WSJ What’s News - How China’s Trillion-Dollar Infrastructure Bet Undercuts U.S. Dominance

Episode Date: February 23, 2025

In great-power rivalries, it matters who's on your side. Twelve years since launching its Belt and Road infrastructure project, Beijing has funneled a trillion-plus dollars into projects in some 150 countries, literally planting its flag around the globe and acquiring a growing roster of economic and diplomatic partners in the process. In the first episode of our three-part series, “Building Influence,” the WSJ’s Gabriele Steinhauser and Lingling Wei, Boston University’s Kevin Gallagher and Stanford’s Eyck Freymann explain how the program has bolstered China’s economic security and given it a platform to cut deals that challenge Western-led norms and counterbalance U.S. influence. Luke Vargas hosts. Further Reading: China Shores Up Ties With Africa Despite Slowing Economy and Friction Over Debt  How China Capitalized on U.S. Indifference in Latin America  China’s Global Mega-Projects Are Falling Apart  Learn more about your ad choices. Visit megaphone.fm/adchoices

This episode is sponsored by Northern Trust Wealth Management. There is more to being a successful entrepreneur than just good business practices. What is it about an entrepreneur's childhood that helped fuel their entrepreneurial spirit? What are entrepreneurs doing to cultivate this spirit in their own children and build a legacy beyond their business? Tune in each month to the Road to Why podcast by the Northern Trust Institute, where host Eric Schapea dives deeper with leading entrepreneurs on these topics and more. Find the road to why where you listen to your favorite podcasts. As the competition between China and the West, especially the United States intensifies,

it really is important how big your friend circle is. That's the journal's chief China correspondent Lingling Wei, and she's far from alone in noting that in the great power rivalry between the U.S. and China, it matters who's on your side, whose network of trade partners is growing, who's able to call in diplomatic favors, and whose financial rules and political norms are being adopted. For years, Washington's been either indifferent or inconsistent in its dealings with wide swaths of the globe. At times, it's actively tested the patience of its longtime partners by going back and

forth on international deals like the Paris Climate Accord and the Iran Nuclear Agreement. China, meanwhile, has been building influence. A highway in Pakistan, a new seaport in Sri Lanka. China's signature foreign policy outreach project. China and Latin America are getting closer together. Algeria, Ethiopia, Kenya. A hydropower plant in Uganda. A motorway in Serbia.

South Africa, Mozambique, Nigeria, and Uganda are all on board. Since 2013, China's massive infrastructure program known as the Belt and Road Initiative has funneled a trillion plus dollars to projects from mines and highways to smart cities and industrial parks in some 150 countries, literally planting the Chinese flag around the globe. Trace a graph of China's spending dating back to the launch of Belt and Road, and starting in 2018 you will notice its loans began to drop off, and they remain a lot lower than they were just five years ago. That could mean the Belt and Road went astray.

But what if it means it's already succeeded in growing its influence and getting a leg up on the US in the process? But what if it means it's already succeeded in growing its influence and getting a leg up on the US in the process? I'm Luke Vargas and as we'll explore in this three-part What's New Sunday series, looking at China's infrastructure building activities around the world, the Belt and Road hasn't all been smooth sailing. But over the first decade of the project, Beijing built up considerable influence in dozens of countries. It's also adapted

its program, learning from early pitfalls and doubling down on successful inroads across the developing world, all of which raises vexing questions for President Trump and Western policymakers as they consider whether and how they can compete. In the coming weeks, my colleagues Kate Bulevent and Daniel Bach will take us through recent changes to China's lending and how the West is responding to China's efforts. But today, let's look at what China has already achieved. To do that, let's go back to the beginning and look at why China cast its focus abroad in the first place. I think the thing to understand is that China never does anything for just one reason.

