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All in the Bag? The Political Economy of China’s “One Belt and One Road” Initiative, the
“Dual Circulation of the Global Value Chain” Theory, and Their Strategic Implications1
Wei-chin Lee
Wake Forest University
Abstract:
China has launched a variety of development projects and proposed new conceptual ideas to
boost China’s international status and world ordering capacity. This study will examine and
evaluate China’s “One Belt and One Road” (OBOR) Initiative or “Belt and Road Initiative”
(BRI), which includes numerous infrastructure investments and projects to enhance cross-border
connectivity for national and global economic development. China also has proclaimed the idea
of “dual circulation of the global value chain” (shuanghuanliu lilun, DCGVC), with China
playing an intermediate role to facilitate the interaction between core countries and peripheral
countries in the design, production, marketing, and distribution of global goods and services.
This paper aims to probe the subtleties, intricacies, and interlinkages of the OBOR Initiative and
the DCGVS theory in international political economy. In the end, it intends to explore the
impact of China's OBOR and DCGVC on the existing Western neo-liberal structural
arrangement to see whether China's efforts would reconstruct a new geo-economic order with
Chinese characteristics.
With a heightened level of confidence and the drive for global status advancement, China has
implemented a variety of mega development projects and proposed new conceptual ideas to
boost China’s international status and world ordering capacity. Chinese and international media
commentators, policy analysts, and scholars have done extensive research about China’s “One
Belt and One Road” (OBOR) Initiative, which includes numerous infrastructure investments and
projects to enhance cross-border connectivity for national, regional, and global economic growth.
In relative comparison, China’s proclamation of the “Dual Circulation of the Global Value
Chain” theory (shuanghuanliu lilun, DCGVC) has not gained broad attention in reportage and
1 Paper presented for the 2019 American Association for Chinese Studies Meeting, Oct. 4-6,
2019, Chicago. Please do not cite or circulation without permission.
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scholarly scrutiny. The DCGVC proposes that China would be the mediator in trade circulation
to facilitate interactions between core/developed states and peripheral/developing economies in
the design, production, marketing, and distribution of global goods and services.
This paper aims to probe the subtleties, intricacies, nuances, and interlinkages of the OBOR
Initiative and the DCGVS theory from the perspective of international political economy.
Moreover, it will explore whether the proposition of these initiatives represents China’s efforts to
reproduce and refine the existing Western neo-liberal structural arrangement or its strategic
scheme to reconstruct a new geo-economic order with Chinese characteristics. The findings
show that China’s public announcement of a neo-liberalist mission in developmental assistance
and collaboration, combined with its non-interference principle in the recipient state’s domestic
affairs, might potentially consolidate the illiberal states’ power grip. Second, despite China’s
liberalist wish to serve as the intermediate nexus of a firm-based approach to the global value
chains between the developed north and the developing south, China remains incapable of
playing a substantial role of equalizer to compensate the inherently asymmetric structure of
states embedded in the global market system. Third, the execution of the OBOR initiative offers
China an effective discourse through which to portray China’s beneficial role in the global geo-
economic order to soften its realist intent of creating a China-friendly geo-strategic order for its
power ascendancy.
China’s “Go Out” Strategy: The “One Belt and One Road” Initiative
During China’s transition of power in 2012-2013 from President Hu Jintao to President Xi
Jinping, Hu’s proposition of the “China dream” became Xi’s main task to strengthen and
substantiate China’s aspiration for economic modernization and global status. Success would
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mean a nationalistic, mesmerizing testimony of China’s liberation from the past suffering and
humiliation caused by Western imperialism (Ferdinand, 2016: 942). While Hu’s multiple
domestic efforts and international policies in pursuit of the China dream caught the eyes of
domestic and international audiences, it was Xi’s extravagant projects and forceful measures in
economic and security sectors that provoked widespread attention and serious responses.
Xi’s grand plan after 2013 was to build a moderately prosperous society along with persistent
efforts in market and financial reforms, socialist rule of law with Chinese characteristics, and
tighter party disciplines (Garrick and Bennett, 2018). At the same time, China has emphasized
“indigenous innovation” in the area of technological advancement, along with an ambitious
“Made in China 2025” program as the spearhead in key industries and market expansion, like
new-energy vehicles, high-end equipment manufacturing, biotechnology, and faster speed in
information technology with State-owned enterprises (SOEs) (Saich, 2017:8-11).
In the international dimension, China has envisioned a “new type of great power
relationship” with the US. China also has expected an important role in global governance in the
UN and international financial institutions, i.e., the IMF and World Bank, and has expressed its
willingness to contribute further in the management of global commons, such as climate change
issues, conflict resolution mechanisms in peacekeeping and humanitarian aid, and institutional
enforcement and regulations. Other than hardware improvements in advanced military systems
and global demonstrations of its gears, China has displayed its technological breakthroughs,
including Tiangong space stations for their orbiting rendezvous and docking capability with
Shenzhou spacecraft and a submersible Jiaolong deep-sea research vehicle. Its 2018 near
completion of the indigenous Beidou Navigation Satellite System for global service is
comparable to the American GPS, Russian Glonass, and European Galileo systems. All these
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are parts of China’s international priorities for the fulfillment of the “China Dream,” or the
“rejuvenation of the Chinese nation.” Xi’s epic vision is to “make China great again” by
nurturing it to be “the biggest player in the history of the world,” as Allison cited the words by
Singapore’s Lee Kuan Yew in explaining the quest of the China dream (Allison, 2017). The
dream is thus a conviction of the uniqueness and supremacy of China’s developmental model as
better and beyond the western developmental trajectory.
