), namely that the rise of China and its OBOR project will unavoidably affect and disturb a number of existing “global relationships” and “global arrangements”, as well as the existing order’s “structural power”. This book volume, as part of the editor’s series of books on the rise of China and its emerging powers in recent years, approaches again a promising topic–the OBOR, although this volume is only a small contribution to help understand something extraordinary and revolutionary that is under construction. The new emerging world order with China as its central gravity is a project for generations. Therefore, this work coordinated and edited by the editor is, in a sense, visionary because it attempts to take a pioneering effort to interpret, explain, and speculate the implications, opportunities, and prospects, as well as challenges and constraints brought about by such a grand project. Much new literature will certainly continue to follow this topic or other

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topics related to the emergence of a Chinese century, because the Pax Sinica has reached the point of no return. It is impossible to stop China and the signals coming from the East.

Notes 1. According to the Copenhagen School, securitization is a process whereby a securitizing agent tries to establish, socially, the existence of a threat to the survival of a unit. When a subject is securitized, it comes out of the scope of normal policy and moves into the scope of emergency policy, which usually legitimates the use of force (Buzan et al. 1998). 2. This is a Chinese idiomatic expression which means “to hide brightness, and to nourish obscurity”. Its underlined notion reflects an implicit strategic choice, namely to wait for a time when China is ready to assert itself in the global sphere and is ready to make a challenge. 3. This is also a Chinese idiomatic expression which is semantically connected with the “Tao Guang Yang Hui” aphorism (see note 2). It stands for “striving for achievement” and “making a difference” after a period of accumulation of physical and psychological strength.

References Buzan, Barry, Ole Wæver, and Jaap de Wilde. 1998. Security – A New Framework for Analysis. Boulder: Lynne Rinner Publishers, Inc. Chan, Henry. 2016. Will the Beijing Consensus Follow the Washington Consensus to Oblivion? IPP Review, April 12. Available at http://ippreview.com/index. php/Blog/single/id/97.html Duarte, Paulo. 2017. Pax Sinica. Lisbon: Chiado Editora. Ekman, Alice. 2016. China’s Multilateralism: Higher Ambitions. European Union Institute for Security Studies (EUISS). Available at https://www.google.dk/ url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0ahUKEwiHmtGR4Kv WAhWBfxoKHWkZCIgQFggqMAA&url=https%3A%2F%2Fwww.iss.europa. eu%2Fsites%2Fdefault%2Ffiles%2FEUISSFiles%2FAlert_2_China.pdf&usg=AF QjCNHUxRv0jmJGkDD42fN99k_JVyw9fA Financial Times. 2017. China Encircles the World with One Belt, One Road Strategy. Available at https://www.ft.com/content/0714074a-0334-11e7aa5b-6bb07f5c8e12 Hubbard, Paul. 2008. Chinese Concessional Loan. In China into Africa: Trade, Aid, and Influence, ed. Robert Rotberg. Washington, DC: Brookings Institution Press.

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Index1

NUMBERS AND SYMBOLS 16+1, 249, 250, 253, 261, 263, 264, 266, 268, 270 16+1 platform, 64 16+1 Think Tank Network, 68 A Accumulation with Chinese characteristics, 197 Africa Rising, 211, 213 Agents of globalization, 223 American hegemony, 219 ASEAM-China FTA, 94 ASEAN+3, 101, 104–106, 108 ASEAN-China Free Trade Area (ACFTA) (2010), 225, 230 ASEAN countries, 92 Asia-Africa Growth Corridor, 286 Asia-Europe Meeting, 64 Asian Development Bank (ADB), 94, 220, 227–231

Asian Dream, 94 Asian Financial Crisis (AFC), 224, 236 Asian Infrastructure Investment Bank (AIIB), 4, 14, 19, 22, 31, 49, 51n3, 64, 94, 96, 104–106, 108, 112n11, 119, 121, 136, 137n3, 183, 199, 206, 210, 212, 222, 225, 228, 231, 269 Asian Tigers, 199 Asia-Pacific Economic Cooperation (APEC), 7, 97, 133, 151 Asia-Pacific Economic Cooperation summit, 174 Asia-Pacific Trad Agreement (APTA), 126, 133 Association of Southeast Asian Nations (ASEAN), 123, 126, 127, 133, 134, 225, 228, 235, 284 Authoritarianism, 77 Authoritarian state-centric capitalism, 15

 Note: Page numbers followed by ‘n’ refer to notes.

