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Dec 15 2018
China’s response to Belt and Road backlash
By Ye Yu

Chinese President Xi Jinping’s Belt and Road Initiative (BRI) is facing strong criticism abroad. US Vice President Mike Pence accused China of using ‘so-called “debt diplomacy” to expand its influence’. Former German foreign minister Sigmar Gabriel said China was using the BRI to ‘promote a value system different from the West’. India declares that the initiative harms its sovereignty. Others attack the BRI for not meeting ‘international standards’ on environmental and social sustainability, procurement, anti-corruption and transparency, pricing and debt sustainability.

Many of the accusations serve geopolitical or economic purposes. They are not always logically coherent. Responsibilities of Chinese businesses are confused with those of the government. Some cases are also exaggerated or misunderstood. Contrary to dominant narratives, roads and power plants built and financed by Chinese companies are not known for being of lower quality compared to others. Some of the standards Chinese companies set and follow are world leading. Green financing policies implemented by the China Banking and Insurance Regulatory Commission, for instance, are considered as an example for others to adopt.

Overall, though, China’s government and companies are still on a learning curve. The strong backlash against the BRI is leading them to reflect on their business and investment practices, both at home and abroad. The general response from Beijing so far has been to dismiss international suspicions — Xi explained that the BRI is not a ‘Chinese conspiracy’ during the Bo’ao Forum for Asia in April 2018 — and to improve its strategies for managing sustainable development.

A lot of resources are invested into studying ‘international standards’, though there is no consensus on what exactly they constitute. Chinese governments, industry associations, banks, lawyers and think tanks are busy organising and participating in programs about the fragmented standards and their compliance with them. New regulations and guidelines are also being issued by ministries and industry associations. A new regulation was issued at the end of 2017, for instance, to ensure that China’s three major policy banks have more resilient risk management measures.

Major Chinese companies are becoming more sensitive to political, environmental, social and financial risks in their decision-making, especially after Chinese technology company ZTE’s punishment for violating sanctions on North Korea and Iran. Opinion leaders are arguing for closer conformance to international standards upheld by the major multilateral financing institutions. But China also hopes to contribute to efforts to see more convergence and consolidation among the existing standards.

China has also committed to scaling up development aid through the newly inaugurated China International Development Cooperation Agency (CIDCA) as well as multilateral institutions, both old and new, to better support project preparation and provide technical assistance abroad. While the size of the aid increase remains unclear, the creation of CIDCA suggests that China shares a common interest in mobilising more resources for infrastructure financing.

Probably the most significant development in the works is to transform the BRI into a multilateral initiative through tripartite cooperation with other countries and international development institutions. Germany and other European countries were the first to accept Beijing’s invitation to participate in the BRI due to their concern over China’s activities in Central and Eastern Europe. More recently, Japanese companies announced they will collaborate with their Chinese counterparts on a railway project in Thailand.

Elsewhere the International Financial Corporation (IFC) is co-financing the Karot Hydropower Project in Pakistan, which is being developed by the Chinese state-owned Three Gorges Corporation in compliance with IFC standards. China is also engaging actively with the World Bank and the International Monetary Fund (IMF) on debt management for low-income countries. A new IMF–China Capacity Building Center was established in 2017.

To deepen engagement, tripartite cooperation should be based on mutual advantage, ownership and trust. Time is still needed for compromise to be reached on some fundamental issues, such as governing mechanisms and China’s non-intervention policy.

China is striving to better communicate its BRI policies and practices to the world. Propaganda risks intensifying the problems caused by geopolitical and economic competition. De-politicalisation starts at home.

One fundamental issue that requires greater transparency is the scope and scale of BRI projects. China should improve its data collection processes, and ministries should stop separately updating numbers about trade and investment with ‘BRI countries’.

China has reasons to be confident. International reception of the China-led Asian Infrastructure Investment Bank (AIIB) gradually moved from suspicion to acceptance. The ‘big three’ credit rating agencies Moody’s, Fitch and Standard & Poor’s (S&P) all gave the AIIB the highest rating in 2017 and noted the strength of the AIIB’s governance framework. If China continues to take steps to improve its overseas investment practices, in time perceptions of the BRI may too become more favourable.

Source of documents:East Asia Forum,15 Dec