One major part of the Dreamers’ ambitious project is Xi’s announcement of the “Silk Road
Initiative” in September 2013 during his visit to Kazakhstan to link China with Europe through
Central Asia, the Balkans, and Eastern Europe to reach Germany and the Netherlands. In
October of the same year, Xi subsequently announced a “Maritime Silk Road” in Indonesia with
a road map starting from China through Southeast Asia, South Asia, the Persian Gulf, Africa, the
Mediterranean, and ultimately reaching the identical destination of the continental Silk Road—
Germany and the Netherlands. In 2015, Chinese Premier Li Keqiang further elaborated the “One
Belt and One Road” Initiative in detail (National Development and Reform Commission, et al.,
2015). Since its inception in 2013, China has funded and invested a variety of projects in
different regions and countries. A flurry of studies has publicized and elaborated the causes,
processes, and consequences at various stages. Later the OBOR was also called the “Belt and
Road Initiative” (BRI).
China designed the enormous OBOR project, to some extent, to stretch, substantiate, and
sustain China’s economic profile and prosperity to serve the domestic and international needs of
China’s critical development trajectory. It covers multiple dimensions, including huge
investments and participatory efforts for infrastructure and transportation development,
acceleration of trade and economic facility, and job creation for poverty elimination. Similar to
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the idea of “transit-oriented-development” as the primary driver for urban development, the
OBOR particularly focuses on transportation connectivity as a priority to link cities, ports, states,
and regions to amplify its scope and densify the level of economic integrity (Han, 2017).
As Chinese media has portrayed, the OBOR is a goodwill attempt to assist developing states
along the OBOR routes in infrastructure buildups, living standard improvement, and poverty
reduction. Based on this novel mission, China has committed to the role of lender of the first
financial and planning resort, if possible, for their development projects similar to the US
Marshall Plan. Yet different from the Marshall plan, China’s OBOR does not place institutional
conditionality of democracy or market economy on the recipient.
As a result, annual OBOR reports and assessments describe China’s kinder and gentler
manner in its negotiated agreement for the construction of ports, railways, energy, power plants,
and roads locally for ostensible benefits to host countries. As China claimed in 2019, 126
countries and 29 international organizations have signed up the OBOR initiative (Current Affairs
Correspondent East Asia, 2019). With subtlety, China would maneuver those outward
investments and development projects as much as possible in alignment with China’s national
expansion in key strategic trade, industrial, and financial sectors for mutual win-win scenarios
(Bremmer, 2015; Liu 2017: 165). Under such conditions, even US firms, like Caterpillar,
Honeywell, GE, Citigroup, and Goldman Sachs have become eager participants in BRI projects
in various forms (USCESC, 2018: 290-291).
Take the example of the trans-regional rail line, China had engaged in high-speed talks with
28 nations to cover more than 5,000 km of railway track by 2017 (Liu, 2017: 94). By 2019,
major routes include the rail link from Kunming, Yunnan, to Singapore, the far northwestern
Xinjiang down south to Gwadar port in Pakistan to reach the Indian Ocean, and the Sino-
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European or Eurasian rail line of 12,000 km from Yiwu in the Zhejiang Province on China’s east
coast to arrive at London in 18 days. Similarly, both Chengdu and Chongqing cities in the
southwestern Sichuan province could use the same route for trade with Poland and Germany.
Along the way, the rail network creates cross-boundary transport centers, like Kazakhstan's
Khorgos Gateway dry port on the other side of China’s Horgos. The train from Khorgos can
meet places of religious, cultural, and political significance, like Teheran in Iran (SCMP,
undated; Yang, 2018; Shepard, 2017). Chinese OBOR even stretched to its “Polar Silk Road”
strategy in January 2018 for economic and geo-strategic advantages through the Arctic,
including lofty investments in Greenland, and provoked the US counter-move in 2019 (Agence
France-Presse, 2019). The connectivity through the OBOR’s “zouchuqu” (go out) strategy has
offered ample investment opportunities, and the railway deals have presented an impression of
China as a community builder and helper to recipients. Simultaneously, it has relieved domestic
labor pressures caused by increasingly rising labor costs in the 2010s, and has sped up China’s
long-term “xibu da kaifa” (big development of the west) development to pump up economic
growth in China’s own inner land since 2000 (HKTDC, 2016). As the northwestern Xinjiang
Uygur autonomous region becomes the gateway of the OBOR to the Great Islamic Circle, the
southwestern Yunnan province now connects the regions of Southeast Asia and South Asia.
Numerous provinces and cities have joined the OBOR’s long stretched railway links for fast and
speedy delivery of exports and have thereby reinforced the trade and production network
spatially and temporally.
Put simply, the OBOR encompasses not only a concerted effort directed by the central
government but also multiple competitive endeavors by China’s regional and provincial
governments. On assessment, southern coastal China has done a better job than the inner land of
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the southwestern region in policy implementation of the OBOR due to the developmental
maturity, rich marketing experience, and ample capital resources of the coastal areas.
In trade, its trans-regional network connecting China and more than 60 countries accounted
for one third of global GDP, valued at US$ 21 trillion, and 63% of world population,
approximately 4.4 billion, in the OBOR area in its 2016 report (Jiao, 2017). Especially, the
OBOR corridors possess an estimated 75% of global energy resource supply as China has
relentlessly constructed pipelines to feed its huge appetite for oil and natural gas from countries
in Central Asia, primarily Kazakhstan, Turkmenistan, Uzbekistan (SCMP, non-dated). Should
the connectivity be strong and successful, China would benefit vastly from the OBOR in energy
supply for economic growth (World Bank, 2018). During the period between 2013 and 2017,
China’s import and export trade value dipped and climbed back to reach a total of US$ 4.1
trillion with a surplus of US$ 422.51 billion (Ministry of Commerce, 2017; World Integrated
Trade Solution, 2019). The trade value in 2017 alone included imports from those OBOR
countries at $666 billion, an annual increase of 20%, and exports to OBOR countries at $774.26
billion, an annual increase of 8.5%. The combined trade figured at $1.44 trillion, a 13.4%
increase from 2016. It was also the first time that the growth rate of imports exceeded exports
since the inception of the OBOR project in 2013 (Xinhua, 2018; Zhang, 2018). Especially,
Chinese private enterprises played a major role to claim 43% of China’s OBOR total trade
volume in 2017, though state-owned enterprises also saw a leap of 24.5% growth from their
performance in 2016 (Zhang, 2018). Such trade growth momentum was also visible in the recent
report of China’s regional trade with Africa. The total China-African trade value has increased
from to US$170 billion in 2017 to US$ 204.19 billion in 2018 (Ministry of Commerce, 2019).
