Silk Road reloaded

Delivered by DHL

The humbly named Belt and Road Initiative (BRI) is anything but humble. Also called One Belt, One Road (OBOR), it is China’s bold new vision for a network of routes featuring an overland trade route through central Asia to Europe, and a new version of the maritime Silk Road through Southeast Asia to the Middle East and Africa, together spanning more than 60 countries with a combined population of over four billion.

Launched in 2013 by President Xi Jinping, BRI envisions investments to the tune of several trillion dollars on new roads, railways, ports, airports, pipelines, refineries and power plants, together with supporting infrastructure. The intended result comprises new hubs of development, industry and urbanisation in some of the least developed parts of the world, creating new markets for Chinese exports and jobs abroad for part of its workforce, while opening routes for the West to move expertise, products and services east.

According to Merics, the Mercator Institute for China Studies, China’s aims encompass economic diversification, political stability and the development of a multipolar world order. From an economic perspective, China hopes the development of new trade routes, markets and energy sources will lead to economic growth and at the same time reduce dependencies. “Projects linked to OBOR are to once again fill the order books of Chinese state-owned enterprises, which are presently suffering from overcapacity. Furthermore, with the expansion of the Eurasian transport infrastructure, Beijing aims to lay the foundations for China-centered production networks, for instance with Chinese companies relocating production to Southeast Asia,” it says.

Some countries are reportedly reluctant to get involved in the project and critics say it could become either a “bridge to nowhere” or risk exacerbating China’s economic imbalances. However the BRI appears to have its fair share of supporters, and according to The Economist Intelligence Unit, 900 deals are already underway.

In addition to US$40bn of seed funding from the Silk Road Infrastructure Fund, China is already leveraging other global public and private finance, such as the Asia Infrastructure Investment Bank with $100bn and the BRICS-backed New Development Bank ($50-$100bn). Cost estimates for the full plan vary widely between $4-$8tn, however, once in place, the combined route “could be pumping out upwards of $2.5tn of annual trade value by 2025,” says the Hong Kong-based South China Morning Post. Some of the key projects underway or completed include a $16.8bn Moscow to Kazan high-speed railway, shortening the journey time from 12 hours to 3.5.

The Greek port of Piraeus was an early beneficiary after Chinese shipping giant COSCO bought a 67%t stake. In 2015, its capacity rose to three million containers, from 685,000 in 2010, and by 2020 it is expected that its cargo-handling capacity will reach some 6.3 million TEU per year, which would make it the south gate of the China-Europe land-sea express.

Another key port investment is Gwadar in Pakistan, located some 400 kilometers from the Strait of Hormuz, giving China strategic access to the Indian Ocean through a 3,000-kilometer-long economic corridor that links Gwadar with Xinjiang, China’s largest natural gas-producing region.

The Khorgos gateway, a dry port on the Chinese-Kazakh border, is seen as a key new cargo hub on the new Silk Road. Already handling 70,000 rail freight containers a year, it will be able to process more than 500,000 containers annually by 2020, on their way to or from China to Central Asia, Europe, Iran and Turkey.

The first freight train to travel the new Silk Road all the way to the United Kingdom arrived in London in January, having traveled 12,000 kilometres through eight countries on its 16-day journey. According to Kelvin Leung, CEO, DHL Global Forwarding, Asia Pacific, the revival of the China to Europe railroads brings real benefits. “We are already seeing the benefits of our multimodal services on the southern rail corridor from China to Turkey. With greater access to Chinese goods, Turkey is likely to further boost its trade balance with top European trading partners like Germany and France. In addition, in Kazakhstan, Azerbaijan and Georgia, which the railway crosses, governments are throwing their full support behind increased trade across their borders. Quite simply, there’s a lot of opportunity.”

Leung argues there is a need for both business and governments to play a key role in supporting BRI projects. “Running an intercontinental freight route is an ambitious undertaking. Multiple borders mean multiplied complexity. Currently, a large part of our work for our customers involves negotiating the various legal and regulatory nuances that apply to each country our shipments pass through. In order to boost the BRI, governments should focus on simplifying complexity and link cross-border infrastructure projects directly to the implementation of trade facilitation measures.”

An enthusiastic promoter of the BRI is Jeff Astle, executive director, China-Britain Business Council. “BRI is a global game changer,” he says, adding “We see it as a very big and ambitious plan for the next 15 to 20 years.” In terms of opportunities, Astle says as projects develop, more and more international companies will be able to leverage their expertise.

“Whether they are energy or water specialists, or port or airport developers, through to banks, brokers and professional service providers, there will be a lot going on. Then manufacturers will move into these new nodal cities that develop along the routes, which will then lead to tertiary business services, such as logistics, ICT, customer services and e-commerce.”

Some nations will also be early to benefit, particularly those starting from a very low base of development Astle says, including China’s close neighbors such as Vietnam, Myanmar, Laos and Kazakhstan.

“There will be an expansion in bilateral manufacturing and supply chains during the next five years, followed by market-making, building a marketplace over 10 to 15 years, creating places to export to, as China has done with its own urbanisation programme.”

Astle acknowledges the recent new international mood. “Protectionism may be a problem, but I think China is big enough with its collective will and determination to see this through. This is a pragmatic and far-reaching global engagement, and whatever the challenges, there are enough opportunities to see it through. This is a long-term initiative that every international business should have on their agenda, especially in relation to China.”

Bert Hofman, the World Bank’s Country Director for China, Mongolia and Korea, even believes the BRI has the potential to be even bigger in influence. “The question is whether OBOR would need a more formal agreement at some point – covering trade, investment and business climate issues – to maximise its benefits,” he writes on the World Bank’s blog.

“For now, countries along the Belt and Road have highly diverse development conditions, and some have a challenging governance environment that has made investment in infrastructure hard.” Hofman believes that using the initiative to help countries improve their investment climate, technical standards and customs and logistics procedures through a formal agreement could bring major benefits. If a more formal agreement were to ensue, it would be among the largest of its kind.

This article was originally published in DHL’s Delivered magazine.