The Belt and Road Initiative

The Belt And Road Initiative (BRI) is the updated name of the One Belt One Road (OBOR). The initiative is further bifurcated into two: the Silk Road Economic Belt and the 21st century Maritime Silk Road. The former is land-based and refers to the “belt” that connects China with Central Asia, Eastern, and Western Europe. The latter is sea-based and refers to the “road” that connects China with South-East Asia, Central Asia, and Africa. The BRI is a project that was launched in the fall of 2013 as a network of regional infrastructure in a bid to enhance regional connectivity and financial integration. The Initiative comprises of a network of roads, railways, pipelines, ports, and power grids. The BRI connects China, through trade routes, to different countries in Europe, Central Asia, and Indo-Pacific littoral countries (countries found on the shore of the Indian and the Pacific Ocean); the project will stretch from central China to as far as Venice, Moscow, Rotterdam, and through Africa. The implementation of the initiative is set to have a positive boost on the region’s economic architecture and infrastructure.

The land corridors

The new Eurasian Bridge

This runs all the way from Western China to Western Russia, passing through Kazakhstan, Belarus, Poland, and Germany. It’s inclusive of the Silk Road Railway that passes through China’s Xinjiang Autonomous Region

The China-Mongolia-Russia Corridor

This is set to run from Northern China to Far East Russia. The project will be sponsored by the Sino-Russian Investment Fund which was created in 2012 after the partnership of the China Investment Corporation and the Russian Direct Investment Fund.

The China-Central Asia-West Corridor

This corridor will run from Western China all the way to China.

The China-Indochina Peninsula Corridor

This will run from Southern China to Singapore

The Bangladesh-China-India-Myanmar Economic Corridor

This goes from Southern China to Myanmar. The corridor has officially been classified as “closely related to the Belt and Road Initiative”

The China-Pakistan Economic Corridor

This corridor is also classified “closely related to the Belt and Road Initiative.” It is a $62 billion project that runs through Pakistan and is aimed at modernizing Pakistan’s energy infrastructure, transportation network, and the overall economy.

The Belt And Road Initiative Vision and Scope

During his visit to Kazakhstan and Indonesia, China’s president Xi Jinping unveiled the BRI in September 2013. Since then, the initiative has been given intensive coverage across different media houses and newspapers. The Chinese president hopes that the initiative will help build a community of common destiny. The concept entails the construction of a large and unified market that takes advantage of both international and domestic markets to result in an innovative pattern with capital inflows, the talent pool, and technology database. Although the initial focus of the program was to address an infrastructure gap, other issues that it ought to address are education, power grid, and real estate. This project is bound to be probably the largest investment project in the human history as it covers 68 countries across the world.

Historical Roots of the New Silk Road

The BRI started out as a network of trade routes during the Han Dynasty that was previously referred to as The Silk Road. The Silk Road linked China with the Roman Empire; it originated in the present day Xian (originally Chang’an) and ended in the Mediterranean. Back then, silk was China’s main product of trade. The road was, therefore, named the Silk Road in 1877 by Ferdinand von Richthofen who was a German geographer.
Ancient silk route
The original ancient silk routes
The road was made up of a series of routes that helped to build trade and cultural ties between China and its surrounding countries i.e. Arabia, Persia, India, Rome, Greece, and other Mediterranean countries.
The Silk Road reached its climax during the Tang Dynasty and declined when powers along the route became more fragmented during the Yuan Dynasty. It stopped being used as a shipping route for silk during the rise of the Ottoman Empire in 1453. The Empire’s rulers at that time opposed the West. In a nutshell, the BRI is a rejuvenated version of the ancient trade routes that once connected Asia to Europe.

Strategic Agreements and the Politics of Trade

One of the many reasons why China is pushing the implementation of the BRI is for energy security. China plans on negotiating free-trade agreements among all the countries that are a part of the BRI. Up until now, 12 free-trade agreements have been signed including Peru, Chile, Pakistan, Singapore, Costa Rica, Hong Kong, Iceland, Switzerland, and Taiwan. Eight more agreement- negotiations are underway. These include Sri Lanka, Australia, Korea, Japan, Norway, the Regional Comprehensive Economic Partnership, Asian, and the Gulf Cooperation Council. China’s overall plan is to secure economic growth. As a result, President Xi Jinping has emphasized the “Three Nos” to ease worries and assure participating members that there are no ulterior motives. These are:
  1. No interfering with the internal affairs of other nations
  2. No seeking to increase the so-called “sphere of influence”
  3. No striving for hegemony or dominance

