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New insights into China’s Maritime Silk Road


It is a concept which could boost global seaborne trade by assisting economic progress in many countries. China’s 21st Century Maritime Silk Road has attracted great interest internationally, intensified by other possible impacts of the plan. During the past twelve months there has been progress, as well as setbacks, and the main features have become clearer.

Together with its land-route counterpart the Silk Road Economic Belt, the Maritime Silk Road forms part of China’s Belt and Road Initiative (B&RI), formerly referred to as One Belt One Road. This grand project has huge economic and strategic implications for the numerous countries involved. Just over a year ago interest was amplified by a conference of nations and organisations, hosted in Beijing by the Chinese government to explain and discuss the B&RI and encourage involvement. Since then there have been many news items about various aspects.

Assisting evaluation of the continuing process, two new analyses were published recently. These look specifically at the Maritime Silk Road part of the B&RI and cast a fresh light on how it is evolving, its effects and implications regionally and globally:

China’s Maritime Silk Road, Strategic and Economic Implications for the Indo-Pacific Region
Center for Strategic & International Studies (CSIS), Washington DC, March 2018, Nicholas Szechenyi (editor), Michael J Green, et al

Blue China: Navigating the Maritime Silk Road to Europe
European Council on Foreign Relations (ECFR), Policy Brief, London, April 2018,
Mathieu Duchatel and Alexandre Sheldon Duplaix

These analyses are offered by reputable think-tanks, featuring scholarly research. Although influenced by and reflecting to varying extents, respectively American and European viewpoints, valuable insights coupled with thought-provoking ideas and assessments are contained.

The principal rationale for the Belt & Road Initiative, as promoted by the Chinese government, is to improve connectivity between China and a broad band of Eurasian territory, mainly by upgrading and expanding transport and other infrastructure. Along the Maritime Silk Road, a route or routes extending from China through Southeast Asia, Oceania, the Indian Ocean, Middle East and East Africa into the Mediterranean Sea, enhancing port facilities is a particular focus. Previous studies have highlighted the need for greater investment in such infrastructure in many developing and emerging economies in this area.

Contrasting perceptions

Plans to strengthen connectivity are not the only aspect of the Maritime Silk Road attracting much attention. Political and strategic issues and implications are considerations for many countries involved or affected.

The CSIS analysis underlines the “growing questions about the economic viability and the geopolitical intentions behind China’s proposals” and asks whether port and other projects in the Indo-Pacific region are economic or military in nature. It concludes that MSR projects are neither purely military nor purely commercial and that China’s approach is “probably evolving”. A broadly international viewpoint is adopted in this evaluation; an overtly American perspective is not prominent in the report.

By contrast the ECFR study, as implied by its title, places a European perspective centrally. The tone is set at the outset when it is declared in the summary that “China’s Maritime Silk Road is about power and influence…” The study’s introduction section contends that “economics may be its main driver, but the Maritime Silk Road is also about naval power and international influence and forms part of (president) Xi Jinping’s broader national strategy”. This theme is pervasive throughout the report.

Perceptions of a European reluctance to endorse China’s project are emphasised in the ECFR study. According to the authors, the “romance of the Silk Road has won over few players in Western Europe”. Scepticism in Europe is explained as reflecting three influences: (a) an unconvincing argument by China about shared prosperity, (b) a prevailing sense that Europe will derive limited advantages from the MSR, and (c) divided European opinion about the entire Belt & Road Initiative. These influences have led to “passive scepticism”. The report does question whether this attitude is justifiable, but contends that the B&RI “is designed to help China tilt the global balance of power in its favour”.

Prominent infrastructure projects

Included in the CSIS report are detailed evaluations of three major port infrastructure projects sponsored by China along the Maritime Silk Road – Kyaukpyu (Myanmar), Hambantota (Sri Lanka) and Gwadar (Pakistan). Another major project on the same route – Chabahar (Iran), sponsored by India – is also examined because it is in close proximity to Gwadar and is often viewed as a manifestation of strategic competition between India and China.

Below are brief descriptions of the projects, derived from the CSIS study and from other sources.

