The Conundrum of China’s New Silk Road Plan


Italian Prime Minister Paolo Gentiloni (who will attend New Silk Road summit) talks to the media at Chigi Palace in Rome, Italy April 7, 2017. REUTERS/Remo Casilli

In its report yesterday titled “China to gather friends for biggest summit of year on New Silk Road”, Reuters says, “While China has portrayed the New Silk Road as a genuine effort to share the bounty of China’s economic development and to fund infrastructure gaps, many Western countries are concerned about a lack of detail and transparency in the project and are suspicious about China’s broader political intents.”

China certainly is not so generous as to contribute billions of dollars to its New Silk Road projects for nothing in return. The sharing of bounty is but propaganda. China is simply not rich enough to do so. It has to first eliminate poverty at home and raise its own people’s living standards to a level similar to Western developed countries. To achieve those goals, China still has a long way to go.

Therefore, it helps other countries build infrastructures first of all for its own benefits, i.e. to provide alternative routes for import and export, which will facilitate not only its trade but also national security.

The most important are pipelines for import of oil and gas from Russia, Central Asia and the Middle East. The shipping route to the Middle East and Europe through Indian Ocean can easily be cut by powerful US navy. Russia and Central Asia offer alternative land routes, but the China-Pakistan Economic Corridor will be even better.

The roads, railways and pipelines to be built and expanded through the corridor will provide China with connections to the Middle East, Europe and Africa as there is military protection by Iran and Russia of the sea route from Pakistan’s Gwadar Port that China has been building. That trade route will facilitate the economic development not only in Pakistan but also China’s vast west.

In addition, China may move its labor-intensive industries to Pakistan to exploit the cheap labor there.

The New Silk Road projects are first of all for China’s own security and economic growth while enabling other countries along the road to become rich through win-win cooperation. Leaders of Western developed countries will not attend the New Silk Road summit as they do not think that their countries will be much benefited by the road. Only Italian Prime Minister will attend the summit as the sea route from Gwadar Port may connect to land route through Italy to Europe.

However, can China’s good relations with those small and poor nations along the New Silk Road in Asia enable China to replace the US as world leader? I don’t think Western leaders have such rich imagination as Reuters points out in its report.

Comment by Chan Kai Yee on Reuters’ report, full text of which can be viewed at http://www.reuters.com/article/us-china-silkroad-summit-idUSKBN17K0FL.


China’s Huge ‘One Belt, One Road’ Initiative Is Sweeping Central Asia


By William T. Wilson, Ph.D.

Having overbuilt in many domestic industries—such as coal, cement and even solar panels—the Chinese government is redirecting its capital abroad. The aim is to reduce excessive industrial capacity at home while increasing financial returns. U.S. policymakers ought to be watching this very closely.

One of Beijing’s most ambitious foreign economic development initiatives aims to recreate the legendary Silk Road. Nicknamed One Belt One Road (OBOR), the project wields plenty of financial muscle. It launched in February 2014 with $40 billion—mostly drawn from Beijing’s bountiful foreign exchange reserves.

Since then, OBOR has begun attracting other foreign investors. Singapore’s state-owned development board has agreed to partner with China Construction Bank, committing about $22 billion to finance OBOR projects. International pension funds, insurance companies, sovereign wealth funds and private equity funds have also thrown in on OBOR projects in search of higher financial returns. Chinese infrastructure investment projects now span the globe.

Chinese companies have funded and built roads, bridges and tunnels across Central Asia, increasing trade and making China the dominant economic power in the region. In 2013, trade between China and the five Central Asian states (Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan) totaled $50 billion, while the five states’ trade with Russia—previously the region’s top economic player—amounted to only $30 billion.

China has also redrawn Central Asia’s energy economics. Chinese companies now own close to a quarter of Kazakhstan’s oil production and account for well over half of Turkmenistan’s gas exports. Recently they signed $15 billion in gas and uranium deals with Uzbekistan.

