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China Pushes for Revival of Silk Road to Boost Trade Links with Neighbours

The Silk Road evokes a resplendent past of trade uniting ports and people, cities and cultures. Now, China is pursuing an ambitious back-to-the-future plan to revive such ancient trading links with its neighbours, stretching south and north, extending all the way to the eastern Mediterranean.

A year ago, President Xi Jinping - as part of his vision to achieve the "Chinese Dream" of a rejuvenated Chinese nation - called for a revival of the 2,000-year-old land-based Silk Road and the maritime silk route that was charted later.

Over the past two months, China has extended financial muscle to back the mantra, including the setting up of a bank and a new fund. It plans to invest billions of dollars on improving infrastructure and industrial and financial cooperation with emerging markets that lie along the routes; one will pass overland through Kazakhstan, Kyrgyzstan and Iran and end in Austria; the sea route will link Chinese ports to Belgium's port of Antwerp.

The "New Silk Road Economic Belt" and the "21st Century Maritime Silk Road" will build roads, railways, ports, airports and railways across Central and South Asia.

Gao Hucheng, China's commerce minister, said the two new economic cooperation blocs - if the idea took off - would cover more than 60 per cent of the world's population and one third of its economy.

On paper, the idea appears compelling to China and its companies, and to neighbours hungry for investment. On the ground, however, there are likely to be bumps and detours in the roll-out of these routes, prompted by suspicions of Chinese political ambitions and local sentiment. The larger arc of geopolitical rivalry cannot be ignored.

On the plus side for China, analysts see the initiative as a way for it to utilise its severe overcapacity and diversify its investments, while pursuing regional political influence.

Fang Guanghua, president of Northwest University, who leads the university's Silk Road Institute, said the "Chinese version of the Marshall Plan" would help China make better use, and increase the value, of its foreign reserves of nearly US$4 trillion, and provide much-needed investment to many countries.

The original Marshall Plan was a 1948 financial aid programme sponsored by the United States to boost the economies of Western Europe after the second world war. It was named after then US secretary of state George Marshall.

Fang said China needed new areas for investment because many parts of the mainland were reaching capacity. "For years, the Central Asian and Arabian states have been neglected by investors, so there is great space for funding and development," he said.

State media have reported that officials from nations including Kazakhstan, Cambodia and Laos support Beijing's plan.

Fang noted that the economy of Central Asia today was the equivalent of China's economy 30 years ago. Central Asia's natural resources and growing international trade would mean a wealth of opportunities in many business sectors, he added.

In October, China signed a memorandum with 20 other countries to set up a US$50 billion Asian Infrastructure Investment Bank (AIIB) to finance the region's infrastructure needs. Such is the appeal of the initiative that its regional competitor, India, and two of its more antagonistic neighbours in the context of South China Sea claims - Vietnam and the Philippines - are among the 20 signatories.

Last month, Xi announced China's contribution of US$40 billion to a newly created Silk Road Fund for projects helping to link the nations in the initiative.

Li Lifan, a researcher on central Asia studies at the Shanghai Academy of Social Sciences, said the strategy showed China had moved from its earlier non-aligned stance to "good neighbour" diplomacy.

"The new Silk Road belt will link Western European and East Asian states, which are rich already," he said. "But in the middle there's this whole area of 'subsidence', which is politically unstable and economically weak, yet has huge potential."

The new route would also spur growth in the poor western areas of China, especially restive Xinjiang, he added.

"Xinjiang will become an important bridgehead because on one side there are countries like Russia and Kazakhstan, which are culturally linked to Xinjiang, while on the other are China's rich east regions," Li said.

But analysts have expressed doubts about the ease of establishing links between the Central Asian neighbours. Zhang Hong-zhou, a researcher on the China Programme at the S.Rajaratnam School of International Studies in Singapore, said given the "extremely low" level of trust among these countries, a multilateral approach might not go down well.

"Instead of focusing on grand projects which need the involvement of many countries, China should adopt a bilateral approach to work with individual countries. It is better to build the momentum with smaller projects first and seek opportunity to connect the dots [later]," he wrote in a paper last month.

He highlighted the need for Russian interests to be acknowledged, as the region - despite China's rising influence - is considered part of Russia's backyard.

