China’s New Silk Road: Tactics, Overstretch or Grand Strategy?

Foreign policy has traditionally been an afterthought for China’s leaders for much of the country’s modern history. With the focus on the implementation of communism and socialism occupying the Mao era, subsequent rulers have focused on the country’s economic opening and what has been deemed its “peaceful rise”. Since assuming power in 2013, Xi Jinping has begun to conduct a more assertive foreign policy, while pursuing a “cleansing” of the communist party in what may be history’s largest anti-corruption campaign and still focusing on progressing, albeit very slowly, economic reforms. Recently though, China appears to have made the leap to formulating what appears to be a grand strategy, of sorts: the creation of the “Silk Road Economic Belt” and the “21st-Century Maritime Silk Road”, dubbed the “One Belt, One Road” strategy. This initiative ostensibly aims to boost connectivity and commerce between China and 65 countries in Eurasia and Northern Africa, which has a total population of 4.4bn. The plan is to build networks of roads, railways, pipelines, ports and other infrastructure across Asia connecting China to Europe, the Middle East, South- and Southeast Asia. Along the way China hopes to build out strategic, economic and trading relationships with the countries on the route, while securing much needed natural resources.

This ambitious project has been aptly named: The New Silk Road. The historical Silk Road, which existed in various forms from antiquity through the beginning of the modern age, was a significant factor in the development of China, India, Persia, the Levant and Europe, creating political and economic linkages between these far flung civilizations. More importantly perhaps, the Silk Road was the means by which China’s Han dynasty extended power and influence from the 3.4m sq km of territory inherited from the Qin to over 6m sq km 2000 years ago. In a country such as China, with 5,000 years of continuous civilisation, memories are long and these labels matter.

China’s Marshall Plan or the British Empire’s Railways Project?

The scope and scale of China’s New Silk Road initiative is perhaps unrivalled in history and has been called China’s Marshall Plan by Western commentators. Indeed, there are a number of similarities with the $120bn (in current terms) post WW II program that sought to rebuild Europe through kick-starting infrastructure and heavy industry as the basis for growth. But while the U.S. Marshall Plan sought to rebuild and stabilise Europe in the context of the imminent Cold War, the New Silk Road strategy is interesting since it comes in peace time and crosses continents. Its scale also poses the question as to whether it is more akin to the railways that the British Empire built across the colonies. Railways were the infrastructure used to cement its control over its own colonies. This was particularly the case not just in India, where a huge network of lines was created partly for military purposes, but also in Egypt where rail lines allowed the British to reclaim control over Sudan.

The evident primary purpose of The New Silk Road from public statements appears to be the generation of economic benefits to China itself. The initial focus of the strategy is on the financing and build-out of hard infrastructure, and most of the projects initiated or envisaged to date include a major role for Chinese companies, either as suppliers of equipment and materials or in construction and execution. The building of transport and trade linkages benefits China but also its neighbours for the trade they will facilitate. Further, Central Asia, in particular, is rich in resources that China needs for its continued development, including oil, gas, coal, gold, copper and uranium, and the build-out of sea links to the Middle East and the Mediterranean is critical to securing China’s sea lines of communication on a route through which 80% of it is oil imports pass. Economically speaking, China’s increased westward focus clearly makes sense: the region the strategy covers contains 65% of the world’s population but accounts for only 26% of China’s foreign trade, representing a significant growth opportunity.

The primary focus of the New Silk Road initiative, at least initially, appears to be infrastructure build-out, and the majority of commitments announced to date have been on scaled cross-border transportation linkages focusing on six geographic segments, or corridors, creating trade routes along which further economic activity is expected to develop. The map highlights the key corridors and routes of the New Silk Road. Projects initiated or currently under consideration include new highways and rail-lines connecting China to Central Asia, high-speed railway networks in Europe, including a Hungary-Serbia link, the build-out of a network of port facilities stretching from Athens to Malaysia and a canal through the Isthmus of Kraa in Thailand that would dwarf the Panama Canal.

