New Silk Roads: Progress, Challenges and Countermeasures

Fu Mengzi & Xu Gang

New Silk Roads: Progress, Challenges and Countermeasures

Fu Mengzi & Xu Gang

It has been three years since President Xi Jinping put forward the Belt and Road Initiative (BRI), which embodies innovative ideas, clear-cut goals, grand designs, strong measures and has made significant progress. It gives clear evidence of China’s characteristics, its wisdom and its experience. It can be said that the BRI has laid out the essential content of a new era, and represents the clearest path for opening up to the world economy. It will play a powerful role in shaping China’s continued rise in the region and will forge a new interconnected, interrelated and mutually beneficial pattern of relations as well as serving as an anchor for China’s status as a strong economic power, with a view towards a new phase of globalization and creating a starting point for building a community of shared future.

Progress in Construction

Since its introduction, the BRI has developed from concept to framework, to strategic plan, and onward to substantial implementation under a multi-tier but efficient guidance as it proceeds.

Top-level design completed step by step

President Xi proposed to jointly build the “Silk Road Economic Belt”and the “21st Century Maritime Silk Road” during his visits to Kazakhstan and Indonesia in September and October 2013 respectively, which hasattracted broad attention and marked the inception of top-level design of the Belt and Road Initiative. In November the same year, the Third Plenary Session of the 18th CPC Central Committee adopted the Decision on Some Major Issues Concerning Comprehensively Deepening the Reform, making it clear that China would promote the construction of the Belt and Road to shape a new pattern of opening up. The Central Economic Work Conference held at the end of 2014 set the BRI as a national strategy together with the coordinated development of Beijing, Tianjin and Hebei, and the Yangtze River economic belt. In March 2015, the National Development and Reform Commission (NDRC), the Ministry of Foreign Affairs and the Ministry of Commerce jointly issued the Vision and Actions on Jointly Building Silk Road Economic Belt and 21st Century Maritime Silk Road, which specified the framework, priorities, mechanisms and the role of China’s various regions in pursuing opening-up. This document marked the completion of toplevel design. In March 2016, the 13th Five-Year Plan for National Economic and Social Development identified the BRI as one of the major tasks and objectives in this period. It proposed to build a new pattern of opening up featuring international linkages over land and sea as well as mutual openness between West and East, and endowed the BRI with dual tasks of both domestic development and international economic cooperation.

With connectivity at its core, the Belt and Road Initiative strives to push forward the “five connectivities,” namely, policy coordination, infrastructure connectivity, unimpeded trade, financial integration, and closer people-to-people ties. Following the ancient Silk Road, the Silk Road Economic Belt will focus on building a new Eurasian Land Bridge and developing China-Mongolia-Russia, China-Central Asia-West Asia and China-Indochina Peninsula economic corridors, as well as the China-Pakistan Economic Corridor (CPEC) and the Bangladesh-China-India-Myanmar (BCIM) Economic Corridor. It brings together China, Central Asia, Russia and Europe; linking China with the Persian Gulf and the Mediterranean Sea through Central Asia and West Asia; and connecting China with Southeast Asia, South Asia and the Indian Ocean. The 21stCentury Maritime Silk Road connects major sea ports, stretching from China’s coast to Europe through the South China Sea and the Indian Ocean in one route, and from China’s coast through the South China Sea to the South Pacific in the other.1“Vision and Actions on Jointly Building Silk Road Economic Belt and 21st-Century Maritime Silk Road,” March 2015, http://en.ndrc.gov.cn/newsrelease/201503/t20150330_669367.html.

