Journal of Contemporary China

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Motivation behind China’s ‘One Belt, One Road’

Initiatives and Establishment of the Asian
Infrastructure Investment Bank

Hong Yu

To cite this article: Hong Yu (2017) Motivation behind China’s ‘One Belt, One Road’ Initiatives
and Establishment of the Asian Infrastructure Investment Bank, Journal of Contemporary
China, 26:105, 353-368, DOI: 10.1080/10670564.2016.1245894

To link to this article: https://doi.org/10.1080/10670564.2016.1245894

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Journal of Contemporary China, 2017
VOL. 26, NO. 105, 353–368
http://dx.doi.org/10.1080/10670564.2016.1245894

Motivation behind China’s ‘One Belt, One Road’ Initiatives and

Establishment of the Asian Infrastructure Investment Bank
Hong Yu
East Asian Institute, National University of Singapore, Singapore

ABSTRACT
The ‘One Belt, One Road’ (OBOR) initiatives form the centerpiece of the
Chinese leadership’s new foreign policy. The OBOR initiatives are a reflection
of China’s ascendance in the global arena, economically, politically, and
strategically. Developing inter-connectivity of infrastructure development
forms a central part of China’s OBOR initiatives. The Asian Infrastructure
Investment Bank (AIIB) aims to facilitate and accelerate infrastructure
improvement in the region by providing capital loans and technical services.
The AIIB will serve as the spearhead of China’s OBOR initiatives. The AIIB
and OBOR initiatives have put China at the center of geoeconomics and
geopolitics in the region and beyond, a position from which it hopes to
strengthen its economic ties with other Asian countries. The new Silk Road
initiatives also provide a channel for Chinese companies and capital to
invest in other countries by leveraging China’s strengths in infrastructure
development, financial power and manufacturing capacity. The OBOR
initiatives and the AIIB could change the economic and political landscape
of Asia, the most dynamic and economically vibrant region of the twenty-
first century. However, China faces serious challenges, both internally and
externally, in implementing these initiatives.

China Unveils its ‘One Belt, One Road’ Initiatives

During Chinese President, Xi Jinping’s visit to Kazakhstan and Indonesia in October 2013, he outlined
China’s ambitious plans for the so-called ‘Silk Road Economic Belt’ and ‘Maritime Silk Road of the Twenty-
First Century’ respectively, contemporary versions of the centuries-old Silk Road trade routes. On land,
the ‘Silk Road Economic Belt’ would mainly target Central Asia and Europe, while the Maritime Silk Road
would mainly target Southeast, South and North Asia. These two initiatives were eventually combined
into the ‘One Belt, One Road’ initiative (OBOR), with China as its hub.
This is to be a far-reaching strategy with regional and global implications for decades to come; as such
it has attracted increasing interest among government officials, academia and the business community.
Since the announcement of the OBOR strategy the Chinese government has been conducting a
charm offensive towards Asian and other countries along the historical Silk Road route, fully mobilizing
its political, economic and diplomatic resources in order to forge a positive image of the New Silk Road
strategy among the international community.
China’s OBOR initiatives are rooted in history and inspired by the historic Silk Road (丝绸之路), an
extensive network of maritime and land routes for trade, communication and cultural exchanges that

CONTACT  Hong Yu  eaiyuh@nus.edu.sg

© 2016 Informa UK Limited, trading as Taylor & Francis Group
354    H. Yu

once linked China with the countries of Asia, Middle East, and Africa to Europe. It fell into disuse around
the 1600s after a few glorious centuries. The Chinese authority describes Southeast Asia as an important
commercial hub along the maritime Silk Road route, playing an indispensable role in expanding China’s
external trade with the outside world. In the early fifteenth century, under the command of Admiral
Zheng He, the Ming emperor dispatched a series of naval expeditions and treasure ships to foreign
countries, reaching as far as the South China Sea, Indian Ocean and the African continent.1 Hence, the
trade links between China and its neighboring littoral states in the region were established in ancient
times. China is now keen for this historical Silk Road to be revived.
However, Zheng He’s main mission was not to promote trade and build friendly relations with coun-
tries and regions along the route, but instead to demonstrate China’s sea power and the formidable
imperial rule of Emperor Yongle.2 In fact, most of the maritime trade across the Silk Road routes was not
initiated by the Chinese, and imperial China’s trade with the Southeast Asian littoral states was limited,
as was its maritime prowess. The historian Wang Gungwu’s studies show that expansion of the Chinese
empire had been consistently landwards and Chinese rulers were consistently passive about forging
maritime contact with the outside world, despite sporadic maritime trade links with Southeast Asian
ports during Emperor Yongle’s era. After his death, his successors showed little interest in maritime
trade with the outside world. The Dutch and Portuguese played an important role in maritime trade
with Southeast Asia along the Silk Road, whilst by the eighteenth century the British had started to
play a dominant role in the maritime routes in the region.3
The Chinese government is eager to strengthen China’s political influence and promote closer
economic integration with its neighboring Asian nations via improvement of physical inter-regional
connectivity under the framework of the OBOR strategy. To support implementation of the OBOR
strategy, China led the establishment of the Asian Infrastructure Investment Bank (AIIB). The AIIB and
the new Silk Road initiatives demonstrate that China is now starting to take on a leadership role to
reflect its position as a rising global power. The AIIB and OBOR initiatives have made China the center
of geoeconomics and geopolitics in the region and beyond. China is a central actor both in the region
and on the world’s economic and political stage. China’s rising geo-economic power means that it is
now the largest trading and economic partner for most of the Asian countries.
Whilst geopolitics and geoeconomics are different concepts with different meanings, the two are
closely interrelated. The concept of geopolitics is defined as ‘an old expression shaped by both academic
and popular usages going back to imperial concerns with the links between geography, state territo-
riality, and world power politics.’ In contrast, geo-economics is a relatively new concept, ‘geoeconomic
visionaries tend as a result to anticipate capitalist inclusion rather than the expulsion or containment
of evil others. Their focus is on networks not blocs, connections not walls, and transborder ties instead
of national territories’.4 In essence, geopolitics studies the influence of such aspects as military, political,
human resources and other hard power elements on the policy of a state, particularly its foreign policy.
Meanwhile geo-economics focuses more on economic space, covering transportation connectivity,
networks, commerce, trade, investment, and financial and economic strengths. Geo-economics con-
cerns a nation’s pursuit of strong economic performance and sustainable economic competitiveness.
However, geopolitics and are two sides of the same coin, the political dimension of geoeconomics being
strongly intertwined with the competitive economic dimension of geopolitics.

