From silk road to economic bridge

From silk road to economic bridge
Camels await riders near Xinjiang’s Flaming Mountains (Huoyanshan) along the ancient Silk Road, in the Turpan (Tulufan) region east of Urumqi.

China's new Silk Road initiatives have sparked many international headlines. With many new plans under the initiatives, it is not easy for casual readers to figure out what the endeavour is about.

Chinese leaders first talked about the old overland Silk Road, then the Maritime Silk Road, and are now concentrating on the concept of "One Belt, One Road" (OBOR). Added to this are the Silk Road Fund and, more recently, the Asian Infrastructure Investment Bank (AIIB). A further complication is that not all new Silk Road initiatives are Chinese - some countries have also come out with their own "Silk Road" projects.

The Silk Road concept was first raised by Chinese President Xi Jinping in September 2013 in an address to Kazakhstan's Nazarbayev University. He called for the revival of the ancient Silk Road by establishing a new "Silk Road Economic Belt". A month later , addressing the Indonesian Parliament in Jakarta, he also proposed the new "Maritime Silk Road".

The old overland Silk Road can be traced back to the Han Dynasty around 200BC when Emperor Han Wudi sent his envoy Zhang Qian on an expedition from Xi'an through Central Asia to outposts of the Roman Empire.

In his wake, commercial and cultural exchange activities flourished along the route. The Maritime Silk Road is associated with Admiral Zheng He's expeditions (1405-1433) to the "Western Oceans", from the China coast through the South China Sea to the Indian Ocean and beyond. But even before his missions, China had engaged in many maritime activities and established tributary relations with some South-east Asian states.

As silk originated from China, it has been mistakenly believed that all Silk Road activities must have stemmed from China. Historically, there have always been many mini "silk roads", as various states and tribes in Central Asia conducted their small-scale caravan trade with one another. The Ottoman Empire had, in fact, established its old Silk Road links with various Central Asian states.

Today, apart from China, several countries on the Europe-Asia edges have already mounted new Silk Road initiatives. Even before Mr Xi's announcements, Turkey had tried to revitalise its old links with a new "Silk Road Project". For Russia, its new Silk Road efforts are focused on re-establishing past political and economic links with former Soviet republics in Central Asia, such as Kazakhstan and Kyrgyzstan.

And some Central Asian states have also developed their own Silk Road programmes for closer political and economic co-operation with one another.

'One Belt, One Road': The big picture

However, China's new Silk Road initiatives are by far the largest in scale, scope and capability. Shortly after outlining his new Silk Road ideas, Mr Xi put up the Silk Road Fund of US$40 billion (S$54 billion).

This was officially unveiled at the Asia-Pacific Economic Cooperation summit in Beijing last November. Many ministries and departments also worked on action plans that eventually crystallised into the One Belt, One Road (Obor) strategy, which is now the focal point of most official Silk Road activities in China.

While both the overland Silk Road and the maritime one offer a broad strategic road map for China's future regional and global role, Obor is essentially operational in nature, much like a mega development programme from the World Bank. It is oriented mainly towards funding, project evaluation and risk management.

It is based on a very strong financial foundation. The People's Bank of China and the Ministry of Finance have been heavily involved in drawing up the programme and they have brought in China's two policy banks (China Development Bank and the Export-Import Bank of China), the State Administration of Foreign Exchange, China Investment Corporation and some state-owned enterprises, such as the China Three Gorges Corporation.

For further funding, the Obor programme will work with the upcoming AIIB. It is also expected to work with the World Bank's International Financial Corporation for extra syndicated loans. Ultimately, several of China's existing Official Development Assistance programmes, such as the China- ASEAN Investment Cooperation Fund (US$10 billion) and the ASEAN Loan Fund (US$20 billion), might also be tapped.

Much of Obor's initial development activities will be geared towards building basic infrastructure and improving physical connectivity. China is well equipped to provide the necessary engineering skills and construction experience, along with machinery and equipment, as well as materials such as cement and steel products, in which it currently has excess capacity. Financially and technologically speaking, Obor is set to become a formidable development programme.

Rekindling the Eurasian heartland

Both the overland Silk Road and the maritime route operate as a useful long-term strategic guidepost for China's international development endeavour. But the short-run strategic priority is clear: China has stronger comparative advantage in developing the overland route first.

China was historically and geographically a pivot to the overland Silk Road. For centuries, it was basically a continental power, experienced and adept at dealing with (also fighting) all those states and tribes from its backyard of Central Asia.

Except for brief periods, China had historically never been a truly ocean-going state. The Zheng He episode was a historical aberration.

Today, China is intent on building up its ocean-going capabilities and a strong navy. But this will take time and it will also need to develop a maritime mindset. Indeed, with its bilateral tensions with some South-east Asian states over territorial disputes in the South China Sea, the Maritime Silk Road as an international development framework for China looks highly problematic.

Accordingly, the Obor programme will for some time heavily concentrate on the territories that are related to the overland Silk Road. Its first major undertaking - the China-Pakistan Economic Corridor project - started in April this year, with China putting up US$45 billion for basic infrastructure projects in Pakistan.

Just a little over a century ago, the noted British geographer, Sir Halford Mackinder, in his article The Geographical Pivot Of History, came up with his "Heartland Theory" for the Eurasian land mass comprising Central Asian and other states along the Eurasian edges. This Eurasian heartland was, to Sir Halford, the "World-island", and "Who rules the World-island commands the World".

The Heartland Theory turned out to be not really crucial for ocean-going Anglo-Saxon powers, which sought to dominate the world with their superior navies.

Whereas politics has since shifted, geography remains. Geographically, China and Russia are pivotal to the Eurasian heartland. Strategically, this heartland has become even more crucial for China, for security reasons (anti-terrorism issues) and economic reasons (with its oil and gas). Hence, China's overriding priority for the Obor programme is to focus more on developing the Central Asian states.

Bridging Central and East Asia

Central Asia extends from the Caspian Sea in the west to the border of western China in the east. It is bounded in the north by Russia and in the south by Iran, Afghanistan and China. The region comprises five former Soviet republics - Kazakhstan, Uzbekistan, Tajikistan, Kyrgyzstan and Turkmenistan. Following the sudden demise of the Soviet Union in 1991, these Central Asian states had to undergo drastic political and economic transformation.

In recent years, they have experienced high economic growth on the back of the international oil and gas boom - and an influx of foreign direct investment.

Today, they face two dominant development challenges.

First, they are, geographically speaking, "landlocked" economies, lacking access to the sea and major global trade routes.

Second, they are too heavily dependent on primary production or natural resource extraction for economic growth. The unearned "windfall" from the oil and gas boom can be inflationary. Also, over-dependence on primary exports is harmful to industrialisation, which is still the most effective means of creating income and employment.

China's Obor initiatives could help these landlocked Central Asian states. All Silk Road initiatives, old and new, are essentially about "connectivity". The Obor programme can provide the key engineering skills and funding for them to build up the basic infrastructure needed for long-term economic development.

In this way, China's Obor initiatives in Central Asia could ultimately add up to a potential mega continental "economic bridge" to integrate Central and East Asia. This would be a win-win outcome for both regions, as resource- based Central Asia is highly complementary with manufacturing- based East Asia, which includes South Korea and Japan.

stopinion@sph.com.sg


This article was first published on June 17, 2015.
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