What about the New Silk Roads Initiative of China?

, October 31, 2019, 0 Comments

china-new-silk-road-marketexpress-inSince 2014, the Chinese economy has been the first global GDP calculated in purchasing power parity (PPP) and the gap has widened steadily with the United States: 19.2% of world GDP against 15% for its rival. Since 2009, China has been the world’s largest exporter and now the world’s largest importer with a current account balance that will probably end 2019 in deficit. It is also the largest donor of development finance and even the world’s largest investor if Hong Kong is included.

But it is true that China is also the world’s largest consumer of pork! What would be wrong with a country with a population of more than 1.3 billion? China successfully took off economically in the 1980s, and in 2011 crossed the threshold of USD 10,000 in per capita income (PPP) compared to just over 12,000 for rich countries according to the World Bank. But here it is. There is already a world leader, the United States, and which is not ready to give up. Especially since Beijing’s political model doesn’t include  human rights and freedom, and obviously not set out to change. In the end, nothing can apparently prevent China from being the world’s Number One in all areas, including technology, in the next 10 to 15 years. The Americans obviously cannot accept it and will do everything they can to prevent it. And China is also preparing for this. The whole world system is in the process of reorganizing itself around this.

The 36 Strategies

China is preparing for this, but how? It is not to the inventor of the game of Go – the Emperor Shun in 2255 BC – that we will learn it, nor  Sun Tzu, the author of The Art of War, and even less to the country of the famous 36 Stratagems. There is inside a panoply of tactical moves grouped into six types of battles according to whether they are already won, undecided, offensive, multiple, annexation, or finally almost lost. Found by chance in 1939 in a local market in Chengdu, the mass publication of this book by the People’s Liberation Army in 1961, at the beginning of the Cultural Revolution, makes it a classic known to all current Chinese leaders, including first and foremost Xi Jinping.

It highlights the New Silk Roads project officially launched when Xi came to power in 2013, which is probably the largest project ever known on earth, with tens of billions of possible investments in total, and almost $1 trillion a year if all sources of financing are included.

But the first of the stratagems rightly says: “Lead the emperor on a boat” with this comment: “Showing everything is obscuring everything”. This seems to be the case with the intense communication around the new silk road project renamed the Belt and Road Initiative (BRI) or sometimes called One Belt One Road (OBOR) after the Chinese expression Yi Dan Yi Lu (a belt, a road). It is a little reminiscent of the wave of Mao’s Little Red Book at the time of the Cultural Revolution. Not a week without a conference, a study tour, dozens of articles published around the world, official summits or forums of thousands of participants from all countries invited by Beijing. On the Beijing side, propaganda talks about “harmonious development for a prosperous world”. On the American side and its allies, officials and most intellectuals are talking about an aggressive conquest of the world, over-indebtedness of recipient countries, controlled cutting and a vassalization of countries. But realities call for a much more cautious approach.

The paradox of autarky and Go Global

More than a month spent in China without hearing much about BRI shows that the Chinese economy is like the American continental economy and that the engines of growth can only be the domestic drivers of investment  and consumption with its two public and private components: rather private in the American case, rather public in the Chinese case with her imperial tradition of dynastic state and mandarins in charge.

And crossing China from the west and south at the Dragon Boat festival last May, shows that both engines are not really out of order. What has become in fact a third week of holidays perfectly illustrates the apparent paradox of the Silk Roads: the conquest of the world by an increasing autarkic economy

Internally, China has made a good start on its major transition from a low-cost global workshop to a high-tech, consumer and service economy, and for catering a rapidly ageing population. This is reflected in the explosion of mass tourism with fully rehabilitated historic cities, including their Taoist temples and Buddhist monasteries such as Litang, Dali or Shangri-La. They are connected by thousands of kilometres of highways, hundreds of tunnels or bridges still under construction. But also and above all by high-speed and high-frequency trains thanks to ultra-modern stations in the form of airport halls. Because it concerns millions or even hundreds of millions of Chinese people, their eyes fixed on their smartphones to book (and pay for) tickets, hotel rooms, or order a little of everything and anything on Internet platforms such as Alibaba. To the point that Chinese cities are in the process of being uberized at full speed with full ballets of delivery people on scooters day and night.

Not so good news on the freedom side. The Big Brother model is also making great progress with the widespread introduction of facial recognition such as at station entrances and the social rating that my friends at Kunming University have already experienced bitterly. Moreover, we understand the challenge posed by the Hong Kong people to the Beijing regime. But the latter knows perfectly well that a new Tiananmen would sound the death knell for his internal and external strategy. Internally, that is to say, to base the legitimacy of the communist dynasty, which intends to celebrate its centenary in 2049 on a prosperous economy, to secure and ecological pensioners (yes, there too)! External, that is, to project, the Great Wall of China as far as possible from the American enemy by securing its markets, its raw materials, access to the most modern technologies (particularly in Europe), and finally its political allies or at least neutralize the others.

The true and false purposes of the BIS

This is the purpose of the BIS, and not really a driving force for a slowing economy or conquering the world as we sometimes read. Because what does 100 or 200 billion dollars of international investment represent compared to a domestic investment of nearly 4000 billion dollars per year? And should we really be concerned about the current slowdown when we know that with 6% growth, China’s GDP is growing from nearly 900 billion dollars against 440 of USA to just over 2% and less than 150 of India close to 7%?

