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8th May 2019

China’s Trillion-Dollar Belt & Road Gambit

The Belt and Road Initiative (BRI) is a critical component of China’s plan to establish itself as a global superpower. In its effort to increase its influence and create trade routes across Asia, Europe, the Middle East and Africa, China has already spent hundreds of billions of dollars on infrastructure projects. It is estimated that by 2027, Belt and Road investments of a total of $1.2 trillion would have been made.

The Belt and Road is President Xi Jinping’s idea. The project was launched in 2013, as part of a plan to restore the ancient ‘Silk Route’ from Asia to Europe. This network of trade routes has seen some action, it was in use from the second century BC to the 14th century AD.

But the Belt and Road project, which is also sometimes referred to as ‘One Belt, One Road (OBOR)’, has metamorphosed into something far bigger. It consists of an ‘eco-nomic belt’, which is a network of six corridors that connect Asia, Europe, and Africa with China. The ‘belt’ includes roads, bridges, power plants, and railway lines.

The ‘road’ refers to the maritime Silk Road, which is a chain of seaports that extend from the South China Sea into the Indian Ocean.

What does the BRI hope to accomplish?
According to a Morgan Stanley research report titled Inside China’s Plan to Create a Modern Silk Road, the Belt and Road will:

  • Connect 65 countries across three continents. These nations account for 30% of global nominal GDP, and it is estimated they will account for 40% of global GDP growth. Over 40% of the world’s population lives in these countries.
  • Give a boost to infrastructure in countries that need investments in roads, dams, ports, and railways.
  • Help China to internationalise its currency. According to the Morgan Stan-ley report, the renminbi has already seen greater usage in Malaysia, Rus-sia, and Thailand.
  • Allow Chinese companies that specialise in infrastructure projects the op-portunity to deploy their under-utilised capacity.

However, there are indirect benefits as well that have nothing to do with trade or commercial considerations. China hopes that as prosperity increas-es in its Central Asian neighbours, it will result in a reduction of the threat from Islamist terrorism. Among the countries that the Belt and Road Initiative will help are Afghanistan, Pakistan, Kazakhstan, and Tajikistan.

The Belt and Road Initiative now extends into Latin America
China is not restricting the modern Silk Road to its traditional routes. It is venturing farther afield and has even made inroads into Latin America.

Recently, 200 electric buses manufactured by the BYD Auto Co., and Yutong, two leading Chinese companies, have been delivered to Santiago in Chile. This gives Chile’s capital the second-largest electric bus fleet in the world. Why Chile? China has strategic reasons for strengthening its ties with the South American country. Chile has vast deposits of lithium, a metal that is a crucial component in the manufacture of the batteries that go into electric cars and smartphones.

Will China be making additional investments in Chile? Cristian Rodriguez Chiffelle, the director of InvestChile, a government agency, says:

“We’re at an inflexion point where Chinese investment is going to start growing strong-ly.”

China and Chile already have deep ties. The country is the largest copper producer in the world, and China is its biggest buyer.

The Belt and Road Initiative is likely to spread further into Latin America and the Car-ibbean. In November last year, Ecuador, Panama, and Cuba were among the six countries from the region who signed a memorandum of understanding to participate in China’s BRI.

Although the endeavour by China proposes to boost trade and provide infrastructural facilities to the countries that need it most, the experience of the nations where the Belt and Road Initiative has made progress has been mixed.

Consider the work done by China in the Maldives. The nation is a collection of 1,200 islands located near a crucial shipping lane that provides energy supplies to China. As part of the Belt and Road Initiative, China built a 2.1-kilometre bridge connecting two of the country’s islands. In addition to the “China-Maldives Friendship Bridge,” there were several other large infrastructure projects - a hospital, a new runway at the air-port, and mass housing.

Now, the Maldives is deeply in debt. According to a recent report, it owes the equiva-lent of about 20% of its GDP to China. There are also allegations of corruption sur-rounding the projects. Maldives new Finance Minister says:

“We believe that most of these projects are at inflated prices, and so we are looking at them.”

Malaysia also had a poor experience with the B&R. China was in the process of im-plementing a $20 billion rail link that would connect Malaysia’s east coast. It was also proposing to build two gas pipelines worth $2.3 billion. But Malaysia’s new prime minis-ter, Mahathir Mohamad, cancelled these projects soon after taking office.

Mahathir Mohamad’s decision may have been a wise one considering the fate that Sri Lanka suffered. China financed and built a port there at Hambantota. When it couldn’t repay the debts that it owed to China, Sri Lanka was forced to hand over the port as well as 15,000 acres of land surrounding it for 99 years.

The bottom line

The Belt and Road Initiative is taken very seriously by Chinese authorities. The coun-try’s communist party’s constitution has been amended to state that it is an important objective. International courts will be set up in Shenzhen and Xi’an to handle disputes connected with the Belt and Road.

Jonathan Hillman, the director of the Reconnecting Asia project at the Center for Stra-tegic and International Studies in Washington says:

“...BRI is about more than roads, railways, and other hard infrastructure. It’s also a vehicle for China to write new rules, establish institutions that reflect Chinese inter-ests, and reshape ‘soft’ infrastructure.” By Ravinder Kapur

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China’s Trillion-Dollar Belt