China belt and road initiative and potential problems

The Modern Silk Road… Launched by Chinese President Xi Jinping in 2013, the initiative aims to connect major Eurasian economies through infrastructure, trade and investment. With a total population of 4.4 billion and 40% of global GDP in Asia, Europe, the Middle East and Africa, a RMB 1.5 trillion infrastructure investment pipeline spanning more than 10,000 km in more than 60 countries and overall infrastructure-wide cover projects. As of March 2022, 146 countries are listed as members of the BRI. (Belt and Road Initiative: Belt means domestic railways, pipeline, tunnels… Road means 21st Century Maritime Silk Road)

The map below shows the Belt in orange and the Path in blue:

China’s Iron Silk Road is growing… China’s Belt and Road Initiative has shown a clear preference for increasing freight train traffic to and from Europe, with train numbers reaching 15,000 in 2021 compared to 17 a decade ago e rose. Source: RailFreight.com

At the same time, BRI expanded its objectives with the introduction of Digital Silk Road, Polar Silk Road (to develop arctic shipping routes and offshore arctic fossil fuel production and mineral mining), Health Silk Road and Internet of Things (IoT) as 5G based project. These projects have the perspective to shape the economy and geopolitics for decades to come, with far-reaching consequences for international security.

BRI purpose and perspective… BRI was created in response to China’s need to increase industrial overcapacity, low domestic demand, sluggish exports abroad, and increase connectivity with emerging economies to open up to new foreign markets. By 2027, total global BRI spending could reach $1.3 trillion. Other economic estimates predict more than 2,600 projects worth $3.7 trillion worldwide.

These initiatives allow China’s priorities to be internationalized and aligned with its long-term strategic interests. Therefore, the BRI is Beijing’s most important political and economic instrument. Beijing is also using BRI as a new platform for multilateral cooperation with the G20, Shanghai Cooperation Organization, Asian Infrastructure Investment Bank and others. It uses these platforms to define new international standards in United Nations organizations (as well as in the digital and telecommunications sectors) and redefine existing international economic and policy rules for global governance. By 2035, China hopes to become the world’s most important standard-setting power, with its strategy called China Standards 2035. With this perspective, they have been proactively involved in the UN’s International Organization for Standardization, the International Telecommunication Union (ITU) and other international forums.

In addition, China’s BRI strategy is based on a highly coordinated plan with economic, financial, technological, maritime and military dimensions. The 13th Five-Year Plan (2016-2020) called for integrated civil-military development projects in overseas offshore regions. The 2015 defense report required the development of infrastructure that would serve both civilian and military use “compatible, complementary and mutually accessible”.

Digital Silk Road… China’s Digital Silk Road may be the most challenging and most important road for the West. Connecting the world’s internet with fiber optic cables has become more important than ever for global communication. It is also one of the most important elements of the Pakistan and East Africa Connecting Europe (PEACE) project, in which submarine fiber optic cables are used. The China-Pakistan Economic Corridor is the largest component of the BRI. Similar to 5G and Huawei technologies in the West’s critical infrastructures, fiber optic cables raise the question of the responsibility of public and private actors to protect privacy, as they require network software management to monitor all information. Many security concerns have arisen due to the construction and maintenance of these fiber optic cables, as well as technological vulnerabilities. In Beijing’s Made in China 2025 initiative, China’s plan is to achieve a 60% share of the global market for fiber optic cables.

The problem with the Russian-Ukrainian war… The war in Ukraine, where Beijing has adopted a pro-Russian “neutrality” based on its alliance with Moscow, will intensify the conflict between Western democracies and the authoritarian regimes of Russia and China. The Russian invasion of Ukraine has already damaged the BRI and China’s Eurasian rail dreams. Container shipping by rail from Duisdorf in Germany to China via Poland, Russia, Kazakhstan and Mongolia has been suspended after Maersk halted new rail bookings between Asia and Europe. The outage has already damaged supply and logistics chains. Almost half of the Iron Silk Road railways, which are part of the New Eurasian Land Bridge, pass mainly through Russia. The number of freight routes, which was 40 in 2017, may have increased to 78 today or even more. Last year, $75 billion worth of Chinese goods (compared to just $8 billion in 2016), containing 336,000 standard containers, served 183 cities in 23 European countries along the train system’s Iron Silk Road. The number of trains has increased from just 17 a decade ago to 15,000 in 2021. Another part of the rail service runs through Ukraine, but has been suspended and diverted to another route.

Other possible problems…

·        China-based

A clear scenario ahead is that the BRI will continue to expand but will need to adapt in response to international criticism.

