Xi throws Chinese might behind One Belt, One Road initiative

Xi throws Chinese might behind One Belt, One Road initiative
Delegates at the forum included the heads of state of 29 countries.
By Clare Nuttall in Bucharest, Kivanc Dundar in Istanbul, Tim Gosling in Prague, bne IntelliNews May 15, 2017

Beijing is investing a massive $124bn into the One Belt, One Road initiative, a global project to invest into infrastructure and trade networks across four continents, President Xi Jinping announced at an international summit on May 14. 

China has touted the initiative as a way to boost global trade and development since Xi first unveiled it back in 2013. It comprises six major land corridors across the Eurasian landmass as well as the so-called Maritime Silk Road from China to Europe, which links in parts of South Asia, East and North Africa, Australasia and Southeast Europe. 

Construction of new roads, railways, ports and other infrastructure along these routes are being funded by Chinese state banks and built by Chinese construction companies alongside local firms.

The $124bn figure is mostly not new investment, but at the summit Xi said China would invest an additional RMB100tn (€13.3trn) into the existing Silk Road Fund, and a total of RMB380mn from two state banks – the China Development Bank and Export-Import Bank (Eximbank) of China – as well as a further RMN60bn in aid mainly to developing countries along the trade routes. The timeframe for these investments was not disclosed. 

In a statement quoted by the Chinese government's press service, Wang Yiwei, a professor at the School of International Relations at Renmin University of China, said the project would link countries and regions that account for about 60% of the world’s population and 30% of global GDP. 

In his opening address to the summit, Xi stressed the benefits of increased trade and prosperity to countries along the routes, talking of a “new model of co-operation and mutual benefit”, while his deputy Zhang Gaoli spoke of the “Silk Road spirit of peace and cooperation, openness and inclusiveness, mutual learning and mutual respect”.

At the same time, the sheer scale of the investments and their opening up of the world to Chinese trade is clearly also intended to reinforce China’s position as a global superpower – with the emphasis on global. In an era where the US and to a lesser extent other Western states are turning away from globalism, Beijing is stepping in and trying to reshape global trading networks to its own advantage. 

Delegates at the forum included the heads of state of 29 countries, among them Russian President Vladimir Putin, Turkey’s Recep Tayyip Erdogan and the leaders of several Central Asian countries, as well as four prime ministers and one president from the EU member states. Alongside the politicians were the heads of the UN, IMF and World Bank. 

There were also some of China’s more controversial friends – a delegation from North Korea (the state which earlier the same day embarrassed Beijing by launching a new ballistic missile test), and Rodrigo Duterte, who is leading a murderous ‘war on drugs’ in the Philippines.

On the other hand, there were some notable absentees, in particular China’s neighbours India and Japan, which have been wary of a project set to enhance East Asia’s rising superpower. India in particular had been angered by the planned China-Pakistan Economic Corridor, a $55bn project that will run through the disputed province of Kashmir. Australia, another far eastern rival of China’s was present but reserved, with Trade Minister Steven Ciobo stressing that Canberra would act in line with Australia’s national interest despite seeing “much merit” in the Chinese initiative. 

Yet countries in the region that are benefitting from Chinese investment – from Central Asia to East Africa – have become staunch supporters of the giant project. 

China’s backyard

The concept of the overland new Silk Road was first broached by Xi during a visit to the Kazakh capital Astana back in 2013, part of a Central Asian tour during which China also signed multi-billion dollar transport and pipeline deals in the region. This highlighted the importance of the landlocked region on China’s back doorstep as a key node in the Chinese land route to Europe – just like in the old Silk Road days. (The following month the Maritime Silk Road was announced in Indonesia.)

In the three and a half years since then, Central Asia has continue to hold a central role in the initiative, as reflected on May 14 and in the plans for the coming days. 

Uzbek President Shavkat Mirziyoyev is actively courting new foreign investments and was in Beijing this week to drum up some investment from China with the intention to sign up to 100 deals and agreements worth $20bn. That includes $5bn in oil and gas industry related deals – the 10 agreements included a $1.2bn pledge by China to invest in the construction of the Shurtan Gas Chemical Plant. Moreover, China agreed to finance the Uzbek hydropower development programme with $3bn, Uzbek state-run media noted. 

Mirziyoyev will be pushing at an open door as China is seeking to ramp up investment in the region. Among the latest projects pursued by China and Uzbekistan, the two sides launched a 123km railway line in 2016. They also launched a train service between the capitals of their capitals along a 5000km railway.

The previous Uzbek president, Islam Karimov, tightened cooperation between China and Uzbekistan back in 2014, when the parties signed deals worth $6bn, ranging over trade, a loan for the construction of a natural gas pipeline and other packages. Mirziyoyev’s visit is likely to further the sentiment of cooperation.

