While the Chinese economy has slowed, mega-projects associated with the One Belt, One Road initiative are rolling ahead with no stop sign in sight.
In mid-November, China Overseas Port Holding Co. signed a 40-year lease to gain control of more than 900 hectares around the Pakistani port of Gwadar, on the Arabian Sea near Pakistan’s western border with Iran. The China state-run company, which took over operations of the port in 2013, has promised to spend more than $1.5 billion on port improvements, a new free trade zone, an airport and feeder roads, with even more ambitious plans afoot of an LNG terminal, power plants and a pipeline linking the port with western China. The goal is to turn what is now a minor port, handling less than one million tons a year, into a major entrepot for China-related natural resources and manufactured goods. It’s only one component in a $45 billion infrastructure package Chinese President Xi Jinping officially offered Pakistan during a state visit last April. That mix of investment dollars and loan guarantees centers on a 1,800 kilometer high-speed rail planned to link the western Chinese city of Kashgar, in Xinjiang providence, with Gwadar. The Chinese term the initiative the “China-Pakistan economic corridor.” That, in turn, is part of a much bigger and far more ambitious Chinese enterprise. This strategy goes by the odd name of “One Belt, One Road,” made odder still by the “road” referring to the sea. It envisions a series of land and coastal infrastructure linkages, underwritten by Chinese capital, that couple China with much of Asia, the Middle East and Europe. The map draws a land route from China through Central Asia and maritime routes from China through Southeast Asia and then to South Asia, Africa, and Europe. Money in the Bank While China began to mount such an initiative in Central Asia more than a decade back, the current push was launched in 2014. The Silk Road Infrastructure Fund, with an initial $40 billion, seeded what was originally called “the new silk road.” One Belt, One Road, however, encompasses a whole raft of bilateral projects with different funding sources, including China Development Bank and China Export Import Bank, and investment strategies. So, it’s difficult to estimate total costs. USB suggested China through loans and grants will allocate $200 billion within the next three years alone on infrastructure projects offshore. Another bank estimated $250 billion in related projects have already been contracted. The Financial Times termed One Belt One Road the “largest program of economic diplomacy since the US-led Marshall Plan” for reconstruction after World War II. One Belt, One Road is China’s grandiose plan for projecting soft power and part of a concerted effort establishing the country’s central role in the region. It taps into Asia’s massive need for infrastructure (see AIIB story on page 3), especially in a poor country like Pakistan, and ever bigger and closer regional trade ties. Pax Sinica But One Belt, One Road should also be viewed in concert with China’s harder power play, including a more assertive military and the country’s aggressive territorial posturing. That’s especially true in the South China Sea, where the Philippines, Vietnam and others dispute China’s claims to several islands. “The initiative is a timely reminder that China under the Communist party is building a new empire,” said Frederich Wu, a professor at the S. Rajaratnam School of International Studies at Nanyang Technological University in Singapore. Wu, though, comes out sympathetic to China’s designs: “In opening up the land route through Central Asia and Russia, and the sea route through the Indian Ocean and Arabian Sea, China is trying to expand economic space and diplomatic/strategic interest in these vast territories,” he said in an email exchange. “If the US can build a ‘Pax Americana’, I see no reason why China cannot build a ‘Pax Sinica.’” That kind of expansionism draws apprehension throughout the region. The China-Pakistan economic corridor, for example, runs smack into India’s concerns not only about its longtime nemesis, Pakistan, but its regional rival, China. Indian distrust of Chinese and Pakistani motives was heightened when news came ahead of Xi’s visit that Pakistan would buy eight Chinese submarines and is in talk to purchase from China advanced fighter jets. Despite these strategic concerns, reaction around the region has been surprisingly positive since China unveiled its heady plans for building and financing infrastructure. Many appear to separate the development and economic components from power politics. Even China’s most wary neighbors such as the Philippines are publicly embracing One Belt, One Road. In a briefing the Asian brokerage CLSA called the plan “brilliant.” While it has gained tentative support, the One Belt, One Road initiative continues to raise serious questions, everything from China’s ability to bankroll such ambitious projects to the capacity of countries such as Pakistan to absorb them. What’s more, this trade construct was devised within the Chinese bureaucracy as a way to better move and offload excess industrial goods such as steel, cement and aluminum. Will these plans benefit China and its place in the world to the exclusion of others or will it be mutually beneficial? Last month, for example, officials broke ground on a medium-speed rail line, capable of carrying both passengers and freight between China and Thailand. The line will stretch some 840 kilometers from Kunming, in Yunnan province, through Laos, to Bangkok. It’s estimated to cost almost $14 billion. Thai officials have trumpeted the railroad as a boost to tourism and a way to more quickly ship commodities, especially rice, to China. It could help Thailand’s efforts to become a regional logistics hub. But it will also serve to better move Chinese goods throughout Southeast Asia and beyond, with limited impact on the Thai economy. Already, there’s squabbling about how much of the actual cost China should shoulder. The Gwadar Strategy The Gwadar port project along with the proposed pipelines and rail lines are heavily freighted with geopolitical and strategic issues as well. These links would not only shorten supply chains, but also dramatically lessen China’s dependence on the Straits of Malacca, through which 80% of its imported oil now passes. China has long worried about the straits as a chokepoint in its energy supplies. It also dovetails with China’s perception that Xinjiang’s poor and Moslem Uighur population is susceptible to infiltration from radical Islamists based in Pakistan. Part of the calculus is to increase economic opportunities in Xinjiang, Pakistan and, by extension, restive areas of Central Asia. Part is the belief that China can better pressure Islamabad to keep Pakistani radicals in check. Many of China’s critics believe that there’s an even more ominous cast to such a project: the military use of deep-water ports. Much will depend on China’s ability to execute these kinds of mega-projects. Can they succeed or will they get buried in money politics, malfeasance and incompetence? In a recent briefing paper on the subject, Julian Vella, Asia Pacific head of global infrastructure for KPMG, noted that when it comes to infrastructure, “project selection can often become highly politicized.” He warned that in countries and governments inexperienced in infrastructure development, that decision-making is heightened over concerns about “lack of transparency, corruption, an uncertain legal and regulatory environment, unpredictable financial systems and foreign exchange exposure risks.” On top of all this, Chinese businesses, Vella wrote, “have relatively less experience in managing overseas projects, except where they are directly tied to China’s economic and trade objectives.”