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Correspondingly, besides $28 billion in investment and construction deals, China generously
pledged $23 billion in loans and aid to Arab countries (The Economist, 2019d).
Financially, the OBOR has called upon several financial institutions to funnel monetary
resources. Other than China’s domestic financial institutions, the financial pool includes the Silk
Road Fund announced by Xi at the 2014 APEC meeting with a pocketbook of $40 billion and the
Asian Infrastructure Bank (AIIB) established in 2014 with a startup reserve of $100 billion. It
also includes the New Development Bank (NDB), an institution proposed by the five BRICS
states (Brazil, Russia, India, China, and South Africa) in 2012. The NDB became operational in
2015 with a capital investment of $100 billion. Additionally, the Shanghai Cooperation
Organization (SCO) composed of China, Russia, and Central Asian countries initiated a
development bank in 2013 to facilitate the OBOR mega project (Belt and Road Portal, 2016;
SCO Development Bank, 2018). Such a massive financial coffer certainly encounters the
competitive investment offer of $65 billion pledged by the US- and Japan-dominated Asian
Development Bank for projects in recipient regions of the OBOR.
Chinese corporations took advantage of the OBOR to launch a series of mergers and
acquisitions in countries officially linkted to the OBOR. Their financial investments totaled $33
billion by August 2017, an increase from $31 billion in 2016, though China’s overall outbound
mergers and acquisitions dropped 42% year-on-year. The number of corporate deals with OBOR
states have steadily increased from 134 in 2015 and 175 in 2016. And it dropped to 109 by
August 2017, when the Chinese government started to scrutinize overseas acquisitions to ensure
financial discipline, particuarly with respect to state-owned enterprises (Reuters staff, 2017).
In 2018, the WTO reported (WTO, 2018: 55-57) that 14,950 of China’s majority-owned
foreign affiliates (MOFA), roughly 12.1% of all MOFAs, and around half of them from Hong
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Kong, China, registered a total amount of US$ 691.1 billion, an increase of 21% from 2015.
They participated substantially in four categories in ascending monetary value: business service
and leasing; construction; wholesale and retail trade; and information technology and computers.
The same report indicated that China’s service and construction sectors engaged extensively in
areas along the OBOR routes with sale values reaching US$ 134.5 billion in 2016, a 19.4%
increase from last year. Four of China’s top ten partner economies along the OBOR showed
Chinese MOFAs’ amazing growth in sales by over 30% with Singapore and Saudi Arabia, by
more than 60% with Pakistan, and by 46% with Kazakhstan.
Firms, including state-owned enterprises, such as China Railway Group and China Energy
Engineering, became champions of China’s state-orchestrated OBOR project. In reality, most
OBOR ventures are commercial in nature in constrast to the official presentation of humanitarian
aid programs (Deloitte, 2018: 7, 13). To all outward appearances, these private firms and SOEs
have presented an identity of low political sensitivity and have ingrained themselves easily in a
market environment. In this case, the logic of economics surely concurs and coordinates well
with the logic of politics.
So far, China’s OBOR plans to fulfill its connectivity in five areas—policy connectivity,
facilities connectivity, smooth flow of trade, ample financial availability, and people-to-people
bonds. And the Chinese government, thinktanks, and university research centers employ data
analysis to measure and assess these five areas of connectivity for improvement. For example, a
2018 report on the “five connectivity index” by the Taihe Institute, a Beijing-based thinktank,
and the OBOR Reserch Group of Peking University has given a general thumbs up mark to the
project’s remarkable achievements after a survey of 94 countries associated with China’s
endeavor (Taihe Institute, 2018; Peking University, 2018). While the survey displayed a normal
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distribution with 30 countries at the middle, countries with a relatively lower development level
have been the majority crowd in the category of “nations of potential for cooperation” and
“nations of weak cooperation” (Peking University, 2018).
One major concern was that 49 out of 94 countries surveyed lacked sufficient financial
capability or facilities on their own to collaborate fully with China (Voice of America, 2018).
The inter-regional and inter-state gap in in development capability has shown a wide range of
variation and difficulty for China to compensate sufficiently and satisfactorily for commendable
performance. Bloomberg even reported that out of the 68 OBOR partner countries, the sovereign
debt of 27 countries has been rated as “junk” or below investment grade, not to mention that
another 14 countries have no rating at all (Bloomberg, 2017). The result could drag both the
OBOR’s external and China’s domestic lenders to weigh down bad loans or to be cautious about
new lending in order to make projects stay afloat and manageable. Either way would stymie the
OBOR’s dynamics in expansion.
Some high-profile cases even generated profound concerns and doubts by the collaborators’
domestic critics and regional powers about the legitimacy and worthiness of the OBOR project.
The known cases include Sri Lanka’s inability to repay its debt to China’s approximately $8
billion infrastructure and development contracts with 6.3% interest since the mid-2000s. The
bilateral debt renegotiation talks sealed with the Sri Lankan government permitting China
Merchants Port Holdings Co., a Chinese SOE, to opearate the Hambantota Port with a 70% profit
share and the use of the surrounding 15,000 acres of land in a 99-year lease agreement. While
the project is claimed to be a joint effort, the Hambantota Port case in Sri Lanka worried
domestic elites of a potential effect of the debt trap. Since the port has hardly drawn a
substantial number of ships to dock in recent years, the deal immediately fueled strategic
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speculation because of the port’s proximity to India, China’s persistent commercial competitor
and historical rival, and its availability and support for Chinese naval operations to counter US
Indo-Pacific strategy as well as its potential as a commercial stronghold to facilitate the OBOR’s
transport connectivity (Abi-Habib, 2018; Hillman, 2018).
