One belt, one road

China’s dazzlingly ambitious international investment programme – the Belt and Road Initiative – is well under way, with designs to bring infrastructure to half the planet. Wayne Ellwood on the scale of this juggernaut and its economic and political ramifications

On the remote, windswept steppes of central Asia where Kazakhstan borders China a new ‘port’ is being built – 2,500 kilometres away from the nearest ocean. The Khorgos Gateway is a massive transport hub, a ‘dry port’ rail terminal designed to process the surging flow of goods from China’s humming factories to eager customers in Asia and Europe.

Nearby is the town of Nurkent, a planned community expected to house an expected flood of 100,000 workers. Construction cranes crowd the skyline, while apartments, schools and municipal buildings rise all around.

The project is just one part of China’s visionary Belt and Road Initiative (BRI), a multibillion dollar made-in-Beijing investment programme designed to bring much-needed infrastructure to half the planet.

Khorgos Gateway may be in the middle of nowhere. But that’s the attraction.

The high-tech rail terminal, which sits at the crossroads of Central Asia and Europe, is a key part of a new 21st century ‘Silk Road’ connecting China to the West. ‘One belt, one road’ was the original name given to the scheme to build a vast new network of trade routes from East to West. It has since been rebranded as the Belt and Road Initiative – which rolls off the tongue more easily but is no less opaque.

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The Silk Road is a storied part of China’s imperial past, a network of overland and sea routes that linked the country to central Asia and Europe for nearly 2,000 years, before fading to irrelevance in the 19th century. Confusingly, the ‘Belt’ part of the five-year-old Belt and Road Initiative refers to the overland Silk Road while the ‘Road’ refers to the maritime route.

Under the increasingly autocratic leadership of President Xi Jinping, China is busily reviving those economic and cultural ties. At the 19th Congress of the Communist Party last year, the BRI was officially folded into the Party Constitution giving it further heft as official state policy.

Breathtaking ambition

Half the planet may sound like hyperbole but it’s not far off the mark. The goal is to boost trade, energy production, communications and transport links across Africa, Asia, Russia and the Middle East: 68 countries have signed on so far.

It is by any measure breathtaking, in both scope and ambition.

According to McKinsey management consultants, the BRI covers 65 per cent of the global population, a third of the world’s GDP and a quarter of all the goods and services traded between countries.

It’s been compared to the post-World War Two Marshall Plan when the US ploughed the equivalent of $140 billion into rebuilding European economies.

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In fact that comparison is not even close.

Beijing is currently investing nearly $200 billion a year in nations that have joined the project. Most of that is in the form of soft loans channelled through state-run financial outfits like the China Development Bank, the Export-Import Bank of China and the Asian Infrastructure Investment Bank. (The AIIB was launched by President Xi five years ago as a counterweight to the multilateral Asian Development Bank and is now a roaring success with nearly 80 members and more than $250 billion in the pot.)

In fact so many projects have been inked it’s impossible to keep track. China says a trillion dollars worth of deals are in play, most of those in energy and transport. The enormous debt taken on by shaky economies from Kazakhstan to Kenya has led to charges that Beijing is using debt as a backdoor to economic control. Sri Lanka, for example, recently handed over the deep sea port of Hambantota for 99 years to China’s Merchant Port Holdings in exchange for $1.1 billion in debt relief.

The Chinese are keen on ports. They invested $20 billion in foreign ports last year and now have controlling interests in more than 75 sea terminals around the globe – including ports in Djibouti, Brunei, Kenya, Turkey and Greece.

The China Pakistan Economic Corridor (CPEC), one of the BRI’s marquee efforts, includes the port of Gwadar on the Arabian Sea. The $62 billion transport and energy project will link Karachi to northern Pakistan and, eventually, Kashgar in southwest China. The corridor includes a 1,100 kilometre superhighway from Karachi to Lahore and a completely revamped rail network.

But the bulk of China’s BRI investment is in energy and most of that is targeted to fossil fuels, especially coal.

