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From the roots of the old grows something new. The Belt and Road Initiative (BRI) is the modern-day recreation of the fabled Silk Road connecting Middle Kingdom to London.
The BRI has appropriately been called as the “Project of the Century” by Xi Jinping. The goal being to re-orient world trade and finance with China at its centre. China’s BRI connects Asia, Africa and Europe to serve as a counter balance to the current American led global trade order.
It includes:
Silk Road Economic Belt - a land-based set of trade projects
21st Century Maritime Silk Road
Polar Silk Road
Digital Silk Road
Photo courtesy https://www.beltroad-initiative.com/belt-and-road/
BRI seeks to deepen trade relations to aid in the expansion of the Sinosphere. To do so investments in infrastructure such as roads, railways, airports, ports, as well as power plants and telecommunications networks are required. This needs an arsenal of labour and capital both of which China is happy to deploy.
BRI leverages economic integration into soft diplomacy. It does so by bundling cheap credit with longer pay back periods resulting into previously unviable projects becoming viable, just ask Malaysia for examples. This leads to countries that tap into this credit developing a softer corner for China.
Multi-faceted Benefits for China
As a creditor, China holds the bargaining chips with regards to the terms of loans. Initiating foreign infrastructure projects enables State owned Enterprises (SOE) to deploy their savings and reap rewards as well as generating employment for Chinese labourers. This ensures resources which are in abundance such as steel and iron ore have a ready export market.
Another advantage of building infrastructure is the acceptance of the Renminbi in partner countries. China has for long envisioned Renminbi as a global currency. The 2008 financial crises highlighted the dependency on the US Dollar and SWIFT system of exchange of foreign currency. Furthermore, due to the trade war China faces difficulties in accessing the global financial system.
One of the main drivers of BRI Financing is to build payments systems around the Renminbi independent of the American led monetary system. For example, the Central Bank of Pakistan agreed to a currency swap with China, facilitating settlement in RMB.
The reason partner countries accept funding from China, other than cheap credit is that institutions such as World Bank or IMF generally provide grants with conditions attached to them. The conditions imposed by these global institutions might enforce harsh short-term pain for longer term benefits. Third world countries have been neglected by developed economies when it comes to a seat at the power table of lending institutions. The Chinese promise of bigger piece of trade pie is too costly to ignore.
The BRI has the potential to yield considerable economic and political gains for China. Critics argue that under the guise of trade development China is ramping its own security infrastructure threatening age-old American hegemony in the Asia Pacific Region.
BRI is the brain child of Xi Jinping. It is driven by the agenda of expanding “China led” trade and promoting its political views. But are the motives driven purely by economics or are they part of a bigger game?
In the next newsletter coming this Wednesday, we will have a look at how decisions led by national security underpin the BRI system.
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