The Re-Birth of the Spice Road

by Joe

“The world needs China, as all humans are living in a community with a shared future … That creates broad strategic room for our efforts to uphold peace and development and gain an advantage.”

— Communist Party “manifesto” on China’s role in the world

Belt and Road

It’s been nearly five years since China first laid out their vision for achieving “peace and cooperation, openness and inclusiveness, mutual learning and mutual benefit” under the guiding light of their stupendous Belt and Road initiative.   But what is “Belt and Road”?

One way of understanding Belt and Road is to envision the world – especially Eurasia and Oceania – as a massive wheel with sea, road, rail, pipeline acting as spokes to the outside and Beijing serving as the hub.  Belt and Road may be understood as China’s leadership and capital orchestrating the construction of a massive, multi-national zone of economic and political influence.  68 nations have been included in these plans.

The scope of Belt and Road will take your breath.  When completed, the land-based portion of Belt and Road will travel West from China, through Kyrgyzstan, Uzbekistan, Tajikistan, Iran, Turkey, Istanbul, Russia, Poland, Czech Republic, Germany, Netherlands and Spain.  A maritime path ventures Southwest from China to Vietnam, Singapore, Jakarta, Kuala Lumpur, India, Sri Lanka, Pakistan, Kenya, Djibouti, Egypt, Greece and Italy.  These nations include 69% of the world’s population and 51% of global domestic product. (Oxford Economics)

Examples of BRI Road and Rail Initiatives

Chinese-Thai high speed railway

The Chinese-Thai high speed railway line began in December 2017.  The full line will be 542 miles long, with trains reaching speeds of over 150 miles per hour. Meanwhile Malaysia, given funding as part of BRI, will unveil four major rail projects in 2018.

Moscow-Kazan high-speed railway

One example of projects now underway is the Moscow-Kazan high-speed railway.  This project is slated to begin construction in the current year at a cost of $22.4 Billion and is a centerpiece in Russia’s plans to improve connectivity across its massive nation.  The rail line will connect Moscow with Russia’s third largest city, topping out at 350 km per hour (210 mph) and shrinking the current rail-transit time from 14 hours to just 3.5 hours.  Eventually, the Mosco-Kazan line may extend all the way to Beijing.

The Yamal liquefied natural gas plant

In December 2017, Russia launched the Yamal gas plant in Arctic Siberia, a region rich in hydrocarbon reserves.

Construction of the project was led by China’s China National Petroleum Corporation, one of the largest integrated energy groups in the world with headquarters in Beijing.   Start-up costs exceeded $27 Billion.

 

  

Port Expansion

In addition to the expansion of rail and roadways, the maritime portion of BRI includes expansion of China’s presence in ports along the old Silk Road.  Two well-funded Chinese mega-corporations, Cosco Shipping Ports and China Merchants Port Holdings, have been actively purchasing cargo terminals in the Indian Ocean, the Mediterranean Sea, and the Atlantic rim. Most recently, Cosco achieved their first bridgehead in northwestern Europe by purchasing Belgium’s second largest port, the terminal in Zeebrugge.  That deal followed a raft of other acquisitions in Spain, Italy, and Greece in just the last couple of years. Chinese state firms, which once kept close to their home market, now control about one-tenth of all European port capacity.  These ports underpin the maritime half of the Belt and Road Initiative, winding from the South China Sea across the Indian Ocean, through the Suez Canal and into Europe.

 

Advantages of BRI to China

The investment required to accomplish Belt and Road is astounding; projected costs exceed $1 Trillion.   According to Baker McKenzie and Silk Road Associates, this massive investment will accomplish a few strategic priorities, including:

  • Acceleration of the internationalization of Chinese firms, and creation of world class multinationals and supply-chains.
  • Increasing Chinese exports to the nations included in the Belt Road Initiative (BRI).
  • Increase the competitiveness of Chinese firms on an international basis.
  • Strengthen China’s economic and political role in BRI regions, including Europe.
  • Strengthen the renminbi’s exchange rate on the global market.
  • Improve China’s ability to export industrial products internationally. China has vast excess capacity in cement, steel and other metals.
  • Creation of new markets for Chinese firms such as high-speed rail firms.
  • Quell the volatility within central Asian countries through economic improvement, and thereby generate more stability within China’s own ‘trouble spots’ such as Xinjiang and Tibet.

 

China’s Role in Funding BRI

In 2014, China became a net capital exporter for the first time, with outward direct investment (ODI) surpassing inward direct investment. It is also now the world’s sixth largest provider of foreign aid, according to the Japan International Cooperation Agency’s latest estimate. (Economy Watch, May 2015).    The cost of completing Belt and Road will exceed $1 Trillion, an immense ambition and objective.  In China’s nascent position as lead capital exporter, they have committed to spending roughly $150 Billion a year in the 68 countries that have signed on to these initiatives.  China is positioned to win big – both economically and politically.

 

Belt and Road also factors to increase China’s political clout among BRI nations through debt holdings.  As explained by Scott Morris, Deputy Assistant Secretary, Development Finance, U.S. Treasury from 2009 to 2012, “The rules of the road are really that whoever holds the most debt is going to be calling the shots”.

Two examples explain his point.  For example, consider Kyrgyzstan’s debt from infrastructure projects.  Debt levels and dependence on China are projected to rise from 62% of gross domestic product to 78% during BRI.  At the same time, China’s share of that debt will jump from 37% to 71%.   In a similar way, China’s share of debt in Djibouti will rise from 82% to 91% of GDP as a result of infrastructure funding.  Until now, China’s presence there has been limited to a single overseas military base.  As said by Neil Davidson, a senior analyst for ports and terminals at a maritime consultancy, Drewry Shipping Consultants, Ltd., “At bottom, there is a geopolitical underpinning to a lot of this.”  While Mr. Davidson’s statement was chiefly associated with the port aspects of BRI, the point is easily expanded in this broader way.

While China clearly stands to acquire significant advantages through BRI, President Xi enumerated five principal advantages available to all participants in the initiative; policy coordination, facilities connectivity, unimpeded trade, financial connectivity and people-to-people bonds.

 

Why China’s Belt and Road Will Succeed

China’s ability to negotiate with all players is also the single greatest factor why the BRI will ultimately succeed.  China’s commitment to this project is greater than a “with us or against us” type of foreign policy.  In China’s view, government formation of political bonds with select blocs of countries standing in opposition to other countries is “outdated geopolitical maneuvering”.  Instead, China is forging partnerships of dialogue that emphasize friendship, not alliance.  Hence, we are witnessing China’s constructive relationships with Israel and Iran, Azerbaijan and Armenia, Russia and Ukraine, Pakistan and (ultimately) India, North Korea and the U.S. — crossing all lines and treading all paths in between.

Since their relationships are bilateral, each country or bloc negotiates on their own terms, and deals can be made without the usual ‘politics to complicate business agreements.

Word4Asia is a unique consulting firm serving the unique communication needs of North American organizations with interests in China.  As such, we have expertise in Chinese business, communication, and culture.  If your objectives include a presence in China, we’d be happy to talk with you.  You can reach Word4Asia at gene@word4asia.com.

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