As advertised by Beijing, the “One Belt, One Road” (OBOR) initiative, China’s grand scheme for knitting a network of roads, ports, railways and other links from East China through Southeast and South and Central Asia all the way to Europe exceeds both in scope and ambition the Marshall Plan used to rebuild Europe after World War II.

The “belt” of land-based links is paired with a 21st century “Maritime Silk Road” stretching from Australia to Zanzibar. Chinese President Xi Jinping launched the OBOR initiative in 2013, two years after then-U.S. President Barack Obama initiated the Trans-Pacific Partnership (TPP) trading bloc across the Pacific region. Now that Obama successor Donald Trump has carried out his pledge to withdraw from the TPP, the expectations are that Chinese-backed strategies like the OBOR will gain momentum. China experts say that this is a positive development, but there is skepticism over whether Beijing will follow through with the gargantuan amount of funding needed, whether big debt-financed projects bankrolled by China will benefit the recipient countries, and whether those projects will actually make sense in the long run.

For many countries in the region, China is by far the biggest source of financing: Beijing’s Export and Import Bank of China alone lent $80 billion in 2015, compared with more than $27 billion from the Asian Development Bank. Chinese involvement in building railways, ports, roads, dams and industrial corridors is helping to expand its economic and geopolitical sway across Asia, the Middle East, Europe and Africa.

China experts and economists say that the initiative makes sense and that it will accelerate as the U.S. turns more insular under Trump. “It is unfortunate that many U.S. diplomats and members of the previous administration worked for nearly a decade to push toward the TPP and now it is torn apart,” says Louis Kuijs, head of Asia Economics at Oxford Economics in Hong Kong. The U.S. is turning its back on the rest of the world at a time when the world needs an open and engaged America, he says. “It is very likely and understandable that China … will try to fill those gaps with this initiative, and that is very logical — it’s something the U.S. will later deeply regret,” Kuijs says.

The OBOR effort has not gotten the degree of attention it deserves, says Pieter Bottelier, visiting scholar of China Studies at Johns Hopkins School of Advanced International Studies in Washington. “I am concerned that its significance is underrated in the U.S. and in the West in general. It is a very positive initiative and a major vision of how China can collaborate with countries in its neighborhood, Europe, Latin America and Africa in a way that is in the long-term interest of China and [the global economy],” Bottelier says.

“I am concerned that its significance is underrated in the U.S. and in the West in general.” –Pieter Bottelier

The geopolitical aspects of the OBOR initiative could eventually draw attention from the Trump administration, given its strong stance on national security. “It is an economic initiative, but along the way China will expand its military bases and so forth,” says Wharton emeritus professor Franklin Allen, who also is a professor of finance and economics at Imperial College London. “On the sea routes they will develop their military capability and on the land routes, too.”

From Kuijs’ point of view, Beijing views the OBOR initiative as a strategy needed to support its growing economic might. “Many outsiders are skeptical and do not know exactly what it is, but it is taken very, very seriously by the Chinese government and we should take this very seriously,” he says. “The Chinese government is thinking, ‘We are the second-biggest economy in the world, and it may take 10 years or 20 years but we will be the world’s biggest economy at some point.’”

While it is sweeping in scope like the stalled TPP, which aims to create a trading bloc around the Pacific Rim, the “One Belt, One Road” plan is not a free trade agreement. It’s more of a blueprint for integrating China’s trading partners by developing their infrastructure — ports, roads, airports and railways — in a way that complements Beijing’s own interests. Infrastructure-led development worked well for China, in Beijing’s view, and now it wants to expand that approach internationally, Kuijs says.

The “One Belt” refers to a “Silk Road Economic Belt” from China through Central Asia to Europe. The “One Road” refers to Beijing’s concept of a “21st century Maritime Silk Road” to connect China to Europe via the South China Sea and Indian Ocean. The initiative involves developing six economic “corridors”: a China-Mongolia-Russia corridor; a new Eurasian “Land Bridge”; a corridor from China to Central Asia and Western Asia; a China-Indochina peninsula corridor; and, a China-Pakistan economic corridor; and 6. a Bangladesh-China-India-Myanmar economic corridor.