That's Ike Freiman, a Hoover Fellow at Stanford University and author of the book One Belt, One Road, Chinese Power Meets the World. So the goal of Belt and Road in 2013 was first and foremost, consolidate the domestic system around Xi Jinping by making all of the institutions that generate propaganda and that lend out money, subscribe to his version of a policy agenda. The second thing was to give him an opportunity to stand on red carpets and cut deals with foreign leaders. And then a third sort of more strategic agenda was to start telling China's story well and building relationships with foreign partners as a strategy for China's advancement that would link China's economic power to its political relationships. Those were the goals, so how did China set about achieving them?

For that, I went to Kevin Gallagher. He directs Boston University's Global Development Policy Center, which has been tracking the scale and scope of China's overseas lending. The first movers on all this are what we in the West call development banks. The China Development Bank and the Export-Import Bank of China, right, these are national, what China calls, policy banks. The China Development Bank and the Export-Import Bank of China, right, these are national what China calls policy banks. They're not looking to get a big private rate of return, they're looking to cover costs, but to literally sort of pave the way so that on more commercial terms their private firms can get in there. Following the great recession, China was struggling with what to do with excessive capacity, a glut of export goods

in need of foreign buyers. And those policy banks that Kevin described were in a strong position to open new markets for China and secure its short-term economic growth. These development banks were spraying money all over the place, but they weren't looking to make the huge profits. China has more of a portfolio approach. If I'm going to make a development bank loan in a particular country and that's going to secure more imports and secure more market share for

my firms when they move there. It's well worth that subsidy through the development bank. Between 2014 and 2019, China cut belt and road deals worth more than a hundred billion dollars every year. Doors were opening and China's lenders were making a strong first impression. One of the things that make countries choose the Chinese over the World Bank is sometimes you propose a project to the World Bank, it can take 24 months to actually get there. I once talked to a finance ministry in a particular country, and after they cut their first deal with the Chinese, they were shocked when they said,

okay, guys, thanks so much for the loan. I guess we'll see you in about 24 months. And the Chinese said, what are you talking about? It's 11 o'clock. I got my shovels in the truck. I arrived here a little over eight years ago in 2016, the year when Chinese lending to Africa was at its highest ever.

That's The Wall Street Journal's Gabrielle Steinhauser, our long-time Africa bureau chief. And particularly across sub-Saharan Africa, she says the results of China's unified and speedy approach to overseas financing are impossible to miss. From the moment you land, a lot of the airports are Chinese-built. A lot of the new highways that you might take from the airport into the capital city will be Chinese-built. Often you have Chinese hotels, you see Chinese people who live there, you have a presence of Chinese banks, of Chinese construction companies.

In Africa and elsewhere, Chinese firms using Chinese materials and Chinese workers often took the lead on big infrastructure projects. And remember what Ike Freiman said about Beijing's overlapping goals? Well, many of the projects it chose tied into its broader aims. For instance, when China built a high-speed railway in Kenya, it created work for Chinese developers, and it laid physical infrastructure to areas rich in resources that were previously hard to access. According to data compiled by Johns Hopkins, Chinese exports to Kenya more than doubled

between 2013 and 2023, while Kenyan exports to China of titanium and metals used for EV batteries have skyrocketed over the past few years. To be sure, not all Chinese-funded projects have been a success. Shoddy construction has plagued hydroelectric plants in Ecuador, Pakistan, and Uganda, structures that are supposed to last a century but which are already beset with literal cracks that are costly and time-consuming to repair and could threaten the project's long-term viability or even pose the risk of catastrophic failure. Others have yielded disproportionate benefits for China, like an expensive port in Sri Lanka

meant to help the island nation tap into lucrative Indian Ocean trade, but which has since been leased to a Chinese state company for 99 years after Sri Lanka struggled to repay its loans. So all of the debt for Sri Lanka with little infrastructure rewards to speak of. But on balance, Kevin Gallagher from Boston University told me China has gotten development projects off the ground plain and simple. You can see an increasing and sort of solidified share of Chinese firms just about everywhere you go in the world. So as for whether China has succeeded in aligning its actions behind a singular effort,

the answer is a strong yes. So what about building influence with foreign partners? The answer after a short break. This episode is sponsored by Northern Trust Wealth Management. There is more to being a successful entrepreneur than just good business practices. What is it about an entrepreneur's childhood that helped fuel their entrepreneurial spirit? What are entrepreneurs doing to cultivate this spirit in their own children and build a legacy beyond their business?

