China faces a new test of its economic statecraft

The writer is senior research fellow on China in the Asia-Pacific Programme, Chatham House

When President Xi Jinping came to power in 2012, his vision was for China to become a leader of the Global South. His Belt and Road Initiative, launched in 2013, and the Global Development Initiative, which Xi announced at the UN General Assembly in September last year, are tools for projecting Chinese influence in the developing world.

Whether the GDI succeeds will serve as a test of China’s economic statecraft. The keyword in Beijing’s description of the initiative is sustainability, with the emphasis less on physical infrastructure projects, and more on poverty alleviation and sustainable development through grants and capacity-building, all with the stamp of approval of the UN’s 2030 Sustainable Development Goals.

The GDI has attracted less criticism thus far in the west than its older sibling, the colossal BRI with its reputation for opacity and a lack of financial sustainability. Nevertheless, it displays many of the distinctive characteristics of past grand Chinese initiatives. It is fluid in nature, opaque in implementation and flexible in the measures used to deliver projects and offer grants. This has long been the preferred style of Chinese political elites. Former Chinese leader Deng Xiaoping described his ethos for reform in the late 1970s as “crossing the river by feeling the stones”.

Xi has adopted the same approach with the GDI. Deng used this tactic for the domestic economy at a time when China was isolated in the aftermath of the Cultural Revolution. But Xi needs the involvement of many countries to achieve his vision, just as Beijing’s global relationships are becoming more fraught in the wake of the Russian invasion of Ukraine and a tense military and diplomatic stand-off over Taiwan.

Another issue is foreign assumptions about the nature of one-party rule in China and the belief that policy is immaculately planned and executed from the upper echelons of Xi’s team. This may lead to unrealistic expectations among the developing countries participating in the GDI. In fact, the initiative requires laborious co-ordination between various ministries, agencies and state-owned banks in Beijing.

China has already realised that aspects of its international development programmes are no longer as popular as they were — partly because some of these projects carry serious risks for participating countries without proper due diligence. In the case of the GDI, China should focus on producing a clear and concrete action plan tailored to specific regions and themes. This would enhance the scheme’s clarity and financial credibility.

But the eventual success of the GDI is not only dependent on China’s money and capability. It also relies upon the co-operation of around 60 countries that are already part of a GDI “Group of Friends” established within the UN in January 2022. For many countries in this group, the ravages of the Covid-19 pandemic have exacerbated problems with already fragile social welfare networks. These states, many of them extremely vulnerable, crave meaningful assistance rather than diplomatic bromides.

In the past two decades, China has poured hundreds of billions of dollars into building physical infrastructure across the developing world. Meanwhile, many of the countries involved have pinned their hopes on China, as well as the advanced economies, continuing to finance poverty alleviation programmes and public health provision.

But Beijing’s spending spree must come to an end as it grapples with its own economic woes. This presents China with a dilemma: can it tighten its belt while also maintaining close relations with developing countries? Beijing has sought to solicit their support in the multilateral institutions, notably on issues related to Taiwan.

The ultimate test of Beijing’s economic statecraft is whether it can engage with developing countries beyond relationships built on financial resources and diplomatic capital. Showering cash on these places is not always guaranteed to win hearts and minds. China must show that it understands what such economies really want from their interactions with it and what they fear, based on their experiences of past initiatives.

Beijing should avoid the mistakes it made with the BRI, and instead focus on high-quality project delivery and bringing real benefits to participating countries. This requires more than merely forming a Group of Friends, which promises much but risks delivering little.