The New Silk Road initiative is not just about the money.

In an era of economic slowdown at global level, some countries keep pushing and think big. One of these actors is big itself: China.

In just 30 years, it has developed from “a poor inward-looking agricultural country to a global manufacturing powerhouse”. Thanks to its model of investing and producing at home and exporting to developed markets, Beijing has become the world’s second-largest economy after the USA[1]. Chinese economic transformation has seen a major investment strategy, such as the “booming investment in consumer-driven industry: China is becoming more of a consumer economy” and its mentality is shifting from “Made in China” to “Made for China”[2].

Today it has to deal with a slowing economy and its leadership is looking for new channels to sustain its appetite for growth at a time when developing neighbors are experiencing rapidly rising demand. Today’s project has much to do with the past.

The ancient Silk Road, a vast network of trade routes connecting China’s merchants to the Roman empire, going through Africa and Europe, Central Asia and the Middle East, got its name just in the 19th century, as it was coined by a German geographer. Today’s Chinese President Xi Jinping has looked back at that era, seen as a golden age, a time of Pax Sinica, and wants a revival of the Silk Road and the glory that went with it[3].

As part of its effort to build closer ties, both strategically and economically integrate with countries across continents, President Xi has proposed an enormous plan: it’s officially called the “One Belt, One Road” initiative and is composed by the Silk Road Economic Belt and the 21th Century Maritime Silk Road. So, not without some confusion, the two main components are the land “Belt” passing through countries, and the maritime “Road”, a route going through the Indian Ocean and the Suez Canal up into the Mediterranean Sea[4]. It’s probably one of the biggest-ever moves in the history of Chinese diplomacy and aims at connecting China with countries of South, Central and Southeast Asia, West Asia, Russia, Africa, Middle East and Europe through a wide range of physical, economic and cultural connections.

This initiative is quite amorphous because it has no official list of member countries -even though it should count about 60 of them- and because most of its projects would have been done anyway, even without the OBOR label on it[5]. For these reasons, the initiative is a real challenge that brings to mind the Indian fable of the three blind men and the elephant: “the men have never seen an elephant, so they have no idea what it looks like. One grasps its trunk and insists it’s a tree. Another puts his arms around its legs and declares it to be a column of a statue. And the third grabs its tail, which he says is a snake[6]. Perceptions of what OBOR really is about diverge widely depending on people’s different points of view. According to some observers, this project is mostly about economics, some others believe it’s mainly about geopolitics while for others the initiative is a strategy for expanding China’s sphere both for global influence and regional hegemony[7]. According to some it’s about exporting China’s overproduction, for others it has the aim of preventing instability in its neighborhood while for others it’s an extension of the “Going Out” strategy, intended to promote outward investments[8]. All of these interpretations might be true, for now it’s too early to tell. Despite all, this project makes sense because according to China’s Ministry of Commerce, a large percentage of the country’s trade volume is with States along that trajectory.

Europe is China’s largest trading partner, with a third of Chinese goods exported throughout the continent. Trade volume between the two of them is valued at more than $600 billion per year and this sum is expected to top $1 trillion by 2020, also because of China’s growing middle class[9].

Nevertheless, OBOR initiative is very important for three big reasons[10].

First of all, it will lead -but it is already doing so today- to a huge number of projects, about 900 deals that should be worthy $890 billion. China said it will invest a cumulative $4 trillion in OBOR countries, even though it did not say by when and it rejects the comparison with the Marshall Plan, as the Chinese initiative is open to all countries[11]. Anyway, this initiative comes at a difficult moment for Chinese economy, since it looks like its former double digit growth is giving way to an economic slowdown[12].

Second point, it’s important for President Xi’s foreign policy as he probably sees “the new Silk Road as a way of extending China’s commercial tentacles and soft power” and for the fact that he wants to “take advantage of a mostly benign security environment to achieve its aim of strengthening its global power without causing conflict” using at its best this “period of strategic opportunity”. The initiative has great strategic and geopolitical importance, as China seeks to build a cordon sanitaire’ of regional stability[13].