Likewise, strategic anxiety and fear was unveiled in Pakistan’s collaboration with China by
expanding the formerly inconspicuous Gwadar Port with funding from the AIIB and Chinese
government loans. It is part of the China-Pakistan Economic Corridor (CPEC) project, which
comprises transport infrastructure, oil pipelines, an oil refinery, power plants, and industrial
zones, with an estimated worth of nearly $62 billion. In return, the Hong-Kong-based China
Overseas Ports Holding Company Pakistan (COPHC-Pakistan), established in 2014, would
receive 91% shares of harbor and terminal operation and 85% of revenue from the free zone (BR
research, 2018; Kanwal, 2018; Pauley and Shad, 2018). Such a huge inflow of Chinese
investment heightened domestic demand, real estate value, import needs, and currency value.
This has raised the percentage of the current-account deficit in Paksitan’s GDP from 1% in 2015
to 5% in 2018 and has led to the shrinking of foreign currency reserve (The Economist, 2019a).
Besides, Gwadar Port as a Chinese offshore naval port on the Arabian Sea would permit China to
fulfill its Mahanian logic for the pursuit of command of the sea “with Chinese characteristics”
(Yoshihara and Holmes, 2010: 16).
Equivalently in Southeast Asia, China plans to build 28 hydroelectric dams in the upper
stream of the 3,100 mile-long Mekong River. China has positioned the Mekong plan as a project
for the “community of shared future” by creating a new governing body on the river by
following other transnational rivers’ governance institutions (Bernstein, 2017). The project
financed by the AIIB and the Silk Road Fund would greatly affect lives and the environment of
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Southeast Asian countries—Myanmar, Thailand, Laos, Cambodia, and Vietnam—beyond
China’s territorial domain and would strain China’s relations with the Southeast Asian countries.
Several similar predicaments have occurred; in the case of Maldives, which has negotiated
with China for the resolution of its $1.4 billion debt to China, even with India’s generous
counter-offer of the same amount to aid the newly elected Maldives president in December 2018.
India would like to prevent China from holding a key post in this island country, which is only
500km away from India (Kawase, 2018) Likewise, China received a $9 billion contract for the
buildup of Myanmar’s Kyaukpyu port, and the Myanmar government had second thoughts and
renegotiated to scale down to a $1.3 billion project (Mundy and Hille, 2019). Upon stepping into
the position of political authority, Mahathir Mohamad, Malaysia’s newly elected prime minster,
also shocked political supporters and analysts by manifesting a strong sovereign move to cancel,
suspend, and review several key OBOR projects agreed by his predecessor in 2018 with China,
(Mundy and Hille, 2019). Later, both sided resolved the dispute by including and engaging more
local shareholders in the project (Zheng, 2019). In sum, China vison of a strategic “string of
pearls” in the Indian Ocean and the Southeast Asian region for military necessity, commercial
advantages, and energy security has generated uneasy feeling among counterparts.
China’s unprecedented charm offensive in Africa surely scored big for China’s OBOR.
However, analysts are alarmed by the development of Djibouti, which controls the gateway to
the Suez Canal and several African countries and houses China’s first overseas base only miles
away from the US base. Unfortunately, Djibouti has encountered mounting debt distress because
of its partnership with China Merchants Port Holdings, which completed the Doraleh
Multipurpose Port in 2017. Through the partnership with China, Djibouti planned to set up a
$3.5 billion free trade zone. Djibouti’s debt estimate in 2018 was close to $1.5 billion, worth
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around 87% of the country’s GDP (Cheng, 2018). A similar debt scenario may play out in the
case of Djibouti, where China could use the debt leverage to bargain for an expansion of its
current solid military presence (Oladipo, 2015).
In sum, a glimpse of those countries at risk of debt distress from the OBOR in comparison to
their GDP shares in 2016 would show almaring figures in Djibouti (87%), Kyrgzestan (62%),
Laos (68%), Maldives (66%), Mongolia (88%), Montenegro (78%), Pakistan (70%), and
Tjikistan (42%) (USCESC, 2018: 280; also The Economist, 2019e). It is, therefore, fair to say
that China is fully aware of the dilemma of debts owed by reciepients. Should the Chinese state
intervene to write off those unperforming loans, it would be a huge financial burden for the
government to bear. On the contrary, China’s decision to not intervene by standing on the
sideline will provoke criticisms from within and without. Internal constituencies would
complain of China’s overzealous development assistance efforts abroad with its head turned
away from the needs of the domestic front, especially when China’s local debts have reportedly
bloated from 1.1 trillion RMB in 2015 to 20 trillion RMB in 2019, along with other hidden debts
(Zhijing Yang, 2019). The international community would doubt and mock China’s sincerity and
altruism in light of China’s bold proclamation of a “fair and equitable world” by mitigating
poverty and development fatigue in the developing world, paricularly as some recipients have
not had stellar records in transparency and good governance as measured by Transparency
International Corruption Perception Index, the World Governance Indicates on the rule of Law,
or the Transormation Index BTI (e.g., Stiftung, 2018). China’s lending hand has only reinforced
the trend of authoritarian resiliance in the developing world. However, the fallout of the OBOR
in one particular case may generate a snowball effect on others, affect the dynamics of moving
the project forward, and undermine the wisdom and legitimacy of the Xi regime. China’s
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investments in riskier assets and aid-financed infrastrure projects in devloping countries with
weak credit ratings and feeble democratic institutions might not be able to pave a solid path to
dominance and reputatable alliance networks (Chemawat and Hout, 2016; OECD, 2018, 21).
