The Countries Building The New Silk Road -- And What They're Winning In The Process
Wade Shepard ,
CONTRIBUTOR | Forbes
I travel to emerging markets around Asia and report on what I find.
Opinions expressed by Forbes Contributors are their own.
NOV 22, 2016 @ 10:42 PM
When the Soviet Union fell the political and economic landscape of central Eurasia shattered into a melee of disconnected, dysfunctional shards as 14 new countries suddenly emerged in tandem with a pronounced political and economic vacuum. Whereas the Soviets, to varying degrees of success, organized the various realms under their control according to specific industrial and agricultural specialties — i.e. Georgia would build heavy machinery,
Kazakhstan would produce wine, Azerbaijan would provide oil, etc. — and bolstered infrastructural and economic development along these respective designations, each post-Soviet state was suddenly
left to rebuild its entire economy virtually from the ground up.
However, almost as soon as the Soviet Union disintegrated, the countries of Central Asia and the Caucasus
began looking for ways to reconnect again. Inspiration for the future was soon taken straight from the pages of history. During the days of what had retroactively been dubbed the Silk Road the countries of Central Asia acted as land bridge, connecting the booming markets of China with those in Europe. Ancient Silk Road cities like Xi’an, Samarkand, Merv, Aleppo, and Baghdad all acted as major transshipment and manufacturing centers, where middlemen would relay wares between all points of the Eurasian landmass. While there is certainly a large amount of romance attached to this simplified rendering of history, this rendering is serving as a functional road map as to
how the region is moving forward and developing today.
A peddler and beggar in front of a propaganda poster for the Silk Road Economic Belt in Urumqi, in China’s far western Xinjiang region. Image: Wade Shepard.
Eurasia, as a contiguous continent stretching from the west of Europe to the eastern coast of China, is rapidly
being drawn together into a massive market covering over 60 countries, 60% of the world’s population, 75% of energy resources, and 30% of GDP.
Many plans have been brought forth by multiple regional players to guide this endeavor — the most dynamic of which is China’s multi-trillion dollar Belt and Road initiative — but the end goal of them all is the same: to create “win-win” solutions where all parties benefit by pursuing the similar goal of infrastructural development and economic integration.
“In order to create a situation where everybody is in the same boat in terms of economic development, they are putting together One Belt, One Road,” said Huang Jing of Singapore National University. “In other words, if everyone is economically in the same boat then if China goes up everybody goes up and if China goes down then everybody goes down. That’s the nature of the idea.”
Azerbaijan and Kazakhstan
Azerbaijan and Kazakhstan are resource-dependent nations who see the writing on the wall: relying on oil and gas for economic solvency is a gambler’s position — prices rise and plunge, alternately pumping the country with riches and plunging it down in a tailspin of recession, and their supplies are ultimately finite. Especially in the case of Azerbaijan, oil reserves are getting perilously low, and it has been estimated that the country only has 30 years of potential oil dependency left. So both countries have
placed all or nothing bets on diversifying their economies, and one of the main ways they are doing so is by leveraging their geographic positions between China and Europe and
creating key transportation hubs linking east and west.
Russia
Russia virtually stretches from one side of Eurasia to the other, and its participation in the New Silk Road initiative is imperative for its success. While Russia never really came out in outright opposition to the movement, and its Eurasian Customs Union was essential for
the rise of trans-Eurasian rail transport, it initially viewed China’s involvement in Central Asia as an intrusion into its backyard. But this position has started changing as Russia’s might as a regional powerhouse has been decimated by low oil prices and U.S./EU sanctions over the Ukraine conflict. Effectively, these dire economic pressures has pushed the country into finding other means of sustenance, and its gaze inevitably
fell eastward to China.
Joint economic projects between China and Russia have been on the rise ever since. These include less resistance to Belt and Road endeavors, more
investment from and trade with China, and increased cooperation in industries such as aerospace, science, and finance. China recently created the plans for the impending Moscow to Kazan high-speed rail line, and then
offered a $6 billion loan to help build it along with a proposal to extend it all the way to Beijing. Other Russo-Sino partnerships include efforts to trade in their own currencies rather than in dollars and Russia using China’s Unionpay electronic payment network rather than Plus or Cirrus.
