China’s one belt, one road plan covers more than half of the population, 75 per cent of energy resources and 40 per cent of world’s GDP

It has been estimated that this emerging network could be pumping out upwards of US$2.5 trillion of annual trade value by 2025

PUBLISHED : Tuesday, 21 June, 2016, 11:42am
UPDATED : Tuesday, 21 June, 2016, 11:42am

With six major economic corridors extending over Eurasia, China’s one belt, one road initiative stands to reshape the region’s infrastructure network, improve connectivity across the continent, and fill in some of the underdeveloped gaps along the way.

Spanning over 60 countries, this massive project will spread an interconnected network of rail lines, highways, pipelines and logistics zones from China to Europe, covering a potential market that includes more than half of the population, 75 per cent of the known energy resources, and 40 per cent of gross domestic product in the world.

It has been estimated that this emerging network could be pumping out upwards of US$2.5 trillion of annual trade value by 2025.

“The potential result of [the initiative] is an intensification of trade flows across the whole of Eurasia to a level of significance that has not been seen since the decline of the original Silk Road more than 500 years ago,” says Frans-Paul van der Putten of the Clingendael Institute, a Dutch policy research organisation.

Some of the new infrastructure projects arising along some of the initiative’s economic corridors include new urbanisation projects in the far western regions of China, the massive Khorgos Gateway logistics and special economic zone on the border of China and Kazakhstan, a deep sea port and new port city in Sri Lanka, the Gwadar deep sea port in Pakistan, large-scale hydro, wind and coal power plants in multiple countries, and thousands of kilometres of new rail links and highways extending from East Asia to Western Europe.

In January, the US$100 billion Asian Infrastructure Investment Bank (AIIB) was open for business. Initially a Chinese concept to create a financial institution to provide funding for the building of infrastructure across Asia, which could complement the Asian Development Bank (ADB) and World Bank, the new fund has grown to include 37 states.

The potential result of [the initiative] is an intensification of trade flows across the whole of Eurasia to a level of significance that has not been seen since the decline of the original Silk Road more than 500 years ago
Frans-Paul van der Putten, senior research fellow, Clingendael Institute

“The AIIB does not only open opportunities for funding, but it also provides credibility to China’s claim that [the initiative] is a multinational effort to push international development,” van der Putten explains.

The AIIB intends to differentiate itself from the ADB and World Bank by only taking on large-scale infrastructure projects, such as highways, airports, deep sea ports and large power plants without the rural development features of other funds, according to the Financial Times.

The AIIB is expected to dole out US$1.2 billion in funding this year, with some of its first projects taking place in Pakistan, Uzbekistan, Tajikistan, and Kazakhstan – countries at the heart of [the belt, road initiative]. These projects include a highway that will go from the Uzbek border to Dushanbe, a ring road around Almaty, as well as a new highway in Pakistan.

All of these projects are being co-funded with other big development banks, including ADB and the World Bank, which attests to the fact that AIIB is aiming to complement and bolster the existing development financing systems rather than be an upstart competitor.

In addition to AIIB, China created the US$40 billion Silk Road Fund – which has financed a hydroelectric plant in Pakistan and a liquefied natural gas endeavour in Russia – and China Development Bank has earmarked US$890 billion for the initiative’s development projects.

On top of this, private enterprises and some of China’s provincial level governments have jumped in with billions of dollars’ worth of financing.

However, returns on much of this investment may prove to be slow to materialise.

“Infrastructural investment has a low and slow return,” explains Ong Keng Yong, a former ambassador of Singapore. “It takes at least three years to build a 100km highway with three or four bridges. It will take five to eight years for a similar length railway. Political developments are fluid and quickly changing. Therefore, it is a big challenge to hold things steady and tap the positive yield.”

There are many reasons why China is investing so much money into developing the infrastructure of other Asian countries, some of which includes securing supply lines for natural resources and trade routes, opening up new markets for Chinese exports, to better help with the off-shoring of low-tech Chinese manu-facturing operations, as well as developing closer political and economic ties with countries across Eurasia.

“The major slogan of [the initiative] is connectivity,” says Dominik Mierzejewski, a Chinese studies professor at the University of Lodz in Poland. “Behind [the initiative], there is a simple understanding of development: infrastructure first, development second. And because China experienced this pattern, China will promote it in a broader perspective.”

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