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The Belt and Road Initiative and Its Impact on Asia-Europe Connectivity

CIIS Time: Jul 21, 2016 Writer: Cui Hongjian Editor: Wang Jiapei

 

Abstract

The Belt and Road Initiative, put forward by the Chinese government, is providing new impetus and practical paths for intra- and inter-regional connectivity. By proposing full connectivity in policy coordination, facilities, unimpeded trade, financial integration and a people-to-people bond as its five cooperation priorities, the initiative aims to strengthen regional cooperation through more substantial, convenient and profitable connectivity, especially among the ASEM partners.

As a plan with a long-term goal, the Belt and Road Initiative has achieved some early wins on strategy integration, mechanism construction, facilities project integration and implementation between China and countries along the Belt and Road route, some of which are ASEM partners.

Undoubtedly, however, the initiative faces enormous challenges of geopolitical suspicion, economic uncertainty and security risks. So it is necessary for ASEM partners to connect deeply with existing regional cooperation mechanisms such as ASEAN and ASEM, to promote mutual trust and avoid competition by integrating with other countries in development strategies and initiatives. ASEM partners should also activate existing projects, including the Trans-Asian Railway[1] and the Euro-Asia Continent Bridge[2] to avoid the waste of resources and the duplication of mechanisms and projects. While geopolitical and security challenges in some countries and regions require a great deal of attention, some could be tackled by promoting soft connectivity, through the removal of bottlenecks in financial, services and standard systems.

The relationship between Asia and Europe is at its most critical juncture since ASEM was established 20 years ago. A new type of more equal and pragmatic cooperation is now urgently required to cope with the huge challenges ahead, especially considering the crises in and out of Europe, and the continued challenge of sustainable growth in Asia.

To strengthen intra- and inter-regional connectivity has become the main goal of Asia-Europe cooperation although it was only recently accepted as a key issue of regional development. A new type of cooperation between Asia and Europe requires a closer and deeper connectivity, alongside a recognition that the current situation is difficult to manage. But as long as we persist in the right direction and keep the spirit of openness, inclusiveness and win-win cooperation, Asia-Europe connectivity can bring real benefits for both regions.

 

1. Improving the regional cooperation as the main goal of the Belt and Road Initiative

The Belt and Road Initiative, first proposed by Chinese leaders during their visits abroad in 2013, has strong implications as a comprehensive development strategy. During his visit to Kazakhstan and Indonesia in 2013, Chinese President Xi Jinping announced the Silk Road Economic Belt initiative and the 21st Century Maritime Silk Road.[3] At the China-ASEAN Expo in 2013, Chinese Premier Li Keqiang also emphasised the need to develop the Maritime Silk Road oriented toward ASEAN. After extensive discussions on planning and practice lasting more than a year, the Chinese government released an official document Vision and Actions on Jointly Building Silk Road Economic Belt and 21st Century Maritime Silk Road[4] in March 2015.

The main goal of the Initiative is to improve sub-regional and regional cooperation. This is based on an assessment of the complex and profound changes underway across the globe. These include the slow recovery of the global economy, uneven global development, major adjustments to the international trade and investment landscape and rules and many countries still facing big challenges to their development.

According to its official document, the Initiative will focus on regional cooperation by “promoting orderly and free flow of economic factors, highly efficient allocation of resources and deep integration of markets; encouraging the countries along the Belt and Road to achieve economic policy coordination and carry out broader and more in-depth regional cooperation of higher standards; and jointly creating an open, inclusive and balanced regional economic cooperation architecture that benefits all”.[5]

As the Initiative runs through the continents of Asia, Europe and Africa, it also aims to herald a “renaissance” of the ancient Silk Road. As the joint release says: “The Belt and Road [connects] the vibrant East Asia economic circle at one end and developed European economic circle at the other, and encompassing countries with huge potential for economic development.