The Main Objective of Belt and Road Initiative

The BRI has important economic and geopolitical objectives behind it. Here are some of the main objectives that China is trying to achieve with the initiative:
  1. To develop international clout by expanding its influence. China feels isolated and as though it’s not a part of G7 countries. The initiative will help China to exert greater influence regionally.
  2. To boost China’s GDP that has, in recent years, slowed down. The initiative is expected to boost trade and therefore boost the country’s GDP. It will do so by enabling China to find new markets in the different countries for its products.
  3. To channel China’s excess capacity effectively. China will be able to venture into new markets for exporting its products. The excess capacity is caused by the Chinese model of growth which is investment oriented.
  4. To boost China’s currency usage amongst the participating countries. Doing this will strengthen the Yuan as an international reserve currency.
  5. To fix regional disparities in China that are evident in the Eastern and Southern regions that have lagged behind in terms of growth. The initiatives will help these regions to be better connected to the rest of the world.

The Motivation Behind Belt and Road Initiative

The greatest motivation behind China’s ‘One Belt, One Road’ Initiative is the need to reduce physical and regulatory barriers to trade by aligning standards. China also intends to use the BRI to address excess capacity in its industrial sectors in the hope that the production facilities will be moved from China and into other participating countries. It is suggested that the various forms of infrastructure such as ports, railways, and roads are out of political motivation rather than from real demand for infrastructure. Some analysts also believe that the Belt and Road Initiative is China’s way of expanding its influence in order to fight for regional leadership in Asia. The Chinese Government has already invested billions of dollars in a couple of South Asian countries such as Nepal, Afghanistan, Pakistan, Sri Lanka, and Bangladesh to improve its fundamental infrastructure. Another motivation behind The BRI is the intention to bring about “top-level design” of economic development. This happens when infrastructure-focused state-controlled companies are allowed profitable business opportunities in order to maintain high GDP growth. Last but not least, another aspect of China’s motivation for The BRI is the initiative’s internal state-building and stabilization benefits for its vast inland western regions such as Xinjiang and Yunnan. The initiative will increase the flow of international trade and facilitate closer economic integration with the inland. China may also draw its motivation from the initiative’s potential benefits in pacifying China’s restive Uyghur population. The Communist Party is effectively and relentlessly trying to assimilate and pacify China’s Uyghur community by using economic opportunities to increase integration between Han settlers and the native population

Belt and Road initiative Impact on China’s Economy

The BRI is bound to stimulate the domestic economy through exports of products such as cement, aluminum, and steel that is produced in their local industries. This is due to the fact that the initiative will improve the infrastructure and increase connectivity to the neighboring countries. Small-scale industries will expand as larger ones lead the way. The domestic plan divides China into regions with each zone being led by a core province. The main zones are:
  • Xinjiang in the Northwest
  • Inner Mongolia in the Northeast
  • Guangxi in the Southwest
  • Fujian in the coast
Belt and Road Initiative Impact
Belt and Road Initiative Impact
The One Belt One Road initiative forms the centerpiece of the Chinese leadership’s new foreign policy. The initiative reflects its strategic political and economic ascendance in the global arena. The development of the inter-connectivity infrastructure will accelerate China’s growth and put the country at the center of geo-economics and geopolitics both in the region and far beyond. This positioning will strengthen China’s economic ties with other Asian countries. The BRI will also provide a channel for Chinese companies to invest in other countries by leveraging China’s strengths in infrastructure development, financial power, and manufacturing capacity. The initiative will definitely change the economic and political landscape of China, the most dynamic and economically vibrant country in Asia.

