China has launched the financing stage of its ambitious Silk Road infrastructure project, which could revolutionise regional trade.
Despite the presence of China Development Bank and China Exim, the US$40bn is likely to come mainly from Beijing’s vast pool of foreign reserves, but analysts are predicting a serious influx of capital along the route, which could transform Central Asian trade.
The New Silk Road will connect Eurasia using north, middle and south channels, and will be formed of both land and sea routes – the Silk Road Economic Belt and the Maritime Silk Road – stretching from the east of China and Southeast Asia, to East Africa, the Middle East and Europe.
It is further evidence of China’s desire to expand its international influence, as it seeks to circumvent Western dominance and the Malacca situation, according to which the sixth fleet of the US navy could theoretically block 80% of China’s energy imports.
It is a key step in regional reform which analysts believe will lead China to seek a removal of trade barriers around the area in question, eventually creating one of the largest trade blocs in the world.
“Shifting real trade flows is one of the core goals of the Silk Road Initiative. For strategic reasons the Chinese leadership aims to modernise the Eurasian infrastructure network. Enhanced connectivity across Eurasia helps China to access new markets and to diversify energy imports,” Moritz Rudolf, a research associate at the Mercator Institute for China Studies (Merics) tells GTR.
Inaugurating the Silk Road Fund in Beijing this week, President Xi Jinping said: “The priority (of the company) is to seek investment opportunities and provide investment and financing services during the progress of the belt and road initiatives.”
The New Silk Road has been described by some experts as “China’s Marshall Plan” – referring to the US-led post-war infrastructure spending spree which lifted Europe from the economic doldrums in the 1940s.
Among the latest “stops” to be added to the New Silk Road are Moscow, Dushanbe in Tajikistan, Jakarta, Indonesia and Colombo, while leaders of neighbouring countries have been queuing up to voice their willingness to see the colour of China’s money.
As China’s Foreign Minister Wang Yi visited Tehran this week, Iran’s President Hassan Rouhani spoke openly of the country’s desire to collaborate with Beijing on the project’s development. Turkey is another recent convert to the idea, joining nearby Azerbaijan, Georgia, Kazakhstan and Kyrgyzstan as partners on a scheme that the World Bank says will “help developing countries to overcome growth bottleneck and help them create the right conditions for economic development”.
For those in the west, the new transport routes will massively reduce time to market for products created in East Asia. The first ever freight train running from China to Spain completed its maiden voyage in December, traversing the 13,000km separating Yiwu, south of Shanghai, and Madrid in 21 days. This is the kind of model China wants to roll out across the region.
However, despite the largesse, this does not represent a massive shift in policy from China, which has been attempting to steer its economy away from an investment-based growth model to one driven by domestic consumption.
“No systemic transition of the Chinese growth-model derives directly from the Silk Road initiative. High levels of over-capacities in mainland China create incentives to shift infrastructure investments to China’s neighbouring states and its politically vulnerable and economically underdeveloped Western provinces,” says Rudolf.