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© The Author(s) 2019 L. Xing (ed.), Mapping China’s ‘One Belt One Road’ Initiative, International Political Economy Series, https://doi.org/10.1007/978-3-319-92201-0

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INDEX

B Back to Asia, 99 Bangkok-Chiang Mai line, 239 Bangkok-Hua Hin line, 234 Bangkok-Nakhon Ratchasima line, 234 Bangkok-Rayong line, 234 Bangladesh-China-India-Myanmar Forum for Regional Cooperation, 183 Beijing Consensus, 43, 59, 71, 76, 184, 198, 282, 286 Belt and Road, 4, 7, 17, 22 Belt and Road Forum, 174, 183 Belt and Road Summit Beijing 2017, 237 Bilateral Investment Treaty (BITs), 134 Bilateral Swap Agreements, 97 Boao Forum, 151 Bounded rationality, 60, 80, 84n13 Brazil, Russia, India, China, and South Africa (BRICS), 4, 11, 31, 50, 51n2, 198, 206, 207, 209 Bretton Woods, 12, 40, 42 institutions, 225 system, 183, 184 BRIC, 125 BRICS New Development Bank (NDB), 4, 11, 96, 183 C Capitalism, 2, 3, 8–10, 14, 18 Capitalism from above, 73 Capitalism from below, 73 Capitalism from the outside, 73 Capitalist logic, 9 Capitalist mode of production, 2 Capitalist world system, 32, 41, 44, 45, 48, 49 Capitalist world system-historical development phases, 3

CCTV, 150 Central Asian periphery, 145, 152 Changyi, 61 China-Central and Eastern Europe Cooperation Framework (CEE), 249–254, 256–259, 261–273 China Centre for International Economic Exchanges, 212 China collapse theory, 11 China contribution theory, 11 China Development Bank, 220, 230 China dream, 42–43 China-Eurasian Economic Union, 133 China Europe Land-Sea Express Corridor (CELSEC), 250, 269 China-EU 2020 Strategic Agenda for Cooperation, 269 China Exim Bank, 220, 261 China-Gulf Cooperation Council FTA, 134 China Model, 59, 70, 71, 73, 264 China-Nepal-India corridor, 183 China opportunity paradigm, 281 China opportunity theory, 11 China-Pakistan Economic Corridor, 156, 160, 177, 186, 187, 282 China-Pakistan FTA, 134 China Railway Construction Corporation Ltd (CRRC), 234 China Railway Group Ltd. (CREC), 234 China’s Marshall Plan, 12–13 China’s neocolonial designs, 251 China’s New World Order, 1–24 China solution, 172 China’s One Belt One road initiative (OBOR), 1–24 China’s Satellite Navigation Management System, 182 China syndrome, 10, 279 China threat, 280 China threat theory, 11, 150