China is also going global with its expertise in high-speed rail (HSR) construction. With more than twelve thousand miles of track laid, China has more HSR than the rest of the world combined. Now Beijing plans to build HSR networks connecting China with all of Southeast Asia.

South America will receive Chinese funding, as well. President Xi has pledged $250 billion over the next decade. This includes an HSR system spanning the Brazilian rain forest and traversing the Andean mountains. If that was not ambitious enough, Chinese business tycoon Wang Jing has announced his intent (though plans are currently stalled) to challenge the Panama Canal by building a $50 billion, 170-mile canal crossing Nicaragua. Last year, the Chinese news agency Xinhua announced that Beijing had already completed over one thousand projects in Africa, including 2,233 kilometers of rail construction and 3,350 kilometers of highway paving. In January of this year, China announced that it would help build a series of transportation grids (railroad, bridges and roads) linking fifty-four African countries.

To penetrate the struggling but affluent European market (China’s largest trading partner), China is financing the upgrade of the Greek port of Piraeus and a $3 billion bullet train from Belgrade to Budapest. Another network of rails, roads and pipelines, starting in the Chinese central city of Xian, will stretch westward as far as Belgium. Beijing has already started building an eight-thousand-mile cargo rail route between the Chinese city of Yiwu and Madrid. China is also in the lead for building a proposed HSR in California. Equally important, are the other financial institutions, either Chinese-based or initiated by China. The Asian Infrastructure Investment Bank (to finance infrastructure construction throughout Asia) has fifty-seven member countries. China plans to provide much of the $100 billion in initial capital.

Then there is the Export-Import Bank of China, which lent more than $80 billion in 2015. This dwarfs the Asia Development Bank, which lent $27 billion over the same period.

China also plans to build a $46 billion economic corridor—pipeline, rail, roads, bridges and more—through Pakistan. The goal is to establish a trade route connecting Gwadar, a port on the Arabian Sea, to northwest China. This enormous project is driven in part by Beijing’s desire to build additional routes for its energy imports from the Middle East—to lessen its dependence on sea routes.

Tehran has been most receptive to Chinese infrastructure projects, hoping it will help make Iran a key trading hub between Europe and China. Earlier this year, the first freight train from eastern China—traveling through Kazakhstan and Turkmenistan—completed the journey in just fourteen days, compared to forty-five days by sea. Sino-Iranian trade increased from $4 billion in 2003 to $52 billion in 2014, and Tehran hopes to boost that figure to $600 billion over the next decade. Naturally, the global infusion of Chinese capital has fostered some geopolitical tension as well. Moscow, for one, is far from pleased about losing preeminence in Central Asia, a region it had dominated for two centuries. China has built an oil pipeline from Kazakhstan and a gas pipeline that has allowed Turkmenistan to break its dependence on Russia.

The Chinese propensity to use their own labor on foreign projects has also prompted complaints in Africa and elsewhere that Chinese infrastructure investment primarily benefits Chinese contractors. Though there is a paucity of official data, it is estimated that at least one million private Chinese citizens have arrived in Africa since 2001. But with economic growth sharply slowing in most developing economies, Chinese capital investment seems welcomed—at least for now—in most countries.

Beijing’s desire to “go global” should not necessarily be viewed as a threat to American interests but more of a challenge to be managed. China’s size and trading status is quickly reshaping the economics and geopolitics of Asia. To maintain American economic influence, Washington must stay deeply engaged in the world as well.

William T. Wilson, Ph.D., is a senior research fellow in The Heritage Foundation’s Asian Studies Center.

Source: Heritage Foundation “China’s Huge ‘One Belt, One Road’ Initiative Is Sweeping Central Asia”

Note: This is Heritage Foundation’s article I post here for readers’ information. It does not mean that I agree or disagree with the article’s views.


Who Enables China’s Entry into Central Asia, Russia’s Backyard?


