Is 2018 the year that China’s Belt Road Initiative ran out of steam?

Is 2018 the year that China’s BRI ran out of steam?
Andre Wheeler December 20th, 2018 https://splash247.com/is-2018-the-year-that-chinas-bri-ran-out-of-steam/

Recent press headlines scream that China’s Belt Road Initiative (BRI) is in decline, or as Bloomberg claims in a recent headline, Asia is falling “out of love with China’s Belt Road Initiative”.

Reporting on the recent UN resolution that removes references to China’s BRI has been taken to underscore the demise of Xi Jinping’s signature infrastructure initiative. These headlines appear to be playing more to a narrative that has an interest in halting China’s geo-economic emergence as a global trading nation rather than evaluating what is happening on the ground. It demonstrates the obsession with seeking financial returns in the short term, typically espoused by popular business school financial modelling. It is also interesting that as the claims of China’s debt diplomacy have been effectively shown to have limited substance, issues around sovereignty risk and militarisation are now coming to the fore.

However a review of progress of 2018 would suggest that whilst development has slowed, the BRI is still making strategic growth. Despite public and vocal anti-BRI rhetoric, there has been a flurry of activity around infrastructure financing that suggests that nations are taking progress seriously.

Japan has created the Japan Bank of International Co-operation and the Japan International Co-operation Agency. Both agencies have committed approximately $2.3bn to fund infrastructure with a further $16.5bn committed to loan programs and financial guarantees in 2018. Clearly these funds do not match those of China, but it has been able to put pressure on China by offering alternative development programs.

Furthermore Japan’s announcement of the Indo-Pacific Fund, a collaborative effort with the USA and Australia, is also noteworthy. This fund, to develop and offer complementary infrastructure within the Indo – Pacific region, will work within the US’s current regulatory passage of the Build Act to develop finance capabilities of the US government through the Overseas Investment Corporation. The US finance arm, International Development Finance Corporation, has set aside $60bn for investment that is taken in a 2:1 private sector ratio. This translates to funding of $180bn and is said to advance private sector led investments that are sustainable, transparent and help countries sidestep the debt trap. It goes without saying that this would not be happening if it was truly believed that the BRI does nothing other than build “white elephants” as suggested recently by an Australian government minister.

Other socio-political developments also suggest that progress has been made to address the issue that currently BRI projects are Sino-centric only. In particular, Japan and China have introduced a Japan-China Forum on Third Country Business Cooperation. The establishment of this forum has seen significant breakthroughs in funding and financing rail projects in Thailand and the Philippines. Japanese and Chinese logistics firms are working together to move cargo from Japan to Europe by rail rather than ocean. The companies, Nissin Corp and Sinotrans, are looking to sea-rail shipments from the Far East (Yokohama Port) to Western Europe (Hamburg) through China and central Asia. Japan sees this as an important trade strategy to build options to trade via the Suez Canal in the event of rising geo-political tensions in the Middle East. This theme is being repeated in other localities, such as the India – China ‘Plus One Strategy’. Furthermore, Saudi Arabia is now contributing $10bn to the China Pakistan corridor by participating in three road and energy projects. These projects aim to build Gwadar Port on the Indian Ocean into an oil city.

Other geopolitical arrangements that are currently being addressed include China’s participation in the Transports Internationaux Routiers (TIR) commencing in early 2018. Although the TIR has been in operation for four decades, China’s involvement now allows freight journeys across Asia in one continuous journey without multiple cross-border delays. This has led to the planned introduction of a regular truck shipment service between China and Europe in 2019. The World Bank predicts that the BRI middle corridor will more than double its road freight between China and Europe. Allied to this has been the new block train service connecting Istanbul and Lianyungang through this middle corridor.

The northern corridor of the BRI will also see the introduction of a new multimodal route from China to Europe through the Russian port of Bronka. The route that embraces both ocean and rail transport modalities, developed by RZD Logistics, connects China to northern European countries. This strategic port / rail pairing will see transport times being reduced to 16n days and has the potential to move 500,000 teu.

Not much has been said about the recent introduction of a block train connecting Liege in Europe with Zhengzhou in China’s landlocked Henan province. Liege is now the second Belgian city to participate along the BRI. This expansion of the Eurasian rail network is not by accident, particularly as Alibaba has announced its intentions to establish a European branch.

From a trade perspective, China’s rail freight has increased by 10% when taking October year-on-year trade figures. There has been a 7.3% growth in total freight volumes this calendar year, up to and including October. Whilst development has focussed on rail connectivity along the east and southeast of the country, China’s confirmation of the central Henan Province as the location for its central hub suggests that the BRI will continue to grow.

Whilst Myanmar, the Maldives and Malaysia are used as examples of the growing disenchantment with China’s BRI, closer inspection reveals more of a review rather than a withdrawal. The new financial and engagement options offered by the likes of Japan and the US suggest that opponents to the BRI have come to accept that it is not going away. Perhaps they are now using strategies to slow it down so that they can get their own house in order to secure trade within Asia in general and China in particular?