China’s New Silk Road

(Bloomberg) -- The Silk Road conjures images of caravans, desert steppes and adventurers like Marco Polo navigating the ancient trading routes connecting China with Central Asia, the Middle East, Africa and Europe. China’s modern-day adaptation, known as the Belt and Road Initiative, aims to revive and extend those routes via networks of upgraded or new railways, ports, pipelines, power grids and highways. President Xi Jinping champions his pet project as a means to spur development, goodwill and economic integration. Critics are wary of an increasingly assertive superpower’s push to spread its influence.

By David Tweed - Source BloombergQuint

THE SITUATION

Xi calls it the “project of the century,” a decades-long drive to grease the wheels of trade with massive infrastructure spending; Morgan Stanley estimates it will total $1.3 trillion by 2027. The Belt and Road is at the core of China’s foreign policy strategy and was even added to the Communist Party constitution in 2017. The growing web of trade routes extends into at least 76 countries, with typical plans including a new deep-sea port in Myanmar, power lines in the Maldives and a dam in Pakistan. Partner nations are weighing the benefits against concerns that projects will leave them saddled with debt and beholden to a foreign government. Sri Lanka eased part of its huge debt to China by handing majority ownership of a newly developed port to a Chinese state-owned company. China’s ambitions have become election issues in countries from Pakistan to Indonesia; a newly elected Malaysian government went so far as to put Chinese projects worth $22 billion on hold in 2018 because of concern about loan conditions and the use of Chinese labor that limit benefits to the local economy.

 

THE BACKGROUND

Although the original trading routes were established more than 2,000 years ago, the Silk Road’s name — derived from the delicate fabric highly prized by the Roman elite — was coined only in the 19th century by a German geographer. In its heyday, paper, gunpowder, porcelain and spices were transported to the west; horses, woolen rugs and blankets, gold, silver and glass made the return journey. Xi first proposed reviving the Silk Road in 2013 and went on to refer to it as “One Belt, One Road” before settling on the “Belt and Road Initiative” — a combination of an overland “belt” and a maritime “road.” Already, the initiative has cost more than the post-World War II U.S. Marshall Plan, measured in today’s dollars. For funding, China’s state finance bodies are lending $345 billion and commercial state banks have pledged $233 billion, according to Gavekal Economics. There’s also $40 billion from China’s Silk Road Fund, $100 billion from the China-led Asian Infrastructure Investment Bank and $59 billion from the World Bank. As President Donald Trump scales back U.S. involvement in international trade agreements, Xi is using the Belt and Road to position himself as a champion of global free trade. In 2018, the initiative extended into South America, the Caribbean and even the Arctic.

 THE ARGUMENT

China says it has no intention of deploying the Belt and Road to exert undue political or military influence and that the initiative is designed only to enhance economic and cultural understanding between nations. Xi calls his project “a road for peace,” yet other world powers such as Japan and the U.S. remain skeptical about its stated aims and even more worried about unspoken ones, especially those hinting at military expansion. Some point to China’s increasingly assertive military and speculate whether the development of dozens of ports might presage the establishment of naval bases, the so-called “string of pearls” theory. Xi contends the project won’t involve “outdated geopolitical maneuvering.” Economists agree the revived Silk Road has the potential to stimulate global growth. Risks include corruption (the Kyrgyz prime minister resigned over allegations that bidding for a construction project was rigged) and the creation of white elephants (like the international airport in Sri Lanka that hosts only a couple of flights a day). Certain projects — especially costly overland routes — may simply not be viable or properly planned, deterring the private investment that’s needed to make many of them happen. As China faces slowing economic growth at home and addresses its own debt problems, funding shortfalls may temper the scope of Xi’s ambition.

 

By David Tweed - Source BloombergQuint

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