As Chapter 3 of this thesis argued, from the perspective of the fifth-generation leadership, the Silk Road Economic Belt is likely to be the centerpiece of the BRI, as it addresses the primary issues and dilemmas that the fifth-generation leadership must face and address the end of their term in 2023. The Silk Road Economic Belt is meant to connect western China to its foreign neighbors, thus allowing it to develop as a trade hub
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for nearby developing economies. This includes two major areas of interest, Central Asia and South Asia. The strategy is not only the importing of energy resources to guarantee China’s energy needs. More importantly, the ability to efficiently transfer excess materials and production to neighboring developing economies, either through direct sales, or through infrastructure projects managed by Chinese companies and thus implicitly with Chinese resources to be paid back through loans. Just as importantly, it is to ensure that the economic and trade activity generated by both the interconnectivity project and the interconnectivity itself will directly benefit the development of inland China.
These goals are included in the Maritime Silk Road as well, as seen by Chinese investments and projects in Africa. However, these shared goals are likely to apply less to the Maritime Silk Road due to geography; given Chinese academic literature on sea power and ongoing Chinese interests in the Indian Ocean region, it is more likely that the MSR is designed primarily to address Chinese energy security issues and, in a broad sense, to enhance the capacity-building of the People’s Liberation Army Navy. While practical reasons either draw greater prioritization to other issues or limit the extent by which the fifth-generation leadership can directly address these issues to a desired conclusion, one should nonetheless remain wary of diminishing the importance of dilemmas with regards to these issues therein.
These objectives come with a certain set of risks and threats to its success even on its own. The BRI and its investment projects are dependent on Chinese foreign
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investments into regional economies, which are in turn dependent on Chinese economic reforms. The good news for China is that not only does much of the literature, both domestic and international, suggest that there is a clear path forward for the Chinese economy to achieve economic reform and avoid a “hard landing”, the CPC itself seems to reflect an understanding of this with the Four Comprehensives. However, the process in which this is achieved is fundamentally a balancing act for China, as it must manage both the speed and timing of its reforms to redevelop relevant industries and markets while also keeping the subsequent rising unemployment as a consequence of supply-side reforms to a manageable level.
While this thesis is not an in-depth economics report, an examination of the risks surrounding Chinese economic reform is necessary because Chinese economic reform shares a codependent relationship with the BRI: Chinese economic reform is necessary for the BRI to sustainably fund foreign infrastructure projects, and Chinese exports and trade in the BRI are necessary as an outlet to help mitigate the dilemmas facing economic reform. Both are thus exposed to risks from each other.
China’s primary domestic risk, particularly in relation to its goals, is the inability to enact its economic reforms in an expedited manner. There are clear symptoms for such concerns, as existing trends point towards a diminished political resolve towards reform when profit is possible. Despite the promises to “comprehensively deepen reform” in accordance to “The Decision of the Central Committee of the Communist Party of China on Some Major Issues Concerning Comprehensively Deepening the Reform” plenary
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document since 2013, and despite a significant slowdown in Chinese economic growth since 2015, China has experienced a pattern of prioritizing economic growth over economic reforms. Surveys at the end of 2016 showed that more than half of Chinese industries and provinces not only reported overcapacity, but a diminishing in political resolve for reform and cutting down on overcapacity “when there were prospects of turning a profit” (Tang F. , 2016).
While this is considered to be a provincial problem, it is also in line with what may be a divergence of direction amongst the fifth-generation leadership with regards to credit or, alternatively, an insufficient amount of political resolve to strengthen prioritization of economic reforms over stable economic growth. While the Chinese leadership in general and Xi Jinping in particular has stressed the need for supply-side reforms over debt-fueled stimulus, the latter was still the favored tool of Premier Li Keqiang as late as 2016 (Wang X. , Xi Jinping’s supply-side plan now the genuine article of economic reform for China, 2016). The industries in which there is overcapacity in China are not only overrepresented in growth, but are also disproportionate in economic importance, and are significantly influential in China’s system of political patronage (Parker, 2013). Diminishing these industries with overcapacity involves not only a potentially painful realignment of political interests within the CPC, but also a potential source of extensive unemployment, especially as blue-collar low-end industrial jobs are replaced with high-tech high-end manufacturing jobs as envisioned by the “Made in China 2025” strategy.
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All of these are obstacles in the fifth-generation’s ability to pivot China’s economy away from bloated SOEs. Unlike the 1990’s, China is now the second largest economy, part of a still-brittle international economy, and has made gestures of leadership in terms of international trade and globalism. Furthermore, the needs of its increasingly urbane population have become more pronounced. It is thus not practical for the fifth-generation to take drastic measures towards SOEs as third-generation premier Zhu Rongji did in the 1990’s by firing forty million workers employed by the state, nor can the fifth-generation continue to rely on the domestic housing sector and cheap exports to cushion such a shakeup in China’s SOE sector in the way the third-generation did. Combined with the resistance by provinces and industries towards reform where there is a profit to be made, and coupled with the fifth-generation leadership’s refusal to abandon stimulus programs for GDP growth, it seems questionable as to whether or not China has the willpower to prevent SOEs from attaching itself onto the BRI as a host for further expansion.
Specifically, the BRI is a cushion by which overcapacity and SOEs can be carefully exported, through which a steady stream of revenue can accompany the downsizing of aforementioned overcapacity and SOEs. Careful management between these factors would result in a “soft landing” with a steady rate of employment and a less stressful transformation of the Chinese economy, all without causing a crash. But if carelessly managed, the BRI may become an excuse for SOEs to maintain their operations by using BRI projects to turn a profit. This risk is made especially pertinent since it has mostly been the public sector that has contributed to the BRI while the private
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sector has been far more cautious about its prospects, especially in regions of the world that are not considered promising investment targets. If China cannot sufficiently engage its private sector into the BRI, its reliance on SOEs may ultimately result in providing the public sector with more leverage at a time when the fifth-generation leadership is trying to downsize this sector.