China’s play to build-out regional infrastructure is highly ambitious, the annual “gap” between the supply and demand for infrastructure spending in Asia being estimated at $800bn. With existing international institutions such as the World Bank, the Asian Development Bank and the IMF currently not positioned to adequately address this gap, China has emerged as a welcome financier to countries requiring infrastructure investment, particularly given its traditional policy of granting loans without imposing the reform and governance requirements set by other lending institutions. Given the massive geographic scale of the New Silk Road initiative, the scope of China’s required financing activities is equally large. The countries defined as being part of the strategy are already capturing over 75% of the overseas loan commitments made by Beijing’s largest policy lenders, the China Development Bank and the China Export-Import Bank, making obvious the need for significant additional financing to execute the strategy. Estimates of the total investment vary, but China has committed to finance the build-out through multiple pools of capital, including the US$100bn Asian Infrastructure Investment Bank (AIIB), a dedicated US$40bn Silk Road Fund, and the injection of US$62bn of fresh capital into the state-owned policy banks, as well as a number of funding commitments at the bilateral level, such as the $45bn funding of the China-Pakistan Economic Corridor. China’s total investment (and its partners’ in the AIIB) in its master plan could exceed US$1.4 trillion by some estimates, making it 12 times larger than the Marshall Plan, or approximately 15% of China’s GDP

The scale of its funding requirement aside, China’s New Silk Road is ambitious in that it touches on virtually every important issue facing the country today, although in certain cases it appears to be set to exacerbate rather than resolve many of these issues. The table below lists the critical issues impacted by the New Silk Road as well as the likely implications.

Of the issues outlined in the table, the relationships with key powers appears to be one of the most significant shortfalls of the New Silk Road initiative or at the least it is a factor for which China’s aims and strategy have not been declared. For all of its focus on immediate economic benefits for China, very little is said about the New Silk Road’s long-term political implications, particularly with regards to the countries that are not, or are only marginal beneficiaries of the initiative, but are impacted by its implications nonetheless. The list of these includes some of the world’s most important countries and the initiative could easily lead to uniting them in opposition to China on a far wider front.

There are four significant potential geopolitical implications of a successful implementation of the initiative.

• The United States: Outpivoting the Pivot. The US, China’s largest trading partner by a significant margin, is wholly outside of the scope and spirit of the New Silk Road strategy, which is a geographic counterpoint to America’s own pivot westward into the Pacific. In parallel to building links westward, China appears to be drawing increasingly hard borders eastward, both in terms of defence and economics, with increasing territorial tensions with its Eastern and South-eastern neighbours, the extension of China’s own air defence identification zone into those of Korea and Japan and a build-up of naval power, while progress on the proposed China–Japan-South Korea Free Trade Agreement appears to have stalled China has refused to take part in the 12 country, US led, Tran-Pacific Partnership (while the US, conversely, is not supporting the 51 country, China led, AIIB). With the US seeking to set the next generation of trade and investment rules for the Asian Pacific, China is increasingly looking to the Eurasian continent for economic growth and presumably long-term influence.
• Japan: Out in the Cold. The US’s closest regional ally Japan, China’s second largest sovereign trading partner, is similarly shut out of the New Silk Road initiative. With Sino-Japanese foreign policy relations already a casualty of both country’s increasing nationalism, Japan stands to be one of the key losers of the New Silk Road strategy, with trade and investment shifting away from it. While Japan certainly does not require further infrastructure build-out, the Abe government has called for foreign direct investment into the country to double by 2020 to $280bn, with China currently investing less than US$500m in Japan annually, representing a significant lost opportunity for both Japanese and Chinese companies. More importantly, given Japan has historically been one of top three providers of FDI to China, this initiative potentially puts at risk a key source of foreign capital for the country.
• India: Encirclement Risk. Although technically, India is part of the New Silk Road strategy by virtue of the Bangladesh-China-India-Myanmar Economic Corridor, this is not at all how India views this part of the initiative. India very clearly sees encirclement by China. The Maritime Road passes through the Indian Ocean to the country’s south, establishing ports and potentially naval bases in places that India considers within its sphere of influence, such Sri Lanka, or strategically sensitive, such as Pakistan. Similarly, the overland silk route bypasses the country’s northern border to India’s exclusion and to the benefit of its regional rival Pakistan.
• Russia: Security Encroachment. A full [5,000] km of the New Silk Road skirt Russia’s southern borders, running through countries that until recently were part of or satellites of the Soviet Union. China has already eclipsed Russia as the largest trading partner of the five post-Soviet central Asian states, all of which the latter considers security buffer states. For the time being it appears that Russia and China have come to an agreement with regards to sharing regional power, with Russia recognising China’s de facto economic dominance while remaining the sole military powerbase when it comes to hard security in the region. It remains to be seen, however, how stress-resistant this arrangement turns out to be, with both countries continuing to nurturing competing economic and security institutions as a potential back-up.

