My dear friends this is an assignment for a class I 'm attending at the university of Peloponnese. I have choose to write a report about the One Belt One Road initiative "The New Silk Road". The class I 'm attending is "International Economic Integration" in the Economic Department.
The One Belt One Road initiative is a development strategy proposed by Xi Jinping in September 2013. It focuses on connectivity and cooperation between Eurasian countries Africa and Europe (all the world excluding Antarctica and America in short speaking). The trade route has been inspired by the ancient trade route "The Silk Road" and also some people refer to the initiative as the "The New Silk Road". In the ancient times the Silk Road was a land route that traders used to trade with the Chinese people goods such as carrots, porcelain and silk. Some archaeologist claim that the silk road was active more that 2.000 years (with of course some minor breaks and reroutes of the two main routes the North and the South), in its 2.000 year history cities where founded in order to serve the traders and event some tribes in Kazakhstan breaded horses exclusively in order to serve the demand of the traders. New jobs were created, crafts men shared their knowledge and ideas with the traders and travelers, the whole world evolved as a result of the bloom of this trade route.
That was the idea president Xi Jinping claimed to pursuit with the OBOR initiative. The evolution of the whole world and the Chinese are willing to put their money where their mouth is. China has already invested $51 billion in the initiative and they are aiming at $8 trillion infrastructure in 68 countries. That adds up to as much as 65% of the global population and 1/3 of global GDP, according to the global consultancy Mc Kinsey. The project involves 2 routes, a maritime route "The Road" and a land route "The Belt". Too good to be true some may say, let's examine the facts.
What does the One Belt One Road need to be successful?
- Economic integration between the countries in the routes
The OBOR initiative has the support of the China state owed Silk Road Fund ($40 billion initial capital and $113 billion promised by Xi Jinping in 2017) two Chinese policy banks (China Development Bank and Import Bank of China) two multilateral institutions led by China (Asian Infrastructure Investment Bank and the Shanghai based New Development Bank) with summed registered capital over $150 billion dollars, Chinese officials claiming that OBOR has already received more than $10 billion from investors all over the world (mostly from Arab based investment funds which makes some sense because they are investing on anything at the moment no questions asked).
Where does the money go?
If you want to be rich, you must first build roadswell-known Chinese proverb
According to OBOR action plan, roads need to be made, bridges need to be constructed and rail roads need to be reconstructed in order to serve the trade route, 70.000 new Jobs for vastly improved countries such as Kazakhstan and opportunities for small and medium enterprises both from Asia and Europe, to enter new markets that today may not be easily accessible. The sectors that will receive the most funding will be in Telecoms and Transportation.
In the current era the stakes, for the technology to be used in the OBOR, have reached their limit up. Everyone is expecting real time package tracking, accurate fleet management and completely automated loading and unloading or minimum human interference. But that is no real challenge for the current tech companies, we have a fingerprint scanner in our pocket to protect our viber stickers for crying out loud, 10 years before it was Science Fiction and only CIA and MI5 had access to that kind of tech. The tech they need for OBOR is commercially available for everyone now, some may say that we have a much bigger problem in finding experience personnel to use the tech than build the tech its self. The challenge comes to apply to another technology that has once reshaped the world and will reshape it again. The railroad is the main investment in this project. The train has shaped once the deserts of America and brought people to the most hostile environments in order to seek for new opportunities. The rail road was the first project the East India Company invested and was the reason that Africa could not evolve as there were many obstacles in completing the railroad in Africa. At the moment a container from China has about 60 days of maritime travel in order to get to the port of Rotterdam, in 2015 (3 year ago) the port of Rotterdam welcomed its first containers by rail from China, the total travel time was 14 days. The Chinese official project that from Chongqing in China to Duisburg in Germany (10.800 km distance) it will take a total of 10 days travel, it's about 74% reduce of the arrival time. Eventually it will be cheaper that the maritime route because of the less labor, the less investment and the expanded return investment period of a train and a railcar, even now in America the main route for trading between Canada and the USA is the railroad.
So where do we stand?
