By W.A Wijewardena –
One Belt One Road Forum in Beijing
Last week, China was successful in assembling a large number of heads of states, high level representatives of other states and leaders of global agencies to a single forum held in its capital, Beijing. That was the One Belt One Road Forum, oddly known as the OBOR forum or BRI forum, to apprise the world leaders in attendance of the progress of the project so far and its grand plans for the future.
China reassures that its goal is to promote world peace
The Chinese President Xi Jinping, who initiated OBOR in 2013, named it the ‘Project of the Century’ in his keynote address to the inaugural plenary session (available here).
He said that the spirit of the old Silk Road was peace and east-west cooperation and the spirit of OBOR today is, in addition to the same, openness and inclusiveness of civilisations. Thus, it is a grand plan to foster unity while tolerating diversity.
According to him, the OBOR initiative will open the road for peace, prosperity and connectivity – the three-most pressing problems faced by world nations today. His message for opening up nations is especially important when the world’s leader, the US, is planning to close up nations under the administration of Donald Trump.
Putin castigates Trump without naming him
Russian President Vladimir Putin, in his address at the plenary session, castigated those who oppose free trade and openness by imposing artificial restrictions despite the fact that they had been the vigorous supporters of such ideals in the past.
He did not name any but obviously the attack was on the present US administration headed by President Donald Trump, who has been advocating for increased trade restrictions, a virtual no-trade regime known as autarky and protectionism at its highest. Thus, apparently to save the world from Trump, Putin highlighted the need for building a Eurasian Integration Unit with free trade and openness. In that context, OBOR, according to him, is a creative tool invented by President Xi to realise that goal (available at: https://www.youtube.com/watch?v=6PFxr3bkTfA).
OBOR can accelerate South Asia’s growth
Speaker after speaker, including the leaders of the world organisations, hailed OBOR as a project that would create a new world order in which China would be at the centre. Sri Lanka’s Prime Minister Ranil Wickremesinghe, who addressed the subsequent roundtable discussion of the world leaders, took the opportunity to reiterate his firm belief that the future would be marked by a reversal of global leadership to Asia.
He opined that the Indian Ocean rim will experience the fastest growth in the future and OBOR will give its support to accelerate that growth. However, there is a massive resource need for completing the infrastructure development plans under OBOR and, therefore, he requested the World Bank and IMF to supplement the massive resource need of OBOR, though the IMF has no such a role to play in terms of its mandate.
China’s objective is not selfless
Did China come up with OBOR initiative with a pure altruistic motive to help other countries? The answer is yes and no. No, because, at the centre of its initiative, it is its own interests that have played the major role when introducing it to the world. Just like Donald Trump says ‘America First’, the motive behind OBOR is also ‘China First’, though it is not pronounced explicitly.
Yes, because through OBOR, China has provided opportunities for many countries in Asia, Africa, Latin America and even some in Europe to prosper by joining hands with it. Even Australia which is located far away from the old Silk Road has expressed its willingness to join hands. Thus, as many world leaders had remarked, it will be a ‘win-win’ proposition for all.
Silk Road commenced some 2,200 years ago
The formal inauguration of the old Silk Road dates back to the 2nd century BCE when Xian became the capital of China during the Han dynasty. By that time, China had gained speciality and mastery in quality silk production for more than 4,000 years. The silk clothes produced by the Chinese were so fine that when one was robed in them, one could not feel whether one was actually clothed or not.
When the new prosperity in Europe and the Mediterranean demanded for high quality goods, Chinese silk was the uncontested winner. The high profits it fetched in markets in Constantinople, Alexandria, Rome and Athens fully compensated the high risks and troubles which traders had to take when transporting it from China over the treacherous terrain across Central Asia.
Silk had fetched opponents too
However, just like any luxury item being consumed by the nobility and the rich would be disdained, Chinese silk was also met with disparagement by some in contemporary society. As documented by Oxford academic Peter Frankopan in his 2015 book The Silk Roads, the appearance of Chinese silk appalled some conservative observers.
