World Bank Offers Timely, Dubious Praise for Belt and Road

Beijing appears to be rethinking CCP General Secretary Xi Jinping’s Belt and Road Initiative, an ambitious bid to reshape global trade by lending money for infrastructure projects in countries across Eurasia. The initiative has come under fire at home and abroad, with domestic critics wondering why the PRC, still only an upper-middle-income country itself, is lending vast sums internationally, while skeptics in the United States and elsewhere have noted that, in some cases, the PRC has lent countries more than they could ever hope to repay (China Brief, August 10; Times of India, June 27).

Beijing appears to appreciate the risk this criticism poses to the BRI. PRC domestic propaganda organs have begun to note the need for BRI investment to move in a more “high-quality” direction, while publicly available data suggests that the PRC dramatically scaled back its BRI lending during the past two years (China Brief, August 10). Beijing has also begun to push back against external skepticism through a wide variety of channels. The World Bank recently came to Beijing’s aid in this respect, publishing a report that strongly endorsed existing BRI investment. The report’s conclusions, however, are based on highly dubious assumptions, and raise the question of whether the Bank’s timely, unqualified endorsement was a form of “relationship management” with one of its most important shareholders.

Terms of Trade

The World Bank report was rolled out at a presentation during the Bank’s annual meetings, which gather its most important stakeholders from around the globe for several days of discussion and networking (World Bank, October 15). Prior to the presentation, Bert Hofman, the Bank’s country director for China, promised it would “get some facts straight” on the BRI (Twitter, October 12). The presentation was well attended, and featured a panel discussion including a PRC vice minister of finance (Twitter, October 12).

The paper identifies 62 separate BRI investment projects, and evaluates whether they will reduce trade costs and spur economic growth for participating countries. Its conclusions are unambiguously positive. The report’s abstract states that “the Belt and Road Initiative will significantly reduce shipment times and trade costs”, reducing trade costs between 1.1 and 2.2 percent for the world as a whole, and 1.5 and 2.8 percent for participating Belt and Road nations (World Bank, October 15).

These findings by one of the world’s premier international development organization are good news for the PRC, amid a rising chorus of international concern over the purpose and practicality of BRI investment. PRC diplomats, bankers, and businesspersons will no doubt point to them to assuage concerns among current and potential BRI partners. But the report’s findings are specious, because of two errors that appear to mar the reliability of its analysis

One Belt, One Road, All Wrong

The first problem is serious, but somewhat understandable given the BRI’s amorphous nature: Some of the projects the report identifies as “Belt and Road” projects have no discernible PRC involvement. For example, the Marmaray rail tunnel, which connects Turkey’s European and Eurasian sides, has been financed and built by a Turkey-EU-Japan consortium (Hurriyet Daily News, March 2; The Guardian, October 29 2013). The paper also includes a rail line from Arkalyk to Shubarkol in Kazakhstan, which was opened in 2014 with no apparent PRC involvement (Rail Turkey, September 17 2014), as well as a rail line from the Iranian city of Gorgen to the city of Uzen in Kazakhstan, which came online in 2013, also without PRC involvement (Railway Gazette, May 13 2013). Upgrades to ports in Aktau in Kazakhstan and Baku in Azerbaijan, while clearly meant to facilitate PRC transshipping across the Caspian Sea, were likewise completed without financing or construction assistance from PRC entities (Jamestown, October 2 2015; Railway Pro, Feb 25 2014). A Thai-Cambodia rail link was funded by Cambodia and the Asian Development Bank (Railway Gazette, April 5).

In its paper, the World Bank appears to have adopted an approach similar to the PRC’s in defining what constitutes a “Belt and Road” project. The PRC has not objected when countries brand their infrastructure projects as “Belt and Road”, even if no PRC-based entities are actually involved with the project. This seems to be the case with the above projects. In the case of the Maramaray tunnel, for example, Turkish president Recip Erdogan publicly associated the project with China’s “New Silk Road” at a 2017 Belt and Road Forum in Beijing, despite the lack of PRC involvement in its construction (Office of the Turkish President, May 14 2017).