Neighbouring Kazakhstan will also become an important way station of the New Silk Road project. Much of Astana’s new investment programme is tied to or coordinated with the Chinese project. The project will include a deal planned for signing on May 15 between the state-owned Chinese conglomerate COSCO and Kazakhstan's national railway company. The Kazakh side will take a 24% stake in a dry port in the Khorgos Eastern Gates special economic zone (SEZ), COSCO Chairman Xu Lirong told Reuters on May 14 during the Belt and Road forum. Khorgos is one of the central hubs for a railway network connecting China and Europe. Trains connecting 11 European cities with 27 Chinese cities pass through the dry port. 

As Chinese investment continues to rise, there is a general feeling among some Central Asian analysts that China is taking over as the regional leader and countries are gradually shifting their allegiance closer to China and away from Russia. One such example is seen in Kazakhstan’s decision to adopt a Latin alphabet for the Kazakh language – a prospect which has enraged Kremlin when it was suggested in the past.

Turkmenistan and Kyrgyzstan’s participation is also significant, as the former borders Afghanistan and Iran, whilst the latter connects China to Uzbekistan. In addition, Kyrgyzstan and Turkmenistan have also been tightening their partnership with China in the recent years. Cooperation with Turkmenistan, for instance, has culminated in China becoming nearly the sole buyer of Turkmen gas.

New partners 

All this might be expected to unnerve Russia and discourage Moscow from involvement in One Belt, One Road. Yet, Putin was the star visitor at the summit, breakfasting with Xi and other top officials and delivering a speech in which he linked the Chinese initiative to Russia’s own role in Eurasian integration with the founding of the Eurasian Economic Union. Instead of trying to thwart Chinese ambitions in Central Asia, he implied the two countries were allies against the new protectionist stance espoused by US President Donald Trump. 

“Protectionism is becoming a common practice that manifests itself in unilateral illegitimate restrictions … The ideas of openness, freedom of trade are often rejected even by those who supported them so vigorously in the past,” the Russian president said. 

He also enthused about the opening up of new trading routes that are set to enhance the status of both Russia and China. “If we look at the bigger picture, the infrastructure projects within the EEAU and the One Belt, One Road initiative in conjunction with the Northeast Passage can completely reconfigure transportation on the Eurasian continent, which is the key to exploring new territory and intensifying economic and investment activity,” he said. “Let us pave these roads to development and prosperity together.” 

Another regional power, Turkey, was also represented by its head of state Recep Tayyyip Erdogan, who agreed with Xi to enhance bilateral economic ties the under the Belt and Road Initiative.

China is one of Turkey’s major trading partners. Bilateral trade volume between the two countries increased by 1.8% last year to stand at $27.8bn, despite a 4% decline in Turkish  exports to the East Asian country.

Given its geographic location Turkey can greatly contribute to the Belt and Road Initiative, Erdogan told reporters after meeting Xi. “I have met with Xi for the fourth time over a year,” Erdogan said.

Turkey stands ready to strengthen cooperation with China in such areas as investment, transport networks, and infrastructure construction, and welcomes Chinese businesses to invest in Turkey, Chinese news service Xinhua quoted Erdogan as saying.

The two presidents witnessed the signing of several documents on cooperation in judicial, transportation and cultural areas, according to the news service. The economy ministers of the two countries will discuss construction of Turkey’s third nuclear plan and the authorities will also work on ways to boost tourism activities between the two countries, Erdogan said, Turkish newspaper Sabah separately reported.

Into Europe

At the end of the routes lies Western Europe, with the countries of Central and Southeast Europe set to play an important role. Southeast Europe has become a priority region for China since shipping giant Cosco Pacific took over management of Greece’s Piraeus port. Better road and rail infrastructure through Southeast Europe is vital to Chinese plans to use Piraeus to import goods northwards into Central Europe, including both the region’s newer EU members and parts of Germany.

The launch of One Belt, One Road has been accompanied by a growing trend for Chinese investors to snap up assets from real estate to industrial plants in countries in the region, as well as investing heavily into its transport and energy infrastructure. Chinese companies have been attracted by the relatively cheap assets in CEE and SEE especially in the wake of the recent global economic crisis. 

While several EU prime ministers and finance ministers attended the summit, Czech President Milos Zeman is the only EU head of state present in China this week. The outspoken populist travelled with Czech and Slovak oligarchs such as Petr Kellner and those from J&T, but government ministers pulled out of the trip due to the constitutional crisis at home. 

China is a long-term project for the president. He has been buttering up Beijing for years. Thus far, he has only welcomed investment from the mysterious CEFC - speculated to be close to the Chinese military or secret services.

