Unlike the United States and Europe, China uses aid, trade, and foreign direct investment strategically to build goodwill, expand its political sway, and secure the natural resources it needs to grow. Belt and Road is the most impressive example of this. It is an umbrella initiative of current and future infrastructure projects. In the next decades, China plans to build a thick web of infrastructure around Asia and, through similar initiatives, around the world.
Most of its funding will come in the form of loans, not grants, and Chinese state-owned enterprises will also be encouraged to invest. This means, for example, that if Pakistan can’t pay back its loans, China could own many of its coal mines, oil pipelines, and power plants, and thus have enormous leverage over the Pakistani government. In the meantime, China has the rights to operate the Gwadar port for 40 years.
Belt and Road is China’s biggest foreign policy initiative to date, but it’s no Marshall Plan. Beijing is not doing this out of altruism, or out of a desire to stabilize the countries it loans to. So why spend such enormous sums on its neighbors? For one thing, China is too dependent on its eastern seaboard and the narrow Malacca Strait near Singapore to get goods in and out of its vast territory; for example, over 80 percent of its oil goes through the Strait. So building trade routes through Pakistan and Central Asia makes sense. Belt and Road also helps China invest its huge currency reserves and put its many idling state-owned enterprises to work.
The initiative also has a positive side effect for Beijing: Some Chinese government officials say specifically that it’s about competing with the United States. At a minimum, it creates leverage to make many smaller countries feel economically beholden to China.
So what does all this mean for the “liberal international order” that the U.S. did so much to create and uphold over the past seven decades? The effect is not all bad.
If the point of that order was to secure peace and prosperity, there are ways in which China’s largesse actually complements it. Countries that trade more generally fight less, not just with their trading partners, but with the world in general. In its own way, China is thus helping to uphold international peace. Yet even if there is less interstate war under a “Pax Sinica,” an era when many small “donee” states are beholden to China means that on a slew of other issues—from counterterrorism to sanctioning countries at odds with the West—the U.S. will find it harder to impose its will.
On the prosperity question, China’s economic impact on the countries it lends to so far seems mixed at best. While the 20 percent or so that China gives in traditional aid does help local economies, most of its largesse comes as loans, which have not been as helpful. Scholars who looked at Chinese investment in Africa from 1991 to 2010 found that Chinese assistance does not appear to help economic growth, and that inexpensive Chinese imports often displace African local firms, and thus hurt employment in small enterprises. China usually requires donee countries to use Chinese firms to build roads and ports, and until recently didn’t train local workers. In Pakistan, for example, 7,000 Chinese nationals worked on the economic corridor, protected by nearly 15,000 security personnel from Pakistan to guard the Chinese. This all changed recently. As Chinese wages rise, it makes more sense to use locals. A few months ago, a Chinese firm began training hundreds of Pakistani engineers to work on a power plan near Karachi, and other Chinese projects are also employing more locals.