Space: the final frontier. These are the voyages of the Star ship Enterprise. It’s five-year mission: to explore strange new worlds. To seek out new life and new civilizations. To boldly go where no man has gone before.
Mankind has a natural tendency to “boldly go where no man has gone before”. History teaches us that mankind will continue to explore in the name of wealth, religion, power and culture proliferation.
Throughout human history, from the First Punic wars fought between Romans and Carthaginians, and the two World Wars where the “Big Brother” Countries used the world as their stage, to the Cold War danced between the US with its allies and the Soviet Union. The idea of economic and/or geopolitical dominance has never been out of the agendas of those conflicts, where millions of lives were unjustly taken.
So, how are the wars of yesteryears similar to the current Belt and Road Initiative brewed by the new economic power that is China?
Many equivocate the Belt and Road Initiative with the schemas of the British East India Company founded in the 1600s, and the many wars they mongered in order to feed the British Industrial Revolution.
Like Britain in the early 18th century, China experienced a meteoric rise of economic dominance ever since Deng Xiaoping, the late leader of the Communist Party of China, spearheaded the Chinese Economic Reform.
Like Britain, China needs a vast amount of labor and natural resources to keep the economic furnace alit.
But the difference is how China is approaching its imminent resource shortage dilemma, with global economic empowerment.
In this post, we seek to understand how the Belt and Road Initiative, or the “One Belt One Road” breaks the mold of a dichotomy of Globalization and Anti-Globalization, and more importantly how their increasing hegemony will affect the containerized shipping trade industry
The Belt and Road Initiative
The Belt and Road Initiative (BRI) debuted in 2013, where it drew its’ inspiration from the Silk Road trade networks that connect East Asia to Europe via Central Asia, of which the purpose is to trade a much-treasured commodity; Silk.
The ancient silk road was initiated by China but soon evolved to become more complex, more connected, with the Romans and Byzantine Empire with it’s amassed conquered land also benefited from the silk road.
The Silk Road, although centered around trade as the primary motive, had also permeated religion, science, and culture. Since no trade is done exclusively from East Asia to Europe directly but passes from trader to trader, the interaction between civilization is the ripple effect of the Silk Road.
Much like the Silk Road, China intends to replicate the success of Silk Road by again connecting China, it’s neighboring country and finally, the world.
In brief, “The Belt” or the land connectivity are broken down into three main routes
- One from Central Northwest China and North-East China to Europe and the Baltic Sea via Central Asia and Russia
- One from Northwest China to the Persian Gulf and the Mediterranean Sea
- One from Southwest China through the Indochina Peninsula to the Indian Ocean
“The Road” or the sea connectivity, heavily hinges on seaport development on strategic locations and it’s connecting land infrastructures (“The Belt”).
Not to be confusing but when “The Road” is inferring to the sea connectivity, it is because “一路” in Chinese has an implication of the meaning “connectivity” that is directly translated as “the Road”.
Many resources online have done a stellar job in detailing the Belt and Road Initiative (BRI), the initiative has many facets and we are going to look at its influence specifically in Central Asia, the nations around the Indian Ocean and South-East Asia.
To give credit where credit is due, we learned and formed a lot of opinions from the book by Bruno Maçães, in the book the Belt and Road, A Chinese World Order and the South China Morning Post. We encourage you to get the book for a more detailed look into the BRI details. Here we will focus only on the essence of the BRI and its’ impact on current shipping trade lanes.
Why Start the Belt and Road Initiative?
China’s leadership foresee themselves in a predicament where if China had not steered the Nation’s Economy towards another direction, it will receive pressure from the lower labor cost over time that developing countries can offer; And economic pressure from the developed nation as China will not be able to compete with them in the high valued manufacturing goods and technology or services sector. The “Middle Income” Trap. This conundrum stifles the economic growth potential of the now-normal 6.5% annual GDP growth that China and the world have been accustomed to.
As it is, China had amassed high amounts of foreign exchange reserves and increasing foreign investments will not only improve geopolitical ties but also provide profitable solutions.
Manufacturing sectors are now at an oversupply, the steel industry has been hit badly by the real estate downturn. In 2012, China’s production-to-capacity ratio in Iron, Steel, Cement, Aluminium and Sheet Glass and shipbuilding are hovering around 70%. Expectedly, the improved and assisted trade relations between China and Eurasia will create new market demand for China’s manufacturing sector.
There are many other reasons for the push for Belt and Road Initiative. In the Geopolitical front, China aims to wrestle some military presence in the Indian Ocean with the establishment military
China’s dependency on natural resources will continue to grow over the next two decades. With the Belt and Road Initiative, China is pursuing more sources of natural gas and crude oil.
How does the Belt and Road Initiative affect the Shipping Trade Lane?
The two main factors that propel China to undergo this initiative is:
- Geopolitical Stability
- Economic Growth
The 21st Century Maritime Silk Road project upon initial view seems to be a big-spending of money at geographical locations that are perceptively redundant. China is slowly building maritime power in the Indian Ocean by Stringing a “String of Pearls” with ports strategically located around the Indian Ocean. However, many deep seaports that China is building is not far off from the major seaports that are currently active.