Supportive measures and guarantees

First of all, an overall coordination mechanism was set up. In April 2014, China’s Ministry of Commerce set up the Department of Eurasian Affairs in charge of economic and trade relations with 12 countries including Russia, Ukraine and Belarus. In February 2015, the Chinese central government established the Leading Group for Advancing the Belt and Road Initiative, which is led and coordinated by the Department of Western Region Development of NDRC, and supported by the Ministry of Foreign Affairs, Ministry of Commerce and other relevant authorities. The Leading Group consists of 4 subgroups in charge of general affairs, the land silk road, the maritime silk road, and international cooperation respectively.2Xiang Junyong, “Fully Advancing the Belt and Road Initiative,” CRI Online, March 28, 2016, http:// news.cri.cn/2016328/c2d2e285-e0ba-9207-bba4-59df7c99448b.html.Chairing the Leading Group is Vice Premier Zhang Gaoli, with four vice-chairmen: Wang Huning, Director of the Central Policy Research Office of the CPC Central Committee; Vice Premier Wang Yang; and State Councilors Yang Jing and Yang Jiechi. The personnel arrangement indicates the importance of the BRI at the highest government level. Ministries and provincial governments have rolled out specific measures to advance the BRI following the release of Vision and Action. The State Council has introduced a series of documents covering transportation, trade, energy, tourism, among other areas, to support the BRI. The Ministry of Education and the Ministry of Science and Technology have also released the education action plan and the special planning on technological innovation and cooperation for jointly building the Belt and Road respectively. Up to now, almost all provinces andmajor cities have adopted supporting programs for the BRI. In January 2017, the NDRC, together with 13 other ministries and agencies,3The 13 ministries and agencies are: Ministry of Foreign Affairs, Ministry of Environmental Protection, Ministry of Transport, Ministry of Water Resources, Ministry of Agriculture, People’s Bank of China, Stateowned Assets Supervision and Administration Commission, State Forestry Administration, China Banking Regulatory Commission, National Energy Administration, State Administration of Foreign Exchange, All-China Federation of Industry and Commerce, and China Railway Corporation,jointly set up the Belt and Road Public-Private Partnership (PPP) mechanism, which aims to strengthen cooperation in infrastructure and other areas with countries along the routes, actively promote the PPP model, encourage and help Chinese enterprises to go global, and advance the implementation of relevant infrastructure projects as soon as possible.

Second, the financial guarantees continue to consolidate. The Silk Road Fund was established in December 2014, with investments from the State Administration of Foreign Exchange, the China Investment Corporation, the Export-Import Bank of China, and the China Development Bank. The Fund is designed to seek opportunities and provide corresponding investment and financing services. With an initial registered capital of US$10 billion, it has supported trade and economic cooperation and connectivity under the framework of the Belt and Road. By the end of 2016, the Fund has followed up more than 100 projects, with an estimated investment of US$4 billion.4Chen Guojing: “Building Financial Integration to Serve BRI,” Economic Daily, April 26, 2017.

As of the end of 2016, the China Development Bank has sustained more than 600 projects in Belt and Road countries, with US$110 billion issued in loans. The Export-Import Bank of China has signed onto 603 international production capacity and equipment manufacturing cooperation projects in Belt and Road countries, witnessing a 13 percent year-on-year increase in terms of loans.5Ibid.Commercial banks have also played their part in providing comprehensive services. The Industrial and Commercial Bank of China enjoys the broadest presence in Belt and Road countries with 123 branches in 18 nations, providing $22 billion in loans.6“Building Prosperity under Belt and Road,” CCTV News, September 20, 2016, http://tv.cctv. com/2016/09/ 20/VIDE0SC7Gky6qMrFzNJGwV2j160920.shtml.In 2016, ChinaExport & Credit Insurance Corporation has insured 303 projects in Belt and Road countries for a value of more than US$113.3 billion.7Jiang Fan, “SINOSURE Backs Belt and Road Initiative,” Economic Daily, March 17, 2017.

The Asian Infrastructure Investment Bank (AIIB), the first multilateral financial institution initiated by China, began operations in 2016, with a capital size of $100 billion. In March 2017, the AIIB achieved its first expansion. 13 economies were granted membership, including Afghanistan, Hong Kong, Canada and Belgium, enabling the AIIB, an organization of 70 members, exceeding the membership of the Asian Development Bank (ADB) and making it the second largest multilateral development institution after the World Bank.8Dai Qingcheng, “70 Members Make AIIB Second Largest Multilateral Development Bank,” Lianhe Zaobao, March 23, 2017.Since its inception, the AIIB has provided US$1.73 billion in loans to nine infrastructure projects in Pakistan, Bangladesh, Indonesia, Tajikistan, Myanmar, Azerbaijan and Oman, six of which are also funded by the World Bank, the ADB, the European Bank for Reconstruction and Development, and other multilateral development banks and commercial banks.9Zhou Chengcheng & Zhang Zhongyin, “AIIB Approves $1.7 Billion Loan Last Year, May Issue Bonds This Year,” National Business Daily, January 17, 2017.This creates for the AIIB a new model of joint financing with other international development institutions.

In addition, as significant progress has been made in advancing the BRI, the Chinese government has begun to focus on building soft power, aiming to strengthen international communication and guide public opinion through such measures as theoretical research and shaping public discourse. In December 2016, the 30th session of China’s Central Leading Group for Comprehensively Deepening Reforms pointed out soft power as an important booster for the Belt and Road Initiative. In mid-May 2017, China initiated and hosted the first Belt and Road Forum for International Cooperation in Beijing, which was the most important diplomatic conference in China following the 2014 Asia-Pacific Economic Cooperation (APEC) summit and the G20 summit in 2016. It is expected to become a milestone event and an important communication platform forinternational cooperation.

