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Belt and Road Initiative: A boon for the International Trade or a Multi-Trillion-Dollar blunder?

When Xi Jinping took over as the President of the People’s Republic of China in 2013, one of the first things he undertook during an official visit to Kazakhstan and Indonesia was to announce the plan for reviving the historic Silk Road. The Silk Road was a term that was given to a massive network of trade routes that connected East Asia and Southeast Asia with South Asia, Persia, the Arabian Peninsula, East Africa, and Southern Europe during the Han Dynasty almost 2000 years ago. This plan that came to be known as the One Belt, One Road (OBOR) project, and later the Belt and Road Initiative (BRI) is two-pronged: The 21st century Maritime Silk Road and the overland Silk Road Economic Belt.

 

Overview

The Silk Road Economic Belt aims at creating a trans-continental passage that links Central, South and Southeast Asia, Russia, and Europe to China while the sea route would help in connecting the ports of China with that of Europe, the Middle East, Eastern Africa, South, and Southeast Asia and the South Pacific. Overall, it comprises six major economic corridors:

China-Pakistan Economic Corridor (the flagship project estimated to be upwards of USD 60 billion; Bangladesh-China-India-Myanmar Economic Corridor; China-Mongolia-Russia Economic Corridor; New Eurasian Land Bridge Economic Corridor; China–Indochina Peninsula Economic Corridor; China–Central Asia–West Asia Economic Corridor.

Additionally, three “blue economic passages” have also been proposed in 2017 by the State Oceanic Administration and the NDRC.

Since its inception in 2013, BRI has managed to spread its wings to about 100 countries and international organizations. A major chunk of its investment is directed towards the development of transport and logistics roads and railways that will help in facilitating the smoother and faster flow of goods and services between the member states and also includes t creation of new special economic zones and reduction in tariffs. According to the World Bank, once the projects under the initiative are complete, they will help in lifting more than 7 billion people from poverty, lead to increase trade from anywhere between 2.7-9.7%, and will also increase income by up to 3.4%.

Significance of BRI for China

According to the 13th Five Year Plan issued by the National Development and Reforms Commission, the BRI has six main objectives-amplify investment and trade, increase financial cooperation, deepen cultural exchanges, gaining access to natural resources, setting up free trade zone. China’s ambitious plan covers several economic and political goals-

Firstly, the recent slowdown in its economy has forced the dragon’s leadership to expand its influence beyond its geographical boundaries. The government wants to portray to its people that their country is growing economically stronger and is becoming self-reliant. The BRI when fully operational, will open new markets for their goods and services and help them to reduce the transportation cost by a huge margin thus boosting their economy.

Secondly, this network will help China secure its energy requirements. Due to growth in the economy since 1979, the energy requirements have shot up by almost 500% making it the largest consumer for energy as well as the largest importer for crude oil in the world.

Thirdly, it would help China to establish deeper ties with the member countries thus creating more allies.

Fourthly, the heavy investment being done by it for the development of infrastructure in the member countries would help in garnering a greater international status and increase the use of its currency, renminbi.

Lastly, the sanctions imposed by the United States and the challenges from its military have forced China to look to other markets for its goods and services. China views the US as an oppressive state and thereby as a hindrance to its rising economy. The project would help China counter the US by creating new military bases and commercial facilities in other countries like what it already made in the Indian Ocean known as the “String of Pearls.”

Funding

According to the Asian Development Bank, approximately USD 26 trillion is required to fund the infrastructure projects in Asia by 2030. However, neither anyone from the Communist Party nor the premier has specified the overall estimated budget required for the project. Experts suggest that investment from China alone would range from anywhere between USD 1 trillion to 8 trillion.

State-owned banks-China Construction Bank, Bank of China, Agricultural Bank of China,objectio and Industrial and Commercial bank of China are the major lenders. USD 82 billion has already been paid by the Bank of China to three policy banks supporting the initiative: Export-Import Bank of China, China Development Bank, and Agricultural Development Bank of China.

A Silk Road Fund was set up in November 2014 by Xi by pledging USD 40 billion from the national budget whose main objective is to invest in business projects rather than act as a lender. The Karot Hydropower Project in Pakistan became the first beneficiary of this fund, wherein the Communist government has promised at least USD 350 million for its development by the year 2030.

The Asian Infrastructure Investment Bank (AIIB) was established in 2014 for financing infrastructure in Asia despite objections from the United States. The bank has contributed about USD 12 billion and is being expected to eventually be able to disburse around USD 25 billion like the World Bank.

Reactions

The BRI has received mixed reactions globally. China’s top businessmen and prominent political figures have remained bullish on the economic benefits arising out of the project.

Russia which is a close ally of China became one of the early members to endorse the project and has now close to 150 projects in the pipeline including the Polar Silk Road. The Philippines that has historically shared close ties with the US had altered its policy in favor of China’s claim in the South China Sea. Sri Lanka, Malaysia, and Pakistan have openly supported Chinese investments and infrastructure projects.

The Western World has remained divided. 18 out of a total of 27 member states of the European Union have joined. In 2019, Italy became the only G7 country to support the program.

Latin America and the Caribbean have recently become part of the project despite their distance from China. China aims to facilitate the transport of its goods through the Panama Canal and for this it is particularly interested in getting Panama and Chile on board.

However, there has been opposition from several countries, the US and India being the biggest critics.

New Delhi has viewed the BRI with suspicion since its inception. It had turned down Beijing’s invitation to attend the inaugural Belt and Road forum in 2017. It has raised questions about the debt traps and the transparency of the project. It has strongly objected to the development of CPEC that runs through the disputed territory of Kashmir, aveering that it violates the territorial integrity and sovereignty of the country. It is also growing wary of Beijing’s expansionist policies that will give it unfair leverage over other countries and will allow it to expand its military influence in the region.

The United States has also expressed displeasure over China’s ambitious dream, firstly because it feels that China is using its financial capability to gain control over the natural resources, infrastructure, and territories of smaller, weaker economies. Secondly, it wants to suppress China’s unilateral claim on the South China Sea that has constantly been a conflict zone between China and its neighbouring countries in Southeast Asia, and third, it has expressed concern over the feasibility of the project. These projects lack transparency, good governance, economic sustainability and have been prone to corruption time and again. Even some African nations have now started reassessing their agreements with China. Sierra Leone has cancelled a deal to build a Chinese-sponsored airport worth USD 318 million near its capital. Tanzanian President recently rejected China’s offer of USD 10 billion loans for construction of a port in Bagamoyo stating that “only on drunkard would accept these terms.” Nigerian lawmakers have started reviewing the Chinese loans saying that they are unfavourable.

 

The Road Ahead

BRI is a long-term plan and most of its projects are in the planning stage and will take several years before they are completed. For the project to be successful, China must ensure transparency and sustainability of the project and convince countries that are sceptical of joining the BRI that China doesn’t have any geopolitical motive and that it will not coerce countries to sign onto BRI projects. Its focus is to boost international trade, create a win-win situation between the member nations, strengthen ties, and achieve economic prosperity for the future of mankind. If it manages to cross these hurdles, then the Belt and Road initiative will truly be a game-changer for international trade.



ABOUT THE AUTHOR



Shreyans Jain is an advocate practicing before the High Court of Delhi and the district courts in Delhi. He is a graduate of VIPS, GGSIP University, Batch of 2014-19. His interest lies in International Commercial Arbitration and International Trade Law.

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