China’s new Silk Road to change global trade
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.