“The Silk Road Economic Belt focuses on bringing together China, Central Asia, Russia and Europe (the Baltic); linking China with the Persian Gulf and the Mediterranean Sea through Central Asia and West Asia; and connecting China with Southeast Asia, South Asia and the Indian Ocean. The 21st Century Maritime Silk Road is designed to go from China’s coast to Europe through the South China Sea and the Indian Ocean in one route, and from China’s coast through the South China Sea to the South Pacific in the other.”[6]

Figure 1: Roadmap of the Belt and Road Initiative[7]

Source: xinhuanet.com, and Barclays Research

According to Jacob Stokes, the Initiative will include six geographic areas, covering almost every concern and external demand of the Chinese economy as follows:

1) Europe is the end point of the land route. China hopes to become a strong technological partner of Europe.

2) Central Asia: Here China will be the aid giver and provide the funds for the development of Chinese Special Economic Zones (SEZs).

3) Middle East: This is part of China’s energy security strategy and also important as a market.

4) East Asia: This region’s trade and manufacturing is already closely integrated with China’s.

5) Africa has become a market, a source of raw materials and a major investment destination for China. China has invested heavily in infrastructure development here.

6) South Asia: China has invested heavily in rail and road linkages with Pakistan; Sri Lanka and the Maldives are already a part of China’s maritime route; India and Bangladesh are part of the BCIM[8] that has already been officially signed by all concerned governments.[9]

On the basis of its geographical vision, the Initiative covers almost all ASEM partners and ASEM itself is one of main existing mechanisms that will be used to implement the Initiative.

There is no official definition of “the countries along the Belt and Road” and the Chinese government has emphasised that the scope of the Initiative is not fixed. So far, nearly 70 countries along the Belt and Road route have responded positively to the Initiative, and are therefore considered as main implementing partners. These include almost all ASEM partners: ten ASEAN member states; most of the 28 EU member states; the Russian Federation; Korea and Mongolia in East Asia; India, Pakistan and Bangladesh in South Asia; and Kazakhstan in Central Asia.

As the most mature regional cooperation mechanism between Asia and Europe, with the largest number of members, ASEM will undoubtedly play a unique and important role in the Initiative. According to the Initiative, China is ready to “enhance the role of multilateral cooperation mechanisms in Asia, make full use of existing mechanisms such as the Shanghai Cooperation Organization (SCO), ASEAN Plus China (10+1), Asia-Pacific Economic Cooperation (APEC), Asia-Europe Meeting (ASEM), […] to strengthen communication with relevant countries, and attract more countries and regions to participate in the Initiative”.[10]

 

2. Full connectivity as the core approach to improve regional cooperation

Full connectivity is a key element of the Belt and Road Initiative, as it aims: “to promote the connectivity of Asian, European and African continents and their adjacent seas, establish and strengthen partnerships among the countries along the Belt and Road, set up all-dimensional, multi-tiered and composite connectivity networks, and realise diversified, independent, balanced and sustainable development in these countries”.[11]

Using the experience gained from ASEAN, including the Master Plan on ASEAN Connectivity (MPAC)[12], the Initiative has set five priorities: policy; facilities; trade; finance; and people-to people,in order to achieve full connectivity.

Figure 2: Connectivity and its approaches in the Initiative

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The goal, functions and approaches for each priority are as follows:

Figure 3: Policy coordination

QQ截图20160721111513.png

Figure 4: Facilities connectivity

QQ截图20160721111600.png

Figure 5: Unimpeded trade

QQ截图20160721111641.png

Figure 6: Finance integration

QQ截图20160721111731.png

Figure 7: People-to-people bond

QQ截图20160721111810.png

The Initiative is trying to adapt to the changes brought about by globalisation and develop a complete system of policy logic to cover all areas of connectivity. Policy coordination aims at creating and providing a favourable political environment for the implementation of projects; the priority is for projects which reflect China’s industrial structure, characteristics and advantages.

Facilities connectivity will promote other areas of connectivity, such as investment, logistics and industrial cooperation. Unimpeded trade flow is the main task of the Initiative to take full advantage of the results of the other areas of connectivity. Financial integration and investment promotion will provide support for facilities and trade connectivity, while a healthy people-to-people bond is designed to shape public opinion and provide the social basis for a sustainable connectivity. The bond is also an embodiment of the “harmonious world” view advocated by China.