1
Daniel C Waugh, ‘The silk roads in history’, Expedition 52(3), (2011), pp. 9-22; Jeremy Page, “Chinese territorial strife hits archaeology,”
The Wall Street Journal, 2 December 2013, accessed 19 February 2014, http://online.wsj.com/news/articles/SB10001424052702
304470504579164873258159410.
2
Gungwu Wang, ‘China and South-East Asia 1402–1424’, in Studies in the Social History of China and South-East Asia, eds. Jerome
Ch’en and Nicholas Tarling (Cambridge: Cambridge University Press, 1970), pp. 375-405.
3
Gungwu Wang, ‘The China Seas: becoming an enlarged Mediterranean’, in The East Asian ‘Mediterranean: Maritime Crossroads
of Culture, Commerce and Human Migration, ed. Angela Schottenhammer, (Wiesbaden: Harrassowitz Verlag, 2008), pp. 7–22.
Gungwu Wang, ‘Southeast Asia: imperial themes’, New Zealand Journal of Asian Studies 11(1), (2009), pp. 36–48.
4
Matthew Sparke, ‘Geopolitical fears, geoeconomic hopes, and the responsibilities of geography’, Annals of the Association of
American Geographers 97(2), (2007), pp. 339–340.
 Journal of Contemporary China   355

China has leveraged its formidable economic power to pursue its long-term strategic geopolitical goals. China
aims to further deploy its growing national capacity and utilize its economic and financial power to expand its
geopolitical influence in the region and overseas. The countries along the Silk Road routes will thus be brought
into China’s economic orbit. Graham Allison comments:5The preeminent geostrategic challenge of this era is not
violent Islamic extremists or a resurgent Russia. It is the impact that China’s ascendance will have on the U.S.-led
international order, which has provided unprecedented great-power peace and prosperity for the past 70 years.
The rise of China as a formidable global economic power is enabling it to expand its geopolitical influ-
ence. The implementation of OBOR initiatives will give China greater access to energy and other natural
resources, from countries such as Turkmenistan, Kazakhstan and Russia, and enormous markets along
the Silk Road route to power sustained economic growth at home and advance its national economic
interests abroad. The infrastructure development, trade and economic initiatives of the Silk Road strat-
egy will reinforce China’s geopolitical position in the region and throughout the world.
Although the OBOR strategy and the establishment of the AIIB have received much international
media attention, these topics have rarely been exposed to academic scrutiny. What is the motivation
and rationale behind China’s new Silk Road strategy and the establishment of the AIIB? What will be the
role of the AIIB in the OBOR initiatives? What major challenges face China in implementing this grand
strategy? This article intends to address these serious issues.
For the completion of this article, the author made two fieldwork trips to Guangxi and Yunnan
provinces, China, in May and June 2014. Many of the analyses and views in this article are based on the
author’s interviews with local officials and scholars, and personal experiences.
This article is divided into six sections. The current part presents an Introduction to China’s OBOR
initiatives. The second section analyzes the motivation and rationale behind China’s new Silk Road
initiative. The third section discusses the motivation behind China’s plan to establish the AIIB. The
fourth section provides analysis on the race for founding membership of the AIIB and the United States’
reaction to the bank. The fifth section presents the main challenges China faces in implementing this
grand initiative. The final section presents concluding thoughts.

Motivation and Rationale behind China’s OBOR Initiatives

Since introducing the OBOR initiative, the Chinese government has been criticized on the grounds that
the initiative is too vague a concept and might just be an example of hollow government rhetoric.6
Against this backdrop, on 28 March 2015, China’s National Development and Reform Commission
(NDRC), Ministry of Commerce and Ministry of Foreign Affairs jointly released the lengthy ‘Vision and
Actions on Jointly Building the Silk Road Economic Belt and 21st Century Maritime Silk Road’7 (the Blueprint)
outlining relevant frameworks, principles and action plans. Although still short on some detail, this
Blueprint provides the clearest overall picture yet of the Silk Road strategy and demonstrates China’s
serious attempt to materialize its grand vision.
The new Silk Road initiatives represent Xi’s most ambitious foreign policies, demonstrating a new
policy direction for China and its aspirations for global ascendancy. The OBOR initiatives are a reflec-
tion of China’s ascendance as well as her growing power in the global arena. China’s new initiatives
are pragmatic, being driven by economic, historical and strategic motivations. As China is a one-party
ruled country, the process of foreign policy formulation lacks transparency and is hidden from the
outside world, although the other political Parties, academia and the business community may play
a consultative role.

5
Graham Allison, ‘The Thucydides Trap: are the US and China headed for war?’ the Atlantic, 24 September 2015, accessed 14 December
2015, http://www.theatlantic.com/international/archive/2015/09/united-states-china-war-thucydides-trap/406756/.
6
Lucio Blanco Pitlo III, “China’s ‘One Belt. One Road’ to where?” The Diplomat, 17 February 2015, accessed 28 March 2015, http://
thediplomat.com/2015/02/chinas-one-belt-one-road-to-where/.
7
Ministry of Foreign Affairs of the People’s Republic of China, ‘Vision and Actions on Jointly Building Silk Road Economic Belt and 21st
Century Maritime Silk Road,’ 28 March 2015, accessed 2 April 2015, http://www.fmprc.gov.cn/mfa_eng/zxxx_662805/t1249618.
shtml.
356    H. Yu

Compared with the previous era, China’s foreign policy direction has changed substantially over the
past several years, in particular after 2008, and it is now more proactive, assertive and globally-driven.
Against the backdrop of domestic economic slowdown, boosting Chinese economic growth has been
one of the main drivers of foreign policy decision-making in Xi’s China. The domestic economic situa-
tion is a major consideration in the making and implementation of China’s OBOR initiatives. Given the
rising regional interdependency of the globalization era, the OBOR initiatives are an important tool for
Beijing to flex its financial muscle to advance China’s economic interests abroad.
More importantly, China’s proactive foreign policy has been influenced by the increasing sense of
national pride that has accompanied the emergence of China as a global power and the world’s second
largest economy. The Chinese people by and large have become more confident about their nation.8
Meanwhile, the Chinese leaders have been increasingly responsive to this popular nationalism. Zhao
Suisheng argues that the Chinese government has become more accountable to popular nationalist
calls since 2008 in terms of its muscular foreign policy, which he referred to as a ‘strident turn’ for China.9
The transformation of China’s foreign policy began late in the era of Hu Jintao, the former Chinese
President. As its economic and financial power accumulated, China began to engage in multilateral
regional cooperation platforms. Hence, China’s proactive foreign policy under the current leader Xi is a
reflection of continuity rather than radical change. Nevertheless, like their predecessors, the new Chinese
leaders need to show innovation in foreign policy by announcing new policies that will distinguish
their leadership strategy and advance China’s national interests abroad in a fast changing international
environment. The OBOR initiatives form a centerpiece of China’s new foreign strategy under Xi Jinping,
in particular with regard to its neighboring countries in Asia.
By pushing for the OBOR initiatives, the Chinese government has rebranded and integrated the
various existing regional cooperation mechanisms to facilitate regional economic integration and
advance its national interests through improvement of inter-regional connectivity. These cooperation
mechanisms include the Shanghai Cooperation Organization (SCO), ASEAN Plus China (10+1), China-
ASEAN (Association of Southeast Asian Nations) Expo, Asia-Pacific Economic Cooperation (APEC), and
Greater Mekong Sub-region Economic Cooperation (GMS). Through its active role in relation to these
cooperation mechanisms, China seeks to gain support from the respective countries in promoting the
OBOR initiatives.
The scale and pace of change in China’s foreign policy under Xi have been unprecedented and
have surprised many China watchers. Fravel once predicted that ‘Xi and the new Politburo Standing
Committee may not launch new initiatives of their own for perhaps one or two years.… Chinese foreign
policy under Xi Jinping is likely to remain inherently reactive and not proactive’.10 The ascendancy of
China in the global arena and Xi’s initiation of a new foreign policy agenda in such a short period of
time have astonished both the region and onlookers in the West. The new Silk Road and AIIB proposals
demonstrate China’s capability to develop its own initiatives for financial and economic governance
in the region.
China has now turned a corner in its foreign policy decision-making, and is determined to reshape
the world order rather than be shaped by the changing world. Compared with his predecessors, Xi
has abandoned China’s long-held policy of ‘keeping a low profile in international affairs’ adhered to
since the 1980s by the previous leader Deng Xiaoping. China’s foreign policy is now more centralized,
proactive and even aggressive. Xi has centralized foreign policy-making power under his own direction
since he came to power in 2012, chairing the Central Leading Group for Foreign Affairs, the highest
authority for foreign policy decision-making in China, which demonstrates his strong man image and
his ambitious vision.

