friendship of Peoples

The “One Belt, One Road” initiative put forward by the leaders of the People’s Republic of China has generated a lot of expectations in Russia and the world. There are at least four reasons for the emergence of such an initiative. And each of them prioritizes the implementation of global infrastructure projects.

Journey to the West

The phrase “Silk Road Economic Belt” (SREB) was first uttered by Chinese President Xi Jinping in September 2013, during a speech at Astana Nazarbayev University. The Chinese leader, who officially took charge in March, embarked on his first Eurasian tour, culminating in his participation in the G20 summit in St. Petersburg. The Central Asian part of this trip was reminiscent of a trip to the supermarket: in each of the capitals of the region, Comrade Xi announced the signing of contracts worth billions of dollars, the essence of which was the purchase by Beijing of shares in raw materials companies and large infrastructure projects. As Chinese diplomats say, before the trip, Beijing was looking for some beautiful image that would help convince the countries of the region of the friendly intentions of the PRC and the benefits of cooperation. Xi Jinping himself liked the ancient Silk Road, which united China with Europe and the Middle East in the Middle Ages, and a speech was written for him using this image as a basis. At that time, no one even in China imagined what would happen next.

The concept of the SREB has caused a huge response both in Central Asia and in China itself. Numerous think tanks under the leadership of the PRC began to come up with ways to fill it. Experts soon put forward at least four explanations for what the SREB is and why China needs it. The first of them is socio-economic. In the 1990s and 2000s, the Chinese economy grew at an average annual rate of 10.5%. The growth driver was not only product exports, but also an unprecedented infrastructure boom. In 15 years, China has acquired the world's longest network of high-speed railways, new multi-lane highways, and dozens of airports. During the boom, hundreds of large and successful companies emerged, and the construction industry generated millions of jobs. Now the boom is coming to an end: all the necessary infrastructure has been built, and excess capacity, along with workers, must be put somewhere. Bringing these capacities to foreign markets and starting to build a huge network of land routes to the EU through Eurasia is a possible solution to the social problem.

The second explanation is more economic. China has become a global exporter thanks to millions of cheap labor concentrated in the coastal provinces of the PRC. However, the cost of labor there is rising, and labor legislation is becoming stricter. Since the mid-2000s, the Chinese government began to encourage the relocation of production inland by providing tax incentives and subsidizing tariffs for the transportation of goods. For example, the Taiwanese company Foxxcon, which assembles Apple products, has moved its factories several times. But now labor is also expensive in central China, so we need to move further west. Accordingly, logistics costs are rising, and the ports of Eastern China are already operating at the limit of their capabilities. And here the idea of a “highway to Europe” begins to look attractive: in terms of time, the journey from Urumqi to Berlin takes three times less than the sea route from Shenzhen to Hamburg. And the difference in price by the same three times can be compensated by developing infrastructure.

The third explanation for the emergence of the SREB is geopolitical. After the United States announced its return to the Pacific, Beijing fears that Washington will begin to contain the ambitions of a rising China, including by intensifying the conflict in the South China Sea. Chinese security officials seriously fear that in the event of a conflict, the American fleet will carry out a naval blockade of China. This means that the country needs land supply routes.

Finally, the fourth theory is diplomatic. Most neighbors on the continent view a rising China with great distrust, so to improve relations, you need to do something good for your neighbors, such as showering them with large-scale infrastructure investments. This is especially important for Central Asia, which neighbors the troubled Xinjiang Uyghur Autonomous Region. Investments, according to experts close to the Chinese government, can prevent the export of instability.

All these theories do not contradict each other. One way or another, a year and a half after the speech at Nazarbayev University, Xi Jinping, speaking in March of this year at the economic forum in Boao, presented a “road map” of the project. By that time, Beijing had put forward another initiative, the “21st Century Maritime Silk Road,” aimed at improving port infrastructure in Southeast Asia and the Pacific. Both projects, sea and land, were combined into the “One Belt, One Road” megaproject. The document, which was prepared by the State Committee for Reform and Development of the People's Republic of China (formerly the State Planning Committee), specifies five principles for the implementation of the project: promoting the development of transport and other “hard” infrastructure, removing customs and other non-tariff barriers to trade, developing a network of agreements on free trade zones, promoting the use of national currencies in trade payments, as well as strengthening humanitarian contacts.

There are no clear official SREB routes in the document, and the only project mentioned was the Moscow-Kazan high-speed highway. Despite the vagueness of the concept, there is enormous interest in the One Belt, One Road program outside of China. This is largely due to the resources that Beijing is ready to allocate for its development. In 2014, the Silk Road Fund was launched with a starting capital of $40 billion. The management of the China Development Bank (analogous to VEB) announced that by 2020 it would allocate up to $1 trillion for Silk Road projects. In addition, in the spring of this year, the Asian Infrastructure Investment Bank was launched with an initial capital of $100 billion, part of the resources of which will also go to support the SREB. The whole world began to wait with bated breath for the arrival of big Chinese money.

Operation "Conjugation"

In Russia, Xi’s speech was initially ignored. However, already in 2014, a discussion began in Moscow about whether the SREB poses a threat to Russian interests in Central Asia. In November 2014, in a joint statement by Russian President Vladimir Putin and Xi Jinping following a meeting at the SCO summit in Dushanbe, it was stated that the Eurasian Economic Union (EAEU) and the SREB would cooperate, but no details were given. Only in March of this year, speaking in Boao, First Deputy Prime Minister Igor Shuvalov outlined a more or less detailed vision of this cooperation by the Russian side. From his speech it became obvious that Russia will perceive the SREB not as a challenge, but as an opportunity for the EAEU. In turn, the EAEU may be beneficial for Chinese plans to build a land route for transporting goods to Europe thanks to the instruments of the Customs Union and the need to cross only two customs borders when moving goods through Kazakhstan, Russia and Belarus. On May 8, on the eve of the Victory Parade, the leaders of the two countries signed a joint statement on the integration of the EAEU and the SREB. The rather vague political document recorded several important things: the willingness to postpone the sensitive issue of creating an FTA for the future, as well as the creation of a working group on interfacing at the level of the Foreign Ministries.

It is still too early to talk about any results of the coupling - the working group met once in Beijing. Russia's involvement in the initiative is still symbolic. Thus, the Silk Road Fund must close the deal to purchase 9.9% in NOVATEK’s Yamal LNG project by the end of the year and is eyeing investments in the final stage of the Russian-Chinese project to build a bridge across the Amur. During Vladimir Putin's September visit, private businesses used the Silk Road brand to promote projects. Thus, Oleg Deripaska’s En+ signed an agreement with Huawei on the construction of data centers in the Irkutsk region for the Chinese market “as part of the SREB project.” In addition, Rosavtodor and JSC Russian Railways signed memorandums with the China Development Bank and the Chinese Railway, which fit into the ideology of conjugation, but in both cases it remains to wait for specific contracts.

So far, as the first experience of implementing the SREB strategy shows, the Chinese themselves do not have clear plans and a specific set of projects. This means that the countries through which the Silk Road will pass will have to draw up a list of such projects and propose terms of cooperation.

Alexander Gabuev, director of the Russia in the Asia-Pacific program at the Carnegie Moscow Center

SIGNATURES

The growth driver of the Chinese economy was not only product exports, but also an unprecedented infrastructure boom. In 15 years, China has acquired the world's most extensive high-speed rail network.

Along the way with China