Mark Williams

A Silk Road for the 21st century

Mark Williams

The Silk Road was a network of trade routes spreading from Xian, in Eastern China, to the Mediterranean in the west. It was formally established during the Han Dynasty (207 BC – 220 AD), and in the 19th century was named the Silk Road by a German geographer, Ferdinand von Richthofen, to reflect one of the main products traded along it. It linked China to the Mediterranean, Africa and the Arabian Peninsula.

The clumsily named One Belt, One Road (OBOR) project – also referred to as the Belt and Road Initiative (BRI) - was launched in 2013 and deliberately aims to replicate the old Silk Road, strengthening China’s connections to Europe. The project was styled by President Xi as a means of promoting “infrastructure construction and connectivity” with a view to “a broader and more dynamic platform for Asia-Pacific cooperation”. In simplest terms, the Chinese tried to sell the plan as a way of bolstering the region’s growth – aiding others to benefit from China’s strong economic performance while simultaneously strengthening its growth.

It consists of the land-based Silk Road Economic Belt as well as a sea route, 21st Century Maritime Silk Road. The sea route is already relatively well established, and while immediately less significant for economic growth, may in time be seen as an important means of protecting China’s supply chains.

For the land element the benefits may be numerous. Shortly after One Belt One Road was elevated to ‘strategy’ status and seen as one of China’s top priorities from 2015 onwards, there was a flurry of activity. The aim was to improve China’s infrastructure to the west of the country and beyond, while exporting its own expertise, labour and capital to neighbouring countries. At a time of overcapacity this seemed a clever way for China to find new sources of growth. Railway, road and gas infrastructure projects were expected to provide a long-term boon to neighbouring countries. Three financial institutions were also established to help fund these projects. With the Asian Development Bank estimating a US$8tn Asian infrastructure investment gap in the decade to 2020, there seemed plenty of scope for large-scale Chinese investment via OBOR.

Despite the initial fanfares, execution has been slow and there has been significant political resistance. Some countries such as Malaysia have cancelled contracts, projects in other countries such as Pakistan have led to accusations that the financial burden placed on emerging countries will leave them increasingly beholden to China. Some believe this may have been one of China’s original plans, as the original US dollar denominated contracts were always going to be a burden when repaid in local currency.

Whatever the reasons, there has been a rethink of the initiative and what is touted as ‘BRI 2.0’ is now discussed, with the likely outcome of more targeted projects being implemented. Although slower than anticipated, the project is still alive.

It is the power of this ‘comprehensive connectivity’ which threatens the influence of other global powers such as the US and Japan. This was part of Barack Obama’s motivation in forming the Trans-Pacific Partnership, which included Japan and Australia, but not China. Donald Trump subsequently withdrew the US before the agreement could take effect, preferring to engage in more bombastic anti-China rhetoric and to embark on Trade Wars.

 

While the BRI is more refined than it was initially, we still believe it is an important longer-term policy. If nothing else, it indicates the long-term nature and scale of China’s ambition as it takes an increasingly important role on the international stage.

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Thursday, October 31, 2019, 11:01 AM