Clearly, it is hard to imagine that a country that plans as thoroughly as China would develop a mega-scaled project with a highly complex cross-border strategic thrust unfolding over decades without having planned out its political dimensions, too. However, if the New Silk Road truly lacks the political dimension, it highlights a key difference between it and the Marshall Plan and the British Empire’s railways programme, both of which were part of a grand strategy driven by a set of long-term geopolitical foreign policy or military goals; the New Silk Road would be exclusively focused on economic issues and seemingly tactical ones at that. Supporting that idea, China’s foreign affairs institutions do not appear to be directly involved with the initiative, it being under the remit of Zhang Gaoli, a ranking member of the standing committee of the politburo and the second-in-charge of China's government and economic sector. The key question this prompts is whether the lack of an evident political dimension is an oversight or a carefully weighed and determined geo-political move? The supplementary question is whether this is an economic initiative or a political one? If it is an economic one, then is it a tactical one or a strategic one? This in turn raises the question for others to determine what it means for them. In the absence of clarity on China’s aims, they will need to form strategies under various scenarios. There are three distinct possibilities regarding the underlying nature of China’s engagement on the New Silk Road.

• Political Strategic Initiative. The New Silk Road, under this scenario, would be the play out of a long and patient game around the country’s political position and the build-out of its power, under the cover of an initiative ostensibly run by the country’s economic leaders. In support of this view, is the evidence that China in other areas has proven to be both highly strategic, willing to play long-term games patiently and has been shifting to a more muscular foreign policy in recent years. In this scenario, China’s political non-engagement to date is a strategic tool that helps to obscure the country’s end game. Having made a conscious decision to obscure, it make sense to de-politicise the initial stages of the strategy and thereby build credibility and trust as well as economic momentum while setting the pieces for later political moves. For example, the protection of economic interests in foreign countries have historically provided justifications for subsequent strategic and even military interventions, as Britain’s expansion in India through the East India Company demonstrates. The key argument against this view is that such a strategy would represent a premature shift in the country’s priorities: Chinese leaders since Deng Xiaoping have focused on economic development and the creation of a “moderately well off” society, a transformation process that remains difficult and is on-going. In this interpretation, China’s more active foreign policy is a natural consequence of its growing importance and increasing global integration, rather than a necessary active choice. If it were indeed a political strategic initiative, the New Silk Road, given its scope, would be a major play in “great power” politics, which is something that countries can only afford when they are otherwise highly stable or desperate. China today is neither of these things. However, while China’s current level of planning is unclear, a political strategic New Silk Road is certainly within its capabilities, and even a purely economic initiative today provides it with options to develop complementary political strategies.
