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China’s New Economic Silk Road: The Belt And Road Initiative

The Logo of the Belt and Road Forum May 14-15 2017, Beijing China

For the 21st century President Xi Jinping of China has proposed a new economic Silk Road, that will reconnect his country with Southeast Asia and the Middle East. Dubbed the Belt and Road Initiative (BRI), it will have an economic impact on three billion people and will create the biggest global market.

This new trade enterprise started in 2013, has become the cornerstone of China’s foreign economic policy. President Xi considers the endeavor as having unparalleled potential. As the most powerful Chinese leader since Deng Xiaoping, he is determined to begin a new chapter for his nation on the Eurasian landmass.

To support the Belt and Road Initiative, new banks have been created along with countless loans, that already exceed the equivalent of billions in USD (United States Dollar). The Chinese government in total, has pledged an additional $124 billion USD, in the effort at the recent two day summit.

President of the People’s Republic of China Xi Jinping

President Xi and the heads of state of 29 other nations met in Beijing, China. Together the group reaffirmed a commitment to work towards a more open economy and to ensure free, as well as inclusive trade.

China has agreed to finance near $150 billion USD of infrastructure spending, in countries that use to be part of the old Silk Road on an annual basis. The Xi government is hopeful this will create new markets for Chinese companies. It will also vastly expand his influence in the region.

It will eventually involve one third of global economic output and could involve Chinese investments of $4 trillion USD.

Chinese ambassadors and diplomats have met with the leaders of numerous countries in the region, to entice and explain the benefits, that will accrue from the new trade and economic pact.

The Belt and Road Economies from its initial plan

The wish of the Chinese government is to fully integrate trade and investment in Eurasia under their tutelage.

The Silk Road Economic Belt will be the land based component, that along with the oceanic Maritime Silk Road will form the One Belt, One Road economic development framework, that China is now promoting.

The land route starts in western China and will traverse through Central Asia and into the Middle East. The maritime route goes around Southeast Asia, the Persian Gulf and as far as the Horn of Africa.

Further extensions, take the initiative into Europe and even Russia. The attendance of President Putin at the BRI summit, highlights this enlargement.

Terminus of the Lanxin railway at Alataw Pass, where the Chinese rail system connects with that of Kazakhstan at Dostyk. From Kazakhstan, rail links extend into Russia.

Numerous other transportation projects are being cast as part of the proposed Belt and Road Initiative. The New Eurasian Land Bridge for example,is the railway that connects China to Central Europe, by way of Kazakhstan and Eastern Europe.

The Chinese Investment Corporation sponsored by the government of China, partnered with the Russian Direct Investment Fund in 2012. The new Sino-Russian Investment Fund, is concentrating on opportunities, that are developing in the strengthening bilateral trade between the two countries.

The Russian Far East is being touted as the prime beneficiary of the Sino-Russian Investment Fund. Growing volumes of rail freight between China and Europe, will no doubt bring economic benefits to Russia. New economic opportunities will develop along the rail lines, to support this new transportation hub.

A train passing the Border crossing from Zabaykalsk in Russia to Manzhouli in China. The banner reads “Rossiya”, Russia in the Russian language.

China is interested in numerous new rail projects in Russia. These include a high speed line between Kazan and the Russian capital of Moscow, and also an express line between Kazan and Samara. There is already a proposal to create a mining railway in Tuva and the Belkomur railway, that will connect the Urals to the White Sea.

Some of the projects offered are as simple as constructing new bridges across the Amur River, which is the border between China and Russia.

However, it is true that a number of powerful individuals in Russia are unnerved, how much of Eurasian integration, will be controlled by authorities in China. It explains how the aforementioned projects that are worth tens of billions USD, are only in the preliminary stages.

Russian economic interests want to control more of these new projects,which is contrary to the present Chinese model. China typically seeks foreign undertakings, that generate demand for its own construction and rail sectors.

Abroad, BRI is the principal means through which China can use its growing economic power, to further advance its diplomatic and strategic objectives. Earlier projects have already been folded under the BRI banner.

This of course, makes it more difficult to measure the full impact of the BRI moving forward.

It will eventually consolidate China’s historical position in Eurasia, as well as undermine Western influence in the region. It is meant to be a counter, to the overall relative power of Japan and the United States.

The BRI is China’s answer to the Trans-Pacific Partnership (TPP). It provides another path to greater economic integration and trade simplification, especially since the United States has for now, abandoned the TPP effort.

