April 30, 2018, Vincent Lofaso
For centuries, the Silk Road’s web of trading routes connected major civilizations in East Asia with the Middle East and the European continent. It facilitated not only commerce but also the exchange of communication and thereby determined the development of the ancient world.
In 2013, Chinese President Xi Jinping proposed to revive the Silk Road by developing a transportation network that would link China to the rest of the world. This flagship project called the Belt and Road Initiative (BRI) combines two main roadmaps. The first component is the Silk Road Economic Belt which is a land-based travel route that runs through six corridors and covers most of the nations in Asia and Europe.
Along these parameters, Beijing seeks to bolster infrastructure by constructing bridges, railways, roads, pipelines, hydroelectric dams, and much more. The second component is the Maritime Silk Road which seeks to diversify China’s supply lines along its eastern coastline by constructing shipping ports, hydrocarbon refineries, and industrial parks. Thus far, over 1,700 projects are in place with a value of around $900 billion falling into the spectrum of the initiative.
So far as to say, reviving the Silk Road is an incredibly expensive endeavor. To fund the construction initiative and regulate the enormous cash flow, the Chinese Government has set up two financial institutions: the Asian Infrastructure Investment Bank (AIIB) and the Silk Road Fund (SRF). The AIIB is a multilateral bank with an initial capital base of $100 billion and is committed to lending money for economic projects. Its organizational structure is similar to the International Monetary Fund (IMF) and the World Bank. The SRF holds around $40 billion and falls under the supervision of China’s Central Bank. It is a means to invest in projects rather than to extend loans for them. Yet, perhaps the biggest financial contributor to the Belt and Road is the China Development Bank and the Export-Import Bank of China. The China Development Bank has pledged over $800 billion spread over the course of several years. Additional funds for the initiative could come from China’s foreign exchange reserves and Beijing’s Sovereign Wealth Fund which holds around $3 trillion and $220 billion respectively.
However, the Belt and Road are more than just about physical connections; it serves China’s foreign and domestic objectives because it helps to mitigate the country’s dependency on the existing sea lanes. Currently, around 90% of China’s trade goes through the seas and beyond Beijing’s control. Nearby bodies of water such as the Yellow Sea, the East China Sea, and the South China Sea have a strong American presence while maritime points such as the Strait of Malacca, through which 80% of China’s crude oil imports pass, are additional flash points for Beijing. As such, China relies on the U.S Navy for the security of the sea lanes.
As a geopolitical rival, Beijing cannot heavily rely on Washington to protect its shipping. In this context, the Belt and Road serve as a contingency plan that diversifies the trade routes between Chinese cities and global markets. For instance, as a part of the Belt and Road, China is constructing ports, railways, roads, and pipelines on the Indian Subcontinent which would allow for Beijing to bypass checkpoints in the South China Sea. The corridor in Pakistan known as the China Pakistan Economic Corridor (CPEC) and the ports in Sri Lanka allow China to do exactly this.
Another motive for the Belt and Road is the fact that China’s monumental economic growth has created enormous disparity across its territory. The inconsistent wealth is noticeable between the rural western interior and the urban eastern coastline, but the divergence goes beyond finances. The abundance and lack of wealth affect living standards, life expectancy, and demographics. All of these social and economic factors are in favor of the fertile cosmopolitan coastline whereas the arid, landlocked western interior is left behind. If China wants to secure its long-term stability, it must mitigate the disparity between the two territories by enhancing the inland region’s access to foreign markets. This is bound to be a long and complex process, but for Beijing, the Belt and Road offer a start to strengthen the prospects of the interior.
Since its revelation in 2013, the constructive initiative has booked impressive results in the interior cities. For example, in the cities of Xi’an, Kunming, and Kashgar economic zones are being set up to facilitate cross-border commerce between China, Central Asia, and the Middle East. Besides investments in the interior of China, Beijing is also financing projects in the volatile nations of Central Asia where President Xi tries to bring some sense of stability along the Chinese, western borderlands which is necessary to suppress the Tibetan and Uighur separatist attitudes. In conflict-ridden Central Asia, an excess amount of capital is likely to contribute to more violence. Moreover, improved roads are likely to enhance the mobility of illicit goods into China itself. This is a particular issue for Chinese policymakers because of the long-standing separatist tendencies in western China. Therefore, in addition to funding, Beijing must combat transnational risks by assisting and cooperating with security groups in the Central Asian countries.
As China pours funds into the region and bolsters local defenses, it is bound to cross paths with another major stakeholder. Russia considers Central Asia as a crucial component of its sphere of influence and views any form of non-economic activity in the region as a threat to its national security. Although Russia welcomes Chinese investment in Central Asia and believes that economic stability will bring about much-needed political stability, Moscow is deeply suspicious of Beijing. Should Russia choose to do so, it could derail China’s rail and energy projects in the region, so Beijing must tread carefully in Central Asia.
Another geopolitical rival that is suspicious of the Belt and Road is India. New Delhi fears that Chinese economic activities, namely CPEC in Pakistan will undermine Indian claims in the disputed Kashmir region. As such, India strongly opposes CPEC because it sees Beijing’s policy as a de facto hostile act in geopolitical terms. However, India’s options for retaliation are limited, and the Belt and Road represents a front line in the China-India rivalry. The final geopolitical rival that is upset with the Belt and Road is the United States. Washington is concerned that Beijing’s diversification of its trading routes will undermine its naval leverage. In the long-run, this geopolitical shift will allow China to impose its will in the East Asian periphery.
In addition to developing the interior and diversifying trade, President Xi’s flagship initiative is his clearest break from Deng Xiaoping’s geopolitical philosophy of hiding capacity, bide time, and never claim leadership. The Belt and Road Initiative is the opposite of what China has traditionally done. In the same way that the Bretton Woods system is Washington’s global soft power policy, Beijing intends to replicate that soft power experience in Asia with the Belt and Road Initiative. China is already a major trade partner for many nations in Asia and Europe, but with the Belt and Road Initiative, Beijing is enhancing those business ties by extending favorable financing terms through its financial institutions. Chinese policymakers hope that these international and commercial ties will grant China with greater access to the Asian and European landmasses in the coming decades.
Beijing’s soft power is already showing signs of success in some areas. For instance, due to their growing economic ties to China, members of the Association of Southeast Nations (ASEAN) find it increasingly difficult to maintain a unified policy in the South China Sea. The political behavior of the Philippines is a good example of the success of China’s soft power policy. Moreover, the increasing presence of Chinese firms in the region adds to the credibility of Beijing’s territorial claims. By dividing regional coalitions and strengthening China’s Sino-sphere of influence, soft power can overcome maritime and territorial disputes in the future.
Thus far, the Chinese Government has approached every nation differently to suit the specific political and cultural climate of its foreign partners. This shows great flexibility, but the Belt and Road are not without its drawbacks. The hundreds of bilateral agreements that come along with the initiative further the financial structure of Asia which is already a sea of bilateral trade deals and many companies lack the building capacity to navigate this maze of rules.
A lot of drawbacks is the fact that the Chinese Government leans towards a hands-on approach which essentially means that every project is often followed by boots on the ground. Unlike Western investment, Beijing sends its workers, managers, raw materials, and equipment to the foreign countries to complete the tasks at hand. This practice assures a more efficient agenda and minimizes the embezzlement of the allocated funds, but the heavy reliance on Chinese assets also fuels resentment in the nations where the projects are ongoing. Regardless of these complications, President Xi is determined to push forward with the Belt and Road Initiative and in the eyes of Chinese policymakers, the mitigation of trade security coupled with interior development makes the initiative worth the effort.