Georgia
In the years immediately following the fall of the Soviet Union, Georgia’s economy was in shambles and civil war and revolution rang out across the country. It was a crisis situation for over a decade, and the country appeared to be on the trajectory of a failed state. But then in the mid-2000s
the political situation stabilized and reforms were successfully initiated to curb corruption and better position the country as a target for international investment. The plan was to
turn Georgia into a logistics and manufacturing hub in the heart of Eurasia, as a place where companies from every corner of the continent could meet in the middle to produce their wares cheaply and export them to Europe, Russia, Central Asia, Turkey, and Iran. Preferential and free trade deals were signed with neighboring countries as well as the EU, the CIS, the USA, and Japan, and Georgia fully jumped into China’s Belt and Road initiative, becoming one of the first countries to sign onto the Asia Infrastructure Investment Bank (AIIB).
Pakistan
Pakistan currently finds itself caught in the middle of prolonged geopolitical and security quagmire. With a marked political struggle with India to the southeast, and having Iran to the west and Afghanistan to the north, the country’s economic potential has been very much stunted. Partnering with China on the China-Pakistan Economic Corridor (CPEC), a core part of the Belt and Road initiative, is seen as a key way not only for Pakistan to improve its energy capacities, enhance its infrastructure, and bolster its economy — and, ideally, assuage terrorism and other security threats in the process.
Sri Lanka
In the later half of the 2000s Sri Lanka’s government was being brought up on war crimes by the UN Human Rights Council and subsequently found its sources of aid from the US and trade concessions from the EU cut off. The government, which up to that time had been very much aligned with India and the West, took this as an affront to its sovereignty and pursued alternative streams of economic sustenance. . . which, of course, led right into the arms of China.
Now a fundamental station on the China-led 21st Century Maritime Silk Road, Sri Lanka is engaging in large-scale infrastructure projects with China, which include Colombo Financial City —
a financial center meant to rival Singapore and Dubai — a
deep sea port in Hambantota, a new container terminal in Colombo’s port, the
Mattala International Airport, and an impending 15,000 acre industrial zone that will
reputedly attract 2,500 Chinese companies and create a million jobs. Although there have been multitudes of
near catastrophic political, administrative, and debt problems associated with building this new infrastructure, the country’s prime minister still refers to it a once in a lifetime opportunity to
jump-start development and generate a high-income society.
Europe
The European Union has found itself in a period of economic stagnancy, which has in some places teetered on the brink of all out collapse. With a current GDP growth rate of 1.6%, the only continent in the world with
slower economic growth than Europe is Antarctica. Not only are many countries in the Eurozone at
a virtual economic standstill in terms of growth, but some are actually going backwards — Greece’s economy is 27.6% smaller than before the 2008 economic crisis, while Spain and Portugal’s economies are 4.5% and 6.5% smaller, respectively. While the continent may not currently be in a state of crisis it could certainly use some additional economic stimulation.
As the EU is the western endpoint of all five routes of the New Silk Road, it conceivably stands to gain from this increased access to markets throughout Eurasia.
First of all, as new bilateral trade pacts between China and countries like Poland, the Czech Republic, and Serbia show, these
enhanced trade corridors are opening up new destinations for European exports, such as Polish apples, Dutch veal, and French wines. Europe produces the kind of products that China’s newly arisen middle and upper classes are hungry for, and the new trade routes going into the heart of the world’s largest consumer market will not have anything but a positive economic impact on Europe.
Secondly, the potential benefit to Europe of improved infrastructure throughout its eastern realms, the CIS, Caucasus, and South Asia, should not be underestimated.
According to the Bruegel Institute, a 10% reduction in railway, air, and maritime transportation costs increases trade by 2%, 5.5% and 1.1% respectively.
From Bruegel’s estimates, European trade may be boosted by more than 6% simply from infrastructural improvements at the hands of the Belt and Road initiative. A double bonus to the EU comes from the fact that they don’t have to pay much for this development, as the bill is mostly being footed by China and other countries along the various routes.
