From 130 BC to 1453 BC, the intertwined trade route was defined via China, Central Asia, and Europe to facilitate trade of commerce and knowledge. This trade route was then called as Silk Route and the predominant goods that used to be traded using this route were spices and silk. China acted as the dominant trading nation and in the current world scenario, it continues to dominate the world trade.
China is planning to direct the massive initiative of creating a Silk Route again. This time the country is calling it as One Belt One Road (OBOR). The Chinese government under the leadership of President Xi Jinping announced in October 2013 about his ambitious plan of reconnecting Asia, Europe, and Africa through one route. With the help of this initiative, China is planning to connect approximately 60 countries by promising prospects for higher growth and overall economic development.
OBOR – Introduction
The main objective of the OBOR project is to connect China with other countries through a single route. The other connecting countries will be from Southeast Asia, Asia, Europe, and the Middle East. China is planning to connect different countries through a vast network of maritime and land routes. According to the Chinese government, there are two aspects to this initiative: The vast network of OBOR will include development of infrastructure that is it will involve building of railways, roads, gas and water pipelines, and other infrastructure in the connecting country. The second aspect would be to build planned sea routes with network of ports along Southeast Asia corridor. This will further help them connect costal China with other countries via Indian Ocean and Africa.
The OBOR project is expected to cost more than $1 trillion. No concrete evidence is being shared by the Chinese government on actual spent till day. According to different sources, approximately $210 billion is injected under this initiative. In addition, the fund is reportedly employed for the development of Asia. The key investors in this project are The China Development Bank, The Export and Import Bank of China, and China State Bank. In addition, the construction companies of China are expected to take majority of the project under this initiative. Chinese construction companies have secured approximately $340 billion for the project. In addition, one of the major projects has already been initiated under China Pakistan Economic Corridor (CPEC). Pakistan has tied up with China to upgrade and construct various infrastructure projects. One of the project is Pakistan Gwadar Port, where China will be able to connect with Arabian Gulf of Oman and at large with the Indian Ocean.
The scale and scope of the project is enormous. Once the project reaches its end phase, it is expected to connect approximately 60 countries, which will further account for approximately 45% of the world gross domestic product and impact approximately 4.4 billion people.
Benefits of OBOR to China
- Creation of jobs and reconstructing China’s flattening economy through volumes of trade
- China as the leader in technology and high-end goods export will move up the value chain. This fact is further supported by more than 1 million patents filed in China in the past year.
- Chinas’ private firm such as construction companies and automotive companies will witness enormous benefit.
- China will have access to the smaller market, underdeveloped, and developing nation. This will further create a demand for their old product.
- Road links will provide fast transportation and technology boost. China all electric vehicle initiative will further get a boost. In addition, the dynamic charging concept in electric vehicles is expected to be deployed in the link.
OBOR Benefits for Other Connected Countries
- The connected countries will have an access to China and other interconnected countries. According to the Chinese government, smaller countries are expected to gain a lot with increased involvement.
- Increased investment by China will result in new and upgraded infrastructure.
- According to the Chinese government, exchange of information, technology, and ideas will spur innovation.
- Lowers the cost of good transportation.
OBOR and Related Risk
- Smaller market will witness increase in the export from China. The country will export its surplus cement, steel, and other related material to different countries by creating a false demand.
- Many countries along the corridor are credit rated poor by top credit rating agencies and there is an associated lending risk therein. It further means, if China lends to these countries, they won’t be able to settle their trade and will further end up acquiring the land near the corridors. Poor governance and domestic instability of the country will further put them at high risk.
OBOR and Automotive
The OBOR initiative opens up a new market for the Chinese automakers. With respect to the automotive matured companies, Chinese car still lags with respect to delivering quality performance. Chinese car sales is good in its domestic market, however, if they plan to sell internationally, there are high chances of failure. Whereas, Japan and South Korean players develop products based on the destination market. According to Bai Ming, the Chinese Academy of International Trade and Economic Cooperation of the Ministry of Commerce official said, it is not about quality of the product and it is about addressing the unfulfilled need for after sales and service. This further makes it clear that the country is looking forward to boost its own sales along with countries falling under the OBOR corridor. The surplus production will be moved out to the developing and under developed countries. This will further increase the domestic player’s sales in the international market.
The other initiative taken by the Chinese government is to go all electric. This initiative will boost the growth of electric vehicles inside and outside of China province. It can be expected that, the Chinese government will allow its own transport medium for trade. This will further increase the chances for the deployment of autonomous electric vehicles in road links. The charging infrastructure is also expected to witness a boost in the same road links. Particularly, it can be said that dynamic charging or the charge on run concept is expected to be deployed on the trade route.
An Egypt-based company has signed a deal with the Chinese counterpart to produce 900 vehicles per month. In addition, under OBOR initiative, Zhejiang Geely Holding Company has acquired 51% stake in British car brand called Lotus. The company has also acquired 49.9% stake in Malaysian Proton Holding. This further implies that domestic automakers in China are betting on the knowledge transfer and at the same time building a market in different countries. Under OBOR initiative, the domestic companies are getting ready for future prospects.
OBOR and Provocation
Countries who have signed the OBOR initiative with China have started to rethink again on their deal. The countries with low GDP have more concerns. The recent deal with Sri Lanka emphasizes more on the Chinese idea of OBOR. As the country is struggling to pay its debt to China, the country has to lease their port to the Chinese company for 99 years. This further triggers the cautionary environment. Furthermore, China wrote off the debt to Tajikistan in return of 1,158 sq. km disputed territory.
Nations such as Montenegro, Maldives, Djibouti, Laos, Kyrgyzstan, Mongolia, Tajikistan, and Pakistan are the poor countries who participated in the OBOR initiative. They fall under high risk lending countries and if China lends the money to these countries, they will be owing more than half of their debt to China. This will further incur harsh measures from China, and can also result in debt-trap diplomacy. This initiative can also expand the presence of the Chinese army in these regions, the same idea with which the South China Sea dispute started. The main goal of China to become superpower will be realized with OBOR initiative.
The most important question for the project is its sustainability of the current development model. At present, there are too many logistical complications such as maritime and territorial disputes that needs to be resolved. In addition, the current tension with respect to the political scenario will further pose a hindrance to the timeline.
The project truly has the potential to change the investment and trade landscape of the associated countries. The participating states will witness collaboration and economic gain in medium term. The most important issue for now to settle is for the countries to draft a stringent policy and feasible agreements, drawing the rule with regards to the border sharing, human rights, environment, lending policy, and others. This will further ensure the security of the country for the long run.