16 Aug 2016
China’s Vision for a New Asian Economic and Political Order
By the National Bureau of Asian Research NBR
An essay for the Strategic Asia Program by Kyle Churchman
The past year has been a pivotal one for China’s proposed strategic investments in Asia. At the top of Beijing’s regional diplomatic agenda was the One Belt, One Road (OBOR) initiative, a series of land- and sea-based trade routes intended to closely link China with regions to its west and south: Central Asia, South Asia, Southeast Asia, the Middle East, East Africa, and Europe. In addition, the Asian Infrastructure Investment Bank (AIIB)—a multilateral intergovernmental bank launched by China to finance infrastructure development in Asia, including OBOR-related projects—held its signing ceremony in June with the participation of 57 nations. Together, these two investment initiatives reflect Beijing’s proactive attempt to reshape the Asian economic and political order.
The One Belt, One Road Initiative
The Silk Road Economic Belt—OBOR’s land-based component—encompasses several economic corridors around China’s western rim, creating a grid of transportation routes rather than a single linear path. The belt project envisions the construction of new rail lines, highways, pipelines for oil and gas, telecommunications infrastructure, and fiber-optic cables. Two corridors will extend across the Eurasian landmass at different latitudes and terminate in Europe, while another will connect China’s southwestern provinces with mainland Southeast Asia. The proposed China-Pakistan and Bangladesh-China-India-Myanmar economic corridors will be closely integrated with the belt and provide port access to the Indian Ocean.
As conceptualized by Beijing, the 21st Century Maritime Silk Road starts in the major port cities of southern China and passes through the South China Sea before extending across the Indian Ocean to East Africa and northward through the recently expanded Suez Canal to Europe. Infrastructure investment along the route will involve the construction of new ports and upgrades to existing facilities. Beijing’s objective is to facilitate greater Chinese commercial (and perhaps naval) activity in the Indian Ocean region.
According to an important OBOR vision document released by the Chinese government in March 2015, the initiative is intended to facilitate regional trade and investment, promote more widespread use of the renminbi in cross-border trade, and foster greater exchanges between Chinese citizens and the peoples of OBOR countries. Through dialogue with participating countries, China also aims to remove technical barriers to trade, such as conflicting customs procedures.
While the Chinese government has couched the initiative in altruistic terms, OBOR is chiefly designed to benefit China’s economy. Most importantly, China seeks to spur economic development in its poorer western and southern regions, which lag far behind the prosperous coastal provinces. Large state-owned enterprises in the infrastructure, energy, and advanced manufacturing industries, which have suffered in recent years from a glut of domestic overinvestment and the slowdown in the Chinese economy, are being encouraged to “go out” and win contracts along the routes. Whether China might eventually push for a free trade zone that covers OBOR countries in response to the recently concluded Trans-Pacific Partnership agreement is an important question.
Geostrategic motivations also drive the OBOR initiative, with the overarching one being the desire to circumvent U.S. encirclement in the Western Pacific. U.S. political and military influence in the regions west of China is considerably weaker than around China’s eastern rim, giving Beijing incentive to “go west” as Washington rebalances to the Asia-Pacific. The construction of new pipelines linking China with hydrocarbon-rich Central Asian states and the transport of Middle Eastern oil through Pakistan instead of the South China Sea will improve Chinese energy security. Currently, more than 70% of China’s oil imports from the Middle East and Africa pass through the Strait of Malacca—a chokepoint between the Malay Peninsula and Sumatra that is vulnerable to a U.S. blockade. A further geostrategic motivation is focused on soft power: China hopes to win the goodwill of OBOR nations by providing billions of dollars in financing for infrastructure projects that will likely benefit their economies.
The Asian Infrastructure Investment Bank
The AIIB seeks to address the Asia-Pacific’s enormous infrastructure needs, including financing of some OBOR-related projects. Thanks to pledges by key European countries to join the bank as well as China’s $29.78 billion contribution, the AIIB’s capitalization stood at $100 billion at the time of the June 2015 signing ceremony. China’s 26.6% voting share gives it de facto veto power in the institution, as major decisions will require 75% support from member countries. China promises to make the bank “lean, clean, and green”—that is, an institution with a small yet efficient management team, zero tolerance for corruption, and respect for the environment.
Nonetheless, the United States and Japan, both primary sponsors of the existing Asian Development Bank (ADB), have refused to join the AIIB. Both countries have expressed concerns about the AIIB’s governance and lending practices, fearing it will erode the liberal economic influence of the ADB and the Bretton Woods institutions.
As China advances its vision for the regional economy in the form of OBOR and the AIIB, it faces the key challenge of reassuring its Asian neighbors and the United States that its intentions are genuinely benign. Some observers have equated OBOR with the Cold War–era Marshall Plan, but Chinese foreign minister Wang Yi and other senior Chinese officials have vigorously claimed that the initiative is concerned with the promotion of economic cooperation rather than strategic dominance. China’s pivot westward could also alarm India and Russia. In attempting to break free from U.S. encirclement, Beijing may in fact stoke similar fears of encirclement in India, which considers the Indian Ocean its natural backyard. For Moscow, greater Chinese presence in Central Asia—both political and economic—could produce mixed blessings for Russia’s overall strategic position. On the one hand, Chinese engagement could ease strategic and economic pressure on Russia by sharing the burden of restricting U.S. influence and suppressing radical Islam in the region. On the other hand, it could reduce Russia’s soft power and influence within a region where it has traditionally exerted dominance.
Over the next year and beyond, OBOR and the AIIB will continue to take fuller shape in China’s national investment strategy. The AIIB is set to become operational in January 2016 and OBOR is expected to feature prominently in China’s thirteenth five-year plan (2016–20) that will be unveiled during the spring 2016 meeting of the National People’s Congress. China will also likely intensify discussions with OBOR countries about possible investment projects. The implications of OBOR and AIIB have yet to be seen. It will be important, however, to watch how China incorporates the terminal points of the network in Europe within its broader strategic vision. Further integration of European markets with the Asian trading network may be as important a goal for Beijing as the strengthening of partnerships with regional neighbors.
Kyle Churchman is a Resident Junior Fellow at the Center for the National Interest in Washington, D.C. He formerly was a Political and Security Affairs Intern with the National Bureau of Asian Research (NBR). The views expressed are those of the author.
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