The geopolitical roadblocks

By Raffaello Pantucci and Qingzhen Chen

First published in China Analysis, June 10 2015

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Sources:

Zhang Yunling, “Analysis says One Belt One Road Faces Five Challenges,” Xiaotang Caizhi, 23 March 2015.

Tang Yiru, “Where does the money come from for the One Belt One Road? Geopolitical risks cannot be ignored,” Guoji Jinrong Bao, 9 February 2015.

Hu Zhiyong, “How to understand the political risks of ‘One Belt One Road’”, Aisixiang, 2 March 2015.

Jia Qingguo, “A number of issues that the OBOR urgently needs to clarify and prove,” Aisixiang, 24 March 2015.

Ge Jianxiong, “The History of One Belt One Road is misunderstood,” Financial Times (Chinese version), 10 March 2015.

Pang Zhongying, “One of the resistances to the One Belt One Road is from India,” Aisixiang, 4 March 2015.

Chinese authorities – and authors – describe China’s “One Belt, One Road” (一带一路, yidai yilu, hereafter OBOR) strategy as one of the most important foreign policy initiatives in the twenty-first century, and Chinese authors agree. Across the country (and, increasingly, across the world), Chinese universities and research institutions are conducting projects to explore how the vision might be implemented. Meanwhile, China’s leadership is offering economic incentives to help make the vision a reality, either through bilateral connections or through the new constellation of multilateral international financial institutions that China is developing. However, the Chinese comments also reflect that the strategy will have to overcome many challenges. Is Chinese business ready to go global? Are the countries along the routes ready to embrace the initiative? How much does China know about the countries involved and about how they will be changed by Chinese investment? And is China properly prepared to implement this strategy?

Internal challenges

Zhang Yunling outlines several internal and external constraints to the OBOR project. One problem is that results are expected quickly; President Xi Jinping has said that he wants to see the strategy having an impact this year. However, the foundation of the OBOR project is large-scale infrastructure investment, which cannot yield quick and visible returns. Zhang suggests that expectations should be lowered and that the plans should be given a ten-year timeframe for success. China also needs to be open about how the strategy is being developed and about who can be involved. Although the OBOR is a Chinese initiative, China must make sure it remains open to everyone along the routes, including to existing international institutions.

According to Guoji Jinrong Bao, Chinese authorities have tried to stress the openness of the OBOR strategy, particularly to private capital. Private funding has already started to materialise: for example, the “Maritime Silk Road Investment Fund Management Centre”, a private capital company, is planning to set up a “Maritime Silk Road Bank” with $100 billion in assets to invest in projects in countries, regions, and cities along the routes. Chinese authorities are pleased about the development, although it must be admitted that there is a degree of risk attached to this new bank. Because of its size, the new institution could require public support if it should find itself in financial distress.

The OBOR has also attracted great interest within China from local and provincial governments. More than 22 provinces in China have said in their government working reports that they want to take part in the initiative. However, Guoji Jinrong Bao points out that the rush to implement the OBOR could lead to duplication and wastage. For example, many international railway projects have sprung up to go along with the initiative. But these routes tend to be expensive and are often underused. In the rush to support the OBOR, a number of provinces have poured subsidies into projects that are not necessarily economically viable. And many local officials have developed plans for cooperation with Central Asian countries that are focused on their own narrow regional interests rather than on achieving the larger national strategy. It seems that China’s provinces and regions are getting caught up in the excitement around the OBOR, and the rush to join in could have damaging repercussions.

External challenges

Zhang also describes three external challenges. The most serious is the suspicion with which other countries view China’s aims and strategic purposes. Many fear that the OBOR is a veiled attempt by China to dominate its neighbouring regions. These doubts mean that many countries are reluctant to cooperate in the initiative. Among potential partner countries, members of the Association of Southeast Asian Nations (ASEAN) are probably the most concerned.

Another challenge, Zhang says, is China’s existing disputes with its neighbours. If the Maritime Silk Road is to become a reality, the first stop will be the South China Sea, an area that is the site of many territorial issues. Zhang is not convinced that China and its neighbours in the region can control the situation, avoid escalation, and create a new regional trading order.

Many Chinese commentators are also concerned about political risk. Zhang points out that most of the countries involved in the OBOR are still in transition. China’s economic growth, together with the impact that this growth has on its neighbours, will necessarily influence the internal political dynamics of these countries. Opposition parties will use China in their efforts to make statements against current authorities. Zhang says that China needs to do more research into its neighbours’ domestic political situations. By doing so, it could help the large Chinese companies investing on the ground in these countries, which do not necessarily understand the political nuances of the environments in which they are operating. In this way, China could avoid dangerous unintended consequences.

Jia Qingguo says that along the routes to China’s west, whether via Central Asia and Russia to Europe or via Pakistan to the Middle East, distances to market are long and geographical terrain is poor, with many areas only sparsely populated. Even in countries with sizeable populations, low economic development and limited market size constrain opportunities for profit. Many of the countries along the route have underdeveloped market economies that are beset by problems of corruption and of low administrative efficiency. Operating costs are often high and customs clearance is slow. The immaturity of these markets is likely to have a negative impact on the Chinese firms trying to implement the OBOR through these territories.

