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China’s Silk Road initiative needs adept moves in investment and politics

PUBLISHED : Wednesday, 13 May, 2015, 9:58am
UPDATED : Wednesday, 13 May, 2015, 9:58am

A big idea is often greater than the sum of its parts. Encompassing visions can replace inertia with action. That is the hope behind the boldness of China’s economic silk roads.

At least two other recent silk-road dreams appear to have fallen by the wayside. Turkey formulated a silk-road project in 2008 to integrate Eurasia. The United States rolled out its New Silk Project in 2011 to link Afghanistan with five Central Asian republics – Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan – and India and Pakistan.

Politics did not smile on these initiatives, nor were resources available to match the dream. Will China’s plans do better? The boldness and sheer size of the vision raises the cost of failure and makes success more probable.

China’s One-Belt-One-Road initiative, first mooted publicly in 2013 and given more flesh this year, will certainly be less hampered by resource constraints. It will, however, have to navigate its way to success by fixing policy and taming the politics. These are essential ingredients for investments in infrastructure to pay economic and social dividends.

Between them, the Maritime Silk Road and the Silk Road Economic Belt will implicate up to 77 different economies in Asia, the Middle East, Europe and Africa. Hundreds of billions of dollars have already been committed for infrastructure development and more will follow.

The Belt (land) will involve the creation of highways, railways, pipelines, aviation facilities, telecommunications and power networks. Some of this will need to be built from scratch. Existing infrastructure may already serve, while other parts will require upgrading and integrating into the wider network. It will probably be a decade before a trans-continental network begins to take shape.

The initial focus of the Belt, and likely the part that will require disproportionately more investment, is in near-territory. The proposed initial core routing starts from Xi’an and goes through the five Central Asian Republics and Pakistan, before entering Iran, Russia, Turkey and on to Europe.

It is no coincidence that the strategic vision was first articulated in public by President Xi Jinping in Kazakhstan. In similar fashion, the Maritime Silk Road vision was first aired in Indonesia. These are the regions of first concern in each case.

The Belt and the Road are not difficult to sell in their early stages of development because all governments generally welcome investment in infrastructure. Issues may arise from time to time as to who will be contracted to construct it, although Chinese companies will no doubt land a good share of the business.

What follows after the infrastructure is in place is crucial to how the initiatives will ultimately be judged and whom they will benefit. White Elephants can be found in many countries – some driven by hubris, many by poor planning or bad macro-economic policy. Malls, bridges, hotels, sports facilities, palaces, airports, roads to nowhere, and even whole urban areas make lists of wasteful and unwanted facilities.

The avoidance of White Elephants requires clear-headed thinking about what is needed to ensure that the use value of infrastructure is absorbed in new economic activity in a politically supportive environment. Trade among the initial Belt economies is much smaller than their extra-regional trade. This is not an argument for putting policy change before infrastructure development.

On the contrary, the success of the WTO’s negotiations on trade facilitation rest partly on undertakings linked to infrastructure. ASEAN integration and the grouping’s economic links with other partners depend on improved infrastructure.

Linked to securing the basis for stimulating new economic activity is management of geopolitical competition. Russia lent its support to the Belt in 2014 when agreement was reached to incorporate existing Russian infrastructure in the scheme, but rivalries persist. Iran’s role will be crucial. Relations between Kyrgyzstan, Tajikistan and Uzbekistan need improvement.

None of these riders detract from the attractiveness or importance of these historically significant Chinese initiatives. They merely serve to remind us that infrastructure investment is necessary but not sufficient for success.

 

Patrick Low is vice-president of research at Fung Global Institute