One Belt, One Road: 5 Chances, 5 Concerns, 5 Considerations

This article was derived from the script of the opening keynote held at the Belt and Road Initiative Conference in Warsaw on 11 June 2019.

What is this belt and road initiative (BRI), also referred to as One Belt, One Road (OBOR)? The BRI is an ambition and policy that was announced by Chinese President Xi Jinping in 2013 and will reach completion in 2049. “Belt” refers to the overland routes for road and rail transportation, called "the Silk Road Economic Belt", linking China to Central and South Asia and onwards to Europe. “Road” refers to the sea routes, or “the 21st Century Maritime Silk Road”, linking China to the nations of South East Asia, the Gulf Countries, North Africa, and on to Europe. This also includes the Artic Silk Road, possible due to deicing of the Artic area. In addition, a digital Silk Road is emerging too, with its Internet deep-sea cables connecting the belt and road globally, while satellites are helping to navigate machinery from aircraft to trains, to submarines. With the launch of this “Information Silk Road” China turns the corridors into a powerful system of connectivity, with a land, a sea and a space dimension. This is supplemented with oil and gas pipelines. With the BRI, China strengthens not only its physical, digital, economic and political links with its trading partners, but exports also part of its capacity and resource surplus to the world.

BRI funding is provided by the Asian Infrastructure Investment Bank (AIIB) and the Silk Road Fund for example. The AIIB has a capital of USD 100 billion and 97 members, with China being the largest stakeholder. The Silk Road Fund, with an initial capital of USD 40 billion is supported by the State Administration of Foreign Exchange, the Export-Import Bank of China, the China Investment Corporation and the China Development Banks. The fund is participating in investment projects across the globe, and has cooperation agreements with several countries, such as France and Pakistan.

The chances

There are a range of opportunities brought about by the BRI that can bring prosperity and peace to the BRI members.

1-     A corridor, a community

The BRI is the largest area development project of all times and Poland and CEE are on this strategic multi-dimensional system. Today, the initiative involves infrastructure development and investments in 152 countries and international organizations in Europe, Asia, Middle East, Latin America and Africa. The BRI helps countries to better integrate with other markets. The community of BRI members see in the development a historic opportunity – for Asia, Africa and Europe. Countries in these regions, including Europe can enrich their own plans to accelerate trade and economic development.

2-     Improved connectivity

“Connectivity is destiny” says Parag Khanna, the author of the book Connectography. Connectivity enabled the First Industrial Revolution through the possibility to transport raw materials to the United Kingdom. Connectivity brought gradually a growing number of nations to the opportunity of global trade. It was digital connectivity brought about by the Third Industrial Revolution that enabled offshoring. And it is connectivity between different technologies that created the Fourth Industrial Revolution which thanks to 3D-printing might gradually replace offshoring by distributed manufacturing. The BRI improves connectivity and hence increase international trade. Currently, shipping goods from China to CEE takes about 30 days. Shipping goods by train cuts transit time in half. In Africa, port development is driving economic hubs that better connect the landlocked countries with the important sea-gateways.

3-     Commerce and industrialization

According to the World Bank contribution of BRI countries to global exports has nearly doubled in the last two decades. But more can be achieved. On the World Bank Blogs we can read “Trade of many BRI economies such as Afghanistan, Nepal, Tajikistan, and Laos is below potential due to inadequate infrastructure, weak policy and other gaps. The BRI can help to fill these gaps, boosting international commerce”. The BRI can result in a much more inclusive approach to trade by boosting cross-border commerce in all nations along the corridors. Improved connectivity and increased economic activity can be the beginning of larger industrialization along the belt and road routes.

4-     Closing the infrastructure gap

Infrastructure is a critical enabler of economic growth. The global demand for infrastructure investment is estimated at USD 3.7 trillion annually. Only USD 2.7 trillion is invested each year. Hence, there is a USD 1 trillion annual gap. This gap can be closed through three levers: 1- increased supply, 2- reduced demand and 3- optimized utilization of the existing assets. The USD 1 to 8 trillion BRI budget helps to increase supply and potentially optimize utilization of existing assets. 2,000 or so projects valued at more than USD 1 trillion have so far been approved and USD 300 billion already been spent on the BRI – this includes for over $60 billion in the China-Pakistan Economic Corridor. The BRI also motivates parallel infrastructure development activities. The United States of America (US), India, Japan and other nations have committed major investments to counter the China-driven BRI.