Says Frankopan: “The increasing volume of this fabric available in the Mediterranean caused consternation among traditionalists. Seneca (a Roman statesman and philosopher who lived around the beginning of the Common Era) for one was horrified by the popularity of the thin flowing material, declaring that silk garments could barely be called clothing given they hid neither the curves nor the decency of the ladies of Rome. The very foundation of marital relations was undermined, he said, as men found they could see through the light fabric that clung to the female form and left little to the imagination. For Seneca, silk was simply a cipher for exoticism and eroticism. A woman could not honestly say she was not naked when she was wearing silk (pp 17-8).”
Thus, Chinese silk was objected to on moral grounds and there were even campaigns, as there are today, for the total prohibition of the use of the material. Despite this, silk became ever increasingly in demand and soon it was followed by another luxury from China, Chinese porcelain. Thus, the Silk Road prospered over centuries. Since it could not fully cater to the demand, it was soon supplemented by a maritime silk road as well.
China did not take part in trade
But China remained simply a supplier of those luxury goods and not an actual trader. That is understandable since trading is a specialist job and in those days, a high risk job as well. Even in the 15th Century, when China had a superb naval fleet, it could not penetrate the maritime Silk Road as a major player. Its attempt at capturing markets across the Indian Ocean and the East Coast of Africa in the 1400s did not bear fruit as expected. Under the command of Admiral Zheng He, the Chinese Treasure Fleet made several voyages to countries in the Indian Ocean and East Africa in the early 15th century. That fleet was a superb naval power – with more than 3,500 ships at its peak – sailing in a convoy of more than 300 large ships accommodating about 35,000 sailors, horses and other material in a single voyage. But by 1500, the Treasure Fleet was destroyed on the orders of the Chinese Emperor Yongle and with that China lost an opportunity to rule the waves.
The reasons adduced today have been that the cost of those voyages as well other extravagant royal enterprises had been funded out of printed paper currency in excessive amounts (Frankopan, p 196). The ensuing hyperinflation was catastrophic for China in the 15th century as it is for many nations today that experiment with funding extravagant projects of the Government through the issue of new money.
China has to find a way out for its excess reserves
At the time Xi decided to introduce the OBOR initiative in 2013, China had come to a crossroads in its recent super economic performance. It had accumulated a vast amount of foreign reserves – amounting to about $ 3 trillion – by running massive trade surpluses year after year with the rest of the world. With sizeable current account surpluses in the balance of payments, its domestic savings have been notoriously high at around a half of the total output, known as the Gross Domestic Product.
There was growing animosity against Chinese products in its major markets, especially in the US, just like its silk ran into hostility in ancient Rome. After opening up the economy in 1978, it had achieved superb economic development in its western coastal areas. But its eastern inland was basically undeveloped.
To ensure balanced development in the regions, it had to have continuous economic growth year after year. It had also been snared in what was known as the middle income country trap after attaining higher middle income country status in the early 2000s. To push itself up to the status of a rich country, it had to make a quantum leap by embracing a new economic model. That model was to create a new global economic order centred on China. That was the reason for giving birth to the OBOR initiative.
Belt and the Road
The OBOR initiative consists of two major parts. One is the development of a Silk Road Economic Belt on the land route stretching from China to Europe. This belt contained a host of supporting infrastructure projects combining different trade centres. The other is the creation of a 21st Century version of the Maritime Silk Road that connects China with important trade centres in Asia, Africa and Latin America. For this, a sea-based network of shipping lanes is to be created with appropriate port development on the route. Thus, OBOR envisaged connectivity with peoples of the globe. It led to the coining of the slogan ‘Connectivity for Prosperity’. The objectives of the OBOR initiative are numerous.
Wish to assume global leadership
First, as it should be, China wants to assume global leadership in economic and political matters. This will invariably result in displacing the current global economic and political leader, the US. In fact, the present US administration led by President Trump has, through its ‘America First’ and trade restriction policies, withdrawn voluntarily from the role of global leadership. Thus, a vacuum has been created by the US and it has provided a golden opportunity for China to fill that vacuum.