Accordingly, Chinese policy commentators and scholars alike have asked for a thorough risk
assessment, judicious cost-benefit analysis, and appropriate narrative construction to ward off
sharp criticisms (Guangdong guoji zhanglue yanjiu yuan, 2017). Even Sha Zukang, China’s
seasoned diplomat with heart-on-sleeve patriotism and a former ambassador to the UN Office at
Geneva, called for a re-examination of the OBOR policy because corruption, opaque financial
exchanges, environmental degradation, income inequality, and social unrest related to the OBOR
appeared frequently in news topics, commentaries, and controversies in host countries or
internationally (Dillon, 216). Interestingly, besides the PLA’s development of expeditionary
forces for contingencies aldong the OBOR route (Gunness, 2019), Chinese private secruity
companies were even contracted to be part of the OBOR project for duties of peace and stability
in some countries lacking sufficient domestic law and order capability domestically (Zi, 2018;
Arduino, 2019). Without careful management and data analysis, Sha worried that the “One Belt”
and the “One Road” could become two tightropes to “strangulate” the stellar Chinese record of
diplomatic achievements in the past (Yi, 2017).
In a nutshell, China’s String of Pearls strategy depends upon the connectivity of ports and
rails to link energy supply by employing checkbook diplomacy to woo desperate borrowers for
development. If the project proceeds as planned, China will cultivate and consolidate close ties
and friendship with recipients when other lenders in the west are reluctant to invest. If the loan
leads to default, the debt trap scenario rolls in for debt renegotiation to serve China’s commercial
and strategic advantages. It is usually a sequence of winning plays for China commercially,
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though not always positive Western media coverage. Rather than putting the state at the center
of the financial game play, the firm, particularly the state-owned enterprises, has assumed an
active role to avoid the complication of sovereignty disputes. The lease of land and percentage
of liquid equity tone down the likelihood of territorial concessions or any slight discursive
implication of extraterritoriality. The liberalist phrases and narratives of commodity supply and
demand, monetary lending and payment, and the fulfillment of contractual obligations familiar to
the market economy become convenient expressions and practices for the subtle establishment of
spheres of influence and power domination.
China’s Dual Circulation of the “Global Value Chain” theory (shuanghuanliu lilun,
DCGVC)
While China constantly reminds the world of its peaceful and non-provocative mission in
assisting OBOR recipients’ economic growth and infrastructure development, its additional
agenda is to preach the key role China could play as an intermediary in trade to lubricate and
mediate two asymmetric markets—the developed world and the developing world. Here, China
adds the theory of global value chains (GVC) to its OBOR discourse. Follwing this logic,
China’s OBOR efforts facilitate these two worlds by building up multiple links of firms,
factories, and workers in the production process in the 21st century.
Associated with the globalization trend, the liberal concepts of the cross-border distribution
of labor and comparative advantage have won broad supports in recent years by focusing more
on industries and firms rather than countries (Gereffi, 2018: 3-4). According to the WTO, more
and more developed countries took advantage of increasingly lower labor and trade costs in their
interactions with developing countries and improved communication and transportation facilities
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within GVCs in the peroiod of 1995-2011. Countries tend to put emphasis on vertical
specialization by focusing on particular stages of a good’s production. The obvious result was
that world trade and services that took place within GVCs increased from 36% in 1995 to 49% in
2011 (WTO, 2015). One IMF study shows the magnifying effect that GVCs played in China as
an intermediate axle, mediator, or transmitter of global demands in various commodities through
GVCs overtime. For example, China’s domestic value-added products had exported through 35
different sectoral GVCs. In some key GVCs, China accounted for 5 to 12% of the world total
with the implication that any disruption would affect China and others (Hong, et al., 2016: 8)
In fact, the conceptual analysis and management of the global market have evolved along
with the sociotropic shift in international political economy. The initial emphasis on the
international economic and financial institutions, such as the WTO and IMF, and their
interactions with regional and national governance systems has seen a paradigm shift to a critical
review of the relationship between the global capitalist system and various economic actors by
teasing out the functionality of actors in the global market system to illustrate the asymmetric
interactions between actors. The purpose is to understand how effective, fair, and representative
the global capitalist market has performed in wealth accumulation and distribution to market
participants in the core-periphery categorization. However, the GVC approach turns a different
page by moving away from the previous core-periphery world system level to the firm-oriented
conceptualization. Firms become the unit of analysis as the mover and shaker in organizing the
international production network for favorable gains through the rules and regulations set up by
international organizations (Gereffi, 2018; Gibbon, Bair and Ponte, 2009: 316-317). Instead of
distinguishing products as made in one particular country like “made in China” or “made in
Thailand,” the augmentation of GVC in the the utilization of each firm’s specialty and
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advantage, natural flow of capital exchanges and financial redistribution, and production through
sectorial division of labor make sovereign boundaries less relevant than before with a
proclamation of “made in the world” commodities.
This is where the Chinese idea of shuanghuanliu lilun (dual circulation of GVC, DCGVC)
has come in to play in the strategic calculation of the OBOR (Figure 1). First, believing that
China’s economic performance has reached a stable plateau of stability and sustainability—a
“new normal” referenced by Xi in May 2014 and afterwards (China Daily, 2017), the DCGVC
proposition has become an economic narrative to convince domestic actors and external players
of the significance and validity of the OBOR to all with respect to material rewards and
normative value in spreading China’s technological knowhow and sharing China’s experiences
with others in joint collaboration.
Second, by dissecting the traditional uni-cycle interactions between the “core” (developed
countries) and the “periphery” (developing countries), the DCGVC inserts China in between
these two economic categories to lubricate the transaction between them. On the one hand, long
being a self-claimed friend and helper of developing countires, China thinks that it could ease
developing countries of their anxieties, doubts, fears, and pains of exploitation imposed by the
imperialist West for a better market future of social and economic equity. China’s technological
assistance and capital contribution would interest and benefit developing countries, including
those away from OBOR corridors as long as they have connectivities with any OBOR countries.
On the other hand, as its rapid acceleration in market economy and global wealth accumulation
demonstrate, China feels that its staus elevation, financial strength, and technological innovation
have put itself nearly on par with some Western “core” states in co-sharing the global market in
trade and finance, and co-governing the geo-economic order. Under the circumstances, China
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would be able to mediate the core-periphery discrepencies and connect both worlds in the
circulation of finance, goods, and services. With time and effort, China plans to break the tightly
boxed in “core-periphery” relations (Wang and Wu, 2018).
