The new silk route : All aboard the belt-and-road express
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May 4th 2017 | BEIJING
ON APRIL 10th a freight train pulled out of Barking station in London carrying Scotch whisky, baby milk and engineering equipment. It arrived in Yiwu in eastern China (see map) nearly three weeks later, completing the second-longest round-trip train journey ever made (after Yiwu to Madrid and back, a record set in 2014). It lopped around a month off the time of a sea journey from Britain to China.
A day after the train’s departure, a less ballyhooed but potentially more significant event took place in the port of Kyaukphyu in Myanmar. Workers started transferring oil from a tanker into a new pipeline that runs from the Burmese port north to Kunming, the capital of Yunnan province in south-western China. The pipeline bypasses the Malacca Strait, through which 80% of Chinese oil imports are shipped. Eventually, energy supplies to Chongqing, the largest city in the west of China, will no longer be vulnerable to political disruption in the strait.
Both events show that Xi Jinping’s “Belt and Road Initiative”, a central feature of the Chinese president’s foreign policy, is establishing what generals like to call facts on the ground. By financing around $150bn of infrastructure spending a year in countries to China’s south and west (along the old Silk Road), Mr Xi hopes to create new markets for Chinese firms and new spheres of influence for his government.
The president is preparing to host a lavish party in Beijing to celebrate the project—the Belt and Road Forum, as the event is known. On May 14th and 15th leaders from 28 or so countries will join the festivities, including Russia’s Vladimir Putin and Myanmar’s de facto leader, Aung San Suu Kyi. Mr Xi will use the gathering to project his country’s self-confidence and his own as a global leader. But looks can deceive. In reality, Mr Xi faces a backlash against his project. At the forum, he will try to reassure his partners that he is not attempting to stuff their mouths with gold.
The scheme is running into three linked problems. First, it is unclear what its priorities are, or who is running it. “We haven’t really come up with a specific goal,” says Zou Tongxuan of Beijing International Studies University. Every province has its own belt-and-road investment plan. So do hundreds of state-owned firms. The government’s strong backing has helped to get many projects up and running faster than might have happened otherwise (Mr Xi first began to talk about the idea only in 2013). But no one is in day-to-day charge, so thousands of financially dubious schemes have the imprimatur of a belt-and-road project. And the overweening behaviour of Chinese companies in some countries where they operate has stoked fears in some places of an over-mighty China.
The different names given to the project reflect China’s struggle to make it sound palatable to foreigners. Mr Xi first talked about a “Silk Road economic belt”. That was uncontroversial, but to expand its geographical scope a new term was devised: Yidai Yilu, or One [land] Belt, One [maritime] Road. That sounded ugly in English and, officials realised, risked implying that it was all about a big Chinese plan: they wanted the venture to be seen as a co-operative one. So they came up with the anodyne-sounding belt-and-road translation (despite the unfortunate acronym it produces for the forum: BARF).
A second problem is finding enough profitable projects to match the vaulting ambition of the scheme, which aims to create a Eurasian trading bloc rivalling the American-dominated transatlantic area. It is not certain, for example, how successful the London-Yiwu rail line will be, given that (though faster) it is more than twice as costly as shipping. The Chinese hope to export their expertise in building high-speed rail. But China’s speedy construction of thousands of kilometres of it at home depended on cheap labour and the power to evict anyone who got in the way. That may be hard to replicate.
Belt-and-road projects are failing already. In Kara-Balta in Kyrgyzstan, Zhongda China Petrol, a state-owned company, built a big oil refinery—then found it could not buy enough crude oil to run it at more than 6% of capacity. The country’s deputy prime minister called the plant’s construction “ridiculous”; locals are protesting against its environmental impact.
China hopes the belt and road will bring others into its orbit, including Afghanistan, Pakistan, Iraq, Syria and Ukraine. But these countries are not exactly champions in the World Bank’s ease-of-doing-business league. According to Tom Miller of Gavekal, a consultancy, the Chinese think they will lose 80% of their money in Pakistan, 50% in Myanmar and 30% in Central Asia. Perhaps they can afford this, but it would be a costly success.
Third, locals in some countries are angry about what they view as China’s heavy-handedness. In parts of Asia, democratic politics have been challenging China’s commonly used approach to deal-making—cosying up to unsavoury regimes. This had begun before Mr Xi devised the belt-and-road scheme. In 2011 Myanmar suspended work on a vast Chinese-financed dam at Myitsone, to popular acclaim. In Sri Lanka, the government elected in 2015 has been engaged in endless wrangling with China over the building of a Chinese-invested port in the home town of the country’s autocratic former president. In January protests against China’s plans there turned violent.
Even in Pakistan, one of China’s closest friends in Asia, Mr Xi has been forced to abandon his usual mantra of “non-interference” in others’ internal affairs. Late last year China openly appealed to Pakistan’s opposition politicians not to resist construction of the China-Pakistan Economic Corridor, a part of the belt that links Xinjiang, China’s westernmost province, with Gwadar on the Indian Ocean. Pakistan deploys a force of around 10,000 soldiers to guard the corridor against militant attacks.
The problem is partly one of scale: China is so vast that belt-and-road countries fear being overwhelmed by it. Loans from one bank, China Eximbank, for example, account for a third of Kyrgyzstan’s foreign debt. Yunnan is one of China’s poorer provinces. Yet its economy is still four times bigger than that of its more populous neighbour, Myanmar. Countries both long for and dread Chinese investment.
China is trying to change its ways. NGOs in South-East Asia say that Chinese firms, which had previously treated local critics with disdain, have started to take their concerns more seriously. Chinese banks are asking international institutions—sovereign-wealth funds, pension funds and so on—to join them in lending to belt-and-road projects, in the hope that this will help ensure higher standards. At the forthcoming forum, China is likely to emphasise links between the belt-and-road programme and other infrastructure projects that have been launched independently of it, such as a new transport network around Baku in Azerbaijan. The aim will be to show that Mr Xi’s project is not a threat. But this will be another minor adjustment of wording. The belt-and-road express has left the station. China is merely trying to improve the on-board service.
