Belt and Road Read online

  The China-Indochina corridor generally outperforms the others: China is an important destination of exports for all the countries, ranging from 5% of total Cambodian exports to 25.7% of total Laotian exports in 2015. The China-West Asia corridor is the weakest among the six, with the many countries along this corridor belonging to different economic groupings with limited institutional trade links to China.

  The transport network, consisting of railways, highways, sea routes and air routes, together with the electric power transmission and telecommunication networks, and oil and gas pipelines, creates the connectivity network providing the physical infrastructure for the six economic corridors. When Chinese decision-makers argue that the Belt and Road is designed according to a sound understanding of the theory of economic development, what they have in mind is before all else the concept of an economic corridor.

  Economic corridors are not transport connections along which people and goods move, but much more complex economic geographies taking advantage of both specialization and connectivity to bring about superior economic outcomes. While the traditional connectivity concept focuses on the end-points of the connection with limited consideration to what goes on between them, the economic corridor concept deliberately considers the whole space. This, incidentally, is why the initiative speaks of a “belt” rather than a “road” as its land component. On sea, only the end points are connected and thus the term “road” is appropriate there, but on land what is being envisioned is the fragmentation of production processes across different geographies. Unlike the original Silk Road, the Belt and Road is not predominantly about transportation infrastructure but about economic integration. The initiative does not attempt to unbundle production and consumption—the vision of the original Silk Road—but rather to unbundle different segments of the production chain, to build an expanded “factory floor” along the full economic corridor and across national borders.

  Transport corridors usually transform into economic corridors though gradual development, urban agglomeration and division of labor leading to the formation of economic clusters. As Hasaan Khawar puts it, the Grand Trunk Road—the road running from Bangladesh to Afghanistan through Northern India and Pakistan—is a good example of this. The route has been in existence for more than two millennia, but only recently has it developed into a vibrant economic corridor. The idea behind the Belt and Road is to create economic corridors by design rather than letting them evolve naturally and slowly on their own. The level of investment being discussed cannot in any case be recouped through toll payments alone. It requires a much broader flow of future revenue. “Economic corridor development is therefore the only way to go.”8

  China has shown great interest in the construction of high-speed railways outside its borders, a technology that embodies its fast rise to technological preeminence. Freight rail links have been built, renovated or expanded in Uzbekistan, Kyrgyzstan, Pakistan, Kazakhstan and elsewhere. China has long suggested constructing a railway connecting Kashgar in Xinjiang to the Fergana valley—the core of Central Asia—through Osh in Kyrgyzstan, a project that could permanently change centuries-old divisions around these mountains and plateaus. Perhaps even more visibly, new and efficient roads are being built all across the region. One of the most ambitious projects is the expansion of the Karakoram Highway linking Xinjiang to central Pakistan. Traveling along this route, I witnessed first-hand how colossal feats of engineering are opening up some of the most difficult terrains in the world to regular and fast traffic. In Pakistan the highway is being upgraded from Raikot to Thakot in Khyber Pakhtunkhwa province using a combination of grants and a concessional loan from Beijing totaling $150 million. A road realignment project is under way from Thakot to Havelian in Khyber Pakhtunkhwa using a $1.3 billion concessional loan. It involves the construction of seven tunnels and sixty-eight large bridges, and will be completed in 2020. All these construction projects have boosted the development and production of new machinery fit for purpose, such as the gigantic SLJ900/32, an all-in-one machine capable of carrying, lifting and placing sections of track, connecting pillar with pillar in suspended bridges, or the TBM Slurry for digging tunnels: weighing 4,000 tonnes, it has 100m of trailing infrastructure that enables workers to install the tunnel walls as the cutting head inches forward powered by hydraulic rams.

  On the southern land route, China plans to connect Southeast Asian countries with the southwest region of Yunnan through a series of high-speed railways. There are three routes planned: a central one that runs through Laos, Thailand and Malaysia to reach Singapore; a western route through Myanmar; and an eastern one through Vietnam and Cambodia. Projects are at various stages of development, with construction in the Thailand and Laos legs already progressing.