Map of China's Silk Road through Kazakhstan

Map of China’s Silk Road through Kazakhstan

The Washington Post publishes today a report titled “In Central Asia, Chinese inroads in Russia’s back yard” that describes Russia’s fear of China’s growing influence in Central Asia, its backyard. It quotes Alexander Gabuyev, head of the Russia in the Asia Pacific Program at the Carnegie Moscow Center, as saying,“When China announced its Silk Road plan in Kazakhstan, it was met with a lot of skepticism and even fear by the Russian leadership.”

Moreover, its says, “In 2014, Russia attempted to draw the region more closely into its embrace by establishing a Eurasian Economic Union, with Kazakhstan a founding member.” That was certainly aimed at balancing China’s growing influence in the region.

However, due to the Ukraine issue and China’s support for Russia in the UN on Syria issue, Russian-Chinese ties have become so close that “In May, Xi and Putin signed a treaty designed to balance the two nations’ interests in Central Asia and integrate the Eurasian Economic Union and the Silk Road.”

Then we know the answer to the question in the title of this article “Who Enables China’s Entry into Central Asia, Russia’s Backyard?”

The United States has pushed Russia to Chinese side by its attempt to remove pro-Russian Syrian leader and imposition of sanctions on Russia and at the same time pushed China to Russian side by its disputes with China over the South China Sea.

Siberia and Central Asia may be issues of confrontation between Russia and China, but compared with Ukraine and Middle East for Russia and South China Sea for China, they are minor issues. Instead of making the issues of confrontation grow to win over China or Russia or both to its side, the US believes it is strong enough to incur the enmity of both China and Russia, but now finds that it is not strong enough in the face of a de facto Russian-Chinese alliance.

Comments by Chan Kai Yee on The Washington Post’s report:

The following is the full text of the report:

In Central Asia, Chinese inroads in Russia’s back yard
By Simon Denyer December 27 at 9:41 PM

Slowly but surely, a four-lane highway is beginning to take shape on the sparsely populated Central Asian steppe. Soviet-era cars, trucks and aging long-distance buses weave past modern yellow bulldozers, cranes and towering construction drills, laboring under Chinese supervision to build a road that could one day stretch from eastern Asia to Western Europe.

This small stretch of blacktop, running past potato fields, bare dun-colored rolling hills and fields of grazing cattle, is a symbol of China’s march westward, an advance into Central Asia that is steadily wresting the region from Russia’s embrace.

Here the oil and gas pipelines, as well as the main roads and the railway lines, always pointed north to the heart of the old Soviet Union. Today, those links are beginning to point toward China.

“This used to be Russia’s back yard,” said Raffaello Pantucci, director of International Security Studies at the Royal United Services Institute in London, “but it is increasingly coming into China’s thrall.”

It is a shift that has shaken up the Russian leadership, which is watching China’s advance across the steppe with apprehension. Moscow and Beijing may speak the language of partnership these days, but Central Asia has emerged as a source of wariness and mistrust.

For China, the region offers rich natural resources, but Beijing’s grander commercial plans — to export its industrial overcapacity and find new markets for its goods — will struggle to find wings in these poor and sparsely populated lands.

In September 2013, Chinese President Xi Jinping chose Kazakhstan’s sparkling, modern new capital, Astana, to announce what has since become a cornerstone of his new, assertive foreign policy, a Silk Road Economic Belt that would revive ancient trading routes to bring new prosperity to a long-neglected but strategically important region at the heart of the Eurasian continent.

Bound together by 2,000 years of exchanges dating to the Western Han Dynasty and sharing a 1,100-mile border, the two nations, Xi said, now have a “golden opportunity” to develop their economies and deepen their friendship.

At the China-Kazakhstan border, at a place known as Horgos to the Chinese and Khorgos to the Kazakhs, a massive concrete immigration and customs building is being completed to mark that friendship, rising from the windswept valley floor like a mammoth Communist-style spaceship.

