China’s “One Belt, One Road” Initiative: Context, Focus, Institutions, and Implications

11 May 17

By Michael M. Du, School of Law, University of Surrey, UK

Abstract

With the launch of “One Belt, One Road” Initiative, China is injecting vitality into the ancient Silk Road. While China is seen to embrace it as the centrepiece of its economic strategy, the new Silk Road Initiative, if well implemented, is expected to bring forth the opportunity of economic prosperity for both China and the countries in the region. Against the backdrop of the complicated and volatile geopolitics in the mega-regions and the voracious needs for gigantic inputs of resources, etc., however, the operationality of the Initiative is in contrast with the grandiose discourse by the Chinese authorities. In particular, where China’s ultimate target is set to shape a new structure for global economic governance, its ability to lead vis-a-vis its targeted partners’ readiness to cooperate, among others, remain to be tested.

Implications for China

The SREB (Silk Road Economic Belt) / MSR (Maritime Silk Road) strategy is expected to feature prominently in China’s 13th Five-Year Plan, which will run from 2016 to 2020 and guide national economic and social development strategy throughout that period. Its immediate implications are as follows:

The strategy will secure the transport of oil and gas and other essential goods, and particularly access to the Central Asian energy resources needed to sustain China’s economy. The property and investment boom at home has now ended, leaving China with significant overcapacity in industry and construction, deflation and rising debt management problems. The implementation of the strategy can ease the entry of Chinese goods into regional markets, help make use of China’s enormous industrial overcapacity, thus offsetting the effects of a falling investment rate and rising overcapacity at home.

China has been tired of accumulating endless volumes of US Treasury and other government bonds, and now prefers more direct investment overseas to make a better use of its more than $4 trillion foreign exchange. Equally important, the SREB/MSR can improve internal economic integration between the country’s advanced coastal and the more backward western provinces. These are the strategy’s intermediary implications.

With respect to the long-term implications, by linking the economies of Central Asia with western China, China is expected to bring further development and stability to restive and relatively underdeveloped Xinjiang and Tibet regions and cuts off any potential support that Uygur dissident groups may seek from fellow Muslims in Central Asia. With the unfolding of the SREB/MSR strategy, China will be in a position to promote the global use of RMB which is likely to lead to the internationalization of RMB.

Implications for Partners

Needless to say, the SREB/MSR strategy will have its implications for the participating countries along the Belt and Road. Properly implemented, the SREB/MSR strategy will likely have an important effect on the region’s economic architecture—infrastructure development, patterns of regional trade and investment. However, this rests on their own perception of interests therein and the extent of cooperation they offered. It is not surprising if they argue SREB/MSR is too China-centric and that other participating states will reap only marginal benefits.

Implication for Global Governance

China has long expressed opposition to the dominance of the US and the dollar in the global financial institutions, most notably the International Monetary Fund and the World Bank. The SREB/MSR strategy is the upgraded version of China’s grand strategy of opening-up, as well as China’s strategy for globalization. Globalization has been so far mainly driven by the West. With the unfolding of the SREB/MSR strategy, non-Western countries are going to inject vitality.

The Chinese version of globalization needs to nurture shared interests, shared system and effective dispute settlement mechanism.

Another concern is that some Western officials also fear that a flood of Chinese development money will undermine governance standards at existing lending institutions like the World Bank, especially if China channels funds to its own companies, to politically motivated projects or to environmentally damaging ones.

An even deep concern beneath, which results from the distaste for the Chinese governance structure and state-led economic structure, is whether China will extend and deepen its global footprint without fundamental changes in political and economic philosophy.

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