What is the “Belt and Road”?

The “Belt and Road” (“B&R”, or “One Belt One Road”) strategy – initiated by Chinese President Xi Jinping in 2013 for a stronger growth of China and the betterment of the surrounding regions.

1

2

This strategy is also designed to resolve the following problems faced by China:

  • To import natural resources such as oil & gas, and minerals from neighboring countries more efficiently
  • China’s overcapacity issue in a number of sectors – such as steel, aluminum, solar panels, cement, coal, ship-building, etc.
  • Excess capital: reaching USD 4 trillion of foreign reserves
  • Underdevelopment in China’s central and western regions

Through a series of infrastructure construction, financial cooperation and capital investment, China hopes to solve these problems while helping the economic growth of the partner countries along the way.

Political and cultural exchanges will also be made through the cooperation between the East and the West


 

Silk Road Economic Belt and New Maritime Silk Road

The infrastructure construction and cooperation will take place under two development routes of the OBOR strategy – one by land & one by sea:


map

Image Source : Xinhua News Agency
 


The New Maritime Silk Road

 

The Maritime Silk Road has been significant in commercial terms since the Tang dynasty in the first century. Currently seven out of the world’s top ten container ports are on China’s coast.

The proposed path will begin in the Fujian province of China, passing by GuangdongGuangxi, and Hainan before heading south to the Malacca Strait. Then from Kuala Lumpur, the maritime Silk Road heads to Kolkata, crossing the Indian Ocean to Nairobi. From Nairobi, it goes north around the Horn of Africa and moves through the Red Sea, into the Mediterranean at Athens before meeting the Silk Road Economic Belt in Venice.

By promoting ports and other infrastructure cooperation, the New Maritime Silk Road will help ease territorial disputes with some ASEAN states and will strengthen mutual cooperation and mutual trust between China and ASEAN states.

 

 

Investment environment in ASEAN has improved with investment

 

Related measures introduced in 2013-2014 addressing liberalization, facilitation and promotion and institutional cooperation. These would all help to enhance the feasibility of projects involving the Maritime Silk Road:

  • With the aim of bringing forward the goal of free flow of investments under ASEAN Economic Community (AEC – which is the integration within ASEAN)
  • Eliminate investment impediments in the region and to improve transparency and ease of doing business
  • The implementation of the ASEAN Comprehensive Investment Agreement (ACIA) work programme, is regularly reviewed with a view to increase competitiveness of the region in attracting investments, and to meet the countries’ commitment under the AEC
  • Aside from various measures that have already been introduced, there are also agreements at various stage of negotiation, such as ASEAN-China FTA (ACFTA), ASEAN-India FTA (AIFTA), ASEAN-Australia-New Zealand FTA (AANZFTA), ASEAN-Japan Comprehensive Economic Partnership (AJCEP) and the Regional Comprehensive Economic Partnership (RCEP).

 

 

Importance of Central Asian Energy

 

Due to the proximity with Central Asia, China has been heavily investing in the Central Asian markets, partly for its energy.Central Asia will become one of the key sources for China’s energy supply.

Western Europe, Russia, India and the United States are also interested in the natural resources of Central Asia and the region has garnered a great deal of attention in recent years.

c.asia

Central Asian energy also serves an important role in the connection between energy rich regions.

In the long run, the Persian Gulf and the Caspian Sea will be linked together. Central Asia and the Middle East could then become an “oil heartland” that extends to Siberia and the Far East. This area bears 65% of the world’s oil reserves and 75% of the world’s natural gas reserves, and will eventually have a big impact on the development of the world’s energy structure.

 

Capital Support from China – the Silk Road Fund

 

On November 8 2014, China has set up a USD 40 billion Silk Road fund as a platform for infrastructure, resource development, industrial cooperation and financial cooperation investment. Silk Road fund welcomes investors inside and outside of Asia to actively participate.

Characteristics of the Silk Road Fund:

Sponsors (funding sources): Foreign exchange reserves (65%), CIC (15%), Export-Import Bank (15%), CDB Capital (5%)
Initial size: USD 40 billion (not capped)
Financing instruments: Equity, debt, buyer credit
Structure: 1)Fund will serve the purposes of a number of countries as a whole, and will strike a balance between political and economic goal2)Limited areas of investments projects – mostly infrastructure related

3)Funded projects must reach consensus among corresponding countries – there is a strict project selection requirement

4)Will only invest mostly outside of China

 

Vital Organizations Involving the B&R

 

  • Asian Infrastructure Investment Bank
    (50% seed capital from China)

The Asian Infrastructure Investment Bank (AIIB) is led by China to provide financial support to developing countries for infrastructure construction. Final number of founding members rose to 57 countries, including UK, Germany and France. AIIB will be backed by many economic giants and is an intergovernmental Asian regional multilateral development institutions in nature.

aiib (1)

China and 21 initial founding members signed a MOU in Oct, 2014.  (Image source: Corbett Report)
 

Other important financial platforms include:

  • BRICS Bank (New Development Bank), with 20% seed capital from China
  • SCO Development Bank
  • China-ASEAN Investment Cooperation Fund (CAF)

 

Apart from financial support, many international organizations are also involved in the B&R to ease cooperation among countries. These include the SCO, Eurasian Economic Union, APEC, and more.