8
Shaun Breslin, ‘China and the global order: signaling threat or friendship?’, International Affairs 89(3), (2013), pp. 615–634.
9
Suisheng Zhao, ‘Foreign policy implications of Chinese nationalism revisited: the strident turn’, Journal of Contemporary China
22(82), (2013), pp. 535–553.
10
Taylor Fravel, ‘Foreign policy under Xi Jinping,’ The Diplomat, 23 November 2012, accessed 10 December 2015, http://thediplomat.
com/2012/11/foreign-policy-under-xi-jinping/.
 Journal of Contemporary China   357

One of the major objectives of China’s foreign policy towards Asia is to maintain friendly neigh-
borhood relations by promoting regional economic integration and improving regional connectivity,
in order to achieve primacy in the region and beyond. In 2014, during a Chinese central government
conference on foreign affairs, Xi Jinping remarked that China needs to develop a ‘distinctive diplomatic
approach befitting its role as a major country’.11 The Chinese government accords Asia high priority in
its foreign policy. As shown in the empirical findings by Ramasamy et al., over the last decade Asia has
accounted for more than 50% of total stock of China’s outward foreign investment.12
It is understandable that China felt obliged to take a low-profile, passive approach to foreign policy
when it was a poor developing nation with many thorny domestic issues and limited financial resources.
However, over the past two decades China has become far more powerful than in Deng’s era, and it is
now able to project its power in Asia and beyond. With its rise as a global power after three decades
of economic reform and opening up, China has started to take a more proactive foreign policy stance
to safeguard its domestic development, and to advance its national strategic and economic interests
abroad. Xi views the change to China’s foreign policy as necessary to match its ascendancy as the rising
global power. Xi intends that China will one day become a rule-shaper in the global arena and regain
a position of pre-eminence in the world.
From the economic perspective, this strategy serves three main purposes for China. First, through
promoting its OBOR strategy, China is keen to help Asian countries to modernize their infrastructure
and improve cross-border transport and other crucial infrastructure facilities. This in turn will help China
to forge strong bilateral trade and economic integration with its Asian neighbors.
Connectivity is the shortcut to economic prosperity. Economic geography theorists have long argued
the importance of infrastructure development in overcoming backward geographical conditions and
reducing the high costs of production in landlocked countries.13 Infrastructure provides the foundation
for industrial and economic prosperity. For example, the comparative cross-regional study by Calderón
and Servén describes the significant contribution made by infrastructure development to economic
growth in Sub-Saharan Africa.14
China is convinced that its new Silk Road strategy will boost regional trade and economic develop-
ment in Asia through inter-regional infrastructure improvement and industrial transfer. In particular,
high-speed railway connectivity and maritime trade via deep-water ports and harbors are viewed
as key pre-conditions for economic take-off and prosperity. China’s ports lead the world in global
shipping and cargo transportation. In 2014, Shanghai ranked as the largest exporter of containerized
goods worldwide, whilst ten of China’s ports were included among the world’s top 20 container ports.15
China’s superiority in this field of commerce provides the foundation for building close maritime ties
with other countries along the Silk Road routes, and achieving further transport cooperation with Asian
countries in the future.
China’s economic growth is powered by its massive export-oriented manufacturing industries, while
it has to import large amounts of intermediate components and raw resources to power these industries.
As the transport of these raw materials and semi-finished goods to China largely depends on maritime
shipping, a secure and reliable maritime trade shipping line is crucial to China.

11
Ministry of Foreign Affairs of People’s Republic of China, ‘The Central Conference on Work Relating to Foreign Affairs was held in
Beijing,’ 29 November 2014, accessed 4 June 2015, http://www.fmprc.gov.cn/mfa_eng/zxxx_662805/t1215680.shtml.
12
Bala Ramasamy, Matthew Yeung and Sylvie Laforet, ‘China’s outward foreign direct investment: location choice and firm ownership’,
Journal of World Business 47, (2012), pp. 17–25.
13
Gerald Kraft, John R. Meyer and Jean-Paul Valette, The Role of Transportation in Regional Economic Development (London:
D.C. Health and Company, 1971). Spiros Bougheas, Panicos O. Demetriades and Edgar L.W. Morgenroth, ‘Infrastructure, transport
costs and trade’, Journal of International Economics 47, (1999), pp. 169–189. J. Vernon Henderson, Zmarak Shalizi and Anthony
J. Venables, ‘Geography and development’, Journal of Economic Geography 1, (2001), pp. 81–105.
14
César Calderón and Luis Servén, ‘Infrastructure and economic development in Sub-Saharan Africa’, Journal of African Economies
19(AERC Supplement 1), (2010), pp. i13–i87.
15
American Association of Port Authorities, ‘World Port Rankings 2014,’ 2014, accessed 11 September 2016, http://www.aapa-ports.
org/unifying/content.aspx?ItemNumber=21048.
358    H. Yu

From the Chinese perspective, relocating some excessive production capacity to neighboring
Southeast Asian Silk Road countries where there is a demand will also be beneficial to their economies
and accelerate local industrialization, through engaging in bilateral infrastructure, trade and investment
cooperation and tapping into China’s huge domestic markets. China also needs to engage with other
fast emerging Asian markets, to power sustainable domestic economic development.
Second, in seeking to gain more profits and expand their global business operations, Chinese com-
panies have strong incentives under the OBOR initiatives to invest their capital in other nations and
implement a ‘going-out’ strategy. China is eager to participate in the construction of port and other
related facilities in this region as such outward infrastructure investment will boost its manufacturing
investment and hence its economic growth.
The Silk Road countries will provide new markets for China’s enormous excess of manufactured
products and construction capacity. Although China is pursuing more balanced economic growth in
which domestic consumption will play a major role, this is a very difficult task and it will take time. The
export sector is thus still essential to boost the Chinese economy and domestic industrial develop-
ment. The export of ‘Made in China’ goods to the Asian countries will help to absorb many of China’s
manufactured goods, such as iron and steel, aluminum, shipbuilding products, cement and flat-panel
glass, which will help to address domestic production overcapacity and stimulate domestic economic
growth through upgrading of its industries.
Thirdly, the OBOR initiatives could enable China’s vast inland western regions such as Xinjiang and
Yunnan to improve internal economic integration and participate in global trade. Implementing these
initiatives will improve inter-regional connectivity of the land-locked western regions and allow them
direct access to port facilities in neighboring countries. As an example, Yunnan Province needs cross-bor-
der economic links in order to achieve rejuvenation and economic prosperity. Its land connectivity with
the ASEAN will be strengthened through cooperation on expressway and railways, and development
of its ports and harbor-related and airport infrastructure.
Yunnan borders three ASEAN countries, Myanmar, Laos and Vietnam, and is a short distance from
India and Bangladesh in South Asia, Thailand and Cambodia in Southeast Asia. This geographical advan-
tage enables Yunnan to serve as the international gateway or connector for China, Southeast Asia and
South Asia. Yunnan could become a key littoral or gateway for China’s OBOR strategy.
Fourth, from the historical perspective, the rationale behind China’s OBOR initiative is to revive its
historical Silk Road. The Silk Road initiatives echo the so-called ‘China Dreams’ of the great revival of the
Chinese nation, which was first announced by President Xi Jinping in November 2012,16 and has been
reiterated by the Chinese leaders in their speeches thereafter. The Chinese leadership sees the OBOR
proposal as an important step on the road to reclaiming China’s historical global position.
Many China observers and analysts argue that the OBOR strategy is China’s version of the Marshall
Plan, whereby United States (US) loans and investment helped to rebuild Europe after World War II. In
fact, China’s ambition far exceeds that of the Marshall Plan. Whilst the Marshall Plan was restricted in
scope to the region of Europe, China’s new Silk Road strategy is globally-oriented: from the geographical
perspective it stretches across 60 countries along envisioned routes extending through Asia, Middle
East, Europe and even Africa, and could potentially generate an even greater international impact.

