China's Belt and Road boost

18 May 2017 16:19 Source:ICIS Chemical Business

China’s Belt and Road strategy got a major boost in mid-May when global leaders including Russian president Vladimir Putin, and Turkey’s Recep Erdoğan attended a conference hosted by President Xi Jinping.

For China, it has become a major element in an initiative to portray itself as the new champion of global free trade in the face of the rising tide of nationalism in the US and elsewhere.

Belt and Road is a confusing name for a concept which aims to boost international trade and development between China, Asia Pacific and as far afield as Russia, central and eastern Europe and Africa. Belt refers to the “Silk Road Economic Belt” while the Road is the “21st Century Maritime Silk Road,” which is actually a sea route.

China may invest around $150bn/year into infrastructure projects in under-developed areas around the world to support the plan.

Ongoing and planned projects will focus on the development of a wide array of assets, including ports, roads, railways, airports, power plants, oil and gas pipelines and refineries, Free Trade Zones, as well as a supporting IT, telecommunications and financial infrastructure, according to consultancy Pricewaterhouse Coopers.

XI’S “OPEN PLATFORM OF COOPERATION”

Investment plans include gas pipelines in central Asia, ports in Pakistan and Sri Lanka, and east African high speed rail links. Amongst the largest are projects for a $54bn land route from the Xinjiang region in China to a port at Gwadar in Pakistan. A $1.1bn port city is planned at Colombo in Sri Lanka.

At the conference in Beijing, President Xi said: “We should build an open platform of cooperation and uphold and grow an open world economy.”

A January 2017 report by ratings agency Fitch claims the credit profile of Chinese banks may suffer if they make big loans to overseas infrastructure projects which may not be repayed in the long term. However, a $40bn sovereign wealth fund was set up by China in 2014 and in 2015 the Asian Infrastructure Investment Bank was created by China and other countries. It had initial funding of $100bn.

Apart from the drive to create domestic and international trade and economic growth there are foreign policy implications.

China is seeking to become more influential on the global stage, especially in Asia, and is trying to shape its own patterns and new routes of trade.

This aspect has proved controversial. India boycotted the conference, claiming Belt and Road is “little more than a colonial enterprise [that would leave] debt and broken communities in its wake.”

India warned China to avoid damaging the environment or creating an “unsustainable debt burden for communities.”

Indeed only one leader from the Group of seven industrialised countries (G7) Italian prime minister Paolo Gentiloni, was in Beijing for Xi’s summit. Most western leaders were absent, including Donald Trump, UK Prime Minister Theresa May and Ger-many’s Angela Merkel.

The European Union also refused to sign up to 
a statement prepared for the end of the conference, reportedly because China did not respond to its 
concerns about the need for fair competition and 
free trade.

Non-Chinese companies trying to enter the Chinese market are often forced to form joint ventures with local businesses.

Chemical industry executives should be aware of Belt and Road because it may present new opportunities in terms of new sources of demand and different trade patterns.

It’s early days, with most projects still at the planning stage, so it is too soon to judge the success of 
the initiative.

International eChem chairman, Paul Hodges points out in his latest pH Report that China plans to launch trade connectivity arrangements with 60 countries in the Belt and Road region.

“Politically, [Belt and Road] also presents a stark contrast to President Trump’s “America First” policy, providing Xi with an easy initial win for his global vision,” he says.

Photo credit: POOL/EPA/REX/Shutterstock

By Will Beacham