Making Inroads: China’s New Silk Road Initiative

04 May 17

By Dr. Christine R. Guluzian, Visiting Research Fellow in Defense and Foreign Policy Studies, Cato Institute

Beijing is espousing a new “economic diplomacy” model to assist in spurring long-term, sustainable domestic economic growth. In addition, China’s New Silk Road initiative is offering its partners job creation opportunities, FDI, infrastructure building, and bolstered commercial exchange. The end goal, according to China, is to establish a “win-win” scenario for all partners involved.

Yet, this ambitious multinational project comes with serious obstacles: unstable political regimes within host countries; subpar international business practice standards, including non-transparency and corruption; and the potential for Chinese state involvement to politicize commercial relations via SOEs. These could all thwart positive trade relations and investment environments. Such challenges could be mitigated if private- and public-sector participants take precautionary steps, such as exercising due diligence on projects and partners, establishing clear contractual or treaty terms on dispute and arbitration mechanisms, and insisting on the application of international best-practice standards. As for host countries, the New Silk Road initiative could incentivize governments to implement free market principles within their own economies in order to better attract FDI. This must include removing or reducing tariffs, simplifying tax codes, limiting bureaucracy, providing for the protection of private property, and strengthening the rule of law.

The New Silk Road is an imperfect project in its formative stages. It is a large-scale initiative projected to span several countries and continents and is backed by the world’s second largest economy: if proven successful, it would be too large a project to ignore or to “contain.” The United States should approach the New Silk Road initiative cautiously yet constructively and as a potentially positive opportunity for cultivating mutually beneficial trade and relationship-building ties with China and New Silk Road participant states.

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