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.

Advertisements

China Enhances Presence in Kazakh Banking Sector to Facilitate OBOR


A customer walks past the company logo of China CITIC Bank, at a branch in Hangzhou, Zhejiang province, China, November 18, 2015. REUTERS/China Daily/File Photo

In my previous posts, I said Central Asia and Pakistan are key links of China’s Silk Road economic belt and 21st century maritime Silk Road (OBOR) plan as they concern China’s secure land connection with the Middle East and Europe.

In Central Asia, Kazakhstan, the largest country there, is the key. Reuters says in its report “China’s CITIC Bank approves deal for stake in Kazakh lender” yesterday that CITIC Bank will take 60% stake of Kazakh second largest bank Altyn Bank.

The report says, “Chinese lenders Bank of China (601988.SS) and Industrial and Commercial Bank of China (601398.SS) also have subsidiaries in Kazakhstan, although they are smaller than Altyn and focus on corporate lending.” Therefore, the deal will greatly enhance China’s presence in Kazakh banking sector.

Kazakhstan is to borrow lots of funds for its development of infrastructure and industry, especially energy industry. Borrowing from local banks though controlled by foreign banks is certainly better acceptable so that the deal will further facilitate China’s implementation of OBOR plan there.

Comment by Chan Kai Yee on Reuters’ report, full text of which can be viewed at http://www.reuters.com/article/us-altyn-bank-m-a-citic-bank-idUSKBN18Y3C6.


Can China Win over India while Helping Pakistan Grow Stronger?


Journalist take pictures outside the venue of a summit at the Belt and Road Forum in Beijing, China, May 15, 2017. REUTERS/Thomas Peter

Compared with narrow-minded India, China seems too broad minded. Just as described in Reuters’ report “India’s ‘new Silk Road’ snub highlights gulf with China” on May 20, China has failed to attract Indian leader to attend its OBOR summit.

India will certainly be much benefited if it joins China’s Silk Road economic belt and 21st century maritime Silk Road (One Belt, One Road or OBOR) plan by attracting Chinese investment and the establishment of the Bangladesh-China-India-Myanmar Economic Corridor.

China certainly will also be benefited by the connection to South Asia; therefore, it has tried hard to attract India into its OBOR. However, it depends on India’s willingness to put aside its disputes and conflicts with China and Pakistan and turn a new page in its relations with its two large neighbors.

India Prime Minister Norandra Modi attached great importance to India’s relations with China when he was just elected, but under the influence of popular enmity against China and fear of China’s rise, Modi has obviously changed his mind. He now seems to have regarded China as his enemy. It is certainly a stupid strategy to maintain instead of removing hostility with India’s large and strong neighbors China and Pakistan but narrow-minded India is too strategy illiterate to see the necessity in conducting friendly diplomacy with its neighbors. That is why Reuters mentions in its report some Indian experts’ view on India’s risk in being isolated, but Modi does not seem to realize that.

For China, however, winning over India serves its best interests. It has made great efforts to resolve its border disputes with India. Now, Reuters says in its report that China has tried hard in vain to have Modi and Indian high officials attend its OBOR summit.

However, supporting Pakistan has long been China’s strategy to reduce border threat from India. China loses nothing if it cannot win over India. On the contrary, India’s opposition will push Pakistan closer to China and facilitate the success of China-Pakistan win win cooperation to make both countries richer and stronger.

Perhaps, India is confident that it will grow stronger than China in the long run, but can it attain that goal in isolation?

Comment by Chan Kai Yee on Reuters’ report, full text of which can be viewed at http://www.reuters.com/article/us-china-silkroad-india-idUSKCN18H01L.


One Belt One Road Development of China’s Backyard


People wave Chinese and Union flags as they pose for photographs during departure of a freight train transporting containers laden with goods from the UK en route to Yiwu in the eastern Chinese province of Zhejiang. Photo: AFP

Like Latin America for the US, Central and Southeast Asia can be regarded as China’s backyard. Chinese President Xi Jinping has the vision to see the importance in developing those areas. China has already had great influence in Southeast Asia through trade and its rich overseas Chinese there. The collapse of Obama’s pivot to Asia has now left China as the only dominant power there.

US long-term close ally the Philippines’ switch to China’s side is a clear indication.

To strengthen China’s dominance there, Xi invented his 21st century maritime Silk Road to include in his One Belt, One Road (OBOR) initiative Southeast Asia that has never had anything to do with China’s Silk Road. Chinese investment in the infrastructures there will benefit both China and the overseas Chinese there.

What about Central Asia, the traditional part of Silk Road that links China with the Middle East and Europe?

Reuters says in its report “China’s COSCO to invest in Kazakhstan border project as part of Silk Road drive” yesterday that Chinese state-owned shipping giant COSCO “will sign a deal on Monday with Kazakhstan’s national railway company to take a 24 percent stake in a dry port in the Khorgos Eastern Gates special economic zone (SEZ)”.

Khorgos exchange is an important transport hub for change in railway gauges for the railway link between China and Europe. Through the railway network 27 Chinese cities have already connected with 11 European cities including London and Duisburg.