Establishment of the China-led AIIB

Inter-connectivity infrastructure development forms a central part of China’s OBOR strategy. The AIIB,
which has its headquarters in Beijing, will spearhead the strategy by facilitating and accelerating infra-
structure improvement in the region by providing capital loans and technical services. The AIIB was
formally launched during a signing ceremony attended by the 21 Asian founding member countries.

‘China’s Future: Xi Jinping and the Chinese dream,’ The Economist, 4 May 2013, accessed 20 February 2014, http://www.economist.
16

com/news/leaders/21577070-vision-chinas-new-president-should-serve-his-people-not-nationalist-state-xi-jinping.
 Journal of Contemporary China   359

Xi Jinping personally met the heads of delegations from these 21 states, and hailed the establishment
of the AIIB as an important development for Asia.
According to the articles of agreement (AOA)17 of the bank, China will hold a total voting share of
over 26% due to its contribution of US$29.78 billion. China is the largest investor in the AIIB and its
largest shareholder. As written in the AOA, at least 75% of total votes are required in order to amend
the AOA, adjust the capital shares of regional members, increase the capital base of the bank and make
other major changes. Thus, China has the de facto veto power in the bank.
With over US$3.5 trillion in foreign exchange reserves, China has plentiful financial resources for
aiding infrastructure development in underdeveloped nations in the region. The establishment of the
AIIB is a reflection of China’s push for outward investment globally. China is winning over many devel-
oping countries in Asia, Africa and Latin America with preferential loans and grants for infrastructure
development. Since the announcement of the AIIB proposal, many Asian countries have been eager to
gain financial assistance from China for large-scale public infrastructure projects that they are incapable
of self-funding. The AIIB is hence an important financial tool for China in increasing its geoeconomic
influence in the region and increasing the international momentum of the OBOR strategy.
China’s motivation for establishment of the AIIB is based both on external and internal considerations.
From the external perspective, one of the main drivers is the urgent need among Asian countries for
investment for infrastructure development. Many developing Asian countries are faced with the task
of upgrading their totally inadequate and inefficient road, air transport, port and railroad infrastruc-
ture, which is a key barrier to achieving local economic take-off and regional integration. As shown
in the global competitiveness index published by the World Economic Forum in 2013,18 the majority
of Southeast Asian and South Asian countries come out very poorly in international comparisons of
quality of transportation and other critical infrastructure.
For such countries, infrastructure underdevelopment is a major obstacle to economic advancement.
Frequently-occurring electricity and water shortages, inadequate and outdated infrastructure facilities
have not only held back ordinary people’s living standards, but also impeded local industrialization and
foreign investment. According to the report published by the Japan External Trade Organization (JETRO)
in 2014, inadequate infrastructure remains the biggest challenge for the investment environment in
the region.19 These countries are therefore unable to meet the infrastructure demand created by their
increasing middle-class populations and the rapid urbanization within the region. For example, by 2020,
Thailand, Malaysia, Philippines and Indonesia will between them have 40 million new urban residents20
and will need massive investment in infrastructure as well as much technical and professional assistance
in order to unlock their full development potential.
As a case in point, aged and inadequate port infrastructure has made intra and inter-regional mari-
time transportation extremely costly in many Asian countries and impeded their formation of maritime
cooperation with China. Moreover, they lack the financial resources to upgrade their existing facilities.
For instance, the Director General of the Cambodia Chamber of Commerce states that Cambodia badly
needs more foreign investment to construct deep-water ports and other infrastructure facilities to
accommodate large-scale cargo ships.21
However, the World Bank and the Asian Development Bank (ADB) combined do not have adequate
capacity to meet this huge investment demand, whilst the high-risks and long construction cycles of
infrastructure development projects have deterred private investors. Against this backdrop, the aim
of the AIIB is to fill this investment gap regarding infrastructure construction in Asian countries. This

17
AIIB, ‘Asian Infrastructure Investment Bank Articles of Agreement’, pp. 1–34, accessed 8 December 2015, http://www.aiib.org/
uploadfile/2015/0814/20150814022158430.pdf .
18
World Economic Forum, The Global Competitiveness Report 2013-2014 (Geneva, Switzerland, 2013), pp. 1–551.
19
JETRO, ‘2014 JETRO global trade and investment report: on making Japan a base for international business circulation,’ 7 August
2014, accessed 14 December 2015, https://www.jetro.go.jp/en/news/releases/2014/20140807856-news.html.
20
Goldman Sachs, ‘ASEAN’s half a trillion dollar infrastructure opportunity,’ Asia Economics Analyst Issue 13/18, (May 2013).
21
’Interview: China’s “Maritime Silk Road” initiative vital to further enhance ties with ASEAN: Cambodian exports,’ Xinhua News, 18
January 2014, accessed 20 February 2014, http://news.xinhuanet.com/english/indepth/2014-01/18/c_133055311_2.htm.
360    H. Yu

bank will provide a new financial tool for China, and funding Asian connectivity-related infrastructure
projects will be its priority.
Moreover, the AIIB represents China’s response to its frustration with the slow pace of reform of the
international financial system. As the world’s second largest economy, China is now a net capital sur-
plus exporter and seeks a bigger stake in the West-dominated international financial system through
the implementation of these bold reforms. In 2015, despite the total value of China’s Gross Domestic
Product (GDP) (US$10.98 trillion) being more than double that of Japan (US$4.12 trillion), the World’s
third largest economy, and more than 60% of the US (US$17.94 trillion), the world’s largest economy,22
as of December 2015, China’s total holding in the ADB was, for instance, only 6.45%, whilst Japan and
the US held 15.62% and 15.51% respectively.23 Furthermore, the US has power of veto in the World
Bank and the IMF, whilst Japan has power of veto in the ADB.
Hence, China’s shareholding and voting power in these multilateral organizations has failed to
match the global power shift towards the east and its status as the rising global power. China’s limited
voting power implies it has little influence in the decision-making process of the World Bank, the IMF
(International Monetary Fund) and the ADB. China is therefore prepared to demand more say in these
organizations in return for supplying Chinese capital to fund existing multilateral institutions such as
the IMF for assisting countries with liquidity crises.
Against this backdrop, China has adopted a two-pronged strategy for reform of the existing global
financial system. On the one hand, China is allying with other emerging economies, primarily the
BRICS countries (Brazil, Russia, India, China and South Africa) which have a shared perception of being
underrepresented in the current West-dominated economic system and a shared objective to work
together for international financial reforms. On the other hand, China has taken the step of creating its
own international financial organizations such as the AIIB. China is putting more pressure on the West
to accelerate the process of international financial reforms by challenging the dominant role of the
World Bank and the ADB in funding transportation and other infrastructure projects in Asia.
From the internal perspective, the AIIB provides a channel for investment of Chinese capital in other
countries. The OBOR strategy will expand the scope and depth of Chinese companies’ investment and
business activities in the region. China has demonstrated its economic clout through pouring billions of
dollars in investment into developing Asian countries, in fields ranging from infrastructure construction,
agricultural production, mining and manufacturing to service and retail business.
With Beijing’s full backing, Chinese companies, most of which are state-owned, have been proactive
in implanting the OBOR initiatives, and they already have made huge investments in transportation and
other infrastructure projects located in the Silk Road countries. Investment in ports is a case in point.
Chinese firms have constructed many container ports and been granted exclusive management rights.
These ports are located in strategic positions along China’s Silk Road, which enables China to control
transportation of goods and people (Table 1).
The construction of large-scale port projects in the region, some already completed, others under
construction, or yet to be constructed will help China to diversify its energy and raw materials sup-
ply overseas and safeguard its national energy and economic security. The Chinese government has
pushed forward the long-term new Silk Road strategy to increase China’s global influence and its global
leadership role.
Moreover, the implementation of a new Silk Road strategy will help to revive China’s slowing domes-
tic economy by boosting foreign trade and China’s outward investment. This strategy will also allow
China more time and room for pursuing industrial restructuring and upgrading. The slowdown in the
Chinese economy has resulted in a serious problem of domestic production overcapacity in China’s
heavy industries. Participating in the infrastructure projects financed by the AIIB will help to absorb

