The Belt and Road Initiative is currently one of the most talked-about topics among Chinese investors and has become like an investment system of its own; and it is well-received by investors as it benefits them by expanding the market space. However, from the national strategic perspective, Belt and Road Initiative is not without concerns, and solutions must be sought to address these concerns.
From a geopolitical perspective, Belt and Road Initiative is a major historical breakthrough of China in the past decades, and this is not an exaggeration. The geopolitics of China after influential thoughts like the Three Worlds Theory expounded by Mao Zedong and "China does not seek to become Number One" had not achieved major substantial breakthrough, but some great changes occurred from 2013 to 2014, when New Silk Road was first mentioned and then followed by Belt and Road Initiative.
Currently, this strategy has attracted international attention, and has become a research topic of geopolitical scientists.
Solutions Required for the Strategy
Belt and Road Initiative stands for Silk Road Economic Belt and 21st Century Maritime Silk Road. The common explanation for Belt and Road Initiative is that it is not an actual entity, nor is it a mechanism, but rather it is an ideal and an initiative of cooperative development by relying on the multi-lateral mechanism between China and related countries, using the ancient Silk Road as a symbol to develop economic cooperation proactively with these countries, and to create a politically mutual-trusting, economically integrated, culturally tolerant community that shares the same interest, fate and responsibility.
Undoubtedly, New Silk Road is highly important in the geopolitics of China for stabilizing Xinjiang and developing Central Asia. Yet, like many issues in China that go through the process of first being a strategy, then a policy and followed by implementation in the market, and during this process there might be some level of distortions and changes.
Generally, the implementation of strategies in China will require policies, and the formation of policies will put the realities of different areas and market's interest into consideration, and will be corrected and re-interpreted, and even added factors that would benefit the market. The parties that have the greatest interest in China’s major policies would be influential elements like local government and central enterprises, and when this situation become obvious the whole national strategy might be difficult to be implemented.
In theory, strategy is a mechanism where one devises approaches based on the situations, and in theory a normal strategy is not a slogan but a systematic solution. To realize a national strategy, the market must be wisely utilized; a strategy can only integrate its aim with the market’s interest organically when it is a systematic solution, and ideally by using the market to realize national interest there will be no distortion to place market interest before the national interest.
This is, of course, the ideal and not the reality. The New Silk Road, a clear, effective strategy is now added with the Maritime Silk Road, becoming what is known as the current Belt and Road Initiative. In the process of this transformation, we see the spaces involved become wider, and the geopolitical complexity becomes even greater. This would mean that a geopolitical strategy of historical importance that might be distorted in its process of moving from strategy to policy, then to the market; in this process elements connected to the interests of certain parties might creep in and the result will be worrying.
Problem 1: Entity and Mechanism
There are two issues in implementing the strategy of Belt and Road Initiative, the first is one has to wonder why the actual entity and mechanism of the strategy are avoided.
Under complicated geopolitical conditions, designing and implementing the most difficult parts of the mechanism should only be avoided if it is for the purpose of realizing the strategy. However, without the actual mechanism, national strategic interest will give way to the economic interest, and a mutual-interest community will become mere empty talks; as the researchers of Chinese geopolitics would know, the result of this would be China becoming mere ATM machine of ASEAN and Central Asian countries.
If the issue of concern is to implement the strategy smoothly, and fearing that the strategy would be troubled by complicated geopolitical problems faced by areas like Xinjiang, there will be numerous regions with issues no less complicated than Xinjiang in the areas encompassed by Belt and Road Initiative, as these areas are some of the most geopolitically complicated areas in world and anything could happen. The essential elements to realize national strategic interest are the actual entity and mechanism of the strategy, and an influential national strategy should contain the both to ensure the safety of the market’s interest, in order to bring results to the country and to the businesses through Chinese investments.
Problem 2: Resources
The plan of Belt and Road Initiative has been approved and it is thought that Xinjiang, a major site of the ancient Silk Road, will receive extra attention. This year happens to be the 60th anniversary of the establishment of Xinjiang Uyghur Autonomous Region; the central government will give a “policy goodie bag” to Xinjiang, focusing on developing the core area of the Silk Road. West China is hungry for development, but the “goodie bag” they receive will be a watered-down one, and the “cakes” of the policy might be divided into two or even three halves.
Based on the current strategic thought of Belt and Road Initiative, the region that encompasses Belt and Road Initiative has the population of 4.4 billion people, 26 countries, USD 21 trillion, and that is basically the entire core area of Asia. According to the initial estimation of China International Capital Corp (CICC), in the next decade China’s export to the Belt and Road Initiative region will increase one-third, with the total investment sum of USD 1.6 trillion. So how should we see this?
China’s foreign investments are largely controlled by the government, and national policies dictate how the investments are done. The country can use all of its foreign exchange reserves, which holds USD 3 trillion. In terms of export, the Maritime Silk Road’s first obstacle will be the strong opposition of ASEAN countries; in the past Indonesia even banned the import of Chinese garments. Increasing export of China involves in the competitiveness of internal politics in ASEAN and other countries and cannot be completely changed by investments. This would also mean that the strategy cannot be without mechanism and actual entity.
And if we look at the actual resources of China, the future of the resources of Belt and Road Initiative will be closely related to the appreciation and depreciation of Renminbi. If Renminbi appreciates, foreign investments will continue to flow to China and Renminbi’s foreign investment can also be supported, if the currency depreciates, China’s foreign investment cost will increase while foreign investments to China will flow out of the country, causing the resources to dry out.
The amount of Chinese foreign exchange reserves in a cycle is relatively stable, which is about USD 3 trillion. If the investments cost USD 1.6 trillion or more, and the return of the investments aiming to increase export fails to achieve intended result, the foreign exchange reserves would decrease, the situation would be rather difficult to handle if this happens.
China's foreign investments have always contained a number of hidden cost, which is the capital and commodities exchanges between the countries that include investment, debt relieves, loans, aids and actual materials. From the past experiences, the proportion of these hidden investments is rather high, and publicly available information shows that the ratio is at least 1:1. If we consider non-disclosed national hidden cost, the ratio would be even higher.
Therefore, the investments from the businesses and from the government, financial cost and the national hidden cost might be larger than we estimate, and if the investments are conducted in the conventional way, a large some of these would becme unsettled debts. Objectively speaking, China’s current resources cannot support both One Belt and One Road, and should only concentrate its resources to develop New Silk Road to stabilize Xinjiang and develop Central Asia.
This would also mean that the geopolitical strategy requires us to give up some unrealistic expectations and hopes, and focus on national strategic interest by working on the system and the mechanism to gain trade advantages and strategic dominance on the basis of land rights.
The sustainability of local governments and central businesses after all, depends on the sustainability of the country itself.
