What Are The Benefits and Risks of "One Belt, One Road" Initiative?
What is One Belt, One Road in China?
Chinese President Xi Jinping announced one of China’s most ambitious foreign policy and economic initiatives at the end of 2013. He called for the building of a Silk Road Economic Belt and a 21st Century Maritime Silk Road, collectively referred to as One Belt One Road (OBOR).
One Belt One Road (OBOR) is arguably one of the largest development plans in modern history. But is this initiative a merely economic one or geostrategic step by China? Will India get benefit by joining this initiative or not? Let us discuss this initiative in detail.
What is “One Belt, One Road” or OBOR?
One Belt, One Road (OBOR) is China’s much-touted new foreign and economic policy. It is a development strategy to connect China with Central Asia, Europe, and Indo-Pacific littoral countries. This policy has two components:
- Belt– The “One Belt” refers to the land-based “Silk Road Economic Belt”. Here Beijing aims to connect the country’s underdeveloped hinterland to Europe through Central Asia.
- Road – The “One Road” references the ocean-going “Maritime Silk Road”. It is to connect the fast-growing South East Asian region to China’s southern provinces through ports and railways.
The plan is to connect the Pacific Ocean and the Indian Ocean. This will connect Chinese coastline with SE Asia, South Asia, Gulf and East coast of Africa. China will build hard and soft maritime infrastructure. It will include custom co-ordination, the formation of SEZ, new ports, e-commerce, trade liberalisation and policy coordination.
OBOR covers countries throughout the Asian continent from China to the rest of Eurasia. The geographical stretch makes it comparable with Silk Road or Silk Route, an ancient network of trade routes connecting the East and West around 120 BCE to 1450s CE that is famous for the profitable silk (and horses) trade. That is why it is also called as “New Silk Road” initiative.
Objectives of China behind the One Belt One Road
- The OBOR strategy is often reported as China’s ambitious push to take a bigger role in global affairs and expand its friend circle.
- While China insists that the investment in OBOR is economically motivated and it will bring economic benefits to host countries but the project is multi-prolonged and is intended to serve diplomatic, economic and strategic purposes.
- It is also intended to address its domestic needs in economic transformation. The demand for industrial output will increase and thus will revitalise its economy.
- This project will build China’s soft power and some analysts call it a China’ Marshall Plan.
- This initiative will make Indo-Pacific region to be Sino-centric economic and security region.
- It is also an attempt to counter US propaganda that rising China is a threat to world peace. Thus it is to convince that rising China is not a threat rather creates a win-win situation for all.
- Maritime Silk Road, and especially Chinese infrastructure investment is implicitly intended to facilitate more frequent People’s Liberation Army Navy deployments in the Indian Ocean and beyond.
Will China's "One Belt, One Road" foreign policy and infrastructure development initiative be successful?
I previously explained what the program is here for anyone curious, but this take is going to focus more on the negatives and issues rather than a straightforward explanation.
For the short-term, the One Belt One Road will be fine. Everyone in China will make oodles of money. But there are two fundamnetal issues with the program that make me uncertain as to its long-term future.
The first is the debt issue:
It doesn’t matter whether or not China is intentionally putting countries into a debt trap - what matters is that those partners are concerned they can’t manage their debt. At least 8 major partners do in fact face debt that will be difficult to repay.
While I have argued in the past that the debt problem is overblown by cherry picking, it can’t be denied that it happens, and that many countries are concerned about it. Malaysia’s new Prime Minister is increasing his opposition to Chinese investment, cancelling several projects and putting the brakes on the ‘Forest City’ project whose sales were 80% to Chinese nationals.
Even long-time Chinese ally Pakistan is expressing reservations, especially given America’s decision to compete for influence there and as a result has rejected Chinese assistant.
And while the crucial East Africa region that bridges South Asia to Europeremains filled with eager partners - a recent commitment to invest $60 billion in the continent helped - the rapid injection of infrastructure and resources into Africa may cause economic strain as the economy must adjust. So the long-term trend may not prove as positive.
