China’s long-term strategy: One Belt One Road
Posted on April 9th, 2016

 JESA Investment and Management Co., Ltd / JESA Capital

Currently, China is one of the strongest economies in the world. At the end of 2014, the total values of import and export were respectively US$1.960 trillion and US$2.343 trillion. These numbers put China on top of the list of trading nations around the world. However, the Chinese Government realized soon that in order to support its economic growth and massive industrial overcapacity it would have to look beyond China boundaries and design a long-term strategy.

From 2013, China started to promote the so-called One Belt One Road (OBOR) initiative, a development plan focused on connectivity and cooperation among countries. The OBOR would include overland roads and rail routes, oil and gas pipelines and other infrastructure projects. It will stretch among 65 countries –mainly in Eurasia but it would include Oceania and West Africa as well, and will concern 4.4 billion of people.

 

Two are the main components of OBOR, the land-based Silk Road Economic Belt” and the oceangoing Maritime Silk Road”. Beside these two macro projects, the initiative scope has been broaden by adding two more networks, the China-Pakistan economic corridor and the Bangladesh-China-India-Myanmar economic corridor.

This huge initiative would bring several geopolitical and economical advantages to China. Of course, high quality infrastructures would increase the efficiency of transportation cost-wise and time-wise. Most of the infrastructure projects would run through some of China’s poorest and least developed regions. Beijing is hoping that, by improving connectivity between its underdeveloped southern and western provinces and its richer seacoast, the Belt would improve China’s internal economic integration and competitiveness and incentive a more homogeneous growth.
Moreover, the initiative is intended to reduce the enormous overcapacity of Chinese industrial sector making easier for Chinese goods to enter foreign markets. Massive industrial overloading is a big concern for the country since the domestic demand is no more able to absorb it.

Beside these reasonable points, other considerations have to be added. The size of this initiative would likely change the structure of the Eurasian economy and would bring strategic advantages to China. For instance, the China-Pakistan economic corridor reflects China’s new attitude toward long-term vision. The China-Pakistan economic corridor (CPEC) is a developing mega-project, which aims to connect Gwadar Port in south-western Pakistan to China’s north-western autonomous region of Xinjiang. Beijing invested around US$ 46 billion in this project making it its biggest overseas investment.

This project would make Pakistan a richer and stronger entity than ever before but at the same time, it would bring new opportunities for China. Currently, 60 percent of China’s imported oil comes from the Middle East and 80 percent of that is funneled to China through the Strait of Malacca, a high-risk area. Pirates are common in this zone and in case of any tension breaks out in the region, US or India could easily block the channel. Thus, energy security is a key concern for China. Oil pipelines and all the infrastructures included in CPEC would cut ocean travel through the Southeast Asia. As a result, Beijing will be able to reduce the high risk that characterizes almost half of the whole country’s oil supply.

Moreover, the Gwadar port would have a high importance because of its strategic location. Gwadar is located in Pakistan’s western province of Balochistan, at the mouth of Persian Gulf just outside the Strait of Hormuz. It has a direct access to the Arabian Sea.

According to the expert, the completion on Gwadar port would make it the economic hub of Balochistan and would generate billions in revenue. It would provide links from the Caspian See to the Strait of Hormuz and enable Gwadar to compete with Persian Gulf.
Of course, China would enjoy this opportunity. Indeed, according to the agreement, the port will remain propriety of Pakistan but it would be operated by the state-owned Chinese enterprise China Overseas Port Holding Company” (COPHC).

The Gwadar projects is not an isolate case. China’s maritime trade ambitions are bringing Chinese state-enterprises to invest billion into port-building projects across the Indian Ocean rim, Sri Lanka and Kenya.

Since China proposed its OBOR strategy three years ago, it has made significant headway. The Gwadar port has been completed and 10 over the 26 projects included in the CPEC are already under construction. The main part of the Silk Road Economic Belt” is currently operational and the Yiwu-Madrid railway has been completed at the end of last year. The route has a length of 8,111 miles and passes through Kazakhstan, Russia, Belarus, Poland, Germany and France before arriving at the Abronigal terminal in Madrid. The train takes just three weeks to complete a journey that takes up to six weeks by sea.

China is entertaining the idea of spreading its economical power well beyond its boundaries. The strategic alliances that Beijing is making lead us to believe that new opportunities and sweeping changes are afoot in the global economy.

By Saro Capozzoli, Enrico Borsari, Stefania Bianco and Tommaso D’Amico- Jesa Investment and Management Co., Ltd.

One Response to “China’s long-term strategy: One Belt One Road”

  1. Christie Says:

    Africa the unexplored is Chinas aim. India has a foothold in the former British-Indian Empire but the locals hate Indians. China is the worlds biggest producer of goods at the moment.

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