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The Geoeconomics of the One Belt One Road Initiative

July 23, 2018
The legacy of the Silk Road is acting as inspiration for what President Xi Jinping calls the “project of the century.”[1] Yi dai yi lu, or “One Belt One Road” (OBOR), is Xi’s signature foreign policy enterprise: a commitment of more than $1 trillion for Chinese development banks to invest in a sweeping Eurasian and African infrastructure initiative.[2] OBOR operates both as a result of recent economic trends in China and as a milestone in Chinese foreign policy. The plan creates an outlet for Chinese products which are outgrowing domestic demand, but also has significant geopolitical potential. This article will examine OBOR and its consequences on Chinese partnerships across Eurasia and Africa and also how the results of this project relate to US foreign policy.

The Economics of OBOR

OBOR consists of two main components: the Silk Road Economic Belt stretching from China to Europe, and a 21st Century Maritime Silk Road consisting of a new network of ports throughout the Pacific and Indian Oceans.[3] If successful, the Chinese project will strengthen the Chinese domestic economy, and generate more favorable economic relations throughout Eurasia.[4]

Now in its fifth year, the OBOR has dedicated over $100 billion for infrastructure projects, such as $46 billion for power plants in Pakistan and funding for train lines connecting a Chinese owned port in Greece to Belgrade.[5] This economic plan is meant to create new markets and increase exports of excess Chinese labor and goods, such as steel and cement, in order to boost the Chinese economy in a time characterized by slower growth (about 7% annually, after years of 10-12%).

Image: China's blueprint for OBOR, with the Silk Road Economic Belt and the Maritime Silk Road, Source: Center for Strategic and International StudiesImage: China's blueprint for OBOR, with the Silk Road Economic Belt and the Maritime Silk Road, Source: Center for Strategic and International Studies

Chinese exports to countries along the OBOR have since exceeded those going to the United States and the European Union, with trade and foreign direct investment increasing at an annual average of 19% and 46%, respectively, for participant OBOR countries.[6] According to reports from the Chinese government, trade between China and OBOR countries will pass $2.5 trillion within a decade.[7]

Beijing understands that if, on the whole, its neighbors prosper China does as well - and such a project is particularly alluring for neighboring developing countries that generally have unskilled labor forces, fragile economies, and poor infrastructure.[8] However successful OBOR might be in facilitating trade, there have been significant costs to China. Off the record, Chinese officials have admitted that they expect to lose around 80% of all investments going to Pakistan, and about 30% in Central Asia.[9] Although such risky commercial investments may seem unwise, in the context of Chinese domestic politics and foreign policy goals, they are cogent geo-economic decisions.

Image: The projected $900 billion to be invested is largely in Central Asia and India, Source: The New York TimesImage: The projected $900 billion to be invested is largely in Central Asia and India, Source: The New York Times

The Geopolitics of OBOR

OBOR is a part of President Xi’s ambitious plan to drive growth while opening new markets abroad, but it also reflects China’s shift towards a more proactive foreign policy. We see such behavior materialized in China’s effort to secure strategic resources, assets and partnerships, through the increase in selective M&A (merger and acquisition) deals and loaning practices with OBOR partner countries.[10]

Just as China is buying nuclear energy firms in Europe and the United States to secure a future position as a leading nuclear tech giant, it is using OBOR to buy oil and gas firms throughout South and Central Asia to build strategic pipelines.[11];[12] Besides economic incentives, China could view this as critical to securing energy independence as the United States experiences a “shale revolution” and is exporting billions of cubic meters of natural gas to China per year.[13] Take the example of Chinese investment in Iran: it is an OPEC member, a large producer of oil, and the most direct link between Central Asia and the Persian Gulf, making it geopolitically valuable.[14] Furthermore, now one-third of Iran’s trade is with China and they recently held joint naval exercises.[15]

Image: M&A deals, particularly by state owned enterprises, are a cornerstone in the OBOR economic apparatus. Source: StatistaImage: M&A deals, particularly by state owned enterprises, are a cornerstone in the OBOR economic apparatus. Source: Statista