  The formal implementation of the United Nations TIR Convention in China is a milestone for the Belt and Road, which was always predicated on facilitating transit and customs procedures. The TIR system, based on the United Nations TIR Convention, serves as a global customs-clearance facilitator for international cross-border road transportation of goods. The only global customs transit system for moving goods across international borders, it has been supporting trade and development for more than sixty years, by allowing customs-sealed vehicles and freight containers to transit countries with minimal border checks. At present, there are seventy-three Contracting Parties to the TIR Convention, most of which are located along the Silk Road Economic Belt. China acceded to this Convention on July 5, 2016 as the 70th Contracting Party and the Convention entered into force for China on January 5, 2017. Currently, its pilot TIR gateways include Horgos in Xinjiang (bordering Kazakhstan), Irkeshtam in Xinjiang (bordering Kyrgyzstan), Erenhot in Inner Mongolia (bordering Mongolia), Manzhouli in Inner Mongolia (bordering Russia), Suifenhe Port in Heilongjiang (also bordering Russia) and Dalian in Liaoning (the trade gateway towards the Pacific).

  Industrial parks and free-trade zones play an important role in the planning and development of economic corridors. China is quickly developing a number of overseas industrial development zones with sound infrastructure, clear industrial focus and access to a full range of public services. These zones give rise to a geographic network of highly concentrated but interconnected businesses.

  By 2016 a progress report on the Belt and Road already enumerated eighteen border cooperation zones and fifty-two industrial parks as being operational across eighteen countries.9 A particularly notable case is the Horgos International Cooperation Center, which I visited in June 2016. This is a free trade and free movement zone built across the border between China and Kazakhstan. Goods sold inside the Cooperation Center may be carried across the border free of tariffs. People too may circulate inside the area without having to transit a border post. The border between the two countries has in fact been rendered just as invisible as, say, that between Belgium and the Netherlands.

  In July 2018 a new financial hub opened in Astana, the Kazakh capital, explicitly presented as part of the critical financial infrastructure for the Belt and Road. Both the Shanghai Stock Exchange and the state-run Silk Road Fund became shareholders of the projects securities exchange, the Astana International Exchange. The Shanghai Stock Exchange is a 25 per cent shareholder. While contributing staff and resources, they are also providing a gateway to Chinese funds and Chinese brokers. More generally, the Astana International Financial Center hopes to attract players ranging from Chinese state funds to Swiss private banks by offering tax breaks, easy entry and a Common Law court. Capitalizing on its location at the intersection of different economic and political influences, it wants to serve as an arbitration center for contracts between Chinese and Russian companies, while employing its own court and arbitration center staffed with British judges and barristers.10

  Kazakhstan is one of just two countries where the Belt is already having a visible and significant impact. Sharing a long border with Xinjiang province, benefitting from high levels of political stability and already enjoying some meas
ure of economic development, it was always going to offer a privileged testing ground for the initiative. China sees Kazakhstan as its gateway to Europe and has encouraged the speedy development of some of the most emblematic local projects of the Belt and Road there. Even in the much more diffuse world of cultural exchange—the fifth pillar of the initiative—Kazakhstan is making strides. When in May 2018 China televised a live concert to celebrate the Belt and Road, only one foreigner performed: a singer, the announcer said, “with a clear voice and friendly eyes from Kazakhstan named Dimash.” The People’s Daily often mentions Dimash Kudaibergen in editorials on China’s foreign policy, a symbol of cultural exchange and the new Chinese ability to attract talent from abroad.