Third, in the ideal situation of DCGVC, China could rely on the developing countries along
the OBOR for labor-intensive manufacturing works and upgrade its skilled labor force for more
sophisticated manufacturing sectors based on indigenous technologcial developments and the
transfer of knowhow from the developed countries, as the US claimed (O’Connor, 2019). It
would allow Chinese firms to capture more value-added products from the GVC based on
China’s experience. According to a 2017 World Bank report on GVCs, the expansion of
Chinese GVCs in combination with lower trade cost had generated a tremendous redistribution
effect for ordinary workers’ wage increase from 50% for low-skilled labor to 80% for medium-
skilled workers during the period 1995-2009 (World Bank, 2017: 3-6). At the same time, China
emerged as a powerhouse of “Factory Asia” in the period of 1995-2015 by exporting more
intermediate manufactured goods to other low-income downstream countries to support their
access to the global market (World Bank, 40). In China’s estimation, developing countries could
count on China’s past experiences in GVC and collaborate with China in trade, division of labor,
and transportation infrastructure to ensure a smooth, speedy, and timely delivery to foster a win-
win situation for better productivity and profitability for all.
Actually, in 2011 prior to the launch of OBOR, China still relied on foreign value added
content of exports in the so-called “backward participation” in GVCs with 40.7% in the high tech
sector on computer and electronic goods, as the WTO recorded recently (WTO, 2013). That
means, in dealing with the developed world, China’s ample financial resources and enhanced
manufacturing technology would be powerful instruments of persuasion to broker deals with
19
developing countries. In particular, the long OBOR routes end with European economies and
industrial hubs, which are essential to balance the risk and uncertainty of US pressures, should
US-China bilateral trade disputes become severe. Here, Chinese SOEs are practically handy as
gatekeepers with financial clout to screen and select potential partners in key industrial sectors
for collaboration. Their gigantic size, state-sponsored finance, and undeniable market shares
might make it difficult for foreign multinational corporation to reject their lucrative offer of
cooperation in exchange for technological transfer (Branstetter, 2018: 3). For example, although
China’s tech industry in 2018 has overtaken the US in e-commerce and mobile payment and
caught up quickly in “venture capital funding” and “AI research findings cited by third parties”
from 2013, China still remains behind in other sectors (The Economist, 2018). The connectivity
with the developed countries is essential in industrial learning and innovation, though China’s
spending in R&D has witnessed a tenfold growth between 2000 and 2016. China also initiated
the “Thousand Talents” programs in 2008 to recruit top-notch researchers abroad to return for
scientific discovery at home (The Economist, 2019b).
Fourth, one notable feature is that so far, contrary to the US usual employment of economic
leverages in developmental assistance, aid, and invesment for political and economic
transformation of the recipient country, China’s practice of economic “engagement without
transformation” in its GVC plan has given itself substantial market access and notable presence
in areas beyond its immediate neighboring countries without much noise in international politics
(Boustany and Friedberg, 2019). Therefore, China has gained a better appraisal of its intent in
pushing forward DCGVC.
The DVGVC could generate ripple effects beyond the realm of economics. Just take the
usage of Chinese currency, Renminbi (RMB), to illuminate its influence in international financial
20
transactions. The OBOR relies heavily on the backing of Chinese banks and the AIIB for various
projects (Garrick and Bennett, 2018: 101; Hameiri and Jones, 2018). A widespread circulation
and transaction of Chinese RMB in GVC and OBOR projects offers an opportunity to the RMB
to play a large role in international finance. Equivalently, China’s trade and investment
endeavors could carry tints of populism and draw a blueprint for a credible “RMB zone”
analogous to Japan’s creation of a Yen zone in the 1980s in the international currency reserve.
After all, numerous recipients of OBOR do not have abundant financing for development but
have unutilized natural and human resources to meet with China’s infrastructure and
industrialization development offers (Islam, 2018: 13).
China also could take advantage of the DCGVC to boost the prospect for the fulfillment of its
“Made in China 2025” plan (Figure 2) by improving its productivity and renovation in its
connectivity with the developed countries. In this case, China could sustain its economic growth
by lessening the potential negativity of the “middle income trap” (Wang, 2018), which generally
occurs to previously lower income states climbing rapidly initially in growth, later failing to
maintain momentum to a higher income economy, and eventually “trapping” the country at the
middle income level. When Chinese firms from multiple industrial sectors at various levels
“went out” to create economies of scale abroad, China’s Standardization Administration wanted
to establish a distinctive “China standard” through the OBOR. The standardization plan would
simply be a measurement of parts and equipment in engineering, operational practice,
commodity branding, financial transaction, railway and construction codes, and digital
infrastrucure, like 5G technology (Yang J., 2018; USCESC, 2018: 269). Once it is completed, it
would change the global competitive landscape and become a hurdle for some Western firms to
compete for market shares in those OBOR coutnries. Consequently, the urge for DCGVC is not
21
just exchanges and delivery of goods and services but also a manifestation and augmentation of
China’s market and technological domain.
Nevertheless, the reality might not match well with the ideal of DCGVC. First, China’s top-
down ambition to claim a prominent status in international GVC may face backlash from the
developed countries. Even the usually China-friendly German manufacturers which have tended
to request that the government stay clear of their business interaction with China have became
aware of and alarmed by Chinese firms climbing up the supply chain with the backing of state
subsidies. Simply put, German manufacturers who once eyed lucrative profits in the Chinese
market have had their reservations and now consider China as a “systematic competitor” in the
global value chain (The Economist, 2019c). The recent US-China trade disputes reflected similar
anxieties, fears, and concerns.