The BRI Impact on the World Economy

The BRI will impact the international economy just as much as it would China’s economy. The Belt and Road program will not only promote global communications and information networks but will also lower barriers to cross-border trade and investment in the region. There is so much that there is to gain by all the participating countries. The BRI will not only bridge the infrastructure deficit in developing countries but also boost their GDP as a result of increased investment and trade. The initiative is a great way for China to deploy its powerful and growing capacity abroad through the implementation of the various projects that comprise the One Belt One Road Initiative. It is guaranteed that the rest of the world will enjoy enhanced regional growth, development, and integration. As a result, when the growth leads to a sustainable economy, it’ll help to strengthen the political relations between the countries and reduce the incentives and opportunities for terrorism. The fact that Western globalization has not really brought the chronically poor countries out of poverty is enough reason for the Chinese to keep trying. China’s model of rapid, mega infrastructure has proven to lift different countries out of poverty. Different regional manufacturing hubs are connected and this, in turn, leads to local demand which will keep factories profitable and operational. China’s development banks are providing funds to state-owned enterprises through uniquely negotiated deals. Their lending policy is a bilateral agreement between China and the partner in question. The initiative’s potential has caught the world’s attention with some of the developing countries are already linking their development plans with the BRI. International companies are now assembling teams to source BRI deals. All this reflects the willingness to organize around China’s vision. Research shows that the economic growth rate of countries along the route is faster than the overall economic growth rate of other countries that are not participating members. However, it is worth noting that participation in the One Belt One Road Initiative is not a prerequisite for doing related business with China, nor is participation a guarantee of more business.

BRI Costs: How Much Will It Cost and How Is China Funding This Vast Project?

China has set aside $1 trillion with which it intends to fund the projects by providing low-interest loans to the participating countries. China knows that its development is highly dependent on expansion beyond its borders and is, therefore, funding infrastructure construction. This is China’s way of banking in its own future while still responding to its neighbor’s huge infrastructure needs. The estimates for China’s investment in the One Belt One Road Initiative roughly range between $1 and $8 trillion. This gives an estimate of the project’s economic scope.
A closer look at the BRI enables us to assess the hard infrastructure that, in some way, maps out of the trade deals and transportation agreements efforts. The participating countries take up varying levels of Chinese investment. For example, while Pakistan attracts $60 billion worth of projects, South Korea has no projects yet. It’s important to note that the BRI projects do not have a set timeline. The initiatives could stretch 2049 during the 100th-anniversary celebration of the People’s Republic of China. By then it’s believed that China will be rich, powerful, and fully developed and probably the NUMBER ONE SUPERPOWER. The pre-mentioned figures are mostly theoretical. Stretching any dimension of the BRI means that the numbers start to rise up from the most common estimate: $1 trillion. At the moment, however, there is a lag between the infrastructure pledges and the actual investment. This is mostly as a result of the projects’ complexity in planning and construction. The $1 trillion promise has not yet been met and if the current trend goes on, the target might not be met for several years (maybe 6 to 7 years). Remember the $8 trillion we mentioned earlier? Let’s get back to it. You’re probably wondering how the figure goes from $1 trillion all the way to $8 trillion. This figure is what the fully implemented projects would cost following Xi’s orders. The Asian Development Bank estimates that this would be the amount needed between 2010 and 2020 for China to complete projects. The whole initiative is quite costly and even China’s pockets have limits. The country’s total debt to GDP is at 250%. Here are some of the financial and research institutions that have been set up to fund the development of the project:

1. University Alliance of the Silk Road

This university alliance is centered at Xi’an Jiaotong University and is aimed at supporting the BRI with research and engineering. It also aims to foster understanding and academic exchange. The alliance goes beyond the economic zone and includes a law school alliance that serves the BRI with legal spirit and legal culture.

2. Asian Infrastructure Investment Bank (AIIB)

AIIB was founded in 2014 after its proposal in October 2013. The bank aspires to be a global development bank comprising of 21 Asian countries with a registered capital of $100bn and dedicated to lending for projects regarding infrastructure. 75% of the $100bn will come from Asian and Oceania countries. The largest stakeholder is China with a 26% voting right. The member countries are China, Malaysia, India, Thailand, Singapore, the Philippines, Pakistan, Bangladesh, Cambodia, Brunei, Kazakhstan, Kuwait, Laos, Nepal, Mongolia, Myanmar, Oman, Qatar, Sri Lanka, Uzbekistan, and Vietnam.
The bank’s primary goals include addressing the infrastructure needs across Asia, enhancing regional integration, promoting economic development, and improving public access to social services. The Articles of Agreement of the AIIB were signed in Beijing in 29th June 2015. The bank began operation on 16th January 2016. AIIB’s highest decision-making body is the board of governors according to their Articles of Agreements.

