China's Silk Road

Ancient Routes Carry Nation's Influence West

By | Updated Sep 28, 2016 4:03 AM UTC

The name Silk Road conjures images of caravans, desert steppes and adventurers like Marco Polo navigating the ancient trading routes connecting China with Central Asia, the Middle East, Africa and Europe. China’s modern-day adaptation aims to revive those routes via a network of railways, ports, pipelines and highways. President Xi Jinping champions his pet project as a means to spur development, goodwill and economic integration, as well as find markets for China's over-producing factories. Critics — both along and beyond the Silk Road routes — are wary of China's push to spread its influence further west. 

THE SITUATION

Xi has outlined a decades-long drive to grease the wheels of trade with infrastructure projects costing tens or even hundreds of billions of dollars. Typical plans include the development of ports in Malaysia and Tanzania or highways in Pakistan and Tajikistan. Along the way, China is also encouraging its companies to invest in industrial projects such as utilities. To bankroll these ambitions, the Chinese government created the $40 billion Silk Road Fund in 2014; already, it has backed a dam in Pakistan and a liquefied natural gas operation in Russia. Other funding sources include the BRICS Development Bank and China's $100 billion Asian Infrastructure Investment Bank (AIIB) — an alternative to the World Bank that the U.S. and Japan initially criticized for its standards of governance (such as less stringent social and environmental safeguards than the World Bank stipulates). China stands to gain not just by putting to work its underused industrial capacity and excess production of steel and other materials, but also by pushing its goal of deepening the global reach of its currency. Partner nations are weighing economic benefits against an increasingly dominant superpower's demands. For example, a deal for a rail project in Thailand fell through because local officials refused to grant China's request for commercial property rights. Xi said in August that more than 30 countries had signed formal agreements with China and 20-plus were cooperating on plans such as railways and nuclear power. 

Source: Bloomberg

 

THE BACKGROUND

Xi first proposed reviving the Silk Road in 2013 and went on to refer to it as "One Belt, One Road" — a combination of an overland "belt" and a maritime "road." Although the original trading routes were established more than 2,000 years ago, the Silk Road's name — derived from the delicate fabric highly prized by the Roman elite — was coined only in the 19th century by a German geographer. In its heyday, paper, gunpowder, porcelain and spices were transported to the west; horses, woolen rugs and blankets, gold, silver and glass made the return journey. Just as monks used the routes to spread Buddhism, the modern Silk Road is not just about commerce: China floats visions of film festivals and book fairs, scholarships and jointly run schools, as well as cruise ships plying the maritime lanes via Southeast Asia and Africa. 

THE ARGUMENT

China emphasizes the Silk Road's role in boosting industrialization in the developing nations sandwiched between East and West. Economists agree that the initiative has the potential to stimulate Asian and global economic growth. Risks include stoking graft in a region beset by corruption (the Kyrgyz prime minister was forced to resign in 2016 over a contract award to a Chinese company) and long-shot developments turning into white elephants (like an international airport in southern Sri Lanka that hosts only a couple of flights a day). Certain projects — especially costly overland routes — may simply not be economically viable. Critics point to China's increasingly assertive military, particularly in Asia's waters, and speculate whether the development of ports might presage the establishment of naval bases (the so-called “string of pearls” theory). China's rejection of a tribunal ruling on its South China Sea claims has also raised questions about its regard for the international rule of law. The plan's success may in part depend on the attitudes of Russia (initially skeptical but increasingly warm) and India, which is closely watching developments in Pakistan. There's also the matter of how long China will be prepared to forge ahead with costly overseas investment when growth at home is slowing. 

THE REFERENCE SHELF

 

First published Sept. 8, 2016

To contact the writer of this QuickTake:
David Tweed in Hong Kong at dtweed@bloomberg.net

To contact the editor responsible for this QuickTake:
Grant Clark at gclark@bloomberg.net