The Initiative not only accepted the physical, institutional and people-to-people connectivity raised by the MPAC[13], but also designed the five approaches to make this approach more comprehensive and networked. As the Chinese leader emphasised, it is an “open system full of vitality and collective wisdoms”.[14]

 

3. The practice of the Initiative and “early harvests” in connectivity

3.1. Enhancing the intra-Asia connectivity

As the Belt and Road Initiative traces its origins to Asia, China gives top priority to connectivity with its Asian neighbours. The Initiative framework sets out how China will promote intra-Asia connectivity through strategic integration, mechanism construction and facilities connectivity.

3.1.1. Strategic integration

2015 saw evidence of policy and strategy integration in Asian connectivity. In Northeast Asia, China and Korea agreed to promote the integration between the Belt and Road Initiative and the Eurasian Initiative; Mongolia agreed to linking Silk Road and its Prairie Road programme[15]; China, the Russian Federation and Mongolia reached an important consensus on constructing a corridor of economy and signed a tri-party cooperation agreement for a roadmap of medium-term development.

In Southeast Asia, Indonesia and China agreed to speed up the development of bilateral strategic coordination; China and Viet Nam intensified their consultations on the cooperation between the Belt and Road Initiative and the Two Corridors and One Circle strategy[16]; Singapore and China discussed the potential of cooperating in other countries. to explore the market of the third party in the framework of the Initiative.

As well as the bilateral coordination with its Asian neighbours, China has also invested in existing multilateral regional mechanisms such as APEC, ASEM and SCO. China has strengthened its support to MPAC, in the framework of ASEM, and will also take the opportunity of hosting the G20 summit in 2016 to promote connectivity.

3.1.2. Mechanism construction

Promoting Asian connectivity by mechanism construction, particularly financial mechanism innovation, is a highlight of the Initiative’s practice. The Silk Road Fund and the Asian Infrastructure Investment Bank (AIIB) are the financial instruments that support the Initiative.

Silk Road Fund

During the APEC meeting in 2014, China announced an investment of USD 40 billion to establish the Silk Road Fund. This development investment fund is dedicated to providing financing services for the Initiative, and provides long construction and payback periods for transportation and public facilities; energy and resources projects(oil and gas, new energy and power grid); equipment manufacture; basic industries; and cooperation in the financial industry (offshore banking, mergers, acquisitions and other financial services).[17] The Initiative’s first project was signed in April 2015 by the Three Gorges Group of China, Pakistan Private Power and the infrastructure committee on jointly developing the hydropower station in Pakistan.[18]

Asian Infrastructure Investment Bank (AIIB)

The newly opened AIIB is an intergovernmental multilateral development bank with authorized capital of USD 100 billion. AIIB’s main objective is to help member states develop high quality and low cost infrastructure projects, promote South-South and South-North cooperation and provide “new power to improve global governance”.[19] There are 36 ASEM partners among 57 founding members of AIIB.

Figure 8: Common goal and different roles of the Silk Road Fund and AIIB[20]

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3.1.3. Facilities connectivity

Figure 9: Five pathways and six economic corridors

QQ截图20160721113221.pngChina-Mongolia-Russia pathway and economic corridor

 New Eurasian Land Bridge pathway and economic corridor

 China Central and West Asia pathway and economic corridor

China-Pakistan and Bangladesh-China-India-Myanmar economic corridor

 China-Indochina pathway and economic corridor

* Maritime Silk Road and economic corridor

Sources: kxt.com. http://k1600.com/archives/4987.html

Construction of five pathways and six economic corridors

A series of infrastructure projects, including railways, highways, ports, electricity, pipelines and industrial parks have been built to form the six economic corridors along the five pathways from China to the Russian Federation, New Eurasian Land Bridge, Central and West Asia, Indochina and the Maritime Silk Road. Southeast Asia, Central Asia and China-Pakistan have benefited from more “early harvest” projects, due to their unique geographical advantage and traditional cooperation with China. A priority for the Initiative in Southeast Asia is the speedy construction of Trans-Asian rail network. China and Indonesia signed an agreement for a new high speed rail project in October 2015. Railway construction will start soon in the Lao PDR and Thailand, and the planning for the Viet Nam railway line is underway. China will also invest more in the Mekong River sub-region and the Pan Beibu Gulf Cooperation Framework[21] to further promote China-ASEAN connectivity, which has given new impetus to bilateral cooperation.