‘Country gross domestic product 2015,’ World Development Indicators Database, World Bank (July 2016).
22
23
Asian Development Bank, ‘ADB annual report 2015,’ April 2016, accessed 10 August 2016, http://www.adb.org/documents/
adb-annual-report-2015.
 Journal of Contemporary China   361

Table 1. List of investment by Chinese companies in container ports along the Silk Road route.

Shareholding ratio of Chinese

Country Container port Chinese company company
Malaysia Kuantan Port Guangxi Beibu Gulf Port Group 40%
Singapore Singapore Container Port COSCO Pacific 49%
Myanmar Kyaukphyu Port China National Petroleum 50.9%
Corporation (CNPC)
Sri Lanka Colombo International Container China Merchants Holdings 85%
Terminal (International)
Hambantota Container Port China Harbor Engineering 65%
Corporation
Pakistan Gwadar Port China Overseas Port Holding 40-year lease agreement for
Company operating and managing port
Egypt Safaga Port COSCO Pacific 20%
Djibouti Djibouti Container Port China Merchants Holdings 23.5%
(International)
Israel Haifa New Port Shanghai International Port Group 25-year lease agreement for
operating and managing port
Greece Piraeus Container Port COSCO Pacific 35-year lease agreement for
operating and managing port
Italy Naples Container Port COSCO Pacific 50%
Belgium Port of Antwerp COSCO Pacific 25%
Source: Author.

China’s massive production overcapacity at home in manufacturing, infrastructure construction and

related industries.

Race for Founding Membership of the AIIB and the US Reaction to the AIIB
In early March 2015, the United Kingdom (UK) government announced its decision to join the AIIB and
lend money to the bank, a decision that was based on its national economic interests. Britain wants
a share of the potentially huge infrastructure construction market in Asia, and seeks to strengthen
London’s role as a key international financial center by tapping into the rapid economic growth of China
and the other emerging Asian economies.24
The UK was the first major developed western country to join the China-led AIIB, and this was a
symbolic move in terms of attracting other developed Asian and non-Asian countries to join the bank.
Germany, France, Italy, among many other European countries, and Australia, South Korea and Israel,
which are close allies of the US, soon followed in the UK’s footsteps and announced their decision to
seek founding membership of the AIIB.
The US has not signed up for the AIIB, reiterating its concerns over whether the AIIB will achieve
sufficiently high standards of corporate governance, and questioning the structure of the organization,
lending procedure, and environmental and social safeguards. The US perceives the AIIB as serving as
a vehicle for China to project its economic influence across Asia. The US government believes that the
China-led AIIB will not work in harmony with the World Bank, the IMF and the ADB and will challenge
the West-dominated international financial order. The US government has therefore exerted diplomatic
pressure on its close allies not to join the AIIB.25 In a rare criticism of UK policy, the US government
expressed its unhappiness and disappointment over the UK’s move to join the AIIB, with a US govern-
ment official reportedly telling the Financial Times that ‘we are wary about a trend toward constant
accommodation of China, which is not the best way to engage a rising power’.26

24
‘UK support for China-backed Asia Bank prompts US concern,’ BBC News, 13 March 2015, accessed 28 March 2015, http://www.
bbc.com/news/world-australia-31864877.
25
The Economist, ‘China on the world stage: a bridge not far enough,’ 21 March 2015, accessed 7 April 2015, http://www.economist.
com/node/21646746/print.
26
Geoff Dyer and George Parker, ‘US attacks UK’s “constant accommodation” with China,’ Financial Times, 12 March 2015, accessed 7
April 2015, http://www.ft.com/cms/s/0/31c4880a-c8d2-11e4-bc64-00144feab7de.html#axzz3WaYUeVoe.
362    H. Yu

Whilst Washington has concerns over the perceived threat to its superpower status in the region
and around the world, some analysts believe that China is the only rising power that can challenge the
hegemonic power of the US. As stated by the following remark from China experts:
The most important factor is the decline of US power. While the United States remains the most powerful state
today, its decline has been much faster than many have expected. The United States has been strong in all aspects
since World War II, but now it remains strong only in the military force.27
The US fears that China’s real intention in founding the AIIB might be to replace the Western-dominated
financial architecture with a China-centric regional and international financial system. During his State
of the Union Address to Congress in January 2015, US President Obama made the following remark
attacking China:28
But as we speak, China wants to write the rules for the world’s fastest-growing region. That would put our workers
and our businesses at a disadvantage. Why would we let that happen? We should write those rules.
However, the Chinese government has repeatedly said that the AIIB is complementary to the existing
regional and international financial systems, and it will cooperate closely with the existing multilateral
development organizations in the region. China argues that rather than seeking to replace the functions
and role of existing international banking organizations, the AIIB will learn from the best practice of
these organizations.
The major multilateral development institutions have all said that they will work with the AIIB in pro-
viding loans and sharing their professional expertise in order to construct much needed infrastructure
in the region. Although the AIIB will find it hard to avoid competition with the existing international
organizations in financing infrastructure projects, the infrastructure construction market is large enough
for the AIIB, World Bank and the ADB to compete amicably.
The US’s traditional allies, despite the risk of offending Uncle Sam, are suddenly rushing eastwards
towards China. The Economist comments: ‘China has won, gaining the support of American allies not
just in Asia but in Europe, and leaving America looking churlish and ineffectual’.29 In addition, Lawrence
Summers, a former US Treasury Secretary and former President of Harvard University, and hence an
influential public figure, strongly argued that US government policy on the China-led AIIB had been
misguided, and asked the US government to review its global economic policies. In an article published
by The Washington Post on 6 April 2015,30 he stated:
This past month may be remembered as the moment the United States lost its role as the underwriter of the global
economic system. … But I can think of no event since Bretton Woods comparable to the combination of China’s
effort to establish a major new institution and the failure of the United States to persuade dozens of its traditional
allies, starting with Britain, to stay out.
There are 57 countries in total serving as the Prospective Founding Members (PFMs) for the AIIB. The
fact that so many Asian and non-Asian countries are seeking to become PFMs of the AIIB is a remarkable
achievement for China. China itself underestimated the popularity of the bank, as the President of the
AIIB, Jin Liqun made what now appears a very modest estimate that China hoped that up to 37 countries
would either be PFMs or applicants by 31 March 2015. The race for AIIB founding membership among
non-Asian developed countries has suddenly transformed the AIIB from potentially a regional financial
organization, into a banking organization of global reach and perspective. China’s proactive foreign
policy and its formidable geoeconomic power and influence are transforming the region and beyond.

