Chinese President Xi Jinping speaks during a briefing at the Belt and Road Forum. Picture: REUTERS/NICOLAS ASFOURI
Chinese President Xi Jinping speaks during a briefing at the Belt and Road Forum. Picture: REUTERS/NICOLAS ASFOURI

China’s globe-spanning infrastructure initiative is shrinking. The rhetoric at the second Belt and Road Forum, being held in Beijing this week, has been less triumphalist — and new plans for roads, pipelines, bridges and rail lines more modest — than at the first: on Friday, Chinese President Xi Jinping pledged high standards and “zero tolerance” for corruption in the programme.

Unfortunately for the US and its allies, though, a downsized programme could pose more, not less of a competitive threat to the West.

Until now, most worries about the Belt and Road Initiative (BRI) have focused on its size and those weak standards. The sheer volume of the supposedly multi-trillion-dollar initiative looked impossible to match. Meanwhile, a corrosive combination of debt, corruption and privileged access for Chinese companies threatened to lure or coerce countries away from the US orbit and into China’s.

In many ways, though, this model always contained the seeds of its own failure. The emphasis on speed and scale came at the expense of sustainability, both economically and politically. In most countries, China failed to build a broader consensus for its investments beyond whatever government happened to be in office. In a series of elections from Malaysia to the Maldives, opposition parties have sailed into power by railing against Chinese mega-projects that looked to be lining the pockets of politicians more than boosting the economy. Investments in countries such as Pakistan had already been pared back as rising debt levels limited their ability to take on new projects.

By spurring fears in the US, Japan, India and Europe, the BRI also provoked competition. With the exception of Japan, whose overseas investments have, by some measures, exceeded China’s in recent years, this hasn’t cost much money.

India has provided financing to help shore up the new Maldivian government and the US has extended legal and political help to governments negotiating major contracts, such as Myanmar. But it has so far proved relatively easy for China’s competitors to rely on the BRI catalysing its own political pushback.

Digital infrastructure projects, where China’s advances — from fibre-optic cables to telecoms networks — will likely do more to affect US security and commercial interests than any number of roads, railways or dams

There are limits to Beijing’s ability to fix this. Some of the BRI’s flaws are endemic to the way the Chinese economic and political system works: Beijing’s deep sensitivity to political embarrassment around the scheme, for instance, is only increasing its lack of transparency.

Nor is China willing to make the initiative genuinely multilateral, which would slow it down and erode any bilateral leverage Beijing hopes to gain over individual countries.

But leaders in Beijing can and will adjust. They’ve already shown striking willingness to renegotiate contracts, with Malaysia’s $16bn East Coast Rail Link — now about 30% cheaper — being only the largest example. Newly elected governments have found Chinese counterparts relatively flexible on rescheduling loans, revisiting project costs, or shifting the focus of the two sides’ economic co-operation. Even the flagship China-Pakistan economic corridor is set to level out at about a third of the scale that was once touted.

More measured approach

This leaner version of the BRI will potentially be far more potent. China will still be able to deploy its many advantages in the new scheme: its capable infrastructure firms; large-scale subsidies for its major companies; speedy decision-making; increasingly cutting-edge technology; and willingness to finance non-bankable projects that fit broader strategic goals.

At the same time, a more measured approach, better attuned to political and economic risk and more responsive to local demands, will give China greater scope to entrench its presence in the economic sectors that matter. Most important of these will be digital infrastructure projects, where China’s advances — from fibre-optic cables to telecoms networks — will likely do more to affect US security and commercial interests than any number of roads, railways or dams.

China’s 5G capabilities are proving attractive even to key US allies, posing risks for US intelligence-sharing and military mobilisation. Chinese surveillance technologies are being rolled out across the developing world, promising to spread China’s authoritarian capabilities.

From data access to standard-setting, the so-called digital Silk Road will also augment China’s edge in the industries of the future — and will receive a warm welcome from countries looking to benefit from Beijing’s subsidised prices and fast roll-outs, even if they’d chafe against Chinese port or airport acquisitions.

A rebalancing away from the most toxic aspects of the BRI would certainly limit China’s ability to ensnare smaller countries in debt and gain access to such strategic assets. But, it will also force the US to compete against China’s underlying strengths and most compelling appeals rather than on the BRI’s most obvious — and fixable — flaws.

Small is a senior transatlantic fellow on the Asia programme at the German Marshall Fund of the US and author of The China-Pakistan Axis: Asia’s New Geopolitics.’

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

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