CEFC bought real estate in Prague and stakes in smaller companies including breweries and the slumbering football giant Slavia Praha in 2015. Despite promises from Zeman that his “diplomacy” would bring billions in investment, little has arrived since the initial flurry.

A major role in the expansion of the Czech nuclear fleet is understood to be the real goal for Beijing. The Central European nation’s two major refineries – currently controlled by Polish state giant PKN Orlen – have also been mentioned.

Meanwhile, Hungary is mulling a loan offer from China's Exim Bank, which would cover 85% of the cost of the Budapest-Belgrade railway, the foreign minister announced on May 13.

The Chinese bank has offered to extend a dollar-based loan with a 20-year term and a planned interest rate of 2.5%, Peter Szijjarto said. The announcement came shortly after Hungarian Prime Minister Viktor Orban met Chinese President Xi Jinping ahead of the Belt and Road Forum in Beijing. Orban has been chasing Chinese investment and trade for some years as an alternative to Western markets, but has struggled to land notable deals.

The high-speed rail line linking the Hungarian and Serbian capitals is the only palpable result thus far. The link is set to cost €1.8bn. According to plan agreed in November 2016, freight trains as long as 740 metres will travel at speeds of up to 160 km/h along the rail link starting in 2018.

However, the European Commission is probing the project over the public procurement processes. Hungary's parliament approved amendments in early May to comply with EU recommendations on making the tender process more transparent.

In other deals agreed over the weekend, the Budapest Stock Exchange (BSE) and the Shanghai Gold Exchange concluded a cooperation agreement. Meanwhile, China Development Bank has offered a $79mn credit line for financing the development of the Wanhua-BorsodChem chemical plant. Wanhua bought the Hungarian factory for €1.2bn in 2011. At the time, the Shanghai-listed buyer suggested the deal could serve as a “beacon” for further Chinese investment in the region. Little has followed.

Further south, Serbia is seeking to position itself as the main Chinese partner in Southeast Europe – and to attract the largest share of Chinese investments. The country has already benefitted from investments such as the Zemun-Borca bridge, known as the “bridge of Serbia-China friendship” over the Danube, which predates the initiative, in addition to the Belgrade- Budapest high speed railway. At the latest summit, attended by Serbian Prime Minister and president elect Aleksandar Vucic, Serbia signed two memorandums of understanding with China Road and Bridge Corporation (CRBC) worth €2.5bn. 

At the same time, Belgrade has been trying to interest Chinese investors in Serbian industrial assets that are the subject of an IMF-mandated privatisation programme. In 2016, China’s Hebei Iron and Steel Group (HBIS) took over Serbia’s second largest exporter, the Zelezara Smeredevo steel mill. Vucic is now reportedly in talks about a possible sale of copper smelting and mining complex RTB Bor and bus maker Ikarbus to Chinese investors. 

Beijing’s motivation 

In his opening speech to the forum on May 14, Xi harked back to the Silk Road era. “Spanning thousands of miles and years, the ancient silk routes embody the spirit of peace and cooperation, openness and inclusiveness, mutual learning and mutual benefit,” he said. “The Silk Road spirit has become a great heritage of human civilisation.” 

Efforts by Beijing to revive old trading routes are not new. In the years before the launch of One Belt, One Road, China – mainly China’s giant state owned enterprises – had already been investing heavily overseas, into the raw materials it needed for its industrial growth and at the same time investing into the infrastructure it needed to transport this production. This pattern of investment had been seen in emerging markets from Central Asia to Africa to Latin America and increasingly – since the onset of the crisis bought valuations down – in resource-rich developed countries as well. Instead of silk and spices, those new routes were transporting Chinese manufactured goods in one direction, and coal, metals and other raw materials in the other. 

One Belt, One Road builds upon these earlier investments, making them part of a wider and more coherent international project that will allow China to export its manufactured goods and bring in raw materials, while also expanding its global influence.

At the same time, it is no coincidence that One Belt, One Road was launched just as China’s export-driven economic model was starting to falter. Rising labour costs at home and reduced demand amid the international economic crisis made it imperative for Beijing to ensure its products remained competitive by cutting the costs of exporting them to global markets, in particular Western Europe. 

But even though Xi sought to play down the political aspects of the project, as well as benefitting Chinese exporters and transit states along the routes, it is also putting China into a powerful position as the organiser, financier and in many case the builder of new transport infrastructure across the globe. 

Recently, Beijing has been only too eager to step into the global leadership vacuum left by the US’s new focus on “America first” and its stepping back from international initiatives and trading partnerships. The attendance of so many top officials from the Eurasian region shows that – whether from principle, or self interest or a mix of the two – countries from the region are enthusiastically signing up for China’s vision.