The root of this problem may be that, by and large, the internal Chinese system has created a culture in which industrialising or constructing within your area of responsibility is prioritised over manageable debt, leaving China with one of the worlds worst national debts. As a result, Chinese businesses rush in to build not thinking about how they’ll affect their trading partners.
As an aside, this is why I argue that China is not intentionally putting countries into debt: culturally the government just isn’t used to caring.
So as I’ve shown, China faces a major image problem in the One Belt One Road that they may not know how to manage. Now, none of these are insurmountable by Beijing if there is internal unity and focus on developing in a way that minimises long-term issues.
So the second problem is the signs of poor co-ordination within the Chinese government.
It is here where I must segue to explaining something about the Chinese system few Westerners know. Feel free to skip the next two paragraphs:
China is big. Really, really big. With dozens of provinces and major municipalities. Too big for any one central government to handle. So while there is the one-party Communist Party of China, indivisible in leading the naion forward, there’s also a bunch of regional cliques and internal factions and provincial competitors. If you’re Xi Jinping it doesn’t matter whether investment goes to Inner Mongolia or Sichuan, but if you’re mayor of Chengdu it very much does.
This means that central government directives can get ignored by local officials who want to prioritise their careers, and makes it hard for the government to organise the whole country around certain policies. In a country where improving GDP gets you a promotion, ignoring guidelines to keep debt down or preserve the environment can make your career. In fact that's part of why OBOR exists: domestic overproduction of materials needed a release valve, somewhere an economy geared towards industrialising could send surplus resources that were only produced to increase GDP. Some might argue this level of infighting is part of why Xi has moved to centralise authority through constitutional reform and anti-corruption campaigns.
So, now that that’s done: The One Belt One Road project seems to be falling prey to infighting. China, as an unified body, does not exist. The Chinas, the provincial authorities and big companies and bureaucrats, are all squabbling to try and improve their metrics.
This is what China wants the OBOR to look like:
Which covers these major regions:
But that’s not happening.
Those corridors are not being developed in a consistent manner. Why?
Because what is a One Belt One Road project?
Really. That’s not a hypothetical. Beijing does. Not. Know.
Pipelines? Of course.
Subsiding trains? Umm…?
I have previously referred to the Silk Road brand as China’s most successful, but now the New Silk Road label is being slapped on everything as a marketing scheme. It’s working sure but it’s driving investment into wild new directions instead of focusing on what’s critical for China: securing new trade routes to bring in new resources.
And as a result the One Belt One Road has become a catch-22 to justify individual ambition.
Oh, there’s good work being done of course.
But the above represents only a fraction of total planned spending. Remember, even something like a new city in Malaysia can be called a “standard demonstration zone of One Belt One Road".
$1 trillion in critical funds is being used against itself. $300 million alone was spent as different provincial governments subsidised different train lines to get their name on a project, until Beijing stepped in to announce they would all use the same name. Money that could have been spent elsewhere to develop new train lines or ports. Again, of six corridors, only one, the easiest, is showing success.
Unsustainable projects at home are being greenlit too: a refinery in Kunming was built to take advantage of a pipeline going into Myanmar, despite the inevitable health impacts. A refinery so controversial it’s not shown on any maps.
As a result, money is being thrown away on frivolous or unsustainable projects rather than emphasising what were supposed to be the key goals of the project: trade routes and new resources.
The benefits and risks of "One Belt, One Road" initiative
The "one belt, one road initiative"(OBOR) and the new Asian Infrastructure Investment Bank(AIIB) are providing the policy framework and the funding to boost infrastructure projects, free-trade areas and agreements . The stakes are high and potential rewards and risks need to be carefully studied.
The inconvenient truth today is much of the world needs investment in infrastructure , even for many developed nations. For the first time in centuries, Chinese commerce is making a big push into the World outside its immediate zone of influence , from Ecuador to UK-and infrastructure is at its centre.
