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China's 'One Belt, One Road' initiative



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148 PARLIAMENTARY LIBRARY BRIEFING BOOK | KEY ISSUES FOR THE 45TH PARLIAMENT

China’s ‘One Belt, One Road’ initiative Geoff Wade, Foreign Affairs, Defence and Security

The ‘One Belt, One Road’ (OBOR) initiative is a foreign policy and economic strategy of the People’s Republic of China. The term derives from the overland ‘Silk Road Economic Belt’ and the ‘21st-Century Maritime Silk Road’, concepts introduced by PRC President Xi Jinping in 2013. These are the two major axes along which China proposes to economically link Europe to China through countries across Eurasia and the Indian Ocean. The OBOR initiative also links to Africa and Oceania. In March 2015, the PRC issued an action plan for realising this initiative. While the OBOR initiative is being coordinated by China’s National Development and Reform Commission, it also heavily involves the ministries of Foreign Affairs and Commerce.

The initiative envisages the building of six major economic cooperation corridors and several key maritime pivot points across Eurasia:

On land, the plan is to build a new Eurasian land bridge and develop the economic corridors of: China-Mongolia- Russia; China-Central Asia-West Asia; the China-Indochina peninsula; China- Pakistan; and Bangladesh-China-India- Myanmar… On the seas, the initiative will focus on jointly building smooth, secure and efficient transport routes connecting major sea ports along the belt and road.

Formally, OBOR emphasises five key areas of cooperation:

 coordinating development policies  forging infrastructure and facilities networks  strengthening investment and trade

relations  enhancing financial cooperation and  deepening social and cultural exchanges.

But it is infrastructure such as railways, roads, ports, energy systems and telecommunications networks which is receiving most attention.

The overland ‘Belt’ involves the creation of an economic and trade corridor extending from China’s west through Central Asia, and finally to Europe. The first step is to further link Central Asian states to the Chinese economy, while the longer-distance initiatives include railway connections between China and Europe. The ‘Belt’ initiative calls for the integration of the Eurasian land mass into a cohesive economic area.

For the maritime ‘Road’, China’s development of ports and hubs across the Indo-Pacific is a key aspect of the initiative. Purchase and construction of port facilities and associated economic zones in Australia, Malaysia, Indonesia, Bangladesh, Sri Lanka,

Key Issue The ‘One Belt, One Road’ (OBOR) initiative is a Chinese economic and strategic agenda by which the two ends of Eurasia, as well as Africa and Oceania, are being more closely tied along two routes- one overland and one maritime. Supporters suggest that the initiative permits new infrastructure and economic aid to be provided to needy economies. Critics claim that it facilitates Chinese economic and strategic domination of the countries along these routes. OBOR provides a global context for China’s growing economic links with Australia.

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Myanmar, Pakistan, Kenya, Tanzania, Oman and Djibouti are intended to provide China with maritime access and economic benefit across the Indian Ocean. These will connect to Piraeus, Greece’s major port, which has been bought by Chinese shipping group COSCO and which will allow direct access to the markets of Europe.

Foremost among the key projects which have been promoted as focal parts of the OBOR initiative are the China-Pakistan Economic Corridor which provides China’s western provinces with access to the Indian Ocean through the Pakistani port of Gwadar, and the Bangladesh China India Myanmar Corridor, which will give Yunnan Province access to the Bay of Bengal.

Funding for the initiative is a key issue. China’s policy banks are providing massive funds for Chinese enterprises to operate along these axes, while further funding will be provided through the Asian Infrastructure Investment Bank (AIIB), funded by countries globally. The AIIB was created precisely to service projects under OBOR. The projects funded by the first loans issued by AIIB were in Indonesia, Bangladesh, Pakistan and Tajikistan, all countries which China is trying to include within its OBOR initiative.