Third, the importance of this project is due to the challenge it undertakes with the United States and its way of thinking about global trade: Washington is the focal point of two trading blocs, such as the Transatlantic Trade and Investment Partnership (TTIP) with Europe and the Trans-Pacific Partnership with Asia.

Linked to this last point, there’s another reason driven both by economy and geopolitics, such as the internationalization of the renminbi and its emergence as an alternative reserve currency[14].

Anyway, it’s undeniable that “China’s “One Belt, One Road” initiative clearly reads as an audacious vision for transforming the political and economic landscape of Eurasia and Africa over the coming decades via a network of infrastructure partnership across the energy, telecommunications logistics, law, IT, and transportation sectors[15]. These are some of the most debated subjects of the OBOR initiative, yet the core “Cooperation Priorities” of this project, such as that of “people-to-people” connections, has passed largely unnoticed outside China[16]. It has five major goals: policy coordination; facilities connectivity; unimpeded trade; financial integration; people to people bonds. Even though this last goal is recognized for its importance in bilateral and multilateral cooperation, it has received very little attention, mostly because it does not carry multi-billion dollar infrastructure investments[17]. Culture of course plays a very important role for a country that ranks second -behind Italy- in the Unesco World Heritage List and for this reason culture is becoming a more and more important pillar in China’s strategy to gather international influence, as it has been stated in the 2011 plenary session of the Central Committee of the China’s Communist Party (CCP)[18].

The ancient Silk Road is a story of peaceful trade and harmonious cultural exchange and the 21st century OBOR initiative is building itself on this legacy: it lies upon a historical narrative for which both cultural and economic connections promote common prosperity. For its important history of cultural flows and connectivity, it has the power to enable countries to strategically respond to the shifting geopolitics of the region, and use the past as a means of getting advantage in an increasingly Sino-centric economy network, with culture forming today part of the diplomatic international arena[19]. On the other hand, many Central Asian countries that were once part of the former Soviet bloc, are now moving their attention to China too, since they cannot rely anymore just on Russia, which is hit by western sanctions, low energy prices and, in general, by an economic slowdown. They are putting more and more their eyes on China and on its OBOR project, even for the fact that these countries do not have many options to look for investment, infrastructure constructions, economic diversification and security arrangement[20]. Talking about these countries, they represent a challenge for the railway project, because while China and Europe use the same size of gauge, the former Soviet ones use a different type of measure[21]. Regarding the Maritime Silk Road, this route crosses South China Sea and the Indian Ocean but both Beijing and New Delhi are competing to build maritime infrastructures and this is leading to some anxieties for the freedom of navigation rights, with China’s advantage of financing the construction of deep water ports in Sri Lanka (Colombo and Hambantota) and Kenya (Lamu)[22].

Despite all possible difficulties, this huge initiative is probably doomed to succeed for some very important reasons, the main one is the personal and political capital that president Xi has put in it: as a matter of fact, “failure would inflict severe loss of face and prestige and would risk seriously diminishing his stature and authority[23]. Whatever happens, the party’s propaganda machine will keep working to present it as a triumph at home. Because this is the only thing that Chinese leaders worry about, the only “audience” that they really care about[24]. The CCP has all the interest to defend the increasingly distant Chinese interests around the world that “include the need to secure access to petroleum and other resources, and the need to protect the sea-lanes that transport resources to China and carry Chinese products abroad. This commerce is directly responsible for sustaining China’s economic growth, and thus, is also responsible for maintaining the Communist Party’s power position[25] because “securing economic growth is at the core of national security, as it legitimizes the party’s rule[26].

Since economy plays an important role in the initiative, the domestic plan dividing China into four regions with infrastructure plans to connect it with neighboring countries and increase connectivity is ready. Each zone “will be led by a core province: Xinjiang in the Northwest, Inner Mongolia in the Northeast, Guangxi in the Southwest and Fujian on the coast[27].