 INDEX    

Chinese anti-terrorism Act, 145 Chinese-Asian dream, 226 Chinese characteristics, 45, 61, 72, 81 Chinese Communist Party, 69, 144 Chinese dream, 7, 94, 144, 145, 172, 225, 284 Chinese maritime New Silk Road, 153, 154, 156, 157 Chinese “Marshall Plan,” 251 Chinese model, 29, 43, 281 Chinese way, 184 Chongqing-Xinjiang-Europe, 176 Cold War, 2, 4, 12 Common community, 94 Community of common destiny, 42, 43, 145 Competitive regionalism, 222 Complementary interests, 102 Comprehensive Strategic Partnership(s), 263 Connectivity, 283, 284 Connectivity Platforms, 270 Constructivism, 24 Constructivist, 79 Conventional power transition theory, 30 Copenhagen School, 20, 143, 144, 161n6 Corporate Social Responsibility (CSR), 199 D Dawei development project, 230 Debt trap diplomacy, 251 Deep sea ports Andaman Sea, 239 Bay of Bengal, 239 Gulf of Thailand, 239 South China Sea, 239 Dependency theory, 12, 31, 49 Developmental state, 72

293

Diffusion, 57–83 Djibouti, 8, 21 Doha Round, 41 E East China Sea disputes, 223 Senkaku/Diaoyu islands, 223 East-West Economic Corridor (EWEC), 229–231 Economic Cooperation Programme (ECP), 229 Economic power, 8, 17 Emerging markets, 4 Emerging powers, 3–5, 17 Emerging societies, 4 Emerging states, 4 Energy corridor, 203 Engels, F., 1 Eurasian Economic Partnership Agreement, 133 Eurasian Economic Union, 183 European Bank for Reconstruction and Development (EBRD), 258, 269, 270 European Union (EU), 23 ExIm Bank, 64 Export-oriented growth, 29 F Fate community, 95, 108 Five pillars financial integration, 249 infrastructure development, 249 people-to-people exchanges, 249 policy coordination, 249 trade facilitation, 249 Five-year plan, 38 Flying-geese economic order, 34 Foreign direct investment (FDI), 117, 118, 123, 124, 135, 136

294  

INDEX

Forum for China-Africa Cooperation (FOCAC), 211 Framework Agreement on ASEAN-­ China Comprehensive Economic Cooperation (2002), 225 Free market, 227 Free-rider, 11–12, 30, 42 Free trade agreements (FTAs), 20, 119, 126, 127, 133, 134, 136, 137, 222, 223 Free Trade Area of Asia-Pacific (FTAAP), 94 Free trade zones (FTZ), 122 G G20, 7 German-Central Eastern European manufacturing core, 253 G7 ISE-Shima Summit, 228 Global capitalism, 48 Global financial crisis, 63 Global governance, 58, 59, 63, 74, 83 Globalization, 2, 3, 7, 10, 11, 19, 21, 22, 41, 48 Globalization 2.0, 172 Globalization (alternative to), 62 Global mega hub, 283 Government-business-media (GBM) complex, 22, 197–202, 207, 209–213 Government-to-government (G2G), 234, 238 Grand periphery, 110 Great Chinese rejuvenation, 172 Greater Mekong Subregion (GMS), 220, 224, 229–231, 241 Great Game, 251 Great peripheral strategy, 152 Great powers, 102, 111n7 Gulf of Aden, 154, 155, 157, 202

H Han dynasty, 146 Hard power, 146, 286 Harmonious society, 145, 149 Hegemony, 3, 4, 16, 22, 102, 103, 110 theory, 39 High-speed railway (HSR), 220, 221, 228, 232–242 Japanese-Thai HSR, 221, 237–239 Sino-Thai HSR, 232–237 Historical-geographical materialist approach, 197 Horn of Africa, 6, 8, 204, 212, 213 Hybrid regimes, 73 I Illiberal democracies, 73, 77 Imperial expansion, 8 Inclusive globalisation, 201 Indian Ocean, 154–156, 160 Infrastructure diplomacy, 219, 220, 223, 227–229, 259 Instrumentalist, 79 International aid, 13 International Capacity Cooperation, 184 International Monetary Fund (IMF), 41, 49, 52n10, 78, 94, 236 International political economy (IPE), 3–7, 17 Iron Silk Road, 152 J Japan, 22 Japan Bank for International Cooperation (JBIC), 228 Japan International Cooperation Agency (JICA), 230, 237

