POL 319
US-China-India
New Silk Road
Dr. Lairson
When was the NSR (OBOR) announced?
What is it?
What was the Marshal Plan?
What are China’s goals with NSR?
What is the connection between AIIB and NSR?
How does China describe the purposes of this initiative?
It invokes an ancient time when the peoples of Africa, Asia and Europe traded in the spirit of ‘peace and cooperation’. It rests on five declared principles: upholding the United Nations’ Charter, openness, harmony, market principles and mutual benefit.
Importantly, openness means that the initiative isn’t limited to countries on the historical Silk Road. The commitment to uphold the ‘decisive role of the market in resource allocation’ is a direct extension of China’s domestic economic reform agenda. Following these principles, specific initiatives under this proposalfall into five categories. These international linkages feed back into the economic development strategies for all regions of China.
At a high-level economic policy meeting in November devoted to the Silk Road, Xi Jinping announced the creation of China’s own Silk Road Fund. This US$40billion fund, financed from China’s foreign exchange reserves, isn’t subject to the same multilateral oversight as the AIIB. By April it had made its inaugural US$1.65 billion investment in Pakistan. The BRICS’ New Development Bank, launched in July, offers China another option to fund Silk Road investments. The five member bank will ‘explore innovations in governance models’, probably without too much reference to high international standards, while bilaterally, Russia and China are also ‘exploring novel financial cooperation’.
Where is the NSR?
According to the map, the land-based “New Silk Road” will begin in Xi’an in central China before stretching west through Lanzhou (Gansu province), Urumqi (Xinjiang), and Khorgas (Xinjiang), which is near the border with Kazakhstan. The Silk Road then runs southwest from Central Asia to northern Iran before swinging west through Iraq, Syria, and Turkey. From Istanbul, the Silk Road crosses the Bosporus Strait and heads northwest through Europe, including Bulgaria, Romania, the Czech Republic, and Germany. Reaching Duisburg in Germany, it swings north to Rotterdam in the Netherlands. From Rotterdam, the path runs south to Venice, Italy — where it meets up with the equally ambitious Maritime Silk Road.
The Maritime Silk Road will begin in Quanzhou in Fujian province, and also hit Guangzhou (Guangdong pronvince), Beihai (Guangxi), and Haikou (Hainan) before heading south to the Malacca Strait. From Kuala Lumpur, the Maritime Silk Road heads to Kolkata, India then crosses the rest of the Indian Ocean to Nairobi, Kenya (the Xinhua map does not include a stop in Sri Lanka, despite indications in February that the island country would be a part of the Maritime Silk Road). From Nairobi, the Maritime Silk Road goes north around the Horn of Africa and moves through the Red Sea into the Mediterranean, with a stop in Athens before meeting the land-based Silk Road in Venice.
What countries are involved?
Pakistan – not exactly on NSR - China – Pakistan Economic Corridor
199 million
$4900 PCGDP
Highways, rail lines, oil and gas pipelines from China to the Indian Ocean
System of rail lines already exist from China to Europe
Central Asia
Five – Six of the “stans”
- Kazakhstan – 18 m
- Kyrgyzstan – 5m
- Tajikistan – 8m
- Turkmenistan - 5
- Uzbekistan – 30 m
- Afghanistan – 31 m
Total Population: 97 million
PC GDP $6500 Kazakhstan is richest by far $12,000
What are the global strategic features of NSR?
See Reading:
The Diplomat
China Needs Great Power Diplomacy in Asia
To promote its Silk Road strategy, China needs to proactively engage other Asian powers.
By Xue Li and XuYanzhuo
March 12, 2015
Historically, rising powers used to engage in land battles with opponents in order to control as much land and the surrounding waters as possible and become the strongest land-based empire. But in the maritime age, rising powers instead relied on establishing colonies and building a trade network between these colonies and the mother country. Because of this, building an unrivalled naval fleet was critical. The United States, which became the world’s most powerful country after World War II, was influenced by a century and a half of isolationism and mercantilism. Its way of governing the world was not to expand its territory, but to protect the free trade system. This was a major purpose behind establishing the Bretton Woods institutions, the General Agreement on Tariffs and Trade and the World Trade Organization, and even the United Nations itself. It was also a driving force behind the establishment of U.S. overseas bases.