Economic and trade cooperation zone construction

The development of an economic and trade cooperation zone, with transport connectivity, will help develop industry, trade and investment in the Belt and Road Initiative area. China has built 118 economic and trade cooperation zones in 50 countries around the world, with 77 of them in 23 countries along the Belt and Road. Most of them are located in ASEM partner countries, including Kazakhstan in Central Asia, India and Pakistan in South Asia, the Russian Federation, Hungary and Romania in Europe, and most member states of ASEAN.

3.2. To promote interconnectivity with Europe

The development of Asia-Europe cooperation is considered as major driver to develop and sustain the Initiative. China is actively supporting connectivity with Europe by integrating strategies and promoting facilities connectivity.

3.2.1. Policy coordination and strategy integration

The promotion of policy coordination and strategic integration, within the framework of the Initiative, is China’s key policy towards Europe. The EU has decided to link with the Initiative and its European Strategic Investment Plan, and is discussing the establishment of a joint China-EU investment fund. China and the UK have been discussing the potential of cooperation between the Belt and Road Initiative, British infrastructure reconstruction plan and its economic centre project in Northern England. A coordination mechanism between the Made in China 2025 strategy and the German Industry 4.0 plan has been established. China has upgraded its cooperation with 16 Central and Eastern European countries through the 16+1 cooperation framework, and signed a Memorandum of Understanding (MOU) with six countries in this region to co-operate on the Initiative.

Central and East European countries are the gateway into Europe geographically and geoeconomically for China. At the 4th summit of leaders from China and Central and Eastern European countries in November 2015, all parties agreed to enhance connectivity cooperation, and agreed priorities. They are: speeding up the construction of the Hungary-Serbia crossborder railway and the China-Europe Land and Sea Transport Express; establishing the 16+1 Transportation and Infrastructure Cooperation Association and the Logistics Cooperation Association; strengthening customs clearance cooperation and better information sharing and exchange.[22] A more strategic achievement was the decision of 16 European countries to cooperate with China on a harbour cooperation project in the Adriatic, Baltic and Black Seas.

3.2.2. Facilities and transport connectivity

As has been reported, the promotion and development of facilities, in particular, the transport connectivity between China and Europe is the top priority for the Initiative. It aims to: “set up coordination mechanisms in terms of railway transport and port customs clearance for the China-Europe corridor, cultivate the brand of ‘China-Europe freight trains’”.[23] By 2015, there were seven lines of China-Europe freight trains connecting cities in the Southeast, eastern coastal and inland areas of China with Kazakhstan in Central Asia and the Russian Federation, and Belarus, Poland, the Czech Republic, Germany, France and Spain in Europe. The longest line, Yi-Xin-Europe, which connects Yi Wu, the commodity production and sales centre in Eastern China, and Madrid in Spain, was operational from 2014. This line is 13,100 km long and goes through six provinces (autonomous regions) in China and eight countries, seven of which are ASEM partners.

