China’s present dilemma is in ensuring that it expands its stature as the largest destination for foreign inbound investment (FDI) to offset the risk of losing access to foreign markets. That dilemma is accentuated by its wish to protect its outbound investors by treaty or contract while maintaining barriers to legal claims brought by inbound investors against it. China’s objective is to enhance its leadership, embed its BRI in developing states, and extend it to the European Union (EU) and beyond.
China has already embarked significantly along this pathway. China, along with its state-owned enterprises (SOEs) and state-controlled entities, has financed and operated multiple projects along its expanding Belt and Road. It has engaged in diverse international investments approximating $1 trillion. Chinese banks and financial institutions have, in turn, issued loans and provided credit to initiate and sustain BRI projects. Chinese contractors have supplied project equipment, materials, and managerial expertise.
In building these infrastructure projects along its BRI highway, China faces a range of barriers, extending beyond impediments encountered along its ancient Silk Road. One illustrative barrier for China is determining whether to preserve its SOEs and state-controlled entities for BRI expansionism, creating a risk that foreign states will deny private investor status to China’s SOEs. The reality is that China is privatizing its SOEs in law and, more contentiously, in practice. It is doing so in response to the criticisms that SOEs are functional and legal arms of the state. But it is also doing so to render its outbound investors more economically efficient in international trade and investment markets.
Another barrier to China’s BRI expansion is hesitance among actual and prospective BRI partners to join, or continue participating in, its Belt and Road. Some developing states are avoiding the road because of fear of incurring debt loads. Others that are already on the road are limiting funding for roadwork to avoid increasing debts. Chinese banks are imposing higher interest rates on loans and providing shorter periods to repay them. The Group of Seven wealthiest Western states are constructing competitor roads and alternative sources of funding and terms of payment, highlighted by the EU’s recently announced Global Gateway. American banks are competing strategically to counter the resourcing provided by the Asian Infrastructure Development Bank to fund BRI infrastructure development.
Stern detractors depict China as constructing a controlled highway along which it restricts access, participation, and the right and manner of exit. In their portrayal, China’s BRI operates as a directed highway along which it dictates travel according to laws of the road of its ordination and autocratic application. Far from eliciting cooperation from participating states and foreign investors, China’s BRI plan, according to them, is to erode consent over the direction, length, and safety of the highway. At their most generous, critics envisage that China will reformulate Western liberal treaties of trade and investment into instruments of its self-empowerment that are formally attired in legal apparel.
These criticisms compound already challenging economic and political roadblocks to BRI construction. China will be required to make hard choices to adapt its infrastructure programs through economic, political, and legally endorsed partnerships with developing BRI partner states. Among these are how it will model its disparate infrastructure developments cross-continentally, whether it will seek to do so more and more multilaterally or bilaterally, and how it will differentiate between BIT partnerships with developed states and those with developing states. Extended to its outbound investors, China will maintain its long-term BRI commitments in discrete developing states while also protecting its outbound investors, such as its SOEs, from economic hardship.
What is evident at this juncture is that China’s BRI extends across sub-regions of Asia, Europe, and Africa in markets that accounted for sixty-four percent of the world’s population and thirty percent of the world’s gross domestic product in 2016. The question is whether China will retain and grow these markets, consolidate them selectively, or retreat from them incrementally or even geometrically. The collateral question in a world order that is marred by trade wars and sanctions is whether these choices will rest securely, or precipitously, in China’s hands. Importantly, too, is how China will remold its investment regime functionally, legally, and, ultimately, globally.
Answers to these questions are often tangential. The disparate conception of state powers and investor protections had a long gestation period, which is reflected in the development of bilateral investment agreements, the unrequited romance of multiple states with a multilateral investment treaty, and their starry-eyed soliloquy about a world investment organization. Ambitious, but often realistic, predictions are made about international investment law reforms, such as those fashioned by the World Trade Organization (WTO), the United Nations Commission on International Trade Law (UNICTRAL), and the International Centre for the Settlement of Investment Disputes (ICSID). So, too, are realistic present-day prophecies made about the lasting significance of China’s ambitious BRI upon the global economic order. What is less prophetic is the scope of such realism tomorrow and the day after.
This article will evaluate how China is likely to sustain its BRIs while protecting itself from economic and legal challenges extending beyond its immediate economic relations with BRI partner states. In exploring the current, but also obdurate, obstacles in China developing its BRI, the article will consider the nature and likely impact of escalating trade and investment tensions among China, its allies, and their adversaries. How effectively China can balance its BRI infrastructure planning against competitor initiatives, how it will respond in law and practice to spiraling trade sanctions and COVID-19 threats, and how it will maintain its BRI leadership regionally and globally will all be under scrutiny.
II. China’s BRI Conundrum
In a world of intense geopolitics and their economic sequela, China’s future plays on the BRI drawing board will engage the changing rules of the game of state-sponsored global trade and investment. In key respects, China will need to delineate when to plan its game primarily in self-directed seclusion and when to do so in legal and practical collaboration with select partner states. In play, too, will be an evaluation of responses by states that are ideologically hostile to, or at least suspicious of, its initiative, as well as states that are politically supportive of or economically dependent upon it.
How China will limit cracks and holes in its BRI will hinge significantly upon the collaboration and support of its partner states. Expressed arithmetically, if the whole of China’s BRI consists of the sum of its parts, China’s path to a global BRI will depend significantly upon the functioning of its parts in Asia, Africa, the Middle East, Latin America, and the EU. Maintaining the support of these parts will be a critical prerequisite to delivery of the BRI viewed as a whole. The direction, pace, and scale of the BRI will be contingent on how China, in deliberation with its partner states, redresses functional and legal blockages on that road.
China will be scrutinized on how well it can sustain its BRI as the global trailblazer that nurtures productivity along an infrastructure pathway that traverses target states with often distinct but also shifting needs. China will also be scrutinized on how well it can manage fluctuating costs and unexpected roadblocks along its BRI, resist fervent BRI competition from the West, and dissuade state partners from withdrawing. Conversely, how will China overcome these obstacles strategically, functionally, and legally and make itself “great again”?