 INDEX    

K Kautsky-Lenin debate, 32, 47–50 on capitalism and imperialism, 18 L Law of value, 5, 9 Liberalism, 4, 5, 9, 24 Logic of capitalist production, 9 M Malacca Dilemma, 105 Mandate of heaven, 6 Maritime belt, 30 Maritime Silk Road, 92–94, 96, 101, 106, 112n11 Maritime Silk Road for the 21st Century, 61, 84n14 Market capitalism, 2, 14 Market-oriented economy, 169 Marx, K., 1 Middle-income trap, 267 Middle Kingdom, 11, 182, 280, 283, 284 Military power, 8 Mini-Dubai, 176 Minilateralism, 11, 31, 42 Model diffusion, 70 Mongolia’s Development Road initiative, 183 Multilateralism, 91–110 Multilayered multilateralism, 19, 91–110 Multi-scalar governance, 117–137 Mutual learning, 60, 69 N National interests (China), 5, 9, 23 National People’s Congress (2017), 170 NATO’s Partnership for Peace programme, 264

295

Neo-Gramscian IR theory, 18, 32 Neoliberalism, 71–74, 76, 77, 79, 81–83 Neopatrimonialism, 73 Neo-Sinocentric periphery structure, 31 Network capitalism, 200 New Development Bank, 64, 210 Newly Industrialized Economies (NICs), 35 New Silk Road, 61, 63, 133, 143, 146–157, 159, 160 diplomacy, 148 New Silk Road Foundation, 49 New silk Road Fund, 31, 52n4 New world order with Chinese characteristics, 283 Noble’ ideas, 144 Normative power, 15, 23, 282, 286 Normative Power China, 59 North-South dependency, 31 North-South Economic Corridor (NSEC), 229, 230, 239 O OBOR International Cooperation Forum, 58 One Belt One Road (OBOR), 29, 143–160 geopolitical, 143, 146, 155–157, 160 geostrategic, 143, 148, 155, 156, 160 One Belt One Road (OBOR) initiative, 57–83, 91–110, 117–137, 167–189, 197–214, 219, 220, 222–228, 231, 240, 241, 242n3, 249–273, 279–288 One Economic Circle initiative, 183 P Pakistan, 8 Pakistan-China Corridor, 203

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INDEX

Pan-peripheral regions, 93 Partnership for Quality Infrastructure (PQI) (Japan), 220, 228 Pax Sinica, 283, 288 People’s Liberation Army (PLA), 21, 152, 157, 158, 160 Peoples Liberation Army Navy (PLAN), 204 People-to-people exchange, 67 Persisting localism, 122 “Pivot” to Asia (2011), 225 Political blessing, 121 Political economy, 197–201 global, 198, 200 Silk Road, 200 Port of Gwadar, 203 Power hard, 255, 256, 266 soft, 254–257, 264–266, 270 (Neo)prebendalism, 73 Principle diffusion, 57–83 Protectionism, 119, 128, 136 Public Private Partnership (PPPs), 202, 210 R Rationalist, 79 Realism, 4, 9, 24 Realpolitik, 284 Rebalance to Asia policy, 13 Regional competition, 219, 221–224, 231, 239–241 Regional Comprehensive Economic Partnership (RCEP), 133, 134 Regional Comprehensive Economic Partnership of East Asia, 225 Regional developmentalism, 224 Regional influence, 219, 223 Regionalism, 103, 222–225, 231, 241, 284 Regional order, 219–242

