INTERNATIONAL TRADE

Lessons for China in failed US Silk Road initiative

Washington’s plan was underfunded and under-resourced compared with Beijing’s ‘Belt and Road’ scheme

PUBLISHED : Monday, 08 May, 2017, 9:33pm
UPDATED : Tuesday, 09 May, 2017, 10:14am

The contrast between Beijing’s and Washington’s support for a revitalised Silk Road could not be clearer.

This month’s Belt and Road Forum for International Cooperation, a gathering of existing and potential stakeholders in China’s trade development initiative, will welcome national leaders including Russia’s Vladimir Putin, Myanmar’s Aung San Suu Kyi and Indonesia’s Joko Widodo to Beijing.

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Meanwhile, US President Donald Trump, already in office for more than 100 days, has yet to appoint an ambassador to Afghanistan, which sits at the centre of a Silk Road initiative the US Department of State began promoting in 2011.

Compared with China’s “Belt and Road Initiative”, Washington’s plan was underfunded and under-resourced after then secretary of state Hillary Clinton formally proposed it in 2011, observers say.

The US initiative also lacked the Pacific-to-Atlantic scope that would have made it more appealing to stakeholders across the world’s biggest land mass and that might have attracted more international support.

The United States’ New Silk Road initiative was “basically a collection of interesting, somewhat promising but cash-poor ideas about regional connectivity”, said George Gavrilis, author of the 2008 book Dynamics of Interstate Boundaries, a study on border control in Central Asia since the 19th century. Beijing’s plan had “a lot more money behind it in the form of loans, grants, soft loans, low-conditionality and no-conditionality loans”.

There were two strategic objectives behind the US plan.

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The first was that Washington wanted some kind of long-term, net-positive offset for the economic hole that would be left when the US military drew down its forces in Afghanistan following a decade-long war that was increasingly unpopular among US voters.

The second part of the US strategy aligned with one of the Chinese initiative’s objectives: to provide alternatives to trade routes that had, throughout the history of the Soviet Union, pulled most trans-Central Asia trade through Russia. That reality helped to keep much of the region tied to Russia economically even after the collapse of the Soviet Union.

In a 2015 policy memo written for the Ponars Eurasia think tank, Alexander Cooley, director of Columbia University’s Harriman Institute, noted a “close compatibility” between the Chinese and American initiatives that “emphasises regional connectivity in Central Asia (and, by implication, diversification away from Russia)”.

But whereas China is building, funding, or otherwise supporting a multiplicity of routes south of Russia, the US stuck with a much more limited “southern corridor” that pairs growing consumer and energy demand in Pakistan and India with Central Asian oil, natural gas, hydropower, and agricultural commodities.

The Chinese were “trying to create as many roads and access points as possible”, including roads through Kazakhstan, Kyrgyzstan, Afghanistan, Pakistan, Iran and Russia, Gavrilis said. That approach “helps to provide wiggle room if they have relations and infrastructure into all of these neighbouring states and it gives them much more access to markets in a variety of ways”.

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The US plan might not have been as multifaceted, but it was at least grounded in a couple of key projects, including a US$10 billion pipeline project bringing natural gas from Turkmenistan to South Asia and a US$1 billion transmission line connecting hydropower resources in Kyrgyzstan and Tajikistan to electricity markets in Pakistan.

In September 2014, more than three years after Clinton kicked off Washington’s Silk Road initiative in a speech delivered in Chennai, India, then deputy secretary of state William Burns continued to express US support for the plan.

“Our shared objective is not to supplant the region’s vibrant East-West connections, but to supplement and complement them with equally vibrant North-South connections,” Burns said. “We believe that a more interconnected region can serve as a driver of economic development and as an anchor of peace and security.”

Both projects are now progressing, but US support and involvement in them has all but vanished.

Other supporting trade initiatives, including the implementation of “cross-border free economic zones” and other measures that would have sped up customs procedures never got started, at least partly because the US government did not follow through.

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“Never once was Hillary Clinton’s New Silk Road initiative mentioned, let alone publicly endorsed or supported either by the [National Security Council] or [then US president Barack Obama]“, Frederick Starr, who has authored numerous policy papers and articles on the US plan, said in an interview.

“This was supposed to be a big legacy project in Afghanistan, but after giving the speech the cut-and-run mentality was so strong that there was never any indication that the White House had ever endorsed this.”

By contrast, China has recently funded and established a number of new dedicated regional banks to promote its vision, including a US$40 billion Silk Road Fund under the auspices of the People’s Bank of China, the Shanghai-based New Development Bank, and the Asian Infrastructure Investment Bank (AIIB).

Observers say the highly polarised American political environment helped to undercut momentum behind the US initiative.

“The United States is simply not set up to sustain interest in any one project for more than two years,” said A.J. Goulding, a principal at London Economics International, an energy and infrastructure consulting firm that has advised governments in the Middle East and Asia on large power projects.

“The US would be better off not making these kinds of announcements because it really can’t commit to something that has a 10-year gestation period.”

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Some of the difference between the Chinese and American involvement in reopening and expanding trade routes may just be a matter of perception, or good marketing skills.

China has included in its “Belt and Road” map some projects already completed and paid for without Chinese involvement. For example, a recent China Daily report headlined “Azerbaijan forms a key link in the Silk Road chain” touted two oil pipelines between Azerbaijan’s Caspian port city of Baku and Turkey’s Mediterranean coast.

The Baku-Tbilisi-Ceyhan pipeline and the Baku-Tbilisi-Erzurum pipeline were built by a consortium of oil and gas companies led by BP and Azerbaijan’s state oil firm AzBTC.

Some problems with the belt and road plan are the direct result of China’s decision to forge ahead with projects by channelling huge financial resources into them, despite cultural and security challenges the US government had not wanted to take on.

“Beijing planners will need to recognise that such funds, despite Chinese intentions to the contrary, create local perceptions about winners and losers that inevitably graft onto local rivalries and concerns,” Cooley said in his policy memo.

For example, the proposed China-Kyrgyzstan-Uzbekistan railroad project had met “resistance among Kyrgyz government officials and analysts precisely because it furthers perceptions that China invests only for its own economic purposes and cares little if it stokes rivalries between ethnic Kyrgyz and Uzbeks in southern Kyrgyzstan (the site of deadly ethnic clashes in 2010) over the region’s political and economic alignment”.

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But whatever problems exist with China’s belt and road plan, it’s already achieved more in terms of trans-Eurasian trade than the US has, and that’s likely to be the case for the foreseeable future.

Trump, facing tough assessments of his first 100 days in office, has gone all out with an “America First” policy that will leave little in the way of resources for overseas projects that do not align directly with his administration’s efforts to fuel job growth.

A tax reform plan Trump unveiled last month could reduce federal revenues by US$9.5 trillion over its first decade before accounting for possible “economic feedback effects” and other theoretical benefits, according to an analysis by the Urban-Brookings Tax Policy Centre, a Washington-based think tank.

Such a comprehensive tax cut would require “very large spending cuts” in order to avoid a sharp increase in the US’s national debt, the analysis said.

That fiscal reality will make projects like the New Silk Road initiative even more difficult to fund.