Chinese President Xi Jinping said in his speech at the World Economic Forum in Davos, Switzerland in January that more than 100 countries and international organizations have given warm responses and support to the initiative and that more than 40 countries and international organizations have signed cooperation agreements. So far, Chinese companies have made more than $50 billion of OBOR-related investments and launched a number of major projects in the countries along the route, he added. At least 65 countries are included in the OBOR initiative.

Unanswered Questions

While the grand vision is laudable, there are many unanswered questions: How would it be done? And what would be the project, environmental and engineering standards implemented under this umbrella?

“There would be serious doubts over protection of minority populations and environmental concerns,” Bottelier says. As for the scale of OBOR, there’s no consensus over how many projects it would involve at what cost and in what time frame. “It is pretty obvious that there is no limit to the amount of infrastructure that is needed in those countries.”

The Asian Development Bank says infrastructure development in Asia and the Pacific will exceed $22.6 trillion through 2030, or $1.5 trillion per year. In a recent report, “Meeting Asia’s Infrastructure Needs” issued in February, the estimate rises to more than $26 trillion, or $1.7 trillion a year when costs for climate change adaptation and mitigation are included. “This is a grand vision, and it may take a decade, but there is no rush. You cannot really put any number on the total investment,” says Rajiv Biswas, Singapore-based Asia-Pacific chief economist at IHS Markit.

“One Belt, One Road is relevant for Europe since China wants to link its rail to Europe. So, China wants Europe to be part of [OBOR], but not as a key driver.” –Rajiv Biswas

The China-led Asia Infrastructure Investment Bank, or AIIB, is seen as a linchpin for OBOR financing. So far, however, it has provided only $1.73 billion to support infrastructure projects in seven countries, including Pakistan, Bangladesh, Tajikistan, Indonesia, Myanmar, Azerbaijan and Oman since it was launched in January 2016.

Noriyoshi Ehara, chief economist at the Tokyo-based Institute for International Trade and Investment, says the financial infrastructure for OBOR is gradually taking shape. Apart from AIIB, China also has a $40 billion Silk Road Fund and a New Development Bank to fund the OBOR initiative. “There has been good progress in getting these frameworks in place,” Ehara says. Ultimately, he adds, Beijing may not limit OBOR to infrastructure but may make it the foundation for regional and bilateral free trade areas (FTAs). “We are not sure if China will succeed, but the world is changing, and more and more countries are joining this initiative,” he says. With the TPP in trouble, OBOR is getting more attention.

China’s Deep Pockets

Already, more than $900 billion in projects are planned or underway, Fitch Ratings noted in a report titled “China’s One Belt and One Road Initiative Brings Risks.” It says most funding will likely come from China’s policy banks, the Export and Import Bank of China, China Development Bank and its largest commercial banks. “We estimate that outstanding loans from Chinese banks total $1.2 trillion, and a large portion of that has financed infrastructure projects involving Chinese state-owned enterprises,” the report says. China also has other major financial resources such as its sovereign wealth fund and foreign exchange reserves.

One project that got a head start was construction of a railway link from the port of Piraeus in Greece to Eastern Europe. Piraeus is a gateway to Europe for Chinese products, and major Chinese companies have been using the port to enter the European market. China, through its China Ocean Shipping Company, bought a 67% stake in the port’s Pier I from the Piraeus Port Authority SA in January 2016.

The European Union (EU) is welcoming OBOR, but cautiously. “China basically owns Piraeus Port close to Athens and this railroad is meant to link all the way up to Budapest in Hungary, which also is an EU member,” notes Kuijs. “The EU is now looking at this project, which clearly is projecting China all the way into Europe, to see to what extent it is compatible with EU rules and principles.”