Figure 10: Seven lines of China-Europe freight trains

 Yu-Xin-Europe line: connecting Chong Qing in southwest China and Duisburg in Germanyvia Kazakhstan, the Russian Federation, Belarus and Poland

 Han-Xin-Europe line: connecting Wu Han in central-south China and Poland, the Czech republic Via Kazakhstan, the Russian Federation and Belarus

 Rong-Europe line: connecting Cheng Du in southwest of China and Lodz in Poland via Kazakhstan, the Russian Federation and Belarus

 Zheng-Europeline: connecting Zheng Zhou in central north China and Hamburg in Germany via Kazakhstan, the Russian Federation, Belarus and Poland

 Su-Man-Europeline: connecting Su Zhou in eastern China and Warsaw in Poland via the Russian Federation and Belarus

 He-Xin-Europe line: connecting He Fei in central China and Hamburg in Germany via Kazakhstan, the Russian Federation, Belarus and Poland

 Yi-Xin-Europe line: connecting Yi Wu in eastern China and Madrid in Spain via Kazakhstan, the Russian Federation, Belarus, Poland, Germany and France

Source: yicai.com. http://www.yicai.com/news/2014/11/4042033.html.

Another proposed China-Europe facility connectivity is to restart the construction of the Third Eurasian Continental Bridge, which will start from Chinese eastern coastal area and go across the entire Eurasia continent via Kazakhstan, Kyrgyzstan, Uzbekistan, the Russian Federation, Ukraine, Hungary, Austria, Germany, France, and finally to the Netherlands. Once it is put into practice, it would be the largest transportation connectivity project of the Silk Road.

 

4. The risks and challenges facing the Initiative

The practice of policy coordination and facilities connectivity in the Initiative’s framework promotes the development of the trade and investment. In 2015 alone, the bilateral trade volume between China and countries along the Belt and Road reached nearly USD 900 billion, and accounted for 25.4% of the China’s total foreign trade during this period. The investment from these countries in China grew by 18% and the actual investment value went up 14%, while Chinese direct investment in 49 countries along the Belt and Road increased by 36.7%.[24]

It is necessary, however, to develop a risk assessment for the Belt and Road Initiative, given it is such a long-term and large scale strategy, with so many countries and regions involved. It has also elicited a strong response from not only China’s neighbouring countries and regions, but the entire international community. The challenges and risks are mainly from geopolitical suspicion, economic uncertainty and security risks. If these challenges are not recognised and addressed properly, implementation will be affected and the goal of full connectivity will be difficult to achieve.

4.1. Geopolitical suspicion poses obstacles to cooperation and connectivity

Despite reshaping the geoeconomic landscape of the Initiative, doubts remain that China is trying to realise its geopolitical objectives through the Belt and Road Initiative. Those suspicions about the Initiative’s geopolitical ambition mixed with the complicated relations between China and its neighbours such as Japan, the USA and the Philippines. The Initiative undoubtedly will impact the public opinion negatively in these countries along the Belt and Road and undermine these countries’ enthusiasm of participating in the Initiative.

Japan’s response to the Initiative is an example. There are already territorial disputes and security tensions between China and Japan, and the main aim of the Initiative, “bearing the geopolitical and economic competition from China” has dominated Japan’s perception of it.[25] As the Initiative develops there is an increasing possibility Japan will join it at some point in the future, but the absence of the second biggest economy in Asia, and an important member of the ASEM, remains a major barrier to the full connectivity the Initiative is seeking to achieve.

4.2. Economic uncertainty affects the cooperation efficiency

According to the Initiative, the priority for achieving full connectivity is investment in infrastructure, but one of the potential risks is low returns on that investment and the uncertainties of its sustainability. It is recognised that long-term, sustained and large scale investment in infrastructure is one of the most successful characteristics of China’s rapid economic growth over the past 30 years. Although the return on investment is very low, the Chinese government’s focus on infrastructure has not only benefited the public good, but has helped local government reap the benefit of value added land deals. This has allowed China to sustain significant infrastructure construction related investment. But China’s ambition to introduce this success in domestic infrastructure construction to international cooperation, has still to be verified through practice.