  Just across the border from Horgos, a major new dry port is being developed with the explicit ambition of organizing the network of future roads and railways connecting the Eurasian supercontinent. China and the European Union are already the two largest economies in the world, alongside the United States, and trade between them can be expected to keep growing and diversifying. Suppose you build a port right at the midway point between the two, where freight trains can converge, unload their containers and from which new trains, recombined according to their destination, will quickly depart. This would be just the start, though. Once the port is fully operational, one may expect new industrial areas and new cities to start emerging along the trade routes, taking advantage of the new infrastructure, low labour costs and growing industrial specialization in different economic regions. Chinese manufacturers in particular would certainly be attracted by the possibility of entering the Russia market without paying any duties. If they set up on the other side of the border, they can benefit from the fact that Russia and Kazakhstan—together with a number of smaller countries—are members of the Eurasian Economic Union, a customs union.

  In May 2015 Presidents Putin and Xi signed a joint statement on integrating the Russia-led Eurasian Economic Union with the Belt and Road. From the start there had been fears that China’s bold plans would necessarily clash with Russian interests. Beijing was well aware of the risk and in this case played its cards shrewdly. Many of the countries central to the Belt and Road were part of the traditional Russian sphere of influence in Central Asia—absorbed by the Soviet Union until 1991, of course—so Russian opposition had the potential to place an impassable roadblock in China’s way. Russia’s decision to endorse the Belt and Road changed the parameters of the project. It gave the green light to China’s ambitions for countries such as Kazakhstan and Georgia—its gateways to Europe—while focusing on trade integration as the next stage in the initiative. After all, the Eurasian Economic Union is a trade agreement, so any significant integration between the two structures promised concrete progress in the area of trade, potentially leading to new trade agreements in the future between China and the economic bloc led by Moscow, extending all the way to the Polish border.

  It is undeniable that the Eurasian Economic Union and the Belt and Road are very different creatures. The former is overtly political and geopolitical, inward-oriented and committed to developing a common institutional framework. Its model is the European Union. As a result, it is focused on very detailed economic and technical cooperation and integration in every economic sector, aiming for a high level of coherence and harmonization. The Belt and Road is a more original idea. It is less rigid, less committed to legal and institutional forms, more ambitious in its geographic scope and economic impact, while remaining focused on concrete projects to be developed across borders. Its focus on investment and infrastructure follows naturally.11 It is not clear, however, that these differences in nature are an obstacle to increased cooperation between the two initiatives. Difference can be interpreted as complementarity.

  In May 2018 China and the Eurasian Economic Union signed a free-trade agreement in Astana. While non-preferential—meaning tariffs are not cancelled—the agreement will make it possible to improve conditions for access of goods to the market through norms for trade facilitation and improve the level of interaction across all spheres of trade cooperation. The first major systematic arrangement ever reached between the two sides, it covers thirteen chapters, including customs cooperation, trade facilitation, intellectual property rights, sectoral cooperation and government procurement, as well as e-commerce and competition. In an interview with Xinhua, Tigran Sargsyan, the chairman of the board to the Eurasian Economic Commission, said that the treaty “creates a serious legal framework for the interaction of businesses and makes the environment in which they will operate predictable.”

  The other country where the Belt and Road is already having a significant impact—and one central to its success—is Pakistan. If Kazakhstan serves as China’s gateway to Europe, Pakistan is its gateway to the Indian Ocean. Because the strategic alliance between the two countries goes back decades, it was expected that swift progress could be expected in developing an economic corridor starting from Kashgar in Xinjiang and reaching Karachi and Gwadar. As Andrew Small argues, the close security and political relationship between the two sides means that Pakistan has a unique level of comfort with the strategic elements of the initiative, including, for instance, ports that can serve both commercial and military purposes.12

  The success of the project did not in this case depend on third countries, so it offered a more manageable scale than the larger Belt and Road, where it must sometimes seem that too many variables are simultaneously in play. In this case the forces bringing the two economies closer together do not need to be conjured up by the Belt and Road. They were already powerful before the initiative, which is therefore—in this case at least—required primarily to organize rather than to create, an easier task. No less important, Pakistan is rich in natural resources and has a vast internal market, two points of great interest to China. Its planning authorities are looking for large markets, with significant growth potential, capable of matching China’s own scale of development. With 200 million inhabitants, Pakistan is a valuable asset for the Belt and Road. Or, as Wang Yi, China’s foreign minister, prefers to put it, “if One Belt One Road is like a symphony involving and benefiting every country, then construction of the China-Pakistan Economic Corridor is the sweet melody of the symphony’s first movement.”

