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Chinese Silk Route Project – An Economic Project or a Geopolitical & Strategic Move to Tactically Position Itself in the Changing Global Economy

By Dr. Anand Sagar, Shri JJT University, Jhunjhunu, Rajasthan, India

There are two main mottos behind the revival of historic Silk Road by China. First among which is China’s vast industrial overcapacity – mainly in steel manufacturing and heavy equipment – for which the new trade route would serve as an outlet. It also aims to connect the disparate regions in China’s near and distant neighborhood through a massive program of infrastructure building. This region could offer major new markets to European firms, leveraging old European influence to both engage profitably with Chinese and local companies. Europe could also use it as a door-opener in the increasingly difficult but critical Chinese market itself, as China will need allies when engaging overseas. The official Indian position is, however, different which feels that Beijing’s real intention is to build influence in its neighborhood. At the heart of India’s reluctance is based on the fact that India is wedged between two nuclear-armed neighbors and has fought wars against both in the last 60 years. During the brief war, Beijing inflicted a crushing defeat on the unprepared Indian army. Both countries are still dealing with the legacy of that war and it appears that China is no hurry to settle this boundary dispute with Delhi. Moreover, the proposed corridor (expected to connect Kashgar with the Port of Gwadar in Balochistan) runs through Pakistan-occupied Kashmir and Gilgit-Baltistan; both are considered by Delhi to be Indian territories. When India agreed to join the Asian Infrastructure Investment Bank, the government specifically pushed for a provision in the charter of the bank “that requires project financing in disputed territory to have the agreement of the disputants.”

Introduction

The historic Silk Road trade route is being revived by China that runs between its own borders and Europe. The idea is that two new trade corridors – one overland, the other by sea – will connect the country with its neighbours in the west: Central Asia, the Middle East and Europe. There are two main motto behind this, first among which is China’s vast industrial overcapacity – mainly in steel manufacturing and heavy equipment – for which the new trade route would serve as an outlet. Moreover, as China’s domestic market slows down, opening new trade markets could go a long way towards keeping the national economy buoyant. With a view to lift the value of cross-border trade to $2.5 trillion within a decade, China has channelled nearly $1 trillion into the project. It is also encouraging state-owned enterprises and financial institutions to invest in infrastructure and construction abroad. It also aims to connect the disparate regions in China’s near and distant neighborhood through a massive program of infrastructure building. However, some Indians view Beijing’s ambitious program of infrastructure building very differently. It would be a gross understatement to say Delhi is concerned about China’s “One Belt, One Road” initiative. Having spent a week in India talking to security analysts, international relations experts and business leaders, the opinions I heard suggest antagonism with Pakistan and strategic distrust with China could be significant impediments to India’s involvement.

This region could offer major new markets to European firms, leveraging old European influence to both engage profitably with Chinese and local companies. Europe could also use it as a door-opener in the increasingly difficult but critical Chinese market itself, as China will need allies when engaging overseas. The official Indian position is, however, different which feels that Beijing’s real intention is to build influence in its neighborhood. At the heart of India’s reluctance is based on the fact that India is wedged between two nuclear-armed neighbors and has fought wars against both in the last 60 years. During the brief war, Beijing inflicted a crushing defeat on the unprepared Indian army. Both countries are still dealing with the legacy of that war and it appears that China is no hurry to settle this boundary dispute with Delhi. Moreover, the proposed corridor (expected to connect Kashgar with the Port of Gwadar in Balochistan) runs through Pakistan-occupied Kashmir and Gilgit-Baltistan; both are considered by Delhi to be Indian territories. When India agreed to join the Asian Infrastructure Investment Bank, the government specifically pushed for a provision in the charter of the bank “that requires project financing in disputed territory to have the agreement of the disputants.”

Review of Literature

(1) André Loesekrug-Pietri (2015): Officially first announced in 2013 by President Xi Jinping, China’s ambitious “one belt, one road” initiative aims to improve connectivity between China, Asia and Europe. This year marks a milestone for relations between China and the European Union, as they celebrate 40 years of diplomatic relations.

The initiative merges both the land-based Silk Road (from China via Central Asia to Turkey and the EU) with the Maritime Route (via the Indian Ocean and Africa to Europe). Both routes were created with the intention of developing transportation infrastructure, facilitating economic development and increasing trade. This 21st-century initiative is not merely for China to romanticize its historical legacies: it carries major strategic economic and geopolitical calculations.

Strategically, the belt and road concept – as well as the establishment of the Asian Infrastructure Investment Bank (AIIB), the Silk Road Fund and other related initiatives – send out a clear signal: China is ready to take more of a role in regional and global governance. Over the past decades, China was an agenda-follower rather than agenda-setter. A key principle of its foreign policy has been a “peaceful rise with a low profile”. Accordingly, China initially accepted and integrated into the existing system of global governance.

(2) Anna Bruce-Lockhart (2013): China is reviving the historic Silk Road trade route that runs between its own borders and Europe. Announced in 2013 by President Xi Jinping, the idea is that two new trade corridors – one overland, the other by sea – will connect the country with its neighbours in the west: Central Asia, the Middle East and Europe.

