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Montrose Journal Winter 15
THE NEW SILK ROAD: SPINNING A NEW AND AMBITIOUS NARRATIVE -Lanxin Xiang
President Xi Jinping launched a grand project in 2013 named One Belt and One Road (OBOR). Some Chinese scholars claim this to be a unique Chinese invention rooted in ancient international market networks established by the Chinese empire some two thousand years ago. This claim has overlooked the very important fact that the Chinese empire never developed self-consciousness about the significance of the old silk road, as this trade activity consisted of a very small portion of the national economy. More importantly, OBOR is essentially an initiative of transnational infrastructure investment. China has had no experience in such activity. Indeed, from the Suez and Panama canals to the Russian Trans-Siberian and the Berlin-Baghdad railways, it was Europe that started the process of vast infrastructure investment projects in the late 19 th century. Although the Chinese government actively denies having any geo-political aims and portrays this purely as an economic cooperation project, this ambitious initiative comprises two dimensions: first, a geostrategic reconfiguration of world politics; second, the geo-economic reconstruction of the Eurasian economy.
Like the 19th century projects of the similar vein, the New Silk Road, or OBOR, has inevitably raised concerns about some hidden geopolitical agenda, but one must recognise that China's search for geostrategic balance between Eurasia and the Pacific has been an open agenda, not a conspiracy. Some experts in the West have argued that it is primarily based on a counter-pivot strategy, referring to President Obama's new strategy of the "pivot to Asia" launched in 2010 to contain China's presumed territorial ambition as its physical power rises. Obama's pivot has three elements: reviving the Cold War style "Spokes and Hub" military and diplomatic alliance system; adopting a new military doctrine known as "Air Sea Battle (ASB)"; and using overwhelming and well-co-ordinated air and sea power to counter China's "asymmetrical warfare doctrine," which is heavily reliant upon anti-access weapons such as submarines and anti-ship missiles.
But China's own "pivot to the West" started much earlier. The geostrategic roots of this project go back to the transatlantic split over the Iraq War during the heated UN Security Council debates at the time. Emerging from the Iraq War was a diplomatic entente active against the war, and Charles de Gaulle's dream of a Europe from the Atlantic to the Urals was extended effectively to the East China Sea. Sir Telford MacKinder's heartland of the world, Eurasia, had in certain way become one. Thus, as an unexpected side-effect of the war in Iraq, the path for China's long term strategy of integration into the global mainstream was greatly eased. Moreover, for the first time in history, no major geopolitical conflict divides the powers of the Eurasian mainland. As a result, three new strategic links have arisen - the Sino-Russian strategic partnership; the EU 'Common Strategy towards Russia'; and what the EU and China are explicitly describing as 'comprehensive strategic partnership' built with transparency, little fanfare and no declared common enemy. These developments will undermine the unipolar world that the United States is attempting to maintain.
At the same time, and quite remarkably, China was drawn for the first time into a "continental" strategy. After years of hesitation, China's grand strategy of 'peaceful rise', not yet convincing in Asia-Pacific, has new potential to be concretised and fulfilled on the Eurasian continent. Therefore, the Chinese leadership seized this historic opportunity to launch a bold "Westward Strategy" to help China alleviate the enormous geostrategic imbalance and pressure from the Asia Pacific region. Up to then, China had relied upon a strategy with an eastward orientation, i.e., upon the US-China amity which has yet to be realized. [i] History proves that China has made a right decision. The new orientation towards the EU, Russia and Central Asia has been successful, and the EU has emerged since 2004 as the number one economic partner of China. The Sino-Russian relationship is now at its best, since perhaps Catherine the Great. Central Asia is firmly anchored in a regional framework, the only multilateral initiative Beijing has implemented so far, the Shanghai Cooperation Organization.
In its geo-economic dimension, OBOR serves at least three purposes. First, this is in Chinese domestic terms a continuation of the decades-old "grand Western development strategy" aimed at redressing the developmental imbalance between the more dynamic east coast, and central and western China. Due to its historical development, geographical advantage and easy access to the sea, resources and labour were directed to the east coast ever since the economic reform launched by Deng Xiaoping in 1978, leaving the west not only lacking in investment but also manpower. This regional imbalance is considered a huge risk to the sustainability of the economy and to social stability. The income gap has been growing fast and China's GINI coefficient, a standard measure indicating the relationship between income discrepancy and social stability, has already reached a dangerous level. China's east coast economy boasts over 50% of GDP with only 10% of the territory and 38% of the population. The income gap between the coast and inland has been maintained at 200% for a long time. OBOR with its westward orientation involves all fourteen central and western provinces. As China intends over the next five years to transform an export-led model of development into a consumer-based economy, income growth in the poor areas in the west will become crucial. The Chinese government often advertises OBOR as the "Third Opening" of China, not without reason. The first opening took place in 1979 when several Special Economic Zones (SEZs) were set up for attracting foreign investment. The second occurred in 1992, when the entire nation veered towards opening. And now a giant leap towards west.