In maintaining its infrastructure highway, China will need to respond to regulatory obstructions that require continuing economic and political repair. No matter how carefully China plans for pockets of BRI highway erosion, it must still clear the formidable hurdle of accounting for the devil in the debilitating details of that erosion. These details include China’s assessment of the nature of its reliance upon fiscally battered projects, the cost of its contributions to financing and overseeing repairs, and its returns on its BRI investment after those repairs. Tactical considerations drive these details, such as feigning economic recovery by simulating repairs directed at enabling them.
The unembellished reality is that signals of China’s economic recovery still do not dispel the risk of both it and its state partners reassessing their commitment to the BRI. Invigorated laws imposing trade sanctions on China are real and continuing. China is under pressure to realign its BRI financing to bolster domestic investment, strengthen social programs, and support its aging population while preserving its outbound Belt and Road strategies.
Selective realignment away from the BRI also extends beyond China. China’s prospective partner states are juxtaposed between initiating “built at home” projects to protect their domestic sovereignty and maintaining “sovereignty by association” through China’s “build abroad” BRI. Some states will rebalance their investment networking away from economic dependence upon China and its outbound investors. Their seemingly implacable alternatives will be to dislocate from the BRI, to re-globalize through infrastructure projects with other partners such as the EU, or to do so concurrently with a remodeled BRI alignment or to its exclusion.
The prospect of expanded competition to the BRI does not, in and of itself, detract from China’s Belt and Road. The BRI cannot realistically satisfy vastly disparate global demands for foreign direct investment. But, for other regions and states to satisfy that demand, they need to both devise and implement cogent and legally sustainable guidelines. The pathway towards competition advanced by the Organization for Economic Cooperation and Development (OECD) in 2020 and most recently contained in the EU’s Global Gateway are early steps along alternative and largely untested gateways.
China must also consider how it can sustain its relationships with BIT partners that have incongruent economic incentives and disparate market capacities. Its challenge will be to engage in roadwork design across states that have disparate attachments to the BRI, realignment prospects along competitor investment pathways, and obdurate opposition to the BRI. Its strategic conundrum will be to conclude sufficiently uniform trade and investment treaties and to manage both functionally and legally while sustaining differential BRI relations. Its functional quandary will be to manage variable costs alongside a BRI facing unprecedented disruptions within a destabilizing COVID-19 epoch.
China must walk an arduous tightrope, balancing its state-directed domestic economy against its participation in a neo-liberal international investment order that avoids graduated elision of one by direction of the other. That task will be more formidable than privatizing its SOEs formally to ensure their ticketed admission into a Western-style free market. China’s mission will also be functional: to be seen not to replicate “shell” SOEs, over which it will wield control, in place of formal legal ownership.
In traversing the high wire connecting its planned economy and liberalized international market, China’s long-term BRI advancements will likely be multifold, interwoven, and sometimes mutually exclusive. Its road planning is legally and functionally workable, less by adhering to a narrow ideological pathway than by exploring a large field of empirical study. If China is to avoid falling into a post-pandemic economic abyss, it will withdraw from infrastructure projects that fail to offer continuing benefits to it and its investors. Additionally, China’s prospective BRI partner states have their own economic tightropes to walk. Cognizant that they are only parts of China’s high-wire performance, they recognize that China has competing investment agendas in preventing its tightrope from breaking or even fraying.
The onslaught on China’s BIT expansionism will persist both formally in law and functionally in trade and investment practice. While target states will enjoy formal sovereignty in concluding BITs and free trade agreements (FTAs) with China, they will lack functional sovereignty over the terms of those umbrella treaties and subordinated agreements. That disconcertion will extend to strategic political and economic support that China allegedly provides to its outbound SOEs and state-controlled investors engaged in infrastructure projects in target states. Accusers will claim that China aids its state “agents” to transgress the national security of vulnerable target states; to unfairly advantage China and its outbound investors in securing access to their markets; and to gain advantage illegitimately and anticompetitively, to the detriment of those states and their citizens. Critics will point out that developing states will accept China’s economic and legally imposed authority, not unreservedly, but as supplicants to its political influence. China’s detractors will depict it as a twenty-first century exemplar of a twelfth-century feudal overlord, devising BRI principles and laws of application to which they are subordinated. They will portray China’s economic and political incentives to provide an “open and inclusive” BRI, impelled by “the guiding principles of the peaceful coexistence of sovereign states, achieved through multiple types of increased connectivity and financed by new multilateral financial instruments,” as misleading.
Detractors will depict China’s expansionist agenda as reactive, not proactive, to the liberal foundations of global trade and investment propagated over the last century. They will claim that it incrementally modifies the liberal global trade and investment order in its own image instead of radically displacing it. They will contend that President Xi Jinping’s June 2021 address primarily sought to cement its global economic supremacy both functionally and legally, only secondarily fostering multilateral BRI collaboration.
In mounting these critiques, they will bypass China’s economic reliance on the BRI and on transnational goodwill in constructing it. They will askew China’s modification of its BRI strategies according to its changing local, regional, and worldwide strategies and their disparate interpretation and implementation by Chinese officials. They will depict China as employing multifaceted means to accomplish introspective ends, and doing so in solitary isolation more than through mutually brokered and legitimate agreements.
The greatest threat to China’s BRI does not lie in widely espoused fears that its centrally planned domestic economy will be incanted into a China-centric and globally planned economy. Nor does it lie in the paramount danger that the failure of legitimate international competition over infrastructure development will materialize. The largest obstacle to China’s vibrant BRI lies in economic pressure on it to downscale its infrastructure expenditures, to support its struggling domestic industries, to fund retirement and pension schemes across its aging population, and to rebuild its foreign currency reserves. Are the costs to China of walls of “hard connectivity infrastructure,” such as airports, bridges, highways, railways, and seaports, “too high”? Should China scale down these expenses and more selectively pursue financial priorities that are shielded by legal umbrellas? These economic tensions transcend China’s commitment to a planned market ideology and the legal regime that supports it. They also prevail over competition from a post-liberal economic order that is under siege from its own once-luminescent protagonists. The extent to which competing investor-states will consider these costs to China as reasons to scale down their ambitious outbound infrastructure and construction ventures is comparably significant.
The following section evaluates the hurdles faced by China and its outbound investors in maintaining BRI projects across Asia, notably arising from domestic competition for China’s financial resources.
