Chinese Capitalism and the New Silk Roads

The hottest topic now regarding China’s economic statecraft and foreign economic policy is undoubtedly the so-called “One Belt, One Road” (OBOR) initiative, or the New Silk Road initiative. Announced by the Chinese central state in late 2013, the initiative has soon become the “umbrella project” for China’s new economic statecraft, under which almost all other major international policies are supposed to be framed. Consisting of the Silk Road Economic Belt (SREB) and the 21st Century Maritime Silk Road, OBOR is also widely interpreted by the outside world as the symbol of geopolitical ambition of a new rising hegemon.

Although not the very first major initiative proposed by Xi Jinping after he assumed the highest position within the Chinese partystate, OBOR has soon gained the status of top priority of the new leadership’s foreign policy agenda. According to the official narratives, OBOR is supposed to be a significant development strategy with the intention of promoting economic cooperation among countries along the proposed Silk Roads, including both the land route (SREB) and the maritime route. By facilitating connection through massive infrastructural construction and free-flow of labor, capital, and information, the initiative is intended to further market integration and expansion, and to create multiple cross-regional economic cooperation frameworks along both of the Silk Roads.

Although there is an element of US-China competition for global hegemony behind the OBOR, the main driving force is the pressure from “over-accumulation” in a typical capitalist economy when it approaches the end of a major cycle of capitalist cyclic change. The economic model China has developed since the early 1980s first relied on cheap labor to develop export-processing industries targeting mostly the markets in the United States and key US allies in Asia, such as Japan. During this period, China took over the low-value-added, labor intensive, export-oriented industries from the main manufacturing states in the previous round of industrialization (mainly the Asian Tigers) all through the 1980s and a large part of 1990s. Since the mid-1990s, China took another opportunity to become the assembly center for Internet and IT related consumer goods on a global scale. Thus, since the early 1980s China has managed to adapt to two important moments in the international industrial transfer. Further promoted by China’s WTO membership in 2001, such adaptation formed the basis for China’s continued economic growth into the new century, despite the increase of labor costs since the mid-1990s.

While China’s economic miracle in the past three decades has depended on integrating into the international production chain and division of labor at the right moment, politically, such good performance has also relied on at least a tacit acknowledgement of the legitimacy of the US-led world order. In return, the large trade surplus China accumulated against US is again recycled to the US economy through purchasing US treasury bonds, contributing to the financial stability in the US economy.

However, such growth models began to show signs of exhaustion roughly from the early 21st century. Rising labor costs have already eroded China’s traditional comparative advantage in the international production chains, leading to labor shortage even in regions where most of the export oriented processing industries have been densely located (e.g. South-East China). Decreasing capital return plus increasing reliance on capital investment implies that the potential to boost economic growth by further capital injection alone is minimal, lest there is a consistent significant technological progress. Overproduction and excess capacity has also become officially recognized by the Chinese state as one of the most significant challenges for the new government from 2012.

All these signs indicate that capital accumulation and expansion under the old models in China is no longer sustainable. Clearly realizing this trend, the new Chinese leadership since 2012 has started actively promoting the concept of “New Normal” so as to warn the public that growth the old way is no longer feasible. More recently the Chinese government has, in a similar vein, also been actively advocating “production capacity cooperation” [channeng hezuo] to various international partners (e.g. the Central Asian countries), in the hope to resolve the overproduction problem through intensified international cooperation.

Thus, the New Silk Road initiative was put forward in the context of increasing joint efforts between the Chinese state and varieties of representatives of Chinese capital to further capital accumulation and expansion on a new geographic and spatial dimension. Such joint adventures overseas have already reached almost every corner of the world (including some of the most risky and unstable destinations for investment) in a manner that is often portrayed in western media as extremely “aggressive.” To further substantiate the “over-accumulation” thesis, it is worth noticing that that in 2014, China has finally become a net capital exporting country.

Now it is widely shared both in and outside of China that the Chinese top leadership and the Chinese state had from the very beginning a grandiose strategy for the New Silk Road initiative. However, the creation and promotion of the initiative was developed in more of a “muddling-through” mode, in which momentum was injected only step by step, and the official policy only became substantiated gradually. Initially the 2013 announcement of the Silk Road Economic Belt by President Xi Jinping at Nazarbayev University in Astana caught policy circles both inside and outside China off guard. Indeed, the decision to launch the OBOR initiative was made in a highly centralized fashion, without much prior consultation with expert circles in China. One of the consequence of such style of decision-making is that after the original announcement, various think tanks, research institutes within the state apparatus, and government agencies were all scratching their heads to quickly fill in the details of the grandiose but extremely vague initiative full of big concepts. In a very similar fashion, after the implementation of the OBOR began, central economic bureaucrats had to “move” existing projects that are not related to OBOR and regroup them under the umbrella of the Silk Road initiatives. It also took a lot of internal turf-war and heated debate among various bureaucratic organs in the central government to gradually fill in the details of the program, which is still being further substantiated on the implementation level.