The paper’s second problem is much more serious. The paper’s positive conclusions about the BRI’s future benefits are unambiguous (“the Belt and Road Initiative will reduce shipment times between 1.2 and 2.5 percent, leading to reduction of aggregate trade costs between 1.1 and 2.2 percent”), but its authors appear to have made no serious effort to grapple with the feasibility of the proposed projects. If the project has been proposed, and the relevant governments have declared it part of the BRI, the paper assumes it will be seen through to completion. Many of the projects it evaluates in Central Asia and Africa are already completed or are under construction. But the picture is very different for projects in South and Southeast Asia.

Some of the projects there are little more than pipedreams. A proposed high-speed rail line from Calcutta to Kunming, in the southwest of the PRC, appears to exist nowhere outside the mind of the PRC consul general in Calcutta (India Today, September 12). The paper assumes that Indonesia and Malaysia will complete an astonishingly challenging 50-km bridge across the Straits of Malacca; neither government is pursuing the project (SEAsia, February 6). It also assumes successful completion of a 120-km canal across the Kra Isthmus in Thailand, proposals for which have existed in one form or another for hundreds of years; at the moment the project has no form beyond a recently initiated Thai government feasibility study (Bangkok Post, October 29).

Even for less ambitious projects, the paper’s analysis makes no accomodation for project cancellation or alteration. This is a surprising oversight, since the World Bank should understand better than anyone the vicissitudes of international infrastructure financing. As a result, the reliability of the Bank’s forecasts are dissolving in real time: All three Malaysian railroad projects the paper analyzes were recently suspended by Malaysia’s government until further notice (Channel NewsAsia, August 21); Pakistan, the jewel in the BRI crown, is seeking to downsize, renegotiate, or restructure the lion’s share of its projects (Straits Times, September 30); Myanmar has done the same with its own high-profile BRI port project (China Brief, September 19); and while the high-speed rail in Thailand does indeed appear to be going forward, PRC firms are no longer involved as financiers, and are now only one of many potential partners in construction (Nikkei, November 13)

Conclusion

If the Bank had done a better job selecting projects, and couched its conclusions in less categorically positive terms, the final results would, more than likely, still have painted a largely positive picture of the BRI. But the Bank’s decision to define BRI projects in extremely broad terms, and its failure to account—both in its analysis and in its presentation of its conclusions—for the simple reality that building infrastructure in developing countries is difficult, all beg the question of why it released the report at such a sensitive moment for the BRI.

The Bank is no stranger to “relationship management” with the PRC government: In 2007 it agreed to omit from a final report on the health effects of pollution in the PRC its findings that air pollution caused 350,000 to 400,000 premature deaths per year in the country. The PRC government demanded the figure’s removal, on the grounds that its release could affect social stability (US-China Institute, August 3, 2007) [1]. The PRC’s voice in the World Bank has grown since then. In 2010 its total shareholding in the Bank increased from 2.77 percent to 4.42 percent, making the PRC the third-largest shareholder, behind Japan and the US (China Daily, April 26 2010). A plan to boost the PRC’s share still further, to 6.01 percent, through a large increase in paid-in capital, was approved earlier this year, and finalized at the same October annual meetings where the Bank presented its analysis of the BRI (World Bank, October 13).

Matt Schrader is the editor of the Jamestown China Brief. Follow him on Twitter at @tombschrader.

Notes

[1] David Dollar, then the World Bank country for director for China—now a senior fellow in the John L. Thornton China Center at the Brookings Institution in Washington DC—defended the release of an altered version of the report, saying in a statement, “In undertaking this ground-breaking assessment of its pollution challenges, China has shown how committed it is to addressing the problem” (World Bank, August 11 2007).