Present and future of the BRI: policy reform and conclusion.

5. POLICY REFORM

To maximize benefits from the infrastructure, there are certain conditions that do not relate with construction, but with refinement and enhancement of the legislations and policies reforms of the countries along the corridor.

5.1. Rule of Law

There exists an important relationship between economic growth, the rule of law and policy changes. Data reveals a clear relationship between growth and a functioning government. The existence of a legal body that is able to assure investment under the rule of law is a necessary condition for economic growth. Countries in the corridor need to create the environment that allows safe and sound investment to germinate and grow. Only then the infrastructure will be truly useful and will expand and enhance people’s lives in those communities (Maliszewska, 2019). Graph 5.1 exposes the root cause of this problem.

Graph 5.1: Number of days to start a business in Belt and Road corridor economies.

Source: World Bank Doing Business, 2019.

An analysis that looks at all BRI debt, shows that 12 to 13 of the 43 low-income and middle-income countries would experience a deterioration in their medium-term outlook for debt sustainability. If the BRI wants to maximize its results, the creation of infrastructure will have to come along with changes in policy, trade legislation and governance.

The graph exposes the relationship between development and the burocracy that underdeveloped countries impose onto companies abroad and companies inside the country to develop and create growth for the country. It takes 1,5 days to start a business in a city like Singapore or Hong Kong, where growth comes at the precise venture of the international economy doing business in those small territories. On the other part of the graph, it takes 99 days to start a business in Cambodia and 174 days in Laos, low-income countries that have serious problems to facilitate trade and business development and creation.

A preemptive condition for an attractive environment for FDI is transparency. This characteristic is key for further study and development, since it is the tool that allows everybody to see what everybody else has done. It allows everyone to access, study and evaluate the data, as well as the contracts signed between the countries. There is no data available on the number of countries that have plans with the BRI, neither there is any data related to the money spent in development. Analysts must work with estimations, and their analysis suffer from the excessive use of estimates. If things go wrong or something is building up and a structural problem of debt is building up, investors will be the last to know, since they don’t have access to the total money that is moving in and out of these countries. If greater transparency existed, it would allow international firms and think tanks to look over the deals, to assess its stronger and weaker points. This will help recipient country find better agreements and avoid getting caught up in unwanted deals.

5.2. Cooperation and enforcement

Cooperation between countries is crucial, since the value of an individual infrastructure is codependent on the connections it has to the rest of the network. Project selection and planning, and the inclusion of BRI projects into national development plans is essential if they want to avoid under-used constructions. For some countries, policy transformation is a precondition to obtaining positive results from their investments. When planning a project, governments should not only look at the internal economic sense of efficiency, but also at its relationship with projects planned or built in the surrounding countries, so that they can make connections and build up a network that is efficient and long-term planned.

Corruption is a common denominator in BRI projects (Balding, 2018). Chinese lenders have not taken into their hands the task of looking out for corrupt recipient governments. They do not involve themselves in national politics in other countries, and they expect the rest of the world to do the same thing with them. But maybe they should, if they want to successfully praise themselves as the next alternative to the US and the future leader of globalization.

The effects of policy transformation and increasing efficiency in the legislation and the contracts, and easiness of doing business, the rule of law, can have a very relevant impact on the corridor economies. Real incomes for corridor economies could be an estimated 2 to 4 times higher if hey implement reforms to reduce border delays and ease trade restrictions.

For example, in landlocked Uzbekistan, average income gains from infrastructure improvements are estimated at less than 1%, if they only do the construction and not help it with more incentives. If complementary measures are implemented and they achieve to reduce border delays and procedures, income gains could rise to 9%. That is a considerable improvement for changing bureaucratic structure to favor external investment and lifting border restrictions in the country.

Supply-chain bottlenecks in a single country are problematic. When a single road or railway has to deal with the load of an entire network, it could cause problems and inefficiencies. It could block the potential benefit of the entire corridor in unlocking trade opportunities, since the rest of the network becomes inefficient only because of the bottle-neck created by one infrastructure in one country (Wiederer, 2018). Deepening trade agreements among corridor economies can reduce the current fragmentation in the markets and establish the rules and mechanisms for trade and other policy reforms.

