A Flashy Forum Low on Substance

The following text was adapted from a Eurasia Group note that was released on May 4, 2017. 

The Belt and Road Forum for International Cooperation (BRF) will be held in Beijing from 14-16 May. The BRF is intended to draw greater attention to one of Xi Jinping's signature initiatives – One Belt One Road (OBOR), a massive Chinese-state backed investment initiative to promote connectivity and trade along the ancient silk road land and maritime routes. OBOR covers over 65 different countries.

Attending the forum will be representatives from 110 countries around the world, but only 28 countries will be sending heads of state. Sending a head of state sends a strong message of political support to Xi and the number of Asian countries on the list reflects the trend that OBOR investments are gaining the most traction within the region in his backyard.

Notably, most major developed economies and a large proportion of Asian Infrastructure Investment Bank (a major funder of the OBOR initiative) members from Western Europe are opting for a delegation over a head of state.

This lack of high level support may be a signal that OBOR is not living up to the hype. In other words, some countries may not be as keen to participate in the initiative as Beijing would have you believe. 
This hesitancy likely derives from fear of China's political influence and the potentially limited economic viability of these projects, which calls into question the ability of OBOR to actually implement its planned 1 trillion USD in investments.

The forum will still result in the signing of a number of cooperative, investment, and financing agreements between Chinese companies and visiting countries, but these will mostly be more for show than for substance.
For Xi, the true value of the forum will be the state media's trumpeting of the success and global embrace of OBOR, which will allow him to shore up support domestically. This support is crucial before the leadership transition at the 19^th Party Congress in the fall.


Domestic audience matters mostIn total, Beijing is expecting officials, entrepreneurs, and representatives from over 110 countries at the forum as well as the heads of the UN, World Bank, and IMF. Xi Jinping and Chinese Vice Premier Zhang Gaoli, who oversees the initiative as the leader of the special leading group on OBOR at the NDRC, will deliver speeches.
For Xi, this will be an opportunity to advance his domestic and foreign policy goals.
In terms of foreign policy, this means using OBOR to create – or buy, rather – a community of neighboring states friendly to Beijing's interests. These interests include supporting Beijing's stance on territorial integrity, non-intervention, and the One-China policy.

 A secondary goal is promoting Chinese-led institutions like the Asian Infrastructure Investment Bank. China hopes the AIIB will come to be viewed as a world-class multilateral lending institution, which would be a notable accomplishment for Xi who earlier this year portrayed China as the next leader of the global economy at the World Economic Forum in Davos.

Domestically, a glamorous summit highlighting China's role as a provider of global public goods will play well with an audience watching closely for Xi's moves at the 19^th Party Congress in the fall. Setting the stage for his second term as a powerful leader will give Xi important leverage to advance his personal agenda.


Asia a hotspot for investment, but BRF participation reflects mixed progressHeads of state from Vietnam, Indonesia, Cambodia, the Philippines, Myanmar, and Malaysia will be attending the BRF looking to sign cooperative investment agreements.

Southeast Asia, which covers a large part of the maritime silk road, has a huge need for infrastructure investment. The Asian Development Bank has estimated Southeast Asia will need investments of over 2 trillion USD in infrastructure from 2016-2030. For these countries, OBOR presents a significant opportunity for easy funding – a blessing for governments that face increasing budgetary and debt constraints.

But political will is shaping up to be one of the most important factors in determining the scope and success of OBOR projects within a country.

Malaysia has welcomed OBOR investment with open arms, even establishing its own Silk Road Business Council. The country is currently courting investments in a number of port and rail projects and is cooperating with Chinese companies on digital economy issues. Malaysia already has a strong bilateral relationship with China – Beijing helped bail out Malaysia during the 1MDB scandal and the two countries set up a new high-level defense committee last month – which will drive even more investment.

On the other side of the spectrum, Singapore, Thailand, and India are treading carefully around OBOR investment within their countries and their region. Notably, none of the three are sending heads of state to the forum despite all being members of the AIIB.

For Singapore, recent cracks in bilateral relations with China and growing anxiety over the number of Chinese investments into ports in neighboring Malaysia has led to a greater reticence over Chinese OBOR investment in the proposed Singapore-Malaysia high speed rail.

Thailand, once seen as a major participant in OBOR thanks to planned investments in a high-speed rail and a canal in Southern Thailand, may have cooled on the Chinese initiative after negotiations over the rail have stalled due to financing disagreements.

In India, fears of Chinese encirclement through the maritime road to the south and the belt to the North along with tension over the proposed China-Pakistan Economic Corridor has limited Indian support for the project.  

However, despite our less than sanguine take on the forum, if political will in participating countries grows, OBOR has the potential to have a significant impact on trade, supply chains, and bilateral relations between a great number of countries. We will be watching closely to see how the initiative unfolds.