China's $1 trillion One Belt One Road (New Silk Road) initiative is unprecedented in size and scope. President Xi Jinping has sealed megaproject deals with 65 countries to construct ports, power stations, rail lines, roads, and all the tunnels and bridges needed to connect them back to mainland China. Get your free audiobook: http://www.audibletrial.com/TheDailyC...
China’s $900 billion New Silk Road. What you need to know!
26 Jun 2017
Anna Bruce-Lockhart
You’ve probably heard of the Silk Road, the ancient trade route
that once ran between China and the West during the days of the Roman
Empire. It’s how oriental silk first made it to Europe. It’s also the
reason China is no stranger to carrots.
And now it’s being resurrected. Announced in 2013 by President Xi
Jinping, a brand new double trade corridor is set to reopen channels
between China and its neighbours in the west: most notably Central Asia,
the Middle East and Europe.
According to the Belt and Road Action Plan
released in 2015, the initiative will encompass land routes (the
“Belt”) and maritime routes (the “Road”) with the goal of improving
trade relationships in the region primarily through infrastructure
investments.
The aim of the $900 billion scheme, as China explained recently,
is to kindle a “new era of globalization”, a golden age of commerce
that will benefit all. Beijing says it will ultimately lend as much as
$8 trillion for infrastructure in 68 countries. That adds up to as much
as 65% of the global population and a third of global GDP, according to the global consultancy McKinsey.
But reviews from the rest of the world have been mixed, with
several countries expressing suspicion about China’s true geopolitical
intentions, even while others attended a summit in Beijing earlier this month to praise the scale and scope of the project.
The project has proved vast, expensive and controversial. Four years after it was first unveiled, the question remains:
Why is China doing it?
One strong incentive is that Trans-Eurasian trade infrastructure
could bolster poorer countries to the south of China, as well as boost
global trade. Domestic regions are also expected to benefit – especially
the less-developed border regions in the west of the country, such as
Xinjiang.
The economic benefits, both domestically and abroad, are many, but
perhaps the most obvious is that trading with new markets could go a
long way towards keeping China’s national economy buoyant.
Among domestic markets set to gain from future trade are Chinese
companies – such as those in transport and telecoms – which now look
poised to grow into global brands.
Chinese manufacturing also stands to gain. The country’s vast
industrial overcapacity – mainly in the creation of steel and heavy
equipment – could find lucrative outlets along the New Silk Road, and
this could allow Chinese manufacturing to swing towards higher-end
industrial goods.
Have you read?
A new global superpower
Some Western diplomats have been wary in their response to the
proposed trade corridor, seeing it as a land grab designed to promote
China's influence globally, but there’s little evidence to suggest the
route will benefit China alone.
The scheme is essentially a “domestic policy with geostrategic
consequences, rather than a foreign policy,” Charles Parton, a former EU
diplomat in China, told the Financial Times.
There's no doubt that China is growing into a geopolitical
heavyweight, stepping into the breach left by the United States on
matters of free trade and climate change.
"As some Western countries move backwards by erecting 'walls',
China is contriving to build bridges, both literal and metaphorical,"
ran a recent commentary by Xinhua, a Chinese state-run media agency.
Bridges are key to China's strategy, says Kevin Liu, Chairman of Asia, Partners Group.
He explains: "The superpower status the US has achieved is to a
great extent grounded on the security blanket it offered to its allies.
Geopolitically, China decided a long time ago that security was too
expensive an offer to make. Instead, this new superpower may offer
connectivity."
If combined with enhanced global connectivity, China's enormous
gravity could become an even more meaningful engine for the global
economy," Liu adds.
Which countries stand to gain?
Sixty-two countries could see investments of up to US$500 billion
over the next five years, according to Credit Suisse, with most of that
channelled to India, Russia, Indonesia, Iran, Egypt, the Philippines and
Pakistan.
Chinese companies are already behind several energy projects,
including oil and gas pipelines between China and Russia, Kazakhstan and
Myanmar. Roads and infrastructure projects are also underway in
Ethiopia, Kenya, Laos and Thailand.