Funding – check, many investors are seeing profit from this project and are willing to fund it.
Technology – check, the tech that it will be needed to get it done is available for over 100 years, yeah there will be obstacles, there are 3 different kind or railroad rails but please; We brought the railway from Belgium to the UK under the Atlantic Ocean and that was 30 years ago. Almost 1/6 of the current engineers where not even born yet. The tech we need for the OBOR is present and commercially available at the moment this research was written.
So why is not everyone exited? The project is doable and it will benefit more that the half people of the world why is it not completed yet? (already 5 years after its announcement) Not even the "The Road", which is the maritime route? What are we missing the ports or the boats? There is a much bigger problem that we will need to solve.
The success of the One Belt One Road initiative will be depended on the level of the Economic Union between the involved countries.
The economic union between two countries is the term we use in order to determine the economic transactions between them. Countries often enter into different types of agreements with respect to their trade policies. These types of agreements are generally referred to as trade blocs or regional trading agreements (RTA), under which a group of countries agree to reduce or eliminate trade barriers. These agreements will have internal rules that the members of the group follow for behavior among themselves. They will also have external rules that the members follow for dealing with non-members.
Types of trade blocs
There are different types of trade blocs depending on the levels of commitments and arrangement between the members.
Preferential Trade Areas
Preferential trade areas have the lowest level of commitment to the reduction of trade barriers. Here the members lower the trade barriers but do not eliminate the barriers among themselves. Such an agreement does not address how individual members.
Free Trade Area
The next level of commitment is the free trade area where all the trade barriers among the members are removed. So all members are free to import and export goods and services among themselves. These members will continue to maintain independent trade policies with non-member countries.
This is the third type of trade bloc, under which the member countries not only eliminate internal trade barriers, but also adopt common policies on how to deal with non-member countries.
In a common market, the members eliminate internal trade barriers, adopt common external trade barriers and allow free movement of resources, for example labor, among member countries
In an economic union, members eliminate internal barriers, adopt common external barriers, allow free movement of resources and adopt a uniform set of economic policies.
In a monetary union, members eliminate internal barriers just like in a economic union, adopt common external barriers but also they adopt also a common currency with all the uniform set of economic policies.
The final level is the full integration of the member states. An example is the United States
The OBOR initiative will need over 100 nations to sign a level of an economic union agreements and the Chinese official are hoping on a unified custom clearance trading zone from Beijing to Rotterdam. You easily imagine that many agreements need to be constructed many unions need to be canceled and all the countries must be ready to be part of global economic union. But let's get back to the basics.
China will invest in some of the world's poorest countries (and most dangerous) in order to meet the demands of the modern trade standards. Of the 68 nations on China's list 27 are rated as junk, or below investment grade by the international rating firms, another 14, including Afghanistan, Iran and Syria are either not rated or have withdrawn their requests fro ratings. It starts to get complicated I know. In order to get a unified clearance system we need all countries to collaborate, even India and Pakistan (Kashmir). Yeah India and Pakistan will go into a full economic integration in this millennium for sure. We have Syria that is experiencing a civil war, what will happen with them? Even if the war stops they will need time in order to economic integrate with The Belt.
Articles are stating that the initiative has already 100 countries have signed on, with free trade, collaboration agreements or other partnerships. But have they overcome the major obstacles?
One major obstacle will be the inconsistency of customs clearance and manly involves countries that are not part of an economic union with OBOR or are part of another economic union. Some of the countries are making great progress but some countries are moving backwards like Greece whose government decided from the January 2017 to check all packages coming outside the EU and charge them custom clearance fees and even freeze them in the clearance area if they don't have an invoice document included until an invoice is been provided in order to charge the fees. Despite all this Greece wants to get on board although we are steering away from it (we get our directions from our lenders). Yeah get us on board we are good for business, easy money.
I am mentioning all this because I want to make one thing clear, countries like Greece and below the investment grade of Greece is the rule in this initiative, they can sign anything any and most of the time they will have good intensions, but they need time in order to get integrated with OBOR. Those countries will need time to get prepared for the OBOR. Why is then China pushing so hard, it is risky, dangerous and eventually will not work out.
