China’s Drive for a ‘New Silk Road’

As the United States lets its national infrastructure decay, the Chinese are pressing ahead with ambitious plans to construct a “New Silk Road” to expand commercial and diplomatic ties to Central and Southeast Asia, report Flynt Leverett, Hillary Mann Leverett and Wu Bingbing.

By Flynt Leverett, Hillary Mann Leverett, and Wu Bingbing

Not even two years into what will almost certainly be a ten-year tenure as China’s president, Xi Jinping has already had an impact on China’s foreign policy: standing up for what many Chinese see as their nation’s territorial sovereignty in maritime boundary disputes in the East China Sea and the South China Sea, proposing a “new model of great power relations” to guide relations with the United States, and presiding over the consolidation of what Xi himself calls a “comprehensive strategic partnership” with Russia.

But the most consequential diplomatic initiative of Xi’s presidency may turn out to be his calls to create a “New Silk Road Economic Belt” and a “Maritime Silk Road of the 21st Century”: vast infrastructure and investment schemes aimed at expanding China’s economic connections to, and its political influence across, much of Eurasia.

China's President Xi Jinping.

China’s President Xi Jinping.

Successful implementation of Xi’s “one belt, one road” initiative is likely to be essential for China to meet some of its most pressing economic challenges. It is also likely to be critical to realizing the interest of many Chinese elites in a more “balanced” foreign policy, that is, in a diplomatic approach less reflexively accommodating of U.S. preferences, and in fostering a more genuinely multipolar international order.

Over 2,100 years ago, China’s Han dynasty launched what would become the original “Silk Road,” dispatching emissaries from the ancient capital of Xian in 138 BC to establish economic and political relations with societies to China’s west. For more than a millennium, the Silk Road of yore opened markets for silk and other Chinese goods as far afield as Persia, in the process extending Chinese influence across Central Asia into what Westerners would eventually come to call “the Middle East.”

In September 2013, just six months after becoming China’s president, Xi Jinping evoked this history in a speech at Kazakhstan’s Nazarbayev University by proposing the creation of a “New Silk Road Economic Belt” running from western China across Central Asia. The following month, addressing Indonesia’s parliament, Xi suggested developing a complementary “Maritime Silk Road” to expand maritime connections and cooperation between China and Southeast Asia.

Xi’s proposals sparked a torrent of expert deliberations, policy planning exercises across China’s ministerial apparatus, and public discussion. Through these efforts, the initial concepts of the “New Silk Road Economic Belt” and the “Maritime Silk Road” have been elaborated into an integrated vision for expanding China’s economic connections not just to Central and Southeast Asia, but across South Asia, the Persian Gulf, and the Middle East as well.

In recent months, Xi himself has laid out at least five major elements of this “one belt, one road” vision:

A key aspect is the development of connective infrastructure, high-speed rail lines, roads and highways, even Internet networks, linking western China with central Asia and, ultimately, with points beyond such as Iran and Turkey, even going as far as Europe.

In parallel, construction of ports and related facilities will extend China’s maritime reach across the Indian Ocean and, via the Suez Canal, into the Mediterranean basin. Over time, the New Silk Road Economic Belt and the Maritime Silk Road will be interwoven through channels like the projected China-Pakistan Economic Corridor and the Bangladesh-China-India-Myanmar Economic Corridor.

This multifaceted development of connective infrastructure is meant to enable a second aspect of the “one belt, one road” strategy, expanding trade volumes between China and the vast Eurasian reaches to its West.

Trade expansion will also be facilitated by a third aspect of the strategy, greater use of local currencies in cross-border exchange, facilitated by the growing number of currency swap arrangements between the People’s Bank of China and other national central banks. (In this regard, “one belt, one road” should reinforce Beijing’s ongoing campaign to promote renminbi as an international transactional and reserve currency.)

Beyond these economic measures, a fourth aspect of the strategy emphasizes increased cultural exchange and people-to-people contact among countries involved in the “one belt, one road” project.

Finally, the growth of cross-border exchange along the “New Silk Road Economic Belt” and “Maritime Silk Road” should be encouraged by intensified policy coordination among governments of participating states.

Economic Motives

The drivers of China’s “one belt, one road” initiative are, first of all, economic. As a prominent Chinese academic economist puts it, the project is “a long-term macroscopic program of strategic development for the entire state.”