Pakistan is one of the New Silk Road’s foremost supporters. Prime
Minister Nawaz Sharif said the trade route marked the “dawn of a truly
new era of synergetic intercontinental cooperation”. Unsurprising praise
perhaps from a country that stands at one end of the China-Pakistan
Economic Corridor, where it is poised to benefit from $46 billion in new roads, bridges, wind farms and other China-backed infrastructure projects.
Support has come from further afield as well, with Chile’s
president, Michelle Bachelet, predicting the route would “pave the way
for a more inclusive, equal, just, prosperous and peaceful society with
development for all”.
Who’s against it?
Perhaps the route’s most vocal critic so far has been India’s Prime Minister Narendra Modi. Vehemently opposed to the $46 billion China-Pakistan Economic Corridor,
which runs through a part of Kashmir claimed by India, he has called
the route a “colonial enterprise” that threatens to strew “debt and
broken communities in its wake”. He even boycotted the recent One Belt
One Road summit in Beijing.
Modi wasn’t the only leader notably absent from the gathering. No
officials from Japan, South Korea or North Korea made an appearance, and
of the Group of Seven (G7) industrialized nations, the only
representative to attend was Italian Prime Minister Paolo Gentiloni.
“While countries welcome Beijing's generosity, they are
simultaneously wary of its largesse. China's growing influence is a
concern for nations whose political interests do not always align with
Beijing's," explains Paul Haenle, director of the Carnegie-Tsinghua
Centre for Global Policy.
While China’s growing influence is a concern for nations whose
political interests aren’t aligned with Beijing’s, Chinese spokespeople
have repeatedly denied charges of a play for global dominance.
The New Silk Road is “not and will never be neocolonialism by stealth”, China announced recently in state media.
Who’ll foot the bill?
The One Belt One Road project already has $1 trillion of projects
underway, including major infrastructure works in Africa and Central
Asia.
Ahead of the Beijing summit earlier this month, the China
Development Bank had set aside almost $900 billion alone for more than
900 projects. China’s Big Four state-owned banks extended an estimated $90 billion in loans to the economies related to the initiative last year alone.
The Asian Infrastructure Investment Bank, which was launched in
January 2016, has authorized capital of $100 billion. $20 billion will
be paid-in capital from 80 shareholders, of which China is the largest
with a 28% share.
Despite this largesse, though, the AIIB has provided less than $2
billion in funding over the past year. The bank’s president, Jin Liquin,
told the World Economic Forum summit in China last year: "We will
support the One Belt, One Road project. But before we spend
shareholders' money, which is really the taxpayers' money, we have three
requirements."
What were these? The new trade route would have to promote growth,
be socially acceptable and abide by environmental laws, Jin said. How
well the project fares against these three criteria has yet to be seen.
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Understanding how the Belt and Road Initiative will enhance regional trade in one minute
China's Belt and Road initiative will benefit regional countries as it unleashes the potential of trade and infrastructure investments from East Asia to Africa. Invigorating regional trade and facilitating free movement of capital and labor are high on the priority of China's Belt and Road Initiative. Subscribe to us on Youtube: https://www.youtube.com/user/CCTVNEWS...
Having recently completed both the world’s most extensive system of expressways and the planet’s longest high speed rail network, China is now looking beyond its borders foropportunities to keep building.
President Xi Jinping announced at a recent summit that Beijing has sealed megaproject deals with 65 countries throughout Eurasia and Africa to construct ports, power stations,rail lines, roads, and all the tunnels and bridges needed to connect them back to mainland China.
At a total cost of over $1 trillion, the One Belt, One Road initiative is unprecedentedin size and scope.
So is the bold funding mechanism: China will use its large, state-run banks to provide most of the financing, a risky move, when you consider how few of the nations in the O.B.O.R. could afford something like this on their own.
“Oh,” say the leaders of economically-challenged, underdeveloped Laos, Yemen, or Ethiopia — or the blood-soaked regime of Bashar al-Assad in war-ravaged Syria — “you want to loan us billions of dollars to build some cool stuff in our countries? Of course, why not!?”