III. China’s Regional BRI Threats
China’s economic ascent and FDI growth since the 1990s have halted, particularly over the last decade. Strains on China’s foreign exchange reserves reflect a substantial decline in its resources for regional development. Illustratively, China’s foreign exchange reserves fell from $4 trillion in 2014 to $3 trillion in 2018. In response to these declines, China reallocated its scarce holdings, reshaped its geostrategic goals, and slowed down regional infrastructure projects. China also reduced the accelerated expansion of its BRI investments over the last decade, until at least late 2020; it then expanded its FDI, after its seemingly expeditious, but still uncertain, recovery from COVID-19.
Contemporaneously with China’s rethinking of its infrastructure commitments in the region, recipient states have demonstrated varying degrees of reluctance in continuing to participate in BRI partnerships with China and disquiet in initiating new ones. In determining whether to enter or maintain BRI agreements with China, these states have reassessed the likelihood of having to retreat from initiatives due to competing demands on both their own and China’s financial reserves.
Comparable (but not identical) concerns have arisen due to the economic and legal sequela of the pandemic. China and its partner states face increasing hurdles to BRI expansion due to trade conflict and the redeployment of project resources. Accentuating these hurdles is defaulting state parties and their investors resorting to excuses from performance based on their inability to reasonably foresee, avert, or mitigate those disruptions. Another prospect is that the economic fallout of COVID-19 will be greater along the BRI on account of the cumulative impact of legislated trade sanctions imposed upon China and localized demands for its reserves. How long and intense this impact is likely to be on China and its BRI partners will hinge on shifting global investment patterns and competing resource requirements.
The reluctance of China’s BRI partner states in Asia to initiate or maintain infrastructure initiatives due to massive debts incurred in sustaining ambitious infrastructure projects precedes COVID-19. Malaysia “cancelled two mega BRI projects in 2020, including a $20 billion railway, citing high costs.” The Pakistani government called for a review of the tiara of China’s BRI, the China-Pakistan Economic Corridor, which China had undertaken to fund in excess of $60 billion. Myanmar expressed its unwillingness to permit the construction of a suspended China-supported hydropower dam. The Maldives highlighted its trepidation over financial vulnerabilities that threatened BRI construction projects there. The Maldives also sought to ameliorate the paralyzing costs constituting two-thirds of its national domestic product by seeking to renegotiate a crippling $3 billion debt arising from the construction of a bridge along China’s BRI.
An ongoing impediment to China enhancing its BRI infrastructure in Asia is long-standing regional competition, not only from other states in Asia, but also from non-Asian states investing in Asia. Japan and the EU have both established beachhead infrastructure and construction partnerships in Asia. In 2019, Japan and the EU announced a joint fund to expand joint Asian and European infrastructure projects. Their EU-Asia “connectivity plan” includes financial backing of 60 billion euros ($69,516,000) in guaranteed EU funds and investments from development banks and private investors. In establishing this joint fund, Japan and the EU signed an agreement to coordinate and transport energy and digital projects linking Europe and Asia. Regional and international collaboration on infrastructure spending also comprises Australia, Japan, and the United States’ proposal to build an Indo-Pacific road in Papua New Guinea. China faces further infrastructure competition from South Korea, Singapore, and the United Arab Emirates, notably from construction ventures in Asia.
Infrastructure spending across Asia is also envisaged as growing exponentially, estimated to be $26 trillion between 2016 and 2030. For reference, Japan’s increased expenditures on developing infrastructure projects in Asia is estimated to be $46 billion between 2005 and 2016. Facilitated by the Japan International Cooperation Agency (JICA), Japan has contributed significantly to the Asian Development Bank in funding corridor projects in Southeast and Central Asia. Japan’s official development assistance (ODA) dramatically increased aid to Vietnam, Myanmar, and Indonesia between 2006 and 2015, even though its ODA to Thailand, the Philippines, and Malaysia declined during that period. In 2016, Vietnam received forty-six percent of Japan’s ODA, while Myanmar and Indonesia each received twelve percent.
These infrastructure investments in Asia comprise competition for China’s regional BRI programs. But the nature of that competition is likely to hinge significantly on the purposes of investor-states in Asia, such as to secure spillover access to selected destination markets in the longer term. Destination states will pursue BRI to finance otherwise unaffordable projects, to secure infrastructure expertise, and to open the door to investment opportunities domestically, regionally, and globally.
Measuring infrastructure costs will be a significant challenge for both investor and destination states. Project risk assessments will include analyzing the economic, political, and legal risks in sustaining the proposed BRI project; predicting otherwise “hidden” project costs, such as civil insurrection in destination states; and measuring the cost of error in calculating these risks and counterbalancing benefits. It will also include the legal costs incurred in resolving inter-state disputes and the costs of defending against claims brought by local and foreign investors. Investor-states will also engage in a cost-profit assessment based, inter alia, on the destination state’s stage of development and the opportunity cost of foregoing investing elsewhere. The destination state’s cost-profit assessment will entail balancing the profitability of the inbound investment against the opportunity cost of not securing an alternative investor-state. A cost for both investor and destination states will be in foregoing the localization of investment. These costs will significantly impact the ability of destination states and their investors to secure infrastructure finance to fund projects, such as that from the Asian Infrastructure Investment Bank.
Competition among investor-states for entry into destination markets is likely to be accompanied by concomitant efforts to corrode other entries into destination markets. Such efforts to dislodge and supplant competitor states, not limited to China, are likely to grow as destination markets become crowded. This competition is already evident, as the EU reportedly plans to launch an alternative infrastructure road to China’s Belt and Road with different strategic points of entry into destination markets.
Uncertainty over the nature of competitive and legitimate entry into destination markets is likely to be accentuated by China’s shifting conception of its BRI and by the fact that infrastructure travel along it is too dispersed and changeable in operation to be effectively managed and legally challenged. Coupled with these doubts is China’s divergent rendition of its BRI at work, complicated by “what may appear to be contradictory directions of development.” These contradictory directions reflect China’s push towards networked capitalism on the one hand and its historical focus on preserving a centrally planned BRI on the other.
IV. Will China’s BRI Die?
Competitive infrastructure projects in Asia do not indicate the downfall of China’s BRI. Neither competition from European and American states nor resistance to BRI from other Asian states such as Japan, Singapore, and South Korea is likely to displace China’s already formidable foothold in infrastructure investment in Asia. Nor are these inroads likely to dislodge China’s influence over its outbound investors or their ascendancy within BRI states in the intermediate term.
