The New Silk road – OBOR – an overview

In Club News by Stephen Perry

The New Silk Road (OBOR) Paper by Stephen Perry and Keith Bennett for the China Development Forum at the L.S.E. 30 January 2016

– It is always a pleasure for me to support and participate in the China Development Forum at the LSE. Since its inception it has gone from strength to strength. I truly see it as a gathering of future leaders.

I have been following China, the events there and the development of the country, all my life. It has been the greatest privilege of my life to be a witness to and, if I may say so, a modest participant in, one of the greatest chapters in human history. I refer to the remarkable transformation and development of China in an unprecedentedly short period of time into the world’s second largest economy and the transition from poverty to the beginnings of moderate prosperity that this has entailed for well over a billion people. Given the majesty of China’s history, culture and civilisation, I prefer to refer to this not as the rise of China but rather as the return of China.
Now that China has returned, the question of what sort of country it will be, what role it will play in the world, is something that naturally concerns the entire international community.
It is against this background that China has advanced the concepts of a global community of common destiny, of shared prosperity, equality and mutual benefit and win win cooperation. China, having suffered from poverty and oppression in the past, understands that a world where only China develops, and its neighbours and the wider world either stagnate or relapse into poverty and conflict, is not only undesirable, it is actually impossible. China itself has prospered by opening its door to the outside world. Sustainable and lasting prosperity has to mean prosperity for all.

This is the thinking behind a whole range of China’s recent initiatives – for example of the development of BRICS, along with Brazil, Russia, India and South Africa, and the creation of their New Development Bank; of the Asian Infrastructure Investment Bank (AIIB), formally launched in Beijing earlier this month; and especially of our topic of the moment, the great vision of jointly building the Silk Road Economic Belt and the 21st Century Maritime Silk Road.

As Minister Zhang has already explained, this is a new idea, but one with an ancient lineage. As the National Development and Reform Commission, the Ministry of Foreign Affairs and the Ministry of Commerce of the People’s Republic of China have jointly observed:

“More than two millennia ago the diligent and courageous people of Eurasia explored and opened up several routes of trade and cultural exchanges that linked the major civilisations of Asia, Europe and Africa, collectively called the Silk Road by later generations. For thousands of years, the Silk Road Spirit – ‘peace and cooperation, openness and inclusiveness, mutual learning and mutual benefit’ – has been passed from generation to generation, promoted the progress of human civilisation, and contributed greatly to the prosperity and development of the countries along the Silk Road. Symbolising communication and cooperation between the East and the West, the Silk Road Spirit is a historic and cultural heritage shared by all countries around the world.”

China’s initiative to jointly build the Belt and Road, embracing the trend towards a multipolar world, economic globalisation, cultural diversity and greater IT application, is designed to uphold global free trade and an open world economy and to enhance regional cooperation. It aims at being highly efficient in terms of the allocation of resources and at achieving a deep integration of markets among the countries along the Belt and Road, thereby jointly creating an open, inclusive and balanced regional economic cooperation architecture that benefits all.

According to the vision of the Chinese government, the Belt and Road Initiative is in line with the purposes and principles of the United Nations Charter. It upholds the Five Principles of Peaceful Coexistence, namely mutual respect for each other’s sovereignty and territorial integrity, mutual non-aggression, mutual non-interference in each other’s internal affairs, equality and mutual benefit, and peaceful coexistence.

The initiative is an open one. It covers, but is not limited to, the area of the ancient Silk Road. It is open to all countries, and international and regional organisations, so that the results will benefit wider parts of the globe as well.

It is harmonious and inclusive. It advocates tolerance among civilisations, respects the paths of development chosen by different countries, and supports dialogues among different civilisations on the principles of seeking common ground whilst reserving differences and drawing on each other’s strengths, so that all countries can coexist in peace for common prosperity.

The new silk road follows market principles. It will abide by market rules and international norms, will give play to the decisive role of the market in resource allocation and the primary role of enterprises, and will also let governments perform their due functions.

The new silk road is envisaged to go in five directions:

– From north west and north east China through Central Asia and Russia to the Baltic Sea
– From north west China through Central Asia and the Persian Gulf to the Mediterranean
– From south west China through the Indochina peninsula, Malaysia and Singapore to the Indian Ocean
– From the Chinese ports, through the South China Sea and the Straits of Malacca to the Indian Ocean and westwards from there, for example to East Africa;
– And by the same route but then on to the South Pacific from the Straits of Malacca.