More specifically, a critical mass of political, policy and business elites in China see the “one belt, one road” idea as critical to promoting more geographically balanced growth across all of China. Through 35 years of economic reform, development has been concentrated in the country’s eastern half. The New Silk Road Economic Belt, especially, is designed with a goal of jump-starting economic modernization in western China.

Beyond its impact inside China, the “one belt, one road” vision seeks to cultivate new export markets for Chinese goods and capital. For 35 years, advanced economies to China’s east, e.g., the United States and Japan, have been its most important economic partners and the most crucial outlets for its exports. Looking ahead, though, Chinese policymakers recognize that the potential for further growth in these markets is considerably smaller than in earlier phases of reform; they believe that, to compensate, China must nurture new export markets to its west.

Chinese analysts say that the territory encompassed by the New Silk Road Economic Belt and the Maritime Silk Road contains 4.4 billion people (63 percent of the world’s population), with an aggregate GDP of $2.1 trillion (29 percent of the world’s aggregate wealth).

But, for this zone to play the economic role envisioned by Chinese leaders, it is necessary to encourage development not only in western China, but in economies across Eurasia, another major goal of both the New Silk Road Economic Belt and the Maritime Silk Road. It also means that, to be economically sustaining, these initiatives cannot be limited to areas contiguous to China. They must extend further westward, to include already more developed markets in eastern and southern Europe.

Strategic Rationales

Alongside these economic motives, Chinese interlocutors acknowledge that there are powerful strategic rationales for the “one belt, one road” approach. Certainly, the approach reflects Chinese leaders’ awareness of their country’s growing political as well as economic power; it also reflects the deepening of Chinese interests in strategically important regions to its west (e.g., the Persian Gulf).

In a regional context, the New Silk Road Economic Belt and Maritime Silk Road, like China’s recent championing of the Conference on Interaction and Confidence-Building in Asia in the security sphere and its leadership on creating an Asian Infrastructure Investment Bank, reflect Beijing’s increasingly evident assessment that Asian affairs should be managed more decisively by Asians themselves, not by extra-regional actors like the United States.

More particularly, Chinese policymakers have framed their “one belt, one road” initiative as a response to the Obama administration’s much-hyped “pivot to Asia.”

Besides specific redeployments of U.S. military forces associated with American strategic rebalancing, Chinese elites increasingly see the United States engaged in economic, political and military initiatives aimed at containing China’s rise as a legitimately influential player, in the Asia-Pacific region and globally.

Sino-American rapprochement in the 1970s required Washington to abandon a failed quest for Asian hegemony, to realign relations with Beijing based on mutual accommodation of each side’s core interests, and to accept a more balanced distribution of power in Asia.  Now, the United States appears to be backing away from these commitments and looking for ways to reassert a more traditionally hegemonic stance in Asia.

In the face of these trends, China is seeking to meet U.S. efforts to contain it to its east by expanding its diplomatic and political engagement to its west, including to areas like the Persian Gulf that Washington has long considered vital to America’s global position.

To be sure, Beijing continues to rule out the possibility of military confrontation with the United States as in no way a rational prospect. But it also continues to seek a long-term transformation in the character of contemporary international relations, from an international system still shaped in large measure by unipolar American dominance to a more genuinely multipolar international order.

To this end, the “one belt, one road” project could, if handled adroitly, prove a non-military catalyst that accelerates the relative decline of U.S. hegemony over the Persian Gulf and engenders a more balanced distribution of geopolitical influence in this strategically vital region.

Looking Ahead

Realizing the “one belt, one road” vision will pose serious and sustained tests for Chinese policymaking and diplomatic capabilities. Three such tests stand out as especially significant.

First, while one of the main motives for the New Silk Road Economic Belt is to encourage the development of western China, including the country’s Muslim-majority Xinjiang province, the Chinese government is increasingly concerned about the rising incidence of radicalization among some elements of Xinjiang’s Uighur Muslim population.

Will Beijing be able to balance such concern against the imperatives of deepening China’s engagement with states in Central Asia, the Middle East and other parts of the Muslim world?

Second, while “comprehensive strategic partnership” with Russia continues to be a prominent element in Chinese foreign policy, Moscow remains wary about any prospective increase in Chinese influence in former Soviet states whose participation is essential to implementing the “one belt, one road” approach. Will Beijing be able to maintain economically and strategically productive relations with Russia as it pursues this approach?