  The 2017 Pakistani film Chalay Thay Saath (They Went Together) portrays how a Chinese backpacker and a Pakistani doctor, thrown together during a group-tour road trip, improbably but inevitably fall in love. Director Umer Adil explained that his inspiration for the script came from the decades-long relationship between China and Pakistan, represented by the Karakoram Highway, built seventy years ago. As the couple must deal with various roadblocks—language barriers, racist stereotypes, familial disapproval, and even a deadly flood that, for a time, erects a physical barrier between them—their story offered a popular image or symbol for the China-Pakistan Economic Corridor and the difficulties involved in realizing it.13

  The China-Pakistan Economic Corridor is a development corridor covering Xinjiang province and the entire territory of Pakistan. Its spatial layout is described as comprising one belt, three axes and several passages. The belt refers to the organizing central structure, including Kashgar, Tumshuq city, and Atushi city and Akto county in Kizilsu Kirghiz autonomous prefecture of Xinjiang, China, as well as Islamabad, parts of Punjab, Sindh, Khyber-Pakhtunkhwa, Balochistan, AJK and Gilgit in Pakistan. The three axes refer to three horizontal axes intersecting the belt. The passages refer to several railways and highway trunk lines from Islamabad to Karachi and Gwadar.

  The orderly flow of economic factors in both countries “will significantly improve the resource allocation efficiency and bring into full play the comparative advantage of each country.”14 China and Pakistan are expected to strengthen cooperation in trade and industrial areas, expand bilateral economic and trade relations, and enhance the level of bilateral trade liberalization. They should cooperate in key areas, enhance the effectiveness of cooperation and strive to ach
ieve synchronization, coordination and reciprocity of economic development. Specific sectors to be actively promoted include textiles, the production of parts and components for industry, and agriculture. There is a plan to extract coal in the Thar desert at one of the world’s biggest known deposits of lignite, a lower-grade brown version of the fuel. The project includes the building of power plants to expand capacity in a country that faces chronic electricity shortages. The first phase, which will add 660 megawatts of power, will be completed in 2019 and can be scaled to 5,000 megawatts to make it the largest cluster of electricity production in Pakistan.15 In all these projects, the two countries should “give full play to their own comparative advantages.”

  A central priority is the construction and development of Gwadar city and port. The project has acquired a highly symbolic status for the Belt and Road as a whole. On the one hand, Gwadar lies in a privileged strategic position, with a claim to becoming a new Chinese coastal city—in economic terms at least it will play that role, linking the western provinces of China to the Indian Ocean. The vision for the city is suitably ambitious: the port will be combined with a new expressway, international airport, an industrial park, and even world-class tourism facilities. The industrial park provides foreign investors with 100 per cent ownership, a twenty-three-year tax holiday, and an exemption on custom duties for material used in the construction and operation of the port. Today more than 1,000 people already work at the 660-meter container terminal. A leading Chinese investment company announced it will invest $500 million in the first phase of a project aimed at building homes for around 500,000 incoming Chinese professionals expected in Gwadar by 2023. “China Pak Hills will be the first development of its kind in Gwadar. A mixed-use gated development tailor-made for Chinese professionals in Gwadar, it will offer an all-encompassing lifestyle to live, work and play, with a host of facilities that will set the benchmark of future developments. The company building the model city has an annual turnover of around $10 billion. The aim of this project is to build infrastructure for the incoming influx of Pakistani and Chinese professionals. Growth in Gwadar will go up massively and it will need strong social infrastructure to cater for this need.”16