Big hopes, big fears
China is bringing the economies of Europe, Africa and Asia closer together with the century’s largest infrastructure project. The New Silk Road may bring a surge in growth – and it’s inspiring hopes and fears alike.
China’s New Silk Road will impact 70 percent of the global population.
WWhen a country invests four or six or eight trillion dollars to build a network of railways, roads, pipelines and ports connecting half the world, you get places like Khorgas, on the border between Kazakhstan and China. Humans are ill-suited for this treacherous environment between desert and mountains, with temperatures ranging from up to 40° C in the summer to – 40° C in the winter.
But the project, which the Chinese government romantically calls the New Silk Road, foresees a gigantic logistics and trade hub in Khorgas, where hundreds of thousands of containers will be loaded from Chinese trains onto Kazakh trains, and vice versa, each year. This transfer is necessary because of the different gauges of the tracks. The trade routes of Central Asia are planned to converge here, in the world’s largest dry port (dubbed the “Dubai of the Gobi Desert” by the South China Morning Post), making it possible to travel by rail from Shanghai in China to Duisburg in Germany in the not-too-distant future.
The world is watching the progress of the century’s largest infrastructure project – officially titled the Belt and Road Initiative (BRI) – with hope, envy, admiration and fear. It is a visionary undertaking that will connect the national economies of dozens of countries between China and Western Europe, and it can be viewed as both an economic and political project.
It was only five years ago, in the fall of 2013, that President Xi Jinping first proposed reviving the ancient Silk Road during a state visit to Astana, the capital of Kazakhstan. Already in the second century BCE, China used this network of trade routes to conduct business with the Roman Empire across more than 6,000 kilometers. “We want to unite the world with common values and ideas,” Xi said. China would build modern infrastructure in the underdeveloped states of Central Asia in order to connect western Europe with the eastern coast of China and to provide new opportunities for people who live between the two Eurasian centers of power.
Since then, SHIFTS IN ECONOMIC POWER the BRI authority in Beijing has expanded its sphere of influence so widely that even experts can hardly determine where the initiative begins and where it ends. Take the overland Economic Belt. This new group of modern railway corridors, stretching for tens of thousands of kilometers across Eurasia, has the potential to shift economic and geopolitical power relations
fundamentally over the next 50 years. One example: Today, a computer traveling by ship from Chongqing, a southwestern Chinese city of 30 million residents and a point of departure on the New Silk Road, takes around 45 days to reach Hamburg, Germany. A train could make the journey in ten days. The German economic research institute Ifo projects that the costs of transporting high-end goods from China to Europe could be cut in half, and trade between the regions could increase by 200 billion dollars annually.
And then there is the Maritime Road, which is supposed to expand international sea trade. A chain of ports will connect the Chinese coast with Athens and Venice, by way of Hanoi, Singapore and the Kenyan city of Mombasa. The ten largest container ports in the world are located along this route. There are even plans for an Ice Road, a corridor for ships through the Arctic Sea.
The project’s dimensions are gigantic. Germany’s Mercator Institute for China Studies has counted the various undertakings with budgets over 25 million dollars, identifying one thousand different construction projects in 71 countries: railway lines in Belarus, Bangladesh, Ethiopia and Iran; highways in Afghanistan, Vietnam and Indonesia; pipelines in Mongolia, Russia and Mozambique; ports in Djibouti, Azerbaijan and the Ivory Coast; a nuclear power plant in the United Kingdom and around 150 coal-fired and hydroelectric power plants in dozens of countries; investments in financial infrastructure, telecommunications and fiber-optic networks from Georgia to the Philippines.
Around SEVENTY PERCENT OF THE WORLD’S POPULATION 70 percent of the world’s population live in countries where the BRI is already active. They generate roughly 30 percent of global gross domestic product (GDP). So far, China has kick-started 900 billion dollars’ worth of projects through the China Development Bank and the Silk Road Fund. Credit Suisse Research estimates that in the coming five years it will invest another 300 to 500 billion dollars in
62 countries. It’s impossible to estimate how much China will ultimately spend on the BRI – one trillion dollars, or eight? Several years ago, Xi Jinping spoke of five trillion.
Sympathetic observers, like the state media in the former Soviet republics, rave that China is selflessly bringing progress and prosperity to underdeveloped countries. Critics – including US secretary of state Mike Pompeo and French president Emmanuel Macron – see the BRI as a broad assault on Western values that aims to disrupt geopolitical power relations, transform as many nations as possible into Chinese satellite states and establish the renminbi as a key currency.
Both interpretations probably hold a kernel of truth. But in order to understand China’s motives for the belt initiative, we must first look within the country itself. Xi Jinping has brought China’s development goals forward by 50 years. By 2021, no Chinese citizens are supposed to be living in poverty. At the moment, 40 million still do. By 2035, all Chinese are supposed to enjoy the same living standard as Western Europeans and live in one of the world’s most innovative nations.