Thirdly, the Belt and Road means large amounts of money being injected into Europe.
According to the Mercator Institute for China Studies, China is projected to triple its global assets to $20 trillion by 2020, and much of this is flowing right into the EU.
Chinese M&A and other forms of FDI are already growing at a record pace in Europe, and this will more than likely continue growing as the Belt and Road develops.
The countries of Southeastern Europe are also aiming to benefit in a big way from Silk Road infrastructure and investment. Falling into the crack between Russia and the EU, countries such as
Serbia, Romania, and Macedonia are looking to China to help assuage their economic woes. Already, China has planned big investments in the region in the form of transportation infrastructure — which includes the proposed Greece to Hungary high-speed rail line and several major highways – currency swaps, and renewable energy development, as the somewhat contrived
16+1 platform starts to become a driving force for regional integration.
China
Meanwhile, China has also been plunging through an entire array of major economic transitions of its own, which its multi-trillion dollar Belt and Road endeavor was created to be a solution for aspects of.
First of all, China is starting to mature economically —
the growth engines are downshifting into a lower gear, the tertiary sector is overtaking the secondary, and the country’s wage advantage is rapidly vanishing. International investment is being used as a new way to bolster economic growth, acquire new technologies, and secure the country’s westward trade routes and supply lines, of which the Belt and Road is the primary vehicle.
While Chinese exports will certainly be stimulated via the Belt and Road, the big story is in the exporting of Chinese businesses — especially low-level manufacturing capacity — along its various routes. This essentially tethers businesses to the mainland that would otherwise freely drift away from its shores or go under altogether. So China’s manufacturers too are following the global tide and are setting up operations in countries like Vietnam, Bangladesh, and Pakistan, were the wages are cheaper and the infrastructural capacities are growing rapidly in part due to big investments via the ADB, World Bank, and the Belt and Road’s various financing vehicles.
Secondly, China’s heavy industries are currently in a painful period of reform, and many are facing major overcapacity issues. While it is my impression that fears of China dumping large amounts of cheap steel and other industrial commodities onto global markets via the Belt and Road are largely unfounded — the governments of the world have
already shown that they are
wise to this — a reasonable amount of Chinese-invested infrastructure will be built with Chinese steel, glass, and concrete, thus providing a much-needed demand for excessive supply.
Third, China’s “Go West” policy has led to the
complete overhaul and exponential expansion of cities throughout the country’s central and western regions, which has created a new demand for westbound overland trade routes. So rather than having manufacturing centers in western cities like Chengdu, Xi’an, Lanzhou, and Urumqi having to ship their exports all the way across the country to the east coast to be shipped to western markets by sea, they can have the option to transport a reasonable volume of high-value goods directly westward overland via
newly established rail lines.
“As we know, in western China provinces like Xinjiang and Gansu will grow nearly eight to ten percent during the next ten years, that’s why they need our roads for export and to connect with the big markets,” explained Murat Bekmagambetov, the director of the department of strategic planning at KTZ, Kazakhstan’s national railway. “We can make our opportunity [by making] our infrastructure and their goals have synergy.”
On top of this comes the unlikely — but still conceivable — reality that a US-led naval blockade of the Straight of Malacca could cut China off from its energy supply lines and trade routes in the Middle East and Europe, which has made the creation of a variety of alternative access points to the sea of national importance. Currently, two main land-to-sea corridors are being constructed — one going south from Kunming, in China’s Yunnan province, through Myanmar to the coast, and another cutting south from Xinjiang through Pakistan to Gwadar port on the Indian Ocean.
Conclusion
Dozens of countries from all corners of Eurasia are finding similar solutions for a wide array of economic challenges through joining together in a common ambition: to further integrate and reconnect the continent via a single enhanced infrastructure, energy, and economic grid. At this juncture the dominant rhetoric is that there is more to gain by working together than standing alone, and this synergy of national ambitions is what is meant by “win-win” partnerships along the New Silk Road.
I'm the author of Ghost Cities of China. I'm currently traveling the New Silk Road doing research for a new book.