If the necessary reforms go forward, they will lead to increasing private sector participation, which is needed. This can help sustain the BRI in the long term, by involving the private sector in less risky investments. The initiative thus far has been driven predominantly by China’s state-owned banks and state-owned enterprises. To attract for FDI, countries will have to improve the investment climate and reduce the risk facing potential investors (Arduino, 2018). Specific reforms include things like improving the regulatory environment and strengthening legal protection for external companies that want to invest in the country’s assets. For now, these companies find it hard to trust the legislative and state capacity to safeguard the investment from any form of fraud.

Complementary policies can help share the gains from BRI projects, including policies to strengthen social security, improve worker education and training, and increase labor mobility. Worker education leads to the independence of the African labor force from Chinese expertise and trained people in the construction and developing of projects and initiatives. A more knowledgeable work force always benefits the recipient country, since they learn the ways of developed countries and copy the methods and techniques, resulting in better products, innovation, and higher levels of efficiency.

Large infrastructure projects can create governance risks, including corruption and failures in public procurement, apart from the cost overruns that this type of projects come with. The limited data available indicate that Chinese firms account for most the BRI contracts, as one could expect. About 60% of Chinese-funded BRI projects are allocated to Chinese companies. Contracts include a clause that allows the company to have a big percentage of workers from China, though these percentages are changing and are been renegotiated by the recipient governments, so that more national workers can get involve in the project.

The BRI presents risks common to large infrastructure projects, such as displacements of people, pollution, ecological degradation, worker’s displacement that could cause social tensions, etc. These risks could be exacerbated by the limited transparency and openness of the initiative and the weak economic background and low stability of governance in several of the participating countries. When such countries involve in large infrastructure investments, debt sustainability is at risk. All this has to be taken into account. The unavoidable question that surges is if they will be able to improve their connectivity and their laws, if they could but never did before. Its primarily costless, it needs no investment from China, and it would be capable of driving growth forward more than any enormous infrastructure investment.

5.3. SEZs.

One of the best ways to conduct a discussion about the legislation and mechanical ways in which BRI pretends to bring FDI to the countries it invest in, is through Special Economic Zones. They were successfully utilized by Deng Xiaoping when he industrialized China, and now they are using and promoting the same mechanism abroad.

A Special Economic Zone (SEZ) is a piece of territory within the country where business from outside the country can install without facing the challenges in terms of legal actions required, tax payments, administrative paper, that they would otherwise have to do. SEZs serve as a gateway for investment into the country. They have special legislation, making it easier for companies to establish and develop there. It also serves as a hub for companies to install in the same place and interact between them. It has good installments and good connections with the rest of the country, it is easily accessible and it locates in a place where development and technology can thrive. They set the course for change in countries where it is not easy to change policy. They allow foreign companies to override restrictions, and they are used to start the change and ease the change to an economy that works in that direction.

These zones serve as a way to move forward and make it easy for companies abroad, even if the rest of the country is still stuck with unnecessary restrictions and legislation. Undertaking small and located reforms is politically easier than undergoing a general reform of the administration.

There are success and failure stories relate to the SEZs that have arisen over the BRI. In some cases, investors have exploited SEZs to take advantage of tax breaks without bringing any value to the broader economy. On the succesfull side, we can find SEZ like the Long Jiang Industrial Park (Vietnam), the Sino–Thai Rayong Industrial Park (Thailand), or the Karawang Industrial New City (Indonesia). On the failed stories of SEZs we have the China–Lao Mohan-Boten Economic Cooperation Zone, who lacks sufficiently skilled labor, or the The Sino–Kazakhstan Horgos International Border Cooperation Center.

A common success factor is the sound infrastructure and the strong connectivity between the zones and the surrounding areas. This means that there is a stable microenvironment, proper planning and industrial positioning based on the production characteristics of the area. It is also important to have a good and educated labor force, that can take in the jobs that are being demanded by the SEZ. This are just some of the common clues that give the successful SEZ along the BRI.

In past years, they have dominated more and more as the go to strategy for fast economic development, and the future is filled with more places like this.

5.4. Long term success of the BRI

There is great debate about the fundamental purpose of the BRI. What are they really trying to achieve? As I stated in the introduction, I believe the BRI to be the way to expand the Chinese empire, happening in front of our faces, while we discuss if they are trying to get economic development thanks to the development of the countries around China. Military force to control the routes through which all their goods go through, or political power, to create a relationship with the countries that makes them become favorable to them, thus creating a new world order in which the US and Europe are no longer capable of ruling without China. If there is one perspective to win over the others, that should be the economic one. It is the most important part of the cake, since that is what will give them legitimacy and confidence over the long term. If the economic branch of the initiative fails, there is no easy way to sustain the rest of the paraphernalia.

