OBOR is never complete without a SOE

What Is OBOR?

OBOR is an ambitious economic development and commercial project that focuses on improving connectivity and cooperation among multiple countries spread across the continents of Asia, Africa, and Europe. Dubbed as the “Project of the Century” by the Chinese authorities, OBOR spans about 78 countries.

KEY TAKEAWAYS

  • OBOR is a project that focuses on improving connectivity and cooperation among multiple countries in Asia, Africa, and Europe.
  • OBOR’s scope has expanded over the years to include new territories and development initiatives.
  • Kyrgyzstan and Tajikistan, are positive about OBOR owing to massive investments by China in local transmission projects in these nations.

How One Belt One Road Works

Initially announced in the year 2013 with the purpose of restoring the ancient Silk Route that connected Asia and Europe, the project’s scope has been expanded over the years to include new territories and development initiatives. Also called the Belt and Road Initiative (BRI), the project involves building a big network of roadways, railways, maritime ports, power grids, oil and gas pipelines, and associated infrastructure projects.

The project covers two parts. The first is called the “Silk Road Economic Belt,” which is primarily land-based and is expected to connect China with Central Asia, Eastern Europe, and Western Europe. The second is called the “21st Century Maritime Silk Road,” which is sea-based and is expected to will China’s southern coast to the Mediterranean, Africa, South-East Asia, and Central Asia. The names are confusing as the ‘Belt’ is actually a network of roads, and the ‘Road’ is a sea route.

They contain the following six economic corridors:

  1. The New Eurasian Land Bridge, which connects Western China to Western Russia
  2. The China-Mongolia-Russia Corridor, which connects North China to Eastern Russia via Mongolia
  3. The China-Central Asia-West Asia Corridor, which connects Western China to Turkey via Central and West Asia
  4. The China-Indochina Peninsula Corridor, which connects Southern China to Singapore via Indo-China
  5. The China-Pakistan Corridor, which connects South Western China through Pakistan to Arabia sea routes
  6. The Bangladesh-China-India-Myanmar Corridor, which connects Southern China to India via Bangladesh and Myanmar

Additionally, the maritime Silk Road connects coastal China to the Mediterranean via Singapore-Malaysia, the Indian Ocean, the Arabian Sea, and the Strait of Hormuz.

Historical roots

The Silk Road was a network of trade routes, formally established during the Han Dynasty. The road originated from Chang’an (now Xian) in the east and ended in the Mediterranean in the west, linking China with the Roman Empire.

As China’s silk was the major trade product, German geographer Ferdinand von Richthofen coined it the Silk Road in 1877. It was not just one road but rather a series of major trade routes that helped build trade and cultural ties between China, India, Persia, Arabia, Greece, Rome and Mediterranean countries.

It reached its height during the Tang Dynasty, but declined in the Yuan dynasty, established by the Mongol Empire, as political powers along the route became more fragmented. The Silk Road ceased to be a shipping route for silk around 1453 with the rise of the Ottoman Empire, whose rulers opposed the West.

Unprecedented growth for 30 years.

In just 30 years, China has developed from a poor inward-looking agricultural country to a global manufacturing powerhouse. Its model of investing and producing at home and exporting to developed markets has elevated it to the world’s second-largest economy after the USA.

Now faced with a slowing economy at home, China’s leadership is looking for new channels to sustain its appetite for growth at a time when developing neighbours are experiencing rapidly rising demand.

A new economic paradigm emerges with strategic agreements

The project aims to redirect the country’s domestic overcapacity and capital for regional infrastructure development to improve trade and relations with Asean, Central Asian and European countries.

There are compelling geopolitical reasons, such as energy security, for China to push forward with its One Belt One Road plans at a time when its trading partners are potentially excluding it from strategic agreements.

The Transatlantic Trade and Investment Partnership and the EU-Japan agreement show comprehensive liberalisation agendas, but do not include China and have the potential to increase trading costs.

In response, China plans to negotiate free-trade agreements with 65 countries along the OBOR. Until now China has signed 12 free-trade agreements including Singapore, Pakistan, Chile, Peru, Costa Rica, Iceland, Switzerland, Hong Kong and Taiwan and a further eight are under negotiation with Japan, Korea, Australia, Sri Lanka, Norway, the Regional Comprehensive Economic Partnership, Asean and the Gulf Cooperation Council.

OBOR’s funding

OBORs vast scale has elevated it to high-profile status given China’s financial resources and three financial institutions have been set up to support its development, which have met some resistance in the West given they provide alternatives to the World Bank, IMF and ADB

  1. Silk Road Infrastructure Fund – Launched in February 2014, the China-led US$40bn Silk Road Infrastructure Fund invests in OBOR infrastructure projects. The fund is capitalised mainly by China’s forex reserves and is intended to be managed like China’s sovereign wealth fund. Jin Qi, who serves as the assistant to the PBOC governor, will be the fund’s chief executive.
  2. Asian Infra Investment Bank – Founded in October 2014, the AIIB aspires to be a global development bank with 21 Asian member countries (China, India, Thailand, Malaysia, Singapore, the Philippines, Pakistan, Bangladesh, Brunei, Cambodia, Kazakhstan, Kuwait, Laos, Myanmar, Mongolia, Nepal, Oman, Qatar, Sri Lanka, Uzbekistan and Vietnam), with registered capital of US$100bn.
  3. New Development Bank  – The NDB is a BRICS multilateral development bank established on 15 July 2014, by Brazil, Russia, India, China and South Africa. The bank was seeded with US$50bn initial capital, with the intention to increase capital to US$100bn. The bank will be headquartered in Shanghai. Each country will have one vote and no country will have veto power.

OBOR could have as much impact on China’s internal economy as it will have internationally. China’s top priority is to stimulate the domestic economy via exports from industries with major overcapacity such as steel, cement and aluminium.

Many will be build-transfer-operate schemes in which large SOEs will lead the way, but smaller companies will follow. The domestic plan divides China into five regions with infrastructure plans to connect with neighbouring countries and increase connectivity.

Each zone will be led by a core province: Xinjiang in the Northwest, Inner Mongolia in the Northeast, Guangxi in the Southwest and Fujian on the coast.

Leave a Reply