27
Yongnian Zheng and Wen Xin Lim, ‘The Challenging Geopolitical Landscape and China’s World Order’, EAI Background Brief 1051,
August 19, 2015, National University of Singapore, p. 5.
28
‘Remarks by the President in State of the Union Address’, White House, 20 January 2015, accessed 4 June 2015, https://www.
whitehouse.gov/the-press-office/2015/01/20/remarks-president-state-union-address-january-20-2015.
29
The Economist, ‘The Asian Infrastructure Investment Bank: the infrastructure gap,’ 21 March 2015, accessed 7 April 2015, http://
www.economist.com/node/21646740/print.
30
Lawrence Summers, ‘The US may have lost its role as the world’s economic leader,’ The Washington Post, 6 April 2015, accessed
4 June 2015, http://www.businessinsider.com/larry-summers-the-us-has-lost-its-role-as-the-worlds-economic-leader-2015-4.
 Journal of Contemporary China   363

Challenges to China’s New Silk Road Initiatives and the AIIB

China faces both internal and external challenges to implementation of its OBOR initiatives. From the
internal perspective, China has yet to establish an effective central leadership structure to coordinate
Silk Road-related activities and the various government departments have failed to come up with uni-
fied strategy for implementing the OBOR proposals abroad. For example, the Ministry of Commerce
is primarily interested in bilateral trade and investment, whilst the NDRC is primarily concerned with
inter-regional infrastructure construction projects with the region. Intensifying local competition rep-
resents an additional concern for China, as two southwestern Chinese provinces, Yunnan and Guangxi,
both claim to be China’s gateway towards Southeast Asia and are engaged in intense competition over
preferential policies from the Chinese central government.31
A lack of inter-organizational and central-local coordination could not only delay implementation
of the state’s Silk Road plans, which are already dogged by red tape and bureaucracy, but could also
cause confusion in Asian countries as to who is in charge of the Silk Road proposal and with whom
they should negotiate. As Wang Jisi rightly points out,32 ‘Almost all institutions in the central leadership
and local governments are involved in foreign relations to varying degrees, and it is virtually impossible
for them to see China’s national interest the same way or to speak with one voice. These differences
confuse outsiders as well as the Chinese people.’ Such problems over unity and communication could
undermine China’s efforts to promote its grand strategy.
From the external perspective, the biggest challenge to China’s Silk Road initiatives derives from
external issues and is political rather than economic. China hopes to use these OBOR initiatives to forge
close economic cooperation with the Silk Road countries and boost their economic growth by improv-
ing infrastructure connectivity and increasing trade and investment. However, due to their suspicion
over China’s real intention, the Asian countries’ reactions to the OBOR initiatives have been mixed. The
reactions from the ASEAN countries, the US, Japan and India are particularly crucial to the implemen-
tation of the OBOR initiatives and its overall effectiveness. Meanwhile, China has failed to cultivate the
necessary strategic and political trust among these respective parties over the new Silk Road strategy.
First, although China’s bilateral trade and economic ties with the ASEAN countries are increasing,
relations between China and many member countries have been damaged by ongoing maritime dis-
putes in the South China Sea (SCS). The OBOR initiatives could be seen as a reflection of China’s growing
maritime power and its aim to project its sea power and naval capabilities globally. Some scholars
believe that the main purpose of the maritime Silk Road proposal is to safeguard China’s maritime trade
route along the SCS, which is vital to its importation of energy and resources.33
In May 2014, the Philippines condemned China’s action on land reclamation to build new facilities on
a SCS reef that is the subject of a dispute between the two countries.34 On 11 May 2014, several large-
scale rallies and protests took place in Vietnam’s major cities, where people vented their anger over a
deepwater oil drilling operation conducted by a state-owned Chinese company in disputed waters of
the SCS.35 These protests were reportedly the largest anti-China protests in Vietnam in recent years.
China has massively stepped up its efforts in land reclamation and infrastructure construction activ-
ities in the SCS in the past few years, and its increasing assertiveness in the SCS is a signal to the ASEAN
that China will not hesitate to safeguard its territorial sovereignty and protect its maritime interests,
taking unilateral action if necessary. The ASEAN countries have consequently become very wary of any
move made by China in the region. China’s perceived aggressive behavior has not helped its attempts

31
Mingjiang Li, ‘Local Liberalism: China’s provincial approaches to relations with Southeast Asia’, Journal of Contemporary China
23(86), (2014), pp. 275–293.
32
Jisi Wang, ‘China’s search for a grand strategy: a rising great power finds its way’, Foreign Affairs 90(2), (2011), pp. 68–79.
33
Michael Crisp, ‘The great Chinese sea power debate: a review essay’, Journal of Contemporary China 19(63), (2010), pp. 201–212.
34
Manuel Mogato, ‘Philippines says China appears to be building an airstrip on disputed reef,’ Reuters, 13 May 2014, accessed 15 May
2014, http://www.reuters.com/article/2014/05/14/us-philippines-china-reef-idUSBREA4D00K20140514.
35
Andrew Browne, ‘Beijing pays a price for assertiveness in South China Sea,’ Wall Street Journal, 13 May 2014, accessed 15 May 2014,
http://online.wsj.com/news/articles/SB10001424052702303627504579558913140862896.
364    H. Yu

to establish cooperative relations with its neighbors in the region. From the ASEAN perspective, China’s
growing military power is widely perceived as a threat to free movement of cargo and a form of deter-
rence to endorse its sovereignty claim over the SCS. As one scholar points out, China’s vast size, her
huge market potential and growing military capabilities have presented both opportunities and threats
to the ASEAN.36
With the rise of China as a global power, these Asian countries are concerned that China will become
more aggressive and eventually use or threaten to use force to solve its territorial disputes with neigh-
boring countries. The ASEAN therefore welcomes the United States’ ‘pivot to Asia’ strategy as a hedge
or counterbalance against the rise of China, whilst China views the actions and maritime claims by the
Philippines and Vietnam in the SCS as a challenge to its territorial integrity and ‘core interest’.
These territorial disputes surrounding the SCS show no signs of being resolved in the near future
and are seen as the major obstacle to the deepening of bilateral relationships.37 Despite pledges by the
leaders of both China and the ASEAN member states to strengthen bilateral cooperation, China-ASEAN
relations remain fragile and fraught with contention and competition.
Indeed, the ASEAN has warned that China’s involvement in the construction of large-scale critical
infrastructure could threaten regional security. Some neighboring Asian countries are suspicious of
whether China will use its increasing formidable economic and political power for the good of Asia and
the world, or to become a regional or global hegemon. Such skepticism among Asian nations about
China’s real motivation and intentions could deter these countries from cooperating fully with OBOR
initiatives on infrastructure development, which could jeopardize the operations of the AIIB and the
implementation of China’s grand plans. China has to convince the Asian countries that implementation
of the OBOR initiatives is a win-win situation for both parties.
China needs to work with the small Asian countries in a more equal and collaborative manner, as
these countries would certainly resent being seen as passive recipients of China’s proposals. China has
on occasions focused unilaterally on its own interests and failed to consult or communicate properly with
the ASEAN side. Guangxi officials, meanwhile, have expressed surprise that their ‘Nanning – Singapore
Economic Corridors’ initiative proposed in 2006 has failed to attract support from the ASEAN countries,
even though China is willing to provide a large portion of the funding for inter-regional transportation
construction. They regard Vietnam as being over-concerned about its national security and territorial
sovereignty in relation to this proposal.38 However, from the perspectives of the ASEAN countries,
they are keen to avoid economic over dependence on China at a time of increasing territorial disputes
between China and some ASEAN member states, in light of China’s growing assertiveness in foreign
policy.
Second, the US and its allies may present a fundamental obstacle to China in implementation of
the OBOR initiatives. The US and China appear to have increasingly divergent views on their respective
strategic roles in the region and worldwide, with each country suspicious of the other’s strategic and
political intentions. The US fears that the rise of China will challenge US interests and reshape the West-
dominated world order, whilst China is concerned that the US will restrain the rise of China.39 Since
Xi came to power in 2012, he has repeatedly called for an equal relationship with the US, under the
framework of a ‘new type of major power relationship’. Nevertheless, the US has largely ignored such
calls, as it is intent on retaining its status as the world’s sole superpower.