China is hard-selling the project as a way to boost its westward connections, an update of the silk road trade route that played a significant role in developing China and the rest of the region 1,000 years ago.
But many analysts see this comparison as little more than a marketing pitch.
Al Jazeera clip: “Is the real point of this, East-West service then simply to boost China’s westward connections?
[Pauline Loong] “Well I wouldn’t say simply to boost China’s westward connections, but I totally agree with Charles that it’s more a PR stunt.
To call it the “Silk Road,” that’s really brilliant—evocative of romantic camel travels
in the past.
When, you know, you have these lovely silks and trade and so forth. And it’s good, because look at all the headlines it has been getting, but in practical terms,it’s early days yet.”
[Bryce] Aside from the lessons China learned from its own recent infrastructure boom, Beijing is also drawing inspiration from the American Marshall Plan which financed the rebuilding of Western Europe after it was decimated during the second world war.
That program was worth the equivalent of $130 billion in today’s dollars and ensured the US had reliable export markets for the manufactured goods and machinery its growing economy had become dependent on producing.
China’s modern version — first announced in 2013 — is the signature initiative of
President Xi Jinping. Several projects have already been completed.
Earlier this year London became the 15th European city connected directly to China through an ever-expanding global rail system, meaning freight trains loaded with goods can now arriveafter a 12,000km journey all the way from the east coast of the landmass.
And, at a cost of $4 billion, China also just completed Africa’s first transnational electric railway, which runs 466 miles from Djibouti to Addis Ababa, the capital of Ethiopia.
Chinese companies designed the system, built the line, and supplied the train cars.
The many other projects under the O.B.O.R. umbrella include:A $6 billion, 260-mile railway connecting eight Asian countries.
Desperately needed power plants to address Pakistan’s chronic electricity shortage,part of a larger $46 billion investment by China in Pakistan aimed at offsetting theAmerican and Japanese-backed building boom happening in neighboring India, China and Pakistan’s mutual rival.
Train lines will connect Budapest to Belgrade, Serbia, providing another artery for Chinese goods to reach Europe after arriving in a Chinese-owned port in Greece. And — in a move that adds prestige to O.B.O.R.— China is financing more than a third of the $23.7 billion cost of the Hinkley Point C nuclear power plant in southwest England.
Part of the challenge in analyzing whether this building boom is ultimately good for the world is its sheer complexity.
Nothing like this has ever been done before in human history.
Yes, providing underdeveloped countries a chance to have better transportation infrastructure,or cleaner power plants is a good thing.
But, by funding infrastructure that’s designed to enhance commerce and trade — instead of basic services many of these countries need more, like clean drinking water, affordable housing, and better education — China’s motives seem to favor the wealthy, elite businessclass.
Here are other factors that explain why China is undertaking a project of this magnitude: The Communist Party has staked its reputation on non-stop economic growth.
Since they hold all the power, the Chinese people expect them to deliver.
But with its domestic megaproject boom nearing completion, China must find new buyers for all the steel, cement, and construction machinery its economy produces, or many of its factories could grind to a halt.
It has decided the solution is One Belt, One Road, but lending hundreds of billions of dollars to many countries with weak credit ratings and unstable political systems is very risky.
Which reveals an underlying sense you get when you look closely at One Belt One Road: China’s increasing desperation.
The country’s national debt is already very high, but borrowing continues to accelerate at historic levels as state owned banks loan more and more money to state owned companies.
The prime example of the risks associated with the tight rope the Communist Party is trying to walk was the government bailouts issued during China’s recent stock market collapse.
That crisis was caused by the same sense of impatience that’s driving O.B.O.R.—the Party’s need to feed the insatiable economic growth monster.
Using its powerful propaganda machine, Beijing urged its own people to invest their savings heavily in its immature, unstable market—causing inexperienced citizens to treat investments in companies like bets at a casino, creating a huge bubble that, naturally, burst.