Understandably, the economic downturn that ravaged China’s economy over the last decade abated in the second half of 2020, while multiple state economies in the liberal West began to recede. But worldwide financial retrenchment and insolvencies are likely to continue, with China resolutely responding to economic setbacks in its outbound investments across Asia and beyond. China’s resoluteness is also likely to grow in response to claims brought against it by states before the WTO and by investors invoking investor-state dispute settlement (ISDS) claims under bilateral and regional treaties.
Belt and Road skeptics have raised a lingering question that remains valid only in part: “Will China let its Belt and Road die quietly?” States that have avoided joining this pathway have done so more by recalcitrance than by explicit action. Their hesitation has also consisted of short-term measures to reduce the maintenance costs of immediate BRI projects, rather than complete abandonment of the Road. Some partner states have walked away from specific BRI projects quietly, citing other reasons for their recalcitrance. Others have stayed their course. Yet those that have stayed their course or are contemplating BIT projects are fearful that China will shift its resources to consolidate its financial reserves for largely domestic or other preferred outbound purposes at their expense. Prospective partner states are also materially apprehensive of becoming economically dependent upon BRI projects and having China desert them without adequate alternative resources, expertise, and confidence to maintain those projects. These responses have taken place primarily under volatile and unstable market conditions, as outlined above, and do not represent responses under improved conditions of access to domestic investment markets. Further reinforcing the fears of partner states is their vulnerability—along with the exposure of their key domestic industries—to legal excuses from performance, invoked by inbound Belt and Road investors on the grounds of the allegedly unforeseen sequelae of COVID-19.
China’s reactions to vacillation over states joining or maintaining BRI projects with it or its outbound investors are likely to vary across states. China is unlikely to demand the maintenance of inefficient joint projects. Any such insistency is more likely to be temporary and selective, based on anticipated profits in the longer term and preservation of political alliances. China will also avoid creating undue pressure to rekindle discrete BRI initiatives that are floundering or are likely to flounder should China fail to resuscitate them effectively. Arguably, if China envisages that BRI projects will endure a low quality of life, it will retreat selectively from BRI ventures it regards as unprofitable while supporting those that better satisfy its strategic economic objectives. It will provide short term financial aid for longer term gain and facilitate further institutional support through avenues such as the offices of the Asian Infrastructure Development Bank. It will do so legally in accordance with escape hatches in its treaties and contracts that enable it to retreat for reasons such as COVID-19, which created disruptions that arose beyond China and its outbound investors’ reasonable control.
These observations about China’s tenacity in pursuing its BRI do not deny continuing interruptions along that Belt and Road. China’s economy retreated several years before the onset of the pandemic and partially recovered in late 2020. The extent of the BRI’s revitalization and continuation since then are still uncertain. Nor is it evident to what degree China can rely on the collaboration of its partner states to sustain growth of the BRI bilaterally, regionally, and globally.
More contentious is whether China’s BRI will prevail over rival roads, which the OECD and EU conceive as eventualizing. On one side are competitor states and regions seeking front stage in global infrastructure development, such as the United States, Japan, and the EU’s Global Gateway; on the other side is China’s BRI, which is evolving into an unchartered form of globalization under leadership that is unlikely to remain static.
Also contentious is whether investor states, in vying for an economic advantage, will herald a politicized pathway to global bipolarization, economic instability, and legal disequilibrium. From a liberalized perspective, the availability of partnering choices will accentuate a free market in international investment in which investor and target states will seek a mutually profitable outcome. From a critical perspective, the pathway will be constrained by the perception of dominant investment states, such as China and the United States and their supplicant target states. At issue are the important collateral consequences of carving loyalty benchmarks among developing states: Will those with access to competing trade and investment pathways take sides between dominant investor states, go with the flow of ascending opportunities presented to them, or withdraw into quasi-feudal isolation? If developing states take sides between investor states based on economic and political insecurity, fear, or intimidation, will this herald a protracted relapse into economic polarization? Will such withdrawals be marked by allegations of anti-competitive and illegal conduct, coupled with violations of international law and public policy? Will the impact of such allegations be accentuated when coupled with pandemic-related trade wars?
China will likely assess some of these risks quantitatively, including in response to the costs of market dysfunctionality. China will meticulously monitor its strategic BRI growth achievements, both socially and politically, by evaluating its capacity to meet BRI infrastructure profit targets; assess dislocating and competitive market forces; and measure the cost and rate of its BRI progression along its Silk Road. China will also calculate the legal risks in it denying investor protections to inbound investors and the costs to its outbound investors in proceeding against BRI host states. These quantitative assessments will engulf China in a vexing contest between opening ideological doors to enhance investment opportunities for foreign states and not opening them so widely as to marginalize domestic social development. China will also have difficulties reconciling its BRI priorities among states with disparate economic and political ideologies that are travelling along a pathway whose desirable direction they construe differently.
Promoting economic integration for mutual benefit will remain telling, but achieving it will be functionally unwieldy. Expressed as an idealization, if China is to promote a lasting BRI insight, cross-state collaboration will inexorably prevail over intractable self-direction. If China’s “BRI is intended to radically increase investment and integration along a series of land and maritime routes . . . cooperation between many different markets is essential to its success.” Failing to collaborate with foreign entities will widen the doors to China’s economic regression and, selectively, to those of partner states.
Conceived as a paradigm shift from collaboration to polarization in a destabilized global order, achieving cross-state cooperation along a BRI traversing “many different markets” is likely to be ever more challenging for China. Reprisal-driven turbulence in trade and investment will further undermine the prospect of extended economic integration. That turbulence is also likely to protract reputational damage to China in a media-dominated post-liberal world order, accentuated by a mass communication fixation, indeed, frenzy. The ideal means by which to counter that image will be for China to resort to a comparable media flurry. But the fallout from reciprocal image bashing and legal confrontation is likely to cause more economic harm to BRI states that are closer to the poverty datum line than well-resourced states employing retributive trade exchanges. Nor is there any compelling rationale to insist that China will unilaterally redirect its BRI projects away from those partnerships in response to such retribution or avoid becoming embroiled in ensuing legal conflict. It is rather the contrary. China well appreciates that expanding its BRI will hinge appreciably on nurturing those partnerships in response to market erosion wrought by state forces that exacerbate recessions.