The real concern of the Chinese authorities is rather the risk of a sudden uncontrolled landing (crash landing). The massive indebtedness of companies and local authorities – more than 250% of GDP – could indeed lead to a major financial crack in the event of a sudden drop in growth, a return to inflation or a fall in the exchange rate and stock markets. A scenario that has been repeated over the past ten years by many Western economists (not really fond of the Chinese regime also).

Hence the final objective of the BRI project: to facilitate a smooth landing and contain the effects of an economic war with the Americans by protecting access to relatively captive markets through genuine intercontinental networks and connections of four types: rail, maritime, air and increasingly digital, including through space. Not to mention the nerve of the war: the finances and internationalization of the Yuan, which takes the form of the opening of bilateral foreign currency accounts or the total or partial control of prime financial centers: Luxembourg, New York or even London.

Two axes, two objectives

The maps of this projected new wall of China speak for themselves:

– A land axis crossing the world’s largest continent: Eurasia, including Russia and Central Asia, which are full of raw materials, even if they are narrow markets, up to the world’s largest consumer market: Europe, for which the patient strategy of the GO game has been used by targeting both its periphery – the famous 16+1 with the countries of the Eastern Belt – and its heart: London, Luxembourg, but also Berlin, which is heavily involved in the railways, or Netherland, which has handed over control of the port of Rotterdam to China and whose first rail convoy from China is announced for this autumn.

– A maritime axis, this time focused on markets and natural resources of emerging countries, including Pakistan, the Middle East (of which China is the main customer), and above all continental Africa, which is essential to any diplomatic majority in the United Nations and promised to see an explosion in its population (3 billion in 2100) with a corresponding internal market.

This dual economic and defense strategy in the face of the American Containment policy, which is increasingly openly asserting itself in Washington, is obviously presented under a radiant sun by Beijing and makes fundamental sense. On the one hand, to create an interconnected world rather than the individual withdrawal. On the other hand, support global growth through investment in infrastructure, especially where it is most needed: in developing countries, particularly in Africa. And the fact is that China has the unbeatable know-how and prices because it is a question of reproducing what it has been doing for 50 years at home. Arguments that do not leave a lot of countries, including Western countries, as can be seen from the number of official partners in the BIS project: agreements signed with 126 countries and 29 international organizations, and projects in nearly 150 countries for a period up to 2049… The 100th anniversary of the People’s Republic of China, you should have thought of that!

The four main criticisms of the BRI

However, four aspects raised real questions and even increasingly open opposition, as in the case of India, jealous of its economic independence and worried about the shadow of dragon wings on its neighbours, including Pakistan, but also Nepal, Bangladesh and Sri Lanka, which had to resign itself to giving China the deepwater port of Hambantota, whose credit repayments it could not have honoured.

In addition to these two aspects of geopolitical neutralization and over-indebtedness, two other critical points have gradually emerged:

First, the impact on global and country governance through the use of very non-transparent and highly unbalanced means of persuasion, as was the case in Greece for the port of Piraeus or throughout Africa, particularly in small countries such as Equatorial Guinea, or in isolated countries such as Zimbabwe. Long before Africa was actually integrated into its silk routes, the Chinese offensive in Africa came in the midst of the structural adjustment crisis imposed by the IMF and Western countries in the 1990s. A large number of projects are in fact totally unsustainable, poorly calibrated – such as the Addis-Djibouti railway track, which is totally underused – and include clauses that undermine countries’ sovereignty, such as the recovery of strategic assets, ports or raw material deposits, which are often underestimated because they are discreetly evaluated by China itself in the context of non-transparent procedures. The same criticism concerns the technical standards that China is trying to impose, whether for track gauge, signalling or, more worryingly, communication network standards.

Then the environmental impact, both global and project-by-project, again taking into account negotiations conducted by mutual agreement. But it is at the global level that serious concerns have recently been expressed, which have just been strangely reported in a study published in the middle of August 2019 by Tsinghua University in Beijing. It states that the total CO2 emissions of the projects planned in the 126 BIS countries are totally incompatible with the commitments of the Paris Agreement. The share of these countries in global emissions would thus increase from 28 to 66% of global emissions by 2049, and even with the use of the most efficient techniques, the total additional emissions would be 25 gigatonnes, or 17% more than in scenario 2DS, i.e. A two-degree global warming.

So, overall, BRI deserves much better than the anti-Chinese bashing often read, but much less than Beijing’s propaganda for a harmonious and prosperous world. In reality, it is a real stone in the pond of the global architecture recomposition. We can’t do without China, but we don’t know how to do it with China. Only a balance of forces would make it possible to take the best and reject the bad, but nature is such that Sun Tzeu’s analysis is the most realistic to date. Everyone hates China, but everyone wants to do business with China. And in particular the small European kingdoms which have so far proved incapable of devising a common strategy for the New Silk Roads. Perhaps it was a poisoned gift from Marco Polo who brought the famous spaghetti from China. In India, it is a tough challenge, but the size of the country allows a clear independent policy voice-à-vis China.

The opinions expressed in this article are the author’s own and do not reflect the view of MarketExpress – India’s first Global Analysis & Sharing Platform or the organization(s) that the author represents in his personal capacity.