The Emperor’s New Road: China and the Project of the Century

by Jonathan E. Hillman

  Najib viewed China’s BRI as a lifeline, but it became a noose around his neck. Mahathir frequently criticized the government’s handling of 1MDB and called for greater transparency around foreign investment. He did not hesitate to invoke the specter of colonialism. “We cannot be proud of a magnificently developed Malaysia, occupied and owned by foreigners,” he wrote on his personal blog, making an argument that was a recurring theme in his posts, which were read by millions.87 If elected, he promised to review all foreign deals.

  “Big Trains”

  Mahathir’s surprise victory in May 2018 slowed China’s BRI but did not derail it. After taking office, he suspended the East Coast Rail Link and pipeline. Despite only 13 percent of the pipeline construction being completed, 90 percent of the total project funds had been transferred, apparently following a calendar system that did not take into account actual progress, or lack thereof.88 Najib faces a string of charges and the prospect of spending the rest of his life in prison.

  If anyone understood what it was like for Najib to watch these projects being reevaluated, it was Mahathir. In his memoirs, Mahathir describes his shock that a railway project was being canceled after he left office in 2003: “The claim was that there was no more money to carry on with this track upgrade after my profligate ways.” When the government canceled a hydroelectric project, he recalls, “I began hearing accusations that I had spent all the Government’s money on megaprojects which the country apparently did not need.” And when a bridge to Singapore was canceled, he writes, “I was flabbergasted. By allowing Singaporeans to dictate terms, the current administration had effectively undermined the sovereignty of our country.”89

  But even while Mahathir was taking a closer look at the BRI, he was still dreaming about Malaysia’s development possibilities. During a press conference on his first day back in office, Mahathir pointed to how ships have grown dramatically over the past half century, especially following the invention of standard containers. He wondered whether something similar could happen with railway transport. Already, he had a partner in mind: “I suggested to Xi Jinping in a personal letter to him, that we should have big trains, and China has the technology to build big trains, which can carry goods from China to Europe, and will also make Central Asia—Kazakhstan and Uzbekistan, and all that, more accessible,” he said.90

  It soon became clear that Mahathir’s opposition to the BRI was purely tactical. In April 2019, Malaysia and China announced a new deal for the East Coast Rail Link.91 The $20 billion price tag was cut by nearly a third, local labor participation was increased, and Malaysia shifted some of the operational risk to China. Four days later, Mahathir announced that the Bandar Malaysia project would move forward as a joint venture between the original contractors.92 Both announcements were missing key details. The total cost of the Bandar project was not announced. The loan terms for the East Coast Rail Link were still being negotiated with China’s Export-Import Bank.

  But with the second Belt and Road Forum later that month, both sides were eager to declare victory. Malaysia had become a prime example of backlash building against the BRI, and Chinese officials were eager to push back against that narrative. Mahathir was eager to announce development projects and take credit for securing better deals.

  The official explanation of Mahathir’s about-face made it sound as if he had an epiphany at the forum. “The Prime Minister . . . had initially thought that the [BRI] was China’s attempt to dominate Southeast Asia as the trade passage for the project includes the South China Sea and the Straits of Melaka,” a Malaysian government press release explained. “However, during the forum, Dr. Mahathir said he saw that the initiative was a cooperative effort to develop participating countries via infrastructure development and funding from banks.”93

  Mahathir did not invent this game, nor will it end with his time in office. The cycle of opposition, negotiation, and deal making will continue in Southeast Asia and beyond. Candidates rail against China when it helps their case for office. After they take office, however, their options for undoing existing projects are limited, as are their options for attracting new foreign investment. They are as eager as their predecessors were to announce deals, but they need to look tough and keep their promises for scrutinizing past deals. So they threaten to cancel projects, China comes to the negotiating table, and the incentives on both sides encourage salvaging deals and saving face.