A short distance away, China is building an almost entirely new city, apartment block by apartment block, alongside a two-square-mile free-trade zone, where traders sit in new multi-story shopping malls hawking such items as iPhones and fur coats.

This is reputed to have been a 7th-century stop for Silk Road merchants. Today, the People’s Daily newspaper calls it “the pearl” on the Silk Road Economic Belt.

But this pearl is distinctly lopsided: On the Kazakh side of the zone, opposite all those gleaming malls, a single small building, in the shape of a nomad’s tent or yurt, sits on an expanse of wasteland where a trickle of people stop to buy biscuits, vodka and camel’s milk.

The Silk Road slogan may be new, but many of its goals are not. Beijing has long been working to secure a share of the region’s rich natural resources to fuel China’s industrial economy; it is building a network of security cooperation in Central Asia as a bulwark against Islamist extremism that could leak into China’s restive western province of Xinjiang, and it wants to create alternative trading routes to Europe that bypass Asia’s narrow, congested shipping lanes.

Under the Silk Road plan, China also is promising to spend hundreds of millions of dollars to build new infrastructure here, and it hopes to reap benefits of its own: to create new markets for Chinese goods, especially for heavy industries such as steel and cement that have suffered as the Chinese economy has slowed.

But the scene at Horgos underlines the fact that the economies of China’s Central Asian neighbors are simply too small to provide much of a stimulus to China’s giant financial system.

Russian opposition

China’s ambitious Central Asian plans did not go down well, at least initially, in Moscow.

“When China announced its Silk Road plan in Kazakhstan, it was met with a lot of skepticism and even fear by the Russian leadership,” said Alexander Gabuyev, head of the Russia in the Asia Pacific Program at the Carnegie Moscow Center. “The feeling was, ‘It’s a project to steal Central Asia from us; they want to exploit our economic difficulties to be really present in the region.’ ”

Russia had long blocked China’s attempts to create an infrastructure development bank under the auspices of the Shanghai Cooperation Organization, a regional body, fearing it would become a tool for Chinese economic expansion. Beijing responded by sidestepping Moscow, establishing an Asian Infrastructure Investment Bank in June with a $100 billion capital base.

China has overtaken Russia to become Central Asia’s biggest trade partner and lender. Pipelines transport increasing amounts of Kazakh oil to China and vast quantities of Turkmen gas east through Horgos. That has served to undermine Russia’s negotiating position when it has tried to sell its own gas to China.

At the same time, however, Xi has worked overtime to calm Russian fears, reassuring his counterpart Vladimir Putin that Beijing has no plans to counter his country’s political and security dominance in Central Asia.

In 2014, Russia attempted to draw the region more closely into its embrace by establishing a Eurasian Economic Union, with Kazakhstan a founding member. But even as Moscow moved to protect its turf, the realization was dawning that Russia lacked the financial resources to provide Central Asia the economic support it needed.

After the breakdown of relations with the West over Ukraine in 2014, and the imposition of sanctions, the dogmatic view that Russia had to be the top economic dog in Central Asia was questioned and then finally, grudgingly abandoned.

It was impossible, Gabuyev said, so Russia’s leaders decided to divide the labor: Russia would provide security, while China would bring its financial muscle.

In May, Xi and Putin signed a treaty designed to balance the two nations’ interests in Central Asia and integrate the Eurasian Economic Union and the Silk Road.

China’s expanding influence has provoked mixed feelings in many Asian states, and it has used “velvet gloves” in its dealings with Central Asia, said Nargis Kassenova, an international relations expert at KIMEP University in Almaty.

About a quarter of Kazakhstan’s citizens are ethnic Russians, while Russian media dominate the airwaves. The Chinese language, by contrast, is nowhere to be seen or heard. Even India has more cultural resonance through Bollywood films, says political scientist Dossym Satpayev in Almaty.

What Beijing can offer is infrastructure loans and investment. It has been careful to frame its plans as more than just a “road” — where Kazakhstan’s natural resources are extracted, and Chinese goods waved through on their way to Europe — but as a “belt” of economic prosperity.