China in red, Members of the AIIB in orange, the six corridors in black and blue.

The more Western led Asian Development Bank (ADP), forecasts there is an annual need for $1.7 trillion USD worth of investment, to fully fund the tremendous cost for developing modern infrastructure in Asia.

One of the Chinese responses to this critical need, was to establish the Asian Infrastructure Investment Bank (AIIB). Along with the Silk Road Fund and the New Development Bank, it permits at least a down payment, on further infrastructure spending.

Many Asian countries are quite supportive of the BRI simply for the fact, that it advances their own economic goals, through more foreign investment and building of infrastructure. To be fair, privately and sometimes publicly, some worry over the growing shadow that China is casting, across the entire Eurasian landmass.

China and Pakistan already conduct trade via the Karakoram Highway.

China is attempting to counteract these anxieties, by trying to stress openness, inclusiveness and the collaborative nature, that is built into the BRI. It has even been willing to reconsider some more controversial projects, especially those that may have detrimental environmental impact.

Domestically, the BRI will help ease the issue of industrial overcapacity within China. It will also help encourage growth in the underdeveloped border regions of China.

The Chinese leadership understands, that the longtime survival of the Communist Party, is dependent on providing ongoing economic growth and job opportunities for its huge population.

An empty corridor in the mostly vacant New South China Mall.

The lowering of China’s debt by Moody’s from Aa3 to A1, on the concern that the government will not be able to sufficiently rein in the credit boom, is among the signs that the country is facing increasing challenges.

The over expansive real estate boom in China, is particularly worrisome to officials.

China is also facing difficulties with internal coordination in advancing the BRI. There are many different competing blocs of power, that want to be part of such an important program of development.

Another issue that is not being dealt with, is the problem of how individual projects are being forestalled by internal ethnic, political and religious constraints, that exist in many nations, that are willing to participate in the BRI.

Localized corruption and numerous regulations, can make a project near impossible to finish on time and on budget. Some of the projects will be saddled with unsustainable debt, that will make them nonviable in the long run.

The oil refinery project in Kyrgyzstan for example, has been a total failure. The lack of crude oil keeps the facility running at just 6% of capacity. It was a total waste of money.

Shanghai Maglev Train

Shortcuts made in construction and environmental mitigation to make projects feasible, will bring an increasing backlash from the local populace and host governments, once a true cost analysis becomes more apparent.

One only need look at the Chinese investments in the port of Hambantota built in Sri Lanka. Another example, would be the China-Laos railway deal. Both of these developments have undermined the Chinese promise of a win for both themselves and the host country.

There is already a backlash against growing Chinese influence in Kazakhstan and Malaysia.

A number of the projects being pushed forward are not only controversial, but remain financially quite risky. There is no doubt, China will be taking major losses on some of these undertakings.

Other states who are still contemplating the overall benefits of BRI including nations like Afghanistan, Iraq, Pakistan, Syria and Ukraine will be risky for Chinese investment. The financial losses due to political instability and war, may be rather high for China.

To counter this, Chinese banks have made some efforts, to involve international institutions like pension funds, sovereign wealth funds, and other investment mediums to join them in BRI projects. The hope is there will be greater accountability and a better chance of a successful project completion and eventual profit.

The arrogance exhibited by some Chinese companies in host countries, has not always ingratiated local officials or national officials, to be more receptive to further Chinese investments.

Chinese cars at a dealer’s lot in Nizhny Novgorod, the traditional capital of the Russian automotive industry.

Chinese officials have tried to be more hospitable to cultural and local concerns, through changes in marketing and presentation. There indeed, has been a learning curve.

The trouble is BRI cannot develop in isolation either. The new aggressiveness displayed by Beijing in the South China Sea or towards countries critical of Chinese foreign policy, only heightens concerns among neighbors in the region.

Nations within the BRI are concerned that China, will use its increasing economic and trade leverage, to exact concessions in other spheres of influence.

The scale of Chinese investment is problematic, for a number of nations as well. For example, loans from just one Chinese bank, make up one third of Kyrgyzstan’s foreign debt.

Countries like Australia, India and the United States, are looking at the BRI as a way to provide cover for a push by China, to mask its real intentions towards regional hegemony. They will remain vigilant if BRI becomes a vehicle, for further Chinese dominance in parts of Asia.

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