China’s new Silk Road to change global trade

The Sunday Independent - - LEADER -

CHINA is ready to lead. That was the main take-away from China’s much-pub­li­cised Na­tional Peo­ples’ Congress this week, which re­veals the think­ing of the coun­try’s po­lit­i­cal lead­er­ship. While Chi­nese For­eign Min­is­ter Wang Yi was at great pains to em­pha­sise the value of col­lab­o­ra­tion with the US, as op­posed to con­fronta­tion, his sem­i­nal speech made it clear that China is ready to play a global lead­er­ship role.

While China will al­ways be driven by its own na­tional interests, its global ini­tia­tives such as the One Belt One Road (OBOR) has the po­ten­tial to spur global eco­nomic growth and cre­ate de­vel­op­ment div­i­dends for all as­so­ci­ated coun­tries.

The One Belt One Road ini­tia­tive, which was launched in 2013, has cre­ated a ve­hi­cle for a new global eco­nomic and po­lit­i­cal or­der, with China as the driver of the re­gional and global econ­omy.

Es­sen­tially, OBOR is the cen­tre­piece of China’s eco­nomic diplomacy, con­nect­ing Asia, Europe and Africa along five dif­fer­ent routes. The ini­tia­tive in­cor­po­rates 60 coun­tries along a new Silk Road and has started to gain trac­tion as China’s most im­por­tant strate­gic ini­tia­tive.

What China has to gain from the ini­tia­tive is to ex­plore new mar­kets and in­vest­ment op­tions at a time when many pro­duc­tion sec­tors in China have been facing over-ca­pac­ity since 2006. Link­ing China’s western less­de­vel­oped border re­gions with Asia and Europe cre­ates new op­por­tu­ni­ties for de­vel­op­ment and eco­nomic in­te­gra­tion.

By de­vel­op­ing an eco­nomic cor­ri­dor from Bei­jing to Western Europe, China has cre­ated a cross-continental mer­can­tile strat­egy in­cor­po­rat­ing 100 coun­tries and in­ter­na­tional or­gan­i­sa­tions. Over the past three years, 40 co-op­er­a­tion agree­ments have been signed in 10 key in­dus­tries and the ini­tia­tive has cre­ated $3.1 tril­lion (R40.8 tril­lion) in trade.

A rationale in this global strat­egy on China’s part would be to re­duce its re­liance on the US in terms of trade, and pen­e­trate new mar­kets. With the trend to­wards pro­tec­tion­ism of the Trump ad­min­is­tra­tion, such a strat­egy to deepen and broaden al­ter­na­tive trade re­la­tions is a mat­ter of sur­vival.

The strat­egy is al­ready bear­ing fruit as Chi­nese ex­ports to OBOR coun­tries now ex­ceed those to the US and EU – China’s tra­di­tion­ally top two ex­port des­ti­na­tions.

For the coun­tries it part­ners with, OBOR will im­prove global trade and in­crease com­mod­ity de­mand at a time of ris­ing un­cer­tainty, which will boost global growth. The irony is that China – which is the coun­try of “so­cial­ism with Chi­nese char­ac­ter­is­tics” – is now the driver of glob­al­i­sa­tion and mul­ti­lat­er­al­ism, while the US re­coils and be­comes in­ward-look­ing. From the per­spec­tive of China’s Pres­i­dent Xi Jin­ping, the US ap­proach is prob­lem­atic, and he has equated it with “lock­ing one­self in a dark room”.

An im­por­tant trend that will ac­com­pany China’s open­ing up is the in­ter­na­tion­al­i­sa­tion of the Ren­minbi. China has al­ready ex­panded its lo­cal cur­rency swop pro­grammes to 21 coun­tries, and set up set­tle­ment banks in eight coun­tries. It is also us­ing the Asia In­fra­struc­ture In­vest­ment Bank, the New De­vel­op­ment Bank and the Silk Road Fund to in­ter­na­tion­alise its cur­rency. This new trend will change global trade and re­duce re­liance on the US dol­lar.

The One Belt One Road ini­tia­tive has a heavy fo­cus on transport con­nec­tiv­ity across the eco­nomic cor­ri­dor, with com­mit­ments to build rail­ways, high­ways and strate­gic port fa­cil­i­ties. The China-Pak­istan Eco­nomic Cor­ri­dor (CPEC), is a prime ex­am­ple of a com­bi­na­tion of transport and en­ergy projects un­der the OBOR ini­tia­tive. CPEC in­cludes the de­vel­op­ment of a ma­jor deep sea port at Gwadar in Pak­istan, of­fer­ing China direct ac­cess to the Indian Ocean, for which it has com­mit­ted fund­ing of $46 bil­lion.

If China ships more of its goods through Gwadar port as op­posed to the South China Sea, it will re­duce transport times to Europe, and some of the world’s fastest-grow­ing mar­kets in Africa and the Mid­dle East. To ac­cess the Gwadar port, China is also in­vest­ing bil­lions of dol­lars in up­grad­ing and ex­pand­ing the Karako­rum high­way through the moun­tains on the border be­tween China and Pak­istan. By de­vel­op­ing this route, China is cre­at­ing a much shorter route to western mar­kets.

A key fo­cus of China’s NPC this week was to dis­cuss the Belt and Road Sum­mit due to take place in China in May. China is ex­pect­ing the lead­ers of 20 coun­tries to at­tend. Not only will it ex­am­ine fund­ing gaps and op­por­tu­ni­ties, but also the in­fra­struc­ture net­work, and lev­els of trade and in­vest­ment. They will also as­sess the im­pact of the China Rail­way ex­press trains to Europe, which are now op­er­a­tional.

We are wit­ness­ing the rise of a new global leader whose strate­gies have the po­ten­tial to boost growth around the world.

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