The new Silk Roads: Prosperity or peril?

ISE Magazine -Volume 49: Number 11
By Richard E. Crandall and William R. Crandall

Massive initiative by China could reopen, expand supply chain routes – but also breed political clashes 

China is leading an initiative that will transform the trading routes for most of the world in the largest and most comprehensive undertaking ever included in a single program. It is the “One Belt, One Road” vision announced by Chinese President Xi Jinping in 2014.

One Belt, One Road will span more than 65 countries in Asia, Eurasia, Europe, Africa and Australia. It will include highways, railways, pipelines, airports, ports and maritime routes spanning thousands of miles between China and points west. If completed as envisioned, it will change the economic and geopolitical landscapes for more than 70 percent of the world’s population, according to the British newspaper The Guardian.

What is One Belt, One Road?

One Belt, One Road initiative is patterned after the ancient trade routes between China and Europe through Eurasian countries, commonly known as the silk routes, or Silk Road.

The silk trade routes were sometimes interrupted by forces that temporarily disrupted the flow of goods between countries such as religious group that fighting each other for audiences, loyalty and moral authority. However, the trade routes were revived after each interruption until, for all practical purposes, they were discontinued as a result of World War I and World War II.

The stated objective of the One Belt, One Road initiative is to create a “win-win” situation in which China will prosper by increasing its trading areas to a larger part of the world while also benefiting the countries in which they trade, especially emerging countries that need the infrastructure necessary to become a legitimate trading partner.

There are also at least two other unstated objectives: First, to develop Chinese political influence and accessibility in oil-rich countries and second, to establish China as a world power, Tom Miller wrote in his book China’s Asian Dream, Empire Building Along the Silk Road. Investment in other countries is bound to increase China’s influence in those geographies.

While this is good for China, it may lead to political unrest in the affected countries and cause increased tensions with other countries vying for influence in the same space. While Russia and the United States immediately come to mind, India and Japan already have announced a counter-initiative. China is already an economic world power and would like to extend its stature in the political and social arena.

Benefits and threats

Secondary benefits will include the opportunity for increased employment for workers, especially those in western China who have largely been left out of the economic boom in the coastal areas of China, where manufacturing for export has been strong over the past two decades. Increased employment should reduce the unrest among unemployed workers, as in the Xinjiang province. Increased infrastructure building in the countries hosting the new silk roads will provide opportunities to use some of the excess capacity in steel and cement. China also will have an increased interest in protecting its investment in foreign countries, hopefully by using trade as a means of maintaining economic and political stability in a large portion of the world.

The biggest economic threat to China is that it will invest money and effort into projects that will not provide a satisfactory return on investment, thereby limiting the country’s domestic economic growth. However, the geopolitical threat may be even larger if the expanded scope of One Belt, One Road infringes on other countries’ interests, most notably Russia in Central Asia, India along the southern maritime route and the United States in the South China Sea.

The expectation is that the One Belt, One Road program will bring increased economic well-being to all countries along the trade routes, especially to those emerging countries that need help in building their economies. They have the workers and, in some cases, natural resources that are needed in other markets, but they need added infrastructure and access to those markets.

However, if countries invest in some of the projects within their own borders and these projects fail or falter badly, the resident country could suffer greatly. These countries will have even greater concern if China’s economic presence provides the Asian giant with significant political influence that goes counter to the occupied country’s interests. Another complaint about past Chinese projects is that the work has been done by Chinese companies using Chinese workers, thereby depriving local workers of the opportunity to participate.

For the rest of the world, primarily North and South America, the benefit will be in the political sphere if the One Belt, One Road program creates prosperity and stability along the trade routes. Tensions could ease, and threats of armed conflicts would be reduced.

The economic threat is that the flow of goods from China through the Pacific Ocean to the United States, through the Panama Canal or overland to the East Coast, and on to Europe across the Atlantic Ocean would be reduced. While this will take time and perhaps be lessened by the growth of other markets, it remains a possibility.

A possible geopolitical threat is that China’s influence among the oil-rich countries of Central and South Asia will increase and possibly not be aligned with the interests of the United States. If this happens, tensions and the threat of armed conflict will increase.

Obstacles to completion

As a show of commitment toward financing the One Belt, One Road initiative, China launched the Asian Infrastructure Investment Bank, from which it made an initial funding to the Silk Road Fund. At some point, the money has to be translated into equipment, materials, workers and services. It is not likely that China will have the complete capabilities within the country and will depend on external sources for added input. Once the highways, railways, ports and other infrastructure are built, they must be maintained. If done by China, that will increase its financial commitment and desire to more directly influence policies related to that investment. If maintained by the country in which the infrastructure resides, it will increase that country’s financial commitment and reduce its net return. If the structure spans multiple countries, the decision about responsibility for operation and maintenance becomes even more challenging.

The geographic terrain through some of the planned routes is challenging. There are deserts, mountains, rivers, borders and other obstacles that make planning and implementation tedious and sometimes so difficult that alternate routes must be considered. In addition, there will be widely varying rules and regulations that will affect border crossings and movement of goods within a country.

Anticipating and overcoming political instability will be another obstacle. There is political instability in several of the countries covered by the northern land route and the southern maritime route. If and when the One Belt, One Road initiative desires to move through the central portion of Eurasia, involving the countries of Iraq, Iran, Syria and others where internal instability exists or is threatened by external forces, such as in some African countries, the task to establish trade routes that can function with a minimum of interruption becomes even greater.

Security threats will be the primary issue; however, if Chinese geopolitical influence appears to be impinging on any of the countries, it will trigger responses that will impede progress on China’s efforts to enlarge its position as a world power.

Some of the obstacles outlined above are difficult but subject to analysis, and they can be handled by engineers and project managers working with accountants, system designers, financiers, human resources and other support personnel. However, some obstacles will not be susceptible to rational analysis and planning; these obstacles will require the experience and abilities of diplomats and heads of state to anticipate and hopefully resolve before the crisis occurs.

Looking down the Silk Road

The One Belt, One Road initiative is a vision. To implement the vision, strategies must be developed that can be crystalized into programs. Within each program, there will be master projects, such as building a highway from one city to another. Within each master project, there will be individual projects.

In addition to the known elements of project planning, it will be necessary to deal with more intangible variables, such as the value/cost of goodwill among involved countries; the value/cost of increased geopolitical influence; the value/cost of increased access to oil or other natural resources; the value/cost of local financing versus external financing; and the likelihood of regime changes in any of the more than 65 countries involved in the Silk Road initiative or any of the world powers that may take exception to some of the changes proposed.

It is apparent that One Belt, One Road is a world event; it will affect practically every person on the globe, either directly or indirectly. Scholars can build models, prepare case studies, examine economic effects within a country, commend or criticize strategies and so on. A beginning scholar could spend an entire career on the One Belt, One Road initiative.

On the more optimistic side, everyone should hope for the best. As Jack Ma, founder of Alibaba, said: “If trade stops, war starts. We have to actively prove that trade helps people communicate,” Bloomberg Business Week reported earlier this year.

For centuries, when given a chance, buyers and sellers along the silk roads have demonstrated that it is better for countries to trade goods, not gunfire.