5-     Modernization of existing assets

The BRI can help Europe to rejuvenate and upgrade its infrastructure. Since 2013, China took positions in 14 European ports, for example, without counting the ports with which Chinese companies have signed agreements. China has helped to revitalize Duisburg, in Germany, where Europe’s largest inland port is located. Today, Duisburg functions as a major hub for inbound traffic from Asia into the European continent and the flows going back. The Chinese flagship project is the “Five Ports” initiative involving the Italian ports of Venice, Trieste, and Ravenna, plus Capodistria in Slovenia and Fiume in Croatia – linked together by the North Adriatic Port Association (NAPA). China’s investment in the Greek port of Piraeus is another example of revitalization of existing assets. The port ranks now 36th among the 100 biggest ports of the world, up from 93rd when COSCO took over. Over 10 years, the port’s annual throughput capacity has been raised by factor six – from 0.68 million TEUs (Twenty-foot Equivalent Unit) to 4.15 million TEUs in 2017.

Concerns around the initiative

The BRI developments have been followed with skepticism, respect and fears. This results from the sheer magnitude, mistrust in the political agenda and also from the behavior of some of the, mainly state-owned companies.

1-     Economic rivalry

While the BRI can help Europe in many ways, China has also become an economic rival in the pursuit of technological leadership. In the EU (European Union) Commission document “EU-China: A strategic outlook,” China has moved from a “strategic partner” to a “negotiating partner.” The EU Council met on 22 March 2019 to discuss a common EU strategy toward China. Ironically, on 23 March 2019 G7 member Italy signed a (not legally binding) memorandum of understanding (MOU) with Beijing to join the BRI. In addition to Italy 15 other EU states have signed bilateral agreements with China, officially becoming members of the BRI. China had started discussions in Europe in 2012 with the “16+1” platform that gathered 11 EU member states and five other candidate countries, all in Central and Eastern Europe.

2-     Political influence

Some circles understand the BRI as a vehicle to exert (soft) power on the partners to become the new hegemon of the world. However, historically China is not a colonial power. But any country investing billions in other countries is looking for political and economic clout. The Marshall Plan aimed at rebuilding the nations torn by World War II but also at limiting the expansion of communism – although initially invited to the plan the Soviet Union rejected the invitation. The Marshall plan did not only stimulated the economy at home but created markets and allies for the US. The Chinese-led BRI projects have already helped the country to establish its own version of alliances and blocs. Interestingly, Italy abstained from a EU vote on a new mechanism to screen Chinese investments in strategic areas across Europe in April this year, one month after signing the MOU with Beijing.

3-     Eroding cohesion amongst EU members

China makes offers that are hard to refuse. The initiative meets a Europa that is poorly prepared and aligned toward the BRI and China. Instead of leveraging the entire weight of the block, EU members negotiate on their own. The moves of individual EU members might bring disparity, tensions and even disputes – across the entire Union or parts thereof. While EU BRI members hope that through deeper trade and investment ties with China they can boost economic growth, they need to be aware that pursuing relations with Beijing through the EU will significantly increase bargaining power, as outlined in the EU’s 2016 Strategy on China.

4-     Debt trap

Regularly, the BRI is labeled debt trap diplomacy. Driven by events like Sri Lanka’s inability to repay debt to China and the subsequent 99-year lease of strategic Hambantota port to China. China has rejected claims that include the debt trap accusations. But as ambitions have sometimes got out of hand Beijing is increasingly sensitive to concerns. Consequently, China is making adjustments through ensuring shared goals and the hiring of local workers. China has an interest to establish long term healthy economic ties through an equilibrium in its relations with other BRI nations. This intent was underlined by the theme of this year's second BRI forum that read "Belt and Road Cooperation: Shaping a Brighter Shared Future." Interestingly, Malaysia was given a discount of over 30 percent in the Chinese led East Coast Rail Link project this year.