Second, China and some OBOR countries have been in competition in all three industrial
sectors—the primary sector, the secondary sector, and the tertiary sector. However, China’s
colossal market and manufacturing capability could play the role of matchmaker to combine and
converge production facilities spatially across sectors, countries, and regions to upgrade
production efficiency and uplift financial benefits collectively (Zhang Shouying, 2017). In fact,
China’s industrial profile has gradually shifted from labor-intensive industries to capital-
intensive sectors, skill-demanded, and high-value added goods. In the assessment of all OBOR
countries in the 2016 report of industrial competitiveness, China estimated that only 14 countries
listed were ahead of China’s level, and the other 44 were behind (Jiao, 2017). Take the example
of the Southeast Asian region, China concluded that most economies in this area, except
Singapore, rely on agricultural products, minerals, and low-end products for their economic
vitality (Jiao, 2017). Consequently, trade with China could benefit OBOR countries in sectorial
22
GVCs unevenly. China's scheme of equalization between the core and the periphery is unable to
change the competitive and predatory nature of the market system.
Thus, a glimpse of trade intensity index between China and OBOR countries would show
room for improvement, with China’s trade intensity remaining higher than one in its exports to
OBOR states during the period of 2011-2016, while the trade intensity indexes shown by the
OBOR countries’ exports to China had hovered between 0.736-0.826 (Figure 3). Many factors
other than trade policy could affect the change over time. While these indexes have indicated
stable bilateral relations and a promising trend of steady growth since the OBOR inception in
2013, China’s 2018 Blue Book of Industry repeated a message that China needs to strengthen the
trade competitiveness of medium and high-end manufactured goods because these products have
been the main driving force of China’s export volume (Zhang Q. 2018). The connection with the
core/developed remains a higher priority for China's industrial upgrade and competitiveness.
OBOR Concerns and Implications
From a constructive perspective, the OBOR is thus a bold endeavor historically mesmerized
to rekindle China’s past imperial glory for globalization and contemporarily modified to be
malleable as a convenient, but non-sovereign, frontier for the spread of Chinese ideational
influence and power extension. To some critics, the Chinese government has set up a “rhetoric
trap” as stipulated in President Xi’s 2017 proclamation of the “Silk Road Spirit,” which stands
for “peace and cooperation, openness and inclusiveness, mutual learning and mutual benefit”
(Xinhua, 2017). Since the Chinese government initiated the project and possesses the authority
to interpret the contents of the spirit, critics of China’s OBOR would be easily trapped on the
opposite side of the divide drawn by China as the representation of non-liberal economic
23
thinking with “un-peaceful, exclusiveness, and zero-sum mindset” characteristics (Nordin and
Weissmann, 2018: 240-241). Despite China’s defensive avowal of no interest in forming
security alliances with OBOR beneficiaries and no intent to create “debt traps” for recipients,
other major powers have disagreed. Therefore, there are several concerns, controversies, and
implications of China’s program.
First, on the backdrop of the initiation and execution of the OBRO is China’s modification of
strategic vision. In the historical and ideological perspective, the lengthy experience of China’s
weakness and humiliation by Western challenges and a strong motivation for Sino-centrism to
resume China’s glorious past and to restore its legitimate regional role have molded China’s
strategic mindset since the early 2010s. Moreover, its regime characteristics of socialism have
handicapped its full compatibility with the US-led neo-liberal international rules and order in
meddling with the domestic affairs of other countries, mostly in the developing world (Rozman,
2010: 263). Thus, different from the US and its Western aid packages with numerous political
strings attached for the promotion of human rights and structural economic adjustments, China’s
insistence on non-interference in domestic affairs and the treatment of its development assistance
packages as largely market transactions surely have opened a new frontier for China’s external
relations. China’s offering has come at an opportune time when other Western lenders have been
reluctant to take the financial risk to help those needy developing countries.
With China’s economic growth in the international system, its rapid rise momentum, national
pride, and leadership vision naturally have prompted China to “serve the people”—the people in
the world—to highlight its resilience, amazing capability, and willingness to help others. The
OBOR is not just a gesture to hop on the development wagon of assisting the global south but
also an act of self-gratification of its own achievement. It is an evolutionary development in
24
compliance with Deng’s 1992 strategic stricture of “taoguang yanghui” (hide one’s capabilities
and bide one’s time). In its official justification, China wished to transfer its economic
development experiences with developing countries through the implementation of OBOR
without much deviation from Deng’s doctrine (Duowei News, 2018). Nevertheless, Xi’s
assertive policy acts in the South China Sea dispute, the Taiwan issue, and trade disputes with
the US have alarmed Western powers, particularly the US, and even domestic opponents,
including Deng Pufang, Deng’s son, joining the debate to remind China to know its place, “not
overbearing it” (Jun, 2018).
Simply put, while China’s OBOR focuses on market liberalization for development
assistance, its prerogative of non-interference in the recipients’ domestic matters would become
a liability in the setup and execution of collaborative ventures. China has rated prospective
partners’ levels of enthusiasm in participation and attractiveness to China’s commercial and
strategic interests highly without seriously ascertaining much about the recipient country’s
capability in policy transparency, public scrutiny, and effective governance. Such neglect of the
recipient’s institutional deficiency in governance without a shred of democratic lining, as well as
the claim that this is “unproblematic,” naturally has raised international skepticism and
speculation about China’s political and strategic motives in the OBOR scheme (Paris, 2006: 435-
436). It is, therefore, unsurprising to expect that some OBOR projects would produce perverse
results. China’s flow of huge investment capital inevitably reinforces the underlying corruption
and cronyism of its partner. Hence, when China’s OBOR collaborators face regime changes or
credit crunches, China’s expectation to collect debts owed by its partner would instantly
challenge the sovereign debt, unlike a simple private bank default, and provoke broad political
25
conjectures. These do not help China’s wishful image of peaceful rise and harmonious
development through the OBOR.