• Economic Strategic Initiative. Alternatively, the New Silk Road’s primary objective might be economic and strategic because it has the potential to own the trade corridor linking the Middle East to East Asia, one of the world’s most energy dependent regions. China currently imports 60% of its oil from overseas. Although oil contributes less than 20% of its primary energy consumption, China’s demand makes it the largest net importer of petroleum globally. While China has sought to diversify its sources of oil by purchasing from places such as South America and Africa, two-thirds of its oil imports today come from the Middle East and the former Soviet Union. Locking in supply and controlling transportation infrastructure in the region is clearly highly strategic for China, given energy security is crucial for further economic development and stability. Per capita energy consumption in China today is only a quarter of that of advanced industrial economies such as a Japan and Germany, pointing a massive increase in China’s medium to long-term energy requirements. Additionally, securing petroleum access is also highly strategic for many of its neighbours, who are even more dependent on foreign oil than China is, with imported oil representing approximately 25% of India’s and 40% of Japan and Korea’s total primary energy consumption. Owning key access routes for is neighbour’s essential resources would provide China with significant future strategic leverage in trade negotiations. Executing the New Silk Road as an economic strategic initiative that ties into China’s long-term development is significantly more complex than executing one focused on boosting trade and investment but the strategic value to China is commensurately greater, too.
• Economic Tactical Initiative. While at first glance unlikely, it does remain possible that the New Silk Road, at least initially, is tactical, in that it is predominantly about utilising excess capacity in construction and related finance. Under this view, it would be argued that the New Silk Road is not a strategy at all, but a convenient label to group together a series of initiatives China has already been pursuing for over a decade, kicked off when former President Jiang Zemin told Chinese businesses to "go out". The various funding mechanisms and the vagueness of official language, which for examples waivers between calling the China-Pakistan corridor a part of the strategy or a closely related initiative, points to a lack of top level coordination. The “vision” of the New Silk Road espoused by Xi Jinping has been back-solved, adding the illusion of grand strategy to an ongoing series of tactical moves. However, the lack of an upfront long-term strategy does not preclude its development over time to something more strategic.

From the perspective of foreign policy makers, one of the lessons of history is how trade and infrastructure lead to ownership and control. So, whatever might be the initial objectives of The New Silk Road, policy makers would need to focus on the natural development of a political dimension over time: building out trade links provides influence over the movement of people, trade and information between two or more points and therefore virtually guarantees

the accrual of political clout over time. History is full examples of infrastructure both enabling and requiring the use of political power. Egypt for example became a de-facto Anglo-French protectorate following the establishment of the Suez Canal and US intervention triggered by its interests in the Panama Canal drove the separation of Panama from Colombia, From the perspective of foreign policy makers, one of the lessons of history is how trade and infrastructure lead to ownership and control.

Especially poignant for the East is the story of the East India Company and how its trade linked sowed the seeds of the British Empire in India. From China’s perspective, the issues being addressed by the New Silk Road are well understood and have been areas of focus of its leadership for some time. If there is a indeed a masterplan that was drawn up in Zhongnanhai it will have drawn upon the inputs from diverse sources and will have been drafted in a way that makes it acceptable to the various factions in China’s leadership today, which means supporting multiple and differing views and providing flexibility in terms of future execution and focus. Regardless of China’s current level of thinking on the New Silk Road, it is clear that unless thwarted, this initiative has long-term potential of a strategic and political nature.

Executing a Long-Term Strategy: The Long Road

Looking ahead, a successful New Silk Road will need to encompass a number of additional policy areas, both economic and political, which still appear to be missing today, including credibility, sustainability accountability and the parallel execution of domestic reform.