Tune in each month to the Road to WI podcast by the Northern Trust Institute, where host Eric Schapea dives deeper with leading entrepreneurs on these topics and more. Find the Road to WI where you listen to your favorite podcasts. Aside from forging closer trade relations, China's gotten plenty more out of its push to fund big infrastructure projects around the world. Our long-time Africa bureau chief Gabrielle Steinhauser told me that China has been able to build diplomatic relationships by being a convenient partner for political reasons too. For instance, if you want financing from the World Bank, there are a lot of hoops that

you need to jump through. They're going to look at your balance sheet, they're going to look at the specifics of this project, they're going to look at the environmental impact. They might say, actually, we don't want to invest in fossil fuels anymore. If you're a government that quickly wants to build something and maybe wants to show results to its citizens before the next election, somebody who maybe has fewer hoops to jump through is going to be an attractive partner. China's lax or lending standards, paired with its preference for striking deals directly with heads of state, made it that much easier to hand political wins to its partners.

Like when it completed that Kenyan railway I mentioned before the break just days before a key election. And Gabrielle told me you can actually size up the attractiveness of what China's offering by looking at family photos. I mean, the family photo, as they're called, you know, those pictures of all the leaders sort of like standing together and getting their photo taken. I mean, the photo Gabrielle says is so telling shows the number of African leaders who've shown up to a summit called the Forum on China Africa Cooperation over the years. Back in 2012, just

10 stood shoulder to shoulder with then Chinese President Hu Jintao, whereas last September in Beijing, it was 53. I was impressed. I mean, everybody was there. People who don't travel, people that we rarely see. And it was a bigger showing than the Americans had at Biden's U.S.-Africa summit at the end of 2022. In that way, China succeeded in achieving that second goal of the Belt and Road by becoming a partner other countries want to work with. That hasn't gone unnoticed.

In the first Trump administration, as an initial wave of Belt and Road projects were announced, broke ground, and turned heads, American officials and lawmakers like then-Senator and now-Secretary of State Marco Rubio tried to persuade countries not to partner with China. They come in with the promise of a big investment. And for a lot of these countries who have no other way of accessing the capital for these improvements, it sounds like a really good deal. Ultimately, they wind up in a debt trap.

In that scenario, often called a debt trap, China would offer loans to countries that it knows can't pay them back. And when they can't, China would seize collateral, maybe even land or strategic assets like ports, or make countries reliant on it in other ways. But Kevin Gallagher at BU says that if that was China's goal, it would have happened by now. The World Bank came out with its international debt statistics and they say the countries

in the global south are on the brink of another global debt crisis and countries are having a difficult time paying back Standard Charter in New York and paying back the Chinese in Beijing. And so this would be the time, right? This would be the time where China would just be going around and grabbing all these goodies around the world, but that's not happening at all. So China has accomplished its goal of finding willing partners in foreign leaders around the world. But what about that third goal of turning those diplomatic relations into ones

that boost China's long-term standing and security? That's after the break. Step into the heart of private markets with me, Philippa Leighton-Jones, together with thought leaders and industry experts from across financial services. In partnership with UBS, Crafting Capital, the evolving world of private markets, Even if China's not purposely trying to trap its Belt and Road partners in debt crises, the project poses other concerns for the West. As Ike Freiman at Stanford told me, the deeper China's relationships with borrowers become, the more its rules become how global business gets done, challenging Western-led norms and counterbalancing U.S. global influence in the process.