They need to build the framework in which the private economy can develop and create real and sustained growth. This is a far trickier objective than building a bridge or a railway, since it involves different countries with different governments, all corrupt, all inefficient, with an administration that is always difficult, to move forward with innovation and legislation, and much more. This will be the real challenge, having administrations along the corridor economies operate like developed countries, so that opportunities are open for them. Opportunities are there, but they are hidden behind a thick rug of impediments and unnecessary difficulties. If they succeed at doing this, they might have a chance at creating the promised win-win development that they are rooting for.

I say might because there is another factor that should be considered for the general success of the BRI, and that is knowledge. We must answer another question: Is it too soon to invest in these countries? Figure 5.1 puts into relation the rise and fall of empires with the different characteristics in the different moments of development, before and after they peaked.

Figure 5.1: The Archetypical Rise and Decline by Factor

Source: Dalio, Ray (2020): The Changing World Order.

I want to shine the light on the education line, the blue one. It comes before anything else, almost as a requirement for the empire to succeed. One of the latest and most influential modern theories of economic growth is the notion that makes the relationship and causation between economic growth and knowledge and how it is spread among the population. This is not infrastructure, which comes after, there is correlation but no causation, which are very different things, and the same with policy changes and institutional reform. Education, knowledge, comes first and then all the other seem to occur because of the resurgence of knowledge in any given society. ¿can we say that these countries are after or before the peak of knowledge? Maybe it does not matter, and the internet has change everything so radically that now we don’t need broader education to happen before development. Maybe societies only need access to the internet, to knowledge, and this development can happen. They have access to technology and knowledge whenever they want.

There is, on a similar note, a cultural BRI going around, but nobody, at least intellectuals, don’t seem to bother to talk about it. The cultural BRI is far more important than what Europeans think. They are creating ties between countries in Africa, Asia and China. They are developing deeper cultural relationship with the countries and people they work with. They are doing cultural gatherings, meetings, Chinese language courses paid by the government, and tourist from China visit African countries more and more. China is also deepening its relationship of respect with its smaller counterparts in Asia, while helping them develop industries in their land. This is important, the emotional and seemingly unrelated stuff is what in the end, determines decision-making. We are still humans, and humans over there are still in need, they are not robots without relationships with the people over there getting out papers in where we say what they have and do not have to do.

Our perception of the BRI is always changing, and the BRI itself will look very different ten or twenty years from now. We should try not to close our eyes and redeem it as a bad or good thing. We should open our eyes and watch for the good opportunities to involve as Europe in those places.

6. CONCLUSION

The BRI is a conglomerate not only of constructions and plans, but of opinions and perspectives. Academics and theorists rush to put the god or bad label on this initiative, while in reality this labeling is much more difficult. Reality talks about progress and regression, about bad and learning experiences, and good and success stories along the plans made in the corridor. The perfect formula for one country is usually not the same for another one. Things have to be looked in greater detail that international relationships theory reaches, if one aims to truly understand the implications and ramifications of the BRI.

If we don’t follow through with the plans that China has for Asia and Africa, we will fail to integrate the European Union into these countries effectively. To successfully do that, we will need better eyes and ears, and a mind ready to learn. If we continue to analyze this initiative in terms of military danger or political imperialism in the unpredictable future, we will be blind to the changes occurring today, and therefore be left apart from the task of building the future.

The BRI is going to exist for many years. The net will grow and the connections will become stronger with China. They have always thought of themselves as the center of the world, and they will try to fulfill this vision in the globalized world. They will not conquer territory, they will simply be superior, and we will have to step up our game or let them take away the center of the world.

We have to get used to the idea of losing the battle, sit down, and rethink how everything works. The center of the world is shifting from the Atlantic towards the pacific and the Indian ocean, from Europe and the US to China. The world is different from anything we have ever seen, we can still lead in a world where the democracy of the internet and ideas governs the world over all things. The best one will be measured by the capacity and knowledge of its population, not by the force of their military or the control and help of the government. Only the ones with the best ideas and the best environment to make them flourished will win.