Thayer Consultancy Background Briefing:

ABN # 65 648 097 123

China’s Belt and Road Initiative:
Has It Reached a Dead End?
Carlyle A. Thayer
February 16, 2019

We request your assessment of the following issues?

Q1. In a recent article Minxin Pei wrote that “Since China's trade surplus with the U.S.
accounts for nearly all its overall current account surplus, a substantial fall in Chinese
exports to the U.S. will result in a current-account deficit for China if it cannot offset
the shortfall with increased exports to other markets (an impossible feat)…, as a result,
Beijing will have to review its external commitments carefully. Grandiose projects
conceived and launched when it was flush with foreign exchange will be reassessed.
Some will have to be curtailed or even abandoned altogether.”
Do you agree with Peo’s assessment?
ANSWER: Minxin Pei is a reputable scholar and anything he writes should be taken
seriously. China’s economy is slowing in part due to its tariff war with the United
States. Pei correctly observes that China’s massive foreign exchange reserves
witnessed a decline from nearly $4 trillion in 2013 when the Belt and Road Initiative
was launched to just over $3 trillion in 2018, or a net loss of $1 trillion.
Xi Jinping’s Belt and Road Initiative (BRI) was designed to stimulate domestic
enterprises to open new markets and to invest in major infrastructure projects (roads,
railways, ports, airports etc.) outside China by using excess domestic capacity (cement,
steel etc.). The BRI was overly ambitious in its conception and implemented in a helter
skelter fashion. It was only a matter of time that many of its projects would have to
be re-evaluated or scaled back.
Economists are nearly unanimous that China must stimulate domestic consumption
to replace export driven growth as the engine of the Chinese economy.
Q2. And what do you think of Pei’s conclusion: ‘’What appears to be happening in
Beijing is that while its leaders continue to stand by BRI, Xi's original ambitions are
being rolled back out of public view. We should not be surprised if Beijing eventually
lets BRI, at least BRI 1.0, die quietly?”
ANSWER: Pei’s argument is based on the assumption that Chinese exports to the
United States will keep falling. This is a likely result of Trump’s drive to reduce China’s
trade surplus with the U.S. Pei is also correct that China will find it difficult to find other
markets to make up the current account losses from China-U.S. trade.
 2

Pei is one of a growing number of China watchers that have noticed that China’s
propaganda machine has begun to turn down the volume on hyping the BRI and Made
In China 2025. This is due not only to a slowdown in global growth but to growing
domestic criticism that Xi Jingping, the “General Secretary of Everything”, has
overreached himself on too many fronts.

Suggested citation: Carlyle A. Thayer, “China’s Belt and Road Initiative: Has It Reached
a Dead End?” Thayer Consultancy Background Brief, February 16, 2019. All background
briefs are posted on Scribd.com (search for Thayer). To remove yourself from the
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Thayer Consultancy provides political analysis of current regional security issues and
other research support to selected clients. Thayer Consultancy was officially
registered as a small business in Australia in 2002.