The government then suspended trading for a while and pumped billions into the system to avoid a total collapse.
So really, when you step back, the core motivation for One Belt, One Road boils down to the Communist Party’s need to buy itself more time in order to come up with its next scheme to prop up the economy, because when it inevitably slows down, which it’s already starting to do, the Party’s promise to deliver a fantastic economic dream world will have been proven false for everyone in China but the elites.
The silver lining is that many of the ventures China has undertaken will pay long-term dividends, like building up its high-tech manufacturing sector, with the anticipation that when OBOR’s transportation networks are complete, it will be ready to use them to deliver higher-cost goods like iPhones, drones, and green energy technologies to the rest of the world.
The other major motivating factor here is the unmistakable opportunity to gain even-power status with the United States in Asia.
The election of Donald Trump, and then his decision to walk away from the Trans Pacific Partnership trade deal that would have hurt China, are massive geopolitical mistakes—completely unforced errors that China intends to take full advantage of.
When it first announced the O.B.O.R. back in 2013, Barack Obama had just begun his second term and the US pivot to Asia was in full force. With rivals like Japan, South Korea, and Vietnam challenging China’s efforts to control maritime trade routes, it was clear China was being hemmed in on its Eastern flank.
Despite the election of Trump, this is still true.
So by instead turning instead to the vast land mass to the west for new opportunities, China minimizes its reliance on maritime trade routes that could be cut off in the event of a destabilizing military conflict.
At the end of the day, China is all about business.
It doesn’t matter if you’re a democracy, a dictatorship, or a failed state, China wants to work with you.
But this willingness to embrace some of the world’s more unsavory characters could backfire.
Just look who Xi is sitting next to at the O.B.O.R. summit: Russia’s Vladimir Putin
and Turkey’s Erdogan—two men who look more and more like dictators clinging to power with each passing day.
That’s not a good look for China, and it reminds us that the Communist Party is even less transparent.
But in a world where the President of the United States is a bumbling fool, these partnerships create much less of an image problem now than they would have just a few months ago, when the widely admired Barack Obama was leading the free world.
If you ask the Chinese, the O.B.O.R. is all about peace, an embrace of the concept of coop-etition.
A generation ago it was unthinkable for a country to invest billions of dollars on infrastructure in another country, but in our hyper-globalized world, dominated by interconnected markets, it may become the norm, especially when we consider the intangible benefits—greater economic interdependence lowers the risk that groups of countries will want to fight with other groups of countries, many of whom are bound together by military alliances.
Every one of these projects increases China’s soft power, giving Beijing more and more leverage in any future negotiation or military conflict.
The many foreign seaports it will build and manage for the next half century will be particularly valuable chess pieces.
Its understandable that Chinese policymakers are romanticizing One Belt, One Road as a crowning achievement for their nation—further recognition that it has regained its former status as a great civilization that deserves recognition around the world. But the reality is that it still has a long way to go.
Combined, the following factors may weaken the optimistic sales pitches being made to foreign officials: a recent Oxford business school study argued that half of Chinese domestic megaprojects actually destroyed, not generated economic value; a few of China’s previous efforts to build megaprojects in foreign countries — like the A2 motorway in Poland — failed miserably; landowners and their representatives in the national assemblies of host countries are pushing back hard against attempts to take away their land; and public demonstrations against some the projects are beginning to take root, and spread.
Another dose of reality that should sober Beijing is that— after analyzing China’s
overleveraged financial position — its credit rating was just downgraded by a major agency, whose analysts concluded that its borrowing is raising red flags, and its economic growth will continue to slow down.
Of course, none of these speed bumps is going to stop the Communist Party from attempting to execute their great leap.
They are committed 100% to embracing a fundamental history lesson — one we were all reminded of by Brexit’s improbable win and the unlikely ascendence of Donald Trump — that fortune favors the bold—at least, in the short run.
Thanks for watching.
Get caught up on all of China’s major domestic megaprojects with the mini-documentary I made last year, which started some interesting conversations.
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