Insights into Editorial: Benefitting from China’s Belt and Road Initiative
Insights into Editorial
Benefitting from China’s Belt and Road Initiative
Since 2013, the ‘One Belt, One Road’ (OBOR) initiative has become the centrepiece of China’s economic diplomacy. The essence of OBOR is to promote regional and cross-continental connectivity between China and Eurasia. It represents the first major attempt by China to design and implement a cross-continental mercantile strategy and will surely have significant global and geopolitical consequences.
What is OBOR?
The ‘One Belt’ and ‘One Road’ refer to China’s proposed ‘Silk Road Economic Belt’ and ‘Maritime Silk Road’.
Connectivity covers five major areas of interest: policy coordination, infrastructure construction (including railways and highways), unimpeded trade, financial integration and people-to-people ties. Among these, infrastructure construction is the dominant feature of the New Silk Road.
The Silk Road Fund:
The US$40 billion Silk Road Fund has been established to finance the Belt and Road Initiative. It will invest mainly in infrastructure and resources, as well as in industrial and financial cooperation. The Fund was set up as a limited liability company in December 2014 with its founding shareholders including China’s State Administration of Foreign Exchange, the China Investment Corp, the Export-Import Bank of China and the China Development Bank. The Fund will comply with market rules and the international order of finance, and welcome participation from domestic and overseas investors, such as the China-Africa Development Fund and the Asian Infrastructure Investment Bank.
Why is OBOR important for China?
- China is obviously going to benefit from the “Belt and Road Initiative,” but what is unclear is to what extent. Critics said that Beijing is going for a bigger role as a global superpower. With this in mind, having a direct link to major countries may not only boost its economic power, but also its political clout in both the Western and Eastern hemisphere.
- Also, many of China’s production sectors have been facing overcapacity since 2006. The Chinese leadership hopes to solve the problem of overproduction by exploring new markets in neighbouring countries through OBOR. The OBOR initiative will provide more opportunities for the development of China’s less developed border regions.
- China also intends to explore new investment options that preserve and increase the value of the capital accumulated in the last few decades. OBOR has the potential to grow into a model for an alternative rule-maker of international politics and could serve as a vehicle for creating a new global economic and political order.
- China has cash and deposits in Renminbi equivalent to USD 21 trillion, or two times its GDP, and expects that the massive overseas investment in the OROB will speed-up the internationalization of the Renminbi.
- OBOR is also seen as a strategic response to the military ‘re-balancing’ of the United States to Asia.
- China can also benefit from the New Silk Road project through other means like the easing up of growth of state-owned enterprises as well as an increase in the Chinese people’s income.
Benefits for ASEAN:
Many ASEAN countries are rich in resources but lacking in construction funding which slows their economic growth, causing an infrastructure deficit and resulting in a low level of industrial development. The OBOR Initiative is probably a direct response to the ASEAN countries’ cry for help.
Challenges that confront the OBOR initiative:
- First, the perception, process and implementation to date do not inspire trust in OBOR as a participatory and collaborative venture. The unilateral ideation and declaration — and the simultaneous lack of transparency — further weaken any sincerity towards an Asian entity and economic unity. However, China says that it is committed to pursue wide-ranging consultations with the 60-plus nations on this issue.
- It is widely accepted that through this initiative China is projecting its military and political presence along OBOR. China is also willing to underwrite security through a collaborative framework. Hence, few countries including India have wholeheartedly not welcomed this initiative.
- Another challenge deals with the success of the ‘whole’ scheme, given that the Chinese vision document lays out five layers of connectivity: policy, physical, economic, financial and human. While no developing country will turn away infrastructure development opportunities financed by the Chinese, they may not necessarily welcome a rules regime built on a Chinese ethos.
- This belt runs through Pakistan-occupied Kashmir. Hence, a formal nod to the project will serve as a de-facto legitimisation to Pakistan’s rights on Pakistan-occupied Kashmir and Gilgit-Baltistan under the China-Pakistan Economic Corridor (CPEC) that is closely related to OBOR.
How is China countering these challenges?
- It has been inviting governments to organize summits to identify issues and seek common understandings, cooperation memorandum and people-to–people contact as the basis for regional cooperation.
- China is also organizing technical workshops of the concerned countries to facilitate investments and is partnering with multilateral institutions in this effort to give greater legitimacy. It is entering into areas the United Nations and bilaterals have ignored but have been considered important by developing countries.
- China is also using money to resolve security issues, like paying Pakistan for an army division dedicated to the protection of Gwadar and is actively considering setting up a private security agency, borrowing ideas from something the United States has done for decades, but paid for by the companies rather than the government.
Is OBOR a threat or an opportunity for India?
The answer undoubtedly ticks both boxes. Chinese political expansion and economic ambitions, packaged as OBOR, are two sides of the same coin. To be firm while responding to one facet, while making use of the opportunities that become available from the other, will largely depend on the institutional agency and strategic imagination India is able to bring to the table.
Way ahead for India:
India now needs to match ambition with commensurate augmentation of its capacities that allows it to be a net security provider in the Indian Ocean region. This will require the government to not only overcome its chronic inability to take speedy decisions with respect to defence partnerships and procurement, but will also necessitate a sustained period of predictable economic growth; OBOR can assist in the latter.
- Chinese railways, highways, ports and other capacities can serve as catalysts and platforms for sustained Indian double-digit growth. Simultaneously, India can focus on developing last-mile connectivity in its own backyard linking to the OBOR — the slip roads to the highways, the sidetracks to the Iron Silk Roads.
- Currently, India has neither the resources nor the political and economic weight to put in place competitive and alternative connectivity networks on a global scale. Therefore, for the time being, it may be worthwhile to carefully evaluate those components of the OBOR which may, in fact, improve India’s own connectivity to major markets and resource supplies and become participants in them just as we have chosen to do with the AIIB and the NDB.
In the short term, China’s OBOR initiative will likely only deliver very modest results despite immense investments. It is still hard to predict whether China’s OBOR projects will be effective over the medium-to-long term as this depends on the responsiveness of governments to challenges, as well as the external environment. Still, OBOR marks the beginning of a new economic diplomacy for China as it shifts towards being an active driver of the regional and global economy.