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CWA # 221, 25 February 2020

Strategic Forecast 2020
The Belt and Road Initiative: A New Global Connectivity Map in 2020

  Sukanya Bali

CWA Brief, February 2020

Belt and Road Initiative is working on accelerating countries' dependency on China’s economy. China by portraying itself to be a benevolent capacity builder has built a different new image for itself

Background

The Belt and Road Initiative is a new map being drawn by China with economic and political clinch in the international system. The initiative has accelerated the geo-strategic importance of China and their identity in the world. China’s Belt and Road strategy aims in broadening its connectivity across the continents. The grand picture is the revival of Silk route of the past in China’s modern-day advancement towards world. Belt and Road, was launched in 2013, under the One Belt One Road (OBOR), that aims to expand in three important corridors: Land, Maritime and Digital corridor, to connect with Asia, Africa and Europe. 

Xi’s vision of a more assertive China (C.Economy, 2014) has helped create a network of road, rail, energy pipeline, border crossing, highway spanning west and south. The projects have spread the use of Renminbi internationally. Chinese ambition covers around two-thirds of world population under these projects and hope of building a brand-new image of China (McBride, 2019).

BRI aims to cooperate and connect the six main economic corridors with the world, encompassing of New Eurasian Land Bridge involving rail to Europe via Kazakhstan, Russia, Belarus, Poland and Germany; China-Central Asia-West Asia Economic Corridor linking China and the Arabian peninsula that starts from Xinjiang, crosses Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan, Turkmenistan, Iran, Turkey and 17 countries in West Asia; China-Indochina-Peninsula Economic Corridor linking Nanning, Guangxi (East line) and Kunming, Yunnan (western line)starting via Vietnam, Lao, Cambodia, Thailand, Malaysia and Singapore; Bangladesh-China-India-Myanmar Corridor linking these four economy; China-Mongolia-Russia Economic Corridor links with the rail and road bridge between nations and China-Pakistan Economic Corridor starts from the Xinjiang province and ends at the Gwadar port of Pakistan. (China's Belt and Road Initiative in Global Trade, Investment and Finance Landscape, 2018)

Belt and Road is a strategy which demonstrates the economic and political charisma of China to the world. The major powers have been wary of the initiative as China has often asserted its infrastructural strength through BRI towards the under-developed and developing nations. This initiative has cut corridors from east to west in order to connect different boundaries. Through the specific objective of enhancing connectivity, China has drawn attention and taken the role of regional leadership by strategic use of its resources, labour and manpower, energy with the neighbours.

The initiative came into light in 2013, crisscrossing central Asia, MENA, European, South-Asia and South- East Asia region to connect with China through the land, rail and sea route. It not only seeks to connect but also to build a market for China to export its over-capacity. Despite criticism, some argue Chinese investment in the long term is mutually beneficial. (Inside China Plan to create a modern Silk Road, 2018)

Investment in transport, power and energy, oil and gas, real estate and communication are some of the key economic sectors which will be scrutinized in this paper. This paper tries provides a strategic forecast of the Belt and Road Initiative for 2020 with a special focus on the economic investments in different corridors and highlighting the China-Pakistan Economic Corridor.  

Major Trends in 2019

Multi-sector investments of BRI

With the coming of huge infrastructure investment, China has incurred expenses of around $556.49 billion whilst setting different projects under Belt and Road Initiative. The initiative which started with around 50 nations has now expanded across 152 nations within it, with the aim of improving bilateral and multilateral cooperation within countries. The initiative which is six years old has increased the world’s linkage with China. 

Belt and Road Initiative, has invested in several sectors. However, the largest share lies in the Transportation sector, reaching around $337.75 billion. Investment in transport sector includes Highway projects, road link and rail link project to increase connectivity between nations. In terms of investments in economic corridors transportation sector is followed by oil and gas, power and water, real estate, energy supply.

Investment that is considered to be one of the key settlers of Belt and Road Initiative, encompass aspects of balanced growth, with the objective of improving its own economy. These projects have been deployed in different regions in different ways but with the aim of enriching bilateral and multilateral ties between countries. 