  These dynamics make the BRI politically resilient at the expense of its longer-term economic performance. Canceling bad projects is difficult but essential. Sunk costs can be a powerful, and dangerously misleading, justification for spending even more. It is why management experts call megaprojects “Vietnams”—easy to begin and difficult and expensive to stop.94 Chinese projects are even harder to kill because the BRI is Xi’s signature foreign-policy initiative. Especially large projects like Malaysia’s East Coast Rail Link take on symbolic importance, and cancellation comes with a higher reputational cost. Keeping too many projects from the grave could come back to haunt China and its partners.

  The cycle also feeds off the competition among outside powers, which recipient countries play off each other to their advantage. Speaking at the second Belt and Road Forum, Mahathir proclaimed, “Yes, the Belt and Road idea is great.”95 His praise was a gift to Xi, who sat smiling in the front row. It was also a calling card for China’s competitors.

  Pakistan

  Center for Strategic and International Studies, Reconnecting Asia Project

  CHAPTER SEVEN

  The Black Hole

  Pakistan

  THE CHINA-PAKISTAN ECONOMIC CORRIDOR (CPEC) stands out among the BRI’s broad brushstrokes. Stretching from the Karakorum mountains to the Arabian Sea, it is where China’s overland and maritime ambitions meet.1 Of the BRI’s six corridors, it contains the largest portfolio of promised Chinese investments and some of its most controversial projects. Xi Jinping has put his personal stamp on CPEC, traveling to Pakistan in April 2015 to cement the two countries’ “all-weather strategic cooperative partnership” and sign a host of agreements. “If One Belt One Road is like a symphony involving and benefitting every country, then construction of the China-Pakistan Economic Corridor is the sweet melody of the symphony’s first movement,” Wang Yi, China’s foreign minister, said around the same time.2

  But CPEC has produced more discord than harmony, turning China’s boldest move through the BRI into its greatest test. In Pakistan, China is betting it can succeed where the United States and the international community have failed for decades. Since Pakistan’s independence in 1948, its cunning leaders and booming population have caught the world’s attention and pulled in outside partners. The chief among them, the United States, has provided Pakistan over $80 billion in assistance, with relatively little to show for it.3 Generations of U.S. diplomats have come, gone, and returned to confront remarkably similar problems. If neighboring Afghanistan is the graveyard of empires, Pakistan is the black hole of foreign assistance.

  CPEC, like the grand development efforts that preceded it, has already promised more than it can deliver. Despite being a “corridor,” connectivity is its weakest dimension. Roads, telecommunications, and other connectivity projects make up a small portion of the overall effort. An even smaller portion includes projects that span China and Pakistan. Its best-known projects are not new, and economics is not their strong suit. Gwadar Port, for example, was conceived in the 1950s, was finally started in 2001, and will struggle to compete with existing shipping hubs. The Karakoram Highway, which traverses the rugged Pakistan-China border, was first completed in 1978, and after it is upgraded and expanded as part of CPEC, it will still be closed every winter due to heavy snowfall. “All-weather” might work as a metaphor for China-Pakistan relations, but taken literally, it will be a stretch for CPEC.

  Rather than connecting China, CPEC is better understood as an attempt to develop Pakistan. Most of its announced funding relates to energy projects within Pakist
an, and if accompanied by necessary reforms, their success could be transformative. Pakistan’s top leaders have almost uniformly cast CPEC as the solution to many of their country’s economic woes, from solving energy shortages to boosting manufacturing and exports. Nawaz Sharif called CPEC a “new era of development . . . opening up new trade and investment linkages.”4 Shahid Khaqan Abbasi called it a “game changer.”5 Even Imran Khan, a CPEC skeptic prior to his election in 2018, has since declared it a “top priority.”6 International financial institutions have praised the effort’s promise as well. The International Monetary Fund (IMF) expects CPEC will “promote growth and job creation” and “facilitate regional integration.”7 The World Bank says it has “enormous potential for Pakistan.”8

