President Xi Jinping’s “Belt Road Forum”, the highest profile Chinese diplomatic event of 2017, has just finished. It attracted 29 foreign heads of state and government and representatives from more than 130 countries and 70 international organizations. What did we learn?
There are a number of interesting takeaways. Firstly, though Xi is taking personal credit for the initiative, it is in fact a continuation of proven Chinese state policy, a logical continuation of Deng Xiaoping’s policy of “openness”, and Jiang Zemin’s motto “to go outside”. As such, the expansion into OBOR could have been predicted.
Secondly, although it’s rather stating the obvious, as China grows, it needs more markets and more raw materials. This basic need has essentially been given a new set of clothes – the One Belt, One Road initiative.
The other aspect – the Chinese Communist Party needs in order to maintain its hold on power is sustainability, and especially of supplies. Falling short in this area could have disastrous consequences for the CCP with no other competing political party to point the finger at when things go wrong. Again, we can look back at former President Jiang Zemin’s views on the matter: “The international community needs to set up a new security concept with mutual trust, mutual benefit, equality and collaboration at its core and work to create a peaceful international environment of long-term stability and security”.
China has in fact achieved part of this with the inauguration of the Shanghai Co-Operation Organization, at least on a regional basis. Now, Beijing has rolled out a plan that invites global participants, albeit for infrastructure development of the Eurasian landmass.
It is of interest to note that China has de facto invited “everyone” to participate. There have been unfavorable comparisons made to the US Marshall Plan, in which the US, after World War II, provided billions of dollars to European economies to rebuild, in return for providing trade incentives for American businesses to access those same markets. However, the OBOR plan is rather different, at least in the Chinese perspective; China has great economic power, huge reserves, vast experience in infrastructure construction and large markets, and is ready to provide this to the surrounding world to progress together.
In total, China’s OBOR initiatives revolve around the creation of six new trade corridors:
- China-Central Asia-West Asia;
- China-Indochina Peninsula;
- China-Pakistan Economic Corridor;
- The Eurasian Land Bridge.
Much of this, however, involves the diplomatic and financial cooperation of Russia, which has well over 300 years of operational, investment, and diplomatic experience and trade throughout the Eurasian landmass. To this end, Russia wants China to develop Russia’s own Eurasian Economic Union (EAEU) with the OBOR routes, and to engage China with the EAEU. China is complying, and has entered into negotiations for a free trade agreement (FTA) with the EAEU. Russian President Vladimir Putin has stated, “The integration of the Eurasian Economic Union and Silk Road projects means reaching a new level of partnership and actually implies a common economic space on the continent.” When this FTA happens, it will bring Chinese production capacity right to the borders of the European Union.
China has also been following through on Jiang Zemin’s promise to develop long term peace and stability. A core theme of China’s development has been to preserve peace, not always an easy task, especially along China’s difficult western borders and Xinjiang Province. Xinjiang is far safer today than it has ever been, with the Chinese policy of creating wealth to promote peace a core policy of this. This is also starting to manifest itself upon China’s neighbors, with FTAs being entered into along the OBOR routes, including with Pakistan and all the way west to Georgia.
These agreements will have an impact. Local consumers will be able to access cheap Chinese goods, and trade will increase. From there, wealth will start to be created, and the desire for peace will overcome the desire to maintain tribal and religious disagreements. It may well take some time to accomplish, with bumps along the way, however most of Central Asia’s neighbors are now members of the Shanghai Co-Operation Organization, which under Beijing’s initiative again provides a multilateral forum for promoting regional security.
It is of some significance that Afghanistan, that restive and war torn nation also very close to China, has just joined as a member of the Chinese-led Asian Infrastructure Investment Bank, while the much lauded China-Pakistan Economic Corridor is also having an impact. It is pertinent to understand that China’s involvement in these particular OBOR related diplomatic, financial, and infrastructure investments are as much to do with keeping China’s western regions secure as they are with bilateral trade.
The development of these infrastructure institutions – Pakistani power and energy; Afghanistan in the AIIB, and entering into regional FTAs – essentially means that the entire OBOR initiative is a geopolitical project at its heart, with trade the secondary benefit. That fits right in with China’s previous declarations concerning sustainability. It needs to invest in securing the Eurasian region first before sustainable trade routes can be developed.