• Strategic Partnership. In terms of building credibility, China today has failed to build a base of soft power in the world today commensurate with its economic power and growing political clout. The New Silk Road in some ways represents a major soft power push, promising Chinese capital, expertise, good and services to countries along the route, along with closer relationships with Beijing, with its success depending on China being accepted as a credible partner. As currently envisaged though, the New Silk Road also represents a liability to China’s credibility, in that it comes at the expense of the countries outside of the routes, many of which have been its long standing economic partners. By turning its back on the countries that played an important part in its development until today, such as Japan and to a lesser degree South Korea and Vietnam, China risks sending signals that it is not a long-term strategic and economic partner. More importantly, China’s increasing focus on the New Silk Road is allowing it to leave a growing number of issues with these countries unresolved. If China wants to be credible as a partner to the countries on the New Silk Road it will need to demonstrate both the long-term nature of the partnerships it is seeking to establish as well as its ability to constructively resolve the differences that surely will arise over time. If and once the New Silk Road is successful, China is very capable of using it of course to bring others to participate in it and thereby further enhance its power and influence.
• Sustainable Financing. Equally as important as credibility in winning acceptance as a strategic partner is sustainability and financial viability. China’s policy in the past has often focused on providing soft loans with little or no financial accountability. The scaled infrastructure projects of the New Silk Road will need to pay for themselves however, at least over the long term. If the New Silk Road projects do not generate sustainable benefits to local economies however, China risks suffering political backlash from local electorates, as it has done in parts of Africa. This financial sustainability requirement creates a potentially high bar for projects on the route: China’s own infrastructure investments in its sparsely populated western regions have seen much lower returns than its earlier coastal investments. China and its partners will need to build solid business cases for scaled projects even further afield for these to succeed over the long term.
• Security and Military Exposure. The New Silk Road passes through a number of global hotspots suffering from political instability that threaten the safety of traffic on the route and China’s investments. Afghanistan, Iran, Sudan and Syria are all along or next to major proposed arteries of the road, and China’s policy of non-intervention in other countries’ affairs is not attuned to the needs of the New Silk Road strategy. As the architect and financier of the road, China will need to assume security accountability for its infrastructure and traffic. Once the precedent is set, it, one can envisage China playing a more active role in international affairs, contributing to international peacekeeping and disaster relief efforts generally as well as a as a proactive mediator helping to solve specific regional issues. This would initially be seen as China becoming a broader responsible stakeholder. It is also one of the first step in China learning how the international conflict system works as a participant rather than an observer and as the world has seen in the sphere of trade, what begins as a participant ends with China becoming a force to reckon with.
• Domestic Reform. Most importantly, perhaps, China will also need to execute comprehensive domestic reforms. As currently formulated, the New Silk Road is a rear-guard action protecting China’s investment led economic model, allowing it export overcapacity in sectors whose productive contribution to the Chinese economy is declining. Given that the country’s economic restructuring is progressing only slowly, the New Silk Road initiative is one way of sustaining otherwise declining industries and making up for their contribution shortfalls to domestic growth. China’s key long-term strategic objective needs to be the reshaping of its economy, and the New Silk Road initiative must clearly be recognised for what it is: one tool that affords China the opportunity to do so.

Ensuring the success of the New Silk Road, even if defined in a narrow economic fashion will therefore require expanding its scope significantly, from trade and investment today to foreign and security policy as well as governance and development, while also expanding its geographic scale to integrate or at least accommodate important constituents currently left outside the initiative. This suggests that it is irrelevant where the initiative began, even if that were tactical and economic, it has to end up as strategic and to some extent political in the end if it is to be successful.

For the New Silk Road to deliver its true potential to China, it will need to simultaneously execute a wide range of ambitious initiatives covering development, security, engagement in multi-lateral institutions and foreign policy that unpin its strategic nature. The table below highlights seven potential initiatives China could seek to pursue to make the New Silk Road part of a Grand Strategy.

