Xi Jinping’s Silk Road is under threat from
one-way traffic
Trade must flow both ways to make the route economically and politically viable
66 Jérg Wuttke
yw f in & Falco Save
MAY 9.2017 by: Jérg Wuttke
The old Silk Road underpinned China’s golden age more than a thousand years ago,
when the Tang Dynasty’s territorial expansion, cultural supremacy and economic
power — with 58 per cent of global gross domestic produet — were at their zenith.
This month, Beijing hosts a lavish international conference to showcase President Xi
dinping’s One Belt and One Road initiative, an ambitious project intended to recreate
the Silk Road.
But five or 10 years from now, will this month’s event be remembered as a step in the
next stage of globalising China’s economy, or as a huge white elephant that left an
enormous amount of wasted resources strewn along its path?
‘Though the new Silk Road initiative was announced nearly four years ago, and is
President Xi’s pet foreign policy project, it is still not clear what it actually amounts
to. Beijing says it will involve major investments in infrastructure in Asia and beyond
— expanding trade and investment along a new land route extending as far as Europe
and through a maritime route all the way to the Middle East and the Mediterranean.On the face of it this is inspiring. Asia’s infrastructure funding needs are vast. Forging
closer links across the region can promote faster growth and economic integration.
Beijing is keen to fend off terrorism in some neighbouring Islamic countries, hoping,
that increased trade and investment will create jobs and stability.
However, to date, it is unfortunately less of a practical plan for investment than a
broad political vision. In the face of downward pressure on the renminbi, the
initiative has been hijacked by Chinese companies, which have used it as an excuse to
evade capital controls, smuggling money out of the country by disguising it as
international investments and partnerships. And as well as backing worthwhile
projects such as Pakistani ports and Central Asian railway stations, the initiative has
provided cover for the acquisition of less productive and often trophy assets, such as.
European football clubs — Chinese tycoons have acquired about 100 of these to date.
Some Chinese officials argue that the new Silk Road can mop up chronic overcapacity
in many of the country’s industries by creating new opportunities to export their
output. This is misguided.
Related a
icle Overcapacity in industries such as steel is far
too big for neighbouring markets to absorb
Map: Key projects on
the new Silk Road
more than a fraction of it; products such as
cement and glass cannot be economically
ee ee exported over any great distance; and in
eee ea cen ara unstable, high-risk markets such as Pakistan
and the Central Asian republics, there is a
danger that loans will turn sour and projects
will fail.
The planned rail link between central China
and Europe, which is undergoing trials,
highlights the challenges:
cargo leave Chongqing for Germany every week, but only one full train returns. Yet
ive trains full of
trade must flow in both directions to make the new trading routes both economically
viable and politically acceptable to the foreign countries through which it will pas:
European business would like to see One Belt and One Road create more
in China. This is highlighted by the EU Chamber of
Commerce in China’s latest annual survey of members, which finds that regulatory
opportunities to do busines
barriers and limits to market access continue to be the top restraints that they
experience.Europe is open, buying €1bn worth of goods from China every day. China, however,
only buys half that amount from Europe. In 2016 China invested four times more in
Europe than EU companies invested in China. Investments in China by EU
companies also sank by 23 per cent to only €8bn last year.
Related article This is not because European businesses do
not invest abroad — last year, they invested
China’s ‘Belt and Road’
vision struggles to
leave port
about €200bn in the US, for example. It is
because, as a destination for foreign
investment, China is punching far below its
Grand plans for Qinzhou trade weight.
hub with Southeast Asia yet to
The grand political vision contained in the
be realised
plans for the new Silk Road is
no substitute for addre:
ng the many day-
to-day problems and obstacles
that European businesses face in China. As
the country aims to move up the
technological value chain in a range of
industries, these basic challenges hurt both
China and European business alike.
So while European business supports the One Belt and One Road vision, companies
are worried that in the next decade the initiative will instead be remembered as “One
Belt and One Trap”: a waste of resources that depends too heavily on lumbering and
inefficient state-owned enterprises, when nimble Chinese entrepreneurs and EU
private capital would do a far better job.
It is to be hoped that things won't turn out that way. In order to ensure they do not,
the initiative should be reconsidered during this month’s conference.
But when political diktats rather than market forces drive business decisions, the
risks of disappointment are always high.
The writer is president of the EU Chamber of Commerce in China
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