It is also interesting to note that the entire OBOR initiative doesn’t appear to possess a detailed strategic execution plan. There are no clear definitions, projections of investment costs or return on investment data. China has instead just broadly announced “it is ready to invest” into the OBOR, while at the same time giving no detail on any expected returns in respect of financial involvement or what the national economies of the participating countries should do to become involved. This is, in my opinion, quite deliberate.
The ambiguity of the OBOR initiative in effect guarantees its success as no one is able to assess it. This additionally gives China the right to change the rules of the game depending on the situation, in what remains a complicated part of the world. The goal therefore for the Forum is fairly obvious in this context: to evaluate how the global community will react to the concept of uniting around China and its vision of a more open world. That represents a change of focus, and especially so among the Western countries who initially set up the rules of the modern world, and the US and Western Europe in particular. It is a typical China conundrum: how to be involved, or even to understand it?
The trick to understanding the OBOR, and participation in it, is that one can join in only while accepting China’s leadership in reshaping the world order. There is no potential for joint diplomatic activities here, with the possible exception of Russia, as there is simply no mechanism for them within China’s OBOR vision.
There is, however, another option for participating nations, through being seen to mutually support projects. This is exactly what President Putin indicated at the Beijing Forum by proposing cooperation within the OBOR initiatives by bringing institutions such as the Eurasian Economic Union (EAEU), the Shanghai Cooperation Organization (SCO), and the Association of South East Asian Nations (ASEAN) on board.
It is also an initiative I suggested that the United Kingdom could look at in wake of its imminent Brexit.
In hindsight, the OBOR initiative is all about China. OBOR, for Beijing, is a developing geopolitical offensive on the current world order, and all its diplomatic, economic, and trade spheres of activity. China is quite prepared to spend to achieve this – turning its wallet towards the OBOR regions and a commitment to US$2 trillion of investment within the next five years.
That has very clear implications for businesses and consultants banking on China spending its foreign capital reserves in the US or Western Europe. China is only interested in commodities it needs. Most of those are far closer to home, buried in Eurasia, and come with the additional bonus of cementing the security of the CCP, and China’s own national and border integrity.
OBOR is already well on the way to being fully institutionalized. Neither Washington DC or Brussels will appreciate it, but the axis of power, at least when it comes to Eurasia, the Middle East, and Africa, is moving towards Beijing and Moscow, with Delhi (once India wakes up to the reality) being a junior partner. The inference is this: do you want China to build infrastructure in your country or not? For much of the Eurasian land mass, OBOR is going to be a no-brainer. The implications of China emerging as a global leader beyond the current infrastructure and trade investments however, remain to be seen. But for trade, foreign governments are going to need to accept Xi Jinping, and by default China’s Communist Party, as Global and Political leaders.
China Briefing is published by Asia Briefing, a subsidiary of Dezan Shira & Associates. We produce material for foreign investors throughout Asia, including ASEAN, India, Indonesia, Russia, the Silk Road, and Vietnam. For editorial matters please contact us here, and for a complimentary subscription to our products, please click here.
Dezan Shira & Associates is a full service practice in China, providing business intelligence, due diligence, legal, tax, IT, HR, payroll, and advisory services throughout the China and Asian region. For assistance with China business issues or investments into China, please contact us at firstname.lastname@example.org or visit us at www.dezshira.com
Dezan Shira & Associates Brochure
Dezan Shira & Associates is a pan-Asia, multi-disciplinary professional services firm, providing legal, tax and operational advisory to international corporate investors. Operational throughout China, ASEAN and India, our mission is to guide foreign companies through Asia’s complex regulatory environment and assist them with all aspects of establishing, maintaining and growing their business operations in the region. This brochure provides an overview of the services and expertise Dezan Shira & Associates can provide.
Silk Road and OBOR Business Intelligence
Dezan Shira & Associates’ Silk Road and OBOR investment brochure offers an introduction to the region and an overview of the services provided by the firm. It is Dezan Shira’s mission to guide investors through the Silk Road’s complex regulatory environment and assist with all aspects of establishing, maintaining, and growing business operations in the region.
Assisting Foreign Investors into Russia
Dezan Shira & Associates´ Russian investment brochure offers an overview of the services provided by the firm – both foreign investment into Russia and Russian investment into Asia. It is Dezan Shira´s mission to guide investors through Russia´s complex regulatory environment and assist with all aspects of establishing, maintaining and growing business operations in the region.
Dezan Shira & Associates