Seven Years into China’s Belt and Road The sweeping initiative is providing benefits to developing countries. But at what cost? by DAVID DOLLAR President Xi Jinping of China proposed the Belt countries is uncorrelated with measures of democracy: and Road Initiative (BRI) in a pair of speeches in in other words, other major borrowers are democracies 2013. In Kazakhstan, he outlined a vision of restoring such as South Africa, Kenya, Tanzania, Indonesia, or overland trade routes from China to Central Asia and Brazil. A World Bank study in 2019 examined the Europe — the ancient “Silk Road.” In Indonesia, he transport projects along the introduced the concept of a overland and maritime routes. “maritime Silk road,” which It concluded that there were is essentially the already wellpotentially large benefits to the traveled sea corridor South recipient countries and to the from China to the Middle world if transport costs could East and Europe. In seven be reduced through improved years of implementation, the infrastructure. But the study initiative has become quite also found that in many cases controversial, especially in policy impediments were the West. The controversy greater than infrastructure is fueled by a lack of impediments – that is, transparency that makes import tariffs, investment it difficult to get reliable restrictions, customs delays, information on the financing bureaucracy, red tape, and involved in the initiative, as corruption often increase well as the specific projects trade costs dramatically. The and their terms. There are a clear point from this study is growing number of academic that improving the investment efforts, however, to collect David Dollar climate is a necessary and analyze data on BRI, with complement to investing in a consistent set of findings. infrastructure. One practical Despite the name, the way to do this is through deep program is global, not confined Despite the name, trade agreements such as the to the specific corridors. It the program is global, not Trans-Pacific Partnership is primarily a program to which includes some important fund infrastructure. About confined to the specific developing economies such as two-thirds of the financing corridors. It is primarily Colombia, Malaysia, Peru, goes to power and transport. a program to fund and Vietnam. The U.S. could Total funding has been on the have tied this group of Asiaorder of $50-100 billion per infrastructure. Pacific economies much year. Most of the loans are in closer to our system but chose dollars on commercial terms to drop out. Meanwhile, that are more generous than developing countries can get from private investors, China has reached a trade liberalization agreement but much more costly than funds from Western donors among ASEAN, Japan, South Korea, Australia, and or the concessional windows of the multilateral New Zealand. It is not a deep agreement, but it does development banks. A number of major clients of eliminate tariffs on parts and components and lays a China are well-known pariah states such as Iran or foundation for Asian value chains that exclude the U.S. BRI raises a number of issues for the U.S. Venezuela. But overall Chinese financing across 22
RIPON FORUM October 2020
