The Belt and Road Initiative (BRI) is a global development strategy adopted by the Chinese government involving infrastructure development and structured finance investments in 152 countries and international organizations across Asia, Europe, Africa, the Middle East, and the Americas. It is one of the most ambitious global infrastructure development programmes ever conceived, within an overarching objective of contributing to a world of 'shared prosperity'. Launched in 2013 by President Xi Jinping, and originally known as One Belt, One Road (OBOR) – it is made up of the Silk Road Economic Belt (the historical overland Silk route of 19th-century colonisation) and the 21st-century Maritime Silk Road (the sea route). These routes are designed to connect China to the wider world through regional infrastructure projects, funding and connectivity.
Sir Douglas Flint was appointed by the Chancellor as Special Envoy to China’s Belt and Road Initiative (BRI) and served on the Advisory Council of the Belt and Road Forum for International Co-Operation. The UK is the only country that has a Special Envoy to the BRI, and his role is to harness and project the UK’s capabilities to support its commercial objectives. Earlier this week, Sir Douglas spoke about his views on how effective BRI is, the opportunities and challenges it represents, and why the BRI attracts both criticism and support from the wider international community.
In isolation, many would argue that BRI is a soft power grab or economic imperialism by the Chinese Government on an unprecedented scale. In my opinion, this is a very narrow unilateral view of the world. China is now the world’s second-largest economy and the fastest-growing economy in the world this year. There is enormous pressure on the Chinese government to maintain this high level of growth moving forward. Of course, China has geopolitical and economic goals for BRI as does every government for their initiatives.
As a starting point, it is crucial to take a longer view with respect to BRI. There are three significant global challenges facing the world: (1) climate change, (2) increasing national/regional income disparity/inequality and (3) projected global population growth. These issues will drive increased urbanisation in emerging markets across the world and represent an existential risk to the developed world. Economic migration patterns unseen before can be expected as parts of Asia and Africa will bear the brunt of climate change. Western developed countries will be much more likely to experience increased economic migration as a result of climate change and global population demographics.
If any of you have not read Empty Planet, a book by two Canadian journalists who challenge the UN population assumptions and what that means for global population growth forecasts this century, please do. Their point is that western countries will need migration to balance their ageing population and to fuel their economies by 2060 as their populations decline. They also forecast that China’s population will also start to decline by mid-century, faster than predicted by the UN.
Two years before in 2011, the US State Department launched a policy called the “New Silk Road”. This was very similar in its approach to BRI and was meant to increase regional stability in Afghanistan and Central Asia through better economic linkages and growth. It can be argued that China’s BRI was a hedging strategy against the US’s focus on the East and its promotion of economic development and energy supply stability projects in Eurasia, former Russian states and the Middle East.
Emerging markets across both central Asia and Africa need infrastructure investment but historically have lacked government-led financing or a coherent strategy to achieve this. Sustainability and infrastructure development are intrinsically linked. The initial focus of BRI has been on infrastructure investment, education, construction of railway and roads, power grid improvement, and iron and steel capacity. China’s original objective of the BRI was to create demand for their spare industrial capacity and to develop overseas markets, create construction jobs outside China and increase the use of the Chinese currency, RMB, as well as linking their domestic infrastructure regionally to create connectivity beyond China regionally and across the world.
China’s expertise in building mega-infrastructure projects is second to none. You can argue that BRI projects are greener than they would have been without BRI funding, but it is hard to measure its success or its economic benefits unless you can assess the timescale for the initiative. However, its critics point out that the infrastructure projects are more about linking infrastructure, IoT, data and communications to China’s technology standards, and thus moving away from a US-centric approach.
Technology polarisation is the conflict between US and China around BRI. This is clearly illustrated by 5G. Outside of the US, 5G technology will be the standard, sweet spot frequency of choice for connectivity, with China’s Huawei leading the development of this technology; within the US, 5G is the reserved frequency for military use. The trade tensions between the US and China this year have focused very much on Huawei and forced technology transfer.
The real issue is: will the world be connected to US technology standards or those of China? And what does that mean for data security, data privacy, environmental sustainability and the rule of law when China’s approach is very different from that of western liberal capitalist democracies? These issues can only be addressed through dialogue with China and through soft power, not through threats or a trade war. BRI is linking the rest of the world ever closer to Chinese technology standards and creating opportunities for China to extend its soft power and influence far beyond its borders.
BRI is, in many ways, the inverse of QE.
Globalisation and debt creation have created income disparity and inequality within countries and globally. I would argue that QE and asset price inflation has exacerbated this to unprecedented levels. China’s central control framework and BRI is building its influence beyond its borders; the rest of the world needs to understand the commercial opportunities/challenges this creates and engage with China to create a shared vision.
BRI is, in many ways, the inverse of QE. Instead of buying assets or bonds the Chinese government through BRI is creating its own asset class of structured debt products through its financing of infrastructure projects. The returns will be new markets and partners for Chinese goods, technology and eventually services as well as interest. The Chinese, in my opinion, have the longest view in the room which makes their approach highly likely to succeed.
 Sir Douglas Flint is Chairman of Standard Life Aberdeen plc, one of Europe’s largest investment companies, a position to which he was appointed on 1st January 2019. He is also Chairman of IP Group plc which helps to create, build and support outstanding intellectual property based companies primarily through collaboration with partner universities. In June 2006 Mr Flint was honoured with a CBE and in June 2018 was awarded a Knighthood, both awards in recognition of his services to the finance industry. Douglas Flint retired as Group Chairman of HSBC Holdings plc on 30th September 2017, having been appointed to that role in December 2010.