‘A high-stakes geopolitical game plan to augment and fortify Chinese power.’ – Will Doig, journalist.
‘China’s predatory approach to investment.’ – US National Security Council.
‘Debt-trap diplomacy.’ – US Vice President Mike Pence.
According to the dominant rhetoric, the Belt and Road Initiative (BRI) is a Chinese geopolitical masterplan that sees China undertaking infrastructure projects across the developing world in order to extend its military reach, secure supporters to back China’s interests in issues such as the South China Sea, as well as to establish China as a normative power in regional and global governance.
While fitting nicely within the popular ‘Rising China’ narrative, such narrow political interpretations abstract the BRI from its historical and conjunctural context and fail to understand the BRI’s economic causes, features, objectives and consequences.
As argued in my recently completed Master of Political Economy thesis, in the Department of Political Economy at the University of Sydney, through situating China’s BRI within the global capitalist system, the BRI can be understood both as a product of the historical process of uneven geographical development, as well as a cause of contemporary ongoing processes of spatial differentiation within global capitalism.
The Belt and Road Initiative as a condition of uneven geographical development
Uneven geographical development has historically integrated peripheral countries into global capitalism through displacement of surplus capital from the core countries in what David Harvey refers to as a ‘spatio-temporal fix’.
After absorbing Western surplus capital for decades, China is now facing its own crisis of overaccumulation with the BRI as its spatio-temporal fix en masse.
The economic crisis of the 1970s coincided with the opening up of China in 1978, presenting overaccumulated western surplus capital with an opportunity to extract greater profits through exploiting a large, low-wage and disciplined labour force. Over the following decades, China became the world’s largest recipient of FDI, transforming into a hub for low-end manufacturing and, in 2009, overtaking Germany to become the world’s biggest exporter.
As Chinese exports grew, so too did China’s current account balance which by 2007 was equal to 10% of GDP, and by 2013 its foreign exchange reserves were approaching US$4 trillion. The obverse of China’s surplus could be seen in the deficit the US has been running since the 1980s. The Chinese-surplus-US-deficit formed a symbiotic relationship in which China purchased US-denominated assets to store its surplus, the US issued ever-greater debt without needing to raise interest rates, and the funds flowed back into China as export demand from US consumers.
However, this interdependent relationship was undermined by the 2008 global crisis and the fall in export-demand on which China was dependent. China responded with an enormous stimulus program, funding new roads, high-speed rail, airports, shopping centres, and apartment complexes, seeing investment reach 48% of GDP in 2011.
While the stimulus allowed China to evade recession in 2008, it has defined China’s economic course ever since. The huge public investment program left China with excess facilities, unused infrastructure and ghost towns, and excess productive capacity in industrial sectors from steel to cement; in capital equipment and commodities; and engineering and construction firms.
After decades of absorbing excess foreign capital and years of stimulus, compounded by rising wages, China was left with few profitable opportunities for accumulation in which to invest this surplus capital domestically. During the height of inbound FDI in the 1980s and 1990s the rate of profit in China was approximately 0.22%. By 2013, it had fallen to 0.14%. Facing an overaccumulation of surplus capital, China needed a solution external to itself to avoid crisis and maintain growth.
In 2013, the BRI was born as China’s spatio-temporal fix.
Through major infrastructure projects across Southeast Asia, Central Asia and Sub-Saharan Africa, surplus Chinese capital, productive capacity and commodities could be absorbed spatially and taken out of circulation temporarily.
The BRI provided an outlet not only for China’s excess capacity, but also its current account surplus. Rather than holding US bonds paying low yields, China’s savings could be lent to developing countries to fund Chinese-built infrastructure. Just as China’s purchases of US debt were recycled through China as export demand, so too foreign infrastructure lending flows back into China through Chinese construction contracts, fixed capital and commodity purchases, and Chinese migrant workers’ wages.
The economic strategy of China’s the Belt and Road Initiative
As the flagship project of President Xi Jinping, and enshrined in the Chinese constitution in 2017, the BRI is a complex economic strategy designed to achieve a range of short, mid and long-term economic goals. The short-term goals relate to finding spatio-temporal fixes for China’s overaccumulation of capital. Data shows this has been successful with 90 per cent of contracts in Chinese-funded projects going to Chinese companies.
In the mid to long-term, the BRI aims to migrate China’s low-end manufacturing to underdeveloped BRI countries to maintain profitability as Chinese wages rise, allowing China to evolve its manufacturing to higher value-added production. Once built, the infrastructure projects like rail, roads, ports and pipelines will provide connectivity allowing China to access resources to guarantee its own energy security. Infrastructure connectivity will also allow China to increase trade with BRI markets reducing the time, cost and instability of its current trade routes. China also hopes emerging BRI markets will be more willing than developed markets to accept higher-end Chinese industrial goods, allowing China to set the technological standards and establish natural customer retention.
Finally, the regional economic integration of the BRI facilitates the internationalisation of the renminbi, with loans made out in China’s currency, and Chinese clearing houses established to process renminbi payments, with a long-term view for it to become a major currency of exchange.
Many of the BRI projects are economically unproductive and the financing arrangements unlikely to yield a profit. Rather, China’s return on BRI infrastructure will come indirectly in the form of long-term productivity, economic growth and stability, and regional economic leadership.
Overall, the BRI aims to create a regional production chain and sphere of economic influence with Chinese leadership, while reducing Chinese dependency on the US market.
Yet China cannot implement the BRI alone.
The BRI requires not only excess capital in China, but also the ongoing underdevelopment of countries that are absorbing this capital through hosting BRI projects.
One such country is Laos, a small, landlocked nation and former French colony in Southeast Asia, currently the recipient of several BRI projects including a US$5.95 billion high-speed railway.
Laos’ own uneven integration into global capitalism has left that country in an underdeveloped state and courting foreign capital in return for land through state-facilitated primitive accumulation. The perfect ‘fix’ for Chinese surplus capital.
Part two of this post will analyse this specific Belt and Road project in Laos, and consider its historical context as well as its economic, social and environmental consequences.