Another risk, related to economic uncertainty, is the differences between China and other countries along the Belt and Road in terms of government efficiency, economic structures and social environment. This raises the question of how to establish a feasible business pattern of cooperation between China and its partners. China’s recent economic growth is, in part, due to the role that the government plays as the main investment body, with state-owned enterprises acting as the main project practitioner. But the introduction of this model to other countries will need to take into account factors such as the efficiency and the stability of governments, consistency of policy and the role of private enterprise as the main investors. Otherwise, there could be problems, as experienced recently in Myanmar and Sri Lanka where opposition from local people forced a railway project of USD 20 billion between China and Myanmar to be suspended. Also, the implementation of an investment agreement between China and Sri Lanka proved challenging because of policy inconsistencies.[26]

4.3. Security risks will raise the cost of connectivity and destroy the basis of cooperation

The regions along the Belt and Road are full of geopolitical conflict zones with traditional and non-traditional security challenges. It means that the implementation of full connectivity will face potential security risks in project facilities, personnel and investment. Territorial disputes and historical rivalries have led to security challenges between countries in the Asia-Pacific region. Other hotspots include the continued instability in North Africa and the threat of terrorism and the migrant crisis in the Arabian Sea, the Mediterranean and Northwest India. Europe’s security situation is also deteriorating. In addition, environmental security, infectious diseases and natural disasters are also security challenges to the Initiative.

Security risks pose a deeper and longer term challenge to full connectivity by undermining the mutual trust between countries and the people-to-people bond. According to a survey carried out by a Chinese pollster in 18 countries along the Belt and Road, the attitude of local people to the Initiative is related closely to the security concerns in their country. For example, the divergence with China on the South China Sea issue, leads Indonesia people to show a lack of trust in the Initiative, while people in Viet Nam displayed strong negative emotions towards the Initiative because of the island dispute between China and their country.[27]

 

Conclusion and recommendation

The Belt and Road Initiative’s rational judgement of current regional and global challenges has led it to prioritise connectivity; this fits with the development strategies of most countries in Asia and Europe. The Initiative is characterised by principles of openness, inclusiveness and cooperation, and has had some early wins. Even though the Initiative is still in its early stages, and there are many political, security and economic challenges ahead, ASEM partners have enough reasons to give more attention to the Initiative.

The Initiative is an important platform to improve Asia-Europe cooperation and ASEM has the ability and opportunity to integrate its connectivity goals. To achieve this, the recommendations are as follows:

• ASEM partners, especially those along the Belt and Road route, should be involved more deeply in the Initiative’s debates and policy reviews. If the majority of partners agree that promoting Asia-Europe connectivity is a practical solution to development, ASEM should regard the proposal of full connectivity as a common goal, and not be obsessed with questions about whether China has other motivations. The forthcoming ASEM Summit in Mongolia would be a good opportunity for ASEM partners to influence the Initiative.

• Drawing upon the lessons of ASEAN’s MPAC, and according to its own understanding of the direction of cooperation, China proposed a broader definition of connectivity in the Belt and Road Initiative. Its logic is: policy coordination provides a favourable political environment for connectivity; facilities connectivity can improve the economic environment and enhance industrial cooperation; financial cooperation can provide support and services for the liberalisation of trade and investment, as well as infrastructure construction. This logic and experience could be used to influence future intra-Asian connectivity.

• The Initiative should integrate with ASEAN’s MPAC, and the connectivity and cooperation strategies of other Asian countries. Meanwhile, through the ASEM platform, China should also integrate its connectivity with Europe into the Asia-Europe interconnectivity, including sharing opportunities, building institutions, exchanging experiences and the provision of public goods. In this regard, the Silk Road Fund and AIIB should play a more active role.

• ASEF should play a more active role to encourage discussions and research among academics, NGOs and businesses in ASEM partner countries. For instance, scholars and other stakeholders in member countries could develop academic modules on how to promote the five pillars of connectivity, and put forward ideas on how to develop them. This will help ASEM partners to better understand the environment the Initiative is working in and the challenges it faces, as well as help partners express their concerns better.

 

 

Cui Hongjian is Senior Research Fellow and the Director of European Studies at China Institute of International Studies.

 

Source: ASEF Outlook Report 2016/2017: Connectivity: Facts and Perspectives, Volume II: Connecting Asia and Europe, Asia-Europe Foundation, June 2016, pp.161-179.


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