Silk Road Fund

The Silk Road fund was launched in 2014 when Xi Jinping announced plans to create a $40 billion fund that will provide money for the BRI infrastructure projects. What distinguished the fund from that from banks is the fact that the Silk Road Fund is to be invested in businesses rather than lend money for projects. This fund is mainly capitalized by China’s forex reserves and will be managed like China’s sovereign wealth fund. The fund’s first investment project is the Karot Hydropower Project in Pakistan whose work was started in January 2016 by the Sanxia Construction Corporation. China promised to give $350 to Pakistan to finance the hydro-power station.

BRI Participating Countries

The BRI plans to incorporate a third of the world’s countries. These projects will represent a third of the total world economy and more than half of the global population. Over recent years, diplomatic relations between China and other countries have remarkably improved. Besides Europe and Africa, China’s ultimate goal is to extend the initiative to Latin America. Here are some of the countries in which projects have effectively rolled out for ports, railways, highways, telecommunications, and power stations.

i.        Djibouti

Some of the BRI projects in Djibouti include the Hassan Gouled Aptidon International Airport and the Doraleh Multi-Purpose Port. 

ii.           Ethiopia

The Eastern Industrial Zone in Ethiopia that is a major manufacturing hub was built by China. It’s located outside Addis Ababa and is occupied by factories of Chinese manufacturers. Within the industrial zone, there are about 83 companies of which 56 have already started production. The poor infrastructure outside the zone, however, hinders it from serving as a catalyst for the country’s economic development. Another project is the Ethio-Djibouti that saw the recruitment of Chinese contractors to rejuvenate the century-old railway and turn it into an electric standard gauge. The new railway stretches for about 750km, between Addis Ababa and Djibouti.

iii.           Kenya

The Kenyan government signed a cooperation agreement to have the Mombasa-Nairobi Standard Gauge Railway built. The 470km railway connecting Mombasa to Nairobi cost $3.2 billion and is Kenya’s biggest infrastructure project since independence. In its first year of operation, the railway carried 1.3 million Kenyans with 96.7% occupancy and 600,000 tons of cargo. The railway line created up to 46,000 jobs for locals and boosted the GDP by 1.5%.

iv.           Nigeria

Nigeria’s standard gauge the railway which was constructed by the China Civil Engineering Construction Company had been operational since July 2016. For all those days that it has been operational, it has never had any major accidents. Again, the Chinese government selected 1,000 Nigerian villages out of 10,000 African villages to which they promised to provide satellite television. Through this project, 20,000 families in rural Nigeria will benefit from 32-inch digital TV integrated terminal systems. The implementation of the project will create jobs as up to 1,000 locals will be trained on how to install, recharge, and operate the satellite TV systems.

v.           Sudan

China is not only providing agricultural assistance in Sudan’s cotton industry but also helped the country establish its own oil industry and therefore achieve energy independence. There are plans for the future to develop roads, railways, ports, solar power farms, a nuclear power station, and dams for use in both irrigation and electricity generation.

vi.           Britain

The China-Britain freight-train the route was launched in January 2017 and as of 2018 had expanded to 48 different destinations in Europe. The route is used to deliver goods between China and Europe. Another BRI project in Europe is the 91.5km2 China-Belarus Industrial Park with a special economic zone that was established in 2013. At the moment, there are more than 36 international companies that have settled in the park. By the year 2020, the park is set to create more than 6,000 jobs and become a real city with over 10,000 residents.

vii.           Hong Kong

Hong Kong’s chief executive CY Leung during his 2016 policy address announced his intention to set up a Marine Authority that is aimed at strengthening their maritime logistics in line with Beijing’s economic policy. He, however, did not give away too many details about the project but did mention the “One Belt One Road” a couple of dozen times.

viii.           Indonesia

The China Railway International, in 2016, won a bid to build Indonesia’s first high-speed rail project that runs from Jakarta to Bandung covering a distance of 140km. This project was initially set to be complete in 2019 but might extend due to some issues that caused a delay with clearing land. More than 2000 locals were employed to work on the project.

ix.           Laos

The construction of the 414km long Vientiane-Boten Railway started on the 25th December 2016 and is set to end in 2021. This project will be the first of China’s railway project overseas that will be connected to China’s railway network directly. After it has become operational, the railway will be Laos’ longest and will connect to Thailand and run all the way to Singapore. It is estimated that the project will cost $5.95bn with China owning 70% of the stake since they’ll offer loans to finance it. At the moment, the project’s proposal is being opposed due to the high costs.

