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MEHMET ÖĞÜTÇÜ

MEHMET ÖĞÜTÇÜ >China’s One Belt and One Road – Quo Vadis?

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China’s Silk Road initiative is a real game-changer, irrespective of whether it will succeed or not as planned, in realizing its ambitious one belt and one road project. 

It is the brainchild of ambitious President Xi Jinping, who wants to leave behind a lasting legacy while at the same time connecting China to the world’s high value markets and sources of energy and raw materials.

China hopes that its annual trade volume with belt and road countries will exceed $2.5 trillion in a decade or so. Together, the Silk Road economic belt and the 21st-century Maritime Silk Road to Africa and the Pacific cover 65 countries on three continents and 4.4 billion people. Infrastructure construction will likely drive development that can pave the ground for greater economic cooperation, while enhancing mutual security dependence.

There will be huge opportunities for governments and businesses (at a time of economic downturn elsewhere) but also massive risks as these roads pass through some unstable geographies and much remains to be done to improve the investment climate in these target countries where investments will be pouring. 

Given that there are still many “unknowns” that fuel a sense of suspicion and “hidden agenda” accusations, it is important that China should engage in an extensive strategic communications campaign to deepen mutual understanding among the countries affected and their public.

This is a very significant undertaking, touching the lives of billions; therefore, it cannot only be left to China. All major powers, regional and international organizations, and the private sector should contribute to its success, ensuring “win-win” partnerships.

Business follows “money.” It is not clear where this hundreds of billions of dollars will come from and how it can be accessed. There are too many, often duplicative, financing mechanisms in the broader region covered by the Silk Road initiative including the World Bank, Asian Development Bank, African Development Bank, Islamic Development Bank and the EBRD, as well as a series of Chinese finance entities such as the Silk Road Fund, China Development Bank, CITIC, CIC and like.

European involvement in the Asian infrastructure investment bank is a key vehicle for ensuring effective international cooperation and partnership. 

 Similar big picture thinking applies to China’s plans for a high-speed rail link between Beijing and Moscow that envisage nine new cities to populate the route. There is a more ambitious Silk Rail Road traversing Central Asia, Caucasus and Turkey to Europe that will not only provide alternative lines of transportation in the event of crisis in maritime routes but also reduce transit time and cost.

China has overtaken Russia as the key trading partner for the Central Asian states and this gap is likely to widen. China’s trade volume with Central Asia last year (worth $50 billion) exceeded that of Russia for the first time in history. Some $40 billion of investments are planned by China in Kazakhstan alone. A duty-free zone on the Kazakh-China border may lead to more being developed to encourage active trade.

Central Asian countries will want to see genuine economic rewards from the Silk Road investments. One thorny issue is how much of the investment will be spent locally and how much will China import its own labor and supplies.

South Asia is among the world’s least connected regions. Pakistan is a key partner for China in this initiative, as there will be close to a $50 billion investment in 56 projects involving the China-Pakistan economic corridor starting from the deep sea port of Gwadar to the Huncerab pass.

Russia is supportive of China’s Silk Road initiative and believes it will reinforce efforts to create prosperity and security along the route to Europe. There are synergies between this initiative, Eurasia Union and Shanghai Co-operation Organisation.

The U.S. has a skeptical view of the Silk Road initiative. It is important to see China as an opportunity and partner rather than as a threat. In this regard, the EU has a better engagement with Beijing. EU-China trade stood at 130 billion euros in 2004, which went up to 303 billion euro in 2014, with a trade deficit of 138 billion euros in favor of China. There is more Chinese FDI in Europe than European FDI in China.

A leadership vacuum has been created in many volatile regions as the U.S. has decided to gradually disengage and China seems set to fill in, moving away from its past “free-rider” position, particularly in terms of benefitting from the U.S. security umbrella.

Continued low energy prices make big-ticket infrastructure projects harder to finance. China’s commitment to invest heavily is seen as a great relief to many countries suffering from the lack of funds and investors.

The “new normal” growth at 7 percent is essential for China if it is to avoid instability arising from excess labor: hence, the Silk Road importance. 

The Malacca choke-point makes the land silk route an essential complement to the maritime silk route. China’s Asian neighbors, particularly Japan, Korea and Chinese Taipei, are watching developments closely as this new initiative will have some wide-ranging implications for them as well.

Keep watching this initiative closely, as it is not independent of the persistent efforts by Beijing in Eurasia, South Asia, the Middle East and Africa to create a new global architecture of trading, investment, transportation, technology as well as closer geopolitical realignment relative to its re-emergence in the world order.

October/27/2015

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