Growing international recognition

In the four years since the initiative was introduced, a peaceful, open, inclusive and relatively loose international platform for economic cooperation has been set up, expanding China’s circle of friends. The BRI has attracted over a hundred countries and international organizations. Cooperation agreements have been signed with over forty countries and international organizations,10“Chinese Vice Premier Zhang Gaoli’s Keynote Speech at Opening Plenary of Boao Forum for Asia Annual Conference 2017,” March 25, 2017, http://news.xinhuanet.com/english/china/2017-03/27/c_136162062.htm.realizing joint consultation, joint contribution and shared benefits among the countries along the routes. The BRI has been aligned with the Eurasian Economic Union (EEU) of Russia, the “Prairie Road” of Mongolia, the “Bright Path” new economic plan of Kazakhstan, the “Vision 2030” of Saudi Arabia, the Juncker Investment Plan of the EU, the “Two Corridors and One Ring” of Vietnam, Australia’s plan to develop the country’s northern region and other strategic plans. Many countries have viewed the BRI as a strategic opportunity for development.11Pan Xutao, “The Belt and Road Continues to Heat Up”, People’s Daily (Overseas Edition), April 5, 2017.Moreover, the APEC, the Asia-Europe Meeting (ASEM), the Greater Mekong Subregion economic cooperation program have also included or embodied Belt and Road projects in their documents. In addition to a number of cooperation agreements signed with Belt and Road countries, China has also reached important consensus with France, Germany, South Korea, Britain, Spain and other nations on joint development in a third-party market, expanding a new model of third party cooperation with developed countries, and improving the technical level of capacity cooperation under the BRI. A number of national and international organizations have established specialized agencies to manage relevant issues, such as the Belt and Road Center set up by the Malaysian Chinese Association’s China Affairs Committee; the Belt and Road portal by Lianhe Zaobao and the SingaporeBusiness Federation; the traders’ alliance established by nearly 100 commerce chambers and enterprises at home and abroad, including the Shanghai Chamber of Commerce for Import and Export, the Xinjiang Production and Construction Corps’ Council for Promotion of International Trade, Turkey’s Chinese Industrial & Commercial Association, the Chamber of Commerce of Kyrgyzstan; and the United Nations Maritime-Continental Silk Road Cities Alliance.12Guan Qingyou, Zhu Zhenxin & Yang Xiao, “Full Review on Belt and Road”, Sohu News, March 7, 2017, http://business.sohu.com/20170307/n482601529.shtml.

In March 2016, the UN Security Council adopted Resolution S/2274, calling on efforts to advance the Belt and Road Initiative. The UN Economic and Social Commission for Asia and the Pacific (ESCAP), the UN Development Program (UNDP) and the UN Industrial Development Organization (UNIDO) have recognized and advanced the BRI implementation in various forms ever since. In November the same year, the 71st session of the UN General Assembly incorporated, for the first time, the Belt and Road Initiative into its Resolution A/71/9, showing the universal support from the international community. On March 17, 2017 when the UN adopted Resolution 2344 on Afghanistan, the Security Council used for the first time the crucial Chinese concept “community of shared future for mankind,” and called on the international community to build more consensus on assisting Afghanistan and strengthening regional economic cooperation through the Belt and Road Initiative. It also urged all parties to provide a safe and secure environment for the BRI, to strengthen the alignment of national development strategies, and to promote pragmatic cooperation on connectivity.13Yu Shuangshuang, “UN Backs BRI through Resolution,” People.cn, March 20, 2017, http://world. people.com.cn/n1/2017/0320/c1002-29154726.html

Early harvest from major projects

Some Belt and Road projects have witnessed early harvest. For example, the China-Pakistan Economic Corridor is progressing smoothly;the Gwadar Port was put into operation in November 2016 and is now able to berth oil tankers with a cargo carrying capacity of 50,000 tons. Some other projects are expected to proceed smoothly. For example, the first phase of the Djibouti Port has been completed this year; construction of the Jakarta-Bandung high-speed rail is in full swing; construction of the Malaysia-Singapore high-speed rail and the Serbian section of the Hungary-Serbia railway have both started; the Angren-Pap Railway Tunnel has been opened to traffic; the China-Myanmar oil pipeline has been put into operation; Line C of the China-Central Asia pipeline has formally started supplying natural gas; China and Russia are expected to reach agreement by the end of 2017 on construction of a Moscow-Kazan high-speed rail mainline. Currently, freight trains run routinely between China and Europe, with 39 lines connecting 16 Chinese cities with 12 cities abroad. In 2016, 1,702 trains ran on the routes, a 109 percent yearon-year increase. Many cities have proposed in February 2017 to double freight capacity. It is estimated that there will be around 5,000 cargo trains running between China and Europe annually by 2020.14Li Guo, “China-Europe Cargo Trains Develop Fast in 2017, Chengdu and Chongqing Plan to Double Capacity,” 21st Century Economic Reports, February 9, 2017.

