China’s One Belt, One Road: The changing status quo

“Spanning more than 68 countries and encompassing 4.4 billion people and up to 40% of the global GDP, China’s One Belt, One Road project is not short on ambition,” CNN writes. It’s true. Promises of massive economic boosts and being able to lift millions out of poverty have been boasted by China, but could this just be another pawn in China’s rule? “It means everything and it means nothing at the same time,” said Christopher Balding, a professor of economics at Peking University.

What is the Belt and Road Initiative?

The Belt and Road (One Belt, One Road) initiative is perhaps the most significant global economic initiative in the world today, and it’s not getting the attention it deserves in the media. It’s a collection of interlinking trade deals and infrastructure projects (roads, bridges, gas pipelines, ports, railways, power plants) throughout Eurasia and the Pacific, with a price tag of $5 trillion for infrastructure attached. A fitting example of globalization, hailed by China as the “project of the century”. The “Belt” will connect China to Eurasia by road and rail, whereas the “Road” will involve developing ports and shipping routes connecting Chinese harbors to Europe and the South Pacific. 

World Leaders involved with the OBOR at the Belt and Road Forum

So why would China want to spend so much of its GDP on boosting its seemingly thriving economy, and risk a massive domestic slowdown and potential debt crisis? 

 

My take on this event (Why is China doing this?):

Economic Vulnerabilities. 

1. Securing Product Demand.

In the grand scheme of things, investing abroad plays a crucial role in China’s economy and political ties. The OBOR would be able to help strengthen the economies of China’s trading partners and secure the demand for Chinese products.

2. Countering Overcapacity

Let’s talk about overcapacityOvercapacity is the situation in which an industry or factory is losing money because they’re not selling as much as the industry is designed to produce. China has been facing significant overcapacity in its steel and construction sectors, and the increased building of infrastructures in the OBOR would be able to counter this.

      3. Trade and Energy Security.

If a war is sparked, this means that the Chinese economy would be crushed. The current maritime trade routes are extremely vulnerable, but they are the paths on which Chinese goods flow through, and war could cut this off. The OBOR would not only keep markets for Chinese goods open but also secure China’s access to energy.

In the spring of 2016, China announced it would support over $20 billion worth of infrastructure projects in Kazakhstan, a potential energy partner. On top of that, China is also planning a 2,000 mile, high-speed railway connecting western China to Tehran in order to gain easier access to Iranian oil.

      4. Domestic Labor Inflation.

Per usual, the price on everything is rising, rising, rising. The better trade networks offered in the BRI means being able to manufacture products more efficiently in offshore Chinese firms.

Geopolitical Ambitions. 

Say that China’s idea of the OBOR is successful – China’s influence throughout the Southeast, South and Central Asia, the Middle East, Africa and Europe, will be doubled, maybe even tripled. Trade and economy would be able to be taken to a whole new level, everywhere. At this point, China seems willing to bet on it, partnering with 70 other countries desperate to get a firm grasp on this vision, with China itself already pledging at least $890 billion, in over 900 projects worldwide. 

Take Pakistan for example. In order to double the country’s electricity supply, Beijing has already created a $46 billion infrastructure program for the energy-poor country. In return, China now has access to the port of Gwadar, meaning it will take even less time than before to transport goods from inland Chinese cities to global markets. This is a major part in the development of a more westernized China. 

It’s also a major part in the development and security of the Pakistani alliance. China values it in order to counter India’s influence in the region, and secure its own economy and domestic stability which is somewhat tied in with Pakistan’s. 

The benefits of this ambitious project seem overwhelming, especially for its founder, China. But is it too ambitious to achieve?

Problems with the OBOR:

Funding.

Screen Shot 2017-07-05 at 12.42.01 PM.png

As the number of projects rise, the number of M&A deals fall. Foreign direct investment from China to other OBOR nations also went down by 2% in 2016, and has dropped another 18% additionally this year in 2017, according to the Financial Times. Furthermore, the sheer ambition of the BRI is part and parcel with the fragmented, contradictory process of economic policymaking in China.

The vision is hazy.

Chinese officials promote the OBOR in any way they can, which is only to be expected. One professor encouraged others to think of the OBOR as a “philosophy”. How would other countries (i.e. Russia) tolerate Chinese influence in Central Asia?

The risk is real.

No decision is made without risk calculation – and the risk in the BRI is high

1. Local Instability.

This could undermine investment projects funded by China, like the one in Pakistan, which is currently deploying thousands of troops to safeguard China’s investments. One weak link would mean everything these countries worked for would go plummeting down, and that would be it. 

2. Terrorist Targets.

Stratfor points out that with stronger connections, the OBOR would provide new routes for smuggling and illegal trade. Could this mean that China could be the next target?

 

My take on this event (overall):

I question this project’s ambitions. It is understandable why China is willing to take the risk, but with a project of this size and a success rate of “maybe”, perhaps China has bit off more than it can chew. Failing would mean trillions of dollars down the drain. Failing would mean that the trade, economy, and overall welfare of these 70-so countries would plummet to the ground, leaving them vulnerable and worse off than before. Failing would mean that the current status quo would fall apart into millions of pieces.

Furthermore, this is a project that cannot possibly be agreed upon in all 68 countries it is planning to cross, and political ties would have to be completely secure for this plan to be a go. Take India: currently in a feud with China over attempts to extend a border road, the OBOR plans to open new shipping routes and ports in India, which is definitely not a possibility now.

However, it’s not impossible. China has executed feat after feat, even building a skyscraper in nineteen days. If anyone can succeed with this project, it’s them. Perhaps poverty will truly be lifted, and the world will change for the better. 

 

Let’s hope that these countries get what they bargained for. China included.

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