Anyhow, some leaders outside China, not only its neighbors, are worried about this expansion on both the continental and the maritime route. For this reason, President Xi Jinping has tried to calm these fears and has emphasized “Three Nos”[28]:

  1. No interference in the internal affairs of other nations;
  2. Does not seek to increase the so called “sphere of influence”;
  3. Does not strive for hegemony or dominance.

On the other hand it’s undeniable that a country giving birth, financing and developing a project that aims at engaging areas accounting for 70% of world population, 55% of its GDP and 75% of its energy reserves[29] wants to be considered as a top international player, no doubts on this point. No leader would spend such a huge amount of human, political and financial capital for free.

By the way, on many web sites it is possible to find the caption “The new Silk Road and economic belt. An opportunity to work, prosper and succeed together[30]. Beijing is looking for foreign investors to participate in this initiative because, according to Zhao Kejin, expert on China’s foreign policy and diplomacy at the Carnegie-Tsinghua Center for Global Policy, “Chinese companies alone do not necessarily have enough capital or experience to carry out  [all the investments] in the Belt and Road countries. Especially in central Asia, the Middle East and northern Africa, European companies have more experience, better technology and social relations while Chinese companies have the money. Together, they can make this happen[31].

But a reassuring slogan is not going to make worries come to an end. The most skeptic countries are the ones of Central Asia, well aware of their geostrategic importance in the region. Their fear is that China’s only interests in the area are about energy and natural resources, leaving little room for the region’s economic growth and long term development. Recently there have been some episodes of Sinophobia, like the one registered last May, when “protests lit up across cities in Kazakhstan over new land reforms that stoked worries of foreign investors taking over the country” with Chinese citizens becoming the target of the protest[32]. Southeast Asian states have traditionally been wary of China because of its imperial history as it “has used its increasing commercial impact on Southeast Asian economies and its ties to ethnic Chinese communities to greatly increase its influence[33]. But there’s more, because “while the United States remains Southeast Asia’s most important military actor, its power and influence are being gradually eroded by China’s soft-power diplomacy and hard-power buildup[34].

Together with the OBOR initiative, a financial structure to support it is also taking shape. By the way, the three financial institutions that have been set up for this purpose have met some resistance in the West, as they are seen as alternatives to the World Bank, International Monetary Fund and the Asian Development Bank[35].

Last year the central bank transferred $82 billion to three state-owned “policy banks” for the projects, a Silk Road Fund is already worth $40 billion and the government has set up the Asian Infrastructure and Investment Bank (AIIB)[36] with $100 billion of initial capital. The New Development Bank (NDB) is a BRICS multilateral development bank established in 2014 with a $50 billion initial capital, but this sum is going to rise up to $100 billion and its headquarter is going to be in Shanghai[37].

Beijing is the largest trading partner of all its neighbors (the only exception is Uzbekistan) and for the Association of Southeast Asian Nations (ASEAN). Europe is China’s most important trading partner while Beijing itself is just behind the United States for commerce with Europe. It must be noted that the New Silk Road is going to pass through countries belonging to an important geopolitical organization, the Shanghai Cooperation Organization (SCO) and by doing so China will keep reinforcing its ties with these States[38].

All countries touched by this project should start thinking how to contribute to this initiative -in order to achieve something- and in which way, as it represents a great challenge for large part of world’s population.

On its side, Europe should pay particular attention to the OBOR project: “whether OBOR will be mutually beneficial for China and the EU will depend on the two sides agreeing on the ‘rules of the game’, including for joint projects in third countries[39]. Over the past decades, China was an agenda-follower rather than agenda-setter and today we can see how its leaders know what they want, but the same thing cannot probably be said for many other leaders around the world. For European countries, just to give an example, “there are major interests at stake: regional stability, economic development and diversification of energy supply[40].

