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China’s New Silk Road Initiative and its Geopolitical Risks

February 9, 2017

It was first called “One Belt One Road” and is now known as the “Belt and Road Initiative”: Xi Jinping’s grand scheme of transport infrastructure connecting China to Eurasia, Europe and Africa. It’s a plan to reach and develop markets well beyond China’s borders but also a scheme to extend China’s strategic influence, says FT journalist and author James Kynge.  For many years he was the FT’s bureau chief in Beijing; he is now based in London and was speaking at a MERICS China Lounge moderated by Claudia Wessling (Director of Communications, MERICS) on February 9. The BRI is the focus of much of his recent work that involved research in several countries in Asia that hope to benefit from the Chinese scheme.

The sums involved are huge: China wants to some invest 900bn USD for BRI projects – including roads, railroads, pipelines, ports, airports, power stations, industrial plants and entire cities. The “Silk Road Economic Belt” would run through Central Asia, and the “21st Century Maritime Silk Road” would connect Chinese ports with those in South Asia, Africa and Europe.

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China’s president Xi Jinping first mentioned his idea in 2013; China has now enlisted up to   65 countries. However, there is no official list and no official budget, said Kynge. The actual scope is “intentionally vague, because it is a grand design that can be shaped according to reality and to the wishes of leaders in Beijing.” China’s ambitious undertaking is aimed at boosting investment and commerce and creating new markets for Chinese products. All major Chinese companies involved in BRI projects are state-owned. “This is a very state-driven operation”, said Kynge, adding that is was directed from the very top of the Chinese leadership and “aimed at reinvigorating the state-owned industrial base”.

“China is in the game of changing destinies”

China’s attempt to develop the countries along the trade routes between China and Europe is not only unprecedented in scope and reach, it is also very different from other development agendas such as the World Bank’s and other development agencies’, said Kynge, the main difference being that BRI goes beyond a project-based approach. “China,” Kynge argued, “is in the game of changing destinies.” It offers to develop these countries by building infrastructure and create “a common prosperity sphere” that will benefit both China and the countries involved.

The strategic element in OBOR: increasing political and military influence

However the strategic aspects should not be underestimated. Kynge used the example of Pakistan to illustrate that BRI is not only a commercial project. While China wants to build infrastructure worth 54bn USD along the “Pakistan Economic Corridor” to develop a very volatile region, there is also a strategic element “in the sense of increasing political influence, but also in the sense of increasing military influence,” said Kynge.

Gwadar port on the Arabian Sea coast is a case in point. It was financed and built by Chinese companies. In 2015, Pakistan handed it over to China on a lease until 2059 who initially insisted it was still a purely commercial operation. Recently however, it has become clear that Pakistan will allow the Chinese navy to use the port. Kynge: “BRI is also part of China's effort to bind countries in the region closer to itself and to use those closer alliances to protect its strategic and military interests.”

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Beijing’s offer: globalization without liberalism

What’s on offer is not just Chinese investments but development and globalization with distinct Chinese characteristics. Kynge, who also travelled to Cambodia to investigate how Beijing’s development strategy affects countries in the region, found that China’s influence is very visible. Cambodia’s endorsement of China’s development vision and the fact that China has replaced the “West” which is now spoken of pejoratively in Cambodia illustrates that “China’s proposal for a globalized but illiberal order and an order not based on the rule of law is potent and is real, and we should take it seriously.”

China is presenting itself as the country that can “get things done” without any strings attached to its projects regarding transparency and governance. However, China expects something in return. This became obvious last summer when Cambodia blocked an ASEAN statement critical of China after a decision by an international tribunal in The Hague dismissed Beijing’s territorial claims in the South China Sea. “China expected its payback politically”, Kynge told the audience.

Bilateral vs. multilateral lending

While it is not always easy to tell whether a BRI project is commercial or political, Kynge stressed that the way projects are financed makes a difference. So far, China has financed projects through the Chinese Development Bank and the Import Export Bank. Results are mixed: Not all projects are economically viable, some have been outright failures, like a railway line in Venezuela that was unrelated to BRI but cost China millions of misallocated funds.  More recently however, Beijing has become more stringent and started to embrace multilateral banks like the newly created Asian Infrastructure and Investment Bank (AIIB) and other international institutions that is more transparent, project-based and open.

Asked whether the EU has the right answers in place to deal with China’s BRI vision, Kynge pointed to the rule of law, due process, due diligence, and transparency – i.e. letting the public participate in debates on whether certain infrastructure projects make sense: “As long as we stick to our knitting, we would be well served.”

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