Nevertheless, a survey conducted by independent analyst Elena Sadovskaya found that Kazakh attitudes toward Chinese migrant workers reflect fears that China would one day dominate the country, swamp it with immigrants and cheap goods, grab land or simply suck out its natural resources while giving little in return. “In 2030, we’ll all wake up and find ourselves speaking Chinese,” is one common saying here.

In July, scores of people were injured when a mass brawl broke out between Chinese and local workers at a copper mine near the northern Kazakh city of ­Aktogay.

Kazakhstan’s foreign minister, Erlan Idrissov, plays down concerns. China may outnumber the 17 million Kazakh population by 80 to 1, but its progress and development represent good news, he says.

“Our philosophy is simple: We should get on board that train,” he said in an interview in Astana. “We want to benefit from the growth of China, and we don’t see any risks to us in that growth.”

China’s state-owned investment giant CITIC runs an oil field and an asphalt factory in Kazakhstan and says it has established a $110 billion fund to invest in Silk Road projects, much of the money aimed at Kazakhstan and Central Asia.

But private Chinese companies and ordinary Chinese traders say they have yet to reap the rewards, as the small Kazakh economy is shrinking under the weight of falling commodity prices and Russia’s economic decline.

Meanwhile, Russia is playing interference, they say, imposing new import restrictions under the Eurasian Economic Union in an apparent attempt to keep Chinese goods from flooding the region.

In Almaty, the Yema Group has been importing Chinese bulldozers, diggers and other heavy equipment for more than a decade. Business, once booming, has collapsed in the past two years, as many Chinese vehicles fail to meet tough Russian certification standards that now apply throughout the economic union.

Shi Hairu, a 52-year-old trader from Shanghai who sells Chinese gloves in a small shop in a market in Almaty, arrived two years ago when the economy at home started to slow. But sales have been halved this year — a sharp depreciation in the Kazakh currency, the tenge, has drastically reduced locals’ purchasing power, while customs clearance has become slower and costlier.

In the Horgos free-trade zone, Chinese traders also say business is poor. Many were lured here by tax breaks, cut-price deals to rent shops and enthusiastic cheerleading by state media about the opportunities on offer.

“After we came here, we realized it was all lies,” said one owner of a shop that sells women’s underwear who declined to be named for fear of trouble with the authorities.“We basically got deceived into coming here.”

The Kazakh government is building a “dry port” at Khorgos — with warehouses, an industrial park and rows of cranes to transfer containers across different railroad gauges — in what it hopes will become a major distribution and transshipment hub for goods bound between China and Western Europe, a “mini-Dubai” in the making. But the nearby free-trade zone still boasts just the one small supermarket, guarded by four lonely concrete camels, plastic flowers in their saddlebags. The nearest Kazakh city, Almaty, is a five-hour drive away along a bone-jarring road.

Yang Shu, director of the Institute of Central Asian Studies at Lanzhou University, calls Horgos “a mistake” because so few people are in its vicinity. Trade between the two nations declined 40 percent in the first six months of this year, to $5.4 billion, just a quarter of 1 percent of China’s global trade.

In Almaty, the Yema Group has been importing Chinese bulldozers, diggers and other heavy equipment for more than a decade. Business, once booming, has collapsed in the past two years, as many Chinese vehicles fail to meet tough Russian certification standards that now apply throughout the economic union.

Shi Hairu, a 52-year-old trader from Shanghai who sells Chinese gloves in a small shop in a market in Almaty, arrived two years ago when the economy at home started to slow. But sales have been halved this year — a sharp depreciation in the Kazakh currency, the tenge, has drastically reduced locals’ purchasing power, while customs clearance has become slower and costlier.

In the Horgos free-trade zone, Chinese traders also say business is poor. Many were lured here by tax breaks, cut-price deals to rent shops and enthusiastic cheerleading by state media about the opportunities on offer.

