Monday, February 26, 2018 - 08:30 AM
China’s ambitious One Belt, One Road plan aims to extend its influence across Asia, via massive infrastructure investment, particularly in developing countries, and on into Europe, where its New Development Bank will contest the primacy of western institutions, says Kyran Fitzgerald
Chinese President Xi Jinping who unveiled the ‘One Belt, One Road’ initiative in Kazakhstan back in 2013 which is a strategy aimed at increasing China’s global footprint.
The great Brexit political soap opera should not blind us to fundamental changes across the globe, many of them emanating from Beijing.
We ignore the changes at our peril. Arguably, the biggest change is the so-called ‘One Belt, One Road’ initiative, launched by Chinese president, Xi Jinping, in Kazakhstan, in 2013.
We would be foolish to imagine this was a glorified PR exercise. The plan is nothing like the sort of ‘belt and braces’ approaches being adopted by the UK in Brexit talks. The ‘Belt and Road’ initiative is built around a number of ideas. First, China is cash-rich, with a large surplus of accumulated savings, for which profitable outlets are required.
Second, the country is in the late stages of the largest building boom in history. It has built up large cement and steel sectors, marked by over-capacity, and which require new markets.
Third, much of the world, particularly the so-called ‘developing world, has a desperate need for additional infrastructure, but is lacking the financial wherewithal to fund its rollout.
Fourth, the Chinese are keen to project their influence far beyond their shores, so as to create new markets for more recently developed products and services, in areas such as IT.
Fifth, Beijing is keen to ensure that the number of geo-strategic options — in the form of available ports, waterways, highways, and so on — is increased, so that its economy and society are not held to ransom, as a result of pressure at key choke points.
Sixth, the Chinese government is keen to promote the use across the world of its national currency, the renminbi (or RMB), as an alternative to the dollar or euro.
The strategy is about increasing China’s global ‘footprint.’ The concept is based around a revival of the old Silk Road — across central Asia — which existed at a time, several centuries ago, when China was the pre-eminent world power. London-based international affairs think tank, Chatham House, has suggested that $5trn would be required, if the infrastructure funding gap in the developing countries is to be closed. The gap is far too large to be financed by Chinese capital alone, so, with this in mind, so-called offshore ‘dim sum’ bond markets could be expanded to fill the gap. Chatham House estimates significant commercial opportunities could be generated for offshore financial centres, such as London, New York, Hong Kong, and Singapore.
The aim is that China be connected to Europe both by land and by sea. Connections by land, road, and rail, are envisaged passing through central Asia, Iran and Turkey, and on into Europe’s industrial and commercial heartland.
Sea connections, with new port infrastructure, would move from South East Asia through South Asia — Pakistan, in particular — to Kenya and up through the Red Sea and Suez Canal to Greece, the Balkans, the Ruhr Valley and, ultimately, to the port of Rotterdam.
The One Belt, One Road initiative should be viewed in a broader context. Moves by the Chinese to expand overseas can be traced back to the days of Chairman Mao, when the country exerted considerable influence in places like Tanzania and Albania. However, it is only with the huge accretion in capital and economic capacity, which followed the opening-up of the economy in the 1980s, under leader, Deng Xiao Ping, that China began to emerge as a global, financial and economic player.
China has moved to challenge the primacy of Western-dominated institutions, such as the IMF and World Bank, with the establishment of the New Development Bank, a funding body aimed at emerging nations and the Asian Infrastructure Investment Bank, or AIIB, which now has 57 members.
Beijing is pressing ahead with the rollout of its ‘OBOR’ strategy. By the end of 2016, $425bn had been committed to ‘belt and road’ projects by Chinese state banks or state enterprises. Many Chinese state firms are transforming themselves from contractors into investment entities.
China has tightened controls on capital outflows, but the squeeze is not affecting belt-and-road projects.
Of particular geopolitical interest is the China-Pakistan economic corridor, a partnership committed to investing $60bn in port, rail, and road infrastructure. The Indian government fears that the port investment could be adapted to serve as a Chinese naval base.
There are plenty of ‘belt and road’ boots on the ground. Last December, work began on the construction of a 542-mile high-speed rail line, connecting Thailand with China, catering to trains with speeds of 150mph.
Malaysia has unveiled four major rail projects with Chinese backing.
The Chinese have opened a naval base in Djibouti, on the Horn of Africa, to guarantee the safety of routes up the Red Sea. In return, President Xi has committed himself to building a liquefied gas pipeline, and transport and water-supply facilities for the local governments.
Closer to home, Beijing has been strengthening ties with governments in central and Eastern Europe, causing much disquiet in Brussels. All the countries in the region have signed up to the initiative.
Chinese investments in that region now exceed $9bn — a Chinese company owns the port of Piraeus, near Athens.
The EU has responded with an investigation of joint projects in the region to check for violations of EU law.
There are concerns that increasingly independent-minded governments in the former Eastern Europe could seek to play Brussels off against the Chinese.
Beijing’s ambitions do not end there. China is planning to create international courts to resolve disputes between partners in ‘belt and road’ projects. The courts would be subject to Beijing’s jurisdiction. This has raised concerns that the Chinese are seeking to substitute their own laws for those governing global commercial disputes.
On the banking side, the Chinese are also pressing ahead. By June, 2016, the Peoples Bank of China had signed bilateral agreements with 35 national central banks. Countries such as Pakistan and Argentina have used facilities to avert liquidity crises, all of which is boosting the soft power of China, in regions where the US has been the dominant, if often derided, player.
The Donald Trump presidency has sought disengagement from international trade obligations and organisations. However, there is evidence of a rethink, on foot of a growing awareness that the Chinese really mean business with their Silk Road strategy.
The Australian Finance Review has reported that the governments of Australia, the US, Japan, and India have been negotiating to establish a joint infrastructure scheme to counter the One Belt, One Road initiative. The initiative has yet to be made public.
Its backers insist that the new body would compliment, rather than rival, the Chinese initiative. Nevertheless, something is definitely shifting, as key figures in Washington question the policy of disengagement.
For Ireland, the implications of the Silk Road initiative, and the wider advance of China, are considerable.
At home, the Beijing authorities are putting more pressure on major investors, such as Apple Corporation, to locate more key activities in the region. This could have ripple effects on investment in Ireland. ‘One Belt, One road’ threatens to shake up long-established commercial relationships and supply lines. Exporters will have to monitor this situation carefully.
A flood of investment s could result in a boost to many economies, which would mean more buoyant export markets, but also the emergence of viable competitor firms. But less cash-rich participants could be sucked into financial dependency