Although the Silk Road Fund has been well financed, many of the infrastructure projects have met significant obstacles. Will China see this aspiration of regional trading unity become a reality?
China has made the “One Belt, One Road” (OBOR) initiative a top economic priority, and while it has fostered uncertainty for the Washington-led Trans-Pacific Partnership (TPP), the initiative is still being promoted based on its potential rather than its results. OBOR began in 2013, and is intended to invest in regional infrastructure and promote industrial and financial cooperation. The Silk Road Fund has already allocated approximately $900 billion for future regional investment projects in the initiative. The initial $40 billion in funding was primarily from China’s foreign exchange reserves. Now investments are coming from Singapore’s state-owned development board, China Construction Bank, international pension funds, insurance companies, sovereign wealth funds, and private equity to grow the capacity of the OBOR initiative.
The project aims to connect more than half the world’s population, three-quarters of its energy resources, and 40% of global GDP. During a symposium on OBOR in Beijing on August 17, 2016, Chinese President Xi Jinping stated that more than 100 countries and international organizations will participate. More than 30 countries along the routes have already signed agreements and more than 20 countries are interested in industrial cooperation. But, regional tensions and serious roadblocks to the infrastructure projects may cause these dreams to never become a full reality.
Countries neighboring China such as the Philippines, Japan, Vietnam, and Singapore have been angered by the construction of island-like structures over barrier reefs in the South China Sea. The recent ruling in The Republic of Philippines v. The People’s Republic of China by the United Nations Permanent Court of Arbitration rejected China’s claims of sovereignty over the nautical area, causing unrest among Chinese officials. OBOR depends on regional cohesion to be successful. As noted by Singapore Business Federation Chairman Teo Siong Seng, “the benefits from the Belt and Road Initiative can be multiplied if ASEAN [the Association of Southeast Asian Nations] countries integrate and cooperate further.” This may prove to be a challenging obstacle to overcome with many of the ASEAN nations troubled by China’s disregard for the ruling. ASEAN was formed in 1967 to promote regional stability and economic cooperation. Elimination of nautical sovereignty undermines this aim and is a serious matter to these member countries.
OBOR has had some early successes including a hydroelectric power project in Pakistan and an agreement between President Putin and President Xi to implement the Yamal LNG project, a proposed liquefied natural gas plant in Russia. Conversely, many regional projects introduced by China have been delayed indefinitely. In March 2016, the Thai government publicly announced it would reject Chinese financing for a $15 billion railway project, a high-speed line designed to connect southern China to the eastern coast of Thailand. A similar high-speed railway project—meant to extend from Jakarta, Indonesia to Bandung, China, worth $5.5 billion—was halted because the company did not have the proper documents filed to be granted the right to undertake construction. Local protests in Myanmar have erupted and caused the government to suspend construction of the $3.6 billion Chinese-backed Myitsone Dam project in northern Myanmar. This is a cause for uncertainty regarding upcoming OBOR initiatives in Myanmar. Currently, it is challenging to determine whether these issues are normal road bumps occurring in projects of this magnitude or symptoms of a deeper problem with the initiative that will continue to manifest moving forward. Particularly with new research analyzing past Chinese infrastructure projects and their impact on economic growth, these problems seem likely to continue moving forward.
Li Zhaoxing—president of the China Public Diplomacy Association—is quoted at a Singapore Regional Business Forum panel saying, “the 21st Century Maritime Silk Road is about trade, commerce and cultural interaction, which leads to thriving business, free flow of people and cultural integration.” If OBOR can overcome current challenges and international scrutiny, Li will be correct and it may become one of the most historic partnerships of the twenty-first century.