China cities special report: Crossing continents

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The New Silk Road is not a single thoroughfare but – like its ancient predecessor – a long and winding network of cross-continental trade routes by road, rail and sea that will impact upon the lives and livelihoods of billions of people.

by Simon Parry

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Downloadable guide (PDF)

The name carries with it the weight of history, evoking a lost world of eastern empires, camel trains carrying cargoes of spices and perfumes, Arabian nights and endless journeys across deserts, mountains and through mysterious hidden kingdoms. 

The Silk Road is as much a place of the imagination as a historic trade route – recalling an era of adventure, discovery, romance and enough exotic promise to capture the emotion as well as the intellect.

Small wonder then that when President Xi Jinping – in the unlikely setting of Nazarbayev University in Kazakhstan – announced his ‘One Belt, One Road’ initiative to create a New Silk Road in September 2013, it set off a storm of interest and speculation.

Who would pay for the vast infrastructure works needed to recreate the ancient trade route in a modern context? Who would tackle the regional differences of opinion that might block it? What were China’s political objectives in opening up a New Silk Road? 

China has wasted little time in getting the project started and setting up the funding bodies to pay for its various stages, while at the same time ramping up its diplomacy to ward off fears of Chinese hegemony and military influence along the routes.

Eastern promise

The New Silk Road is not a single trade artery but a complex lattice of road, rail and sea routes that connect China to Central Asia, southern Asia, Southeast Asia, Europe and Africa, potentially reaching some two thirds of the world’s population.

In February, just 16 months after the ‘One Belt, One Road’ policy was made public, China released detailed maps and costings showing how the New Silk Road would meander out to 65 countries to smooth the path of global commerce.

The maps produced by China show a land route tracing much of the ancient route. It begins in Xian in northwest China before stretching out west through Urumqi to Central Asia. It then goes to northern Iran before swinging west through Iraq, Syria and Turkey.

From Istanbul it crosses the Bosporus and heads northwest through Europe, including Germany and the Netherlands, and then heads south to Venice in Italy. Meanwhile, branches of the New Silk Road pass through Lhasa to Nepal and southern Asia and through southern Xinjiang province to Central Asia. 

The maritime route, meanwhile, begins in Quanzhou in China’s Fujian province and heads south to the Malacca Strait. From Kuala Lumpur it heads to India and then crosses the Indian Ocean to Nairobi. From Nairobi it goes north round the Horn of Africa and through the Red Sea into the Mediterranean, meeting the land-based Silk Road in Venice.

Perhaps deliberately, the routes chosen appear to ignore present-day realities in countries like Iran and Syria. They put Venice back in its historic position as a trading hub for Europe rather than a city of summer crowds and gondola rides.

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Source: CLSA

Historic awareness

By faithfully respecting and sticking to the ancient route, the New Silk Road will reopen trade networks that have in some cases been closed by warfare, disease and development of new shipping routes for more than 500 years.

The ancient Silk Road stretched 4,000 miles from eastern China to the Mediterranean. It took its name from the Chinese silk first carried along it more than 2,000 years ago at the time of the Han Dynasty. For centuries, its network of land and sea routes carried rich cargoes from east to west and west to east, flourishing under the Roman empire, the Byzantine empire and even under the Mongol domination of Asia.

The Silk Road played a major part in the economic and social development of China, Persia, Africa and the Indian subcontinent, forging political and commercial relations between countries that were continents apart in an era of slow long-distance travel.

It nurtured the formidable reputations for trading of many different nationalities including the Chinese, Greeks, Persians, Somalis, Armenians, Indians and Arabs and inspired the 13th century travels of Marco Polo through China, Mongolia and Southeast Asia.

But the influence and importance of the ancient Silk Road began to crumble when the Mongol empire fell apart. Warlords seized territory along the western part of the route and political powers along the Silk Road became economically and culturally distant.

The Black Death sealed sections of the route for fear of disease spreading. The transport of gunpowder and modern weaponry along the Silk Road led to security fears and tighter border controls.

European maritime exchanges led to a decline in trade along the Silk Road and it stopped serving as a shipping route for silk in 1453 when the Ottoman rulers at Constantinople blocked trade with the west.

Funding vehicles

Half a millennium on, China’s concern is how to fund the New Silk Road and its plan for infrastructure projects along the route to be financed by three key sources – the Silk Road Infrastructure Fund, the Asian Infrastructure Investment Bank and the New Development Bank.

Launched in February 2014, the $40 billion Silk Road Infrastructure Fund is capitalized by China’s forex reserves and managed in a similar way to a sovereign wealth fund. The Asian Infrastructure Investment Bank, launched in October 2014, is intended to be a global development bank. Headquartered in Beijing, it already has the support of more than 50 countries and territories inside and outside the region.

The New Development Bank is a multilateral development bank established in July 2014 and based in Shanghai with an initial $50 billion seeding by China, India, South Africa, Brazil and Russia – each with an equal share of control. 

Those arrangements have already caused some friction in the West as the three new funding bodies are seen in some quarters as alternatives to the established World Bank, Asian Development Bank and International Monetary Fund.

In a report on the ‘One Belt, One Road’ project, excitedly titled ‘A Brilliant Plan’, Asia brokerage and investment group CLSA suggests that the initiative may be founded more in diplomatic expediency than in a dreamy reimagining of past trade pacts and partnerships.

“There are compelling geopolitical reasons, such as energy security, for China to push ahead with its plans at a time when its trading partners are potentially excluding it from strategic agreements,” says the report, which was discussed at a major investors’ forum in Hong Kong in September.

“Trans-Pacific Partnership countries, the Transatlantic Trade and Investment Partnership and the EU-Japan agreement show comprehensive liberalisation agendas, but do not include China and have the potential to increase trading costs.”

Under the ‘One Belt, One Road’ initiative, China plans to negotiate free-trade agreements with 65 countries along the route, the report says – significantly more than the total number of such agreements it currently has.

Reaping benefits

The New Silk road would also have significant benefits for China’s domestic economy, according to the CLSA report. “China’s top priority is to stimulate the domestic economy via exports from industries with major overcapacity such as steel, cement and aluminium,” it said.

“Many will be build-transfer-operate schemes in which large SOEs will lead the way, but smaller companies will follow. The domestic plan divides China into five regions with infrastructure plans to connect with neighbouring countries and increase connectivity.”

A briefing by David Beaves, senior partner at international commercial law firm Ince & Co, described the ‘One Belt, One Road’ policy as “the most important economic event of the 21st century” but agreed that it was driven largely by China’s own interests.

“It is all about selling Chinese products and commodities and securing supply points,” he said, pointing out that in the maritime route, China was seeking a diversification of trade routes by investing in ports such as Colombo in Sri Lanka. The reason for this was that the Malacca Strait had long been a source of concern to China as a potential “choke point” for its trade with around 70% of China’s imported oil passing through it. 

Whatever the underlying motives, there is no question that the New Silk Road project is the most flamboyant and significant manifestation yet of China’s assertive role on the world stage. 

In May this year, just 20 months after his landmark speech announcing the ‘One Belt, One Road’ policy, President Xi Jinping was back in Kazakhstan to discuss the progress of the New Silk Road. He carried on to Russia and Belarus, two other vital allies on the route. 

The foundations are in place – and the engineer of this potentially world-changing project is impatient to see the New Silk Road take shape.