At the moment, discussions on OBOR mostly focus on trade and security concerns, with Europeans emphasizing the commercial interests while the U.S. worries more about the potential geopolitical implications. But “for global civilization, the significance of the OBOR goes far beyond the narrow commercial interests and security concerns[41]. As the OBOR cuts across the world’s major civilizations, it is expected to bring new opportunity and possibility for global integration.

OBOR-induced investment and trade relations between China and countries in Eurasia, Africa and the Middle East are likely to result in China’s growing political and economic leverage on these countries. What impact this will have on the EU’s long-term geopolitical, economic and geostrategic interests will also depend on whether the EU responds to OBOR with one voice and coordinated policies[42].

By the way Europe should not underestimate China’s determination to go deeper into the project as it has significant implications for the EU and for EU-China relations in terms of trade, security, and people-to-people exchange. OBOR is a ‘moving concept’, that’s why it provides the EU with an opportunity to take part in shaping the agenda jointly with China and deepen EU-China relations[43]. EU and its member States play an important role in this initiative, as they are stakeholders at all effects.

Whatever happens, China’s economy is simply too big and the country’s global impact is too important to be ignored and the New Silk Road initiative too relevant under numerous points of view not to be taken seriously.

 

Notes:

[1] https://www.clsa.com/special/onebeltoneroad/. On the other hand, today Beijing has the need “to redirect the country’s domestic overcapacity and capital for regional infrastructure development” and one of its top priorities is to “stimulate the domestic economy via exports from industries with major overcapacity such as steel, cement and aluminumCfr. Richard D. Fisher Jr., China’s military modernization. Building for regional and global reach, Stanford University Press, Stanford, California, 2010, pg 63. China is today the world’s largest consumer of aluminum, copper, lead, nickel, tin, zinc, iron ore, coal, wheat, rice, palm oil, cotton and rubber.

[2] Riding the Silk Road: China sees outbound investment boom, Global Markets – EY Knowledge, March 2015, pg 6 and 12. In outwards investments too, China is shifting from “acquiring production factors such as resources to acquiring advanced technology” as this is useful to bring in products and services to meet the growing domestic demand of the Chinese expanding middle class. Cfr. https://www.weforum.org/agenda/2015/09/what-can-the-new-silk-road-do-for-global-trade/, What can the Silk Road do for global trade? World Economic Forum, September 22, 2015. By 2030 China is expected to be the home of  66% of the world’s middle class.

[3] http://www.economist.com/news/china/21701505-chinas-foreign-policy-could-reshape-good-part-world-economy-our-bulldozers-our-rules, Our bulldozers, our rules, The Economist, July 2, 2016.

[4] https://www.clsa.com/special/onebeltoneroad/, Op. Cit.,  The ancient Silk Road was a network trade route, formally established during the Han Dynasty, the second great imperial dynasty. (206 B.C. – 220 A.D.).

[5] Our bulldozers, our rules, Op. Cit.

[6] http://m.hktdc.com/business-news/article/One-Belt-One-Road/Xi-Jinping-s-long-road-to-somewhere-China-s-OBOR-initiative-and-how-Europe-should-respond/obor/en/1/1X000000/1X0A76H1.htm, de Jonquières Guy, Xi Jinping’s long road to somewhere? China’s OBOR initiative and how Europe should respond, HKTDC Research, August 23, 2016.

[7] Ibidem., Cfr. Richard D. Fisher Jr., China’s military modernization. Building for regional and global reach, Op. Cit., foreword VIII. Just by reading the title of this book -published three years before Xi’s announcement about the “One Belt, One Road” initiative- we can understand how important Chinese aims are. Inside the text we can read that, by this military buildup, “China was seeking not local or regional, but global great power status”.

