A BRILLIANT CHINA’s PLAN: ONE BELT, ONE ROAD
[2017]
Ø China’s infrastructure global vision: the CHINA’S MARSHALL PLAN
Ø The plan involves more than 60 countries, representing a third of the world’s total
economy and more than half the global population.
Ø Xi Jinping’s ambitious strategic initiative – an
adaptation of the historical Silk Road – marks the beginning of a new
geopolitical era.
Source / Authors: CLSA.
CLSA is Asia’s leading and longest-running independent brokerage and
investment group, providing equity and execution services, corporate finance
and asset management services to global corporate and institutional clients.
Head of
China-HK strategy Francis Cheung and Head of China Industrial Research Alexious
Lee provide an indepth
analysis on what to expect in their Obor Silk
Belt and Sea Road reports, available exclusively to CLSA
clients.
https://www.clsa.com/special/onebeltoneroad/
RAS access in 22may2017.
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[1] THIRTY YEARS OF UNPRECEDENTED GROWTH
In just 30 years, China has developed
from a poor inward-looking agricultural country to a global manufacturing
powerhouse. Its model of investing and producing at home and exporting to
developed markets has elevated it to the world’s second-largest economy after
the USA.
Now faced with a slowing economy at
home, China’s leadership is looking for new channels to sustain its appetite
for growth at a time when developing neighbours are experiencing rapidly rising
demand.
[2] A NEW ECONOMIC PARADIGM EMERGES
At the heart of One Belt, One Road
lies the creation of an economic land belt that includes countries on the
original Silk Road through Central Asia, West Asia, the Middle East and Europe,
as well as a maritime road that links China’s port facilities with the
African coast, pushing up through the Suez Canal into the Mediterranean.
The project aims to redirect the
country’s domestic overcapacity and capital for regional infrastructure
development to improve trade and relations with Asean, Central Asian and
European countries.
[3]
HISTORICAL ROOTS
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The Silk Road was a network of trade
routes, formally established during the Han Dynasty. The road originated from
Chang'an (now Xian) in the east and ended in the Mediterranean in the west,
linking China with the Roman Empire.
As China’s silk was the major trade
product, German geographer Ferdinand von
Richthofen coined it the Silk Road in 1877. It was not just one road but
rather a series of major trade routes that helped build trade and cultural ties
between China, India, Persia, Arabia, Greece, Rome and Mediterranean countries.
It reached its height during the Tang
Dynasty, but declined in the Yuan dynasty, established by the Mongol Empire, as
political powers along the route became more fragmented. The Silk Road ceased
to be a shipping route for silk around 1453 with the rise of the Ottoman
Empire, whose rulers opposed the West.
[4] ROLLING OUT THE RED CARPET
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Chinese President Xi
Jinping hopes OBOR will help to build a community of common destiny.
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[5] MAKING FRIENDS
The Asia Development Bank estimates
that Asia needs US$8tn to fund infrastructure construction for the 10 years to
2020. China well knows its development is linked to Asia and beyond and, in
part, is banking its future on responding to its neighbours’ huge
infrastructure needs via One Belt,
One Road.
Meanwhile, China’s growing domestic
market means the chance for the region and the world to capitalise by providing
goods and services.
The initiative is not without its challenges; cooperation
and coordination with partner countries over the long term are paramount for it
to be a lasting legacy.
[6] CHINA’S RELATIONSHIP WITH SILK ROAD
COUNTRIES
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Key to One Belt, One Road’s success
is the development of an unblocked road and
rail network between China and
Europe. The plan involves more than 60 countries, representing
a third of the world’s total economy and more than half the global population.
We have ranked each country’s
relationship with China from 1 to 5 based on political, economic and historical
factors. China’s ultimate goal is
to extend the initiative to Africa and Latin America.
[7] POLITICS
OF TRADE
[8] STRATEGIC AGREEMENTS
There are compelling geopolitical reasons,
such as energy security, for China to push forward with its One Belt, One Road plans at a
time when its trading partners are potentially excluding it from strategic
agreements.
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.
In response, China plans to negotiate free-trade agreements with 65
countries along the OBOR. Until now
China has signed 12 free-trade agreements including Singapore, Pakistan, Chile,
Peru, Costa Rica, Iceland, Switzerland, Hong Kong and Taiwan and a further eight are under negotiation with Japan, Korea,
Australia, Sri Lanka, Norway, the Regional Comprehensive Economic Partnership,
Asean and the Gulf Cooperation Council.
[9] CHINA’S
MARSHALL PLAN
Some worry that China
has ulterior motives for naval expansion and energy security. What the
sceptics miss is that securing economic growth is at the core of national
security, as it legitimises the party’s rule. To ease worries, President Xi Jinping has emphasised “Three
Nos”
Ø No
interference in the internal affairs of other nations
Ø Does not
seek to increase the so called “sphere of influence”
Ø Does not
strive for hegemony or dominance
[10]
DOMESTIC SILK ROAD PLAN
One Belt, One Road
could have as much impact on China’s internal economy as it will have
internationally. China’s top priority is to stimulate the domestic economy via
exports from industries with major overcapacity such as steel, cement and
aluminium.
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.
Each zone will be led
by a core province: Xinjiang in the Northwest, Inner Mongolia in the Northeast,
Guangxi in the Southwest and Fujian on the coast.
[11] SUCH A VAST PROJECT WILL NEED FUNDING
One Belt, One Road’s vast
scale has elevated it to high-profile status given China’s financial
resources. But even China’s deep pockets have limits, with the country’s
total debt to GDP at 250%. Three financial institutions have been set up to
support its development, which have met some resistance in the West given they
provide alternatives to the World Bank, IMF and ADB.
[11.1] Silk Road Infrastructure Fund [SRIF]
Launched in February 2014, the China-led US$40bn Silk Road Infrastructure Fund invests
in One Belt, One Road
infrastructure projects. The fund is capitalised mainly by China’s forex
reserves and is intended to be managed like China’s sovereign wealth fund.
Jin Qi, who serves as the assistant to the PBOC governor, will be the fund’s
chief executive.
[11.2] Asian Infra Investment Bank [AIIB]
Founded in October 2014, the AIIB aspires to be a global
development bank with 21 Asian member countries (China, India, Thailand,
Malaysia, Singapore, the Philippines, Pakistan, Bangladesh, Brunei, Cambodia,
Kazakhstan, Kuwait, Laos, Myanmar, Mongolia, Nepal, Oman, Qatar, Sri Lanka,
Uzbekistan and Vietnam), with registered capital of US$100bn.
[11.3] New
Development Bank [NDB]
The NDB is a BRICS multilateral development bank established on 15
July 2014, by Brazil, Russia, India, China and South Africa. The bank was
seeded with US$50bn initial capital, with the intention to increase capital to
US$100bn. The bank will be headquartered in Shanghai. Each country will have
one vote and no country will have veto power.
[15] Read our latest reports
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https://www.clsa.com/special/onebeltoneroad/
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