BELT AND ROAD INITIATIVE UPDATE

Leadership is having a compelling vision, a comprehensive plan, relentless implementation, and talented people working together. Alan Mulally

 

That’s been one of my mantras – focus and simplicity. Simple can be harder than complex: You have to work hard to get your thinking clean to make it simple. But it’s worth it in the end because once you get there, you can move mountains. Steve Jobs

 

The path from dreams to success does exist. May you have the vision to find it, the courage to get on to it, and the perseverance to follow it. Kalpana Chawla 

President Xi Jinping, the Premier of China, first proposed the Belt and Road Initiative in 2013. It consisted of the Silk Road Economic Belt (land) and the Maritime Silk Road (Sea). It is China’s approach to making a commercial system comparable to the mercantile system that existed in the world of 1776 where all roads led to England where the English did the manufacturing and the colonies supplied the raw materials and the markets for the finished goods.  The UK provided protection on the seas to guaranty safe passage of commercial goods to and from the UK. China is creating a global network of roads and sea-lanes that is comparable to the 1776 mercantile system of the UK. It is actually broader because it is global.  The roads and sea-lanes can provide easy access for the world to supply raw materials to China and get finished manufactured goods from China.  All roads lead to China.  China is building a deep sea navy to provide protection and safe passage for their commercial empire.

 

The cover or stated reason of the Belt and Road initiative is to provide connectivity along and beyond the routes of the old Silk Road. It focuses on cementing links to five key areas –

• Policies
• Infrastructure
• Trade
• Finance
• People to people bonds

 

In May 2017, China hosted the first Belt and Road Forum for International Cooperation (BRF) starting a top-level forum.  The Second BRF will be in Beijing in April 2019 and is expected to send a positive message of strengthening international cooperation and building an open global economy.

 

The number of countries is growing and widening since the stated goals are like motherhood.  No one can be against them. Italy signed up in March 2019 and was the first of the Group of 7 that has joined. The stated message is that the organization has a goal of promoting global growth, and building an open global economy. This is positive and thus nations are paying attention to the Santa Claus that hands out new harbors and cross-nation railroads with 50-year bonds that are reasonably priced.

 

Policy Coordination Among Nations[i]

China has signed a number of coordinating documents between China and the nation.  To date, 173 documents of understanding with 125 countries and 29 international organizations have been signed.   In 2017, there were only 46 agreements with 39 countries and international organizations signed at the time.  In addition, the Belt and Road initiative has been built into the documents of international organizations including the UN, the Group of 20, the Asia-Pacific Economic Cooperation and the Shanghai Cooperation Organizations.

For those nations that are mature such as France, China is promoting third party market cooperation with aims to cooperate with developed countries. Over the recent past few years, many projects have been carried out in third-party markets and tangible results have been received.

Japan has changed its attitude; previously, it did not want to participate but now seems to be working with China on third party markets.  A third party market, in my mind, is a bridge, a railroad or a port within the nation but built by private parties using Chinese technology and financing.  In Japan thus far, a total of 52 agreements totaling $18 billion have been concluded between Japan and China. These were made in the fields of infrastructure, finance, logistics and information technology. The results in Japan have convinced other countries to participate.

Transport Infrastructure

China has continued in its Road and Belt initiative to connect countries. It has worked diligently to connect the sub-regions of Asia by linking Asia, Africa and Europe in order to increase the efficiency of regional and sub-regional logistics.  They have completed in the last two years –

•  Mombasa – Nairobi rail      railway
• Addis Ababa – Ababa Djibouti railway

While they have the following under construction –

• China – Laos railway
• Hungary – Serbia railway
• China – Thailand railway
• Jakarta – Bandung high-speed railway in Indonesia. High speed is 300 mph.

Proposed new projects are eye catching.  For instance, there is a proposal to connect Russia and China with a high-speed railway – Moscow – Kazan railway, which is both high speed and has major freight roadways.