[8] de Jonquières Guy, Xi Jinping’s long road to somewhere? China’s OBOR initiative and how Europe should respond, Op. Cit. Cfr. Our bulldozers, our rules, Op. Cit., A big part of the Chinese State is mobilizing: “two-thirds of its provinces have emphasized the importance of OBOR for their development. For example, Fuzhou, the capital of coastal Fujian province, has told its companies to “start businesses in the countries and regions along the maritime Silk Road”; it has set up a free-trade zone to attract firms from such countries in South-East Asia. Many big state-owned enterprises (SOEs) have an OBOR department”. Cfr. Riding the Silk Road: China sees outbound investment boom, Global Markets – EY Knowledge, Op. Cit., Regarding the “Going Out” strategy, Albert Ng chairman of China Managing Partner, Greater China, says: “Our experience in working with “Going out” Chinese companies tells us that the keys to successful outbound investments are market knowledge, transaction efficiency, risk control – and a trusted partner. … We will continue to enable more Chinese companies to go global and to excel”.

[9] http://www.wallstreetdaily.com/2016/04/21/china-europe-silk-road-railway/, Maverick Tim, China’s New Silk Road: railway to Europe, Wall Street Daily, April 21, 2016.

[10] Our bulldozers, our rules, Op. Cit.

[11] Ibidem.  Chinese officials say the Marshall Plan was a means of rewarding U.S. friends and excluding its enemies after WWII and accounted for todays’ $130 billion dollars.

[12] de Jonquières Guy, Xi Jinping’s long road to somewhere? China’s OBOR initiative and how Europe should respond, Op. Cit.

[13] http://thediplomat.com/2015/04/why-the-one-belt-one-road-initiative-matters-for-the-eu/, Yun Shaohua, Why the ‘One Belt, One Road’ Initiative matters for EU, The Diplomat, April 9, 2015. On its way to Europe, “the OBOR initiative encompasses some of the most unstable countries and regions in the world, including Central Asia and the Middle East”. For this reason, such project is important for Europe too, as these regions are very important for its own security.

[14] Loesekrug-Pietri André, Why Europe can’t afford to ignore China’s New Silk Road, Op. Cit.

[15] http://thediplomat.com/2016/03/one-belt-one-road-one-heritage-cultural-diplomacy-and-the-silk-road/, Winter Tim, One Belt, One Road, One Heritage: Cultural Diplomacy and the Silk Road, The Diplomat, March 29, 2016.

[16] Yun Shaohua, Why the ‘One Belt, One Road’ Initiative matters for EUOp. Cit., In 2012, the EU and China established the High Level People-to-People Dialogue as an overarching mechanism to promote trust and intercultural understanding between the two sides, but this mechanism remains quite amorphous due to the lack of specific action. As such, the OBOR initiative is timely, since it promises to add substance to the people-to-people exchange mechanism.

[17] Winter Tim, One Belt, One Road, One Heritage: Cultural Diplomacy and the Silk Road, Op. Cit.

[18] Ibidem.

[19] Ibidem.

[20] http://thediplomat.com/2016/08/central-asias-lukewarm-pivot-to-china/, Snow Shawn, Central Asia’s lukewarm pivot to China, The Diplomat, August 16, 2016.

[21] Maverick Tim, China’s New Silk Road: railway to Europe, Op. Cit., All countries belonging to former Soviet Union, from the smallest up to the biggest one, use a different standard rail gauge (1.52 meters) than the gauges used within Europe, China, and other countries (1.435 meters). This means that every time the border is crossed within the old Soviet empire, every single cargo has to be switched to another train. Despite this difficulty, the train is the best way for commerce within such distances because shipping goods by air is too expensive, and shipping by sea is too slow. Shipping items from China to Germany can take about 30 days both by air and by sea, while “shipping by rail, however, can cut down that time by 50% or more”. So the train is the fastest and most cost-effective means of trade.

[22] Winter Tim, One Belt, One Road, One Heritage: Cultural Diplomacy and the Silk Road, Op. Cit.,  Cfr. Richard D. Fisher Jr., China’s military modernization. Building for regional and global reach, Op. Cit., pg 63. In this book, published three years before Xi’s proclamation about his OBOR initiative, we can read that “eight percent of China’s imported oil passes through the Straits of Malacca” and that this volume was set to grow and “for this reason, Beijing is taking an increasing interest in securing its passage and defending its critical sea-lanes to the Persian Gulf. … China is also investing in port construction along the way”.

