One Belt, One Road

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Prof. Ing. Peter Baláž, PhD.
EUBA
Bratislava, Slovakia

China has become the biggest world economy and is successful in asserting its own globalization phase. The United States withdrawal from the international agreements about trans-pacific partnership with Asia (TPP) and the transatlantic pact with the European Union (TTIP) created a new maneuvering space.

 

In 2014, China introduced a new developmental strategy, One Belt, One Road (OBOR). It envisages interconnections among the countries on the former Silk Road and their economic potential and the consequent synergic effects. Through changes in international logistic networks and roads, new transport channels are to be created, with increased capacity and huge cost savings. Another positive effect is expected from China’s companies spreading into other Asian countries and into European markets. Until now, majority of Chinese export depends on logistic routes through the United States, Panama Canal and Suez Canal, which automatically means slower and more expensive transport. From this perspective, new railway corridors through Iran, Turkey and Greece will simplify the process.

A year ago, a railway from Beijing to Tehran was finished as well as a high-speed rail line from Beograd to Budapest. Meanwhile, China has bought an important container port in Greek Piraeus for goods coming from Suez Canal. Its connection to Belgrade via rail line is in preparations. Prospective activation of the so called North Silk Maritime Road from ports in Shanghai, Ningbo and Nanjing through Bering Strait around Russia into North Europe would eliminate the importance of the United States when Chinese re-exports are concerned. The United States would lose resources coming from this transport, but also the factual control over the whole Asian trade.

We cannot forget that these plans are part of China’s developmental doctrine regarding its future position in the world. Experts point out that the decisive element in China’s long-term advance is actually its effective development strategy, creating functional symbiosis in connecting the country’s comparative advantages with international developments. China has already invested $40bn to the Silk Road which enabled the increase in export to Kazakhstan, Iran and Turkey by 20%.

 

Anticipated route of the OBOR initiative. Source: Xinhua. 2016. In: http://en.xfafinance.com/html/OBAOR/

Anticipated route of the OBOR initiative. Source: Xinhua. 2016. In: http://en.xfafinance.com/html/OBAOR/

The Silk Road construction is accompanied by significant growth in China’s investments into surrounding countries. China focuses on strategic raw materials, transformed into concentrates in local factories to make their import transportation more effective. Investments from The Asian Infrastructure Investment Bank (AIIB), with capital coming also from some European countries, play an important role, too. More than $100bn creates enough space to finance infrastructure projects, OBOR among them. On top of that, participation of the majority of Asian countries in China’s lucrative business provides political support and softens the appearance of China’s economic interests domination. From this perspective, a collaborative initiative of China with 16 countries in Central and Eastern Europe, 16+1 platform, is also interesting. A mutual fund is being prepared under its umbrella to support investment projects and to enable these countries to participate more actively in China’s foreign trade plans. China will contribute around $10bn. It aims to create production capacities to help satisfy the Chinese consumers’ demand for European goods. In the same time the counter-supplies would optimize the transport costs on the Silk Road.

With this in mind, the Chinese state-owned company Heesteel’s endeavors to buy US Steel Košice appear in a different light. With this purchase China would get the terminal station of the broad-gauge railway which, as part of the Trans-Siberian Railway, connects China with the Slovak Republic – and the European Union. If this transaction is successful, Chinese steel companies could legally bypass European Union’s protective barriers against cheap import of steel from Asia and get access to European car manufacturers’ commissions. Clearly, steel could be followed by cement, aluminum and other inputs where China can apply its comparative advantages, mainly labor and energy costs. Success of the OBOR will depend on multiple factors, some of them global and others local. It is obvious though, that in OBOR, the European Union or 16+1 platform countries will be in a disadvantaged position. The question is how much and for how long.

 

“Fate of nations and businesses is interconnected; and this trend has been reinforced by communication and globalization… Nations as well as businesses live in the world of competition where the rules are changing. Borders between countries are losing their importance; ideas, values and experience move freely from one country to another. The term competitiveness changes as a result of a newly emerging environment: it views nations and businesses from a more global and whole – holistic – perspective. Holistic approach is defined as nature’s tendency to create organized units that are more than just the sum of their parts.“

– S. Garelli



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