For BRI defenders, China’s proliferating global roadway across jurisdictions will be “the story of the century.” To operate and oversee a diffuse and multifaceted BRI, China will adopt distinctive trade and investment treaties and contracts with different types of partners. If the BRI fails to deliver these integrative and collaborative ends, it will be envisaged as a source of misdirection, dislocation, and, at worst, subterfuge.
In determining how to refine its BRI pathway, China will inevitably factor in alternative investment roadways being built across Asia and beyond, even as it strategically ramps up its own infrastructure programs. It will also be cognizant of the reluctance of some Asian states to commit to ambitious BRI projects. Its immediate objectives will be markedly tactical: China will need to convince its existing and prospective BRI partners of the economic advantages to joining the BRI, as well as its capacity to deliver the project with their cooperation. By some measure, China will progress its strategic BRI objectives in response to both advancing and regressing alliances, cognizant of the incompatible demands on its financial reserves and strategic shifts in managing those alliances. China will do so within a BRI framework built around treaties and contracts that protect it from undue exposure to legal risks while promoting reciprocal legal protection for treaty partner states.
China will also need to offset the strident attack that it will use “BRI” as a deceptive buzzword to achieve totalitarian ends, disguising it as dialogue among states. China has a credible defense to this indictment. The notion that its BRI is evolving according to a secret and centralized plan that will disguise it within a falsely dialectic framework is contentious at best. It is one thing to ascribe to China a pervasively inward-looking policy approach to govern a centrally planned economy, but it is another to attribute to China a comparably planned agenda within a multifaceted investment framework, in which it engages with a plurality of states.
Still, China cannot be impervious to the diffuse reactions of partner states to its realignment of BRI projects across destination markets. Nor can it reallocate its financial reserves to redress domestic shortfalls while confidently reassuring trade partners that it will resource a plethora of ambitious pathways for their individual and collective benefits. Potential partners are also not likely to accept China’s assurances that they will share in a profitable BRI without being informed about the impact of its fluctuating resource base upon them. Contrarily, China will not be motivated to disclose financial obstacles that reinforce potential partners’ misgivings about its capacity to nurture a checkered BRI pathway.
Whether and how China will maintain, align, realign, suspend, or terminate existing BRI projects will hinge upon its cost-benefit assessment of cooperating with its BRI partners. When it will deliver a collaborative BRI roadmap will depend on its appraisal of the efficient, profitable, and politically astute timing on which to initiate and modify its infrastructure project plans. How it demonstrates its BRI’s functionality will depend on its capacity and willingness to transform its image as an authoritarian state into one of shared leadership in which participating states traverse a winding road and divergent belt. How willing it is to take on market risks in maintaining BRI projects will depend on its confidence that partner states will disclose localized economic and legal risks, such as impending bankruptcies. These issues are discussed below.
V. BRI Advance or Retreat?
China has a long history of political adroitness in extending, consolidating, and enriching its Silk Road in response to market setbacks. It has also withdrawn from BRI schemes unilaterally and to the consternation of its BRI partners. But the extent to which it has done so is varied. China’s BRI is not destined to spiral ever upwards and never retreat; investment expansion has seldom operated linearly, whether in the heyday of Western colonialism, in times of warfare, or in response to drastic upheavals in global infrastructure markets. The competition between China and neoliberal Western states over investment opportunities in Asia is also not unique. Tensions between dominant and subservient states have a lengthy history dating back to well before China’s incarnation as a monolithic groundbreaker across the modern international economic order.
Nor is a transborder trade route allegedly polarized between interstate collaboration and dictatorial fiat peculiar to China’s BRI. The concept of the authoritarian state has a lengthy history well preceding the modern socialist state. China’s portrayal of its BRI is distinct: If it is depicted as modeling its BRI on a planned national model, it will be accused of resisting sovereignty association with other states, upon which some states will insist. If it is depicted as adopting a piecemeal, wait-and-see approach in modifying the direction of its BRI, it will be denigrated for failing to demonstrate global leadership and inadequately supporting its BRI partners and investors. If it is depicted as framing its BRI on a free market model, it will be portrayed as adopting collaborative measures to initiate partnership, only to take unilateral control over them after inception. Illustratively, China-skeptics will accuse it of employing non-binding “soft law,” such as Memoranda of Agreements, to simulate BRI collaboration and disguise its control over construction projects. China will be perceived as using “hard core” mechanisms to cement its authority to police the BRI by stipulating that BRI disputes be heard by its recently constituted International Commercial Court. It will also be perceived as using “hard law” negatively by excluding “soft law” mediation from its investment treaties as a condition for settling investment disputes. By the aforementioned and other related means, China will be depicted as engraining its authority over the nature, form, size, direction, and maintenance of the BRI, along with the right of both partner states and foreign investors to pass along it. It will do so through investment contracts mirroring umbrella clauses in investment treaties that determine the authority of treaty states and investor protections in China’s image.
If China is viewed as designing the BRI unilaterally, it will be accused of orchestrating a take-it-or-leave-it transnational pathway. If it is depicted as normalizing, rather than reordering, the neo-liberal investment order, it will be portrayed as ignoring its own colonial history and replicating the ills of developed Western liberal states. If it diverges from liberal investment treaties, it will be challenged for undermining the value of a free market along the BRI. If it builds a two-path BRI, one for developing states and another for developed states, it will be blamed for providing an open BRI to developed states and an authoritarian BRI to developing states. It will also be depicted as extending rule of law protections by treaty and contract to developed states and their investors but not providing comparable protections to developing states and their investors. Not only will divergence over China perpetuating a neo-liberal international legal order in a post-liberal economic era be in contention, but its role in accentuating that divergence will be as well.
If China is to heed these criticisms while exhibiting insularity to the investment directions favored by others, it is unlikely to retain a fruitful BRI. As a result, its BRI planning with state partners and foreign entities will be both multidirectional and interdependent. It will frame its transborder roads and ancillary pathways in recognition of the support or resistance of prospective BRI states to its architectural designs. Its redesign will be tempered by lessons learned as a supplicant along trade pathways operated by more powerful states. It is unlikely to be a voyeur watching from the sidelines as competitor states orchestrate alternative pathways.
The evolution of China’s BRI is readily portrayed through two competing images: One depiction is of China resurrecting its ancient Silk Road while the other is of it replicating road networks built by Western liberal states through their colonial states. The disparity, and eventual polarity, between these two images is addressed below.