Challenges Ahead

The Belt and Road Initiative is a major systematic project, covering a vast area, requiring a long construction period, large-scale investment and resources, and thus representing a huge task ahead. With concerted efforts, the BRI has started out well and registered gratifying progress. However, besides ordinary risk factors in such an undertaking, this global project is also confronted by other specific challenges that are impossible to ignore.

Anti-globalization poses a serious threat.The year 2016 has seen frequent “black swan” events in global political and economic fields. Trump’s surprise win in the US presidential election, the shock of Brexit and the rise of right-wing forces in Europe, among others, show that theWestern political ecology is undergoing a dramatic change, where “populism suspicious of and hostile toward elites, mainstream politics and established systems” and forces against economic globalization have gained increasing popularity.15Fareed Zakaria, “Populism on the March: Why the West Is in Trouble,” Foreign Affairs, November/ December 2016, p.9.The United States once led globalization in the post-Cold War age, gaining huge dividends, but now its will and ability to lead no longer remain. US President Donald Trump stressed the importance of “America First” and “Buy American and Hire American,” clearly sending out a signal of rising protectionism. Why has such a phenomenon occurred in the US and Europe? First, there has developed an imbalance between the real and the virtual economies, which has led to loss of domestic manufacturing jobs and sluggish employment; second, the call for “fair trade” has a greater appeal than that for “free trade;” third, in talking of trade “rules” there has been a sense that some developing countries are taking advantage of the rules and reaping benefits; fourth, there is worry that public enterprises in emerging markets are strong enough to undercut the private enterprises of the West; and in addition, the widening gap between the rich and the poor and the refugee issue also serve as a trigger for this phenomenon.

The international economic, financial and trade environment remains anemic, making it difficult to finance and operate.The influence of the financial crisis in 2008 is far from fading away, leading to a sluggish world economy, falling prices in staple commodities, and rising trade protectionism. The financial risks have not been completely eliminated, and liquidity of the international capital market, in particular, has begun to tighten. Historical data show that the US effective funds rate (EFR) rose from 0.8 percent in January 1954 to 20 percent in January 1981, fell from 12 percent in December 1981 to 0.11 percent in January 2015, and then picked up slightly in April 2017 but remained below 1 percent. All this means that the dollar may have entered a new round of appreciation,16Kimberly Amdes, “Fed Funds Rate History: Highs, Lows and Chart with Major Events,” The Balance, March 24, 2017, https://www.thebalance.com/fedn-funds-rate-history-highs-lows-3306135.causing international financing costs to increase. The expectation that the US Federal Reserve would raise the interest rate has further aggravated the currency depreciation and capital outflows in emerging markets and developing countries. Projects along the Belt and Road facing major financing needs may have difficulty in finding the funding.

Competition between major powers may create obstacles for the Belt and Road.At the global level, it will be difficult for the Belt and Road to avoid facing obstruction, as the hegemonic power’s suspicion about the BRI is based on the fear that its leadership role would be undermined and superseded. At the regional level, some major countries also have lingering misgivings about the BRI. For example, India’s strong opposition to the China-Pakistan Economic Corridor and negative attitude towards the promotion of the BCIM Economic Corridor; Japan’s resistance to the AIIB and fierce competition with China in Southeast Asia. Some sub-regional major powers may also be concerned about China’s growing influence, showing negative attitudes towards cooperation or even interfering with ongoing projects.

Domestic political disputes and negative public opinion may cause obstacles.Many Belt and Road countries have a poor political environment where the leadership is concerned more with short-term gains. It is not conducive to some long-term BRI projects. Besides, some opposition parties may deliberately stand in the way. At the same time, some unfriendly NGOs may attempt to create negative public opinion leveraging issues like environmental protection, demolition and corruption, in order to sway the position of ruling or opposition parties against certain projects. For example, excessive public concerns over China’s state-owned enterprises led to the EU’s disruption of theHungary-Serbia railway.17James Kynge, Arthur Beesley & Andres Byrne, “EU Sets Collision Course with China over ‘Silk Road’Rail Project,” Financial Times, February 20, 2017, https://www.ft.com/content/003bad14-f52f-11e6-95eef14e55513608.