Third, while successful implementation of the New Silk Road and Maritime Silk Road initiatives can potentially contribute over the long term to a more balanced Sino-American relationship, getting them off the drawing board in anything more than preliminary fashion will almost certainly require Beijing to ignore U.S. displeasure on multiple fronts in the near-to-medium term.

A good example of this dynamic is how Chinese policymakers will engage Iran in the elaboration of the New Silk Road Belt and the Maritime Silk Road. Iran is comparatively unique among China’s prospective partners in that geography makes it important to the realization of both initiatives.

Over the next few years, will Beijing continue to hold back from expanding economic and strategic cooperation with Tehran, in deference to U.S. preferences and (largely rhetorical) pressure? Or, to advance its “one belt, one road” vision, will China move more forthrightly to deepen relations with the Islamic Republic?

Trade-offs like these mean that how Beijing pursues this vision will almost certainly have a major bearing on the trajectory of Sino-American relations over the next decade and beyond. They also mean that Beijing’s relative success in forging a new Silk Road will do much to determine the extent to which China’s rise actually correlates with the emergence of a more truly multipolar international order in the Twenty-first Century.

Flynt Leverett served as a Middle East expert on George W. Bush’s National Security Council staff until the Iraq War and worked previously at the State Department and at the Central Intelligence Agency. Hillary Mann Leverett was the NSC expert on Iran and from 2001 to 2003  was one of only a few U.S. diplomats authorized to negotiate with the Iranians over Afghanistan, al-Qaeda and Iraq. They are authors of  Going to Tehran. Wu Bingbing is a professor of Arabic language and culture at Peking University. He is the author of The Rise of the Modern Shi’i Islamism, the first book written by a Chinese scholar on Shi’i Islam. [This article originally appeared in The World Financial Review.]

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3 comments for “China’s Drive for a ‘New Silk Road’

  1. Abe
    January 30, 2015 at 13:19

    Vladimir Putin and China’s Xi have agreed to create their own international credit rating agency and it plans to open for business this year, 2015.

    The Universal Credit Rating Group (UCRG) plans to begin official independent ratigs in 2015 to challenge the Moody’s, S&P and Fitch ratings monopoly, according to RusRating Managing Director, Aleksandr Ovchinnikov.

    The new agency will be based in Hong Kong. Interestingly, there is a third equal partner to Russia and China in UCRG. In addition to China’s Dagon Credit Rating Agency, Russia’s RusRating the US-based independent Egan-Jones Ratings is partner in the new UCRG. Each member will hold an equal share in the venture, with an initial investment of $9 million. In effect, three already well-established national independent rating agencies form the new UCRG joint venture. It is a serious challenge to the New York Big Three monopoly.

    Egan-Jones Ratings Company, also known as EJR, founded in 1995 is a very interesting artner for Russia and China raters. It is unique among US nationally recognized statistical rating organizations (NRSROs) for being wholly investor-supported, not client-financed, eliminating the gross conflict of interest of the Big Three. On April 5, 2012, Egan-Jones was the first rater to downgrade the credit ranking of the United States. In addition Egan-Jones was also the first to downgrade WorldCom and Enron.

    The UCRG was officially created in June 2013 and has since been finalizing its business structure. Ovchinnikov added that, “When the issue of creating an agency alternative to the ‘Big Three’ was raised, we in fact offered a project that was ready to be launched and was supported by the governments of Russia and China.” He explicitly pointed to the bias of the US Big Three raters to be overly “generous” to US and EU clients while being biased against developing or emerging countries such as the BRICS—Brazil, Russia, India, China, South Africa.

    Now with an independent credit rating agency, a $100 billion BRICS Infrastructure Bank and strategic local currency agreements in place, Russia and China, Brics for Brics, are establishing the architecture to a genuine alternative to the destructive neo-colonial IMF and World Bank and the tyranny of the Wall Street dollar system. The year 2015 will indeed by interesting.

    Russia and China: Watch Out Moody’s, Here We Come!
    By F. William Engdahl
    http://journal-neo.org/2015/01/22/watch-out-moody-s-here-we-come/

    Engdahl is an American historian, economic researcher and geopolitical analyst based in Germany. His most recent book is Target: China — How Washington and Wall Street Plan to Cage the Asian Dragon (2014).

    In Target: China, Engdahl observes that “Step-by-step, just as with the boiling of frogs, Washington has been turning the heat up on China since about 2005. Today it is dangerously close to a boil. It is not too late for China but its people and leaders must have absolutely no illusions about the ruthlessness and determination of their adversary, the elite policy circles of the Anglo-American axis.”

