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- China’s Massive Belt and Road Initiative | Council on Foreign Relations
Contact H. Does China's Industrial Policy Work? September 26, July 12, June 24, In the News. Atlantic Council David A. May 21, May 14, February 19, December 10, Renewable Energy in Southeast Asia. BRI rhetoric is grandiose, yet vague. But the size of the Belt and Road is constantly changing to suit the context in which it is presented. Yet Chinese domestic officials often seek to promote the Belt and Road as a program of far greater size and grandeur, and they reach for the largest number they can justify.
Many of such fears focus on the Belt and Road as some form of geopolitical plot. Curiously, for Chinese observers, the Belt and Road is hardly a geopolitical plot. This is because the BRI is an economic program with some foreign-policy implications. It is not under the purview of China's foreign affairs apparatus or any leaders responsible for foreign affairs. This misalignment is what drives much of the pushback on the BRI.
This conclusion can be reached by looking at how the Belt and Road is organized internally. The decision makers that are assigned to a body indicate much about the purpose of that body. Where one sits is where one stands.
The head of foreign affairs is one of four vice-chairmen overseeing the BRI, rather than the head of the foreign affairs policy area— and he is outranked by the economic advisors. Figure 1 below describes these institutions. Figure 1: Central agencies involved in the Belt and Road. Regardless of what happens, for Chinese bureaucrats, the Belt and Road will always appear to be weaker than other areas within the Chinese system as Xi Jinping is not the head of the Leading Small Group LSG in charge of the area.
Moreover, and it is worth re-emphasizing, as there are no military representatives listed as attending BRI-related meetings, the only way that the military could influence the BRI would be by Xi becoming head of the LSG. Another way of ascertaining the importance of the BRI is to look at the documents that have been released to govern implementation of BRI policies. Xi Jinping has mentioned the Belt and Road at a number of Politburo study sessions  and in important speeches. What is missing, however, is authoritative collective guidance on the Belt and Road Initiative.
Finally, the government released a coordinated policy statement in March , even though it can be overridden by more than 20 other decrees. Yet it was only at the end of that a binding central decree on the Belt and Road was issued. Figure 2 below shows the order and timing of the official releases of Belt and Road information, arranged by rank of the issuing body. Figure 2: Official Belt and Road documentation released by the central bodies, — . As Figure 2 makes clear, the Belt and Road developed mainly through an array of government ministry plans and projects, attempting to flesh out the vague intentions from the top.
Note the lack of official party documentation to govern the BRI. As a comparison, let us examine the development of another signature policy, the anticorruption campaign. In Figure 3 the commitment of Xi Jinping and the party to the anticorruption campaign is clear. The many party documents provide a complete regulatory plan note the red squares. Figure 3: Official anticorruption documentation released by central bodies, — The Belt and Road is not a top-down masterplan with specific orders emanating from above.
Rather, various government ministries and departments rushed to access whatever capital became available. It is an unclear destination from which central ministries seek to access more funds. Into this void may leap the ministries, banks, and SOEs that are designated responsible for the BRI; any project can become a Belt and Road investment. The many actors involved, and their control over the staggering amounts of capital and resources including strategic directions by central state-owned enterprises and banks, some of which are the largest of their type in the world mean that notionally there are vast sums of money at the central level available for Belt and Road investments.
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However, investments to Belt and Road countries  fell in both and The Belt and Road is more attractive to SOEs than it is to private enterprises, as the former receive more credit to undertake Belt and Road projects. Yet this funding does not come from BRI banks; rather it comes from the policy banks  —at the end of 92 percent of BRI deals were backed by either the China Development, the Exim Bank, or one of the big four state banks, and only 8 percent were backed by the Silk Road Fund or the Asian Infrastructure Investment Bank. The Belt and Road has thus become a vehicle to fund projects rather than a way to advance a secret Chinese grand strategy.
This structure determines the internal critiques of the BRI. Indecision and inaction are more likely than criticism. China is struggling to develop its capacity to analyze the many countries regularly added to the Belt and Road. Hence internal critics of the Belt and Road tend to be critics of the inefficient industrial policy. The World Bank's "A Diagnostic Framework for Assessing Public Investment Management" outlines the essential features and necessary steps prior to embarking on the construction phase of an infrastructure project with public investment.
