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16 May 2017

China launches mega infrastructure project

China seems to consolidate its global power, announcing the “Belt and Road” initiative, which is its most ambitious foreign policy to date. During the weekend, the Chinese president Xi Jinping, gave a speech in which he repeated his determination to make China a global leader.

China had invited presidents and prime ministers from 28 countries to Beijing to participate in a summit, in which they would reveal details of their plans. Among the world leaders was the Russian president Vladimir Putin, the Pakistani prime minister Nawaz Sharif, the Turkish president Recep Tayip Erdogan and British chancellor Philip Hammond. They all applauded as Xi Jinping talked of a big family, living in harmony, and pledged hundreds of billions of US dollars in investments and loans.

What is the “Belt and Road” initiative, and why is it attracting so much attention? As it happens most of the times, history repeats itself and everyone hopes that it won’t be repeated as a farce. The initiative is divided into two parts, the first being the “Silk Road Economic Belt”, and the second called “21st Century Maritime Silk Road”. History readers will probably know that, many centuries ago, European merchants were travelling from Istanbul via Persia to China to sell and buy products. This route was called the “Silk road” because of the silk that was first imported to Europe from the edge of Asia. Another route that merchants used was by ship from the Mediterranean to the Indian Ocean via the Red Sea and then off to the Chinese harbours.

Hundreds of years may have passed since then, but Asia is still in turmoil. China, having Asia as its main target and then Europe and Africa, believes it can fix things by pouring billions of dollars in investment projects, which will bring back growth in those areas. The McKinsey global consultancy agency suggests that the project has the potential to overshadow the US post-WWII Marshal reconstruction plan and become the biggest development push in history.

China’s plan is to build massive amounts of infrastructure across Asia, Europe and Africa. New pipelines, ports, railways and bridges will help in creating a modern Silk road trading route. Beijing’s target is to finance those projects with $150bn per year. Fitch credit ratings agency released a report, earlier this year, mentioning that almost $900bn of worth projects are planned or already underway.

Why did China decided to engage in such an ambitious plan? Why should a country with 1,4 billion people invest in smaller and weaker countries with a potential danger of failing? Xi Jinping has designed a new strategy, totally different with Deng Xiaoping’s, who wanted China to hide its capabilities and bide its time. The Chinese president wants his country to lead first Eurasia and then the globe, simultaneously making a good profit out of it.

The Economist, in one of its articles, suggests that the Chinese high-ranking officials have decided to invest in infrastructure using their vast foreign-exchange reserves, instead of investing in low-interest-bearing US government securities. Higher investment profit and the new markets that are going to be created will help China to stabilise the neighbouring countries, but also its western provinces such as Xingiang, which have always created problems to Beijing.

Xi Jinping said at the opening of the summit that “the ancient silk routes embody the spirit of peace and cooperation, openness and inclusiveness. The Silk Road has become a great heritage of human civilization. We want the new one to be a road of prosperity.”

Vladimir Putin, who played the piano in front of the cameras and journalists during a break, added that “protectionism and unlawful restrictions have become the new norm in the modern world. We need new ideas. We need to abandon all stereotypes.” The Russian president underlined his country’s readiness to participate in new projects and called the new Silk Road “a civilization project for the future.”

British chancellor, Philip Hammond, welcomed the Chinese initiative saying that it’s an opportunity to strengthen the friendship ties between the two countries. In a time that Britain is exiting the European Union and looks for new trade partners, Hammond said that “the scale of infrastructure investment required cannot be met by public financing alone, and the UK can be a natural partner by supporting the finance, the design and the delivery needed to make this vision a reality.”

Who is unhappy with the Chinese initiative? The US administration sent a low-level delegation to the summit, snubbing China’s declarations despite good relationships between Donald Trump and the Chinese president. Germany’s chancellor Angela Merkel refused to attend the summit, sending finance officials to replace her. India, the second super power in Asia, was more vocal expressing its discontent about the Chinese plans.

Indian prime minister, Narendra Modi, said that regional connectivity corridors could not override or undermine the sovereignty of nations. India has termed the initiative as “unilateral”, not giving free space to other countries that want to participate in shaping priorities of the connectivity projects. New Delhi has also objected to the route of the China-Pakistan Economic Corridor (CPEC) going through the Pakistan-occupied Kashmir, which is a disputed area and a reason for wars in the past.

Despite who agrees and who doesn’t with the Chinese initiative, one thing is clear. China has set sails to dethrone the US from being the world dominant power. It wants to put Eurasia under its economic control, rather than in military control as the US tried with its many interventions. It remains to be seen if China will manage to change the global status quo.