Apart from questions over whether Chinese-led projects might conform with global standards on such issues as environmental protection and labor rights, some economists question if a massive, policy-led OBOR push on infrastructure development will turn out to be economically sound. “Let’s see what kinds of projects they are getting in the next couple of years and what kinds of returns they are getting,” Biswas says. “Because in the end, if they are not delivering on the returns, then the banks that are lending will eventually say we need to be careful and we cannot keep doing this without any returns because it has to be commercially viable.”

“It is quite likely that China will succeed in this initiative, though it may take a half-century.” –Franklin Allen

A flood of lending to smaller countries lacking strong foreign exchange reserves might not be able to repay the loans if projects fail to generate revenue as expected. Fitch warns in its report on OBOR that some of the loans are large enough to have an impact on borrowing countries’ public finances, if debt-servicing from project proceeds becomes a problem.

That problem already is surfacing in Sri Lanka, where China signed a deal in late 2016 to further develop the strategic port of Hambantota and build a huge industrial zone nearby. China has spent almost $2 billion so far on Hambantota and a new airport. But hundreds of Sri Lankans clashed with police at the opening of construction in January of the industrial zone in the south, saying they would not be moved from their land. It was the first time opposition to Chinese investments in Sri Lanka turned violent. Newly elected Sri Lankan President Maithripala Sirisena had said the new port deal with China was unfair in his campaign, but after taking office approved an agreement to lease an 80% stake in the port to the China Merchants Holdings for 99 years in exchange for $1.1 billion in debt relief.

Concerns over the ability of smaller developing countries to protect their own interests underscore the need for involvement of Western countries, especially from the EU, since Japan and the U.S. have continued to shun the AIIB. “You have weaker institutional capacity and weaker governments like in Cambodia and Central European countries. They may be persuaded by Beijing to take on large debt to finance projects. They and other developing countries in the past ended up with large debts incurred to finance dubious projects that do not help their economies. That is the risk for countries that do not have the capacity to independently make cost-benefit analyses,” Kuijs says.

While there’s nothing wrong with investing more in poor countries, and in increasing economic interactions between poor countries and China and the rest of the world, “it would be beneficial for Western countries to take this initiative very seriously and to become its counterparts in this rather than having China sort it by itself,” he says.

Of course, that begs the question of whether China would welcome their involvement. “This is China’s initiative, but this is not the AIIB. They want the rest of Asia to be part of it, but more on a bilateral level,” says Biswas. China’s vision is of a partnership with other developing countries in Asia. “Having Europe be part of it is a different story,” he says. “One Belt, One Road is relevant for Europe since China wants to link its rail to Europe. So, China wants Europe to be part of [OBOR], but not as a key driver,” Biswas added.

China’s Slowdown Is a Catalyst

One of the main factors driving the OBOR effort is the slowdown in China’s own economy. The Communist Party is striving to transition away from growth led by investment and exports to development led by domestic consumer demand and services, and to keep growth at more sustainable levels than in the past. The government set a growth target of 6.5% in 2017 at the National People’s Congress in March, down from a 2016 target of 6.5% to 7%. In a sense, China is seeking to export the investment-led part of its economy, to help its own overbuilt heavy industries and provinces.

But Kuijs doubts OBOR projects will do much to help China with its huge overcapacity problems in many industries, especially steel, glass and cement. Compared to the size of China’s steel industry or other industries, it would take a very long time for demand from the projects to be big enough to make a difference, he says. “Many of the projects are far away from China, and some types of steel are worth transporting but not all kinds of steel. It would not help reduce excess capacity of cement because it is not economically viable to transport cement over such long distances,” Kuijs says. Bottelier, also, sees overcapacity as only a marginal factor in the OBOR plan.

Looking back at how far China has come since it launched its market-oriented reforms and opened its economy, there’s reason to hope the OBOR strategy will have a significant impact over time, Allen says. “It is quite likely that China will succeed in this initiative, though it may take a half-century.”