There are strong commercial and geopolitical forces at play here, first among which is China’s vast industrial overcapacity – mainly in steel manufacturing and heavy equipment – for which the new trade route would serve as an outlet. As China’s domestic market slows down, opening new trade markets could go a long way towards keeping the national economy buoyant.

Hoping to lift the value of cross-border trade to $2.5 trillion within a decade, President Xi Jinping has channelled nearly $1 trillion of government money into the project. He’s also encouraging state-owned enterprises and financial institutions to invest in infrastructure and construction abroad.

(3) Peter Cai: A research fellow from Lowy Institute for International Policy in his paper “Why India Is Wary of China’s Silk Road Initiative” has revealed that it is one of China’s most ambitious economic and foreign policy projects. The so-called “One Belt, One Road” initiative, is also referred to as the Silk Road Economic Belt and the 21st Century Maritime Silk Road. It aims to connect the disparate regions in China’s near and distant neighborhood through a massive program of infrastructure building. It’s President Xi Jinping’s personal project, and some Chinese analysts have dubbed it “the number one project under heaven.”

However, some Indians view Beijing’s ambitious program of infrastructure building very differently. It would be a gross understatement to say Delhi is concerned about China’s “One Belt, One Road” initiative. Having spent a week in India talking to security analysts, international relations experts and business leaders, the opinions I heard suggest antagonism with Pakistan and strategic distrust with China could be significant impediments to India’s involvement.

Findings

  1. It is a fact that China’s GDP grew around 7.4% last year, the lowest since the 1990s, and a further slowdown seems inevitable. Given the massive overcapacity in the manufacturing sector, the vast and largely inefficient state-owned enterprises with falling return on equity, as well as the real estate bubble and increasing environmental pressures, China urgently needs to find new economic engines. One Belt, One Road focuses on infrastructure development and matches the appetite of Chinese state-owned enterprises with overcapacity.
  2. The Silk Road will help to alleviate China’s thirst for energy, with new gas pipelines in Central Asia and new deep-water harbors in South Asia to be constructed. These massive infrastructure projects will also accelerate the renminbi’s internationalization and its emergence as an alternative reserve currency, a strategic economic objective.
  3. Most importantly, the core of this initiative lies in its strategic and geopolitical importance. China seeks to build a cordon sanitaire of regional stability. Its leadership firmly believes economic prosperity is the only way to maintain peace in its fragile neighborhood, from volatile Central Asia via a fragmented Pakistan and war-torn Afghanistan to the terror belt in the Middle East and North Africa.
  4. The Chinese government has resisted the idea of labeling the “belt and road” project as its own Marshall Plan, but the commonality of China’s economic interests with the corridor nations and a sound infrastructure bond will be the best way to prevent regional conflicts. It’s also a viable way to export China’s model of development: the right to develop irrespective of political systems.
  5. The initiative has received mixed reactions throughout the region, with division most pronounced in the Indian subcontinent. While China’s quasi-ally Pakistan regards the initiative as a game-changer, the official Indian position is, however, of considerable caution. India sees China’s effort to build roads and bridges as instruments of Beijing’s intention to build influence in its neighborhood. At the heart of India’s reluctance to embrace Beijing’s promise of road building and connectivity is strategic mistrust.

Conclusion

EU should formulate its own respective interests and intentions, and offer concrete proposals to China for collaboration in the context of the Silk Road, making it a true Europe-China initiative, at both ends of the road Though the launch of AIIB may be a teaser from China on the existing institutions, yet the EU should take a decision as how to deal with this unique situation. It is a fact that Europe is struggling with its own crisis it should use the Silk Road to its own advantages. For the EU, there is great deal of interests at stake i.e. regional stability, economic development and diversification of energy supply.

This region could offer major markets to European firms, leveraging old European influence to both engage profitably with Chinese and local companies. Europe could also use it as a door-opener in the increasingly difficult but critical Chinese market itself, as China will need allies when engaging overseas. It would rather be better to engage Russia into a regional cooperation through these two initiatives, irrespective of the present conflict. Discussions between EU, EAEU and China on a Free Trade Agreement could be a medium-term objective.

To sum up, it is in fact not an economic project it is purely a geopolitical and an strategic project. It is a Chinese move of a tactical repositioning itself in the global economy. It is clear that if China directs more of its capital into developing infrastructure overseas its relationships with the ASEAN region, Central Asia and European countries bound to improve significantly. Moreover, China would be able to establish its supremacy as a dominant player in the world affairs by establishing economic and cultural partnerships with other countries.

From India’s point of view, China-Pakistan Economic Corridor (CPEC) is the key reason why Delhi is hesitant to embrace the initiative. The proposed corridor (expected to connect Kashgar with the Port of Gwadar in Balochistan) runs through Pakistan-occupied Kashmir and Gilgit-Baltistan; both are considered by Delhi to be Indian territories. That is the reason why when India agreed to join the Asian Infrastructure Investment Bank, the government specifically pushed for a provision in the charter of the bank “that requires project financing in disputed territory to have the agreement of the disputants.” India has to ensure that those provisions incorporated in the charter of the bank do not remain confined to the papers but are religiously and strictly followed and implemented.

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