Let's look at the benefits. Countries with dire need to infrastructure development benefits from the OBOR investment in construction of much-need transport and amenities network. For years, Gabon, a West-African nation, had wanted to improve the transport network of its crumbling French colonial buildings and dilapidated roads.Things changed in recent years when China Road and Bridge Corporation(CRBC) won the contract to build the first overland route from the capital city Libreville to Port-Gentil with the country's deepest harbour. The once impossible road through seemingly impassable jungle and marshland is now a reality, and the economic and commercial value-added from this route stacks up.
Chinese companies, both state-owned and private, are able to go global and export their spare capacity in building infrastructure projects to the world. Chinese firms are able to offer competitive pricing and their prices are usually lower than US or EU companies. Chinese firms are also winning lucrative service contracts, once the domain of US, European and Japanese firms, to run those completed infrastructure.
On the other hand, there are risks and concerns about shoddy products & services but the quality question is dispelled after witnessing the 19,000 km high speed rail network and other mega infrastructure projects undertaken by Chinese companies over the last decade. The perceived risk of low-quality Chinese construction is a thing of the past. Chinese companies are now aware that their reputation is in the line internationally. Case in point: In March 2012, a military ammunition depot exploded in Brazzaville, Congo, killing more than 260 people and levelling entire buildings in a blast radius of 3 km. When the dust settled, one building complex just 50 metres away from the epicentre of the blast stood intact sheltering a local community living behind it from the worst of the explosion, and the apartment compound was built by Beijing Construction Engineering Group.
Another concern is that of the long-term employment benefits to the host nation by awarding Chinese firms to manage infrastructure projects. The way the Chinese operate is they can mobilise capital and labour quickly to get things done, but Chinese firms are aware of the employment issue and will allocate a fair share of employment opportunities to local populace. For example the overland road built by China Road and Bridge Corporation in Gabon employs about 1000 locals and 300 Chinese people.
In summary, there are more benefits to be shared among countries involved in the One Belt One Road initiative, and the inherent risks, if properly managed, will not hinder the progress of world infrastructure upgrading.
And below is my summarized notes of Dr. Drache’s 15 page paper. [Italics in square brackets are my own opinions, and not a summary of Dr. Drache’s writing]:
- Western led globalization has not brought the chronically poor out of poverty.
- In contrast, China’s model of rapid, mega infrastructure as a foundation for growth has been proven to lift millions out of poverty.
- China’s development banks are providing the funds where Western banks won’t.
- China’s strategy via OBOR is to create and connect regional manufacturing hubs, which will in turn lead to local demand which will keep the majority of manufacturers inside their manufacturing belt.
- Therefore, the growth will not be tied down to natural resources.
- Another key point is that China’s lending policy is not one size fits all like the World Bank and other western institutions.
- Rather, we can describe it as a bilateral agreement between China and State Owned Enterprises and the partner in question. Each ‘deal’ is uniquely negotiated.
- But what will China demand in return for the infrastructure investment? Ideological loyalty? Military collaborations? This flexible international negotiation space may evolve into a viable alternative to Bretton Woods institutions.
- Some stats that prove that OBOR is not just propaganda:
- China’s policy banks have $ 1 trillion or 4 times the assets of the World Bank, IMF, European Bank of Reconstruction combined.
- Chinese bank assets hit $33 trillion USD at the end of 2016, versus $31 trillion USD for the Eurozone, $16 trillion USD for the US and $7 trillion USD for Japan.
- China is the world’s number one exporter
- What could go wrong?
- Domestic public opinion is already questioning/upset with billions of dollars of foreign spending when there are still significant problems domestically. [A strong way to counteract such opposition would be if the CCP published statistics showing a larger amount was spent domestically than abroad.]
- What will China do if their investments are violently taken over by the host countries? Or if a country deems a project not viable and cancels or pauses construction? China has a history of noninterference in other countries’ domestic affairs, but this will be put to the test when something goes wrong with a billion dollar project.