At Kyaukpyu, a coastal town in Myanmar’s Rakhine State, Chinese companies have agreed to develop a deep-sea port and adjacent industrial area. Already this location is the terminus for twin pipelines to Kunming in China’s Yunnan Province. The gas pipeline, completed five years ago, carries gas from Myanmar’s offshore Shwe field, while the parallel oil pipeline which became operational last year carries imported crude oil to a new refinery in Kunming. The project enables China to reduce dependence on the sea route via the Straits of Malacca, seen as a chokepoint vulnerable to disruption. When new road and rail connections are finished, this route may assist development of China’s inland western provinces.

The port of Hambantota on Sri Lanka’s southern coast was a small fishing village until a few years ago when the previous national government, with Chinese financing, began transforming it into a deep-sea port. It is situated close to the long-established major port of Colombo, which has not reached capacity and has plans for major expansion, complicating Hambantota’s progress from an under-utilised facility at present. As a consequence of the need to reduce the country’s high indebtedness, in July 2017 a controlling equity share plus a 99-year operating lease was acquired by a Chinese port operator, China Merchants Port Holdings.

In Pakistan the port of Gwadar on the Makran coast west of Karachi has been developed in recent years as a gateway to the China-Pakistan Economic Corridor (CPEC). Projects within CPEC will be facilitated by road links through Pakistan to Kashgar in China’s Xinjiang Province, and there are plans for rail and pipeline links. Gwadar is located near the junction of the Arabian Sea and Gulf of Oman close to international shipping routes. Its transformation from small fishing villages into a major port being extended in phases began over a decade ago. In 2013 it became effectively a Chinese port when a new operator, China Overseas Port Holdings, obtained the management contract, and a 40-year lease has been agreed.

A port which is relevant to, but not part of the MSR project is Chabahar in Iran. The relevance stems from its geographical position along the same stretch of coast and in close proximity to Gwadar, less than two hundred kilometres distant. Of particular significance is that India is assisting Iran to develop Chabahar, reflecting the Indian Government’s infrastructure investment strategy and intention of gaining access to Central Asia. The upgraded port is expected to be operational by the end of 2018, and India has committed to building a free trade and industrial zone and new rail connections.

Economic arguments

The CSIS study attempts to rigorously gauge the economic significance of the Maritime Silk Road. Although the Chinese government contends that the purpose of the Belt & Road Initiative is to enhance regional and global integration and boost economic well-being and macro-economic growth in connected countries, motivations for port investments are often challenged

Three criteria for assessing the economic viability of port infrastructure projects are adopted in the CSIS analysis: proximity to shipping lanes; proximity to existing ports; and hinterland connectivity or connections to larger developments inland. The conclusion is that the three MSR projects reviewed are not entirely aligned with economic objectives, especially connectivity. According to the authors of this chapter “Hambantota, Gwadar, and Kyaukpyu are all advertised as engines of development for historically underdeveloped areas. As rural areas, they are less connected to broader transportation networks.”

Other aspects of Chinese port investment along the MSR routes are discussed in the ECFR analysis. The authors of this paper suggest that “operating port terminals is a source of predictable and stable return on investment for Chinese conglomerates…” This characteristic of profitability provides an incentive for investing directly in port development projects, and also into port and terminal operations and management. Port and terminal management is a prominent feature in Hambantota and Colombo, Gwadar, Djibouti and Piraeus.

During 2016 and 2017 there was a surge in Chinese companies acquiring equity stakes in port management companies around the world. Some were within the MSR as usually defined, while others were elsewhere. Among notable investments of this type were Rotterdam container terminal, container terminals in Valencia and Bilbao, Vado Ligure and Khalifa Port.

Implied consequences

Strategic objectives are sometimes deduced, anticipating use of ports for naval activities related to security operations. There have been many suggestions that all three ports within the MSR reviewed above could become bases for the Chinese navy or, at least, could be used for this purpose in times of conflict.

Apart from brief visits by individual Chinese navy warships, a common practice in numerous ports around the world, evidence validating the theory has been limited. However, the CSIS study contends that “there is no question that the infrastructure is being created with dual-use purposes in mind”. The ECFR study concurs, suggesting that “it is…a matter of the right conditions being met rather than of whether China will proceed to build new ‘overseas logistical facilities’ for its navy”.

A concern for the international community and for the host country is the leverage potentially gained by China when it finances B&RI port and other infrastructure. Heavy indebtedness may enable more pressure to be exerted on the government of a B&RI partner, possibly resulting in economic dependency which could be exploited for strategic purposes. This perception has been seen to cause political unrest or, at least, opposition within host countries.