China-Mongolia-Russia Economic Corridor, 2014 which aim in (China, Mongolia, Russia Push for ‘Economic Corridor’, 2018) furthering the goal to develop infrastructure and industrial projects, establish free trade and economic zone has incurred a total cost of $100.76 billion with oil and gas as the major investing sector (Connor, 2018).

New Eurasian Land Bridge, which is the revival of oldest connection in region, consists of developing the rail transport between China and Europe (The Silk Road corridors). So far, it stands as the second highest Chinese investment of around $126.44 billion. 

China-Central Asia-West Asia Economic Corridor, has drawn the largest investment as of 2019, around $164.09 billion in different sector with highest in transportation $91.34 billion followed by Oil and Gas $33.54 billion, Power and Water $22.19 billion, Real estate $11.84 billion and Manufacturing sector $5.15 billion. 

Corridors connecting South Asia and Southeast Asia such as China-Indochina-Peninsula Economic Corridor initiated in 2010, earlier known as Nanning-Singapore Economic corridor was incorporated later to Belt and Road. The investment in the corridor sums to $72.53 billion operates nine land corridors connecting Thailand, Cambodia, Laos, Myanmar, Vietnam with China, the leading investor in these South-East Asian countries.

Bangladesh-China-India-Myanmar Corridor is known as “an international gateway to South Asia” (Luft, 2016) a land bridge between four countries and provides China an outlet to Bay of Bengal. With the lowest investment, this corridor suffers several challenges. India has declined to be a part of BRI forum, due its concern over CPEC. The issue of transparency, integrity and sovereignty are major concerns of India (Ramesh, 2019). BCIM which was missing from BRF, is considered as one of the victims of Dokhlam standoff, 2017 (Kamdar, 2019).  

China-Pakistan Economic Corridor sums around investment of $59.59 billion is the highest in south Asia till date. Power sector plays a dominant role followed by transportation, oil and gas, real estate investment in Pakistan.

CPEC: A favourable answer to China’s Malacca dilemma 

Pakistan the only country in this corridor has signed many trade deals and memorandum in order to build the mutually beneficial corridor. It will address many ailing concerns of Pakistan’s economy. For China, the corridor will provide an alternative route to Arabian sea. Project like HUBCO coal power project, in Balochistan, the Hawalina-Menshera portion- phase II of Karakoram highway was completed in November.  Over 2019, there have been concerns over the slow pace of CPEC projects. Pakistani government, is said to have lost the erstwhile vigour and projects have slowed down. Activists and media have expressed concerns over the opacity of the CPEC deals. (Reid, 2019)

Detrimental Trade War

US -China trade war, slowing global economy seems to have taken a toll on the Chinese momentum. Debt-trap diplomacy has raised eyebrows in Pakistan. Nevertheless, both sides have reinforced their commitment towards CPEC and several fresh deals were signed during Prime Minister Imran Khan’s visit to China in April. 

China is working forward with these projects. The Belt and Road Forum in April 2019 was hosted in Beijing amid its slowing economy and imminent financial crisis. The economic corridor is running behind schedule. The phase-I, expansion of Gwadar port, power plant and road construction are delayed. Additionally, as part of Phase-II of CPEC, the construction of special economic zone and industrial estate targeted for 2020 are infected. 

Integrating the Third World economy

With the changing nature of global relations, Chinese investments in economic projects could get affected. One of the reasons of slowdown rests on the global politics pertaining to US-China. As connectivity increased, trade and exchange of people also increased. Manufacturing bases of several countries improved and job opportunities also increased with the BRI investments. And as BRI investments became more visible in countries, other developed countries pitched in with investments. The global outreach and participation by China have impacted, directly and indirectly. 

The construction of port city in Sri Lanka by China was followed by the agreement to lease out the Hambantota port for 99 years, in December 2017 (Fernholz, 2018.) This has built a negative image for China. In the construction of the port, Sri Lanka owes $14billion to China. The lease agreement evidently shows the vulnerability of developing countries in power politics. 