China’s lending practices to fund OBOR is also indicative of geopolitical intent. The principle lenders of the OBOR program, the China Development Bank (CDB) and Export-Import Bank of China (EXIM) have extended loans of up to $200 billion across OBOR; however, many participant countries have found themselves unable to pay the large loans forcing them to concede strategic assets. This practice has been dubbed “creditor imperialism.”[16] For example, unable to pay back its loans, Sri Lanka agreed to give control of the strategically located Hambantota Port to the Chinese government.[17] Djibouti allowed the Chinese to establish its first overseas military base in the east African country after it defaulted on a railway loan.[18] Thus, while the economic rationale of OBOR may falter as far as loan paybacks are concerned, the acquisition of ports like Hambantota and the construction of new bases provides China with significant logistical support for Chinese warships patrolling the Indian Ocean.[19]

Conclusion: American Responses

American officials ought to examine the strategic gains China is making through OBOR and formulate a response should they determine the project will ultimately yield significant results.[20] One such response could be to cooperate with the Chinese government to ensure an OBOR that succeeds, at least in part, on American terms. Many US based companies, such as General Electric, have expressed interest in joint ventures with Chinese firms.[21] If such ventures are to be tenable, the United States would have to engage with China to provide transparency on the specifics of the project’s progress and lobby the Chinese government to establish a more fair and open playing field.[22] This should be followed by maintaining, if not increasing, American influence in the World Bank and Asian Development Bank by calling for increased infrastructure standards and compensating for investment gaps that OBOR is unable to fill in Eurasia.[23] The primary downside with this cooperative approach is that it ignores the strategic gains to be made from Chinese OBOR M&As and investments. The policy assists China’s infrastructure project while asserting the US would benefit from questionable gains. There would still be concerns of IP theft, corruption, and other political and fiscal risks that threaten long term viability of US investments in a China-led OBOR.[24]

Alternatively, the United States could assume an active stance against OBOR-led investments in the framework of great power competition. Instead of compromising with China to help construct Xi’s OBOR, the US could advance its own vision for Eurasian infrastructure. This option may be in America’s commercial interests in the long run: since OBOR relies on handing out substantial loans to developing states, a failed OBOR could be an economic setback not only for particularly regions, but also for the global economy.[25] The Trump Administration has frequently called for a foreign policy that advances a “free and open Indo-Pacific,” and could pursue such a policy by increasing federal investments in infrastructure projects in East and Southern Asia without a renewal in the Trans-Pacific Partnership.[26]

Student Blog Disclaimer
  • The views expressed on the Student Blog are the author’s opinions and don’t necessarily represent the Penn Wharton Public Policy Initiative’s strategies, recommendations, or opinions.

References:

   [1]https://www.theguardian.com/world/2017/may/14/china-xi-silk-road-vision-belt-and-road-claims-empire-building

  [2]https://www.nytimes.com/2017/05/13/business/china-railway-one-belt-one-road-1-trillion-plan.html

  [3]https://www.cnn.com/2017/05/11/asia/china-one-belt-one-road-explainer/index.html

  [4]https://www.belfercenter.org/publication/chinas-belt-and-road-plan-deserves-benefit-doubt

  [5]https://www.nytimes.com/2017/05/13/business/china-railway-one-belt-one-road-1-trillion-plan.html

  [6]http://china-trade-research.hktdc.com/business-news/article/The-Belt-and-Road-Initiative/China-s-One-Belt-One-Road-Initiative-Analysis-from-an-Indian-Perspective/obor/en/1/1X000000/1X0A5J3C.htm

  [7]Ibid.