  China’s aims extend beyond economics.9 In June 2017, the Pakistani newspaper Dawn reported details from a leaked long-term-planning document that revealed how deep China hopes to reach into Pakistani society. Among the activities envisioned for CPEC through 2030, Chinese firms would lease thousands of acres of farmland. Using Chinese technology, Pakistan would roll out surveillance systems in its cities. CPEC, the document said, was a “cultural transmission carrier.” Fiber-optic cables would carry Chinese content to more Pakistanis. Chinese tourists would benefit from a visa-free program, while a reciprocal arrangement for Pakistani tourists visiting China was not mentioned. The transmission was largely one-way.10

  CPEC is both an instrument of Chinese power and a test of it. As Robert Kaplan has written, “Nothing since independence in 1947 has the potential to help stabilize Pakistan—calming its frontier insurgencies—than the completion of this project, and nothing would do more to firm up China’s domination of its own steppeland periphery.”11 With Pakistan stabilized, Chinese power would be liberated to reach deeper into Afghanistan, to the Arabian Sea, and closer to India’s borders. Bringing stability to a country wracked by political turmoil and crippling debt would reveal an incredibly sophisticated ability to wield power. Success would demonstrate that Beijing can do what Washington could not.

  Failure would suggest that Chinese officials misjudged their abilities and could signal a broader overreach in their designs for the BRI. Pakistan is the only BRI corridor involving only one country, and the others will require even-greater coordination to successfully complete. Public opinion within Pakistan about China is also extremely positive, often among the highest in the world.12 Having made CPEC the BRI’s flagship effort, Chinese officials would suffer the reputational consequences of failure. They may regret choosing Pakistan as the BRI’s proving grounds. Its history is littered with best-laid plans.

  “We Need Everything”

  That Pakistan still exists is a major achievement. At independence, it was split between West Pakistan and East Pakistan, the latter of which became Bangladesh. It was “widely considered an economic monstrosity,” reflected Gustav Papanek, an economist and early adviser to Pakistan’s government.13 Pakistan inherited roads and railways, but these were designed as part of a larger entity that was now fragmented. India sat between Pakistan’s two wings and, even more importantly, retained most of the human capital. Pakistan had few civil servants, few industrialists, and few universities to train them.

  Pakistan’s government needed help, and it found a willing partner in the United States. During his inaugural speech in 1949, U.S. President Harry Truman announced a global program of technical assistance. “We must embark on a bold new program for making the benefits of our scientific advances and industrial progress available for the improvement and growth of underdeveloped areas,” he said.14 As the fourth of his “major courses of action” for foreign policy, it became known as the Point IV program. A planning group was established in the State Department later that year to operationalize the idea and to propose a budget. Congress agreed and approved the program the following year.

  For all the talk of goodwill, the communist threat was the primary catalyst for greater U.S. involvement. In 1954, the United States and Pakistan signed a Mutual Defense Agreement. The same year, the United States led the creation of the Southeast Asia Collective Defense Treaty, or Manila Pact. U.S. Secretary of State John Foster Dulles strongly supported Pakistan’s membership, despite the geographic incongruity.15 The following year, Pakistan joined the Central Treaty Organization (CENTO), or Baghdad Pact, which included Turkey, Iraq, Iran, and the United Kingdom. With the exception of the United Kingdom and the United States, Pakistan was the only country in both treaties.

  Pakistan’s leaders had successfully moved their country from relative obscurity in U.S. foreign policy to the center of its efforts to counter communism. “Asia will have at least one big country dedicated to Western principles of economic development,” Businessweek wrote of Pakistan’s development policies in 1956. “And this could make a big difference in the increasingly fierce East-West struggle for the allegiance of the world’s underdeveloped countries.”16 Pakistan’s willingness to band with the United States and publicly criticize Communist China paid dividends. U.S. assistance to Pakistan climbed through the 1950s and included greater access to U.S. military equipment.

