One Belt, One Road

di Cesare Barberis

Analysts often speculate whether China will be able to become the next global superpower and surpass the United States or at least be an equal to them. Some think tanks and economics-politics magazines point to China’s slowing economy and recent financial bubble burst as signs that the Dragon’s rise is coming to an end. In this article we try to give our own contribution on the discussion by focalizing mainly on geopolitical aspects, but still keeping an eye on the economic factors.

Contrarily to the US, China does not have access to both the Pacific and Atlantic oceans and has a navy that is comparatively still too little and weak to dominate the seas. One comparison to make this clear is the possession of only one aircraft carrier, while the US possesses twenty of them. Therefore, China has to rely on the Americans for the security of the sea trade roots. Since China is still mainly an export-led country, it relies heavily on export through sea to generate wealth and power. To give an idea of the importance of trading via sea, we present some of the results of a 2008 study by the European Union. The paper highlighted that it costs only 1’850 euro to transport via sea one TEU of goods (twenty-foot equivalent unit) from China to Germany, while transporting the same goods through land would cost 3’500 euro. However, the time required for the transportation is 32-35 days via sea, while only 15-19 days through land. Currently, the cost advantage of sea transportation is strongly preferred to the time advantage of land transportation. To show this, simply think that in terms of volume around 95% of export and 89% of  EU-China imports is concluded via sea. However, if look at the value of the goods, 61,7% of trasportation is concluded via sea, 23,1%, via airplane and 8,8% through land.  Furthermore, China is increasingly energy hungry and has to import oil & gas from other countries part of which is transported again through sea. The image below gives us an idea of this delicate situation.

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It is clear that a potential blockade of the sea chokeholds of the first island ring by American ships would have devastating effects on China’s economy and stability and the Chinese want to avoid this scenario. One way of trying to solve this issue is by building a stronger navy which we see is currently being done. The other solution is to try and create trade routes on land to connect China with its main trading partners and especially the rich and quite neutral consumer market of the EU: basically a revival of the ancient Silk Road.

The president of The People’s Republic of China Xi Jinping is the creator of this strategy announced in 2013 and also called “One Belt, One Road”. To finance all these long and expensive infrastructure projects consisting of railways, roads and ports, China is using its enormous and low-profiting reserves in US dollars and Euros. The Dragon is, in fact, financing many projects in Central Asian countries to create the so called “Central Route” that will export/import goods from China through Kazakhstan, Azerbaijan, Georgia, and possibly Turkey, to Europe. In the summer of 2015 goods have been exported via this route for the first time and some Chinese engineers even hypothesized the construction of a huge bridge to connect Kazakhstan with Azerbaijan. Another project it is financing is that of a railway connection from China to the Pakistani port of Gwadar which will also be almost entirely financed by the Chinese. But the Dragon is not limiting financing to infrastructure connected to itself, but wants to create more and better connections between central and southern Asian countries. One such example is the TAPI (Turkmenistan, Afghanistan, Pakistan, India) which will enable Turkmenistan to export gas to all these countries.

Basically, China plans to bind most of Asia to itself through the magnificence and wealth it is able to project. This is quite consistent with Chinese history where the emperor saw himself and the Celestial Nation at the center of the earth and every other country would have voluntarily submitted itself due to the splendor and magnificence of the Dragon. No military force would have been needed. Indeed, we now see China marching west-ward not with an army, but with billions of dollars for other countries to enjoy in a win-win situation, as long as they accept China as a peaceful rising hegemon. The picture below shows just some of the many possible routes that will be developed.

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As mentioned before, the ultimate goal of the initiative is being able to trade with the Europeans via land in an efficient and quick way. Transportation via land is, as we have seen, more expensive than transportation via sea, but requires much less time to be completed. Therefore in order for the immense project to be effective, the infrastructure built will have to be of excellent quality and foster a consumer market also in the Central Asian countries making the routes more attractive. The Europeans will also benefit from this as their internal demand is still stagnant and their future growth will mainly be driven by the new and growing consumer markets of the East. Therefore, infrastructure connections that will allow them to trade with these rising markets can only be beneficial to the EU and some countries have already signed with the Chinese deals related to this New Silk Road.

One possible problem to this strategy comes from the great instability of some of the countries involved and the fact that Russia may fear an intrusion by the Chinese in what it considers its backyard. Xi Jinping’s summer visit to Moscow served exactly to reassure Putin of the good intentions of the Dragon and that it will not interfere where Russia puts limits. In fact, the One Belt, One Road is complementary to Putin’s Eurasian Economic Union and both projects have the capability of having positive spillovers on the other. Basically, China is allowing Russia to rebuilt its empire in Central Asia and project power as long as it allows China to finance and develop these countries by making them transit and destination roots for trade. Xi Jinping can also benefit this way through more political stability and Russian know-how of Central Asia. Currently, the Chinese mentality of power through wealth and splendor combines quite well with the Russian mentality of power through force and land mass.

Finally, China has also created the Silk Road Fund (SRF) and the Asian Infrastructure Investment Bank (AIIB) to serve its strategy. As mentioned, they will be used to finance various projects having billions of dollars in reserve: 100 for the AIIB, 20 for the SRF. Furthermore, the multilateral institution AIIB is a direct challenge to the IMF, the ADB and the current monetary order and plans to make the Yuan more central in the world economy. Although China knows it does not have the capabilities of replacing the dollar as the world currency, it still feels the need to make its currency more relevant in order to become a global hegemon. The US decided not to become a member of the AIIB and tried to convince also Japan and the western countries to decline the invitation. Unfortunately for them, most European countries plus Australia have become members of the AIIB and will now move closer to China economically. It must be said that as the president of the WB is normally an American, the one of the IMF a European, and the one of the ADB a Japanese and the president of the AIIB will be a Chinese.

In conclusion, nobody really knows if China will be capable of rising up to be a competing hegemon of the United States, but surely it is trying to pursue this ambition. The author of this article believes that if the One Belt, One Road strategy does come into effect, there are good possibilities we will see a red dawn in the future.

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