In one prominent case where debt became overwhelming, China acquired the assets. As already mentioned, Sri Lanka’s government has allowed ownership of Hambantota to be transferred to a Chinese state-owned company, which has acquired a controlling equity stake in the port and an extended operating lease.

Focusing on trade between China and the European Union, the ECFR study suggests that it is beneficial for Europe to create conditions for continuous growth in trade movements. However, the authors argue that Chinese investment in port infrastructure involves risks for recipient countries. A possible positive aspect is reducing the cost of trade for all parties. But a potential negative aspect in the long term may be Chinese companies’ ability to set prices and control the terms of economic exchange with trade partners (selecting business partners).

A shipowning dimension

One activity closely linked to the Maritime Silk Road is not usually discussed as part of the scheme, because it is not promoted as formally related. The China-owned fleet of merchant ships of all types – especially tankers, bulk carriers and container ships – has grown strongly over the past twelve months, following earlier rapid expansion. Many of these ships are employed on MSR trade routes, although not necessarily exclusively (as geographically flexible patterns are a feature of some vessels’ employment), while others are employed on associated routes.

According to data compiled by Clarksons Research, the China-owned merchant ship fleet was comprised of 7,567 ships totalling 159.3 million gross tonnes (a common measure of capacity) at the beginning of June 2018. The total had grown by 13.2m gt or 9 percent since the same point a year earlier. An indication of future fleet growth is provided by the volume of ships for which definite orders have been placed at shipbuilding yards. Currently owners based in China have 22.9m gt on order, equivalent to over 14 percent of the existing fleet, a large proportion of which is scheduled for delivery this year or in 2019.

Other influences in addition to newbuilding deliveries will determine how the future fleet’s capacity evolves. Scrapping (recycling), and purchases or sales on the secondhand market will have an impact which is not easily predictable. But the newbuilding orderbook as recorded currently, and known intentions of Chinese owners, indicate sizeable expansion ahead.

An unfolding narrative

What are the tangible signs of Maritime Silk Road progress in the past twelve months or so, and what is likely to happen in the period immediately ahead? This aspect is not a specific focus of the two published studies reviewed here, but some developments are noteworthy.

From the outset, it has been envisaged that the B&RI could have a favourable impact on China’s economy as it unfolded. Ample scope for this outcome is widely acknowledged, but predicting the pace at which it evolves is more difficult. In the latest half-yearly economic outlook analysis published at the end of May by the OECD organisation, a review of progress in China suggests that the B&RI “will keep infrastructure and exports strong”. However, alluding to the uncertain pace of activity, the authors comment that “a faster-than-expected roll-out of projects…would boost Chinese exports of goods and services, and hence, growth.”

Since the MSR, and the Belt & Road Initiative as a whole, is clearly a long-term development project, it is not altogether surprising that progress has been gradual. At several of the ports on the route there have been recent advances in construction work on terminal and berth facilities. Also, on the land side, work on connecting ports with road and rail infrastructure to assist connectivity has gained further momentum.

Despite these positive signs, news reports in recent months frequently highlighted problematical features arising in many MSR port projects and other B&RI involvement. These problems may prove temporary. Some difficulties look set to cause delays, amid possible renegotiation of contracts, mainly reflecting financing difficulties. Political opposition in several host countries also has become more prominent, in part a response to growing awareness of the extent of indebtedness to Chinese banks and the potential repercussions.

The CSIS study, looking at China’s Maritime Silk Road as a whole, suggests that “the overall conclusion is mixed”. The ECFR analysis concludes that “China’s policies on facilitating the growth of its blue economy and its construction of a powerful navy are transforming the global maritime environment…” These observations highlight both the difficulty of evaluating how and at what pace this grand project will proceed, while emphasising the changes taking place which eventually could reshape aspects of the global maritime scene.

Source: Article By Mr. Richard Scott, associate, China Centre (Maritime), Solent University and managing director, Bulk Shipping Analysis, Written on Behalf of Hellenic Shipping News Worldwide (www.hellenicshippingnews.com)

https://www.hellenicshippingnews.com/new-insights-into-chinas-maritime-silk-road/

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