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.

Bulletin - - Contents - Text Lars Jensen Photos Da­vide Mon­teleone Map La Ti­gre

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.

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