Second, exporting infrastructure technology and investing in these projects are considered key to the success of OBOR. Not only might such a strategy help solve the problem of overcapacity in infrastructure accumulated over the past decades, but also help create more foreign markets by improving transportation facilities. Unlike the coastal economy, which has relied exclusively on maritime route, OBOR is primarily land-based. It depends mainly on vast continental stretches covering over 60 countries from Asia to Europe. The land connection between China and the countries along OBOR requires cross-border infrastructure networks, especially, roads, railways and airports. So far these networks are poorly developed. One part of OBOR is the "Maritime Silk Road". Although maritime routes have been kept open, nd access is relatively easy, OBOR is aimed at improving port facilities, building harbor zones, and creating logistical networks, in order to open up new spaces for economic development and secure new trade opportunities. According to Chinese leaders' calculations, the new frontier of economic growth will be in the "Third World", and nowhere is more promising than the Eurasian landmass.
Third, building new financial institutions is a priority. OBOR is a grand strategy for China, but for China's partners it is no more than an interesting initiative. China understands that it alone cannot make OBOR a success, it needs active participation of related partners. Thus institution-building is crucial. As this initiative is focused on infrastructure investment, the ability of OBOR to attract governmental and private capital is crucial. The declared priorities of OBOR for regional economic cooperation include co-ordination of development strategies and policies, enhancing connectivity through infrastructure building, and building new financial institutions. So far, China has been initiator or founding member of the Asian Infrastructure Investment Bank (AIIB), the BRICS New Development Bank (BNDB) and the Silk Road Fund.
With at least 140 billion dollars in hand for OBOR (100 billion for AIIB) and 40 billion for the Silk Road Fund), OBOR could surely attract much of the world's attention. It seems that more institutional efforts will be made in view of the American-led efforts to build new trading blocs, such as the Trans Pacific Partnership (TPP) in Asia and the Transatlantic Trade and Investment Partnership (TTIP) with Europe. With the United States effectively blocking China from having a major voice in global financial architecture, and excluding it from the new trading regime (TPP), China means to use OBOR to counter what President Xi recently criticized at the APEC summit in Manila, the negative trend of "splitting trading blocs" led by the US. However, as China has limited experience in joint international investment projects, OBOR must prove that its investment initiatives are transparent, commercially viable and free from political interference, either domestic or international. The key to its success lies in its capability of leveraging finance. It is estimated that the ambitious strategy will, in 30 years, require some seven to eight trillion dollars. Success or failure of the AIIB will prove crucial for the possibility of continuation of this strategy. China does not have enough talents who understand and have operational experience in leveraging financing. The lack of expertise will become a major bottleneck in the process of implementing this strategy.
Moreover, many countries on the OBOR list have severe domestic problems which may threaten political stability and render any large infrastructure project difficult to continue. Thus the termini of the New Silk Road may increasingly become more promising, especially EU countries as well as a few East European countries such as Poland, Hungary, or Czech. EU is intensely interested in OBOR, and the EU presidency could use the newly created European Fund for Strategic Investment (EFS) as a bridge between EU and OBOR. Originally this fund was created for reviving the public bond idea, against German wishes, to address member-states' public debt problem. By collaborating with OBOR, it could help rekindle growth in Europe by financing energy, transport and digital networks. The fund aims at a large capitalization of 315 billion euros, and Chinese sovereign funds have already shown enormous interest in it. But if that happens, the declared purpose of helping developing countries will be discounted as the countries between Europe and China will feel marginalised.
Last but not least, despite its extremely cautious approach to geopolitics, China cannot avoid the fact that the initiative will have geopolitical implications. So far China has explained OBOR poorly. China not only has to deal with the potential challenges from both TPP and TTIP in trade and investment, but also has to deal with issues involving its close partners. For example, its Pakistan project, if handled poorly, will reinvigorate rivalry with India. In Eurasia, Russia has been very sensitive to the obvious fact of Sino-Russian asymmetry of power today, and fear of Chinese "takeover" of Russia's "near abroad" persists. In pursuit of these geo-economic and geopolitical goals that would bind Asia to China ever more closely through commercial means, Beijing has recently allocated US$ 40 billion dollars for the first Silk Road alone, on top of large-scale investments in Central Asia, information systems, telecommunications, transportation, energy pipelines, and infrastructure. Russia provides no real competition for the foreseeable future.
What are the implications for the EU? There are undoubtedly great economic opportunities. But growing Sino-European monetary ties may present the EU with a major political challenge, either dividing EU member states politically or leading to a populist backlash against China, as the case of the port of Piraeus in Greece has shown. In conclusion, OBOR has potential to be a game-changer in economic geography on the Eurasian continent. Beijing must recognise that OBOR is an initiative that needs inputs from the outside world, which could help China to fulfill its declared objective of staging a peaceful rise through investment and trade rather than by force. If successful, it will prove wrong the logic of a Thucydides Trap – that armed confrontation between the ruling power and the rising power is inevitable.
[i] For first interpretation of the new Chinese strategy, see Lanxin Xiang, "China's Eurasian Experiment", Survival, issue 46, volume 2, 2004
The writer is Director of the China Center at the Graduate Institute of International Studies in Geneva. Healso also holds the Chair in International Studies at Fudan University in Shanghai, and was appointed last year as Founding Director of the Centre for One Belt and One Road security studies in Shanghai.
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