Under the free trade system, the U.S. could show its comparative advantage in the economic sphere, and come to dominate and control the world market. This also made it easy for the U.S. to export its values. In the 21st century, America’s comparative advantage lies in the service sector, so it strongly pushed for free trade in services (with bilateral investment treaty as the primary model). When it comes to the trade of merchandise, the U.S. emphasizes “fair trade” as it seeks to promote domestic re-industrialization.
Against this backdrop, China has become the world’s second largest economy and is likely to be the largest by 2030. China has laid the economic foundation for developing into the world’s number one overall power. No matter whether China can replaced America’s global role and status, becoming the most powerful country in overall terms will mean China has realized “national rejuvenation.”
Since the 1990s, China’s diplomacy has centered on partner relationships, built on the foundation of a non-alignment policy. China thus maintained good overall relationships with neighboring countries. However, that foreign policy approach fit with the period of “keeping a low profile” (taoguang yang hui). The current situation is different: the U.S. is pursuing a “rebalance to Asia”; Japan accelerating steps toward national normalization; India’s economy is growing rapidly. In the eyes of neighboring Asian countries, China’s rise isn’t entirely positive; their wariness toward China is increasing. In response to the situation, Beijing has put forward its OBOR strategy. The goal is threefold: to deal with the U.S. through “new type major country relations,” to build several routes for the Maritime Silk Road, and to set up an interconnected, interoperable system on the Eurasian continent (particularly in the central and eastern regions).
However, Beijing knows quite well that it cannot be like the U.S., acting as a “neighbor” to nearly 200 countries around the world. To seek the power and influence of a global power., one must first have a good strategy for the regional situation. When it comes to regional diplomacy, China has moved from viewing itself as simply as East Asian country to an identity as part of Central Asia and a main power on the Eurasian continent. This means China is clearly returning to a traditional regional focus: paying attention to all of China’s neighbors rather than some of them.
Also see
The Diplomat
How China Can Perfect Its 'Silk Road' Strategy
The challenges facing China’s Silk Road strategy — and how to overcome them.
By Xue Li and XuYanzhuo
April 09, 2015
And
The Diplomat
China’s 'One Belt, One Road' To Where?
Why do Beijing’s regional trade and transport plans worry so many people?
By Lucio Blanco Pitlo III
February 17, 2015
The SREB/MSR project with its land and maritime path components promises to better connect China with the Middle East, Africa and Europe through its landlocked neighbors in Central Asia and the littoral states of Southeast and South Asia. It spreads the risk by multiplying access routes, thus reducing China’s vulnerabilities. The system of ports, railways and roads, which have variously been completed, or are under construction or being proposed, will enable China to diversify the routes by which it can secure the transport of oil and gas and other essential goods needed to sustain China’s economy. It enhances the country’s energy and economic security and mitigates the risks attendant to transporting fuel and goods through unstable, unsecured or unfriendly channels. For instance, the establishment or proposed establishment of transport corridors via Pakistan (through the Chinese-operated Gwadar Port, and then by proposed railway to link the Sino-Pakistani-built Karakoram Highway and ultimately western China), Myanmar (through the Kyaukphyu Port then through the railway and pipeline to Yunnan, which are under construction) and Thailand (through the proposed Chinese-funded Kra Isthmus project) will enable China to reduce its dependency on the Strait of Malacca chokepoint. Developing pipelines to get oil and gas directly from Russia and Central Asia to power western China also reduces its reliance on the volatile Middle East.
One More
The Diplomat
How the International Community Changed China's Asian Infrastructure Investment Bank
The AIIB today is very different from the AIIB China envisioned before March 2015.
By Yun Sun
July 31, 2015
There has been abundant research on China’s motivation behind the AIIB and how Beijing intends to use the bank to serve its political, economic, and strategic agendas.How successful has China been in achieving those goals?