The Bay of Bengal and the Arabian Seas hosts some of the world’s busiest ports with Chittagong (Bangladesh), Colombo (Sri Lanka), Yangon (Myanmar), Karachi (Pakistan), Mumbai (India), Chennai (India),
Regardless, new ports are built, such as the Gwadar Port in Pakistan, Hambantota Port in Sri Lanka, Kyaukpyu Port in Myanmar, and Obock port in Djibouti.
If we look at the close proximity to China’s new port to the established ports around the Indian Ocean, how does China justify investing billions in developing counties?
The People Republic of China’s emergence as a global superpower essentially means that they can leverage their economic influence to stage the odds in their favor. Plus, the deteriorating diplomatic relations between the USA and China means that military presence in the Indian Ocean leading from the Straits of Hormuz is more important than ever for China to secure their interests.
So, one of the reasons for all this development, one might surmise, is to establish a military presence in the Indian Ocean.
Establishing Military presence in the Straits of Hormuz
The Straits of Hormuz is often cited as the “Jugular of the Global Economy”, and is roughly a 3km stretch of waterway wedged by Iran and the Arabian Countries. 20% of the world’s oil is produced and distributed via this strait, which means every day there are 20 million barrels of oil passing through the Straits of Hormuz.
At current times, the Arabian Countries of United Arab Emirates (UAE), Saudi Arabia and Kuwait having strong diplomatic relations with the United States of America, whereas their straits neighbor Iran, having strong diplomatic relations with Soviet Russia.
It is no wonder that with the world’s economy strongly dependant on the 3km stretch of the straits, the strait is politically contentious. Many tank vessels and planes are shot down and naval disputes arose that contribute to the volatility of oil prices. And since much of the economy is heavily correlated to the oil price, the stability of the Straits of Hormuz is very much a deciding factor of global economic stability.
Despite the fact that China is focusing on diversifying its energy source away from oil to renewable energies, China is one of the world’s largest consumers of oil. In 2017, over 40% of China’s total crude petroleum (OEC) comes from those Arabian Countries.
The Port of Gwadar, and the accompanying inland infrastructure from Kashgar, China to Port Gwadar, Pakistan is the brainchild of the China Pakistan Economic Corridor (CPEC). It is the biggest project under the Belt and Road initiative insofar. To date, China has pledged US$ 46 Billion on a multi-tier project with optic-fiber cable, power plants, gas pipelines and highways that connects Xinjiang China, to Pakistan.
Circumventing the “Malacca Dilemma”
In the book by Bruno Maçães, the Belt and Road: A Chinese World Order, we learned that 80% of China’s imported oil passes through the Malacca Straits, wedged by the Peninsular of Malaysia and the Sumatra Island of Indonesia.
Much like the strategy implemented in the Indian Ocean, China invested heavily in South East Asia, creating a road and rail corridor that connects the borders of China, Hunan, to South East Asia. In addition, China has investments in the development of deep seaports in Malaysia at Kuantan and Malacca.
There is also speculation where China is planning a decade long project building Kra Canal in Thailand as part of China’s vision for the Belt and Road Initiative, essentially bypassing the Malacca Straits altogether.
Again, China’s investment strategy seems counter-intuitive with the investment seemingly unfeasible. The Malacca Port project is in close proximity to Singapore and Port Klang, both established ports along the straits that are regularly listed as the world’s top 20 listed ports of the world. Moreover, the building of the Kra Canal is one project that Thailand has envisioned for decades makes China’s swooping proposition plan on the Kra Canal project seem like a wish coming true for Thailand.
Moreover, the Chinese Pakistan Economic Corridor (CPEC) began the gas pipeline project linking Gwadar Port to Kashgar, China. If China’s projects in the straits are meant for cargo transhipments, it would look like China is cannibalizing itself by building the Kra Canal.
The CPEC gas pipeline and the Kra Canal Project suggest that the primary focus of China is to diversify the transportation route for its energy sources, supplemented by Ports along the Straits of Malacca in order to also establish military presence along that straits to protect their interest.
The one factor that makes the Belt and Road initiative feasible.
Containerized shipping in our opinion will not be strongly affected by the new maritime ports built to form the strategic “String of Pearls” along the Indian Ocean. Because there are already established ports and established inland infrastructures connecting those ports that are already in place.
The Maritime Silk Road was not meant to reshape the containerized shipping trade lanes, it is to establish a military presence to protect China’s interest. The United States of America has one of the strongest naval presence around the world, having naval bases populating remote areas like Guam.
When the ancient Silk Road was used for trade, what manifests is not only economical wealth and prosperity but also the new populations, new markets, new demands are created.
So, the bigger picture China is aiming at is the creation of new market demands that come from the infrastructure built. As we mentioned before, China’s economic policy is to move away from low value manufacturing such as steel and non-ferrous material and to high-value manufacturing and technology production. The world is at China’s fingertips, low-value manufacturing can be moved to developing nations in Central Asia and Pakistan to move way for technology research and development.
There are so many facets of the Belt and Road Initiative to research upon and we barely scratch the surface of it. Truly, the initial plan may evolve and take shape in a different direction as there are countless roadblocks to development as China continues to build along regions that are in a political conflict like the Kashmir region.