China The new Silk Routes: opportunity or threat?

With investments totalling around $1,000 billion, the One Belt, One Road initiative is the largest undertaking of its type anywhere in the world. China is deploying all its industrial and financial clout into developing gigantic new land and maritime infrastructure across nearly one hundred countries. But what is the appropriate reaction: to perceive a threat from the push towards economic hegemony or to wager on the initiative’s development potential?

During his visit to China in January 2018, Emmanuel Macron recognised “these modern silk routes will bring economic development, (…) essential infrastructure and bring valuable stability to several parts of the globe”, whilst also expressing some reservations around China’s ambitions. “The new routes cannot only go one way. Multilateralism means balanced cooperation”, added France’s president. “They cannot be the roads of a new hegemony that will put the countries that they traverse in a vassal state”. In what way then, could the West be threatened by this colossal initiative launched in 2013 by President Xi Jinping under the banner One Belt, One Road, also known as Belt and Road Initiative (BRI) and simply OBOR?

Planned corridors of the “Belt” (yellow), main railway lines, main railway hubs and ports modernised under the BRI framework. ©Sébastien Goulard, Cooperans

Its scale alone is enough to cause tremors. Over the next 30 years, “the estimated cost of the first projects is around $900 billion with China expected to provide loans worth around $8 trillion for infrastructure projects in the various countries traversed by the routes” explains Emmanuel Hache, Senior Research Fellow at the think tank IRIS (French Institute for International and Strategic Affairs). Around one hundred countries on every continent would be involved! The initiative effectively encompasses land transit and maritime components, the latter including not only port infrastructures but also laying cables on the ocean floor. Michel de Grandi, in Les Echos, believes that “the ultimate phase of the plan is to circulate computer data from one area to another via a fibre optic network”. He hightlights the “strategic” and “geostrategic” dimensions of OBOR. According to global management consulting firm McKinsey, the initiative would create “the world’s largest platform for economic cooperation”.

75% of the world’s energy reserves

The principal cause of suspicion around the concept of the modern silk routes is that they will hand China control of access routes to energy resources elsewhere in the world at a time when the country’s requirement for raw materials as a proportion of GDP is spiralling (it rose almost 7% in 2017). As Brice Couturier recently explained on France Culture: “this is evident from a number of the proposed OBOR ventures like the creation of staging towns between China and Europe”, citing the example of Duqm, an ancient fishing village of in the sultanate of Oman, where China plans to build an oil refinery, a factory producing photovoltaic panels and a car assembly plant. “In exchange, Oman will guarantee China 77 % of its entire gross crude oil production”, adds Couturier. “All along its silk routes, China is providing the means for new towns to spring up. One such place is Khorgos, in Kazakhstan”. Emmanuel Hache estimates that OBOR could impact 75% of the world’s energy resources in this way! In effect, the stakes are extremely high because the routes will also be a means of opening up and creating new markets for Chinese goods.

Emmanuel Macron in China in last January.

An example that highlights the powerful ambition of the initiative is the development of the V-speed railway line operating from its hub in Wuhan, central China, which now runs services to 28 cities in China and 29 cities (including Lyon) in 11 European countries. Operator Wuhan Han’ou International Logistics Co says it expects 30 per cent growth in 2018, with 500 freight trains heading to Europe from China up from 377 in 2017 (which carried a total of 34,000 containers). The train operator recently told Xinhua, China’s official news agency, that “an additional five lines were installed during January to meet rising transport demand”.

Macroeconomic evaluation

“In the longer term,” warns Emmanuel Hache, “the world’s entire economy could find itself up-ended as a result of China’s ambitions”. He anticipates that it will create “a new revolution in global trade and the international division of labour”. Given the stakes, Emmanuel Macron urged China to ensure that the new silk routes provide “harmonious development” and that they should be “built to last”, “flawless” and “green”: they should give rise to ecosystems of balanced innovation, provide real development opportunities in the countries traversed and must respect intellectual property. The difficulty at this stage, laments Emmanuel Hache, is that without any macroeconomic evaluation, no one is really able to quantify the “the main positive (or negative) external impacts – be they economic, commercial or environmental. A macroeconomic study would spell out the main expected impacts on growth and employment in the various countries and could encourage full international acceptance for the BRI. Furthermore, it would also be an enabler for establishing collaboration and cooperation between the different players”.

(1)With the v-speed train, journey time is three times quicker than by boat.

 

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