The Chinese authorities have used a new terminology to describe China’s major economic diplomacy initiative and it is released officially this year as the “Belt and Road Initiative.” The Chinese believe that this new name reflects the trade route better than the previous term “One Belt One Road.” The old term had become somewhat less appealing to the authorities as it connoted one single belt or road instead of a series of connectivity corridors. The ancient Silk Road consisted of a series of highways and roads with each station or intermediate city nodes staffed by numerous middlemen and intermediaries instead of a single continuous road as the name “Silk Road” suggests.
The Belt and Road Initiative (BRI) encompasses over 60 states and continental regions like Asia, Europe, Southeast Asia, South Asia, Central Asia, West Asia and the Middle East, making up approximately 30 percent of international GDP and above 35 percent of the world’s physical goods trade. By 2050, the BRI wants to account for 80 percent of international GDP growth and add three billion individuals into the middle class. At the May 2017 BRI forum, Chinese President Xi Jinping allocated USD 124 billion for the plan. Chinese companies splashed USD 220 billion in 2016 for the purchase of foreign assets, including film sets/movie studios and prominent European soccer clubs.
Thomson Reuters data indicated that there were 109 agreements related to the Belt and Road countries in January to April 2017, 175 in 2016 and 134 in 2015. There are a number of BRI-related agreements that emerged in the first half of 2017: a Chinese group’s USD 11.6 billion purchase of Singapore’s Global Logistics Properties; China National Petroleum Corp’s USD 1.8 billion purchase of 8 percent of an Abu Dhabi oil company and HNA Group’s USD 1 billion purchase of CWT Ltd logistics.
Companies affected by the Chinese government’s new regulations on money transfers are now prioritizing their projects within the BRI rubric. Other acquisitions include the Khorgos Gateway dry port in Kazakhstan which is 49 percent owned by China’s COSCO, the Port of Lianyungang overseeing increasing China-Europe rail traffic, the New Port of Baku in Azerbaijan, Małaszewicze in Poland, and Bandar Abbas in Iran.
Outside China, external sources of funding have been found. The BRI scheme has attracted some funds in the US. New York investment firm KraneShares inaugurated their One Belt One Road (OBOR) Fund on September 8, 2017. Jonathan Krane, KraneShares CEO, explained, “We believe the OBOR initiative is creating a new paradigm in global investing … The OBOR initiative will receive trillions of dollars of investment over the next decade and should increase the economies and trade of both China and the participating nations.” Such expectations are beholden to the perceptions and analysis of the scale of the BRI, something never witnessed before in world historical terms. The Marshall Plan which helped Europe recover after WWII with funds pumped in from the US was only 1/12th the scale of the BRI.
These projects contain risks that comes with providing such large sums of money for infrastructure projects in countries like Ethiopia, Kenya, and Sri Lanka.
All large and ambitious supra-national plans have their limitations, however. For example, in 2016 Bangladesh opted to work with Japan instead of China. It is a competitive market for infrastructure development deals. But regardless of whether it is infrastructure built by China, Japan or India, these infrastructure projects may reinforce and complement each other in the larger scheme of things. From a macro perspective, Asian infrastructure projects regardless of their origin may mutually reinforce connectivity.
As of July 2017, China has allocated more than USD 100 billion to pay for BRI-related projects, including the massive USD 46 billion China-Pakistan Economic Corridor (CPEC) and a pan-Asian high-speed railway. These projects contain risks that comes with providing such large sums of money for infrastructure projects (USD 900 billion by Fitch Ratings’ approximation) in countries like Ethiopia, Kenya, and Sri Lanka. Some analysts argue that not all BRI countries fall within the belt of risky economies. Other states, such as India, Indonesia, and Vietnam, appear to have comparatively strong corporate and/or political governance by developing economies’ standards, and they may resist the influx of numerous Chinese construction laborers or resist accumulating high levels of debt in proportion to their GDP. But there are also states with less resilient corporate and political governing structures such as Cambodia and Pakistan, so there is a real risk that China may not be remunerated for dispatching its excess production and inventory stocks to these economies.
The 1,300 km CPEC stretches from Kashgar to the Arabian Sea port of Gwadar. The project is inked in 2013 to construct transportation and energy facilities as well as the renovation of the mountainous Karakoram Highway. Given the demonstrative nature of this showcase project, it is essential that the project takes off and works. Therefore, the Chinese authorities and international stakeholders are watching Sino-Pakistani trade figures carefully. Pakistan’s exports to China dropped by approximately 8 percent in the latter half of 2016 while Chinese imports into Pakistan increased by nearly 29 percent, resulting in Pakistan making representations to China of the dumping of goods such as cheap steel in the Pakistani consumer market which resulted in trade friction in May 2017. The Pakistanis are also finding it challenging to identify goods they can export to China, and so far, the items include medicine, toiletries, semi-precious stones, rugs, handicrafts and other small consumer products.
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