Others worry about China's growing dominance. Associate Professor Nargis Kassenova, director of the Central Asian Studies at Kimep University in Kazakhstan's capital, Almaty, was quoted by Bloomberg as saying: "China is too powerful, too strong, and we're afraid of being overwhelmed... It's hard to turn down what China can offer, but we resist the full embrace of Chinese power. We're just trying to benefit economically."

Chinese state-owned enterprises are undeterred. They are rushing in to seize the new opportunities, despite the risk of resistance from local communities.

Zhang Jie, general manager of Xinjiang-based Beixin Road and Bridge Group (Beixin), a state-owned construction company, said it was proactive in projects supported by the AIIB and the Silk Road fund.

Beixin, which took part in its first overseas building project in 2003, is building roads and buildings in seven countries, including Mongolia, Tajikistan, Kyrgyzstan, Afghanistan and Cambodia.

"We believe that to boost development in neighbouring countries will help improve social stability in Xinjiang, and made this point to the commerce ministry in the hope of sharing the benefits of this national scheme," Zhang said.

With yearly revenues of between 1.2 billion and 1.5 billion yuan from its overseas projects, the company expects to earn more with such projects.

"There's huge potential because these countries have really poor infrastructure - the level that China had in the 1980s," Zhang said.

Huawei, based in Guangdong, entered the Central Asia business market 17 years ago and is a major provider of telecoms equipment in the region.

It said that, as a private global company, Huawei would not benefit directly from the Chinese government's investment plan but the developments would boost demand for its services.

"Chinese investment in this region, and the strengthening of the Chinese yuan to become an international currency will improve the economic development and exchange between China and nations in this area," said Zhao Xiaobin, communications director at Huawei's Central Asia & Caucasia Region.

"The new round of development will drive new demand for information and communications technology infrastructure," he said. "There will be lots of opportunities there for Huawei in the future."


A lively night market near the Great Mosque in Xian. Photo: Hong Wang

Central Asia's average economic growth of more than 6 per cent over the past five years had been more than double the world's average, with political stability essential to continuing economic prosperity, Zhao said.

Among the big players likely to emerge winners from the scheme are China CAMC Engineering, Sinoma International Engineering and China Railway Construction.

Qiao Chenghu, head of the Kazakhstan branch of Henan ZhongTuo Petroleum Engineering Technology, said more Chinese companies were setting up in the country, including state-owned enterprises (SOEs) and private businesses specialising in building roads and power stations, mining, and oil exploration. He was optimistic that his company, which specialises in the installation of oil and gas pipelines, would gain as "there's a big market as the industry is still in its early stages".

Qiao added: "With more China-led infrastructure investments in future, there will naturally be more oil fields and, therefore, more opportunities for the installation of pipelines."

But like several others, he was concerned about tightening local regulations, which mostly meant limits placed on employing Chinese workers abroad.

"It's been difficult to get visas for Chinese workers, while we've found local workers are often bad-tempered and incapable of doing the work to the necessary standards. Inevitably, there have been conflicts between workers."

Holley Metering, a Hangzhou maker of smart meters, set up its first joint venture in Uzbekistan 10 years ago. Jeffrey Guo, the company's president, said that despite establishing a considerable market, and launching a second joint venture in the past decade, the exchange of money had remained an obstacle for further expansion into Central Asia.

"The strict currency conversion restrictions mean we have been kept waiting for up to a year to swap the Uzbekistani som for US dollars," Guo said.

He said private companies such as Holley Metering were unlikely to win the big contracts. "Although private companies are often more flexible and capable about doing business overseas, we can rarely get the contracts that SOEs are given," he said.

Beixin, a Xinjiang SOE, faces a similar problem. Zhang said that while Beixin had an advantage in sharing culture, climate, and diet with nations linked by the new Silk Road, it would be hard for an SOE in Xinjiang to compete with top national SOEs.

"Often top national SOEs are the first to be awarded lucrative contracts and we have to wait for them to subcontract out part of their work to us," Zhang said.

"All we want is the central government to offer the same opportunities to all, no matter whether they are directly controlled by the central government or by a local government, like us."

Travellers on the new Silk routes, it would seem, are not all finding it smooth sailing, even if the destination is a grand one.