Why is China undertaking these hugely expensive projects? Many American commentators see a dangerous scheme to dominate the rest of the world economically. China reiterates over and over that its motives are benign, done “in the spirit of open regional cooperation” and to create an “economic cooperation architecture that benefits all.” The policies are certainly designed to benefit China, but seen from China’s perspective, they are not necessarily menacing.
First, while China’s own infrastructure is gleaming, many of its neighbors and economic partners are hard to reach. If China’s companies want to get natural resources from Central Asia and export their goods to Europe, having a faster, more reliable road and rail system is helpful. Second, more than 80 percent of Beijing’s oil and many of its other natural re- sources pass through a narrow, five-hundred-mile stretch of sea between Malaysia and Indonesia, the Malacca Strait. China worries that if relations become hostile, the United States and its allies could blockade the strait and starve the country of its lifeblood resources.
Third, China has such large foreign currency reserves that it is hard to convert these into renminbi, because so much money flooding into China would force prices to rise rapidly there. China has been investing this money mostly in U.S. Treasury bonds, but these pay very low interest, so China thinks it may make a better return investing them in infrastructure projects abroad. This buys goodwill with its neighbors and helps connect western and rural China to the world.
Now that China’s infrastructure has been built (or overbuilt), many state-owned enterprises also have extra capacity. So the government helps them stay afloat, and saves lots of Chinese jobs, by giving Chinese companies low-interest loans to build foreign mega-projects. Finally, cultural factors are important. Chinese companies are new to overseas investment and so often act just like they would at home: in China there is no real sanctity of contract, so companies often buy the land, the transportation links, and whatever else is necessary to get the oil out of the ground or the project completed. When they go abroad, they do the same.
An important side effect is that many developing countries feel grateful and beholden to China for its generosity and are thus more likely to side with China in international disputes. The Communist Party’s economic diplomacy is not meant to be malicious, but it certainly is China-centric.
The current centerpiece of China’s One Belt, One Road initiative is its tidal wave of projects with Pakistan. They perfectly illustrate how and why China is expanding its economic influence and how it combines aid, trade, and direct investment for maximum effect.
Amid sentimental pronouncements that Chinese-Pakistani friendship is “higher than mountains,” “deeper than oceans,” “sweeter than honey,” and “stronger than steel,” Beijing announced in 2014 that it would finance a 1,800-mile-long superhighway, a high-speed railway, an oil pipeline route to the inland Chinese city of Kashgar, and the expansion of a deep- sea port in the once-tiny village of Gwadar.
Gwadar, filled with dust-colored cinder-block houses and trash-strewn streets and ringed by cliffs, desert, and the Arabian Sea, was formerly at the forgotten edge of the earth. It is about to experience a storm of Chinese construction. A new 114-room “Pearl Continental” hotel stands mostly empty, its landscaping perfect, ready to receive an onslaught of Chinese engineers who will upgrade its port.
In total, China agreed to lavish $46 billion on Pakistan alone—much more than America’s yearly aid budget for the entire world.* Chinese engineers have already begun digging tunnels and building bridges to improve safety along the legendary Karakoram highway, one of the highest paved roads on earth, which links Pakistan to China. China also gives Pakistan trade preferences through a free trade agreement signed in 2006 and is Pakistan’s largest trading partner, although the volume of trade with Pakistan is a drop in the bucket for Beijing.
Pakistan desperately needs the friends. It attracts few foreign visitors or businessmen these days due to safety fears. When I went to see the famous Wagah border crossing in mid-2013—where Indian and Pakistani troops show off their stomping and drills each night to great cheering— on the Indian side there was a healthy mix of Indian families, western businessmen, and tourists from around the world. On the Pakistani side, by contrast, among several thousand spectators, the only foreigners were thirty Chinese businessmen and myself. Chinese guests also fill the five- star Serena hotel in Islamabad, which was formerly the haunt of western diplomats and aid workers.
* The $46 billion certainly grabbed headlines, but only $28 billion was agreed to during Xi’s visit. Andrew Small from the German Marshall Fund, who has written a book on the China-Pakistan axis, thinks the whole amount may not materialize.