Indian Defence Review

On March 28, China released an ambitious “One Belt, One Road” initiative to promote greater regional economic cooperation by establishing new transcontinental trade corridors across Asia, Europe and Africa. The Silk Road Economic Belt and 21st Century Maritime Silk Road are part of Chinese efforts to revive historical silk routes along which much of the East-West trade occurred during the ancient period. The objective is to foster trans-Asian movement of goods and services and uplift its trading profile by integrating regional markets and developing infrastructural connectivity between nation-states.

The ‘Belt’ component envisages constructing a network of roadways, railways, energy pipelines and transit hubs that will connect mainland China with Central Asia, West Asia and Eurasia reaching as far as Moscow and Rotterdam. The ‘Road’ is the maritime equivalent of connecting China’s coastline with Indian Ocean and Mediterranean Sea (via Red Sea), reaching up to Venice and beyond, by establishing sea ports and logistics terminals along Southeast Asia, South Asia and East Africa.

Over 60 countries with a combined GDP of $21 trillion and a population of 4.4 billion are expected to be linked through the Belt and Road corridor initiative. Besides physical connectivity, telecommunications networking, people to people contact and financial integration, especially the use of alternate reserve currency (read Renminbi) for trade transactions, have been highly emphasised.

Big-Ticket Agenda

It may be noted that infrastructural bottlenecks have often crippled overland trade between Asia and Europe. Earlier proposals like the International North-South Transport Corridor have not made much headway till now. Beijing reckons that it’s Belt and Road project would not only overcome the existing infrastructural problems but also facilitate standardisation of trading arrangements like transit rules, custom tariffs, trade credit etc that would enhance international trade.

Domestically, it hopes that the economic prospects of its lesser developed western and central provinces will improve as a result of trade connectivity. It is estimated that China’s trade with the Belt and Road countries will increase from the present $1 trillion to over $2.5 trillion by 2020.

Indeed, the One Belt, One Road strategy remains a big-ticket foreign policy agenda of the current Chinese dispensation. It is billed as the manifestation of Chinese vision of establishing a “community of common destiny” within and without Asia. First articulated by President Xi Jinping in September 2013, Beijing has invested considerable diplomatic energy in pursuing the initiative further. Over the course of twenty months, it has done commendable groundwork such as pioneering two dedicated financial institutions – the $50 billion Asian Infrastructure Investment Bank and the $40 billion New Silk Road Fund – to fund the execution of projects. At least one logistics terminal in Kazakhstan has already become operational reality till date and many others are in the pipeline. A detailed roadmap has also been incorporated into China’s Five Year Plan programmes to align domestic priorities, such as mobilisation of investments, with the economic belt policy.

Thanks to its swift summit-level diplomacy, a host of countries – from Belarus to Iran to Cambodia – have expressed deep interest in the new Silk Road initiative. As China is the major trading partner of most of Asian and European states, Beijing claims that a well connected integrated trade corridor will be a win-win deal for all the participating countries. Besides, Asian infrastructural needs amount to several trillion dollars in the near term and insofar as the economic belt contributes to this demand, the project has been generally welcomed. China has gone so far to suggest that other multilateral initiatives like the Eurasian Economic Union and Bangladesh-China-India-Myanmar (BCIM) Corridor can be subsumed (or perhaps sidelined!!??) under One Belt, One Road for streamlining trade and economic development in the region.

Chinese Grand Strategy

At a time when the US-led “Pivot to Asia” strategy is aiming to contain China, the latter has seemingly sought to look towards West and counter the former by drifting political attention from conflicts in the East Asian region. Beijing hopes that its geo-economics of trade and development will enamour partners in Asia, Europe and Africa that would to an extent ameliorate the US surge in Asia-Pacific. Besides, Chinese economic trajectory in the post-recession period has undergone a dramatic shift which is necessitating it to find newer avenues to sustain the growth momentum.

Chinese economy has been growing at a slower pace over the past couple of years with lower capital formation reported across all sectors. Even as rising wages have eroded competiveness of Chinese firms, a persistently sluggish demand from western markets have resulted in excess production capacity. The fiscal stimulus launched has been poor at boosting domestic consumption to offset the shortfalls on the export front.

Though China maintains a favourable trade balance with most of countries, the future expectations are not as rosy as used to be in the pre-2008 period. China’s growth in exports with the US and EU markets have shown signs of flattening and even decline. Global pressures against Chinese currency manipulation might soon affect the edge that Chinese products enjoy in international trade. All these factors have made China to look towards new markets, such as developing economies in Asia and Africa, to keep up its exports growth.

Chinese foreign investment patterns too have followed a similar trend. Recently, China lost its top stakeholder position in US’ treasury bills and securities market to Japan. While strictures have been eased for Chinese private citizens to invest freely abroad, state-owned banks have themselves been gradually withdrawing from western financial markets in the backdrop of Great Recession and Eurozone crisis.

Within this context, the Belt and Road strategy provide right opportunities for China’s surplus financial and industrial capital to invest overseas. With the focus shifting to Asian markets, China aims to influence regional trading patterns onto its favour by creating dependencies on its markets and financial institutions. In fact, Chinese construction firms are already lining-up to bag big contracts – railways, roadways, sea-port projects and oil pipelines – that are due under One Belt, One Road. Beijing has repeatedly stressed on currency swapping arrangements with its trading partners to shed reliance on US dollar and promote its own Renminbi as reserve currency. Easy access to energy resources and raw materials and wider consumer market for its finished goods would no doubt lead to windfall gains for China.

Conclusion

While China stands to reap economic benefits from the Silk Road initiative, a key challenge that it confronts is the viability of the project in the midst of growing political instability in Central and West Asia. Chinese leadership appears determined to use its soft and hard power instruments to face these challenges. The recent political intervention in Afghanistan to bring Taliban groups to negotiate with Kabul gives an indication of China’s will to establish stability in the region. The SCO is already vested with a mandate to prevent conflicts in Central Asia and Beijing may play a proactive role in providing security to the regimes therein. Recent strategic documents of China empower their armed forces to effectively conduct Military Operations Other Than War in “open seas” – a sign that PLA Navy might step-up its role in providing maritime security against piracy and other non-conventional threats.

It is logical that foreign economic assets need security backing and China is justified in providing it. However, a project of the scale of One Belt, One Road warrants no less than a role of a supra-regional hegemon for ensuring security of its interests abroad. Herein lay a worrisome concern for other powers like India as protecting economic interests might in disguise promote larger security profile of the Chinese military. One may note that the ancient Silk Road was integral for imperial China to expand its zone of influence in Asia and beyond. Will the modern Silk Road do an encore is a big question to ponder over.