  [8]https://medium.com/@lseideas/chinas-one-belt-one-road-a-reality-check-b28030ac6d3b

  [9]https://thediplomat.com/2017/12/one-belt-one-road-and-one-big-competition/

  [10]https://www.reuters.com/article/us-china-m-a/exclusive-chinas-belt-and-road-acquisitions-surge-despite-outbound-capital-crackdown-idUSKCN1AW00K

  [11]https://carnegieendowment.org/2018/05/14/future-of-nuclear-power-in-china-pub-76311

  [12]https://www.forbes.com/sites/wadeshepard/2017/10/13/chinas-hunger-for-energy-resources-is-whats-driving-the-belt-and-road/#5d2bc86867ef

  [13]https://www.brookings.edu/2018/05/31/u-s-gas-to-china-positive-energy-for-bilateral-relations/

  [14]https://www.foreignaffairs.com/articles/china/2017-11-01/china-courts-iran

  [15]Ibid.

  [16]https://www.project-syndicate.org/commentary/china-sri-lanka-hambantota-port-debt-by-brahma-chellaney-2017-12

  [17]Ibid.

  [18]https://www.cfr.org/blog/chinas-strategy-djibouti-mixing-commercial-and-military-interests

  [19]https://foreignpolicy.com/2018/04/17/one-belt-one-road-one-happy-chinese-navy/

  [20]https://www.project-syndicate.org/commentary/china-soft-and-sharp-power-by-joseph-s–nye-2018-01

  [21]https://www.nytimes.com/2017/05/14/business/china-one-belt-one-road-us-companies.html

  [22]https://www.csis.org/analysis/chinas-belt-and-road-initiative-five-years-later-0

  [23]Ibid.

  [24]Ibid.

  [25]Ibid.

  [26]Ibid.

PENN WHARTON PPI
RESOURCE SPOTLIGHT:

  • <h3>The Penn World Table</h3><p> The Penn World Table provides purchasing power parity and national income accounts converted to international prices for 189 countries/territories for some or all of the years 1950-2010.</p><p><a href="https://pwt.sas.upenn.edu/php_site/pwt71/pwt71_form.php" target="_blank">Quick link.</a> </p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>USDA Nutrition Assistance Data</h3><p><img width="180" height="124" alt="" src="/live/image/gid/4/width/180/height/124/485_usda_logo.rev.1407789238.jpg" class="lw_image lw_image485 lw_align_right" srcset="/live/image/scale/2x/gid/4/width/180/height/124/485_usda_logo.rev.1407789238.jpg 2x, /live/image/scale/3x/gid/4/width/180/height/124/485_usda_logo.rev.1407789238.jpg 3x" data-max-w="1233" data-max-h="850"/>Data and research regarding the following <strong>USDA Nutrition Assistance</strong> programs are available through this site:</p><ul><li>Supplemental Nutrition Assistance Program (SNAP) </li><li>Food Distribution Programs </li><li>School Meals </li><li>Women, Infants and Children </li></ul><p> Quick link: <a href="http://www.fns.usda.gov/data-and-statistics" target="_blank">http://www.fns.usda.gov/data-and-statistics</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>Federal Aviation Administration: Accident & Incident Data</h3><p><img width="100" height="100" alt="" src="/live/image/gid/4/width/100/height/100/80_faa-logo.rev.1402681347.jpg" class="lw_image lw_image80 lw_align_left" srcset="/live/image/scale/2x/gid/4/width/100/height/100/80_faa-logo.rev.1402681347.jpg 2x, /live/image/scale/3x/gid/4/width/100/height/100/80_faa-logo.rev.1402681347.jpg 3x" data-max-w="550" data-max-h="550"/>The NTSB issues an accident report following each investigation. These reports are available online for reports issued since 1996, with older reports coming online soon. The reports listing is sortable by the event date, report date, city, and state.</p><p> Quick link: <a href="http://www.faa.gov/data_research/accident_incident/" target="_blank">http://www.faa.gov/data_research/accident_incident/</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>National Bureau of Economic Research (Public Use Data Archive)</h3><p><img width="180" height="43" alt="" src="/live/image/gid/4/width/180/height/43/478_nber.rev.1407530465.jpg" class="lw_image lw_image478 lw_align_right" data-max-w="329" data-max-h="79"/>Founded in 1920, the <strong>National Bureau of Economic Research</strong> is a private, nonprofit, nonpartisan research organization dedicated to promoting a greater understanding of how the economy works. The NBER is committed to undertaking and disseminating unbiased economic research among public policymakers, business professionals, and the academic community.</p><p> Quick Link to <strong>Public Use Data Archive</strong>: <a href="http://www.nber.org/data/" target="_blank">http://www.nber.org/data/</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>Internal Revenue Service: Tax Statistics</h3><p><img width="155" height="200" alt="" src="/live/image/gid/4/width/155/height/200/486_irs_logo.rev.1407789424.jpg" class="lw_image lw_image486 lw_align_left" srcset="/live/image/scale/2x/gid/4/width/155/height/200/486_irs_logo.rev.1407789424.jpg 2x" data-max-w="463" data-max-h="596"/>Find statistics on business tax, individual tax, charitable and exempt organizations, IRS operations and budget, and income (SOI), as well as statistics by form, products, publications, papers, and other IRS data.</p><p> Quick link to <strong>Tax Statistics, where you will find a wide range of tables, articles, and data</strong> that describe and measure elements of the U.S. tax system: <a href="http://www.irs.gov/uac/Tax-Stats-2" target="_blank">http://www.irs.gov/uac/Tax-Stats-2</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>MapStats</h3><p> A feature of FedStats, MapStats allows users to search for <strong>state, county, city, congressional district, or Federal judicial district data</strong> (demographic, economic, and geographic).</p><p> Quick link: <a href="http://www.fedstats.gov/mapstats/" target="_blank">http://www.fedstats.gov/mapstats/</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>The World Bank Data (U.S.)</h3><p><img width="130" height="118" alt="" src="/live/image/gid/4/width/130/height/118/484_world-bank-logo.rev.1407788945.jpg" class="lw_image lw_image484 lw_align_left" srcset="/live/image/scale/2x/gid/4/width/130/height/118/484_world-bank-logo.rev.1407788945.jpg 2x, /live/image/scale/3x/gid/4/width/130/height/118/484_world-bank-logo.rev.1407788945.jpg 3x" data-max-w="1406" data-max-h="1275"/>The <strong>World Bank</strong> provides World Development Indicators, Surveys, and data on Finances and Climate Change.</p><p> Quick link: <a href="http://data.worldbank.org/country/united-states" target="_blank">http://data.worldbank.org/country/united-states</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>HUD State of the Cities Data Systems</h3><p><strong><img width="200" height="200" alt="" src="/live/image/gid/4/width/200/height/200/482_hud_logo.rev.1407788472.jpg" class="lw_image lw_image482 lw_align_left" srcset="/live/image/scale/2x/gid/4/width/200/height/200/482_hud_logo.rev.1407788472.jpg 2x, /live/image/scale/3x/gid/4/width/200/height/200/482_hud_logo.rev.1407788472.jpg 3x" data-max-w="612" data-max-h="613"/>The SOCDS provides data for individual Metropolitan Areas, Central Cities, and Suburbs.