36
Khai Leong Ho, ‘Rituals, risks and rivalries: China and ASEAN in the coming decades’, Journal of Contemporary China 10(29),
(2001), pp. 683–694.
37
Kok-Kheng Emile Yeoh, ‘Forward China: foreign relations and maritime conflict’, International Journal of China Studies 2(3), (2011),
pp. 551–553.
38
The following remarks were made by a senior local official in Guangxi with responsibility for Guangxi’s trade and economic coop-
eration with the ASEAN countries, during an interview with the author.
39
Cheng Li, ‘A new type of major power relationship?’, Georgetown Journal of International Affairs, Brookings Institution, 26
September 2014, accessed 9 December 2015, http://www.brookings.edu/research/interviews/2014/09/26-new-type-power-re-
lationship-li. Biwu Zhang, ‘Chinese perceptions of US return to Southeast Asia and the prospect of China’s peaceful rise’, Journal
of Contemporary China 24(91), (2015), pp. 176–195.
 Journal of Contemporary China   365

Despite its rising international status, China is not yet ready to challenge the US-led Western pri-
macy, and needs to acknowledge the limitations of its power. Neither should it exaggerate the decline
in strength of the US or underestimate its resilience. The US economy is still much larger than that of
China, the former’s per capita GDP being more than seven times higher than the corresponding figure
for China. Furthermore, America still leads the world in terms of technological capability, innovation,
science and military might, due in no small part to its ability to attract a plentiful supply of skilled talent
to its shores.
The US and its allies are however concerned that China is aiming to establish a Sino-centric regional
order by means of the OBOR initiatives. Intense competition in Asia and beyond, between the US as
the established superpower and China as the rising global power is emerging. To counterbalance the
rise of China and its increasing prominence in the region, the US is implementing its high-profile ‘Pivot
to Asia’ strategy to strengthen its military alliances, and reinforce its economic ties with the region.
From the economic dimension, the US is pushing hard for the TPP (Trans-Pacific Partnership) in the
region, from which China is excluded. On the military and security side, US moves to increase military
cooperation with the Philippines and Vietnam, its naval deployment to Singapore, and new troop rota-
tion to Australia have caused concern for China. In the eyes of many Chinese scholars and policymakers,
the US ‘pivot to Asia’ strategy is essentially a tool for the US to reinforce regional security alliances and
its dominance in the Asia-Pacific region, primarily to counteract the rise of China.
Thirdly, the Japan factor presents a challenge for China, as Sino–Japan relations are becoming increas-
ingly geopolitically competitive and confrontational. Bilateral relations between Japan and China had
already been soured by various issues deriving from unresolved historical war legacies due to Japan’s
invasion of China, the Yasukuni Shrine, military rivalry, territorial disputes in the Diaoyu/Senkaku Islands,
and infrastructure competition in the region. Tension between the two countries has been at its highest
since the end of World War II in 1945, causing alarm bells to ring in Beijing.
Believing that membership of the AIIB would create a new competitor for the ADB and dilute its
dominance of infrastructure development in the region, Japan has not signed up for the AIIB or endorsed
China’s OBOR initiatives. To compete with China on steering infrastructure projects in the region, the
Japanese government proposed the “Partnership for quality infrastructure investment for Asia’s future”,
pledging funding of US$110 billion in May 2015. Both Japan and China perceive infrastructure building
in Asia as big business and a platform to demonstrate regional prominence.
Given that Japan’s population is ageing rapidly and its domestic market is shrinking, accessing
foreign markets is crucial to sustain corporate growth for Japanese companies. The typically intense
competition between Tokyo and Beijing over infrastructure construction is demonstrated by the bid-
ding battle for the construction of the Jakarta-Bandung high-speed railway in Indonesia, which was
eventually won by China. China is intent on exporting its high-speed railway technology and other
high-tech infrastructure equipment throughout the region and beyond.40
The ASEAN countries are the prime field for the contest between China and Japan. Although the
overall volume of bilateral trade between China and ASEAN countries has, since 2009, been higher than
the corresponding figure for Japan–ASEAN, Japan is still the more important trading partner for ASEAN
countries such as Indonesia and the Philippines. In addition, for ASEAN countries, Japan is the most
important source of foreign investment, and China’s outward investment to the ASEAN is far lower in
value than that of Japan.
Private business in Japan has invested far more heavily than China in the region, aided by institutional
and policy support from the Japanese government and relevant trade-promotion agencies such as the
JETRO. The lure of low-cost manufacturing sites has made Southeast Asia one of the top destinations

Hong Yu, ‘China’s eagerness to export its high-speed rail expertise to ASEAN members’, The Copenhagen Journal of Asian Studies
40

32(2), (2014), pp. 13–36.