  As U.S. resources poured in, Pakistan’s government struggled to use them effectively. “When I went to Pakistan, I had the $60 million to spend and no plan, no program, nothing,” recalled John Bell, who oversaw U.S. foreign assistance in Pakistan during 1955–1957. “I remember asking the Secretary of the Pakistan Economic Ministry, Said Hassan, to give me his ideas of what priorities they had. . . . ‘Oh,’ he said, ‘I’ve got a long list of projects. Take any one you like.’ . . . No details, just names. I said, you must have some priorities in your own mind, don’t you? ‘Oh,’ he said, ‘No we need everything, we need everything.’ ”17 That was true, of course, but Pakistan was not going to get everything. It needed a plan for prioritizing and coordinating projects.

  The Harvard Development Advisory Group, which consisted mainly of Western economists, was instrumental in creating Pakistan’s planning capacity. Supported by the Ford Foundation, the group arrived in Pakistan in 1954 with three goals: help Pakistan prepare a long-term development plan; advise the government on decisions impacting tax and fiscal policy, foreign trade, and other major economic issues; and train Pakistani officials to fill these two functions. Accomplishing all of this, the advisers initially estimated, would take about eighteen months. The project ended up running for more than a decade.

  The advisers underestimated the challenges they would face and overestimated their own abilities. Asked to describe the characteristics of a successful adviser, one veteran of the program recommended, “Brains, tact, flexibility, and patience . . . coupled with firmness, good judgement, an intuitive ability to ‘size up’ people and situations, a sense of humor, integrity, essential modesty, high resistance to frustration.”18 Another adviser later boasted, “A new type of human being has come into existence. He is the foreign advisor, the expert, the specialist—call him what you will—who has replaced the colonial service officer as the representative of the richer countries . . . in the poorer one.”19

  As pioneers, however, the first advisers had little practical experience on which to draw. Almost none had any experience in Asia, let alone specific knowledge of Pakistan. Few had any experience with national economic planning. During their early years in Pakistan, the advisers were essentially students, learning as they were ostensibly teaching Pakistan’s civil servants.

  The field of economics itself was underdeveloped. Basic assumptions about how and why nations grow were based mostly on the experience of Western economies and would be tested and revised in the coming decades. “We were all Keynesians from our training as economists in the late 30s, and the concept of using government as an engine of economic change and progress was commonplace among us,” recalled David Bell, who was the program’s first field director in Pakistan.20 The economists were confident that this Keynesian toolkit was universal—portable across cultures and geographies and unburdene
d by history.

  They discovered that Pakistan was a laboratory where facts were elusive. With the exception of population data, many key indicators in Pakistan were difficult or impossible to collect. Most projects were proposed for their financial implications without taking into account how they would be built or maintained.21 “Key decisions had to be based more on guesses . . . than on verifiable fact,” David Bell recalled. “[Many] proposals which came to the Board were little more than idle speculation or wishful thinking. Accordingly, the Board . . . had to . . . [turn] vague schemes into reasonably feasible proposals and [to create] proposals where none were submitted.”22

  Some guesses created facts. Pakistan’s investment rate, for example, could help U.S. officials calibrate how much aid was needed to generate economic growth just above Pakistan’s population growth, so per capita income would increase. In this basic calculus, it did not matter how the aid was spent. “That was the Bible,” recalled Papanek.23 Due to a shortage of data, Pakistan’s rate of investment was essentially unknown in the early and mid-1950s. But U.S. and Pakistani officials needed something to plan around, and they became desperate for even a rough estimate.

  When President Eisenhower sent H. J. Heinz II, the third-generation CEO of the eponymous food company, to lead a special mission to assess U.S. aid to Pakistan in 1954, the pressure for numbers became impossible to resist. After several unsuccessful requests, a member of the Heinz mission cornered Papanek at a cocktail party and demanded an estimate. “The rate of investment is probably between 16 and 20 percent, but we don’t know,” Papanek submitted. Two days later, one of Papanek’s Pakistani colleagues approached him excitedly: “Thank God, we finally know the rate of investment. . . . The Heinz mission has said it is 18 percent,” Papanek recalls the colleague saying. “My own number had come back to me as the truth.”24