</strong> It is a portal for non-national data made available through a number of outside institutions (e.g. Census, BLS, FBI and others).</p><p> Quick link: <a href="http://www.huduser.org/portal/datasets/socds.html" target="_blank">http://www.huduser.org/portal/datasets/socds.html</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>Congressional Budget Office</h3><p><img width="180" height="180" alt="" src="/live/image/gid/4/width/180/height/180/380_cbo-logo.rev.1406822035.jpg" class="lw_image lw_image380 lw_align_right" data-max-w="180" data-max-h="180"/>Since its founding in 1974, the Congressional Budget Office (CBO) has produced independent analyses of budgetary and economic issues to support the Congressional budget process.</p><p> The agency is strictly nonpartisan and conducts objective, impartial analysis, which is evident in each of the dozens of reports and hundreds of cost estimates that its economists and policy analysts produce each year. CBO does not make policy recommendations, and each report and cost estimate discloses the agency’s assumptions and methodologies. <strong>CBO provides budgetary and economic information in a variety of ways and at various points in the legislative process.</strong> Products include baseline budget projections and economic forecasts, analysis of the President’s budget, cost estimates, analysis of federal mandates, working papers, and more.</p><p> Quick link to Products page: <a href="http://www.cbo.gov/about/our-products" target="_blank">http://www.cbo.gov/about/our-products</a></p><p> Quick link to Topics: <a href="http://www.cbo.gov/topics" target="_blank">http://www.cbo.gov/topics</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>NOAA National Climatic Data Center</h3><p><img width="200" height="198" alt="" src="/live/image/gid/4/width/200/height/198/483_noaa_logo.rev.1407788692.jpg" class="lw_image lw_image483 lw_align_left" srcset="/live/image/scale/2x/gid/4/width/200/height/198/483_noaa_logo.rev.1407788692.jpg 2x, /live/image/scale/3x/gid/4/width/200/height/198/483_noaa_logo.rev.1407788692.jpg 3x" data-max-w="954" data-max-h="945"/>NOAA’s National Climatic Data Center (NCDC) is responsible for preserving, monitoring, assessing, and providing public access to the Nation’s treasure of <strong>climate and historical weather data and information</strong>.</p><p> Quick link to home page: <a href="http://www.ncdc.noaa.gov/" target="_blank">http://www.ncdc.noaa.gov/</a></p><p> Quick link to NCDC’s climate and weather datasets, products, and various web pages and resources: <a href="http://www.ncdc.noaa.gov/data-access/quick-links" target="_blank">http://www.ncdc.noaa.gov/data-access/quick-links</a></p><p> Quick link to Text & Map Search: <a href="http://www.ncdc.noaa.gov/cdo-web/" target="_blank">http://www.ncdc.noaa.gov/cdo-web/</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>Federal Reserve Economic Data (FRED®)</h3><p><strong><img width="180" height="79" alt="" src="/live/image/gid/4/width/180/height/79/481_fred-logo.rev.1407788243.jpg" class="lw_image lw_image481 lw_align_right" data-max-w="222" data-max-h="97"/>An online database consisting of more than 72,000 economic data time series from 54 national, international, public, and private sources.</strong> FRED®, created and maintained by Research Department at the Federal Reserve Bank of St. Louis, goes far beyond simply providing data: It combines data with a powerful mix of tools that help the user understand, interact with, display, and disseminate the data.</p><p> Quick link to data page: <a href="http://research.stlouisfed.org/fred2/tags/series" target="_blank">http://research.stlouisfed.org/fred2/tags/series</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>National Center for Education Statistics</h3><p><strong><img width="400" height="80" alt="" src="/live/image/gid/4/width/400/height/80/479_nces.rev.1407787656.jpg" class="lw_image lw_image479 lw_align_right" data-max-w="400" data-max-h="80"/>The National Center for Education Statistics (NCES) is the primary federal entity for collecting and analyzing data related to education in the U.S. and other nations.</strong> NCES is located within the U.S. Department of Education and the Institute of Education Sciences. NCES has an extensive Statistical Standards Program that consults and advises on methodological and statistical aspects involved in the design, collection, and analysis of data collections in the Center. To learn more about the NCES, <a href="http://nces.ed.gov/about/" target="_blank">click here</a>.</p><p> Quick link to NCES Data Tools: <a href="http://nces.ed.gov/datatools/index.asp?DataToolSectionID=4" target="_blank">http://nces.ed.gov/datatools/index.asp?DataToolSectionID=4</a></p><p> Quick link to Quick Tables and Figures: <a href="http://nces.ed.gov/quicktables/" target="_blank">http://nces.ed.gov/quicktables/</a></p><p> Quick link to NCES Fast Facts (Note: The primary purpose of the Fast Facts website is to provide users with concise information on a range of educational issues, from early childhood to adult learning.): <a href="http://nces.ed.gov/fastfacts/" target="_blank">http://nces.ed.gov/fastfacts/#</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>