China’s BRI strategy has created a new network of China-based economic, financial, political and security relations around the world. The idea is to promote China’s vision of future global governance based on Chinese values. Beijing’s strategic interests are to increase its national prestige, backed by soft and hard power. Despite favoring overland routes, China has also expanded sea routes, following the “String of Pearls” strategy, owning and controlling ports as well as sea routes in the Indian Ocean and Southeast Asia (the Strait of Malacca and the South China Sea).

In Africa, China has become the largest source of development finance, accounting for roughly 20% of all loans to the continent. Some countries borrow too much, increasing the risk of default. More than 20 African countries are over-indebted, the International Monetary Fund said.

In Asia, the example of Sri Lanka’s Hambantota deep-water port, which was leased for 99 years by China in 2017 in exchange for the island nation’s debt write-off, highlighted the flawed character of China’s BRI. Such projects often benefited the corrupt elites in Africa and other countries a lot from the public. Chinese banks often contain clauses that prevent the debt owed to them from being included in international restructuring arrangements such as the Club of Paris of dual creditors.

Chinese banks have also adopted increasingly stringent credit terms as they shift their priorities to small and medium enterprises, green projects and private investment. Before the UN Climate Change Conference in Glasgow last November, Beijing announced that it would no longer finance and build coal power plants abroad. The move represented an important commitment as China is the world’s largest coal plant investor and producer.

·        Based on corruption

In June 2021, the US and EU-led G7 governments agreed on the Partnership to Rebuild a Better World (B3W), which envisions a “value-driven, high-standard and transparent infrastructure partnership” to shrink the $40+ trillion. In July 2021, the EU reaffirmed the 2018 Global Connectivity Strategy, strengthening the G7’s participation in the B3W-partnership initiative.

While corruption, informal policies, nepotism and the use of personal networks are important BRI tools to expand China’s interests abroad, they have also been costly and ultimately backfired. According to the World Bank, bribery in transportation projects can account for 5-20% of total transportation costs. Increasing transparency will be crucial to improving governance and benefiting the entire population, rather than the small, corrupt elites in partner countries.

·        Sustainability

In 2021, China’s global BRI investment fell to $56.5 billion from $60.5 billion in 2020. This could lead China and the West to develop mutually beneficial cooperation. An open area of ​​cooperation could be the acceleration of green energy projects. Since 2015, around 44% of all BRI investments have gone to partner countries’ energy sectors. In 2018, although China was also the world’s largest investor in renewable energy, 40% of this global investment went to new coal plants abroad. According to the World Bank, China’s worldwide BRI projects are a significant contributor to global carbon emissions. A 2020 report from the United Nations Environment Program warned that only $368 billion of the $14.6 trillion in announced global recovery spending stemming from the Covid-19 pandemic meets “green standards” – and most in the EU and US.

In 2019, Beijing promised that BRI investments would be “open, green and clean.” Despite its commitment, energy investments remained dominated by fossil fuels. However, in mid-2021 Beijing published the “Green Development Guide for Foreign Investment and Cooperation” and “Guidelines for the Ecological and Environmental Protection of Foreign Investment Cooperation and Construction Projects”. They have paid much more attention to environmental risk management for all their BRI projects and supply chains while operating overseas. Both private and state-owned Chinese companies need to support overseas green and high-quality development projects in four key areas: energy, petrochemicals, mining and transportation. These four sectors of BRI account for approximately 70% of the total overseas BRI value of investments and construction. These projects will accelerate green projects around the world that offer opportunities for cooperation with the West.

·        China’s competitiveness

Despite Sino-Western cooperation on certain projects, competition remains highly likely. China has adopted an increasingly coercive and belligerent style of diplomacy. As a result, China’s public image has been damaged not only in the US and EU, but also in advanced Asian democracies such as Japan and South Korea. The EU looks at China as a competitor rather than a partner. Even given China’s interest in expanding green projects, Beijing views the industry primarily as a technology competition that must win for global supremacy.

The future will likely bring increased competition between China’s BRI and the West’s connectivity strategies. However, cooperation may not be excluded for certain projects and in some sectors such as green energy projects. But the ultimate strategic goal for Beijing is to support its interests and to limit or undermine those of the US and EU.

Conclusion? We see a few really positive factors at BRI:

·        Big step towards global unity

·        Resource sharing

·        Improving international relations

But unfortunately it is not so easy and here are the following negative factors:

·        People in power are too corrupt to think about globalization and focus mainly on financial gains to increase their influence.

·        China is mainly focused on global control and imposing its values. BRI is a huge asset for China to control many countries that have debt contracts with China.

Kaynak Tera Yatırım
Hibya Haber Ajansı