  2. Zachary Smith
    January 30, 2015 at 00:48

    I found this to be a thought-provoking piece, and attempted to think as a strategist as to why China is trying to do this. Turns out I’ve neither the training nor enough information, but the effort was still sort of fun. Avoiding US attempts to encircle China was my first thought, and maybe that wasn’t completely crazy.

    https://www.pism.pl/files/?id_plik=15818

    Beijing needs to secure export markets and diversify its transport network—the main topic raised by Xi during his trip to Central Asia – especially given the instability in the sea lanes in Asia’s South and Southeast. A serious conundrum is the Malacca Strait, where they has been an increase in pirate attacks, illegal trafficking and unresolved maritime disputes. Almost 85% of imports to China are transported along this route, including 80% of the PRC’s energy imports.

    The Malacca Strait is one of the busiest littoral sea lanes to Malaysia, Indonesia (which Xi visited) and Singapore. Hence, China not only strives to secure those sea lanes but also to boost inland transport or find the means to gain access to the Bengal Bay and Indian Ocean and bypass Malacca

    Sea transport is by far the cheapest way of shipping things, but it has problems in places. China’s west sea route is especially bad, passing many places subject to the Empire’s patented agitation techniques. And in all cases the locals might possibly be assisted by the Empire’s fine Navy. So the Chinese seem to be looking at alternatives. An eastern path to Europe may be the reason for the plan to build a new canal in Central America. I’ve got my doubts that’s going to actually happen, but it’s still on the table.

    Hooking up with Europe across the Asian land mass is a no-brainer – IF they can build the infrastructure without angering the nations between Here and There. Though more expensive than water freight, rails are much faster and a lot cheaper than air transport. Also more secure from Imperial meddling. The US was insane to dismantle the US manufacturing base and ship it overseas, but that’s water over the dam. With new Asian-European markets China may not much care whether or not they continue to supply the Walton family with cheap gewgaws.

  3. Abe
    January 29, 2015 at 13:03

    …in 2014 President Xi Jinping has deployed unprecedented diplomatic/geostrategic frenzy – ultimately tied to the long-term project of slowly but surely keeping on erasing US supremacy in Asia and rearranging the global chessboard. What Xi said in Shanghai in May encapsulates the project; “It’s time for Asians to manage the affairs of Asia.” At the APEC meeting in November, he doubled down, promoting an “Asia-Pacific dream”.

    Meanwhile, frenzy is the norm. Apart from the two monster, US$725 billion gas deals – Power of Siberia and Altai pipeline – and a recent New Silk Road-related offensive in Eastern Europe, [4] virtually no one in the West remembers that in September Chinese Prime Minister Li Keiqiang signed no fewer than 38 trade deals with the Russians, including a swap deal and a fiscal deal, which imply total economic interplay.

    A case can be made that the geopolitical shift towards Russia-China integration is arguably the greatest strategic maneuver of the last 100 years. Xi’s ultimate master plan is unambiguous: a Russia-China-Germany trade/commerce alliance. German business/industry wants it badly, although German politicians still haven’t got the message. Xi – and Putin – are building a new economic reality on the Eurasian ground, crammed with crucial political, economic and strategic ramifications.

    Of course, this will be an extremely rocky road. It has not leaked to Western corporate media yet, but independent-minded academics in Europe (yes, they do exist, almost like a secret society) are increasingly alarmed there is no alternative model to the chaotic, entropic hardcore neoliberalism/casino capitalism racket promoted by the Masters of the Universe.

    Even if Eurasian integration prevails in the long run, and Wall Street becomes a sort of local stock exchange, the Chinese and the emerging multipolar world still seem to be locked into the existing neoliberal model.

    And yet, as much as Lao Tzu, already an octogenarian, gave the young Confucius an intellectual slap on the face, the “West” could do with a wake-up call. Divide et impera? It’s not working. And it’s bound to fail miserably.

    As it stands, what we do know is that 2015 will be a hair-raising year in myriad aspects. Because from Europe to Asia, from the ruins of the Roman empire to the re-emerging Middle Kingdom, we all still remain under the sign of a fearful, dangerous, rampantly irrational Empire of Chaos.

    Russia, China mock divide and rule
    By Pepe Escobar
    http://www.atimes.com/atimes/World/WOR-02-231214.html

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