Tag Archives: One Belt One Road

One Belt, One Road To Rule Them All

Belt and Road International Forum, Beijing, May 2017. Photo credit: The Russian Presidential Press and Information Office. Licensed under Creative Commons.IT IS NOT just General Secretary Xi Jinping’s ‘Thought’ that has been inscribed in the Party’s constitution. So, too, has his grand vision and signature policy, the Belt and Road Initiative, or OBOR for its original designation, One Belt One Road.

This will give political longevity to the ambitious scheme Xi announced in 2013 to transverse the Eurasia landmass and beyond with a network of roads, railways, ports, pipelines and other infrastructure projects carrying China’s surplus industrial and services capacity westwards and food and energy resources in the opposite direction. Opposing or obstructing it, just as with opposing or obstructing Xi, will henceforth equate with betraying the Party itself.

Few, if any infrastructure projects can boast either such prestige or protection. As Xi indicated at the Party Congress just concluded, OBOR will be central to China’s development until at least 2050, the date Xi has set by which China is to be a leading global power (neatly coinciding with the 100th anniversary of the founding of the People’s Republic on October 1, 1949).

So great is the ambition of this combination of commerce, construction and capital that it is impossible to put an accurate cost or timetable on it.

Bloomberg counts more than $500 million the China has so far spent or committed to OBOR. There is a $40 billion Silk Road Fund and much of the $100 billion Asian Infrastructure Investment Bank (AIIB) will be directed towards it. No doubt some of the $300 billion National Pension Fund will find its way to OBOR projects as will investment from state-owned banks and enterprises and dutifully patriotic private companies.

The US investment bank Morgan Stanley has suggested that $1.2 trillion will be spent on OBOR-related infrastructure over the next decade. However, so loosely is it defined and so ambitious its scope that you can just about put any price tag on it, as long as it is in the many trillions.

Beijing lists 68 countries as OBOR partners spanning Asia, Africa, the Middle East, Europe and Oceania. They already account for one-third of global GDP and trade, two-thirds of the population and one-quarter of global foreign direct investment. The management consultancy McKinsey & Co.reckons they will contribute 80% of global economic growth and add 3 billion to the global middle class by 2050. Any number is going to be large.

For all the trillions of dollars of hard infrastructure that will be built — and as we have noted before, if even only a fraction of what is being talked about gets completed, it will still be huge — OBOR is also a geopolitical project. Whether you see that as 21st-century merchant hegemony writ large or the world’s largest platform for regional collaboration and future engine of trade and investment growth, there can be little argument that it will potentially give Beijing vast sway over a large part of the world.

It is a part of the world with lots of risks, however, both geopolitical and financial. One measure of both is that state-owned insurer China Export & Credit Insurance Corp. said it has paid out $1.7 billion in claims since 2013 on $480 billion of exports and investments it has insured in OBOR countries. The sort of risks the insurer covers are things like government seizures, nationalisation and political violence.

More than half of China’s outward OBOR investment since 2013 has been in countries whose sovereign credit rating is below investment grade — ‘junk’ in the jargon. Of the 68 OBOR countries, only 27 of them are not rated as junk.

It is easy to assume that the Chinese state and its own and private (and dutifully patriotic) companies will be pouring a lot of good money after bad. However, many of the OBOR countries have trade and growth potential that can be released by infrastructure development, especially on the scale and interconnectedness envisaged. That would generate some of the growth necessary to provide some return on the investment.

It will also give China a huge sphere of influence far beyond its near abroad, in which today’s superpowers will be marginalised.

The ‘America First’ economic and political nationalism of the Trump administration, which has caused the stalling of the TransPacific Partnership (TPP) and disengaged the ‘Asian pivot’ of its predecessor Obama administration, has given Beijing an unexpected window of opportunity to advance OBOR and its alternative arrangements to those that have governed the international order in the era since World War II.

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Even A Small Belt And Road Would Be Huge

Chinese President Xi Jinping delivers a keynote speech at the Belt and Road Forum in Beijing, May 14, 2017.

ONE BELT, ONE ROAD is ambitious. A network of roads, railways, ports, pipelines and other infrastructure that will crisscross China and Central Asia connecting to Europe and Africa via land routes (the Belt) and shipping lanes (the maritime Road).

It already covers two-thirds of the world’s population, one-third of global GDP and about a quarter of the world’s trade in goods and service.  China, President Xi Jinping announced at this weekend’s Belt and Road forum in Beijing (seen above), proposes to throw $124 billion at developing his vision of the next great engine of global trade.

Those monies would be a downpayment on what is estimated to be $900 billion of related investment, financed by a variety of Chinese or China-backed banks, funds and investing and development institutions. One Belt, One Road will, depending on your point of view, be 21st-century merchant hegemony writ large or the world’s largest platform for regional collaboration.