“After we came here, we realized it was all lies,” said one owner of a shop that sells women’s underwear who declined to be named for fear of trouble with the authorities.“We basically got deceived into coming here.”

The Kazakh government is building a “dry port” at Khorgos — with warehouses, an industrial park and rows of cranes to transfer containers across different railroad gauges — in what it hopes will become a major distribution and transshipment hub for goods bound between China and Western Europe, a “mini-Dubai” in the making. But the nearby free-trade zone still boasts just the one small supermarket, guarded by four lonely concrete camels, plastic flowers in their saddlebags. The nearest Kazakh city, Almaty, is a five-hour drive away along a bone-jarring road.

Yang Shu, director of the Institute of Central Asian Studies at Lanzhou University, calls Horgos “a mistake” because so few people are in its vicinity. Trade between the two nations declined 40 percent in the first six months of this year, to $5.4 billion, just a quarter of 1 percent of China’s global trade.

In Almaty, the Yema Group has been importing Chinese bulldozers, diggers and other heavy equipment for more than a decade. Business, once booming, has collapsed in the past two years, as many Chinese vehicles fail to meet tough Russian certification standards that now apply throughout the economic union.

Shi Hairu, a 52-year-old trader from Shanghai who sells Chinese gloves in a small shop in a market in Almaty, arrived two years ago when the economy at home started to slow. But sales have been halved this year — a sharp depreciation in the Kazakh currency, the tenge, has drastically reduced locals’ purchasing power, while customs clearance has become slower and costlier.

In the Horgos free-trade zone, Chinese traders also say business is poor. Many were lured here by tax breaks, cut-price deals to rent shops and enthusiastic cheerleading by state media about the opportunities on offer.

“After we came here, we realized it was all lies,” said one owner of a shop that sells women’s underwear who declined to be named for fear of trouble with the authorities.“We basically got deceived into coming here.”

The Kazakh government is building a “dry port” at Khorgos — with warehouses, an industrial park and rows of cranes to transfer containers across different railroad gauges — in what it hopes will become a major distribution and transshipment hub for goods bound between China and Western Europe, a “mini-Dubai” in the making. But the nearby free-trade zone still boasts just the one small supermarket, guarded by four lonely concrete camels, plastic flowers in their saddlebags. The nearest Kazakh city, Almaty, is a five-hour drive away along a bone-jarring road.

Yang Shu, director of the Institute of Central Asian Studies at Lanzhou University, calls Horgos “a mistake” because so few people are in its vicinity. Trade between the two nations declined 40 percent in the first six months of this year, to $5.4 billion, just a quarter of 1 percent of China’s global trade.

Nevertheless, experts agree that China’s Silk Road plan has immeasurably more clout than the American New Silk Road plan advanced by then-Secretary of State Hillary Clinton in 2011 that was meant to bind Afghanistan to Central Asia but that barely got off the ground, or Russia’s own pivot to Asia, mired in economic woes and bureaucratic inertia.

For now, Pantucci, at the Royal United Services Institute, said China and Russia have established some sort of “modus ­vivendi” here. “I used to believe Central Asia would become a bone of contention between the two countries, but the priority in Moscow and Beijing remains the broader strategic relationship,” he said. “Wrinkles like disagreements in Central Asia will get swept underfoot.”

But Tom Miller, at a consulting firm called Gavekal Dragonomics, argues that as Beijing’s investment and financial ties with Central Asia deepen, “its political influence will inevitably strengthen,” too. Harking back to the “Great Game,” the ­19th-century contest between the British and Russian empires’ influence in Central Asia, he says there is only one winner this time around.

“Beijing’s strategists studiously avoid any talk of playing a ‘New Great Game’ in the heart of Asia — but they look set to win it nonetheless,” Miller said.

Gu Jinglu and Adam Dean contributed to this report.

This is part of an occasional series examining China’s efforts to win friends and clients in Asia and to assert a more dominant role across the continent.