Prospects and pot holes on the new Silk Road

On Saturday, Italy became the first G7 nation to endorse China’s mega Belt and Road Initiative with the signing of a memorandum of understanding (MoU) between Italian Prime Minister Giuseppe Conte and visiting Chinese President Xi Jinping.

The Chinese president, who arrived in Rome on Thursday at the start of a three-nation European tour, is aiming to promote his grandiose plan of the opening road, rail and maritime routes from China to Europe, in what is often touted as a modern-day Silk Road.

But the Chinese leader’s overzealous moves, to push through the project in a host of fund-starved countries in Asia and Africa, and its repercussions on host nations, are being watched closely by many European leaders, skeptical of China’s intentions behind the massive plan, and wary of the country’s aggressive expansions.

Last week the European Union released a ten-point plan outlining its shift towards more assertive relations with Beijing, its biggest trading partner, and warning that China was a “rival” to the 28-nation bloc. On Sunday, the Chinese president is scheduled to visit Monaco and then go on to France where he will hold discussions with French President Emmanuel Macron, a strong opponent of Chinese push into Europe. President Macron has repeatedly warned that the continent needed to “awaken” to the challenges posed by China.

Without singling out China by name, European Commission President Jean-Claude Juncker also recently warned about foreign purchases of strategic assets like ports. But, debt-ridden Italy, technically in recession since 2018, is keen to attract Chinese investments, and funding for its infrastructure projects, including in its ports, as well as gain better access for the country’s products in the huge Chinese market.

Beijing, however, is keen to invest in ports and terminals as they provide the ideal conduit to funnel Chinese products into local markets and forms a strong bridgehead for further operations within a country. China has already made huge investments in expanding port facilities in countries stretching from the South China Seas to the Atlantic, including in Sri Lanka, Maldives, Pakistan, and Djibouti, in addition to its earlier investments in European ports in Greece, Spain and Belgium.

Signing of the MoU in Rome has raised disquiet within the country and among Italy’s Western allies. Politicians within Mr. Conte’s own party and in the opposition have voiced concerns on future repercussions of Chinese investments in the economy, especially in strategic infrastructure such as ports. They point to the Greek port of Piraeus where innocuous infrastructure investments by China eventually led to the port being taken over in 2016 by Chinese shipping and port development conglomerate Cosco.

Other members of the European Union and the United States, already worried by China’s increasing global economic clout and its expanding political influence over Asian and African countries, have expressed their unease with Italy signing on to BRI and providing a backdoor for Chinese intrusions on the continent.

It is more than five years since Chinese President Xi Jinping announced the launch of both the Silk Road Economic Belt and the 21st Century Maritime Silk Road — the infrastructure development and investment initiative — stretching from the Far East, across Central Asia and the Middle East, to Europe. The project, eventually termed the Belt and Road Initiative (BRI)  is one of the most ambitious infrastructure and investment projects in the world. It attempts to retrace the original Silk Road, which connected Europe to Asia centuries ago.

The ambitious BRI involves a two-pronged approach: the overland Silk Road Economic Belt and the Maritime Silk Road, and envisions a vast network of railways, energy pipelines, highways, bridges, ports and smooth border crossings for both people and cargo. More than sixty countries have already signed on to BRI or indicated an interest in doing so. The largest so far is the US$68 billion China-Pakistan Economic Corridor, a collection of projects connecting China to Pakistan’s Gwadar Port on the Arabian Sea. In total, China has so far reportedly spent more than US$200 billion on BRI; the global investment firm, Morgan Stanley predicts China’s overall expenses over the life of the BRI could reach over $1.2 trillion by 2027.

Critics of BRI see it a Trojan horse for Chinese economic hegemony over countries through Beijing-controlled institutions and politicians, as well as for strategic expansion of its military capabilities by owning ports and energy pipelines in a string of  countries along the BRI network. However, as costs for many infrastructure projects skyrocketed, opposition has grown in some countries. In Sri Lanka, President Maithripala Sirisena sought to renegotiate Colombo’s repayment schedule, but China asked for a long lease on a major port in return for debt forgiveness — some reports indicate Sri Lanka owed $13 billion on its debt in 2018, with expected total government revenues of just $14 billion.

In Malaysia, newly elected Prime Minister Mahathir bin Mohamad — who had campaigned in 2018 against overpriced BRI initiatives, claiming they were partially re-directed to funds controlled by his predecessor — canceled $22 billion worth of BRI projects, once in office. The new Maldivian government has also begun to unwind some of the BRI projects introduced under former President Abdulla Yameen Abdul Gayoom, while the China-Pakistan Economic Corridor is reported to be at risk as Islamabad faces a severe balance-of-payments crisis.

Meanwhile, in Kuwait, a high-level Chinese delegation arrived in the country in mid-February and held discussions aimed at accelerating implementation of the construction of Mubarak port on Bubiyan Island, development of the mega Silk City Project and the northern economic zone, all of which are seen as crucial to the country’s New Kuwait 2035 strategic plan.

“One of the main objectives of New Kuwait 2035, and its key project of the northern economic zone is redressing the structural imbalances of the national economy,” said the CEO of the Silk City and Boubyan Island Development Council, Faisal Al-Medlej. For his part, the First Deputy Prime Minister and Minister of Defense Sheikh Nasser Sabah Al-Ahmad Al-Sabah, who is spearheading the mega development projects and the strategic New Kuwait 2035 plan, emphasized that the northern economic zone law must be flexible enough to attract local and international investors, and he hoped both executive and legislative authorities would complete the study of the law in the coming weeks.

In early March, Kuwait confirmed that it would establish a $10 billion Kuwait-China Silk Road Fund that will reportedly be financed in equal measure by Kuwait and China, while also working with strategic partners in China to arrange debt financing that could see the total investment capacity of the fund raised to as much as $30 billion. The fund would invest in projects related to the Silk City and development of  northern economic zone, as well as for strategic investments in China and in other countries through which the ‘Belt and Road Initiative’ is expected to pass.

The northern economic zone comprises of five islands: Boubyan, Failaka, Warba, Miskan and Awha, in addition to a considerable part of the Subiya area with a total area of nearly 1,700 square kilometers. The ambitious mega project would turn the northern area into a regional commercial hub benefiting from its strategic geographical location near a large market of over 200 million people and an economy with a GDP of over $1 trillion a year.

-Staff Report