The initiative was, at first, presented mostly as a network of regional infrastructure projects. Only after the National Development and Reform Commission, Ministry of Foreign Affairs, and Ministry of Commerce jointly released the Action Plan on the Principles, Framework, and Cooperation Priorities and Mechanisms in the Belt and Road Initiative on 28 March 2015, it became clear that the scope of this initiative from the perspective of the Chinese state goes beyond just infrastructural build-up. Geographically the Chinese state envisages that OBOR will help connect Asia, Europe, and Africa along five routes. The land route Silk Road Economic Belt focuses on: (1) linking China to Europe through Central Asia and Russia; (2) connecting China with the Middle East through Central Asia; and

(3) bringing together China and Southeast Asia, South Asia, and the Indian Ocean. The maritime route (the 21st Century Maritime Silk Road), meanwhile, focuses on using Chinese coastal ports to: (4) link China with Europe through the South China Sea and Indian Ocean; and (5) connect China with the South Pacific Ocean through the South China Sea.

Although China already started to use the Silk Roads metaphor in the early 1990s, OBOR obviously creates and promotes narratives and geopolitical imagination about China in the world of a qualitatively higher order. The current official narratives emphasize the historical spirit and legacy of Silk Roads, interconnectedness, multi-layer cooperation, community of common interest, common responsibility and destiny, in the hope that modern-day “connectivity” and trade routes will replace traditional power competition. By mobilizing the images of age-old metaphor of Silk Roads over both land and sea, Chinese authorities also hope that further connectivity will help create great civilizations and foster great innovations, leading to joint development that benefits all participants along the Silk Roads in an open and non-exclusive manner. In other words, as some Chinese scholars try to explain, the US-led “the-world-is-flat” type of globalization will be replaced by “the-worldis- connected” type of globalization under the new leadership of China.

After the OBOR was released, both central official media and regional media together with all kinds of research institutes and universities have within a very short period of time produced a huge number of books, movies, documentaries, and exhibitions that are intended to revitalize the interest of the general public and win endorsement for historical Silk Roads and their modern day relevance. Meanwhile, the New Silk Road initiative has, somewhat unexpectedly, revived discussion and debates among smaller circles of academics as to how to characterize the nature of Chineseness, Chinese civilization, and China’s position in the world. For example, the relevance of the “inner-Asianess” of the Chinese civilization is revitalized in certain fields of historian studies – it was not politically correct before.

In contrast, another camp (which can be loosely characterized as “left-wing” among Chinese intellectuals) argues that reconfiguration of China’s position in the world system may bring fundamentally different logic and dynamics into the current capitalist world system, going even beyond just countering of the US hegemony. Even though the official narratives never acknowledge it, for these scholars, OBOR has a strong tendency to reconfigure China’s geopolitical and geoeconomic orientation, particularly reducing China’s reliance on the market in the US and its key allies in East Asia by adjusting to the possible rise of “land power” against the US-led sea power. Such arguments are strikingly similar to the way Sir Halford Mackinder had exalted how railways were revolutionizing interactions inside the Eurasian Heartland, as China’s massive capacity in high-speed rail and other infrastructural construction is supposed to prepare the prerequisites for reunifying the Eurasian continent. In addition, since most of the countries along the New Silk Roads are largely isolated from the previous rounds of globalization or economic integration led primarily by the US (e.g. the Central Asian countries), China’s new initiatives provide plans to integrate these economies in a process where China will play a leading role through an open and equal manner, thus heralding new types of world socialist solidarity.

All these narratives provide a romantic vision of China’s changing position in the world. However, in China, there is also an ongoing debate about whether it is economically rational to pour such huge amounts of money into low-return projects and high-risk countries, especially in the case of massive infrastructural projects. Similarly, to what extent China’s political investment along the Silk Roads may in return “purchase” economic resources and political loyalty. Meanwhile, the idea that a “connected world” is always a good world does not take into consideration the negative impact of US-led globalization in the post-Cold War era on certain countries and social groups and the recent anti-globalization movements all around the globe. Therefore, despite the seemingly solid rationality behind the reconfiguration of China’s economic space, OBOR in the current form may overstretch the strategic resources of China too early too fast, and a China-led globalization may overdraw itself before it materializes.

Whether “capitalism, Chinese style” will be able to inject new dynamism to the current world system and unleash a fundamentally different power/hegemonic transition or whether it will just be a short-lived, self-defeating chapter in the long cycles of capitalist hegemonic competition will be determined both by the internal features of Chinese capitalism and by its relative position within the capitalist world system. In this regard, the New Silk Road Initiative may be the most illustrative lens through which we feel the pulse of the capitalist world order in the near future.

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