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

Summary

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

Release Date: February 23, 2025
Host: Luke Vargas, The Wall Street Journal

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Introduction to the Great Power Rivalry

The episode delves into the intensifying competition between China and the United States, emphasizing the critical role of international alliances and infrastructure investments in this global power struggle. Ling Ling Wei, the Journal's chief China correspondent, underscores the importance of China’s expansive network:

“In the great power rivalry between the US and China, it matters who's on your side, whose network of trade partners is growing...” (00:29)

China's Belt and Road Initiative (BRI)

At the heart of China’s strategy is the Belt and Road Initiative (BRI), a massive infrastructure program launched in 2013. Luke Vargas explains that over the past decade, BRI has funneled over a trillion dollars into projects across approximately 150 countries, from highways in Pakistan to seaports in Sri Lanka.

“Since 2013, China's massive infrastructure program, known as the Belt and Road Initiative, has funneled a trillion plus dollars to projects...” (01:38)

Objectives of BRI

Ike Freeman, a Hoover Fellow at Stanford University, breaks down the multifaceted goals behind BRI:

1. Consolidate Domestic Control: “The goal of Belt and Road in 2013 was first and foremost, consolidate the domestic system around Xi Jinping...” (03:30)
2. Enhance Diplomatic Relations: Providing opportunities for China’s leadership to engage with foreign leaders.
3. Build International Influence: Linking economic power with political relationships to advance China’s global standing.

Execution and Adaptation

Kevin Gallagher from Boston University highlights how China’s development banks, such as the China Development Bank and the Export-Import Bank of China, have been pivotal in executing BRI. These banks prioritize strategic gains over immediate profits, enabling rapid deployment of infrastructure projects.

“These development banks were spraying money all over the place, but they weren't looking to make the huge profits...” (05:16)

From 2014 to 2019, China secured over $100 billion annually in BRI deals, quickly establishing its presence. Gabrielle Steinhauser, the Africa bureau chief, observes the tangible outcomes in regions like Sub-Saharan Africa, where Chinese-built airports and highways are now commonplace.

“From the moment you land, a lot of the airports are Chinese built... You have Chinese banks of Chinese construction companies.” (06:41)

Impact and Challenges of BRI Projects

While BRI has successfully launched numerous projects, not all have been without issues. Instances of shoddy construction in Ecuador, Pakistan, and Uganda have raised concerns about the long-term viability of some infrastructure. Additionally, the Sri Lankan port project exemplifies potential pitfalls, where inability to repay loans led to a 99-year lease to a Chinese state company.

“All of the debt for Sri Lanka, with little infrastructure, rewards to speak of.” (07:03)

Despite these challenges, Gallagher asserts that China has effectively mobilized development projects globally:

“You can see an increasing and sort of solidified share of Chinese firms just about everywhere you go in the world.” (08:51)

Diplomatic Leverage and Influence

China’s ability to provide swift and decisive infrastructure solutions has positioned it as a preferred partner over traditional Western institutions like the World Bank. Gabrielle Steinhauser points out that China’s lenient lending standards and direct negotiations with heads of state have enhanced its diplomatic clout.

“China's laxer 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.” (10:53)

The growing attendance at the Forum on China Africa Cooperation—from 10 leaders in 2012 to 53 in 2024—illustrates China’s expanding diplomatic influence.

“Back in 2012, just 10 stood shoulder to shoulder with then Chinese President Hu Jintao, whereas last September in Beijing, it was 53.” (11:26)

Western Response and Concerns

Initially, U.S. officials like Senator Marco Rubio criticized BRI for creating “debt traps,” where countries become overly indebted to China and lose strategic assets. However, Kevin Gallagher counters this narrative by noting that China has not yet capitalized on such opportunities to seize assets, despite global debt crises.

“If that was China's goal, it would have happened by now. But that's not happening at all.” (13:03)

Long-Term Strategic Goals

Ike Freeman elaborates on how BRI serves China’s broader geopolitical ambitions. As China's confidence grows, so does its intent to influence global governance and reshape international norms to align with its interests.

“Fast forward 10 years and you have Xi Jinping at the G20 talking about a vision for global governance that includes security cooperation...” (15:31)

Freeman suggests that China’s deepening relationships through BRI could enable it to withstand potential ruptures with the U.S., leveraging support from developing nations.

“China has not only economic relationships established through this debt, they have deep political relationships...” (16:47)

Rejiggering BRI for Sustainability

Despite its successes, BRI faces internal pressures within China. Ling Ling Wei reports issues within Chinese banks, where there are pushbacks against financing unprofitable projects unless deemed “policy instructed,” indicating a shift towards more economically sound practices.

“Some banks really, they have threatened to stop supporting certain projects unless regulators let them clarify that those loans were, quote, policy instructed.” (18:51)

Conclusion and Future Outlook

The episode concludes by acknowledging China’s significant achievements with BRI in expanding its global footprint and influence. However, it also highlights the ongoing challenges and the necessity for China to adapt its strategies to maintain economic sustainability and political ambitions. Upcoming episodes will further explore China's evolving lending practices and Western responses to its infrastructure dominance.

