China’s one belt, one road initiative set to transform economy by connecting with trading partners along ancient Silk Road
Central government uses land and sea routes to connect with 65 countries in Asia, Africa and Europe, targeting five areas – infrastructure, trade, policy, finance and people
In more than 30 years, China has become an economic superpower, with its influence spanning the globe.
The country is now at a crossroads as it finds its economy under some strain.
The central government wants to double 2010 income levels by 2020, as the nation is making a major push to transform its economy from a largely export-driven one to services and domestic consumption, from labour and energy-intensive manufacturing towards innovative, hi-tech and higher value-added production, and from quantity to quality and ecological sustainability.
Three years ago, President Xi Jinping announced the one belt, one road initiative, a key policy to connect trading partners along the ancient Silk Road.
The central government wants to connect the nation with 65 countries in Asia, Africa and Europe through land and sea routes. The strategy has laid out five areas – infrastructure, trade, policy, finance and people – of cooperation with one belt, one road, or Maritime Silk Road, countries and regions.
The Maritime Silk Road connects China’s east coast to ports, including Colombo in Sri Lanka, Gwadar in Pakistan, across the Indian Ocean, through the Red Sea to Greece’s Piraeus, ending in Venice. The overland economic belt connects Venice to Duisburg in Germany, across to Moscow, through Central Asia and western China to end in Xian, the ancient capital where the historic Silk Road began.
A recent business report suggested that the initiative will create six transnational China-centric economic corridors: a new Eurasian land bridge of freight trains connecting the port of Lianyungang in Jiangsu province to Rotterdam; a Mongolia-Russia corridor; a Central Asia-West Asia corridor; an Indochina peninsula corridor; a Pakistan corridor; and a Bangladesh-China-India-Myanmar corridor.
The initiative is expected to have a major impact in China’s domestic front and internationally. One of the key domestic objectives is to accelerate the development of China’s west and central provinces. The plan divides the nation into five regions with infrastructure plans to connect with neighbouring countries and increase connectivity.
The strategy is huge in scale, with an equally massive price tag and three financial institutions are at the forefront of investing in the infrastructure projects.
The initiative is supported by China’s Silk Road infrastructure fund of US$40 billion, the Asian Infrastructure Investment Bank (AIIB), with registered capital of US$100 billion; and the New Development Bank of Brazil, Russia, India, China and South Africa (BRICS countries) with an initial capital of US$50 billion, which is set to increase to US$100 billion.
Established in 2014, the China-led Silk Road Infra-structure Fund is mostly backed by China’s massive foreign exchange reserves, which stands at US$3.20 trillion.
The release of the “Vision and Actions of the Silk Road Economic Belt and 21st Century Maritime Silk Road” by China’s National Development and Reform Commission in March last year reinforces the initiative as a programme of cooperation and inclusiveness that abides with “market rules and international norms”.
The initiative focuses mostly on infrastructure and is expected to open up opportunities across industries. Professional services firms are preparing to meet investor demands, and are anti-cipating potential risks related to infrastructure projects associated with such a large-scale, cross-border initiative. Risk management and due diligence practices will be at the forefront of any business dealings coming from the ambitious strategy.
According to Bert Hofman, country director for China, Mongolia and Korea, East Asia and Pacific region at the World Bank, the large-scale nature of the one belt, one road initiative “could stimulate Asian and global economic growth”. He identifies the potential benefits for belt and road countries plagued by “underdeveloped infrastructure, low investment rates and low per-capita incomes”.
It isn’t just Asia looking to profit from the initiative. Britain is also keen to cooperate with China. “To win business ... we believe it is critical for UK companies to get involved in this initiative as soon as possible, in order to gain access to a wider tranche of the Chinese market and to third markets along the routes,” said the China-Britain Business Council. Inside China, the council identified several opportunities within provinces and industries. Alongside infrastructure, financial and professional services, agriculture and environment are key areas for growth and investment.
And will Hong Kong benefit from the initiative? Last month, in a South China Morning Post report, China’s third highest-ranking official outlined how Hong Kong could seize the opportunities of the initiative.
Observers said incorporating the city into the plan was to be expected, given much of the groundwork was laid by a scheme to unite the economies of the pan-Pearl River Delta region.
Hong Kong was also a natural stepping-off point for Beijing as it sought to project its power throughout Southeast Asia, the observers said.
Zhang Dejiang, chairman of the Standing Committee of the National People’s Congress, said Hong Kong was “a natural partner, [and] can join forces with the pilot free-trade zone in Guangdong and the Qianhai Shenzhen-Hong Kong cooperation zone and Fujian province, a core area for the 21st Century Maritime Silk Road”.