Six economic corridors are envisaged:

– From north east China through Mongolia and Russia to the Baltics
– From the coastal provinces through western China to Central Asia and then to Russia and the Baltics
– From north west China through Xinjiang, Central and West Asia to the Persian Gulf and the Mediterranean
– From Yunnan and Guangxi Zhuang in south west China through Vietnam. Laos, Cambodia, Thailand and Malaysia to Singapore
– From China through Pakistan, entering the Indian Ocean through the port of Gwadar;
– And, through Myanmar, Bangladesh and India, entering the Indian Ocean via the Bay of Bengal.

These new silk routes will embrace – and will require major investments in – railways, highways, sea transportation, pipelines and the information superhighway and connectivity.

To translate this grand vision into reality will require trillions of dollars of investment in infrastructure and in all sectors of the economy in the more than 60 countries directly encompassed within the new silk road initiative, as well as further afield. Cumulatively it represents the greatest business opportunity in the contemporary world.

One Belt One Road may be the official name given to this grand project, but personally I prefer The New Silk Roads. Both historically and today there have been many terms coined to describe the great landmass that is generally broken down into the three continents of Asia, Africa and Europe.

One of them dates back to Ancient Greece. Ecumene was held to be synonymous with the known, inhabited and civilised world, entering into general usage in the fourth century. This Ecumene embraced such European civilisations as Greece and Rome, such African civilisations as Egypt and such Asian civilisations as Persia and China. From Ecumene, we derive the word ecumenical, which in the Christian religion denotes the aspiration and search for unity and inclusivity.

But whatever name it may have been given, for centuries the diverse peoples of Africa, Europe and Asia have shared a common home. History has recorded great conflicts and injustices, but over long historical periods, nations and peoples have also traded and mingled peacefully, their interactions facilitating the exchange not only of goods and commodities but also of knowledge, techniques and ideas. The ancient silk route, from China to Rome, was one such great highway. Also worthy of mention are the epic voyages all round Asia and to East Africa by Admiral Zheng He in the fifteenth century.

There is an excellent book that you can get to complement today’s superb talk by Minister Zhang Jiming. It is The Silk Roads by the Oxford academic Peter Frankopan. It will tell you the history and put it in a current and future context.

If you do not know where things come from you cannot know to where they will go. That has always been my personal philosophy and it contains what many very clever people have said many times. I have simply endeavoured to translate into my own shorthand.

But my own study of history has taught me that President Xi’s idea of the new silk roads takes the past and updates it brilliantly, with a view to managing both present and future challenges.

If, for example, you wonder why a road curves and wanders instead of going straight through a valley you can find out the reason easily enough by seeing the obstacles that the road has bypassed. They might be rivers, mountains or a ravine. But it will have its logic and the silk roads have theirs.

We should know the past for this important reason.

However, the progress of science, technology and civilisation will surely sweep away many of the obstacles, and hence the need to make some of the detours that were required in the past. For example, a future high-speed train running from Urumqi to Istanbul will use new technologies, quite likely including magnetic levitation, to shorten the route and create a new way.

Across three great continents, the new silk roads will create new ways by using the three highs, namely:

High speed trains
High speed energy transmission
High speed connectivity and communications

Some say that one might, in the not too distant future, be able to travel by train from London to Beijing in just two days and that the internet and electricity will flow across all the rail lines, roads, highways and canals, alongside the new and revived shipping routes, as well as the cables and pipelines powering connectivity and transporting oil and natural gas. In other words, a revolution in infrastructure, technology and connectivity, such as the world has never seen before, bringing unparalleled development and prosperity and affording unprecedented investment and growth opportunities.

Of course one cannot deny that many of the countries and regions embraced within the new silk roads are today mired in wars and conflicts. From Central Asia to the Middle East and beyond, there presently exists a veritable arc of crisis, where ancient and modern rivalries coalesce, seemingly inexorably, into ever greater hatreds and ever more desperate acts of viciousness and cruelty. One need only mention a few of the names – Afghanistan, Iraq, Syria, Somalia, Yemen, Ukraine. And too many more. The future promise of the new silk roads will, therefore, not be attained easily and the difficulties and obstacles should never be under-estimated. Yet it is not naïve to hold out this vision for the future. Viewed correctly, it might rather be said to be a supreme act of realism. For without hope, without development, without knowledge, without prosperity, how can there ever be lasting peace; how can hatred ultimately make way for coexistence, mutual respect and amity? Such is the long-term strategic thinking that lies, for example, behind President Xi’s bold and imaginative recent visit to Saudi Arabia, Egypt and Iran.

