The new Silk Road

In late 2013, Chinese President Xi Jinping launched what could be the nation’s most ambitious economic and diplomatic program since the founding of the People’s Republic: Harking back nostalgically to the ancient Silk Road, he revealed to the world a US$1 trillion project aimed at connecting China with the West, the One Belt, One Road (OBOR) plan.

Comprising of a physical Belt linking China with the Persian Gulf and the Mediterranean Sea, and a maritime Road connecting China with Europe and the South Pacific, the two-part infrastructure development project will enable the People’s Republic to reach some 65 per cent of the world’s population, representing about one-third of the world’s GDP and about a quarter of all the goods and services the world moves, according to McKinsey.

Following the ethos of Chinese author Lu Xun, who said, “the earth had no roads to begin with, but when many men pass one way, a road is made”, both Belt and Road won’t follow a preconceived geographical route, though. Rather, Xi’s strategy seeks to make paths where they will have the most potential for China to strengthen its influence, with infrastructure investments running through the continents of Asia, Europe and Africa.

As such, the Chinese Ministry of Foreign Affairs has been selling the OBOR project as a very organic process until now that is focused on creating new opportunities as the path is taking shape*: “The connectivity projects of the Initiative will help align and coordinate the development strategies of the countries along the Belt and Road, tap market potential in this region, promote investment and consumption, create demands and job opportunities [and] enhance people-to people and cultural exchanges.”

OBOR’s highly amorphous character initially puzzled many Western policymakers it has no official list of member countries – the rough count is around the 60-nation mark – and because most of the projects that sport the label would probably have been built anyway.

Three years into the project, however, OBOR’s global importance is slowly starting to manifest itself, according to The Economist. “The projects [started under the OBOR mantle] are vast. Official figures say there are 900 deals underway, worth US$890 billion, such as a gas pipeline from the Bay of Bengal through Myanmar to south-west China and a rail link between Beijing and Duisburg, a transport hub in Germany. China says it will invest a cumulative US$4 trillion in OBOR countries, though it does not say by when.”

According to The Economist, China’s growing global clout is starting to unsettle some incumbent powers as they realise that the country’s economic involvement is part of a broader political strategy. “Xi seems to see the new Silk Road as a way of extending China’s commercial tentacles and soft power,” the magazine summarised in July. “The President has endorsed his predecessors’ view that China faces a period of strategic opportunity up to 2020, meaning it can take advantage of a mostly benign security environment to achieve its aim of strengthening its global power without causing conflict. OBOR, officials believe, is a good way of packaging such a strategy.”

An important tool to expand China’s econo-political reach over the past three years has been the newly founded Asia Infrastructure Investment Bank (AIIB), which has been billed as China’s 21st-century answer to lenders like the World Bank, traditionally led by the US, and the Asian Development Bank, which is dominated by Japan.

While a recent report from The Economist Network found the Bank successfully combined “China’s core competencies in building infrastructure with its deep financial resources to help development promote the construction in transport and communications infrastructure in poorer Asian countries”, critics say AIIB is early evidence of China’s determination to work around existing institutions rather than through them.

Regardless of the international tension AIIB may cause, though, China is serious about pushing the OBOR project ahead. In 2015, by official reckoning, the country’s foreign direct investment (FDI) in OBOR countries rose twice as fast as the increase in total FDI. “Last year, 44 per cent of China’s new engineering projects were signed with OBOR countries. In the first five months of 2016, the share was 52 per cent,” The Economist found.

While critics warn that many OBOR projects will see Chinese firms also manage the infrastructure they build, supporters of the initiative point to the positive impact it has on local economies. In Pakistan, for example, the Chinese Government has already invested some US$56 billion in a move to link the west of China with Gwadar Port, some 30km east of Qasim. “Due to the substantial Chinese investment, the Pakistani market is poised for strong growth,” says Khayam Husain, Managing Director of local trailer builder, Autocom. “The One-Belt plan will drastically reduce the shipping costs as well as shipping time from China to the Middle East, Africa and Europe, with Pakistani fleets enabling much of it.”

The Economist Network is equally upbeat about the potential to create win-win situations, saying “improved transport links will benefit many Chinese exporters [and] aiding its neighbours’ development will create new overseas markets. Countries along the corridor – especially those with undeveloped infrastructure, low investment rates, and low per-capita incomes – could experience a boost in trade flows and benefit from infrastructure development.”

As such, many view the OBOR program as a logical expansion of Chinese domestic policy, which has long been focused on infrastructure investment as a means to boost the economy. A report from the Reserve Bank of Australia counts transport-related infrastructure as a quarter of all investments made from 1990 to 2013 – much of it during 2008-2009, when the government rapidly implemented a stimulus program in response to the Global Financial Crisis, which resulted in China’s highways expanding from one million kilometres to 4.3 million kilometres. OBOR, some say, is now taking the strategy global.

While it is still too early to predict the success of what could be the biggest infrastructure project in history, it is already safe to say that OBOR will fundamentally change the dynamic of world trade and challenge the notion of Europe and Asia existing side by side as different trading blocs. With some likened the project to a second Marshall Plan, Kevin Sneader, a Senior Partner at McKinsey, says China’s ability to handle the sheer size of the project will ultimately decide if it, too, can regenerate a whole region like the Marshall Plan did after the Second World War. Until then, OBOR remains a “set of theoretical opportunities that, if delivered, would amount to an enormous step change in infrastructure investment and the quality of trade”.

* Sources: Vision and Actions on Jointly Building Silk Road Economic Belt and 21st Century Maritime Silk Road; ASEAN Connections; Australian Reserve Bank.

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