Prof Séamus Grimes of NUI Galway is one of the leading Irish academic exports on China’s economy and he has focused his recent research on the evolution of the indigenous high tech sector in what is again the world’s biggest economy (adjusted for price differences using what are called Purchasing Power Standards) since it lost its place to Great Britain in 1820. Last week Prof Grimes made a presentation on China’s massive ‘One Belt, One Road’/ Silk Road intercontinental project that was first announced by President Xi Jinping in 2013.
The Silk Road, coined in 1877 by Ferdinand von Richthofen, a German geographer, is a name for the ancient trade routes linking Xi’an (old name Chang’an), in central China with the Mediterranean Sea powers of the ancient world led by the superpower Rome. Chang’an was the first capital of a unified China and in the second century BCE, Qin Shi Huang Di (literally meaning the first emperor of Qin or Ch’in/ China 221–206 BC) as a promoter of infrastructure projects such as a national roads network, the Great Wall and the 8,000 strong terracotta army in his mausoleum, is being evoked by President Xi together with the great Han (206 BC–220 CE) and Tang (618–907 CE) dynasties, to connect the Belt and Road Initiative with its past imperial greatness.
The belt relates to the overland route connecting Europe and the Middle East to China via central Asia, and the road is a maritime Silk route that connects China, South East Asia, India and Africa – the overall objective is to increase regional trade and encourage economic cooperation.
HSBC, the global bank, says the BRI will connect cities in more than 65 countries across Europe, Asia and Africa. This represents approximately 4.4 billion people, or about 63% of the world’s population and 29% of global GDP. In its full scope, BRI is likely to have a meaningful impact on the 21st-century global economy in several ways.
“The initiative is expected to create jobs and opportunities for people and businesses along the routes as well as companies and investors around the world in areas such as infrastructure, finance, trading, logistics and professional services. Opening up trade corridors will also make it easier for businesses going into and out of China to reach the growing middle classes, which could number more than 4 billion by 2021. In the decade that follows, it is anticipated that 66% of the world’s middle class will live in Asia – many along the Belt and Road. As a result, there will be an increasing demand for a wide range of goods and services as more people become major consumers with a growing disposable income for the first time.”
According to Stuart Gulliver, group chief executive for HSBC Holdings plc, “The American dream of the 20th century is becoming the Asian dream of the 21st. A house, a car, a smartphone, travel, banking services, healthcare – the prospect of unfettered upward social mobility for many more families.”
The following is a summary of the project by Prof Séamus Grimes:
Known as ‘One Belt One Road’ or as the ‘Martime Silk Road Initiative’, this is Chinese president Xi Jinping’s signature policy and a major part of his Chinese Dream to make China a significant world power. This is a major economic initiative which is estimated by HSBC to cost between $4 trillion and $6 trillion and to take 30-40 years to complete, hopefully in time for the 100th anniversary of the founding of the People’s Republic of China in 2049. To date $250 billion in projects including power grids, airports, railways, ports, roads and logistic centres have been identified. While ostensibly being about improving connectivity and integration in a region of the world which is starved of infrastructure, the main driver behind OBOR is to ensure that China has the necessary supply of water, food, minerals and energy to continue growth.
Chinese state-owned companies (SOEs) also need to find new markets to absorb overcapacity in steel, coal and other key commodities. China’s poorly developed regions in the west can also benefit from OBOR and promoting development can also help to counteract Islamist terrorism in northwest China and Pakistan. In the process of helping countries like Laos, Cambodia, Thailand, Indonesia, Vietnam, Malaysia, the Philippines and Myanmar, China brings about a greater level of political dependency without confrontation.
The OBOR will also create major opportunities for Chinese companies in areas like infrastructure, high-speed rail, power plants, nuclear power and export services. China wants its state-owned companies to export their technology, experience and Chinese standards, which can help to lock in preferences for Chinese exports in the region. While this will bring positive
developments for Eurasia’s most unstable regions, it may also force these regions to make concessions at the expense of their own autonomy. In return for loans, China’s terms and conditions will include high-interest payments, the use of Chinese labour, goods and technology and long-term access to natural resources. In the case of the Laos railway project, China is covering 70% of the cost, but most of the 100,000 workers needed will be Chinese.
If OBOR turns out to be mainly about exporting China’s overproduction, the projects built may not be the ones the host countries need and may not generate the expected results. In the case of problems with debt repayments, China would be forced to reconfigure the debt, which could have repercussions of the countries involved. China’s banks have a poor track record at home in allocating resources effectively resulting in many loss-making regional airports, for example.
According to one estimate, China may lose up to 80% of their money in Pakistan, 50% in Myanmar and 30% in Central Asia. Despite having a national debt itself of $28 trillion, and despite a fall in its foreign reserves from $4 trillion in 2014 to $3 trillion in 2016, the OBOR would not be possible without the Chinese state organising financial packages. The Chinese model is for the state to deal with other states and mainly state-owned enterprises rather than the private sector, which can lead to problems of transparency.
Thus, while the OBOR is primarily about solving China’s own pressing challenges such as transitioning its economic model from being a lower cost manufacturing centre, there is little doubt that there will be geopolitical implications associated with this initiative. Recent controversies over the Paracels, Spratlys and the Scarborough Shoal in the South China Sea have raised concerns about China’s geopolitical agenda. India is particularly concerned about China negotiating naval base rights with Myanmar, Sri Lanka and the Seychelles, seeing this as an attempt to contain India’s reach by a ‘string of pearls’. Yet, typical of the dialectics associated with OBOR, India is keen to gain a slice of Chinese outbound investment while China is keen to access India’s markets.
The EU’s reaction to China’s OBOR has been somewhat mixed with greater enthusiasm coming from Poland, Hungary, Bulgaria, Slovenia and the Baltic states. Athens’s Piraeus Harbour is already 51% controlled by the China Ocean Shipping Company, and another Chinese SOE is building a high-speed railway between Belgrade and Budapest. But the EU recently voted against China’s application for ‘Market Economy Status’ and has major concerns about China flooding world markets with its huge overcapacity in steel. And while the EU has concerns that OBOR projects may not comply with EU environmental and social standards, a recent estimate suggests that China’s OBOR could increase the EU’s global trade by 6%.
The Hambantota container port in Sri Lanka is a very good example of how OBOR works in practice. Built by Chinese SOEs for $1 billion, this port has already lost $300 million under Sri Lankan management. China Merchants (an SOE) with assets of $855 billion compared to Sri Lanka’s GDP of $81.3 billion, just bought a $1.1 billion 99-year lease with a majority stake.
Sri Lanka has been assured that it won’t be used for military purposes. With the necessary operational skill, clout, capital and commercial relationships, lacking in Sri Lanka, China Merchants will attract significant shipping traffic together with investment for the economic zone from other SOEs like the huge petroleum company Sinopec, with a promise of 100,000 jobs.
Team China’s masterplan is to make Hambantota the key Indian ocean port between Suez and East Asia, providing an alternative route to the vulnerable Malacca Straits. Most Chinese imports and exports sail past with around 10 huge containers an hour 24/7. With very little else going for it, Sri Lanka has an ideal deep-water coastline able to handle 400-meter container ships and supertankers, making Hambantota ideal for maintenance, oil storage and ship refuelling .
With Chinese SOEs also building a port at Gwadar in Pakistan and upgrading Mombasa port in Kenya, the US, Japan and Singapore have serious reservations about China enhancing its sea power. China, on the other hand, argues that OBOR is primarily an economic initiative which seeks to build coexistence rather than confrontation.