What is really happening?  Cargo trains in 2018 made 6,363 East to Europe trips, which increased from 3,670 from 2017, a 73% rise.  In addition, it is just beginning. The number of return trips from Europe to China was 2,680 in 2018 a 111% increase from 2017.

Free trade areas have grown and China is taking the lead in their creation. The first was with China and Georgia in Russia.  Subsequently, China completed FTAs with the Maldives and Mauritius. This was the first FTA for the country of Mauritius. Mauritius is the first African nation to sign an FTA with China. As of March 2019, China has signed 17 FTAs and 25 countries and regions. Nine more are under negotiation with 30 countries involved.

 

High Quality Standards

The methodology used is for Chinese engineering and construction companies to do the work and they are paid by loans from China. These are 50-year loans as low interest rates. The countries should be able to pay them back as traffic is built up on the new infrastructure.

China is promoting free trade area industrial parks.   By the beginning of 2019, 82 industrial parks have been built by Chinese enterprises in 24 countries.   The total investment to date is $30.45 billion. 4,098 enterprises have been attracted to these parks.

In certain areas of the world, China is operating differently. For instance, in the China-Kazakhstan cooperation, there are no geographical restrictions and government plays the guiding role. By 2019, an investment of $27 billion was committed to 55 key projects.  This model has been used with other countries such as Saudi Arabia where 18 key projects have been agreed.

With the number of projects under construction, quality is of first importance.  Nonetheless, quality must be maintained as the China standard.  They continually work on this.  The emphasis is on guidance for Chinese firms.  The ministry of Commerce, the People’s bank of China and the Ministry of Foreign Affairs have all agreed upon a Code of Conduct for Chinese firms.  This Code of Conduct guides Chinese firms working overseas to operate within and in compliance with laws and regulations.

To enable Chinese firms to operate more effectively overseas, the Chinese government has tax services, which are designed to help enterprises operating overseas, become better equipped to cope with the uncertainties of foreign markets.

Conclusion

China is making history.  Their vision is clear.  They are going into major debt to bring that vision to fruition.  The vision of a mercantile system of connected roads and maritime paths all leading to China where they have the people and manufacturing capacity to manufacture anything is a tried and valid model.  They are not announcing this.  They are announcing better connectivity to bring the world together in peace.  These are good “selling apples” to get nations to participate.   The third world countries that they are entering do not have the resources to fund the projects, the engineering to design the infrastructure nor the construction companies to build it.  China takes that problem away.    They just have to agree to do it in their country and pay back the loan over 50 years.  As China makes progress in their completion of these projects, their job will become easier to convince other nations to participate. Their successes will lead to further successes.

In the meantime, the U.S. will look upon China making friends among many nations of the world as their projects are completed. This will grow China’s importance in the world and their currency, the Yuan, since these financings are in Yuan.   The program is so broad since it includes most nations on earth and so positive since the projects affects most nations is positive ways, China will become a world international leader.   Further, their engineering and construction capability will become world class and second to no nation, including the U.S.

The politicians in the U.S. have not commented on the Belt and Road Initiative of China.  We do not know what they think.  Nonetheless, within 10 years, I believe the China will come to the forefront among nations and become a real leader of nations. They are touching 100s of countries in positive ways.  The results of the BRI will be positive GDP growth within nations. The GDP of the world will increase.   Infrastructure will do this.

China may have third world country financing problems since some are already screaming that they cannot afford it – after it was built and payments start.  China may have to forgive some of the loans. In addition, China will be taking on debt measured in trillions.  They may wake up and say, “How can we pay this back?” Right now, they are counting on the profits from their manufacturing capability and people resources.  It remains to be seen whether this long-term strategy will be successful Short term they have been successful in signing up nations and building the projects.  Early results are encouraging.

If and when the U.S. wakes up, they may want to join the BRI linking Latin and North America with Asia via an Alaskan tunnel to Asia that is “in plan” for BRI. It would be fun to work with China in positive ways for mankind rather than play nuclear brinkmanship in the South China Sea.

[i] Beijing Review, Advertisement, Economist, April 20 2019, pp 18-20