There is so much to strive for. History has not ended. Perhaps it is scarcely beginning. For those who have flown by day from Beijing to London what you notice when looking out of the window, for much of the time are vast expanses of…nothing.

Contrary to popular myth, much of our world is under-populated. So, alongside, and as a result of, the greatest infrastructure investment boom in history will come the greatest ever wave of urbanisation, something that is being trailed right now in China as hundreds of millions of peasants move to new towns and cities.

Countless towns and cities will spring up along the new silk roads. Learning the lessons of history, they will hopefully be environmentally friendly, ecologically sustainable and will respect biodiversity, conservation and hitherto endangered species of wild life. Crucially, they will provide the essentials of decent and civilised life to millions of people who have been denied them for too long.

Minister Zhang has given us a lot of detail about the international institutions and agreements that will provide the funding and facilitate the delivery of all this.

Such a plethora of structures is needed so as to meet a host of challenges and to safeguard cooperation and positive approaches in the face of shortsighted greed and destructive rivalries in the pursuit of contracts and the benefits to be derived from them.

This will be challenging, but what we see behind the alphabet’s soup of multinational stakeholders is a determination to follow a rules-based approach that can guarantee the rights of all, ensure best practice and lean, clean and green development.
If nations are responsible and keep their eye on the prize then it is there to be won. I am an optimist. I believe it will happen.

Still it is only natural that business in the UK and elsewhere will wonder, to put it somewhat crudely, “what’s in it for us”? Who will get the contracts? Who will manage and supervise them?

It would be foolish for us to deny that there is a concern that this seemingly grand vision of the new silk roads is simply designed to absorb China’s surplus capacity; to use its reserves by recycling them into projects that will simply represent contracts for Chinese companies, using Chinese surplus production and employing Chinese labour.
If this were indeed to be China’s hidden agenda, it would fail. Governments and businesses are not so stupid as to fail to see through any such scheme. In fact, China has had to repeatedly stress that it cannot assume the full responsibility for this project. Its vision is so grandiose that the burden would be too great. China’s position, rather, is that this project will only work if it becomes every one’s project. Everybody has to play their part and do their bit. It is an orchestral performance not a virtuoso solo. And this collective rationale and approach, moreover, is on an open and inclusive basis. There is no closed list of countries that can or cannot participate. It is open to the whole world.

Of course, the new silk roads will take full advantage of China’s skills, funds, excess capacity and everything else that it has to offer. China certainly needs this but so do the countries that will benefit. And who in many cases are eagerly, even insistently, requesting it. But that is very different from entering into this project simply to maximise those features. A grand vision cannot be reduced to or realised for such comparatively trivial reasons.

Rather this project will work precisely because it will be based upon the full participation of all national governments, their procurement agencies, and on global competition based on market principles, governed by the rule of law and subject to transparent tendering, oversight, regulation and arbitration.

Perhaps over the next ten years or so, there will be an annual outlay of some $1 trillion to lay the foundations of this global transformation. Then, as the momentum increases, over 30 years or so, the spend may rise to some $40-50 trillion.

Simply put, there will be no greater contribution to world GDP growth and to development in this historical period.

How much can we in the West expect to take of this in terms of contracts awarded, exports and so on? Somewhere between 15-20% is my guess, although it will be greater in the more sophisticated added value of the latter stages of adding refined finishes to urbanisation and the various advanced and high tech products and services that characterise its lifestyle. As you journey through China, you can see that the world’s latest technologies and products still tend to be mainly Western or Japanese. China’s extensive purchase and usage of high-end Western and Japanese technologies and products will be replicated along the countries of the belt and road.

We shall also play a significant part in legal, accounting, financial, regulatory and other professional services as well as in funding and listings.
This is a One Belt One Road for all. The ultimate win win.
I believe that it will change the world forever and leave behind empires and hegemony in favour of a community of common destiny, where the development of one nation is the precondition for the development of all nations. Back to the future. Ecumene shall return.
Thank you for listening to me.