Leaders from 29 countries, the heads of the International Monetary Fund, World Bank, the UN, and a host of other dignitaries attended the forum this weekend, including most notably Russian President Vladimir Putin (absentees include the leaders of the United States, Japan and India). All the attendees, no doubt, will have had their private fears and hopes about the scale of this project to redraw over many decades the geoeconomic, and likely, the geopolitical map of Eurasia.

Whether China will hold the course, especially under Xi Jinping’s successors, is one question about the project. There are also legitimate concerns that some investment gets misallocated and ends up on being spent on ‘highways to nowhere’ and other projects that never should be built in the first place. Moreover, private and non-Chinese investment will be needed as well (and be a bellwether of global acceptance of the idea).

However, such is the scale of One Belt, One Road that even if only a fraction of it materialises, it will make Eurasia look a very different place.

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China-America First

US President Donald Trump and China's President Xi Jinping walk in the grounds of Trump's Mar-a-Lago resort in Florida, April 2017.

DONALD TRUMP MARKED his first meeting as US president with the visiting President Xi Jinping with a display of naked American power, Cruise missile strikes against an airfield in Syria in retaliation for the Assad regime’s chemical attack on a hospital. The timing was coincidental, if opportune, but it was an act of defining and defending national interest of which only one of the two superpowers is currently capable, let alone comfortable, in undertaking.

The signalling was palpable. Moreover, it was an action that also had many observers quickly connecting the dots to North Korea, a country Trump had threatened unilateral US action if China did not start to exert the control over its ally that Washington believes it can and should.

Xi’s visit was always going to be scrutinised for the subtle signs of a power play between the two men. The ‘optics’ would be as important as the outcomes. However, it also carried considerable domestic political risk for Xi, making the trip to the United States early in Trump’s presidency (and to a golf course resort, at that) with all the risk of Trump’s unpredictability providing a loss of face for no very certain reward. The deflection of much of the world’s attention elsewhere would not necessarily have been unwelcome.

It is hard, though, to imagine the trip was undertaken without assurances there would be some return. The pre-trip speculation was of an agreement, if longer on affirmation than detail, on a joint reset of tackling North Korea’s nuclear ambition and some public US affirmation to Beijing over arms sales to Taiwan and the ‘one China’ policy.

In the event, the publicly announced outcomes were more modest, though likely of Beijing’s design, a 100-day plan to discuss trade talks directed at boosting US exports and reducing Washington’s trade deficit with China, and an invitation to Trump to make a state visit to China, which the US president accepted for a date to be arranged.

Trade is the lowest-hanging fruit for restoring relations between the two countries to an even keel. The direction of travel favours more US exports to China, especially once the rebalancing of the economy to more domestic consumption takes hold, while the One Belt, One Road initiative, to which the United States has now been asked to join, offers the prospect for more business and investment than China can handle alone.

Difficult issues — North Korea, Taiwan, the South China Sea — offer scant prospect of early harvesting.

The agreement to trade talks is positive, in the sense that it shows Trump can be steered away from his fiery anti-China rhetoric of the campaign trail last year. Further evidence that the reality of office is taking hold over the rhetoric of candidacy is that the Trump administration has so far declined to carry through on pre-election threats to brand China a currency manipulator or impose punitive tariffs on Chinese exports to the United States.

That the US president said that he was willing to further strengthen cooperation with China in economy, military affairs and people-to-people exchanges and support China’s efforts in pursuing corrupt officials who had fled China with ill-gotten gains will all be taken as evidence of success by Xi’s team, whose overarching goal was to restore stability and order to the relationship so they can manage it. Trump’s description of his personal relationship with Xi as “outstanding” will have been a bonus, though Trump will likely find eventually that that friendship will come with trappings.

State media have been quick to present the Florida summit as continuation of policy between the world’s two leading nations. “Expanding win-win cooperation” and “managing differences” and developing “dialogue and cooperation between China and the United States in such areas as diplomacy and security, economy, law enforcement and cyber security, as well as social and people-to-people exchanges” represents a good outcome for Xi, even if it is not the language of concrete gains for American manufacturing workers that reverse trade deficits and job losses that Trump had previously told his blue-collar economic nationalist supporters he laid squarely at China’s door.

The harsh truth is that it is not that group that stands to benefit from growing US trade with China. The winners will be the same ones that were the winners from globalisation.

The longer-term win for Xi is that summit has steered one of the world’s most important relationships, that between China and the United States, further in the direction of an arrangement of international affairs that is based on bilateral relationships between great powers than the post-World War Two system of international rules — something Xi has previously described as “a new model of great power relations” and which aligns with China’s efforts to construct a parallel architecture for global governance with itself in the centre.

The US president, who seems to prefer to focus on winning battles rather than wars, may well not realise what his guest has walked away with.

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