But with the changing prospects on the global level, China is willing to show more inclusivity and transparency in its approach towards countries. China has also opted to become a responsible leader by giving significant focus to the key areas, such as finance, corruption, environment in its development agenda.

Inclusivity, one a major challenge in its relations with other countries was discussed in the Belt and Road forum, 2019. The forum also looked into avenues for diversifying trade relations among countries and to act as a stabiliser to improve China’s economic reserves. As it is necessary, that China’s reserves are strong to defend Renminbi’s position in the on-going US-China trade war (Olsen, 2018).  

One of the ways through which China has been trying to safeguard its economy is by increasing trade and reducing the deficit with BRI recipient countries.  China has been aiming toward the third world economies to benefit itself as US-China trade war loomed larger in 2019. The new trade partnership with third world countries can be seen as a response to US-China on going trade war. 

Forecasts for 2020

Belt and Road Initiative is working on accelerating countries dependency on China’s economy. China has been portrayed itself to be a benevolent capacity builder who can offer a prospective future for developing countries. The amount of investments and engagement with different nations can help China in building its new image. 

A forward looking bilateral cooperation

Over 2020, it is likely that China would increase its bilateral ties and build a win-win situation for both the engaged countries. This will help in enhancing China’s engagement with other government and private firms. In the Belt and Road 2019 forum, China had promised to address concerns of debt sustainability. It launched a debt sustainability framework under its finance ministry and coupled with Multilateral Cooperation Centre for Development Financing, China promised to build multilateral cooperation mechanisms for financing infrastructure projects. 

This collaboration and trust building would help in ensuring the achievement of long-term goals. As transparency improves, it would draw more countries to invest into BRI projects. ‘Inclusivity’ which is one of the key concerns of the BRI will help in setting multilateral financing of BRI projects. Collaboration with China will also bring new technology into developing countries at a lower price. For e.g. in the 5G race, Chinese telecom companies offer technology at a much lower price than companies of the west

Technology as new sectors of Investment 

Chinese investments in the BRI projects have diversified to around $550 billion. From power plants to space, new sectors and new corridors have been added to BRI projects. It is to be noted that the investments not only satiate needs of developing countries but also fulfils the Chinese political, social and economic demands. 

In 2020, China’s investments are likely to increase in all sectors. Investments would also pan into new geographical areas and sectors. According to a report by the World Bank the transport corridors would reduce travel time by 12 per cent for economies along the corridor. As some of the connectivity corridors approaches completion, it will draw investments from other countries too. It is logical to argue that, once viable connectivity is established, trade would increase. More jobs are expected to be created and improve the livelihood of the population. Technology cooperation will emerge as the new front of investment for the Chinese companies within and without the BRI. 

Manufacturing 

The ongoing tension between US-China has increased the possibility of relocating centre of manufacturing goods. Both small and large-scale private enterprises in BRI countries would thrive. For e.g. in Pakistan, as new power plants turn operational, the country’s power shortages reduce and the manufacturing base strengthened.

 The shift in industries and trade may give encouragement to new countries which leads to increase in job opportunity, use of resources and infrastructure in investment in new areas. Bringing in low-cost effective solutions to nations help in reviving the agenda of Belt and Road. This also helps to induce new private owned companies in setting up of these relocated manufacturing industries. 

Focus on Sustainability

With increasing Chinese investment, one of the main goals is to ensure sustainability of resources. China is seen as a major trend setter of building infrastructure projects in the world. China aims to achieve Sustainable Development Goals by 2030.

World’s increasing concern towards climate change and blue economy, China should adopt active participation in these sustainability initiatives. This may increase the Chinese connection across and help in facilitating an active role for the environment in the world, which may benefit Chinese construction companies.

