Three years of China's rebalancing strategy -- success of 'Belt and Road'
- By Luo Yu
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E-mail CRI, September 18, 2016
Three years have passed since the inception of the Belt and Road initiative, namely the Silk Road Economic Belt and the 21st Century Maritime Silk Road, which intends to build a trade and infrastructure network connecting Asia with Europe and Africa along the ancient trade routes.
Have things panned out as we expected?
To date more than 100 countries and international organizations are on board for the initiative, with more than 30 bilateral cooperation agreements signed. More than 20 countries have launched international industrial capacity cooperation with China. Meanwhile, newly established multilateral institutions committed to supporting the initiative, such as the China-proposed Asian Infrastructure Investment Bank (AIIB) which has 57 founding members including some key US allies, and the New Development Bank (NDB), are in operation, with China playing a bigger role in international financial affairs.
But the success of the Belt and Road cannot only be summed up by a list of numbers, as it does not tell us the whole story. It's time we dive deeper into the initiative and take a look at what we have achieved.
Firstly, the B&R initiative re-balances the aspirations of China and those of other participants in a pragmatic manner. Three years on, many countries relish the chance to better cooperate with China and more crucially, to spur their own economic development. Through candid bilateral talks, goals are set, needs are defined and challenges are identified. Both are aware of what their respective core competence and comparative advantages are, and what they want to achieve. The Belt and Road scheme did not create a lot of projects, so to speak. Conversely, it is a facilitator to align China's vision with the development strategies of participants, in which China contributes its standard, experience and management expertise and assumes a due share of responsibility, speeding up the local development process. Hundreds of local level projects have therefore been clustered under the same umbrella made in China, the Belt and Road initiative.
Examples abound under the umbrella, such as the $1.4 billion Port City project in Colombo. The mega project was back in business after one year's suspension due to some environmental and regulatory concerns. That was by no means a surprise, as the Chinese builder wants to promote "Sri Lanka as the ultimate business and tourist destination center for trade, exhibitions and conferences in Asia, enabling the establishment of a Center/Hub of the marine Silk Road in Asia and the preferred global tourism destination in Asia." This is exactly what the Sri Lankan government wants to achieve - to build Colombo as a shipping hub in the Indian Ocean - and that coincides with the Chinese blueprint of bilateral cooperation. Who would have the heart to reject a cheap yet lavish banquet when s/he is ravenous?
Secondly, the Belt and Road re-balances supply and demand, such as China's surplus in capital and overcapacity in its industrial sectors, and emerging economies' daunting needs for infrastructure and foreign investment, across different regions. It injects new impetus to globalization and provides a slew of pro-growth measures for the sluggish world economy.
The initiative benefits all stakeholders involved. Many of the projects would have never kicked off, as some countries along the routes, both in the Belt and on the Road, are places with a heap of problems – be it poverty affecting a large number of people, terrorism, piracy issues, or a lack of institutional infrastructure. In a word, growth prospects are gloomy because of various risks and uncertainties. Existing international financial institutions such as the World Bank and the Asian Development Bank would decline their request for loans in building infrastructure based on the risk assessment of the project. The B&R initiative is a silver-lining to help build connectivity thereby creating jobs, facilitating trade, reducing poverty, curbing terrorism, and narrowing the gap between rich and poor.
The construction of the 19.2-km Qamchiq Tunnel in Uzbekistan is exemplary. As the longest of its kind in Central Asia so far, it relieves traffic pressure for about 10 million people who account for over one third of the country's population. It is noteworthy that only after a Chinese bank - the Export-Import Bank of China - loaned Uzbekistan $350 million to fund the tunnel in 2014 did the World Bank issue another loan of $195 million for the remaining railway project.
It's not only those developing countries that get bountiful fruits out of the B&R initiative, though. Many advanced economies do, too. That's why despite criticism voiced by the US, many developed economies all followed Britain's footsteps, including the most recent applicant, Canada, and joined the AIIB, demonstrating their interest in B&R projects. The reason behind this is simple. A recent report issued by the Brussels-based think tank Bruegel says that a 10 percent reduction in railway, air and maritime costs increases trade by 2 percent, 5.5 percent and 1.1 percent, respectively. Based on the computation given by the report, Yuxinou railway line, a B&R project linking China's Chongqing to Germany's Duisburg, reported a reduction in transportation costs by 50 percent last year. That's why analysts say that the EU, which is projected to have a 6% increase in trade, will be the biggest winner from the initiative compared with other regions. The B&R is good news for cash-strapped Europe that suffered tough austerity measures and now faces a continuous influx of refugees. Don't forget that that is only trade we are talking about, aside from the other positive ripple benefits brought by the B&R initiative.
By sailing on the boat of international industrial capacity cooperation, Chinese firms are going global at an unprecedented rate, and excess capacity built up in China's industrial sector, coupled with its expertise in equipment manufacturing and infrastructure construction, has been moving beyond home turf to cater to a larger market. Countries along the routes laud it, because they know the more infrastructure there is in the world, the greater progress there will be.
However, there are some countries that feel threatened by it. And it's unnecessary. For example, Iran, India and Afghanistan signed a milestone deal to develop the strategic Chabahar port, connecting the three countries to Central Asia. It will allow India to bypass Pakistan to Afghanistan and Europe, and is seen as an alternate to the China-Pakistan Economic Corridor, a crucial part of the B&R initiative. Contrast to hype created by boisterous foreign media, China was neither upset nor jealous and it said the improvement of infrastructure in Central Asia would also offer opportunities for Chinese companies. China neither viewed the agreement as a threat nor India as an arch-rival, as China realized that although it was a trilateral agreement, it can facilitate multilateral participation. Later Iran did welcome China to engage in the development of the port.
Finally, the Belt and Road is China's global investment strategy that re-balances the growing trend toward anti-globalization activism. Unlike Uncle Sam's strategy to alienate China by excluding China in its Trans-Pacific Partnership and not joining the AIIB, and amidst the rise of nationalism and populism - after all, we are not sure what adverse consequences will be in the aftermath of Brexit and what the world will be if Donald Trump wins the US presidency - China believes in inclusive growth and has faith in globalization. It does and will continue to focus on joint development and promote common prosperity through the Belt and Road initiative.
China has to learn a lot and there are bound to be trials and tribulations ahead, but it has met challenges already. Nonetheless, China is not into navel-gazing and has provided a solution to the acute hangover left by the latest financial crisis. Much as what Dominic Barton, global managing director of McKinsey & Company, told me in an interview, that led by infrastructure, the Belt and Road initiative benefits the whole world on every dimension. Most importantly, it is not only about GDP growth. Rather, it is GDP growth plus green growth plus inclusive growth, applying China's experience to the rest of the world to improve the well-being of those who have lived in landlocked countries and those who are moving to the middle class. In total, more than 4 billion people around the world.
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