Investing in a new Silk Road

Published: July 31, 2016
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The writer is a former caretaker finance minister and served as vice-president at the World Bank

The writer is a former caretaker finance minister and served as vice-president at the World Bank

Experts attach special significance to the importance of “connectivity” – linking the countries in the Asian continent with one another. Two facts that underlie China’s current economic situation are usually noted in this context: its dependence on sea routes to supply its economy. China imports about 60 per cent of its energy needs in the form of oil and gas from countries in the Middle East and Central Asia. About 80 per cent of these imports pass through the narrow Strait of Malacca. China is thus vulnerable to disruptions that would seriously hurt its economy.

This fear is one reason why Beijing plans to investment a massive amount of resources in what it calls the One Belt, One Road Project (OBOR). The planned investments amount to some $890 billion in 64 countries. Pakistan and Kazakhstan are two major recipients of the OBOR related resources. Most experts believe that the project will cost much more than this amount and would be implemented over several decades. Once the major links in the planned network are completed the Chinese would have changed the structure and shape of global commerce. The country’s dependence on seaborne trade would have been reduced and land-based commerce would have become a significant part of the global delivery system.

The Chinese approach to the use of land to transport not only goods and commodities but also ideas and people is not new. What is new is that modern methods are being introduced into these types of exchanges. “Two thousand years ago Chinese writers set about a systematic approach to gathering information about the peoples beyond the deserts and mountain ranges that protect China’s interior, assessing their markets, leading strengths and weaknesses,” writes Peter Frankopan, author of The Silk Roads: A New History of the World. “That found parallels in the works of authors such as Herodotus, whose attention likewise was on the land bridge that connects east and west.”

The focus on developing this land bridge is not only to find an alternative to sea routes. Exploiting the mineral wealth of Central Asia is another reason for the Chinese interest. Two thousand years ago, China was attracted to the area in part because of its natural wealth – silver, gold, and lapis lazuli were found in abundance in Iran, Iraq, Afghanistan and the Central Asian states. The current estimates of this wealth are even more impressive. A Pentagon study based on the geological work done in the 1980s by the Soviet Union forces that then occupied Afghanistan came to the conclusion that the Afghans may be sitting on top of one trillion dollars worth of mineral wealth. These deposits are not just of precious metals. Even more significant, they include iron, copper and rare metals such as lithium, used in batteries and electronic equipment. In fact, some experts have suggested that once these metals are extracted and processed, Afghanistan may well get to be known as the “Saudi Arabia of lithium.”

Returning to history, centuries ago, the great cities of Samarkand, Mosul and Merv offered great commercial opportunities, thanks to their large and rich elites. What was done by the Chinese manufacturers and traders then could be done once again. Europe and the Middle East’s rich urban areas offer the markets the Chinese are interested in exploiting. To take one example, Chinese diasporas have come into existence in Italy, attracted to the country’s design centres for products as diverse as automobiles and silk scarves.

The Chinese interest in the countries of landlocked Central Asia is not without historical precedence. To refer again to the work by Peter Frankopan, the Mongols in the 13th and 14th centuries achieved some of what today’s Chinese are hoping to do. Their “empire, extending from the Pacific to the Black Sea was not characterised by violence and chaos but by careful and deliberate investment in major urban centres. They employed what we today call progressive tax policies, which encouraged trade within and between cities to stimulate greater revenues for the state.” According to this interpretation, the Mongols don’t quite deserve the reputation history gave them after their empire had collapsed.

Unlike the Mongol empire of 500 years ago, the Chinese will not use tax revenues from the countries with which they will connect. They are finding ways to commit their own resources to implement the projects that together make up the ambitious OBOR. The Export-Import Bank of China (EIBC) that promotes foreign trade and investment has already financed 1,000 projects involving 49 countries. It is more active than the Asian Development Bank (ADB); it lent more than $80 billion in 2015 compared with $27.1 billion by ADB. More projects will get the EIBC agency’s support as OBOR activity picks up. The Asian Infrastructure Investment Bank, a Chinese conceived institution, is expected to play a major role in developing OBOR projects. However, its lending will increase gradually. It will invest $1.5 billion to two billion dollars in 2016, increasing to three billion dollars in 2017 and $10 billion in 2018. Some foreign institutions, attracted by the promise of long-term returns of six to eight per cent on OBOR projects are interested. According to one source, IE Singapore, the state-owned trade development board, has agreed to partner with the China Construction Bank to finance OBOR projects with about $22 billion in envisaged funding. Resources, in other words, will not be a constraint in moving the New Silk Road from a dream to reality.  

Published in The Express Tribune, August 1st, 2016.

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Reader Comments (5)

  • Iralan
    Jul 31, 2016 - 11:22PM

    Good read and historical contexts
    What is there for Pakistan and how it can cultivate a lot more then being offered is lacking.
    The country needs to ask Chinese and they will be happy to do it is build manufacturing hubs along the way of cpec corridor and build inform tech hubs with emphasis of soft ware development and creating a platform in cities like Peshawar Islamabad Karachi Lahore and Gilgit and pak should sell these to gulf Arab countries and central
    Asia .
    The future is based on knowledge based economies and self worth and self standing.Recommend

  • IndianDude
    Aug 1, 2016 - 5:22AM

    The esteemed author doesn’t even know that Karakoram highway was never a part of any ‘silk road’. It is a humbug history made up by pakistan to fool their own. Look it up! Recommend

  • Raj
    Aug 1, 2016 - 2:31PM

    The Chinese assessment has not taken into account that, the Chinese has to be in good books of all the 64 countries where it has made an investment of USD 890 billion. Allways, this has to be maintained and otherwise, these countries will just block the infrastructure and movement of goods to chinese. So, maintaining good relationship with all these 64 countries which may be contradicting is a very big challenge and very very difficult to achieve. If not done, then the entire chinese investmnet will go down the drain.Recommend

  • Lolz
    Aug 1, 2016 - 4:30PM

    @Raj: There is nothing good or bad in business but profits. The world is run by economic my dear not emotions. Recommend

  • Lolz
    Aug 1, 2016 - 4:32PM

    @IndianDude: Karakoram Highway indeed follows the track of an old silk route that connected kabul via Kashmir. Moreover, the article revolves around China not Pakistan but still your pain is justified. Recommend

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