China’s ‘New Silk Road’
China had too much for its internal good. Both forex-reserves and industrial capacities. To reduce the former in this time of record low interest rates, ‘China Inc.’ has bought up Western companies at record rates. The latter stood at the outset of the gigantic project ‘New Silk Road’, also called OBOR (One Belt, One Road) or BRI (Belt and Road Initiative) – better connections by land and sea between China and Europe as well as Africa.
Is the BRI a sort of Marshall Plan of the 21st Century, a win-win-win for China, the transit countries and the suppliers of quality goods for all infrastructure required?
With the BRI President Xi Jinping found the ideal vehicle to project abroad the ‘Chinese Dream’ he promised his countrymen. A project of the Century to create better infrastructure within Eurasia for the Chinese export machine and at the same time provide a platform for interventions and influence there. However, the realization of BRI faces enormous geopolitical challenges.
Let’s look first at the way China will want to execute individual projects within a given country. Basically there are two ways to do so. Either you do all with your own resources including contractors and labor, as indeed Beijing does already in Africa. The success is mixed at best as local business does not profit and imported labor creates an ‘Ugly Chinese’ problem. Both very much to the detriment of good relations with a host country. Or else you tender locally and work with indigenous companies running the risk of resources ending up in local pockets instead of roads and harbors.
Second, Central Asia as well as other intended transit countries such as Afghanistan and Pakistan are anything but ethnically and religiously homogenous. China’s current international policy of strict non-interference with internal affairs in other countries is incompatible with its inevitable presence and high profile there when building, running and maintaining the BRI. The present violent confrontation within Islam between the believers of Sunna and Schia is but the most evident example where Beijing will necessarily become part of one camp.
Due to its enormous size, China also faces an evident problem with financing the BRI. Now of course a good bit of the resources necessary will come from Chinese state coffers. Either directly from public sector banks or else via ‘private’ intermediaries, which are in fact anything but private as they profit from indirect state support.
Yet it will be necessary to resort to international capital markets, too. Whether money will be forthcoming from there is anything but evident. Geopolitical hurdles, as shown above and profitability of infrastructure projects, long-term at best will probably limit purely commercial participation. These doubts are shared in the West as the sparse participation on the highest level has shown on occasion of the ‘Silk Road Summit’ convened by Beijing in May of 2017.
Furthermore it should be pointed out that a direct railroad exists already from Eastern Siberia through Russia to Byelorussia. At a fraction of the cost of a BRI line, the Trans-Siberian could be adapted to Chinese needs by prolonging it down to North-East China, including Beijing on the one side and from Brest to Eastern European destinations on the other. However, this is where geopolitics come in again: the Chinese are unlikely to forgo their proper rail project from Urumqui in their vast North-West through Central Asia and the Ukraine for the benefit of a connection controlled by Moscow.
The same goes for the often mentioned rail line all the way to the South as an easier to build alternative. Difficult to see how Beijing would rely solely on a connection to Europe from its South-West (Chengou), through the territory of India and Pakistan, traditional arch-enemies, then Iran and finally Turkey, before reaching its destinations in the EU.
So much to say that any comparison of the BRI to the Marshall Plan – put into place in an Europe devastated by WW II but unified in its desire to re-erect and modernize previously existing infrastructure – is out of question. The geopolitical background then in Western Europe and now in Eurasia is simply too different to allow for any parallel.
So geopolitical due diligence is indispensable for anybody considering participation in a tender or a joint offer within the vast framework of the BRI. Why and how?
The initially mentioned take-over of Western companies by ‘China Inc.’ has produced a backlash of resistance in the form of new legislation in many European countries to fend off loss of control to Chinese interests. Such direct state control and protection of enterprises is not feasible with regard to BRI. All the more important is it to be familiar with the geopolitical background, including Chinese priorities and their domestic origin when engaging in this project of the Century.
Important clues can be gathered from projects of multilateral, para-statal Development Banks. Of primary interest is doubtlessly the Asian Development Bank(ADB), headquartered in Manila and boasting 50 years of project financing all over the Asia-Pacific. Its European and Eurasian counterpart is the Bank for European Reconstruction and Development (BERD), headquartered in London since its creation in 1990ties in the aftermath of the implosion of the USSR and its zone of influence. Both will likely be used as project leaders within the wide framework of BRI. Almost without exception, European countries are members of the two banks; their representatives both at the seat and in national administrations are easily accessible for inquiries from the private sector.
Whether this is equally the case for the Asian Infrastructure Investment Bank (AIIB, headquartered in Beijing) remains to be seen. Launched by China and initially regarded as an unwelcomed addition to the ADB and the World Bank Group, its statute has been sufficiently internationalized to allow most Western countries, including Switzerland, to become members, so far with the exception of the US, Japan and Australia. It plays a central role within BRI and will thus be a gauge for its accessibility by non-Chinese providers of goods and services.
The mammoth project ‘New Silk Road’ represents a considerable potential for extensive and sustained business. The respective risk evaluation should encompass the aforementioned geopolitical due diligence, meaning basic knowledge of the country/region where a project is located as well as the development of an in-house geopolitical tool box in the form of:
- a build-up of information sources and networks both in the target country/region and at home,
- the inspection, before the delivery of good and services, of their ‘dual-use’ potential,
- the evaluation of direct and indirect effects of international (UN) and other (EU, US) embargoes and boycotts.
We would be glad to help you by deepening this analysis further and coach you in the acquisition of your own capacity to stay abreast of geopolitical change.
Picture: Adi Constantin