China's President will host almost 30 world leaders in Beijing on Sunday at the first Belt and Road Forum, the centrepiece of a soft-power push backed by hundreds of billions of dollars for infrastructure projects. More than 100 countries on five continents have signed up, showing the demand for global economic cooperation despite rising protectionism in the US and Europe.
For Xi, the initiative is designed to solidify his image as one of the world's leading advocates of globalisation while US President Donald Trump cuts overseas funds in the name of "America First". The summit aims to ease concerns about China's rise and boost Xi's profile at home, where he's become the most powerful leader since Deng Xiaoping died in 1997.
The Belt and Road Initiative "will likely be Xi's most lasting legacy", said Trey McArver, the London-based director of China research for TS Lombard, an investment research company. "It has the potential to remake global - particularly Asian - trade and economic patterns."
The strategy also carries risks. The initiative is so far little more than a marketing slogan that encompasses all sorts of projects that China had initiated overseas for years, and major world leaders like Trump, Angela Merkel and Shinzo Abe are staying away. How Xi answers a range of outstanding questions will go a long way in determining its success.
Key to reducing uncertainty will be addressing the concerns of strategic rivals like India, Russia and the US, particularly as China's growing military prowess lets it be more assertive over disputed territory. Chinese moves to spend more than $US50 billion ($67.8 billion) on an economic corridor in Pakistan, build a port in Djibouti and construct oil pipelines in central Asia are all creating infrastructure that could be used to challenge traditional powers.
"China needs to recognise that the way it perceives the Belt and Road Initiative is not necessarily the same way others will," said Paul Haenle, a former China director on the US National Security Council who now heads the Carnegie-Tsinghua Centre in Beijing. For countries like the US, he said, "it's impossible not to view the BRI through a geopolitical lens - a Chinese effort to build a sphere of influence".
Excess capacity
In September 2013, when Xi first pitched the plan at an obscure Kazakhstan university, he focused on the Eurasia landmass. Since then, it has repeatedly changed names and expanded to include the entire world, with the main goal of rebuilding the ancient trading routes from China to Europe overland and by sea.
One key driver was economic: China wants to spur growth in underdeveloped hinterlands and find more markets for excess industrial capacity. With more than $US3 trillion in international reserves - more than a quarter of the world's total - China has more resources than developed economies struggling to hit budget targets.
The plan gained steam last year when populist movements spurred a backlash against trade and immigration in the US and Europe. Brexit raised questions about the European Union's viability, while Trump's withdrawal from the Trans-Pacific Partnership gutted the biggest US push to shape global economic rules.
Trade champion
"It was very disappointing, and it makes us feel that there is a big vacuum that Belt and Road can help to fill," Cheah Cheng Hye, chairman and co-chief investment officer at the Hong Kong-based Value Partners Group. "So all of sudden, we begin to appreciate this Chinese initiative."
Xi wasted no time filling the void. With exporting nations looking for a free-trade champion, he told the global elite in Davos, Switzerland, to resist protectionism and join China in boosting global commerce.
"China has moved from a participant of globalisation to a main leader."
The US and Europe "almost unwittingly" created space for Xi to push China's interests, according to Peter Cai, research fellow at the Lowy Institute for International Policy.
"China is offering an alternative to the US version of globalisation," Cai said. "In the Chinese case, it's globalisation paved by concrete: railways, highways, pipelines, ports."
Draft communique
This year, five European countries - Denmark, Finland, Switzerland, France and Italy - openly voiced support for the initiative. On trips to China in February, Italian President Sergio Mattarella proposed plans for the ports of Genoa and Trieste, while French Prime Minister Bernard Cazeneuve attended the arrival ceremony of a freight train from Lyon.
The summit will feature the likes of Russia's Vladimir Putin, Greece's Alexis Tsipras and the Philippines' Rodrigo Duterte. The US will send Matt Pottinger, a special assistant to Trump and senior director for East Asia on the National Security Council, according to State Department spokesman Justin Higgins.
A draft communique circulated before the event combined a commitment to open markets with endorsements of China's diplomatic goals, Bloomberg reported on Wednesday, citing people familiar with the document. It also generated some controversy among Beijing-based diplomats who said they didn't have enough time to vet the document, underscoring the initiative's potential to cause conflict.
$US500 billion investment
China has invested more than $US50 billion in Belt and Road countries since 2013, according to the official Xinhua News Agency. Credit Suisse Group said this month that China could pour more than $US500 billion ($678 billion) into 62 countries over five years.
China's state-run companies like China National Petroleum Corp and China Mobile - the world's largest wireless carrier - are positioned to reap the rewards. Executives from six of China's largest state-run firms sought to reassure the public this week that the risks were manageable.
China's three development banks, its Silk Road Fund and the China-led Asian Infrastructure Investment Bank were involved in $US39 billion of lending outside of the country last year, up about 50 per cent from 2014, according to data compiled by Bloomberg.
"One Belt, One Road - I think, it is potentially a plus," JPMorgan Chase international chairman Jacob Frenkel told Bloomberg Television on Friday. "And we should not worry about it because what it does is basically connects hundreds of millions of people, hundreds of millions of markets. And you know what? If somebody gains from it, that's perfectly fine."
Still, financial hurdles are starting to appear. China's slowing economic growth has left fewer resources to spend overseas. Its international reserves have fallen about 6 per cent over the past year, and China needs a healthy amount to defend the yuan.
Some previous Chinese ventures abroad have turned sour. While China's no-strings-attached approach to investment is generally welcomed by developing countries, they often have poor credit ratings and questionable governance. China has struggled to recoup loans in Venezuela and Africa, and several projects in Central Asia have spurred protests. Announcements with big dollar signs often fail to materialise.
Nonetheless, Chinese scholars see the sum of Xi's plan as bigger than any individual project. It represents a "profound change" in how China interacts with the world, according to Wang Yiwei, director at Renmin University's Institute of International Affairs in Beijing, who has written three books on the initiative.
"China has moved from a participant of globalisation to a main leader," he said. "It's Globalisation 2.0."
Bloomberg News
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