x.           Malaysia

Among the numerous investment deals that Malaysia signed with China are the $27bn East Coast Rail project, the $3.1bn pipeline project, and the $100bn Forest City project in Johor. There, however, have issues with the projects’ development as Malaysia’s Prime Minister Mahathir Mohammed feels that doing these projects with China would be like selling the country off to foreigners. After the election of the former opposition leader into office in 2018, Mahathir canceled some projects that had been awarded to Chinese companies. He insists that these would leave Malaysia forever indebted to China.

xi.           Pakistan

The China-Pakistan Economic Corridor is one of the major BRI land corridors. It encompasses investments in energy, maritime, and transportation infrastructure.

xii.           Sri Lanka

The Magampura Mahinda Rajapaksa Port is one of Sri Lanka’s Chinese funded projects. It is the largest port in the country after the port of Colombo. To date, it is the biggest port that is constructed on land in the century. After its completion, the port incurred huge loses making it impossible for Sri Lanka to service the debt to China. As a result, the port’s operations were handed over to China for the next 99 years in December 2017.

xiii.           Thailand

There is the Thai-Chinese Industrial Zone that is home to quite a number of Chinese companies that opened solar, rubber, and other industrial manufacturing plants. The industrial estate picked up well thanks to Thailand’s zero tax incentives on land use as well as export products. Another contributing factor is the relatively low labor costs. There is another ongoing Chinese project in China that involves a high-speed rail project linking Bangkok and Nakhon Ratchasima. The project will extend to Nong Khai to connect with Laos as part of the planned Kunming-Singapore railway.

xiv.           Argentina

The Argentine-China Joint Hydropower Project will involve the construction of two hydroelectric dams in southern Argentina, along the Santa Cruz River. The project will provide 5,000 direct and 15,000 indirect jobs in the country. The power plant will generate 4.95 billion kWh of energy and reduce Argentina’s dependency on fossil fuels and improve its energy mix.

India Stand and Japan’s Position

Despite the fact that India is one of the most vocal critics of the BRI, it has still attracted some Chinese investment. A good example is an industrial park in Gurajat. Even though the project is not necessarily branded as a BRI project, it counts as part of it. Japan and India boycotted the BRI and initiated a similar project referred to as the Modern Silk Road in a bid to compete in China. Here are some of the reasons why these two nations are not-so-very much for the BRI:
  1. The China-Pak Economic Corridor goes through the Indian Territory, trespassing India’s sovereignty and territorial integrity.
  2. Both countries have a dominant portion of the Indian Ocean and are worried about China’s investment in the Maritime route through the Indian Ocean
  3. They feel that the entire process lacks transparency
  4. It will strengthen China’s position in the South China Sea dispute

Benefits of the Belts and Road Initiative and Its Potential Risks

The Benefits

The BRI is an ambitious effort to enhance regional cooperation and improve connectivity on a trans-continental scale among the participating countries. Here are some of the ways in which China’s BRI will help the participating countries:

1. Tremendous Size and scope

The initiatives account for a third of the global GDP and trade as well as two-thirds of the world population. Most of the participating countries (especially those with a large population living below the poverty line) stand to reap great benefits. The projects will have its benefits spillover and improve swaths of the world economy.

2. Large Raw Potential

A lot of the countries that are part of the BRI have economies that are way below potential due to inadequate infrastructure, weak policy, and other gaps. If the initiative is successful, it will do a great job at filling these gaps and boosting international commerce. This will better integrate the BRI economies with the rest of the world.

3. Enhanced Connectivity

Normally, it takes days or even months to ship goods through the sea. For example, it would take 30 days for goods from China to get to Central Europe. However, shipping the goods by train is guaranteed to cut transit time in half but will cost more. Improving connectivity by upgrading the capacity and network of railways and other transport infrastructure could improve investment and as a result, improve the growth of economies.

Potential Risks of The Belt and Road Initiative

1. Policy barriers which create thick borders

Cumbersome restrictions and customs procedures are more significant in BRI countries as compared to other regions. It takes longer for businesses to be in compliance with FDI policies. This makes it more difficult to start foreign businesses or access industrial land. It is for this reason that policy reforms should complement infrastructure projects in order to boost connectivity.

2. Common risks involved with major projects

Other risks that are commonly involved in such large projects include environmental degradation, corruption, and biodiversity loss. It is advisable to identify such risks and put in place measures to safeguard against these negative effects.

3. Macro risks

Lastly, one major concern about the BRI projects is that the participating countries may expand their debt to unsustainable levels. This will increase their vulnerability.
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