During his state visit to Central Asia and Southeast Asia in September and October 2013, Chinese President Xi Jinping (習近平) unveiled the Silk Road Economic Belt and the 21st Century Maritime Silk Road, also known as the Belt and Road (一帶一路) or the One Belt, One Road initiative.
This is a Chinese government economic development strategy to integrate trade and investment among China, Asia, Africa and Europe through a vast network of infrastructures, including ports, railways, roads, bridges, power stations and industrial parks. The strategy underlines China’s push to take a bigger role in global affairs in politics, economics and finance.
The initiative consists of two main components: One is the land-based silk road economic belt, and the other maritime silk road. The major projects underlying the initiative are as follows: the New Eurasian Land Bridge; China-Mongolia-Russia Corridor; China-Central Asia-West Asia Corridor; China-Indonesia Peninsula Corridor; China-Pakistan Corridor; Bangladesh-China-India-Myanmar Corridor; and the Maritime Silk Road.
Under these proposed projects, a lot of infrastructures in about 60 countries will be built. The Chinese government has offered initial capital of US$100 billion via the Asian Infrastructure Investment Bank (AIIB) in Beijing to finance these projects. The overall fund for the proposed projects is expected to exceed US$1 trillion.
However, the main purpose of this initiative is to digest China’s surplus industrial capacity by promoting exports through the AIIB. Excess capacity has harmed its economy and riles its trading partners. As the world’s largest exporter, its massive exports of industrial goods are flooding world markets, contributing to deflationary pressure and threatening producers worldwide.
According to an Oxford Economics estimate, the output gap between production and capacity for the Chinese industry as a whole was zero in 2007 and reached 13.1 percent by 2015.
The Chinese economy is now growing slowly and has a huge surplus capacity producing more steel, cement, aluminum, solar energy equipment, textile and other manufacturing products than it needs. So China is looking to the rest of the world, particularly developing nations, to keep its economic engine going, which means more exports and not imports.
A report from Fitch Ratings suggests that China’s plan to build ports, roads and railways in developing Eurasia and Africa is out of political motivation rather than a real demand for infrastructure.
One Belt, One Road is believed to be a way to extend Chinese influence at the expense of the US to fight for regional leadership in Asia. The vast infrastructure projects initiated by the Chinese government can be considered a masterstroke by Beijing to establish itself as a world-leading economic power and to spread its influence, particularly in the South Asian region.
China has already invested billions of dollars in several South Asian countries, such as Pakistan, Nepal, Sri Lanka, Bangladesh and Afghanistan, and Southeast Asian nations, such as Malaysia, Indonesia and Myanmar, to improve their basic infrastructure, with important implications for China’s international trade and its military influence.
During its Belt and Road Forum in Beijing on May 14 and 15, China, seeking validation for the project, invited the US and other Western nations to send their leaders, but most of them declined. With the exception of autocratic leaders from Russia and Central Asia, major Western countries leaders were noticeably absent from the gathering. Even Indian Prime Minister Narendra Modi did not attend, amid concern over significant Chinese investment in its rival Pakistan.
On the eve of the forum, the Indian government said in a statement that the initiative posed a risk of placing an unsustainable debt burden on participating nations — a concern that several Western economists have expressed.
China is not giving aid, but is asking countries participating in the initiative to assume debt from Chinese banks to pay for the proposed infrastructure projects, they say.
Some US and Western European officials contend that China is spending abroad and corralling others to join it, while keeping important sectors of its huge market at home off-limits to foreign investors. They are particularly bothered that the program appears to be mostly about Chinese exports to participating countries and not much about imports from them.
On Nov. 13, Nepal called off the US$2.5 billion Budhi Gangaki dam (1,200 megawatts) project awarded to a Chinese state-owned company. The hydro project — part of the China-Pakistan Corridor — did not hold an open bidding as required by law.
On Nov. 16, Pakistan canceled the US$14 billion Diamer-Bhasha hydroelectric project (4,500MW) agreement with China. The Pakistani government rejected the terms as being against its interests, dealing another blow to China’s belt and road plan.
The same is true in the part of the maritime silk road. The Sri Lankan government has suspended construction of the Colombo Port City Project since 2015, citing a ballooning debt problem for the country if the project is completed.
The project was signed by then-Sri Lankan president Mahinda Rajapaksa and Xi during his state visit in September 2014. However, when Maithripala Sirisena won the general election and became Sri Lanka’s president in January 2015, he immediately suspended the construction.
The Belt and Road initiative entails enormous infrastructure projects and traverses insurgency-hit areas, dictatorships and chaotic democracies, and as it encounters resistance from corrupt politicians and inhabitants, it is predictable that Xi’s dream project will hit roadblocks all around.
Lee Po-chih is professor emeritus of economics and former vice president of National University of Kaohsiung.
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