Non-traditional security challenges remain enormous.There are a large number of countries along the Belt and Road with diverse ethnic groups and religious faiths, and thus non-traditional security issues have become increasingly prominent. The proliferation of terrorism, regional conflicts and epidemic outbreaks, among others, may cause unexpected risks and uncertainties to the BRI.

China’s Countermeasures

After all, it has only been nearly four years since the BRI was introduced. It is natural that it would face some challenges while moving forward. To advance the BRI calls for continually developing innovative ideas, improving the image and discourse, and adopting specific solutions to specific problems.

Initiating a new phase of globalization with Chinese characteristics.As globalization begins to ebb, the international community looks to China for effective measures to bolster global trade and investment liberalization. Some Europeans even propose that China and Europe should take the lead in the world economy. China should continue to promote innovative, coordinated, green, open and shared development. By leveraging the opportunities presented by the BRI, China should facilitate a new phase of globalization with its own features and wisdom and encourage broad-based participation.

Gaining momentum for long-term development.China should have a better understanding of the BRI as a complex and arduous undertaking, adopting long-term view for the greater success rather than seek temporary short-term gains. China should continue to maintain its strategic determination and resilience, and make timely adjustments in the face of this complicated international environment and sluggish economy to seeksustainable BRI development.

Avoiding disruption by public opinion hype and political disputes.China should neither accede to everyone’s requests, nor push the projects too hard. It is necessary to watch closely the political landscape in any of the countries which have agreed to cooperate with China, and develop countermeasures in case of policy changes when the current leadership steps down and the opposition comes into power. In general, political elections take place periodically, and the ruling party is motivated to gain political achivements over the period. Projects may face obstacles in the future if at a certain stage there is no significant breakthrough. As populism prevails nowadays, many political figures, including those who are friendly to China, may change their attitude due to shifts in public opinion. Therefore, it is important to take into account the allocation of short and medium-term projects and longterm ones, clarify targets and priorities, and respect law of the market.

Managing relations with major countries, especially the United States, for win-win outcomes.Under the Obama administration, the United States worried that China was prepared to embark on a new path and held a negative attitude toward the BRI, considering it a Chinese strategy to counter the US rebalancing in the Asia-Pacific, expand China’s strategic space westwards, reshape Eurasian geopolitics, and challenge the US-led regional order. Recently, however, many American scholars have appraised the Belt and Road more positively. Some experts believe that, US companies will suffer major losses and be relegated to an outsider in this largest infrastructure program in the 21st century if they miss the BRI.18Gal Luft, “China’s Infrastructure Play: Why Washington Should Accept the New Silk Road,” Foreign Affairs, September/October 2016, p.71.China-US cooperation benefits both sides, since China has a lot to learn from the US in technology, operation, finance, law and risk management. The two sideshave already carried out cooperation on clean energy in Africa. The next step should be for the US and China to seek consensus and explore ways to work on infrastructure construction. During his meeting with President Trump in Mar-a-Lago in April, President Xi extended an invitation to the United States to participate in the Belt and Road Initiative, which shows the openness and inclusiveness of the initiative and China’s open attitude toward the US.

Strengthening risk assessment, supervision and response.With increasing international uncertainties and mounting traditional and nontraditional security challenges, the risks facing Chinese enterprises are becoming more prominent. The status as the second largest economy and the largest goods exporter makes it increasingly important for China to protect its overseas interests as they expand. In advancing the strategic, political and commercial projects of the Belt and Road, it is essential to closely follow the situation in the host country and assess the progress and risks in a timely fashion to advance long-term interests. providing security overseas involves a wide range of areas and calls for a high-level mechanism for coordination.

Telling the Chinese story.The BRI involves a large number of infrastructure and production capacity cooperation projects, and faces complex environmental assessments and sensitive issues like demolition, which are easily blown up by international and local NGOs. In this regard, China should consider participation of third parties like international or regional multilateral organizations and even the civil society in project assessment. At the same time, China should strengthen public relations, using diverse platforms like print media, video, internet, micro-film and exhibition to publicize livelihood projects with good economic and social spillover effect, so as to win the understanding and support of local people.

Promoting constructive mechanisms and new cooperation models with various platforms.China can explore with countries along the routes mechanisms like regular or occasional summits, ministerial meetings on specific affairs, and Track 1.5 or Track 2 forums to further communication and solve problems that may emerge in advancing the Belt and Road.

Fu Mengzi is Vice President of China Institutes for Contemporary International Relations (CICIR);

Xu Gang is a PhD candidate at CICIR. This article was translated by Zheng Si.