Hong Kong is also being tapped. In his policy address in January 2016, the Chief Executive of the Hong Kong Special Administrative Region, CY Leung, underlined that Hong Kong would play an active financial role in OBOR and would facilitate educational exchanges between Hong Kong and ‘OBOR countries’. A ‘Hong Kong Belt and Road Summit’ was also convened in May 2016 to allow Zhang Dejiang, Chairman of the Standing Committee of the National People’s Congress, to outline ‘Hong Kong's Four Unique Advantages’ as a hub for OBOR projects. Then in July 2016, the Hong Kong Monetary Authority launched the Infrastructure Financing Facilitation Office , a new entity to facilitate fundraising for projects related to the OBOR initiative. The

Hong Kong Trade Development Council has also arranged visits to Thailand for Chinese investors to promote OBOR investment.

Singapore is also essential to promoting offshore economic activities by Chinese entities. The China Construction Bank signed an MOU with International Enterprise Singapore in April 2016, providing S$30 billion in financial support to Singaporean and Chinese companies jointly investing in OBOR projects. A new centre in Singapore to provide project financing and related services to projects is also being planned.

While China claims that OBOR will ‘include 65 countries, 4.4 billion people and about 40 percent of global GDP’, the current realities are much more pedestrian. China has reportedly established 75 overseas economic and trade cooperation zones in 35 countries as part of the OBOR initiative. OBOR, however, remains inchoate and still strives for external endorsement and support.

China’s other OBOR interests

It is clear that China has broader uses for the increased influence it hopes to enjoy through the OBOR initiative.

The Bank of China has clearly noted that OBOR is intended to make the Renminbi the main trading and investment currency in the countries involved. The expansion of Chinese banks into new OBOR markets to serve the globalisation of the Chinese economy is also being promoted. OBOR is further intended to facilitate online retailing and the collection and use of big data across OBOR countries. China has also been stressing the role of Overseas Chinese in promoting OBOR projects.

The expansion of China-controlled telecommunications networks is an important aspect of OBOR. CITIC Telecom CPC recently acquired Linx Telecommunications, which services Russia, Kazakhstan and

150 PARLIAMENTARY LIBRARY BRIEFING BOOK | KEY ISSUES FOR THE 45TH PARLIAMENT

the ‘Stan’ region, the Baltic Sea and Eastern Europe. This will provide China with telecommunications services across much of its targeted ‘Belt’ region. Visits by journalists from OBOR countries to China, and publishing arrangements with newspapers abroad are intended to promote China’s views over a broader sphere.

Mining and energy projects are also central to this endeavour, with China widely purchasing mines as well as generation and transmission projects across OBOR states. Chinese companies now own almost a quarter of Kazakhstan’s oil production, while over $15 billion of oil, gas and uranium deals have recently been signed with Uzbekistan.

And in this year’s white paper on its satellite navigation and location service, China says that it plans to launch another 30 Beidou satellite navigation system satellites over the next five years, with the first 18 satellites being launched before 2018 to cover OBOR countries.

Reactions

Reactions to the OBOR proposal have varied globally. Ethnic Chinese business figures in Southeast Asia and their political representatives have generally been enthusiastic about the business possibilities. Malaysia has been active in accepting and promoting the idea, with a 162-member Malaysian delegation heading to Beijing in July 2015 to participate in an OBOR dialogue.

Pakistan and Sri Lanka have also been particularly welcoming of Chinese capital and infrastructure projects, as have the various Central Asian states. Vietnam, meanwhile, has expressed grave doubts about the initiative. With few exceptions, India has been stridently suspicious of the overall OBOR initiative and has repeatedly expressed its concerns about China’s growing economic and strategic power being pursued through

OBOR. Russia needs funding assistance for developing its resources and appears to see OBOR as an avenue for this.

Western reactions have been mixed. Business people are generally positive, while strategists have been less sanguine. In Europe, China has talked up OBOR’s possible integration with the EU’s €315 billion investment plan (the Juncker plan). China is simultaneously pushing for an EU-China FTA that would make it easier for PRC companies to invest in European markets. Central and Eastern Europe are a major focus for OBOR programs, with the Czech Republic, Serbia and Poland receiving major financial inputs.

