By R. Bruce Striegler
Some may recall hearing of the Silk Road in history classes, a fabled network of trade routes formally established during the Chinese Han Dynasty. Originating from what is now Xian, a city of 8.4 million in China’s east, the Silk Road ended on the Mediterranean to the west, linking China with the Roman Empire. How remarkable then, that centuries later, the old Silk Road should re-appear as China’s newest foreign policy approach to the global economy under a new name. “One Belt, One Road”, the name coming from abbreviating the two planks of the scheme, the “Silk Road Economic Belt” and the “21st Century Maritime Silk Road.”
The plan will focus on infrastructure projects such as ports, pipelines, railways, highways, and factories. But the heart of the scheme lies in 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 there is a maritime ‘road’ linking China’s port facilities with the African coast, pushing up through the Suez Canal into the Mediterranean. The initiative aims to redirect the country’s domestic overcapacity and capital for regional infrastructure development to improve trade and relations with the counties of the Association of Southeast Asian Nations (ASEAN), Central Asian and European countries. The formal, written Chinese announcement focuses on building networks of connectivity across this region of the world, and are not limited to physical infrastructure. The first words about the One Belt, One Road came when Chinese President Xi Jinping visited Kazakhstan and Indonesia in September 2013. At the time he talked not only about infrastructure, but about connectivity in terms of trade, investment, finance, and flows of tourists and students.
In Vancouver, Dr. Iris Jin, Senior Program Manager Trade, Investment, Innovation and Canada-China Relations at the Asia Pacific Foundation of Canada says that when China put forward the One Belt, One Road proposal in 2013, the purpose of the idea was to open new economic resources. “Thirty years ago China started its reform and began to open up, and since then, the country has become a significant contributor to the world’s economic growth. With that growth slowing, the country’s leaders are looking for new markets to replace or extend the growth.” Dr. Jin notes that many of the countries that will benefit from the initiative are somewhat marginalized. “Their own economies are under-developed, and they’ve become somewhat overlooked by world economic development due to a number of circumstances, including geo-political or religious reasons. I think that China believes these countries also would benefit from new economic development.”
China puts billions on the table
To finance the initiative, China created the Asian International Infrastructure Bank (AIIB) to provide seed funding, injecting an initial contribution of $47 billion. The international community was invited to join AIIB as charter members and partners. Dr. Jin says an example can be found with the Philippines which, following months of equivocation and a dispute with China over territories in the South China Sea, finally signed on as founding member at the last possible moment on December 30, 2015. The AIIB’s Articles of Agreement entered into force on December 25, and the bank officially began operations on January 16, 2016. The 57 countries that signed on, which include most of Western Europe, Asia, and others along the Silk Road route, will be contributors. The bank will receive additional investments from international funds, private and public companies and local governments. Apart from the bank, China has also launched a $40 billion Silk Road Fund with a focus on investing in businesses instead of lending money for projects. Dr. Jin says that the only scenarios that might derail or delay implementation would include a worldwide economic crisis, regional or global conflict or sudden and dramatic changes in the Chinese political scene. “I think there is little chance any of these things will come to pass.”
What has come to pass, however, are falling prices of oil, steel, concrete and other building materials. The lowest prices of these materials in a decade could provide an incentive for many of the countries involved in the plan. With many nations along the route dependent on commodities exports, the price slump could make them more willing to accept Beijing’s investment pitch and a share of its $40 billion Silk Road infrastructure fund. This situation is making it easier for China to sell its ambitious vision to build infrastructure from Xian to Athens.
The People’s Bank of China announced last April that a dam project in northern Pakistan would be the Silk Road fund’s first recipient, a total investment of $1.65 billion. China also started building a highway between Karachi and Lahore, and took over a 923-hectare (2,281-acre) free-trade zone at the Pakistani deep-sea port Gwadar. This strategically-located port sits where the Arabian Sea meets the Persian Gulf just outside the Strait of Hormuz, near key shipping routes in and out of the Persian Gulf. Further, published reports indicate that Chinese Foreign Minister Wang Yi told a conference in Beijing last December that China has signed more than 20 country-to-country energy cooperation deals last year to facilitate the plan.
What will be the impact of One Belt, One Road on Canada?
When asked if the One Belt, One Road initiative might have an impact on Western Canada’s “Pacific Gateway” status, as well as broader implications for trade, Dr. Jin says, “If China succeeds with its plan and Canada is not part of it, Canada will become less important to the economic association China has created.” She explains that “being part of it” means becoming a member of the Asian International Infrastructure Bank. “Of the G7 countries, only Japan, the United States and Canada are not yet a member of the AIIB.” Dr. Jin adds that although not members, the U.S. and Japan could be seen as somewhat passively involved given the close economic ties that already exist. “China and Canada are not so closely tied with each other in economic terms”. Dr. Jin notes that it would be in Canada’s interest to become a member of AIIB.
In a story published on October 6, 2015 in the Vancouver Sun, experts focussing on the just-signed Trans-Pacific Partnership (TPP) point out that deal could spur further economic relationships between Canada and China despite Beijing not being a member of the 12-nation trade pact. Many international trade experts view the TPP as a U.S.-led economic initiative to counter the growing influence of China in regional and global trade regulation and governance. Most think it too early to tell exactly how Canada’s involvement in the TPP will affect its economic links with China, either through existing TPP mechanisms or Beijing’s potential counter-response of pursuing more bilateral trade agreements.
Although there is very little in the way of Canadian reporting or published studies of the impacts of China’s One Belt initiative on Canadian trade, the Vancouver Sun story quotes Yves Tiberghien, Director of the University of B.C.’s Institute of Asian Research, as saying that TPP negotiations have been highly visible for at least five years, and Beijing has already adopted a number of counter-initiatives, such as the Asian Infrastructure Investment Bank, the One-Belt-One-Road strategy and the establishment of the Shanghai Free-Trade Zone. As such, dramatic changes to Canada’s relationship with China in light of the TPP would be unlikely, Tiberghien said.
In the same story, Andreas Schotter, professor of international business at the Ivey Business School in London, Ont., says, “China already has many individual agreements with TPP members but will certainly feel more pressure now to secure new deals, with both the Asian Infrastructure Investment Bank and the One Belt initiative likely getting more serious consideration.” Schotter adds that Canada can gain more trade with China through this process, but Ottawa cannot rely only on the TPP to drive trade with Asia. “Canada, in my opinion, has greatly underperformed in regards to effective China trade relations,” he said. “I see a danger that this deal (the TPP) will cause more complacency on the Canadian side. I strongly suggest a more active pursuit of bilateral trade deals with China.” It may be an initiative that Canada should pay attention to, according to an article published earlier this year by the World Financial Review, in which Chinese analysts say that the territory encompassed by the New Silk Road Economic Belt and the Maritime Silk Road contains 4.4 billion people (63 per cent of the world’s population), with an aggregate GDP of $2.1 trillion, or 29 per cent of the world’s aggregate wealth.