[23] de Jonquières Guy, Xi Jinping’s long road to somewhere? China’s OBOR initiative and how Europe should respond, Op. Cit.

[24] Richard D. Fisher Jr., China’s military modernization. Building for regional and global reach, Op. Cit., pg 31. Chinese rulers worry about their population’s opinion but in the last decades protests have been growing in numbers: in 1994 there have been 730.000 people protesting and this number has grown up to 3.67 million participants in 2004. Most incidents go unreported because “these protests grow but do not threaten Party control because the Party works hard to make sure disaffected groups do not coordinate or unite”. Chinese officials fear media because, as Vice Minister of Information Industry Lou Qinjiang stated in September 2007, “as soon as a major or social situation occurs, Internet opinion makes waves and it becomes extremely easy for street politics to brake out, directly threatening social stability”.

[25] China’s military modernization. Building for regional and global reach, Richard D. Fisher Jr. Stanford University Press, Stanford, California, 2010, pg 40.

[26] https://www.clsa.com/special/onebeltoneroad/, Op. Cit.

[27] Ibidem.

[28] Ibidem.

[29] Lehmacher Wolfgang and Padilla-Taylor Victor, Hurdles ahead along the New Silk Road, The Financial Times, September 19, 2015.

[30] https://www.clsa.com/special/onebeltoneroad/, Op. Cit.

[31] https://www.ft.com/content/b04c0800-2246-11e6-aa98-db1e01fabc0c, China seeks foreign investors for One Belt, One Road push, Hornby Lucy, Financial Times, May 25, 2016. In theory everything is simple but “on the ground, co-operation between large SOEs, western multinationals and business partners from the host country is not always easy” and one example regards differing labor and safety standards.

[32] Winter Tim, One Belt, One Road, One Heritage: Cultural Diplomacy and the Silk Road, Op. Cit., Another kind of problem has occurred in Tajikistan in 2011, as local authorities passed legislation ceding 1 percent of its territory to China for debt relief, with some alarm of Tajik citizens, upset by the measure.

[33] Richard D. Fisher Jr., China’s military modernization. Building for regional and global reach, Op. Cit., pg 60.

[34] Ivi, pg 61.

[35] https://www.clsa.com/special/onebeltoneroad/, Op. Cit.

[36] http://www.scmp.com/news/china/diplomacy-defence/article/1766970/57-nations-approved-founder-members-china-led-aiib, Huang Cary, 57 nations approved as founder members of China-led AIIB, South China Morning Post, April 15, 2015. Asian Infrastructure Investment Bank is the first Asian-based international bank independent from West dominated financial institutions, as IMF and World Bank. We must not be misled by the “Asian” label, as many countries from all over the world are taking part to this bank, such as Brazil, Saudi Arabia, Australia, many former Soviet Union countries and European ones, for a total number of 57.

[37] Our bulldozers, our rules, Op. Cit.  

[38] http://www.eastonline.eu/it/opinioni/millennials-giovani-mondo/perche-rinforzare-l-integrazione-tra-europa-e-asia-se-ne-e-parlato-all-east-forum-berlin-2016, Pieranni Simone, Perché rinforzare l’integrazione tra Europa e Asia?, Eastonline, 31/3/2016.

[39] Grieger Gisele, One Belt, One Road (OBOR): China’s regional integration initiative, European Parlamentary Research Service, July 2016.

[40] Loesekrug-Pietri André, Why Europe can’t afford to ignore China’s New Silk Road, Op. Cit.

[41] Yun Shaohua, Why the ‘One Belt, One Road’ Initiative matters for EU, Op. Cit.

[42] Gisele Grieger, One Belt, One Road (OBOR): China’s regional integration initiative, Op. Cit, pg 10.

[43] Ivi, pg 11.

 

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