Close examination of China’s evolving positions on the AIIB in 2015 shows how China’s behavior can be shaped by collective efforts of the international community. The AIIB today is very different from the AIIB China envisioned before March 2015. This is reflected in a series of issues including the membership, capital contribution, veto power, and the linkage between AIIB and China’s own economic agenda, as well as its governance and standard issues.
How did China’s position on AIIB change?
First, China’s position on the AIIB’s membership, especially on non-regional members, has undergone a significant shift. China had not planned for non-Asian countries to join in the early stage of the bank. As late asMarch 6this year, China’s finance minister was stating that “the Prospective Founding Membership is open to countries from the region first and applications from countries outside the region are not considered for now.” Six days later, the UK submitted its application.
The enthusiasm of European countries to join the AIIB was a welcome surprise for China. Beijing rapidly adapted its position to welcome European countries as well as African and Latin American countries as Prospective Founding Members (PFMs). Beijing dropped the focus on Asia and replaced it with a distribution of capital shares between regional (75 percent) and non-regional (25 percent) members in exchange for enhanced international support.
Second, another significant change in China’s approach to the bank is the nature of the AIIB as a multilateral development bank (MDB), which is very different from previous perceptions in China that the bank will either be China’s aid agency or a commercial bank with a policy portfolio.
Financiers and finance officials held the opposing view that the AIIB would be a market-oriented, profit-seeking commercial bank and that “China did not found the Bank to lose money, but to make a profit.”
The final configuration of the AIIB avoids both extremes and reflects a middle of the road approach. As stipulated by the AOA, the AIIB will be a new MDB with China playing a large but not dominant role. In the view of many Chinese analysts, this differentiates the AIIB from both commercial banks and aid agencies, making it a “quasi-commercial bank” that has to generate returns.
Doubts from international society and developed country PFMs have forced China to face the inherent conflict between funding potentially loss-making projects and seeking profits. While most Chinese analysts agree on the risks in the Asian infrastructure market and the need for the AIIB to avoid them in its operation, a consensus emerged that China needed to abandon unrealistic hopes of funding all types of infrastructure projects while generating high returns.
Concerns about China’s veto power at the AIIB have been ameliorated. When the MOU was first signed in October 2014, China planned to contribute 50 percent of the bank’s capital, which many assumed would translate into absolute veto power over issues that require a simple majority. However, as more countries became PFMs, China scaled back its capital share to about 30 percent and its voting rights to 26.06 percent. As the AOA stipulates, China will have veto power on issues that require a supermajority vote, such as the board, the president, the capital, as well as the major operational and financial policies. Retention of a veto reflects China’s determination to retain control on key aspects of the bank.
Annoying as the veto power is for many, it may not be as threatening as it appears.
What is more important is the extent to which China will use the AIIB to advance its national interests, such as export promotion. On this, only the future operations of the AIIB will tell, but there has been a debate in the Chinese policy community over the extent to which China should exploit the AIIB to pursue Beijing’s economic goals. In an encouraging sign, one of China’s most controversial goals in launching the AIIB – promoting exports to absorb excess capacity – has gradually disappeared from government statements and media reports. Promoting exports of Chinese goods to absorb excess capacity runs the risks of encouraging anti-dumping lawsuits, undermining Xi’s economic restructuring campaign and, more importantly, undermining the AIIB’s legitimacy and credibility. With more than 50 PFMs, it would be difficult and problematic for the AIIB to favor Chinese exports, which has been repeatedly acknowledged by Chinese officials.
The key reason that China adapted its positions and accepted an AIIB different from its earlier design is the role of the international community. The pivotal event was the decision by leading European economies in late March to join.Upon joining the Bank, the PFMs, including developed country members, were able to use their collective bargaining power to negotiate, guide, and shape the bank’s AOA from within and enmesh China in a network of international norms and standards. China adapted its expectations and positions to meet changing realities. That flexibility, by itself, has been a positive development. Suspicion and opposition by countries like the United States and Japan also played an important role in reining in China’s selfish ambitions and making Beijing tread carefully when advocating for its own agendas. The world still perceives the AIIB as a challenge to the existing order, but the evidence suggests that the existing system also has the power to balance, influence, and shape that challenge, to check China’s revolutionary ambitions, and to make China play by the rules.