Date
24 October 2017
President Xi Jinping must show his good faith to neighbors that are wary of China's growing power. Photo: Bloomberg
President Xi Jinping must show his good faith to neighbors that are wary of China's growing power. Photo: Bloomberg

One Belt, One Road: a journey full of risks

“One Belt, One Road” is so far the most important initiative China’s President Xi Jinping has proposed in terms of relevance to regional economies.

The Silk Road Economic Belt and the 21st Century Maritime Silk Road, named after the trade routes that linked China to the outside world more than 2,000 years ago, are called by some foreign observers as the Chinese version of the Marshall Plan. They said the initiative reflects China’s ambition to extend its influence to neighboring regions.

One of the obvious economic motives behind Xi’s initiative lies in China’s slowing economic growth and lingering industrial overcapacity.

China wants to solve these problems by exporting its production capacity and participating in the construction of the infrastructure — railways, airports, roads and sea ports — along the Road and Belt.

It’s no wonder then that the President always highlights the blessings of connectivity when attending regional summits while Premier Li Keqiang never fails to promote China’s heavy industrial products such as high-speed trains and nuclear power equipment during his foreign tours.

However, recent setbacks, such as Mexico’s decision to suspend its high-speed railway project, of which Chinese companies had won the bidding, speak volumes of the difficulties in pushing the initiative.

In spite of China’s good intentions, there are a few risks along the way.

To begin with, China’s neighbors may not be as enthusiastic as Beijing in reviving the Silk Road. China views the road as a platform for cultural and economic exchanges, but some countries may look at it differently.

China had waged wars during the creation and expansion of the Silk Road, including those in the Han Dynasty. It is therefore not too surprising for some countries to think that the “One Belt, One Road” initiative will repeat history.

As neighbors grow wary of China’s growing strength both on land and at sea, it is really important for China to convince them of its good faith in reviving “One Belt, One Road”.

Geographically, there are also many hindrances. The Silk Road will go through Central Asia and the Middle East, where building the necessary infrastructure is difficult because of the deserts, mountains and cold weather in those regions, not to mention the spread of terrorism that undermines regional stability.

Even in geographically amiable countries, political turmoil can be a major disincentive.

Many of China’s neighbors are undergoing complicated political, economic and social changes, and it is uncertain how these countries will develop afterwards.

A case in point is the Myitsone Dam project in Myanmar. A Chinese company had made a huge investment in the project (US$3.6 billion for the first phase) before the new Myanmar government suddenly suspended it in 2011.

The off-and-on negotiations for the rice-for-railway project in Thailand also show the uncertainties Chinese investors face in expanding their footprints overseas.

Despite these difficulties, a slew of measures have been taken to support the “One Belt, One Road” proposal. A Silk Road Fund worth US$40 billion has been set up. An Asian Infrastructure Investment Bank, proposed and led by China, is expected to become another funding source for the initiative.

At the same time, provinces and regions such as northwestern China’s Xinjiang are mapping out plans to invest in the initiative.

But these efforts are mostly backed by the government, without much participation of the private sector.

This is an alarming problem, which, if not properly addressed, can result in two unfavorable trends.

One is that local governments see the initiative as an opportunity to boost their local economies. As such, many will go into investment sprees, which will help boost GDP figures but will not necessarily improve the quality of the economy.

The other trend is that large state-owned companies, in a bid to show their support for Xi’s initiative, indulge themselves in blindly expanding in overseas markets.

It is understandable that state companies and local governments will play big roles in an initiative that involves massive infrastructure projects, huge investments and overseas expansion.

However, as the public sector’s efficiency is often poorer than that of the private sector and state companies’ investment is sometimes politically motivated, it would be good if the private sector can be invited in decision making, feasibility studies, investments and after-construction operations.

– Contact us at [email protected]

CG

The writer is an economic commentator. He writes mostly on business issues in Greater China.

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