When you're looking outside China, I think it's important not to confuse the success or failure of individual projects with the political goals that China has. Because what China is offering is bigger than just one investment. It's a model of relationship between China and another country in which deals can be cut quickly, favors can be dispensed, and in return, you're going to acknowledge China's senior status. You're going to support China on China's core interests, which might be Taiwan, South China Sea, China's definition of human rights, and you're going to find ways to cooperate economically that help China advance its interests in your region. Pete Slauson All right.

So, political favors deepen the continuity of China's relationships and in turn, Beijing can keep, what, dialing up its ambitions? David Erickson So, the Belt and Road is not a fixed thing. And as China has grown more confident over the last decade, the language that China uses to describe its global goals for the initiative has changed in a really fundamental way. At the beginning, the language was all about we're gonna collaborate on economics as the basis for bringing peace and prosperity. And we have no aspiration to reshape global governance.

This is just a bunch of one-off win-win projects that we do with partners that want to collaborate with us. Fast forward 10 years, and you have Xi Jinping at the G20 talking about a vision for global governance that includes security cooperation, where he's using euphemisms to essentially talk about a Chinese-led world order that displaces the United States.

I think that signals the more powerful and confident that China feels, the harder it's going to push to make sure that the world system, including the structure of the world economic system, suits its interests. And the Belt and Road is one vehicle for China to push that agenda forward. Where does that end then? Last time I was in Beijing, I was told by a senior scholar that if there is a US-China rupture, China will survive and thrive because developing countries will take China's side. I don't know how seriously that view is held, but I think there is some merit to it.

So China has not only economic relationships established through this debt, they have deep political relationships, in some cases with both parties. We reached out to China's Ministry of Foreign Affairs for comment. They told us the Belt and Road Initiative is an economic cooperation program that benefits partner countries, not a geopolitical tool, and that how it works, quote, depends on the countries that jointly build it, end quote. The State Department didn't respond to our request for comment, but there is evidence for some of the concerns Ike just spoke about. More countries are backing Chinese policies on geopolitical issues,

from dropping recognition of Taiwan, as Belt and Road partners Panama and El Salvador have done, to voting to stop debate at the UN, as partners Cameroon, Indonesia, and Pakistan did in 2022 over Chinese treatment of Muslims in Xinjiang, which the US has called a genocide, a claim China strongly denies. Should China invade Taiwan, a number of foreign policy experts believe developing countries might opt out of Western efforts to isolate it or even actively support Beijing lest they

jeopardize their deepening bilateral ties. And with global public opinion surveys showing China's standing on the rise as more people equated with technological leadership and stability in a chaotic world, China's reputation could help it open doors overseas that we can't even think of yet. But despite China largely achieving the goals that it set out to address, Beijing is still in for a test. Here's our Chief China correspondent Lingling Wei again. Even within China, we have heard bankers complaining about being asked to finance projects that

have very little prospect of returns. Those loans are not free, right? We were told that based on our conversations with bankers in China, some banks really they have threatened to stop supporting certain projects unless regulators let them clarify that those loans were quote, policy instructed. That means you know the banks wouldn't be held accountable for defaults, for loan losses. So how is China rejiggering Belt and Road to make it more economically sound and to

serve its ambitions in a changing world? That's the focus of next Sunday's episode. But for now, that's it for What's New Sunday. Today's show was hosted and produced by me, Luke Vargas. Our sound designers are Jessica Fenton and Michael Laval. Michael wrote this series' theme music. Our supervising producer was Christina Rocca. We had editorial support from Chris Zinsley and Philana Patterson. Special thanks to Michael Phillips, Jonathan Cheng, and James Aradie. We will be back tomorrow with a new show. Until then, thanks for listening. This episode is sponsored by Northern Trust Wealth Management. There is more to being a successful entrepreneur than just good business practices.

What is it about an entrepreneur's childhood that helped fuel their entrepreneurial spirit? What are entrepreneurs doing to cultivate this spirit in their own children and build a legacy beyond their business? Tune in each month to the Road to Why podcast by the Northern Trust Institute, where host Eric Schapea dives deeper with leading entrepreneurs on these topics and more. Find the Road to Why where you listen to your favorite podcasts.