Making Renmimbi a global reserve currency
Second, along with global leadership, China will make another global achievement too. That is to promote its currency, Renmimbi or Yuan, to the status of a global reserve currency. This is a hard task, considering the prerequisites which a nation has to complete if it is to make its currency the major reserve currency of the world.
At present, the share of Renmimbi in global reserve currencies is about 2%. The market leader, the US dollar, has a share of 44%, while Euro having 16%, Yen 11% and Sterling Pound 7%. If the Renmimbi is to beat these market leaders, China has to make its currency freely convertible, remove all restrictions on capital transactions and open up the economy fully. This cannot be done overnight and therefore it will take considerable time for China to attain this objective.
Excess capacity shouldnot be wasted
Third, as mentioned before, China has excess capacity in production and excess savings that are going begging for investment opportunities. Its accumulated reserves, mainly invested in US Treasury bonds, pose a serious risk if financial markets suffer from another crisis. Its savings at around 49% of GDP have formed a large pool of investible resources. These have to be used for creating real wealth and OBOR provides a convenient and viable opportunity to do so.
Moving into high tech products
Fourth, China has to shift its production from low level products to high level products that use high technology. Then there should be a market for those high tech products other than those available in Western countries. China believes that emerging markets in Asia, Africa and Latin America will have an appetite for its high tech products such as ships, airplanes, high speed railways and communication equipment to mention a few. OBOR will ensure a safe market for them.
Land routes to cut costs
Infrastructure developments planned under OBOR have been ambitious. For instance, the planned high speed railway line from Kunming in China to Singapore in the down south via Myanmar, Thailand and Malaysia would cut the present travel time of 72 hours to about 10 hours; Kunming is also linked with another railway network encompassing Laos, Thailand, Cambodia and Vietnam.
The cost is enormous and the engineering requirements are challenging. But it will serve another purpose. That is, it will facilitate the present Asian Supply Chain which provides all the necessary components for assembling high tech electronic equipment in China for the world market. It cuts down the cost of transport and time which these countries experience presently when these parts are shipped via maritime routes.
Hence, as envisaged, OBOR is a collective enterprise to prosperity by East Asian nations which are already in the Asian Supply Chain. However, countries like Sri Lanka have a very remote possibility of joining this supply chain immediately. They do not have the technology, expert human capital and physical investment to be a vital partner of the enterprise unless these requirements are also supplied under OBOR initiative.
Hence, the inclusive growth which OBOR expects to attain will not be a reality for many nations which are lagging behind more enterprising East Asian nations.
India and the US are to lose if they stand out
Both India and the US are watching OBOR from a side without formally participating in the recently concluded forum. India feels that the proposed Pakistan Economic Corridor linking that country with China is an infringement of its sovereignty. The US, which feels that China is the cause of all its economic ills, may choose to keep itself away from the development activities proposed in OBOR.
Both these countries stand to lose if they do not become active partners of the program. China’s undeclared objective has been to gain world leadership having displaced the US from its current position. If the US is to thwart that ambition, it has to be inside the program rather than remaining as an outsider. For India, it is vital that it should join the Asian Supply Chain. That goal too can be realised only if it becomes an active partner.
Sri Lanka should put Hambantota Harbour to full use
For Sri Lanka, given its current economic turmoil, there is no choice but to actively participate in OBOR. If the proposed economic zone is established around Hambantota Harbour, the investments that will pour into the zone with Chinese support will help Sri Lanka join the Asian Supply Chain and build on its new economic model based on high technology. Goods that would be produced in the economic zone could be shipped to Singapore using the maritime Silk Road and then transported to China via the proposed high speed railway line now at a planning stage.
*W.A. Wijewardena, a former Deputy Governor of the Central Bank of Sri Lanka, can be reached at firstname.lastname@example.org