A Strategist’s Guide to China’s Belt and Road Initiative

A new global megaproject, unparalleled in scope and ambition, presents vast opportunities and risks for multinationals.

As of early 2018, a new elevated railway in Hanoi is giving commuters a smoother journey into the city. The 13.5 kilometer (8.4 mile) line, which snakes across the Vietnamese capital’s shimmering West Lake, is one element of a much larger rail project that will connect the landlocked Yunnan Province in China directly to the northern Vietnamese port city of Hai Phong, providing access to markets in Southeast Asia and beyond.

Many time zones to the west, the London suburb of Barking has the distinction of being the first English town with direct rail access to China. In January 2017, it welcomed the arrival of a freight train that had traveled 12,000 kilometers (7,500 miles) from eastern China’s Zhejiang Province, with a cargo of garments and handbags. The so-called “East Wind” train made history by retracing part of the ancient Silk Road that more than 2,000 years earlier had linked northern China to the Mediterranean. The railroad traversed Kazakhstan, Russia, Belarus, Poland, Germany, Belgium, and France on its journey to Britain. But it should not be regarded as a pure U.K.-to-China transport link. Once fully operational, it will pick up and drop off goods at many countries in between, thereby opening up parts of Russia and Central Asia that have never before had this type of entrée to the global economy.

These rail projects, which share the same visionary origin, are just two of dozens of road, rail, port, and power generation plans within China’s much-vaunted Belt and Road Initiative (BRI). Formerly known as One Belt, One Road, this vast, interconnected infrastructure project spans at least 65 countries with a combined population of 4.4 billion and about a third of the world’s economic output.

The plan is notable not just for its scale, but for its time frame. Its first phase focuses on infrastructure development, specifically in transportation, communications, and power. The second phase will involve softer sectors such as e-commerce, healthcare, education, and financial services. The first projects are just starting now, and the whole initiative is not expected to conclude until at least 2050.

Already, the rail elements of the plan alone rank as one of the biggest infrastructure pushes ever undertaken. The total estimated value of its 18 planned Chinese high-speed rail projects — of which five are under way — comes to US$143 billion, according to calculations by the Center for Strategic and International Studies, a U.S. think tank, and the Financial Times. That is larger than the U.S.-led Marshall Plan, which spearheaded the revival of Europe after World War II and cost about $130 billion in today’s money. Indeed, compared with the BRI, the Marshall Plan was modest in its ambition: It sought to rebuild the old, war-torn economies of Europe. The BRI is focused on developing new economies around the world, and fostering global trade among them, not just with China.

Moreover, the BRI represents a multistage conception that goes beyond basic capital investment. It will eventually embody leading-edge digital technologies such as embedded sensors and data analytics, thereby giving participating countries the ability to leap past current Western supply chain practices. In doing all this, the BRI could spark a 21st-century expansion of global economic growth, technology exchange, and, inevitably, Chinese influence.

The BRI is not the only comprehensive initiative of this sort emerging in the 21st century, however. Industry 4.0 initiatives from Germany and cloud-based platforms from the United States may eventually interface with it, compete with it, or both. But the ambition and scope of the BRI are even greater than those of its international counterparts. That’s why it is such an important — and complex — strategic opportunity for global enterprises. China has invited companies from other countries to do business with the BRI by investing their financing, technology, or other forms of capital. These investments may give them access to barely tapped markets destined for future growth, while cementing a better foothold in China itself. The relationships companies build with their Chinese partners, including host companies from countries along the BRI pathways, could lead to many opportunities in China and around the world.

Pursuing the Chinese Dream

With all these uncertainties at play, an assessment of the best strategy for your company must start with an understanding of China’s motivations, capabilities, and limits. The concept for the initiative was first unveiled in 2013 by Chinese president Xi Jinping (see “Historic Roots, Grand Ambitions”). Its goals were reaffirmed in late 2017 at the 19th Chinese Communist Party Congress (the congress is held every five years). There, a reference to the initiative was formally added to the party’s constitution. Along with the elevation of Xi to the status of “core leader” (a title held previously only by Mao Tse-Tung and Deng Xiaoping), there could be no clearer sign of the BRI’s importance to China’s national development.

Historic Roots, Grand Ambitions

In scale and ambition, the Belt and Road Initiative (BRI) has no direct precedent. But it does trace back more than 2,000 years to the grand vision of the ancient Silk Road, which forged trade links between China during the Han dynasty and the heart of Europe and the Mediterranean.

The original Silk Road marked the beginnings of commercial relations between China and the Western world from ancient through modern times. To be sure, the amount of trade along this route significantly diminished in the early 1200s, after the fragmentation of the Mongol Empire. But the Silk Road was still robust enough for Marco Polo, who chronicled his journey to China on it in his memoir, completed in 1299. And the route was still in use in the 19th century; indeed, the term Silk Road was coined in 1877 by German geographer Ferdinand von Richthofen.

The BRI’s story began in 1999, when the Chinese government made a concerted effort to promote overseas Chinese investments with its “Go Out” policy: This was a mandate to Chinese companies, demanding they invest and operate outside China’s borders whenever possible. The country’s leadership understood that they could not rely on growth from domestic markets alone. Led by its state-owned enterprises, China’s overseas investments rose from $3 billion in 1991 to $35 billion in 2003. During this time, the Chinese government signed bilateral agreements to collaborate in financing and developing infrastructure in many developing countries.

In September 2013 — about a year after he became secretary-general of the Communist Party and six months after being elected president — Xi Jinping proposed the overland component, the Silk Road Economic Belt, during a trip to Kazakhstan. He announced the Maritime Silk Road on a trip to Indonesia a few weeks later. These two efforts culminated in the announcement of the formal initiative in May 2014, at the Conference on Interaction and Confidence Building Measures in Asia.

Following this, the Chinese government established national policies under the name One Belt, One Road. It realigned existing outward-focused projects and adjusted bilateral agreements and memoranda of understanding. New projects soon followed. The initiative, renamed the Belt and Road Initiative in 2016, isn’t always consistent. Chinese statements about new undertakings don’t always mention a Belt and Road linkage. But with any new Chinese project outside the country’s borders, there is an implicit expectation that it will fit somehow with the Belt and Road.

The BRI plan aims to build out the overland and maritime infrastructure needed to create a broad web of new trade connections from the Eastern hemisphere to the West. It will do so by developing six broad economic corridors. Four are predominantly land routes connecting China to Europe through Central Asia. For example, a New Eurasian Land Bridge economic corridor is intended to be a major logistics passageway between China and Europe with transcontinental rail connections, including that China-to-London freight train that ended its journey in Barking. The two remaining corridors are maritime routes, establishing land–sea connectivity across Southeast Asia, South Asia, the Middle East, and Eastern Africa.

The BRI’s goals are multipronged. The initiative will provide markets to absorb China’s industrial over-capacity and facilitate trade with and between participating countries, while also potentially strengthening China’s diplomatic relations across its six economic corridors. It could also help internationalize the renminbi. Finally, it will enable China to gain global recognition in developing complex transnational infrastructure projects, such as high-speed rail networks.

The initiative will establish a greater capability among Chinese companies for building, innovating, and maintaining infrastructure around the world, ensuring that more of them will be profitable outside China’s borders. A specific recommendation on this issue has been made by the Center for China and Globalization, a Beijing-based think tank that works on the BRI. The center said in a May 2017 paper that China should prioritize the construction of overseas industrial parks, as they could help Chinese companies abroad increase exports.

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