China enters new phase for ‘belt and road’ infrastructure initiative

The term ‘Xiaoermei’ (small and beautiful) was first used in the context of the BRI by President Xi during his speech at the 2021 Belt and Road Symposium, where he called for high-quality “small and beautiful” projects to become a priority in China’s overseas cooperation. Since then, as it has become a guiding principle for the BRI, the term has been the focus of considerable attention.

BRI’s shift towards Xiaoermei became evident a few years before being formally announced in 2021. At the 2019 Belt and Road Symposium, President Xi called for BRI to move from “painting with broad strokes” to using “a fine brush” approach, and for environment, sustainability and governance (ESG), inclusivity and integrity to be key pillars of the BRI. During his speech, President Xi also called for the BRI to focus on high-quality sustainable development that would improve local living standards and move away from bilateral financing and investments.

In the context of Chinese language and culture, the term Xiaoermei is obvious in its ordinary meaning. In the context of BRI, however, things are slightly more nuanced. The meaning of ‘small’ and ‘beautiful’ must be understood in relation to the relevant historical and policy context. It should also be noted that it is customary for Chinese policymakers to continually refine policies based on feedback and lessons learned, so things will continue to evolve. 

What ‘small’ means for the belt and road initiative

Since its launch in 2013, BRI has focused on the promotion of regional and global connectivity through improving infrastructure, promoting international investment and trade, enhancing financial cooperation, and deepening cultural exchanges. However, due to the historical infrastructure gap in the southern hemisphere, the first decade of the BRI was dominated by ‘mega’ infrastructure projects constructed by Chinese contractors and financed by Chinese lenders. Indeed, in his address during the first Belt and Road Symposium which was held in 2017, President Xi focused on overcoming challenges to launch major projects. 

While efficient, it appears this bilateral model may be starting to be viewed as being out of step with BRI’s core strategy of promoting global connectivity and cooperation. Over the past few years, though providing considerable long-term benefits, mega infrastructure projects have also come to be seen as responsible for imposing a significant short-term burden on the host country and exposing Chinese lenders to credit risk. As anyone who has ever bought a house on mortgage can relate, while the long-term benefit is clear, the short-term pain can also be quite real. 

Against this backdrop, the concept of ‘small’ currently appears to be focused on three areas that have historically caused issues - scale, time and risk. Going forward, priority will be given to BRI projects requiring less investment and financing, requiring a smaller time commitment, and involving a lower level of risk for the parties – in each case as measured against the large strategic infrastructure projects that dominated the first decade of BRI. 

The strong growth in BRI solar projects in recent years - which typically require much less investment when compared to most other types of power projects such as coal, gas, hydro or nuclear, are less technically complex and can be constructed in much less time - is generally considered to be an example of Xiaoermei in practice.   

Given President Xi’s call to move away from bilateral financing during his address at the 2019 Belt and Road Symposium and the BRI’s stated goals of promoting financial cooperation, it is expected that Chinese lenders may be more risk averse when it comes to overall loan size, and will look to reduce their own share of exposure in a loan by increasing cooperation with multilateral agencies, non-Chinese lenders and other potential sources of financing. 

What ‘beautiful’ means for the belt and road initiative

During the 2021 Belt and Road Symposium, President Xi linked Xiaoermei to high-quality, sustainability, and the improvement of people’s livelihoods. This has provided the framework for what is considered ‘beautiful’ in the context of the BRI and has been the subject of extensive discussion among government agencies, scholars and the media. 

Following the speech, China’s National Development and Reform Commission described Xiaoermei projects as those which “improve local living standards and green development”. Chinese media, such as the People’s Daily and China Pictorial, have reported on Xiaoermei projects and have highlighted these projects’ impact on local living standards and ESG.

In addition, China’s National Academy of Governance has noted that Xiaoermei should be the opposite of descriptions such as ‘cutting-edge’, ‘large-scale’ and ‘high-end’ - which have been prevalent among the large infrastructure projects built during the first decade of BRI - and should instead focus on providing timely and tangible help to the vulnerable in a sustainable way. 

In practice, these developments suggest China will move towards a more robust assessment of economic feasibility, ‘value-for-money’, local needs and impact on local living standards, ESG and climate change – but also taking into account equity, the right to live and the Global South’s right to develop.

Given Chinese officials and employees of state-owned enterprises are subject to lifetime accountability for their acts and omissions, being able to demonstrate ‘beautiful’ for project approval purposes will likely require Chinese stakeholders to agree on a set of global standards. To help achieve this, the Asian Infrastructure Investment Bank is understood to be working closely with Chinese policy banks and financial institutions.