Hu Zhiyong says that the threat of terrorism represents another political risk along the OBOR route. As the United States and NATO withdraw from Afghanistan, it is becoming increasingly possible that the current government will collapse and the Taliban will return. If this happens, it will have a knock-on effect in South and Central Asia, increasing instability along the Silk Road routes into the region. The “three evil forces” (三股势力, sangu shili) could be the most destabilising force for the initiative – but the countries along the routes are not making a coherent effort to address these problems.

Unsurprisingly, as in most discussions on Chinese foreign policy, the authors bring up the non-interference policy. Ge Jianxiong says that China rightly does not want to interfere with other countries’ domestic issues, but that the reality is that others are interfering with Chinese business abroad. For example, China’s water pipe construction project was burnt down in Libya in 2003, and in 2014, over 200 container trucks had to be abandoned on the roads in Kyrgyzstan because of disturbances by angry locals. What can or should China do when countries become politically unstable or break contracts, causing China to lose materiel, people, or money? Ge asks how China can expect to protect the achievements of the OBOR, given that it passes through such unstable countries, and at the same time protect Chinese companies and their interests, while not interfering in other countries’ domestic politics. Chinese foreign policy needs to find a way to address this complicated dilemma.

Big countries: the US, Russia, and India

Another challenge for China and for the initiative is the potential for conflicts or geopolitical tensions to emerge with other powers. Hu Zhiyong believes that the US will have an impact on the OBOR. As China advances the project, the US will be forced to increase the attention it pays to Central Asia and to China’s influence in the region. This will have consequences for the smooth implementation of the strategy.

Chinese commentators also expect resistance from Russia. Quoted in Guoji Jinrong Bao, Wang Yiwei expects that the Russian-led Eurasian Union (EEU) will divide the relevant countries along the route, leaving them torn between choosing to pursue stronger ties with Russia or with China. Further, the EEU might not be willing or even able to cooperate with the OBOR. He says that the two initiatives are very different: one is a trade and economic corridor initiated by Beijing, while the other is a new economic zone controlled by Moscow.

Hu Zhiyong agrees: the unbalanced trade relations between China and Russia, he thinks, will engender resentment between the two powers, as well as in the regional countries stuck between the two. Russia will be concerned about the fact that the OBOR initiative covers areas within Russia’s traditional sphere of interest. He adds that Russia has an ambiguous attitude to China’s territorial disputes with other countries. Moreover, its own historical, territorial, military, and ideological disputes with China will create barriers to the OBOR.

India may also challenge China’s OBOR. The article in Guoji Jinrong Bao says that India remains cautious on the project and still has not expressed its full support. Pang Zhongying contends that India will be a challenge to China’s OBOR. India sees the initiative not as an opportunity, but as a threat or a form of competition. Modi’s administration has even come up with a counter proposal to the Maritime Silk Road: the so-called Project Mausam. India’s position at the moment is to indulge China’s OBOR – in other words, to let it proceed while trying to gain a better understanding of it. But China has undertaken little research into the Mausam initiative, and right now seems reluctant to engage with it at all.

Conceptualisation and insufficient research

Jia Qingguo says China urgently needs to come to an understanding of the true meaning of the OBOR. There are many different interpretations of the project. Some see it as an opening up through China’s western or southern regions. Others see it as an attempt to reach out to developing countries. And some see the project not so much as a new mechanism, but as a new strategic ideological concept and initiative aimed at launching a new development era. Commentators and stakeholders also disagree on what the OBOR should try to achieve. Some say it is mainly a form of economic cooperation, while others think it should go beyond that and aim to increase cultural exchange. Jia argues that this lack of understanding is a real problem for the development of the initiative. He calls for further research to ensure that the OBOR will generate tangible benefits for China and its partner countries along the routes.

Ge Jianxiong says that most people do not know the proper history of the Silk Road, and moreover, just because the Silk Road worked in the past, that does not mean that it would necessarily work today. He thinks that there is a misconception that China built the Silk Road. But in fact, the Silk Road developed organically to meet foreign demand for Chinese silk. Now, the situation is different. This time, the motivation for building the OBOR comes from China itself – it has neither the cooperation of nor the demand from other countries. Ge thinks it is impossible – or at least dangerous – to build such a huge project with a supply-based approach, or without a clearer sense of demand from partner countries. More research needs to be done on the needs of partner countries.

China’s academic community believes that the OBOR faces numerous challenges. Internally, there is too great a focus on quick results, which could lead to wastage. Externally, the OBOR faces political risks, the “three evil forces”, and challenges from big states which are either concerned about the project or have interests that conflict with it. Smaller powers are equally concerned, although they express this disquiet differently. Chinese scholars clearly reflect the Chinese authorities’ view that the OBOR is a highly significant foreign policy idea that has moved beyond rhetoric. However, they find that its articulation is still unclear and that in its current conception, it faces numerous problems. Developing greater clarity will clearly be a driver of academic thinking for the near-term future.

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  1. Pingback: Economic Impact of OBOR on Afghanistan | Mantraya

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