June 23, 2017

The Biggest Obstacles For China’s $900 Billion Silk Road

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The Biggest Obstacles For China’s $900 Billion Silk Road

By Global Risk Insights - Jun 22, 2017, 2:00 PM CDT

China’s grand vision of One Belt, One Road aims to facilitate connections between countries and peoples across Eurasia and boost investments and trade. The Chinese government must not neglect domestic challenges that could undermine its efforts.

The Silk Road Economic Belt and the 21st-Century New Maritime Silk Road, known as One Belt, One Road, is a foreign policy proposed by the Chinese President Xi Jinping to build roads, ports, and railways to connect Eurasia. The initiative spans overland and across the oceans, involving 60 countries along the two routes, covering 4.4 billion people and accounts for over 40 percent of the world’s GDP. The initiative is the most ambitious foreign policy that any contemporary Chinese leader has ever introduced, framed on the basis of mutual benefits and facilitates connectivity of policy, trade, financial, infrastructure, and people-to-people between the countries involved.

Both domestic and foreign Chinese observers have devoted a lot of efforts to figure out what this one belt, one road means and what it does. Many have outlined the external political risks that affect the implementation of the one belt, one road. But domestic risks and challenges that could undermine the one belt, one road also deserve equal examination.

Sustain support of one belt, one road from basing on national pride to basing on material gain

Naturally, the one belt, one road has enjoyed a huge popular support from the Chinese population. This is not only owing to the fact that President Xi himself enjoys a significantly high level of popular support, but also because the one belt, one road links to the historical trade route, Silk Road, which represented the golden period of China’s Tang dynasty and was responsible for over 50 percent of the world’s output then. It also links to China’s rejuvenation and the Chinese dream that Xi has been saying about.

However, this policy is more than just a strategy for China to leverage its economic might to increase its influence beyond Asia, this initiative is also part of China’s domestic reforms and economic growth. China will need to turn the popular support of the one belt, one road that based on national pride to the one that its citizens can see the material benefits of supporting the initiative in order to sustain the level of enthusiasm.

Last year, the state lender China Development Bank granted loans totaled to $160 billion to countries involved in the one belt, one road. Xi has also announced China’s commitment to spend $900bn to fund the initiative that involves building ports and railways in Africa and Asia. However, most of these countries are low-income economies and thus making a profit return is a slow process. Chinese people will question and in fact, are asking who is paying for the bill and if China is subsidizing development projects in those countries, why isn’t the government doing so in China. The high economic boom of China in the late 80s to early 2000s has created a huge inequality, and many provinces are still living below the poverty line. Social unrest and protests of the inner China have become more frequent and their dissatisfaction will be exacerbated if Chinese people do not see themselves benefiting or even losing out on these foreign projects.

Policy incoherence, internal resource struggle, and ethnic tensions marred implementation of the one belt, one road

Given the size of the Chinese territories, the country borders with a majority of the countries along the one belt, one road. The proximity with other countries give some Chinese provinces the ethnic ties, culture advantages, which mean they could serve an important role in the grand initiative.Related: Can Canadian Crude Compete In Asia?

Xinjiang, for example, is the core area of the Silk Road Economic Belt, which shares a border with eight countries including Mongolia, Russia, Kazakhstan, Kyrgyzstan, Tajikistan, Afghanistan, Pakistan and India. It is the window to west and deepens cooperation with Central, South and West Asian countries. Yunnan borders with Vietnam, Laos and Myanmar, serves the gateway to Southeast Asia. Fujian province, where many of the overseas Chinese in South-east Asian are originated from, is a core area of the 21st-Century Maritime Silk Road, which goes through several Southeast Asian countries through waters.

While the Chinese central government is expecting its different regions to use its comparative advantages to support the one belt, one road, this strategic deployment is constrained by the capacity of local governments.

Local governments lack sufficient understanding of the one belt, one road, especially those countries along the one belt, one road. The one belt, one road is a top-down policy, and local governments are often mobilizing their efforts to understand the central government’s intention, not the essence of a policy.

Another constraint is internal resources struggle among different regions. The concern of missing out has led to competition for resource between different provinces. Regions are often not aware of the events and discussions happening in their neighboring regions, and when they do, they often think this has nothing to do with them. Gansu, Qinghai, and Xinjiang, for example, share the border and with their geographic and cultural advantages are tasked to focus on cooperation with Central Asia and Western Asia, but there has been little synergy between these provincial governments. Xenophobic and conservative is very severe in many parts of China and the central government needs to push for better regional integration and coordination mechanisms for the grand strategy to bear fruits.

Final constraint is the ethnic tensions within China, such as Xinjiang and Tibet. Both regions have demanded more autonomy and tensions with the central government have led to violent outbreaks against civilians and properties. Separatist movements driven by ethnic conflicts fuse terrorist activities within China as well as in nearby countries along the routes of the one belt, one road.

Related: Aramco Aims To Take Over The Offshore Rig Market

Not all go-global companies are made equal

Many of the Chinese companies that are taking their business abroad branded themselves as part of the one belt, one road, in order to receive support and preferential access from the Chinese government, but whether they are actually contributing to the one belt, one road initiative is questionable. With increasing number of Chinese enterprises expanding their activities in countries along the trade routes, some they are doing more harm to China’s image than promoting the one belt, one road. While it is encouraging to see the high level of support from Chinese companies, for whatever reason, the unfortunate truth is that not all leading domestic Chinese companies are able to serve the one belt, one road as they are constrained by traditions, culture, and language barriers. Corruption, damage to the local environment, and cultural and political insensitiveness are all the potential risks that would undermine China’s efforts to push out the grand vision that pledges to be implemented based on mutual respects and mutual cooperation.

Final thoughts

Last week 29 head of states, along with other 1500 delegates from over 130 countries gathered in Beijing for a two-day conference, “The Belt and Road Forum for International Cooperation”, to discuss the one belt, one road initiative. The global event ended with 270 signed deliverables for policy coordination, infrastructure, trade, investment, and people to people exchanges. China’s grand vision to deepen connectivity and expand trades continues to receive a mixture of response. However, one thing for sure is that many countries and companies want to be part of the conversation, whether they support, suspect or have unanswered questions. China will not only need to be sensitive to how the international community react, but also how its domestic factors influence the implementation and the success of this grand initiative.

By Global Risk Insights

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