China’s impact on the world’s economy

Everyday we are receiving global news of political changes like the economic sanctions on Iran or Brexit of the United Kingdom which is debating to leave the EU. However, a topic which is often spoken too little in the world news is Beijing with its increasing impact. By comparing the Chinese economy with the GDP of the USA it is noticeable that they are getting closer which is allowing another future maker to start its global entry. The population of China is 1.3 billion people today. With its enormous human capital and the elimination of poverty, the Chinese government with president Xi Jinping wants to reach old status like in world history and reopens the famous trading routes from that past.

The project is called One Belt, One Road initiative which includes huge investments into the infrastructure of Asia, Europe, Africa and America. Many people are interested to run their business in this rich zone of crude oil, worthy resources and economic growth, like US president Donald Trump by patenting his name for future projects including hotels, properties a vodka and casinos in Kazakhstan, Uzbekistan, Kirgizstan, Turkmenistan, Aserbaidschan, Armenia, Georgia and even in Iran, the country with political leaders he is strongly criticizing. With the increasing wealth, many Asians are able to invest also in Western companies, for example into the media companies “The Independent”, “New York Post”, Warner Music or sports clubs like Paris St Germain, FC Arsenal, Manchester City and among them many others. The world’s economic growth is interweaving its continents.

What is the One Belt, One Road initiative and will it improve the developing world?

Le Yucheng, Chinese vice-minister for foreign affairs said at an interview for the Financial Times: “We Chinese often say that if you want to get rich, build roads first.”

China’s Han dynasty (206 BCE–220 CE) expanded its trade by building new routes to the west through Asia, Africa and Europe. Traders and travelers planted agricultural goods next to the road and improved the infrastructure. Later, because of the large amounts of silk passing this route it got the name Silk Road which became a corridor for genes of humans, plants and animals as well as for culture, languages and trends. Because of various reasons like power shifts, rising dangers, wars and new maritime routes the Silk Road collapsed in the 18th century.

In 2013, Chinese President Xi Jinping announced the launch of the One Belt, One Road initiative. More than 80 countries are today estimated to be involved in the initiative -accounting for more than two-thirds of the world’s population with 29% of the global GDP- to develop their transportation infrastructure including railways, ports, airports and highways as well as new energy pipelines. The goal is to shrink the time of transportation and establish economic relationships between countries as well by founding individual tax-free zones and visa-free zones for people to cross the borders. According to the World Bank the initiative can reduce travel times along economic corridors by 12%, increase trade between 2.7% and 9.7%, increase income by up to 3.4% and lift 7.6 million people from extreme poverty.

President Xi Jinping said in his speech at the Belt and Road Forum for International Cooperation in May 2017: “…we should build the Belt and Road into a road connecting different civilizations. In pursuing the Belt and Road Initiative, we should ensure that when it comes to different civilizations, exchange will replace estrangement, mutual learning will replace clashes, and coexistence will replace a sense of superiority. This will boost mutual understanding, mutual respect and mutual trust among different countries.”

Source: The Mercator Institute for China Studies (MERICS)

The costs of all these construction works are differently estimated. The China Development Bank has earmarked US$890 billion for more than 900 projects. Among the participating countries of the initiative are many which didn’t easily receive credits in the past from other global investors because of economic troubles and corruption. Current critics describe the intention of China as neocolonialism, as a plot to ensnare countries in debt traps that eventually force them to hand over territory and strategic assets.

Le Yucheng, Chinese vice-minister for foreign affairs said at an interview for the Financial Times: “We also advise host countries [of BRI projects] to act within their means and not to overstretch,” he says. “Some countries may face difficulties in repaying the debt . . .[but] we will not press down hard on them. When they encounter difficulties, normally we will . . . take flexible measures.”

One of these measures happened in 2017, when Sri Lanka was not able to pay its debt to Chinese firms and handed over the strategic port of Hambantota to China on a 99-year lease.

Vessel of Hapag-Lloyed with offices in 13 Chinese cities arrives in the harbour of Hamburg – Photo credit: Julius Silver

There are three obvious interests of China for the One Belt, One Road initiative, according to Peter Frankopan, professor of Global History at Oxford University and author of the book “The New Silk Roads”:

The first reason is to develop a sustainable future for China’s needs as a growing industrial country which depends on huge deliveries of energy sources like crude oil, gas and others. In 2017, China became the biggest import country for crude oil in the world and the amount is estimated to triple until 2030. The pipelines from Russia, Iran, Saudi Arabia and the United Arabian Emirates have to further extend. Another driver of this project is the perspective to encounter huge amounts of resources. The oil company BP is estimating that 70% of the world’s oil stocks and almost 65% of the gas reserves are located in the Middle East, Russia and Central Asia.
Next to energy there is the need for more food. The water and air quality of China suffered under the fast growing industry which made many rural areas unusable for agriculture. Because of this problem and the case of increasing urbanization, Chinese food producers buy companies abroad to cultivate food on this land and transport it for consumption to China. Russia, Turkey, Ukraine, Kazakhstan, India and Pakistan are responsible together with China for more than the half of the world’s wheat production and Myanmar, Vietnam, Thailand and Indonesia for 85% of the world’s rice production. The initiative includes, among other things, to optimize food delivery.

China’s second reason is the transformation from an industrial country to a service-based economy which contains encompasses development strategies for infrastructures to operate worldwide with the experience of the One Belt, One Road initiative.

The third reason is a matter of national security facing the western Chinese province Xinjiang with the borders to Afghanistan and Pakistan. This is the area where China’s Muslim population, called Uyghurs, lives. The national authorities fear the influence from the neighboring countries on the Uyghurs who might head to an Islamic fundamentalism which is noticeable, according to the government, through multiple terrorist attacks and the disposition, in previous years, to join the IS army in Syria. The government reacts with the restriction of Islamic customs, re-education camps, an increase of security staff and a military anti-terrorist project with Afghanistan, Tajikistan and Pakistan to fight together against terrorism. Xinjiang plays an important role to protect because in this area are China’s biggest gas fields, half of the country’s coal resources and more than a fifth of its own oil reserves.

The One Belt, One Road initiative might be one of the biggest developing projects in the next decade and have a strong impact on the current world order. Many countries are optimistic to reach higher wealth, while critics see the danger of dependency. It is a multifaceted project which should draw the attention of the public and pose questions.

Click here for the interactive BRI map of the Mercator Institute for China Studies (MERICS).                

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