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Notable Quotes:

• Ling Ling Wei: “In the great power rivalry between the US and China, it matters who's on your side...” (00:29)
• Ike Freeman: “The goal of Belt and Road in 2013 was first and foremost, consolidate the domestic system around Xi Jinping...” (03:30)
• Kevin Gallagher: “These development banks were spraying money all over the place, but they weren't looking to make the huge profits...” (05:16)
• Gabrielle Steinhauser: “From the moment you land, a lot of the airports are Chinese built...” (06:41)
• Marco Rubio: “They come in, you know, with the promise of a big investment... Ultimately, they wind up in a debt trap.” (12:29)
• Ike Freeman: “China has not only economic relationships established through this debt, they have deep political relationships...” (16:47)

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This comprehensive summary encapsulates the key discussions and insights from the episode, providing a clear understanding of how China's Belt and Road Initiative is strategically undermining U.S. global dominance through extensive infrastructure investments and diplomatic maneuvers.

Transcript

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[Ling Ling Wei]

Wallstreet as the competition between China and the west, especially the United States, intensifies, it really is important how big your friend circle is.

[Luke Vargas]

That's the Journal's chief China correspondent, Ling Ling Wei. And she's far from alone in noting that in the great power rivalry between the US 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 has been either indifferent or inconsistent in its dealings with wide swathes 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.

[Gabrielle Steinhauser]

Highway in Pakistan, a new seaport in.

[Luke Vargas]

Sri Lanka, China's signature foreign policy outreach project. China and Latin America are getting closer together. Algeria, Ethiopia, Kenya hydropower plant in Uganda.

[Gabrielle Steinhauser]

A motorway in Serbia, South Africa, Mozambique.

[Luke Vargas]

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? 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 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 Bullivant 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.

[Ike Freeman]

I think the thing to understand is that China never does anything for just one reason.

[Luke Vargas]

That's Ike Freeman, a Hoover Fellow at Stanford University and author of the book One Belt, One Chinese Power Meets the World.

[Ike Freeman]

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.

[Luke Vargas]

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.

[Kevin Gallagher]

The first movers on all this are what we'd 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. They're not looking to get a big private rate of return. They're looking to cover costs, but to, to literally sort of pave the way so that on more commercial terms, their private firms can get in there.

[Luke Vargas]

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.

[Kevin Gallagher]

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.

[Luke Vargas]

Between 2014 and 2019, China cut Belt and Road deals worth more than $100 billion every year. Doors were opening and China's lenders were making a strong first impression.

[Kevin Gallagher]

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 could 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 11:00. I got my shovels in the truck.

[Gabrielle Steinhauser]

I arrived here a little over eight years ago, in 2016, the year when Chinese lending to Africa was at its highest ever.

[Luke Vargas]

That's the Wall Street Journal's Gabrielle Steinhauser, our longtime 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.

[Gabrielle Steinhauser]

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. Chinese banks of Chinese construction companies.

[Luke Vargas]

In Africa and elsewhere, Chinese firms using Chinese materials and Chinese workers often took the lead on big infrastructure projects. And remember what Ike Freeman 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 Ugand, 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.

[Kevin Gallagher]

You can see an increasing and sort of solidified share of Chinese firms just about everywhere you go in the world.

[Luke Vargas]

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, ADP imagines a world of work where smart machines become too smart. Copier.

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[Gabrielle Steinhauser]

For instance, if you want financing from the World bank, there are a lot of hoops that you need to jump through, right? 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.

[Luke Vargas]

China's laxer 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.

[Gabrielle Steinhauser]

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.

[Luke Vargas]

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.

[Gabrielle Steinhauser]

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 US Africa summit at the end of 2022.

[Luke Vargas]

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.

[Marco Rubio]

They come in, you know, 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.

[Luke Vargas]

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.

[Kevin Gallagher]

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.

[Luke Vargas]

So China has accomplished its goal of finding willing partners in foreign 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.

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[Luke Vargas]

Even if China's not purposefully trying to trap its Belt and Road partners in debt crises, the project poses other concerns for the West. As Ike Freyman 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 US global influence in the process.

[Ike Freeman]

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.

[Luke Vargas]

All right, so political favors deepen the continuity of China's relationships and in turn, Beijing can keep what, dialing up its ambitions.

[Ike Freeman]

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 going to 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.

[Luke Vargas]

Where does that end then?

[Ike Freeman]

Last time I was in Beijing, I was told by a senior scholar that if, 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.

[Luke Vargas]

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 depends on the countries that jointly build it. 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 equate it 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, Ling Lingwei.

[Ling Ling Wei]

Again, even within China, we have heard bankers complaining about being asked to finance projects that had 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.

[Luke Vargas]

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 News Sunday. Today's show was hosted and produced by me, Luke Vargas. Our sound designers are Jessica Fenton and Michael Lavalle. Michael wrote this series theme music. Our supervising producer was Christina Rocca. We had editorial support from Chris Zinsley and Falana Patterson. Special thanks to Michael Phillips, Jonathan Cheng and James Arity. We will be back tomorrow with a new show. Until then, thanks for listening.