VI. China’s Ascent as a BRI Superpower
The speed of China’s direct outbound investment has been extraordinary by any historical measure and is ostensibly unstoppable. Its meteoric regional and global ascent as an outbound BRI powerhouse is epitomized by President Xi Jinping’s launch of China’s new Silk Road in 2013. His pronouncements are affirmed by China’s dynamic and continuing outbound investment across East Asia, Africa, Latin America, and, more recently, Europe.
In facilitating the growth of infrastructure projects, China has expanded markets for its goods and services along an assorted belt strewn with bridges, ports, harbors, and airports. It has energized its domestic economy by boosting outbound trade and investment in developing BRI partner states. It has begun to secure reciprocal benefits by attracting investments from those developing economies into China.
The once-adverse depiction of China as an inward-looking militaristic construct of Communist Party Chairman, Mao Tse Tung, in 1949 has shifted perceptibly to an outward-looking empire engaged effectively in the global trade and investment market, which was previously reserved for Western liberal states. In ascending into a modern BRI superpower in three decades, China has enjoyed center stage along an economic zone extending well beyond its semi-autonomous administrative territories in Hong Kong and Macau. It has exemplified its economic ascendancy across legally designed special economic zones with disparate financial systems and performance capabilities. Its economic ascendancy is also demonstrable in much of the Asia-Pacific and beyond. Its SOEs and sovereign wealth funds have established investment beachheads in the EU. The once-militaristic portrayal of China as imposing bilateral and regional trade and investment agreements upon partner states and denying protections to inbound investors of partner states has receded.
But not all perceptions have changed: The image of China tenaciously protecting itself from inbound investors from the West is now replaced by the image of it as a de facto landlord imperializing vassal protectorates by legal fiat or in derogation of the law. China is depicted as voraciously exerting its political and legal influence and extracting economic control veiled as aid and sponsorship. China is also depicted as constructing a new empire based on patronage and embellished by China and its investors acting as ardent missionaries conquering through kindness. Such kindness is perceived, at its worst, as self-serving.
Still, the West’s portrayal of China as a modern colonializing empire being built on the backs of states seeking to exit economic ground zero and move to altitudes of economic survivability is not novel. It is a recapitulation of colonialization through trade and investment by seventeenth, eighteenth, and nineteenth-century European expansionism into the early developing world. China’s stature as a preeminent investor-state has similarities to the reliance of impoverished dependencies upon great powers of the West.
The inauspicious but contentious depiction of today’s China imposing its authority by fiat upon impoverished dependencies is a modified narrative based on an old story of European colonization commencing in the seventeenth century and moving east into Asia. China’s progression from economic supplication to colonial overlord and now global superpower is part of a reformulated narrative written significantly by China. This narrative of China’s subordinated colonial past and its alleged transformation of the BRI into its colonial future is discussed below.
VII. China’s History Along an Under Path
The narrative that China and its outbound investors today are perpetuating disparate economic growth across states is an accusatory backflip of the indictment that powerful liberal states aggrandized their fiscus in centuries past at the expense of developing states, including China. In asserting its BRI leadership by legal command, China is depicted as replicating the long-standing economic expansionism practiced by the West but under its new BRI banner.
Disquiet that China is using “gunboat diplomacy” to extend its BRI internationally is conceivably comparable to the intrusive “gunboat diplomacy” imputed to imperialist Western states in orchestrating transregional mercantile traffic from the seventeenth century to the twentieth century. Dominant colonial powers transformed treaties of friendship into instruments by which they enhanced their global investments through the colonial worlds that they controlled. Using the illusory image of “Treaties of Friendship, Commerce and Navigation,” they created belts and roads through diplomacy by subordination. By these means, the “old world” British empire extended its investment beachheads into its “new world” dependencies, China being one targeted lodgment.
China’s subordination of Hong Kong today is arguably a modified narrative based on China’s cession of Hong Kong to Britain as its conquering overlord in the mid-nineteenth century. What commenced in the seventeenth century as the profitable acquisition of tea, silk, and porcelain by England’s East India Company from China to sell to customers along England’s expansive trade routes grew into the hostile wresting of control over those exotica from China. Conceived loosely as Britain’s dictatorial overlordship of a colonial trade belt, it arguably exploited local markets, coercing the movement of exotic goods from China to Britain’s domestic markets, as well as those of its allies.
The first “opium war” between Britain and China occurred from 1839 to 1842 and was attributed to Britain’s despotic reaction to the Qing Dynasty’s destruction of opium fields in response to the domestic opium addiction in China. The ensuing conflict was construed as Britain’s means of ensuring the reopening of opium fields in what was then China to reinstate its opium supply to lucrative opium markets. In the ensuing “peace” agreement, the Chinese emperor paid millions of pounds to compensate Britain for trade and investment losses arising from the destruction of opium fields. China’s Qing Dynasty also provided Britain with access to its previously forbidden trading ports. Importantly, China surrendered Hong Kong to Great Britain in 1841, as embodied in the 1842 Treaty of Nanking.
Much has changed in the time between the 1842 Treaty of Nanking and the effective 1997 Joint Declaration through which Great Britain returned Hong Kong to China. Unlike the military confrontation that forced China to cede Hong Kong to Britain in 1841, the reversion of Hong Kong to China in 1997 was the product of neither war nor embargo. The agreement was perceived, in part, as restoring Hong Kong to China while preserving Hong Kong as a free trade area. In reconciling these ends, Hong Kong became a special administrative region within China but retained its legal system for an initial period of fifty years. The expectation was that Hong Kong would preserve its preeminence as an international trade and investment hub while also being a part of China.
The adverse perception today is that China abused its mandate over Hong Kong. Having commenced its direct control over Hong Kong in 2019, China is condemned for undermining Hong Kong’s status as an administrative region and suppressing the people’s freedoms of expression and association under Hong Kong law. In applying its security law to Hong Kong in July 2021, China allegedly trammeled the rule of law there and contravened international law. Conceived also as a threat to FDI stability, the unease is that China is progressively directing trade flows into and out of Hong Kong on over-extended national security grounds. The depiction of China incrementally threatening the security of global trade and investment is under a crucible, expanding from its administrative territories to contiguous states and from the South China Sea to sovereign domains beyond. So conceived, China’s BRI is painted glaringly as an instrument of planetary dominance and pervasive control disguised as a mercantile path for trade in Chinese goods and services.