Expanding Digital Economy

In the Belt and Road Forum, Xi Jingping had highlighted the importance of digital economy in BRI (Xi Jinping Chairs and Addresses the Leaders' Roundtable of the Second Belt and Road Forum for International Cooperation (BRF, 2019). A report from Mercs in 2019 said that Chinese companies invested more than 17 billion USD in Digital Silk Road. China invested $7 billion in loans and FDI for fibre optic cables and telecom network projects (Eder & Arcesati, 2019.) China also provided cheap credit lines and loans from Chinese banks for countries to buy Chinese telecom hardware. For eg: Bharati Airtel received $2.5 billion to purchase equipment from ZTE and Huawei.        

2019 was particularly eventful for the Chinese telecom companies as they got entangled in US-China Trade war. Huawei was blacklisted, (Al Jazeera , 2019) and the US has said that it would refrain from sharing intelligence with countries using Huawei equipment, due to concerns of espionage 

Nevertheless, Chinese state-supported telecom companies like ZTE and Huawei have successfully made inroads into several countries as they offered technology at a cheaper price. China can play a major role in bringing digital infrastructure and devices in developing nations which may lead to China’s rise at a global innovation frontier. (China’s Role In The Next Phase Of Globalization, 2017)

Belt and Road Initiative, to which China is dependent, is seen as a continuing process. The initiative has increased the dependency of any participating independent economy, to an extent where the foreign policy, social, economic prospects are intertwined with Chinese interests. 

The resources which have been involved in building these six economic corridors, will ensure job generation, revival of resources and connectivity. These corridors, not only targeted stakeholder profit or governmental profit but had also ensured the need is met in the completed region. The estimated spending of China by 2027 could reach to $1.2-1.3 trillion, which may cement its position as global economic superpower. (Inside China Plan to create a modern Silk Road, 2018)

References

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  2. (2019). Algeria ratifies BRI agreement with China. XINHUA.
  3. (2019). Baebados and China agree to deepen cooperation. Minsitry of Foreign Affairs and Foreign Trade of BARADOS.
  4. Banovic, R. (2019). China and Serbia Sign Major Infrastructure Deal Under the Belt and Road Initiative. Forbes.
  5. Bodoni, S. (2019). Luxembourg Signs Accord With China on Belt and Road Initiative. Bloomberg.
  6. (2019). BRI & Beyond Forecast. BakerMckenzie.
  7. C.Economy, E. (2014). China's Imperial President. Foreign Affairs.
  8. Cheng, E. (2019). China tackles worries about Belt and Road debt as it notches a Swiss endorsement. CNBC.
  9. (2019). China, Jamaica signed MoU on Belt and Road cooperation. BRNN.
  10. China, Mali sign MOU on Belt & Road Cooperation. (2019). Belt and Road News.
  11. China, Mongolia, Russia Push for ‘Economic Corridor’. (2018). Russia Business Today.
  12. (2017). CHINA’S ROLE IN THE NEXT PHASE OF GLOBALIZATION. McKinsey&Company.
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  15. Devonshire-Ellis, C. (2019). China’s Belt & Road Initiative In The Middle East. Silk Road Briefing .
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  18. Equatorial Guinea into China’s “arms”. (2019). CLBrief.
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  23. Kamdar, B. (2019). What to Make of India’s Absence from the Second Belt and Road Forum ? The Diplomat.
  24. (2019). List of Deliverables of the Second Belt and Road Forum for International Cooperation. The Second Belt and Road Forum for International Cooperation .
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  32. (2019). Peru to sign MOU to join China's Belt and Road club in coming days: Chinese ambassador. Buisness Times.
  33. Ramesh, M. (2019). Why India should join the BRI. The Hindu Businessline.
  34. Reid, P. (2019). Makran Gateways A Strategic Reference for Gwadar and Chabahar. IDSA.
  35. The Silk Road corridors. (n.d.). OBOReurope.
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  39. Zhussupova, D. (2019). Kazakh, Chinese leaders agree to develop long-term strategic partnership. The Astana Times

Sukanya Bali is a Research Associate with the ISSSP at the National Institute of Advanced Studies, Bengaluru

This essay was published at the NIAS Quarterly on Contemporary World Affairs, Vol 2, Issue 1, January-March 2020 

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