Australia and OBOR

Within Australia, enterprises, banks and law firms are promoting the OBOR initiative as an economic opportunity for the country and, with Chinese endorsement, an Australia- China OBOR Initiative has been established to promote Chinese engagement in the Australian economy. China is also utilising the concept to promote its growing economic engagement with northern Australia. Another avenue for encouraging Australia’s further engagement with OBOR is China’s funding and support of various related local academic conferences and seminars.

Criticisms

Not all reactions to OBOR have been enthusiastic. Former World Trade Organization chief, Supachai Panitchpakdi, has stated that the OBOR initiative and, specifically, its projects along the Mekong River, all serve China’s own interests.

On the economic front, China has been criticised for using its massive financial assets to dominate smaller economies through long-term control of infrastructure, natural resources and associated land assets, and through offering less than desirable credit terms for infrastructure loans. Further, the

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‘production capacity cooperation’ which China lauds as an integral aspect of OBOR, often involves the simple transfer of Chinese- owned production capacity to countries where production is cheaper and markets are closer. Such processes can also result in China exerting some control over local markets, labour and export policies.

Despite the claimed economic nature of the OBOR agenda, critics see the initiative as being simultaneously a strategic program. China clearly portrays OBOR as both being premised on and further validating China’s claims to the islands of the South China Sea, while on the other side of the Indian Ocean, Djibouti is providing China with both a trade port as well as its first overseas military base. It has been repeatedly noted in China that OBOR is also intended as a regional security mechanism, and the future role of the People’s Liberation Army in protecting China’s OBOR facilities abroad has been widely discussed. The two ‘economic corridors’ now being developed provide China with direct access to the Indian Ocean.

Broader concerns relate to the longer-term aims of China, with the possibility that the OBOR agenda is aimed at creating a Eurasia- wide, China-led bloc to counter the US. At the June 2016 Shangri-la Dialogue in Singapore, Professor Xiang Lanxin, director of the Centre of One Belt and One Road Studies at the China National Institute for SCO International Exchange and Judicial Cooperation, spoke of OBOR as being an avenue to a ‘post- Westphalian world’. As such, some see this initiative as a profound challenge to the current global political and economic status quo.

Conclusion

China’s wielding of this economic statecraft strategy derives from several collocations. On the political front, since late 2012, President Xi has been promoting the ‘Chinese dream’ (中国梦), involving the ‘great revival of the

Chinese nation’. Such revival requires a restored global position and identity for China. Earlier iterations of OBOR involved the catch-phrases ‘common development’ and ‘win-win cooperation’ to characterise the relations between China’s development and that of its neighbours. China also promoted a ‘China-ASEAN community of shared destiny’ (中国-东盟命运共同体). But these smaller initiatives have burgeoned into the Eurasia-wide OBOR, bringing into play the PRC’s massive capital reserves—both state and private—achieved through 40 years of rapid economic growth, and offering an outlet for the vast excess production capacities which exist today in China.

Regardless of the credence which one assigns to the various interpretations of the OBOR initiative, progress thus far makes it clear that as Australia becomes increasingly tied economically with China, there is a need to maintain a close watch on the progress of the OBOR initiative globally. It also suggests that Australia needs to adopt a more economically and strategically prudent attitude in determining how the Australia-China economic relationship is to further develop.

Further reading The Economist Intelligence Unit (EIU), Prospects and challenges on China’s ‘one belt, one road’: a risk assessment report, EIU, London, 2015.

WT Wilson, ‘China’s huge ‘One Belt, One Road’ initiative is sweeping Central Asia’, The National Enquirer, 27 July 2016.

RD Blackwill and JM Harris, War by other means: geoeconomics and statecraft, Belknap/Harvard University Press, Cambridge (Mass.), 2016.