Regional rivalry, 220, 221, 231, 240 Revisionist power, 11, 12, 30, 31 Rule-by-law, 75–76 S Second World, 3, 4, 12, 13 Second World War, 3, 12, 13 Securitization, 143–160, 282, 286, 288n1 desecuritisation, 144–146 Shanghai Cooperation Organization (SCO), 64, 77, 94, 95, 97, 99, 101, 104–106, 108 The Shinkansen (Japanese HSR lines), 220 Silk Road, 4, 6, 7, 11, 21, 24n2, 30, 43, 51n1, 58, 61, 68, 83n1 Silk Road Economic Belt (SREB), 61, 84n14, 92–96, 101, 106, 110n1, 112n11, 120, 167, 174, 175, 177, 183, 220, 225, 226, 235 Silk Road Fund, 64 Silk Road Think Tank Association, 68 Singapore-Kunming Rail Link (SKRL), 240 Sinicization, 182 Sinified Marxism, 59 Sino-centric global economic order, 182–184 Sino-Japanese Competition, 220, 221, 224, 227–242 Socialism, 72, 73, 81 Sock city, 179 Soft power, 17, 18, 20, 21, 42–46, 147, 149–151, 154, 157, 160n1, 282, 286 South China Sea, 99, 145, 146, 153, 155, 158 crisis, 17

 INDEX    

Southern Economic Corridor (SEC), 229–231 South-South Cooperation, 285 South-South partnership, 31 South-South relations, 4 South Stream project, 264 Sovereignty-first, 71, 74–75 Soviet Union, 4, 12, 13 Spatial spillovers, 119 Special Economic Zones (SEZs), 76, 83, 84n9, 176, 183 Stake-holder, 12, 30 State capitalism, 72, 199, 200 State neoliberalism, 19, 71–74, 76, 77, 79, 81–83 State-owned enterprise (SOEs), 201, 225–227, 231, 233, 234, 239 State Railway of Thailand (SRT), 235 Status quo power, 5, 11, 12, 30, 42 Strait of Bab el-Mandeb, 155 Strait of Hormuz, 97 Strait of Malacca, 97, 155 String of Pearls, 145, 154–156, 159, 204, 283 Structural power, 3, 4, 17, 287 Subsidies, 121, 131 Suez Canal, 30, 155, 202, 204, 211 SWAP, 97, 99, 104 T Tao Guang Yang Hui strategy, 34, 41 Tariff, 126, 127, 131, 133, 137, 137n5 Territorial logic of power, 9 Thailand, 22, 23 Theory of diffusion, 18 13th Five-year Plan, 121, 157–158 Three Areas Seaport Cooperation, 250 Tokyo Strategy for Mekong-Japan Cooperation, 230 Track 1.5 diplomacy, 60, 67

297

Trade barriers, 118, 119, 127, 129–133, 136 sub-national, 119, 129–133 Trans-Asian Railway network, 183 Trans-Asian railways, 228 Trans-European transport Network (TEN-T), 135 Trans-Pacific Partnership (TPP), 92, 94, 96, 134, 225, 227, 231, 236 economic alliance, 13 Turkey’s Middle Corridor Initiative, 183 21st Century Maritime Silk Road, 6, 24n2, 167, 174, 187, 188, 220 U Ultracapitalism, 32, 47 Unequal exchange thesis, 31 UN World Food Program, 13 US Marshall Plan, 12, 13, 18 USSR, 2 V Vietnam’s Two Corridors, 183 Vision and Actions on Jointly Building Silk Road Economic Belt and 21st Century Maritime Silk Road, 6 W War on Terror, 225 Washington Consensus, 72, 83, 184, 198, 205, 206 World Bank, 41, 78, 117, 120, 124 World Economic Forum, Davos, 62 World financial crises, 4 World order, 1–24

298  

INDEX

World system theory, 5, 9, 18, 32, 40, 44–46 World Trade Organization (WTO), 41, 96, 119, 125, 127, 137n5, 208, 285 China becomes member, 125 X Xinjiang, 145, 146, 148, 149, 156, 160

Y You Suo Zuo Wei strategy, 32, 33, 35 Yuan regional currency, 97, 108 Z Zero-sum game, 4 Zero-sum rivalry, 223