For China, the OBOR is, among other goals, a tool for promoting national economic development by boosting exports, enhancing access to natural resources and providing support to important domestic industries. The Chinese government has committed to devote as much as $1 trillion infrastructures investments including in the central and western provinces which are bound to become the gateway to The New Silk Road and are underdeveloped compared to the east China. Furthermore Premier Li Keqiang embarked an an international "railway diplomacy tour" in Eastern European countries investigating intensions and seeking to enchase cooperation, which includes plans to construct "a new corridor of inter connectivity", seeking contracts and subsidies for China's national railcar manufacturer will strengthen its position in relation to foreign competitors and give it an advantage in overseas markets. China will provide financial aid to countries crossed by its railroads and develop their transport and communications infrastructures, in many cases talking repayment in the form of local resources. Domestic Security considerations also provide an impetus for building a regional transportation infrastructure. In 2000 the secretary general Hu Jintao decided that the Xinjiang Uyghur Autonomous Region, a region regularly rocked by ethnic violence and affected by the religious radicalization of part of its population had to be more closely tied to the rest of the country. This decision was followed by the launch of an extensive program to build rail and road infrastructure connecting the remote and impoverished region with the more dynamic regions of Easter China. China firmly believes that the political and ethnic tensions in Xinjiang can be attenuated by economic development and for this reason has been investigating massively in the local economy and infrastructure. Eighteen years on, similar logic is now being applied to China's "near abroad". Beijing aims to build railways that will connect the Xinjiang region to its Kazakh and Kyrgyz neighbors and then westward to the economic development brought by building infrastructure will enchase the political stability in these areas.
China's "infrastructure diplomacy" also reflects a diplomatic imperative to strengthen relations along the country's continental periphery at a time when territorial disputes have strained relations with maritime neighbors. Developing good relations with neighbors is again at the heart of China's diplomacy and there is a good reason for that. At the moment China's trading routes to the west are by air or by sea. By air there is a straight line between China and the trader and the only thing you have to do is clear the customs or any other fees that both countries have agreed to the level of their economic union and you are done. But it gets complicated when the goods get large (you cannot deliver a car by air it gets to expensive) and another problem is the unstable price of the fuel. You can always deliver by sea and you can invest in a country to develop warehouses in order to be the portal near Europe (let's say Greece who always needs investors money) and then deliver by road to the rest of the Europe. China did it for over 1.000 years; that was the reason the Ancient Silk Road was abandoned. The maritime route was safer and costed less. Well the circumstances have changed a little bit in the last 150 years. There is a new high roller in the trading table and he has a good hand, they call it the "Malacca dilemma" (we are surrounded by them, Greeks will get it). At the moment over 80% of China's energy supplies are coming from the sea (by air is a little bit difficult to transport oil and gas) and the ships must pass through the "Strait of Malacca" (for real that's how they call it I have double checked it) a narrow pass between Malaysia and Indonesia. The narrow pass has a huge problem with pirates and when you have a problem who you gonna call (Ghostbusters)? The US Navy to patrol the straight and assure the safe pass of the trading ships, which happens to be the main competitor of China's economic growth, so if things not work out between them guess what; China will have bigger problems than poor manufactured smartphones. At the moment China is trying to bypass the dilemma by constructing an oil pipeline in Pakistan and get to the Indian Ocean before the Straight (it is named as one of the OBOR projects) but knows that the US Navy fleet is dominating all oceans so it need a sturdier solution a road solution, a solution that will let the US seem like just a distant island floating between the Atlantic Ocean and the Pacific Ocean just like it the days of the Ancient Silk Road.
I really think that innovation comes through evolution. Are China's intensions towards evolution? I really cannot say, I 'm just writhing an opinion on years and years work of experts, who am I to jump into conclusions. But for one thing I am certain, if the project stops without any other alternative to enchase China's trade with the world the only one how will lose is the final consumer. We got South Korea we got Japan we got USA we need China in the high rollers trading table in order to evolve.
special thanks to Nadege Rolland