With the conclusion of last weeks Boao Forum for Asia (BFA), China appears to be renewing efforts at building trade networks. The proposals of the Silk Road Economic Belt and the 21st Maritime Silk Road illustrate that China wants to attract a new wave of foreign investment.
The Silk Road Economic Belt is a suggested system of trading hubs along the old geographic route of the same name. This network will serve as a pipeline for trade and interaction between the countries along it. The alliance will consist of countries from Asia, Europe, and Africa. The goals of the system are to increase bilateral trade and international transparency. China even hopes that the new policies can increase the total trade volume between China and the other countries to 2.5 trillion within a decade.
Many of the countries involved, such as Egypt, are very optimistic about the prospects of these initiatives. Officials from Egypt said that they hope the projects can draw more Chinese investments to the Suez Canal region.
On the other hand, China, as mentioned, intends to attract a new surge of foreign investment. Long Yongtu, the former Chinese deputy foreign trade minister believes that there will be mutual investment, creating growth and cultural exchange.
But there potentially is a geopolitical element. China believes that the United States is surrounding them with a web of alliances; therefore China extending a hand to its west could be seen as its own outreach in the race for territorial allies. Minority conflicts are also brought back to the forefront of discussion, as both Tibet and the Uyghur regions in the northwest are potentially involved.
In all, this is a beneficial project for all parties involved, and thus the region as a whole.
Sources: http://usa.chinadaily.com.cn/business/2015-03/29/content_19944049.htm
http://www.chinadaily.com.cn/business/2015-03/29/content_19943782.htm
This project appears to be extremely pricey. How does China and the surrounding countries aim to pay for the new silk road and how much economic production do they hope to stimulate?
China is the country taking the initiative to create the network, therefore they are shouldering many of the early costs. But they are also funding the project by essentially using it. China has set a target of 10 trillion in imports from the ‘belt regions’ over the next five years, and has also promised large scale traffic from Chinese tourists. At this stage it is more of an investment by China in the relevant regions.
It is interesting to see the issue in geopolitcal standpoint. As we have witnessed some of U.S. allies participating in AIIB, economic interest works as a major motive for each countries when in comes to cooperate with China. The Silk Economic Belt can be interpreted as another initiatives by China to rule out U.S. in building its global trade network.
For land-locked neighbors, a system of roads and rail can bring many benefits. China also wants routes that are an alternative to the Siberian railway and ocean routes. This however will not be a short-term project. Planning and constructing the infrastructure will take a long time, particularly as politics and topography may make certain stretches very challenging. The big benefits come from network size, so the “last piece of road” issue is important from an economics perspective. FDI and production specialization and the trade flows that stem from that will be decades in development. Will those be enough to make it a “good” project (economic costs < benefits)? Lots of firms will lobby for pieces of the action, and the money is likely to be "soft" grants and loans. That can lead to soft thinking … but again, the regions they will transit can certainly use a boost.
Its interesting to see the comparison to the Siberian railway. It makes sense, because China has also been building train lines to Europe for the last decade. It also fits in line with the rivalry that China and the old USSR had during the 20th century. Trying to overtake Russia was a large impetus for many of Mao’s plans. There is clearly also a parallel here, as these projects will also spur China as Mao hoped his initiatives would .