Western governments, in reacting for reasons beyond those identified here, have imposed trade sanctions and other restrictions selectively on Chinese imports and outbound investments. China has responded that these antagonists are abusing their powers under international law and attempting to subvert its sovereign authority. Illustrating its claim, China has asserted that the United Kingdom’s offer to grant citizenship to Hong Kong residents constitutes gross interference in China’s internal affairs and violates its sovereignty, including under international law.
Western governments have reacted by portraying China’s subversion of democratic freedom in Hong Kong as a threat to global order. The inference is that, if China is able to sublimate human rights and the freedoms of expression and association in Hong Kong, it will manifest comparable repression over states that, while not part of China, are economically dependent upon it. In essence, China’s treatment of Hong Kong is perceived as an early warning signal of it extending its regulatory pathway beyond a made-at-home road and undemocratically applying China-made rules-of-the-road to states outside its sovereign domain. However debatable these forecasts of global economic destruction at the hands of China are, they are perceived to be imminent as a matter of action and reaction. Therefore, they are real.
Coupled with the perceived global threat posed by a China-imposed BRI is the perceived legal threat of unforeseen pandemic-impelled circumstances arising beyond the control of target states and, ultimately, the BRI itself. This threat, loosely attributed to force majeure (greater force), is discussed below.
VIII. The Threat of Force Majeure
A central threat to BRI expansion is whether, how, and to what extent an anticipated post-pandemic recession is likely to impact the sustainability of BRI operations. That continuity will depend upon the financial vulnerability of BRI partner states and other entities engaged in cross-border infrastructure and construction. Whether partner states will distance themselves from BRI projects they perceive as no longer being profitable or affordable because their state-controlled or private entities will have difficulty performing BRI obligations timeously, completely, or at all will be especially telling. The central rationale for host governments and their investors seeking performance relief under law will be disruptions arising, directly or indirectly, from COVID-19 that were not reasonably foreseen, able to be averted, or capable of being reasonably mitigated. These disruptions leading to legal excuses or relief from performance will range from recessionary forces to attendant financial shortfalls. They will extend to interruptions in supply lines, less access to qualified personnel, government restrictions on travel, and distancing workplace requirements. Included too will be restrictions on peoples’ movements, such as the denial of worker entry permits and controlled transportation of goods by land, sea, and air. Operating beyond these interventions will be their impact upon performance obligations provided for by contract, as well as upon the duration and degree that they disrupt such performance.
An obstacle to relying on such performance adjustments is that they ordinarily eventuate after a long-term BRI project has commenced, and the extent of the adjustment, if any, is often uncertain until it is authoritatively determined. One response to this uncertainty is the official issuance of a certificate of force majeure that determines the nature and extent of an excuse from, or adjustment in, performance, so long as the applicant complies with the guidelines governing its issuance. An obstacle to the use of such certificates is that, while China grants them, other states along the BRI ordinarily do not; certificates of force majeure are predominantly China-made and not the product of cross-border agreements among BRI states.
Should a certificate of force majeure be unavailable or challenged, the grant of relief from BRI performance will ordinarily depend on the choice of law specified under the applicable international arbitration act or contract. The judicial or arbitral determination that an unforeseen event arose beyond the BRI party’s control will depend somewhat on whether such party seeking performance relief could reasonably have limited the deleterious impact of the intervening contingency, such as the effect of factory workplace distancing in response to a spike in COVID-19 infections. Much will depend on how the applicable treaty or contract provides for such an eventuality and how the court or arbitrator construes the applicable law, such as in determining whether to grant an adjustment in the price or terms of delivery.
One defense to performance relief is that performance disruptions and their sequelae associated with the pandemic will become more foreseeable and within the control of the obligated BRI over time. In effect, they are likely to determine that BRI home states and domestic contractors should have reasonably prepared for performance adjustments in anticipation of cost increases and delays arising from increasingly widely recognized COVID-19 risks.
Developing host states and their domestic contractors will likely argue that Chinese inbound investors are relatively better resourced to sustain the recessionary sequelae of the pandemic upon their performance. They are also likely to argue that performance excuses from Chinese investors ought to be limited due to their dependence upon the resources and expertise of those investors in financing, managing long-term infrastructure projects, and sustaining performance losses attributable to COVID-19.
Providing for force majeure by treaty or contract in tumultuous times is, nevertheless, not assured, particularly in negotiating and drafting performance relief provisions between developing states and deeper-pocket and better-resourced Chinese inbound investors. Whether performance relief is granted will also depend on their respective bargaining powers, and, if that provision is ambiguous or incomplete, how the applicable law of impossibility or economic impracticability will apply. Much will depend on the ability to resolve disputes over contract and treaty performance relief along the BRI in a post-pandemic era, given both the regulatory diversity of domestic laws and the fragmentation of international law concerning COVID-related threats to performance. Much will hinge, too, on transnational policy responses to the post-pandemic era, such as on the OECD’s policy statement on the impact of COVID-19 on the regulation of public procurement contracts and infrastructure governance.
IX. The Road Ahead
China’s economic recovery from the economic exigencies of the pandemic by late 2020 was achieved through growing reserves, imports, and exports, and it more than offset its economic decline earlier that year. But the epoch of COVID-19 continues to have an inexorably negative impact on the stability of the global economy, to which China’s strategic BRI planning is not immune.
Beyond China’s perceived use of the BRI to secure trade and investment paramountcy globally, China faces home-based threats to its economic empire that are formidable, despite President Xi Jinping’s 2021 enunciation of an extended BRI. Among these threats are the far-reaching implications of China’s falling reserves, at least until late 2020. These factors have caused China to rethink aspects of its BRI outreach programs. Some of its state partners have abandoned BRI projects for that reason, coupled with their own financial barriers.
China is, nevertheless, still perceived as the lifeblood of infrastructure projects along an already extended BRI. The expeditious recovery of its economy in late 2020 will enable it to revert to its earlier status as a welcoming sponsor and facilitator of infrastructure projects, such as the construction of schools, hospitals, roads, bridges, and dams. In promoting outbound investment in its treaty partner states in Africa, Asia, and Latin America, China has the further opportunity to contribute to sustained economic development.
