The Conundrum of China’s One Belt One Road Ambition


A scene of Horgos taken from the video footage in Reuters’ article.

I have repeatedly pointed out that externally, Chinese President Xi Jinping’s Silk Road economic belt and 21st century maritime Silk Road (OBOR) initiative aims at creation of secure strategic links with the Middle East, Europe and Africa, export of overcapacity in infrastructure construction industries and transfer of labor-intensive industries to areas with cheap labor.

Internally it aims at development of China’s underdeveloped vast west.

In fact, China has succeeded externally in carrying out its OBOR plan. It has made fast progress in establishing China-Pakistan Economic Corridor and has built and is building pipelines and roads in Central Asia. Reuters’ article yesterday on China’s CITIC Bank taking 60% of Kazakh second largest lender Altyn Bank shows China’s another success.

There is no need for China to build infrastructure in politically unstable Middle East, Africa or Eastern Europe. Some countries there may be politically stable and provide good returns to investment, but there have long been lots of Western investment. China is certainly not strong or experienced enough to compete with Western countries there.

Moreover, the core of Xi’s economic reform is to switch from export- and investment-led economic growth to innovation- and creation-led growth. To facilitate such reform, China shall transfer its export-oriented and labor-intensive industries to Silk Road economic belt. That is why China has to build infrastructures there. In addition, China can export its excessive infrastructure construction capacities.

Then why did China make its OBOR summit such a grand event since its OBOR has already been quite successful? There is indeed no need for a summit to promote OBOR in the world.

Is OBOR China’s scheme to obtain world economic leadership?

The grand event of the OBOR summit may create China’s image as a benevolent investor so as to make its construction of infrastructure and transfer of labor-intensive industries much more welcome in receiving countries.

Western media gets the wrong idea that China will waste it fund in investing in infrastructure with poor economic or political returns. If that is the aim of China’s OBOR, it certainly is doomed to failure as China simply cannot afford that.

Perhaps, China wants to attract rich countries’ infrastructure investment in poor countries that may facilitate Chinese exploitation of natural and labor resources there, but who are so stupid as to make investment without ensured returns for China’s instead of their own benefits.

The summit clearly shows that developed countries are not interested in China’s OBOR.

On the other hand, Chinese capital is much more interested in high-tech sectors in developed country and has been trying hard to take over high-tech companies rather than finding opportunities in poor countries in the Silk Road economic belt.

However, development of China’s vast west is one of Chinese government’s priorities. Russia regards development of its vast east as its priority but few Russians want to go to Russia’s underdeveloped east. So are Chinese people, they are not willing to go to China’s underdeveloped west.

The grand OBOR event makes Chinese people believe that China is seeking world leadership. That certainly makes them happy and interested in making their contributions to OBOR.

China offers preferential tax and other policies as sweeteners for development of China’s west.

In another Reuters article titled “Silk Road hub or tax haven? China’s new border trade zone may be less than it seems” on June 6, Reuters says that Beijing’s numerous tax breaks and preferential policies on its border with Kazakhstan, the China-Kazakhstan Horgos International Border Cooperation Center, attracted 2,400 companies to register there to enjoy the treatments in 2016.

According to Reuters, most of those companies only want to enjoy the preferential treatments but have not conducted any operations at Horgos as there is no requirements for them to do so.

That is Chinese government’s wisdom. It will not impose the requirements until those companies have become used to the treatments and have to find a way to keep the treatment. Sooner or later, those companies have to conduct some operations there. As OBOR makes Kazakhstan gradually prosperous, the border town Horgos will grow prosperous alongside and able to attract Chinese companies to invest there.

The natural conditions in China’s vast Xinjiang are very poor. Only a very small percentage of China’s huge population lives there. It is very difficult to move people there; therefore, development of Xinjiang will take decades to realize. China has the advantage of the continuity of government policies to enable it to keep on striving for the same goal for decades. That is why China is able to grow from very poor into the second largest economy in the world.

The same will apply to Xinjiang. The OBOR is now a very good beginning. To catch big fish one has to provide very attractive baits. China is precisely doing that in Horgos.

Comments by Chan Kai Yee on Reuters’ articles, full text of which can be viewed respectively at http://www.reuters.com/article/us-altyn-bank-m-a-citic-bank-idUSKBN18Y3C6 and http://www.reuters.com/article/us-china-silkroad-horgos-idUSKBN18V15Z.

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