On April 24, SCMP published Tom Holland’s article “Puffing across the ‘One Belt, One Road’ rail route to nowhere” stating, “Compared to sea or air, the Europe-China freight service just makes no economic or environmental sense, either coming or going”

Mr. Holland simply regards the railway link between China and Europe as stupid as it is not cost effective and has no market.

However, it is of great strategic importance for China’s national security as it provides an alternative land route for transport of important goods between China and Europe in case China’s sea route is cut by enemy navy.

In addition, Xi wants to make those poor sparsely populated Central Asian countries rich by helping them exploiting their natural resources and providing jobs for their cheap labor. When those countries have become rich and filled with lots of Chinese immigrants, China will be better able to prevent illegal immigration and drug traffic from there.

The railway link between China and Central Asia and between Central Asia and Europe will greatly facilitate the trade of those inland Central Asian countries.

Those countries were formerly members of the Soviet Union so that Russia has great influence there. Xi’s efforts in establishing de facto alliance with Russia enable China to invest in infrastructures in and have close economic relations with them smoothly. The economic development in those countries will, in fact, also benefit Russia. Why shall Russia hinder China’s efforts?

China is even investing in infrastructures in Russia and lots of Chinese have moved into Russia now.

China now almost has the entire Asia as its backyard, allies or friends except India, Japan and South Korea.

India should regard Pakistan, Sri Lanka and Bangladesh as its backyard, but has failed to do so. It lacks the strategic flexibility to turn its most important neighbor Pakistan into its backyard or at least a friendly neighbor. India’s enmity has turned Pakistan into China’s close ally.

It is interesting that the US regards Latin America as its backyard. It has set up a free trade area with Canada and Mexico that draw its neighbors close to it. However, it now wants to scrap the free trade area or revise the terms of the area and thus push its neighbors away.

Perhaps the US is too rich and strong to need friends. It is happy to provide protection to all its allies without any consideration that it needs real allies that may help it when it is in trouble.

China, perhaps, is too poor and weak and has to build up its backyard and seek alliance and friendship.

Comments by Chan Kai Yee on Reuters and SCMP’s articles, full text of which can be viewed at http://www.reuters.com/article/us-china-silkroad-cosco-idUSKCN18A0KP and http://www.scmp.com/week-asia/business/article/2089507/puffing-across-one-belt-one-road-rail-route-nowhere.


China-Pakistan Economic Corridor, China’s Vital Success in Its OBOR


Pakistani Prime Minister Nawaz Sharif meets Chinese President Xi Jinping ahead of the Belt and Road Forum in Beijing, China May 13, 2017. REUTERS/Jason Lee

In its report “Pakistan signs nearly $500 million in China deals at Silk Road summit” yesterday, Reuters quotes Pakistani Prime Minister Sharif as saying to Chinese President, “China-Pakistan Economic Corridor is a core component of your visionary initiative of the ‘One Belt-One Road'”.

In my post “The Conundrum of China’s New Silk Road Plan” on April 20, I said that China’s One Belt-One Road (OBOR) aims at establishing alternate land routes for its national security and expanding its trade with other countries. China is not rich enough to share the bounty of its economic development and to fund infrastructure gaps irrelevant to its national security or economic growth.

Sharif is wise to see the vital strategic importance of the China-Pakistan Economic Corridor (CPEC) in China’s OBOR so that he describes it as the core of Xi Jinping’s OBOR initiative.

The Corridor will facilitate Pakistan’s and Western China’s economic development and strengthen China’s and Pakistan’s defense in their border with India. Moreover, China will have a shortcut in its trade with the Middle East through the corridor.

Due to the strategic importance, Xi and Sharif signed $500 million deals for CPEC in addition to the $57 billion already pledged for its projects. Pakistani troops are active in ensuring the safety of those projects due to their importance to Pakistan’s and China’s national security.

In fact, the core projects for OBOR are but those in Pakistan, Central Asia and Russia for China’s trade to the Middle East and Europe, especially the access to oil and gas resources there.

It is Xi’s wise idea to describe OBOR as a global initiative involving lots of countries that in fact are not along China’s Silk Road in order to attract other countries’ investment and construction industries to the projects that benefit China. Japan and South Korea are interested in the infrastructures in Southeast Asia, which though is included in China’s OBOR initiative, is really not along China’s Silk Road as China’s trade routes to the Middle East, Europe and Africa through Southeast Asia have yet to go through the Indian Ocean with the risk of being cut by not only US but also Indian navy.

However, the infrastructure developed by whatever countries China, Japan, South Korea or others will facilitate rich overseas Chinese’ business in the region and thus expands China’s influence there.

As for the US, Japan and South Korea’s competition with China in developing infrastructures in Central Asia, China certainly welcomes such competition as the infrastructures will first of all be exploited by China in its trade and investment there. I do not see the wisdom in such competition as the infrastructures are in countries under Russian military dominance.

Comment by Chan Kai Yee on Reuters’ report, full text of which can be viewed at http://www.reuters.com/article/us-china-silkroad-pakistan-idUSKBN1890KD.