GROWTH THROUGH INFRASTRUCTURE Five years ago, the Chinese recognized that they could reach these goals only by finding new markets for the industrial surpluses of their coastal cities. The idea of connecting impoverished regions of western China with neighboring countries to the west was a logical next step.
Over the past thirty years, China has learned that nothing promotes economic and social development more enduringly than effective, modern infrastructure. The economists from Credit Suisse Research also presume that the initiative will unleash a surge of growth. Over the next five years, they estimate that the infrastructure project will boost the GDP of involved countries by an additional 4 percent – or around 240 billion dollars.
The importance of good infrastructure for economic development is demonstrated, not least, by the history of Alfred Escher in Switzerland (see p. 4). Infrastructure can attract foreign investment, create jobs and prosperity, facilitate international trade and spur economic growth. In a sense, bold projects like the construction of the railroad network and Gotthard tunnel catapulted Switzerland into the modern age in the second half of the 19th century.
Pakistan has planned more BRI projects than any other country – bridges, roads, power plants, ports and railways totaling 62 billion dollars. The belt initiative’s critics and supporters both point to Pakistan’s development as supporting evidence for their position. Ten years ago, the country did not have functional north-south transportation routes, a modern container port or enough power plants to provide reliable electricity.
THE RISK OF DEBT Thanks to the Chinese, Pakistan is experiencing a powerful leap in development and economic growth that will reach 6 percent this year. But at the same time, government debt has risen by one-third, to 70 percent of gross national product (GNP). According to the Center for Global Development in Washington DC, Pakistan is one of eight nations now on the brink of insolvency because of costly BRI credits – alongside Mongolia, Sri Lanka, Tajikistan, Kyrgyzstan, Montenegro, Laos and the Maldives. Fearful of taking on too much debt, Malaysia recently suspended projects for two gas pipelines and a railroad, which would have connected the country’s eastern and western coasts.
Christine Lagarde, Managing Director of the International Monetary Fund (IMF), recently warned China against financing unnecessary and unsustainable projects in countries with a high debt burden. This could lead, she remarked at a conference in Beijing, “to a problematic increase in debt, potentially limiting other spending as debt service rises, and creating balance of payments challenges.” She urged the Chinese to ensure “that the Belt and Road Initiative only travels where it is needed.”
But the selection of projects has often been difficult to comprehend – including a highway to nowhere, which has plunged Montenegro into a debt crisis, and bridges on the Maldives that will be underwater within a few decades. So far the BRI authority has not published any cost-benefit calculations, and there are also no official tendering procedures. The European Union and United Nations regularly complain that the criteria for lending are not transparent. And, as always with billion-dollar projects, corruption is a fundamental risk.
The example of Myanmar, criticized in the West over accusations of serious human rights violations against the Rohingya people, shows how strongly human rights – and also environmental – concerns are intertwined with international lending.
Seventy percent of the world’s population live along the New Silk Road.
In the end, the success of the Belt POLITICAL DISPUTES and Road Initiative will also depend on how well China manages the political disputes that the initiative has created.
India has withdrawn from all BRI projects because the new Pakistani corridor runs through a part of Kashmir that India claims for itself. India is likewise skeptical of Bangladesh’s participation in the BRI, which began in October. A port and airport complex in Sri Lanka is especially problematic. And not just because of the corruption in setting up the project, which cost the Sri Lankan president his office. Sri Lanka was not able to service its billion-dollar BRI loan, and it signed over the complex in Hambantota to two Chinese state-owned companies. India’s fear is that a military base could be built there. In Central Asia, meanwhile, Russia feels threatened by Chinese expansion because the Chinese are now realizing projects that the Russians had been promising for decades.
Ironically, China will be able to acquire greater global influence precisely because of the withdrawal of the United States under Donald Trump from the Trans-pacific Partnership free trade agreement. In February, 33 Latin American countries announced their intent to join the BRI.
And the Chinese learn quickly. They opened the Belt and Road Initiative to all investors, including Western banks. In the future, they have promised to orient themselves more closely towards Western lend- ing practices and to award more contracts to local companies. During the construction of a railway line from Nairobi to Mombasa, for example, the Chinese hired 25,000 Kenyans; the Chinese operating company is training dozens of Kenyan locomotive operators – and passenger numbers have exceeded all expectations.
If the Belt and Road Initiative leads to more such projects, it could become an international success.
Lars Jensen has long been fascinated by infrastructure. His work has appeared in the Frankfurter Allgemeine Zeitung, brand eins and the Süddeutsche Zeitung.