On the world stage China positions itself as a leader in the fight against climate change – and it is making enormous strides at reducing fossil fuel dependency inside the country.

But abroad it’s a different story. More than 200 coal plants are being developed or financed by Chinese companies. According to Boston University’s Global Development Policy Centre, a third of Chinese energy investments since 2001 ($44 billion) have been in coal, most of that in Asia and Africa where energy needs are high and environmental concerns less pressing to business elites and their political cronies. The activist group, CoalSwarm, estimates Chinese firms are involved in 16 per cent of all coal-fired power stations under construction outside China.

Pushing the surplus

More than 100 countries participated in the May 2017 Belt and Road forum in Beijing, allowing the Chinese President to position himself as a peace-loving internationalist and a positive force for economic development.

China, he stressed, wanted to revive the old ‘Silk Road Spirit’ to make economic globalization ‘open, inclusive, balanced and mutually beneficial’.

‘The Silk Road Spirit is a historic and cultural heritage shared by all countries,’ Xi intoned in his keynote speech, ‘symbolizing communication and co-operation between East and West.’

So many projects have been inked it’s impossible to keep track. China says a trillion dollars worth of deals are in play

Compared to Donald Trump’s isolationist, trade-wary regime in Washington this has a certain appeal.

But behind Xi’s soothing rhetoric there’s a hard-headed economic and geopolitical rationale for the billions China has earmarked to foreign infrastructure investment.

Beijing has an enormous global trade surplus – $425 billion in 2017 – and desperately needs to recycle its earnings beyond low-yielding US treasury bills. It also has vast excess production capacity, especially in steel and cement. Currently China can produce more than a billion metric tons of steel, twice what it needs to satisfy domestic and export demands.

The BRI will open new markets to Chinese companies and give China access to valuable raw materials for future growth. It will also spur the economy in Chinese border regions that have been mostly bypassed by booming growth on the coast over the past two decades. Strengthening financial and trading connections with neighbours and near neighbours will reinforce China’s dominant position as a counterweight to the US in the global economy. And it may help realize a long-held Chinese dream – dethroning the

US dollar, thus transforming the Chinese renminbi into the dominant global currency.

Learning from mistakes

Of course there are risks, both financial and otherwise. Many of the nations contracting BRI debt are hamstrung by despotic rulers and feeble economies. Bloomberg reports that 60 per cent of China’s partners have sovereign debt ratings of ‘junk’.

As the 500-pound gorilla in the room Beijing has to step carefully. Suspicions of China’s motives are deeply entrenched across Southeast Asia – not least in Myanmar, Malaysia and Vietnam where the nation’s super-size commercial clout and imperial history make people nervous.

There has been backlash already. In the West, Washington has slammed China for ‘unfair trade practices’ – the country has been the main target of President Trump’s America-first campaign. And concern is growing about political meddling by China in both Australia and New Zealand/ Aotearoa. The Australian Security Intelligence Organization has accused two well-known Chinese entrepreneurs of using donations to buy political support for Beijing in Canberra.

African and Chinese workers build sections for the Mombasa-Nairobi railway line, Tasaro, Kenya. Photo: Riccardo Gangale/Bloomsberg/Getty

Closer to home, both Thailand and Myanmar have pulled the plug on BRI projects deemed favourable to China. And in August 2016, Kenyans swarmed a construction site of the $13.8 billion Mombasa to Nairobi railway, attacking Chinese workers with clubs and knives. The Kenyan workers on the project were unhappy with their $2.50 a day wages.6

But China is learning from its mistakes. Every week sees another joint BRI investment announcement: the facts on the ground are accumulating. There are now more than 40 rail lines carrying goods from China to Europe in just 18 days. Last year saw the first direct London-China rail shipments.

And in Southeast Asia the first stretch of a $7.2 billion high-speed railway from Bangkok to China was launched. It may soon be possible to travel from Singapore to Kunming in southwest China in less than 12 hours.

The new Silk Road is well on its way.

Wayne Ellwood is a former co-editor of New Internationalist.

This article is from the May 2018 issue of New Internationalist.

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