366    H. Yu

for Japanese investors.41 China accounted for 7.2% of global outward FDI (foreign direct investment),
while the US and Japan accounted for 24% and 9.6% of the global outward FDI.42
Fourth, China has to address the challenge that the rise of India in the region presents to its imple-
mentation of the OBOR initiatives. India is perceived as a ‘Swing State’ and has yet to buy in to China’s
OBOR initiative. Despite Xi’s personal visit to India in 2014, India merely made the diplomatic gesture
of saying it would consider China’s proposal.
China–India relations are perceived as among the most important yet complicated bilateral regions
in Asia.43 Some scholars even suggest that power rivalry between India and China is inevitable in
the future.44 The two countries were briefly engaged in a boarder war in 1962, and India has still not
forgotten the humiliation of its defeat by China in that war. Furthermore, territorial disputes in the
Himalaya region have yet to be resolved. India fears that China’s OBOR initiatives are in essence an
updated version of ‘the string of pearls’ to contain the development of India and project China’s naval
power in the Indian Ocean.
Certain ongoing large infrastructure construction projects in the Indian Ocean under the Silk Road
initiatives have only served to reinforce India’s suspicions. These projects include the Gwadar Port in
Pakistan, Colombo Port City in Sri Lanka, and Kyaukpyu Port in Myanmar. India is especially concerned
about the increasing Chinese presence in South Asia and the Indian Ocean, which Indian regards as its
sphere of influence. India will assume that the real rationale behind the Chinese government’s initiative
is to expand China’s maritime and political interests in the Indian Ocean and project the Chinese navy’s
power overseas. Conceivably, concerns over threats to its national security will make it hard for India to
permit Chinese companies to construct large-scale critical infrastructure on its soil.
Hence, despite China becoming India’s top trading partner, Indian politicians and strategists fear that
China’s plans for cross-border infrastructure construction under the OBOR strategy will enable India’s
giant neighbor to gain regional dominance over India in the Indian Ocean and South Asian continent,
as a part of China’s ‘strategic encirclement’ strategy. Raja Mohan comments that it is an open secret
that Indian security and army circles strongly oppose any such China-initiated infrastructure project
on national security grounds.45 India is concerned that China might use these infrastructure facilities
for military purposes, to build a blue water naval fleet. In 2014, India was shocked by the docking of a
nuclear-powered Chinese submarine in Colombo International Container Terminal, Sri Lanka.
Due to India’s strategic location and its emergence as a regional power, it is vital for China to bring
India on board in order to implement the OBOR initiatives successfully, particularly in relation to the
Bangladesh-China-India-Myanmar Economic Corridor. The existing territorial disputes and other secu-
rity issues between China and India need to be resolved. China also has to convince India that its
cross-border infrastructure facilities are purely commercially-driven and that bilateral cooperation is
a win-win situation.
Fifth, although China founded the AIIB and is its largest shareholder, it is not a Chinese bank and
neither does it belong to China. The Chinese leaders may want newly established multilateral financial
institutions such as the AIIB under Chinese control. Nevertheless, the bank has 56 other PFMs and
more new members will join in the future, which will put pressure on China to increase the operational
transparency of the bank and stick to strict lending principles by ensuring environmental and social
safeguards are adhered to in financing infrastructure projects.

41
Sarah Teo and Bhubhindar Singh, eds, Impact of The Sino-Japanese Competitive Relationship on ASEAN as a Region and
Institution, Policy Report, (Singapore: S. Rajaratnam School of International Studies, Nanyang Technological University, 2014),
pp. 1–28.
42
JETRO, ‘2014 JETRO Global Trade and Investment Report’.
43
David Scott, ‘India’s role in the South China Sea: geopolitics and geoeconomics in play’, India Review 12(2), (2013), pp. 51–69.
44
Jagannath P Panda, ‘Competing realities in China-India multilateral discourse: Asia’s enduring power rivalry’, Journal of Contemporary
China 22(82), (2013), pp. 669–690.
45
C. Raja Mohan, ‘Chinese takeaway: One Belt, One Road,’ The Indian Express, 13 August 2014, accessed 12 September 2014,
http://indianexpress.com/article/opinion/columns/chinese-takeaway-one-belt-one-road/99/.
 Journal of Contemporary China   367

The success of the AIIB largely depends on the participation and cooperation of other member
states. This will constrain any attempts by China to advance its national interests or unilaterally change
the existing international financial system. As Xi Jinping himself admitted, ‘The AIIB is an international
financial institution whose rules of operation are decided by its members through consultation, not by
China alone’.46 The participation of other major countries will stifle China’s ability to establish a Sino-
centric financial and economic order that would give China free rein in regional development.
Last but not least, investing in large-scale inter-regional infrastructure projects will be a highly risky
business for the AIIB, from both a political and economic perspective, especially as it is still in its nascent
stage. Given that many countries in the region are underdeveloped and economically backward, it is
important to ascertain their capability to repay any loans from the bank.
Many of the potential inter-connectivity infrastructure projects in the region are driven by govern-
ment rather than industry-oriented; hence the very long time it could take for any potential economic
return to be realized raises serious questions over the financial sustainability of these projects. In the
case of the China–Pakistan Economic Corridor, the crucial Gwadar Port project, for example, will involve
territory in Balochistan, one of the most insecure and volatile region in Pakistan. China should, therefore,
not underestimate the potential security challenges it faces in Pakistan and other terrorism-ridden
countries in the implementation of the OBOR strategy.
From the political perspective, domestic political instability, change of government policy, regime
change or government transition after elections in other countries could make previously signed
and binding infrastructure contracts difficult to implement, causing them to be suspended or even
scrapped entirely. The Myitsone hydropower project in Myanmar is a case in point. In September 2011,
the Burmese government suddenly ordered the suspension of this huge China-funded hydroelectric
power project.

Concluding Remarks
In recent years, China has been extremely keen to project its rising power and expand its global influence
through implementing new foreign policies and forging close trade and economic cooperation with
other countries. This marks a major departure from the long-held international affairs policy of ‘hiding
one’s capabilities, biding one’s time and focusing on domestic development’. The Chinese government’s
OBOR strategy forms a cornerstone of its new foreign policy. By leveraging its financial power and
strong manufacturing and infrastructure development capacity, China’s new Silk Road strategy is likely
to have far-reaching political and socio-economic implications at home and abroad in years to come.
The OBOR initiative goes far beyond investment cooperation and economic interests as it has clear
political and strategic underpinnings. The promotion of the new Silk Road strategy and the establish-
ment of the AIIB are reflections of the rise of China as a global power and will draw other Asian countries
deeper into China’s orbit of development. The OBOR initiative will therefore advance China’s strategic,
political and economic interests in Asia as well as countries along this Silk Road route.
OBOR will help China to deal with the domestic problem of industrial overcapacity and speed up
industrial restructuring and technological upgrading at home. To provide financial backing for the Silk
Road strategy, China has proposed the establishment of the AIIB to spearhead China’s OBOR initiatives.
Nevertheless, the Chinese government will encounter serious internal and external challenges to
the implementation of this grand strategy. These challenges have proven so great that there has been
little real progress despite the initiative attracting huge international attention and China’s efforts to
increase its momentum. It is consequently still too early to assess the success of the Silk Road strategy.
The effective implementation of the OBOR initiatives largely depends on the response of China’s
neighbors, large and small, and will require much more than simply rhetoric and good will. The Chinese
government has to focus on consultation in order to explain the Silk Road initiatives in detail to its

‘Exclusive Q&A with Chinese President Xi Jinping,’ Reuters, 17 October 2015, accessed 14 December 2015, http://www.reuters.com/
46

article/us-china-britain-xi-q-a-idUSKCN0SC03920151018.
368    H. Yu

prospective partners, and that this strategy will not be for the benefit of China alone. To avoid percep-
tions of unilateralism on the part of the other member countries, China must allow the other players
full participation and a sense of ownership of the OBOR initiatives.

Acknowledgment
The author would like to thank two anonymous reviewers for their constructive comments and suggestions on this article.

Disclosure statement
No potential conflict of interest was reported by the author.

Notes on contributor
Hong Yu is a research fellow at the East Asian Institute, National University of Singapore. He earned his PhD in Chinese
Political Economy from the University of Sheffield in 2008. His research interests cover regional development in China,
China’s state-owned enterprises and railway sector reform, the “One Belt, One Road” initiatives and the Asian Infrastructure
Investment Bank. His research articles have appeared in international peer-reviewed journals such as Journal of
Contemporary China; Asian Survey; China: An International Journal; East Asia: An International Quarterly; The Copenhagen
Journal of Asian Studies and Asian Politics & Policy. His recent works include an English book Chinese Regions in Change:
Industrial Upgrading and Regional Development Strategies and an article, The Resource Boom in China’s Resource-Rich
Provinces: the Role of the State-Owned Enterprises and Associated Problems in Asian Survey. The author can be reached
by email at eaiyuh@nus.edu.sg