Foreign policy implications and actions aside, it is also important for its leaders to consider the potential socio-political consequences of the New Silk Road at home. If China is able to achieve only a fraction of the potential vision for the New Silk Road, the domestic impact will be significant, and not just from an economic development perspective. The past 30 years of China’s rise have created a mind-set in its leadership that is focused on hard assets: hard currency, hard trade, and hard power. Much like the original, the New Silk Road will also be a cultural transmission route for the exchange of ideas, and one runs in both directions. The original Silk Road, in addition to exporting China’s goods to the world, also imported Buddhism, which became the state religion for centuries, and later Islam, which also had a major impact on Chinese history and culture. This transmission will certainly happen again and China’s ability to absorb and successfully integrate new ideas will be a function of its openness. In the absence of openness and flexibility, new ideas can disrupt society rather than providing stimulus for further growth and development., and China’s leadership’s current categorical dismissal of Western “cultures and values” calls in question its receptiveness to the powerful new influences that that New Silk Road will bring.

Conclusion: Foreign Policy Considerations for the Rest of the World

Given the long-term strategic execution requirements of such a far-reaching initiative, the New Silk Road has the potential to be one of the defining economic and political constructs of the first half of the 21st Century, driving development, integrating and promoting trade and providing stability across the world’s largest landmass and beyond as well as cementing China’s position as a regional and global superpower. Foreign countries, whether in or outside of the scope of the New Silk Road, will need to formulate a response to China’s moves, based on both their own strategic priorities and their views on the plan, its risks and benefits and its chances of success. These views and priorities can give rise to three distinct responses:

• Accommodate and Influence. Countries seeking to benefit from the New Silk Road are the most likely candidates to be accommodating, welcoming engagement with China and with its trade and investment. This list includes both countries with pressing needs and limited alternatives to China’s plans, such as the Central Asian countries, and mature developed countries that believe engagement creates win-win situations, such as the UK. PM David Cameron’s red carpet roll-out to President Xi Jinping in London last month and its willingness to sign up to the AIIB speaks loudly to the UK government’s conviction that an early submission to China’s plans will reap greater benefits than a later one. Whether this will be the case remains to be seen.
• Counterbalance and Contain. Countries potentially threatened by China’s New Silk Road or by its rise to superpower status will more likely seek to counterbalance its actions and policies, containing China’s expansion and influence. Japan and the US may well adopt this position; most of the US’s presidential candidates appear to be adopting a more hawkish stance on China. The actions of these countries will be built on the view that constructive engagement with China is not and is unlikely to bear fruit and so measures are required to counteract the growth of China’s power and influence. The US alone today has the experience to galvanise the array of chess pieces required to execute such a strategy in East Asia. This will also require the US to undertake a series of initiatives in Central and South Asia, the Middle East and Southeast Europe too that have the scope to counterbalance the New Silk Road. This will require the US to leapfrog the initiative through its ingenuity and resources while undermining it directly. This is by no means an easy task.
• Wait and See. A standing option is of course to do nothing for the time being and wait and see. The challenges facing China today, whether domestically or internationally are significant and the country has recently proven itself to be unable to address these effectively. The scope and scale of the New Silk Road would require China to solve all of these problems as well as a number of additional issues simultaneously and in a coordinated fashion, a scenario which many believe is highly unlikely. If the New Silk Road represents a classic example of overextension, a studied policy of limited engagement is an effective option for China’s rivals on both sides of the road’s fence. In this view, China will likely muddle through a series of economic reforms that keep the country creeping forward but not leaping ahead, while a carefully chosen mix of accommodating and counterbalancing responses to the New Silk Road will result in a patchwork of initiatives and investments that are never fully integrated. Countries that adopt this position can respond to events flexibly, accommodating China in areas where it needs them and counterbalancing it in those where China’s interests run up against its own, getting the benefits of both strategies in areas where they are most effective and relevant.

Of course some countries may effectively default to the third option simply by lacking a coherent strategy for engaging with China. India today could fall into this category, having alternated between viewing China as a competitor for resources and as a partner for development. Whatever the view of world leaders, the New Silk Road is clearly a move with serious geo-political consequence and one only to be ignored at their own, if not the international order’s, peril.

Notes:-