5-     Surveillance and cyber risk

Establishing the “Information Silk Road” through a network of satellites and deep-sea Internet cables further complicates relations between the US and China. Albeit useful technology, the US might consider the digital Silk Road as part of a long-term surveillance strategy and make efforts to prevent Beijing from getting more control over the global telecom infrastructure. The infrastructure, in particular in difficult to monitor countries are prone to cyber threats. The stakes are high. In 2017, British national security adviser Mark Sedwill explained that attacks on undersea cables could have “the same effect as used to be achieved in, say, World War II by bombing the London docks or taking out a power station.”

Considerations toward a successful EU-China partnership

The concerns should not hold us back but drive mitigation strategies that enable Europe to leverage the dynamics and capture the opportunities of the BRI. These strategies contain a set of concrete measures that maximize success and minimize risks.

1-     Coordination through the EU

The member states’ interest is to negotiate on equal footing and eye level. The European leverage in the discussions is proportionate to the willingness and ability to concentrate the mandate for planning and negotiation at EU level. Collective success demands that European countries identify themselves with the Union and integrate the BRI into the local, regional and pan-European development efforts – within a European framework and coordinated by the EU.

2-     Enhance plans, leverage frameworks

The easiest way to approach the BRI, is to run the projects in compliance with European governance rules and aligned with existing European plans and projects, like the Trans-European Transport Network (TEN-T). The TEN-T network is part of a wider system of Trans-European Networks (TENs), including the telecommunications network (eTEN) which finished at the end of 2006. The TEN-T, which is a European Commission policy directed towards the development of a Europe-wide network of roads, railway lines, inland waterways, maritime shipping routes, ports, airports and rail-road terminals. EU funding is provided by the Connecting Europe Facility (CEF). CEF is a fund created for the 2014-20 period, with a budget of EUR 33 billion. Relevant Member States are obliged to align national infrastructure investment policy with European priorities. Europe can leverage the BRI to accelerate the development of the TENs, which at the same time provide a framework for executing the European BRI projects.

3-     Long term in design and operation

The BRI projects should be designed in a way that ease repayment. Most money flows to efficient use and lower risk. Efficient infrastructure increases the chances of repay. Furthermore, operations and maintenance are crucial. New infrastructure is cheaper to build than patching up existing. Every dollar spent on regular road maintenance can save more than USD 5 on refurbishing or rebuilding the road. In addition, construction has a much larger carbon footprint than maintenance.

4-     Sustainable in nature

All countries along the Belt and Road have subscribed to the Agenda 2030 for Sustainable Development and the Paris Agreement on combating climate change. The BRI needs to produce a new quality of growth. Sustainable investments require to include advanced solutions and technology for reducing the burden for the planet by de-carbonizing economies, and achieving lower energy intensity in transport and trade.

5-     Leveraging digital technology

The BRI can benefit in many ways from digital technology. The digital Silk Road and internet of things devices enable visibility along the corridors and help to improve speed, security and manageability of the flow of goods. Digital single windows, connected along the belt and road, secured by distributed ledger technology (DLT), such as blockchain, can improve customs clearance processes and reduce corruption. Platforms help to better utilize warehouse space and the capacity on ships and trains. They provide new ways of marketing available capacity en route. Beyond transport and logistics, companies can also share manufacturing capacity. Platforms for small and midsized enterprises (SMEs) can ease access to the markets along the New Silk Road and increase the pie for everyone.

With the BRI the People’s Republic of China has initiated a new wave of economic development which will reach its full magnitude and impact only in the mid to long run. The US-China trade tensions are pushing China to accelerate the globalization of its economy and find new partners. “Mexico picks up exports where China slips” writes Bloomberg. Recently established Chinese factories in the NAFTA member state boost Mexico to US exports. Vietnam is another country that benefits from the current disputes. This can be seen as an additional impetus for the BRI.

Parag Khanna stresses the historic importance of the BRI in Connectography where we can read “When we look back from 2100 at the date on which the cornerstone of an Asian-led world order began, it will be 2017. In May of that year, sixty-eight countries representing two-thirds of the world’s population and half its GDP gathered in Beijing for the first Belt and Road Initiative (BRI) summit.” Time has come for Europe and its regions, like CEE to craft thorough BRI strategies and collaborate across the Union to ensure best outcomes for all EU member states. This dimension and effort should be included in the update of the EU Strategy on Connecting Europe and Euro-Asia or in a fresh BRI-specific paper possibly dubbed “Connecting Europe and the BRI”.