Second, the desire for collaboration and complementary effects in the OBOR and DCGVC
may still end up a relationship with most OBOR developing states being “dependent” on China’s
capital funding, “penetrated” subtly by China’s economic influence, and “quasi-integrated” in a
China-orchestrated OBOR web. Given time, in its pursuit of power and self-interest, China
increasingly resembles the core states in a complex, globalized, and de-territorialized capitalist
economy of networked connections and global value chains. As much as China would like to
stress fairness and legitimacy, a capitalist world order still distinctively features economic
inequality and class stratification in operation. As the market economy progresses over years,
China’s prominence in economic ranking and power influence will have deflated, if not defeated,
its self-claimed “equalizer” role and its altruistic tone and rhetoric in bridging and narrowing the
core-periphery divide.
In essence, China has benefited from the neo-liberal economic order by uplifting its global
economic status and sensing a commensurately greater responsibility to help developing
countries as pledged in its OBOR and DCGVC mission in contrast to peer countries in the global
north. Despite that, the global capitalist market system has proceeded with transnational and
inter-regional division of labor, competition for profits and sustainability, market uncertainties,
losses, and risks as described, for example, in works by Schumpeter (1942) Hopkins and
Wallerstein (1982), and Lindblom (1977). China’s power shift in the world economy has
signified a profound awareness of its involvement in the highly competitive and contentious
market with greater risks, fragilities, and vulnerabilities for not playing by the rules in full part
for economic sustainability. Hereby, the thorough incorporation of China in a capitalist order
26
would inch it closer to the mindset of “core states” for economic self-preservation and make it
harder for China to take the lead to champion a full structural reform agenda for an equitable
international economic order through the OBOR. Furthermore, China has also encountered
pluralist interest articulation and demands inherent in its own domestic market economy (Buzan
and Lawson, 2014: 84).
Third, firms have been the key actor in China’s OBOR outreach or the primary player on the
front of DCGVC. The phenomenal scale of the OBOR with firms on the front is to convince its
partners of China’s neoliberal mission in façade and prospect (Wu, 2018). They built up
networks and performed transnational and inter-regional economic interaction without the heavy
baggage of sovereignty. Even so, the role of state remains visible and vital in China because its
SOEs have stood ahead in major OBOR projects related to construction and expansion of ports
and transportation facilities. Rather than the employment of hard geo-economic means based on
the zero-sum market competition, China’s OBOR implementation is a skillful maneuver of soft
geo-economic policy tools with a mix of a zero-sum game to elbow out developed countries and
a positive sum game to woo developing countries for collaboration. In essence, it has been a geo-
economic competition for the resettlement of a new geo-political order (Luttwak, 1990; Buzan
and Lawson, 2014: 85).
Additionally, the OBOR’s “go out” move is in some way a strategic response to the US
rebalancing move or pivot to Asia policy in East Asia in 2011. In strategic practicality, it offers
China a large hinterland to cushion against US pressures on the Western Pacific front (Jin, 2019).
Thus, one should not view the OBOR simply as a competition of varieties of capitalism but a
plan to reconstruct a world order with China as an aspiring candidate to modify the rules of the
game in inter-state interactions.
27
Fourth, as Summers (2016:1639) emphatically claimed, China is attempting to construct a
“new geopolitics of global capitalism” in areas across regions that might have previously been
peripheral to China on favorable terms to cultivate better relations. Surpassing the previous
Flying Geese model in regional integration based on the division of labor and tiers of specialty in
product cycles (Akamatsu, 1962; Cumings, 1984), China has visualized a “Chinese-centered
radial network” to build up a “community of common destiny” through the OBOR and DCGVC
(Tu and Lyu, 2018: 30). The liberalist vision of interdependence in trade, finance,
manufacturing, and technology based on voluntary cooperation and reciprocal collaboration in
various formats and intensity could result in a hierarchical and interactive neo-liberal geo-
economic order with China as the center. Here, China has adopted a dual-pronged approach to
the international economic order—one approach with a bandwagoning game to join the post-
1945 US-orchestrated economic order and another one being a gradual modification of the
existing system by biding the time and opportunity for a favorable China-centric system (Layne,
2018: 106, 109).
Consequently, the OBOR initiative has encountered resistance and skepticism from the US
and its regional allies about China’s grand scheme since its inception. Power, interests,
sovereignty, nationalism, and territoriality all remain strong in international politics. Ways for
the US to meet China’s challenges include the enhancement of an offshore balancing strategy in
re-confirming US commitments to mitigating the political impact of OBOR or to advance an
economic nationalist policy with threats of tariffs, tight scrutiny of China’s business practices,
and other protectionist measures. The purpose is to harm or slow down China’s economic
momentum and capability in order to weaken the domestic core of the OBOR’s financial
availability (Schweller, 2018: 135; Mearsheimer and Walt, 2016). To skeptics, China’s quiet
28
and unprovocative acceleration of its influence with its usual claim of peaceful development or
rise is intended, through charming extension of economic power, to lay the groundwork for
strategic and political aims (Mastro, 2019). However, without delicate, sensible, and thoughtful
application, the soft power embedded in the OBOR programs may turn into a negative
interpretation as “sharp power” tools (Nye, 2018) by using information, distraction, and
manipulation to mold public sentiment to undercut the democratic elements in the recipient
countries and hurt China’s peaceful rise image without substantially challenging the US
hegemony.
29
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Figure 1: China’s View of Dual Circulation of Global Value Chains
Figure 2: Various “Made in China 2025” Domestic Sector Goals
Source: U.S.-China Business Council (2016), cited from Morrison (2018).
Note: Dates for domestic content goals range from 2020 to 2030. The Chinese government set up these content goals in the “Made in
China 2025 Key Area Technology Road Map” in September 2015.
Developing
world
China
Developed
world China’s transfer of
capital, tech, & goods
exchanges for GVC in
sectors
Mutual exchanges of
capital & technology;
market domain and
profit co-share
37
Figure 3. Trade Intensity Index, 2011-2016: Bilateral Trade between China and OBOR
Countries
Year 2011 2012 2013 2014 2015 2016
China toward OBOR
countries 1.037 1.086 1.033 1.095 1.044 1.142
OBOR countries toward
China
0.736 0.763 0.783 0.767 0.813 0.826
Source: Data from the UN commodity trade database and compiled by Wang and Wu (2018).