But while the range and number of BRI opportunities is extensive, China’s initiation of regional infrastructure projects in Asia, just as in Africa, is offset by inbound markets that are economically underdeveloped, limited by destabilized institutional systems, and subject to asymmetrical regulation. Legal and regulatory inconsistencies across BRI states and substandard credit markets have further complicated efforts by Chinese investors to deliver infrastructure projects in destination states.
China is attempting to offset its costs in front-loaded investments in developing states with more immediately profitable relationships with developed states and the EU. It has also adopted bifurcated measures to manage disparate investor-state relationships, such as in collaboration with non-state parties that have divergent management capabilities to suit the discrete requirements of specific projects. Advancing such state-to-state and investor-state relationships is embodied in the guiding principles of “Peace and Cooperation,” “Openness and Inclusiveness,” and “Mutual Learning” underlying the modernization of the Silk Road. The challenge in applying these guiding principles is to balance the costs of short-term aid along developing roads against the profits derived from more lucrative developed roads. Added to this challenge are the shifting objectives of developed BRI partners, typified by the EU, which is both economically resourced to manage its own Global Gateway and politically motivated to sustain it. How China will balance aid-for-trade, such as in Africa, with trade-for-profit is, therefore, complicated by the unreliability of developed partnerships.
China also faces delicate choices between promoting outbound BRI and protecting its domestic economy without regressing into protectionism. One tradeoff is for China to reduce the scope of outbound BRI to support its growing elderly population through subsidized living, medical expenses, and pension schemes. A related setoff is for it to stimulate financially strained domestic sectors, such as property markets, to ameliorate the destabilizing economic and legal impact of the insolvency of Evergrande, the property giant.
China’s directional BRI shifts are not without formidable obstacles. China has to resurrect its infrastructure development along the Silk Road, which is more protracted, expansive, and divergent than its precursor was even a decade ago. But it also needs to stimulate economic integration with countries whose strategic economic and political objectives are likely to deviate from their earlier pathways. If China is to choreograph a modified pathway, its BRI partners need to be comfortable following it. If it is to maintain their cooperation, it needs to engage their disparate inputs and reactions to proposed BRI modifications. China’s partner states, in turn, need to accommodate its chorographic and redesign plans included in regulating the BRI. The strategy of promoting a collaborative BRI dialogue by shared means and for shared ends is highlighted in President Xi Jinping’s oration before the United Nations in September 2021.
The proposition that China will redesign its BRI roadmap to allay multiple challenges along that road is hyperbolic. At the same time, material challenges to its BRI routing are daunting. The devastating impact of health threats arising from COVID-19 and the “road rage” associated with trade sanctions remain difficult to predict and for China to remediate adequately or timeously. However foreseeable these risks are in general, China’s challenge is to anticipate when these disruptions will occur, how they will evolve along the BRI, to what extent their devastation is, and what its capacity to avert and limit them both functionally and by operation of law is.
In the sequel to the COVID-19 outbreak, China is almost certain to rethink its allocation of funds to BRI infrastructure projects. Its partner states are also likely to reconsider their participation in projects that call upon them to contribute funds and to assume financial and legal risks. These concerns are realistic, both economically and politically, in the wake of a global health crisis whose economic consequences are both significant and continuing. If those states identify a correlation between the BRI and their economic vulnerability arising from it, they are likely to resort to global roads that better suit safe travel.
It is unlikely that China’s cherished Belt and Road ambition to achieve global leadership will recede in the face of such deglobalization. China has too much to lose, politically and economically, to walk away from what it has accomplished. States that are economically dependent on China also have too much at stake to make a full break from its economic sphere of influence. It is more likely that China will become less audacious, and more conciliatory, in advancing its worldwide economic ambitions. For pessimists, China’s advancing “economic crash” will lead to “global depression.” For optimists, its economic ascent will be tempered by a collaborative side path that will “shape China’s push for global power.”
China’s appeal to the optimists will also require strategic redesign of critical features of its historical BRI. Critical among these will be its redesign of state-owned enterprises into private entities, as distinct from state-controlled entities. The material requirement will be for these enterprises to be transparent and accountable in their design and efficient in operation within competitive global markets in infrastructure. A testing quality of their inclusivity in the private sector will be how seamlessly they can be transformed from state-owned and controlled entities into sustained contributors to a dynamic market domain. Satisfying these requirements will be an ongoing management test for China to demonstrate its commitment to self-directed, as distinct from state-directed, outbound investment. Its formidable challenge will be to demonstrate its grant of autonomy to outbound Chinese companies both by legal divestiture and in their operational independence.
X. Conclusion
The future of China’s BRI remains speculative. The greatest threat to it is the retreat of participating states into isolationism more than their retreat to a competitor Belt or Road. Accelerating that threat is the visible movement of mutually self-interested states within the global village back to self-interested survivalism. Some will romance domestic isolationism on the presupposition that “made at home” solutions symbolize reliability, trust, and mistrust of selfdom within a hierarchical order of statehood in which China is dominant. The impelling force moving them “back into the past” will be grounded in preserving their sovereign autonomy through self-reliance, skepticism over the benefits of “good” neighborliness, and suspicion of investment dominance disguised as shared sovereignty.
Much of this asserted survivalism identified with states “moving back to the future” will imbed the location of “self” before “other.” The problem with this self-interested survivalism is in the trajected economic movement away from globalization to trenchant localization. Servitude to local investment overlords will undermine the focus of China’s BRI on investment pluralism with disparate partner states. It will exacerbate a shift away from vivification to vilification of the modern Silk Road. It will place China’s trade and investment outreach under the crucible of intense politicized and legal debate. This retreat into the sanctuary of domestication will also undermine the operability of competing global pathways, such as the EU’s Global Gateway. The purpose of the retreat will be secure seclusion from polarizing trade sanctions, debilitating tariff barriers, and investment restrictions. The intent will be to avoid being factionalized and fractionalized as perceived supplicants of dominant powers not limited to China.
This article has argued for a functional BRI based on mutual facilitation, in which participating states both reward the “self” and incentivize the “other.” The goal will be to achieve measurable performance targets beyond a dialectic on the merits of infrastructure collaboration across states. The functional and legal end will be a transition in the BRI dialectic from “the winner takes all” to “the winner shares all.”