Award grants as needed to support states considering BRI projects to fund analysis of needs, viability, and factors relevant to decision-making and project design. PPF advisory contracts should be open to international firms and competitively bid on.
Host Country Capacity Host countries may lack the capacity, resources, or expertise necessary to evaluate projects. Create better alignment with host countries' needs. Bolster developers and host countries capacity to identify and navigate potential issues. Attract Private Capital Projects that undergo a comprehensive assessment have greater viability and credibility on the international market and facilitate international public and private participation. Rigorous assessment during the pre-project stage reduces the risk of failure and lowers project costs.
Make BRI standard contracts publicly available.
Project Quality The lack of consistency between contracts yields inconsistent approaches and outcomes. Reduce risk of delays and resulting costs. Establish standard dispute resolution procedure mitigating potential delays and costs.
Improve project oversight through the role of the engineering consultants. China's State Council adopted regulations requiring disclosure of major construction and other related information domestically.
Recommendation 4 Blended Financing for PPPs Use blended finance to ensure that BRI projects are commercially viable and can attract international private and public financing i. Chinese Government and Development Banks and Financing Institutions Use blended financing instruments, including investment grants, viability gap funding, technical assistance, loan guarantees, and publicly disclosed official development assistance as appropriate for high-priority projects that are not financially viable or affordable but justified in development or economic terms. Reputation and Sustainability Diminish concerns that China is purposefully "debt trapping" less developed nations through the BRI.
Expand the pool of development funds available for financing ambitious infrastructure projects. Expand relationships and facilitate new commercial opportunities between international and Chinese companies. Reduce Risks Huge amounts of public money are spent on BRI projects, many of which are not commercially viable. Chinese developers can pursue unprofitable projects due to their easy access to government funds. Commercial banks and investors will apply rigorous standards to ensure fiscal viability of the project and commercial returns.
The "Guiding Principles on Financing the Development of the Belt and Road" state that policy financial institutions and export credit agencies of the countries involved should continue to offer financial support for the BRI and play a role in financing promotion and risk sharing.
Recommendation 5 Transparent Procurement Ensure an open and transparent project procurement process Clean. Project Developers All companies, including Chinese state-owned enterprises, submit their bids for contracts through an established e-procurement system. Ensure contracts are awarded on a best value for money and quality basis.
Increase Project Efficiency and Quality Reduce procurement time, corruption, and waste through an automated system. Many project contracts are not competitively bid, allowing companies to be paid for services or equipment which are never delivered.
China’s Massive Belt and Road Initiative | Council on Foreign Relations
Build Support for the BRI Build trust among participating parties and attract international private firms and development banks. China's Development Practices Chinese Precedent China has used e-procurement domestically since The Joint Communiques of the Leaders' Roundtable from the and Belt and Road Forums underscore the "importance of open, transparent, and non-discriminatory public procurement procedures. International Best Practices and Standards International Standards The OECD recommends the use of an e-procurement system as it improves transparency, efficiency , and accountability throughout the procurement process.
Recommendation 6 Environmental and Social Impact Assessment Conduct rigorous, transparent, community-engaged, and publicly available environmental and social impact assessments Green. Project Developers Conduct ESIAs after project approval and prior to construction that examine environmental and social impact management; land rights; security, health, and safety; stakeholder engagement and information disclosure; and labor issues.
Implement the procedures to mitigate or avoid adverse impacts during the project's life cycle. ESIAs rarely engage stakeholders or are translated into local languages and made publicly available. Enforcement of environmental standards in host countries is often lax, resulting in expensive delays, local resistance, and liability issues.
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Proper ESIAs enhance transparency and investor confidence, reduce risk, and provide a comprehensive and realistic view of the challenges facing the project, as well as options for mitigation. CBRC's "Green Credit Directive" sets out a mechanism to ensure proper environmental and social risk due diligence and the need to complete a environmental and social risk report. The NDRC's "Code of Conduct for Overseas Investment Operations by Private Enterprises" states that before construction, firms should undertake environmental assessments of the propose construction site.
International Best Practices and Standards International Standards The World Bank's "Environmental and Social Framework" outlines the requirements and standards for conducting environmental and social assessments and how to undertake the assessments.