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Two questions on the 21st-Century Maritime Silk Road

Comments / {{hitsCtrl.values.hits}} Views / Thursday, 14 December 2017 00:00

By Amila Withanaarachchi

The Chinese new regional cooperation model known as ‘Belt & Road Initiative’ (or the ‘One Belt & One Road Initiative’) has attracted much attention in the international political and economic reforms over the recent past. While this initiative is vital for developing countries like Sri Lanka, its specific contents are still evolving, and commentators differ in speculating about its real objective. 

To give readers a better understanding of this ‘21st-Century Maritime Silk Road,’ I would like to raise two general questions. First, what are the likely genuine objectives behind the Belt and Road Initiative? Second, what is the role of Sri Lanka in modern Maritime Silk Road? In other words, does Sri Lanka really matter in attaining Chinese Belt and Road aspirations?  

Belt & Road initiative and its real objectives 

In late 2013, during his visit to Central Asia and Southeast Asia, Chinese President Xi Jinping called for the establishment of a new regional cooperation model, by jointly building the ‘Silk Road Economic Belt.’ This initiative was later written into a comprehensive reform blueprint and was officially termed as the ‘One Belt & One Road Initiative.’ 

The international community accepts this initiative in a mixed manner. Some compare it with the America’s Marshall Plan in the aftermath of the Second World War, while others view it more as a mechanism for international economic cooperation. As one can see, the above-claimed objectives are contradictory to each other, and thus, it is crucial to understand why China formulate this initiative now and what is the true intention of Chinese policymakers? 

To answer as to why China formulated this initiative, we need to comprehend the pattern of economic development in China over the last decades. In the first three decades of economic reform, China achieved a very rapid economic growth, benefiting from the dramatic expansion of exports to and foreign direct investments from the developed economies. 

As per the official statistics, between 1980 and 2015, China’s actual GDP grew by an average of 9.6% a year. However, following 2008 global financial crises, China’s development pattern appears to drag behind by the weak global economy. By the end of 2016, the GDP growth rate of China was 6.7%. 

Responding to the 2008-09 slowdown, the Chinese Government launched a project focusing on the infrastructure development. In parallel to such developments, new industries such as household electronics industry, telecom equipment, large machinery equipment, 3D printers, unmanned aircrafts, and internet services are emerging in both industry and service sectors. 

While such initiatives significantly contribute to recovering the decreasing GDP, the new industries are not sufficient to offset the falling old industries. To a greater extent, this is the typical ‘middle-income trap’ challenge. In other words, this suggests that China’s past growth model has run its course and now the country requires a new model to support economic development. 

In previous instances, Korea, Taiwan, and Hong Kong faced the same ‘middle-income trap,’ and they had to relocate their manufacturing factories in the ‘Pearl River Delta’ in China. Now China is at a stage where they need to relocate their factories in low-cost places to maintain competitiveness. The proposed Belt and Road initiative is a blueprint for China to explore cooperation with new economic partners. Mostly, countries with low-income economies are covered by this initiative. They have higher potentials to proliferate if suitable conditions are properly placed.

According to commentators, the real objectives of Chinese ‘One Belt & One Road Initiative’ comprises, but is not limited to, deal with China’s excess production capacity and inadequate Chinese domestic demand, by securing the supply of resources, especially in the natural resource sector to strengthen the diplomatic relationship with developing economies and increase the popularity of China. 

Apart from the above, some argue that the Chinese initiatives go beyond genuine economic reforms, and compare it with the US global grand strategy in the post-World War II era. However, China, unlike the America which had the military power to protect Europe, Japan, and its other allies in the world during the post-WWII period, does not have the military power to protect its economic strategy at the moment. Thus, while China does have unrevealed political objectives behind belt and road initiative, in the present context, this can be viewed more as a mechanism for international economic cooperation.

Role of Sri Lanka in the Maritime Silk Road

For China, Sri Lanka stands as a leading node in the Maritime Silk Road, given the country’s proximity to India and the strategic location in the Indian Ocean. As per the records, even before President Xi Jinping’s initiative was announced, Sri Lanka was comprehended as a main strategic and a commercial beachhead for China’s future trade growth. 

China and Sri Lanka have had close diplomatic ties since the early 1950s. For example, the signing of the Rubber-Rice agreement in 1952 was a landmark in the bilateral ties between the two nations, as it was done disregarding the sanctions placed on China by Western countries and represented one of the first agreements that China had ever signed with a non-communist country. 

Following such initiatives, several economic and technological cooperation agreements were signed between the two nations over the last 65 years. Today, China is Sri Lanka’s third largest trading partner after India and USA. As per the Central bank statistics, China became the leading import origin for Sri Lanka in 2016, accounting for 21.7% of total expenditure on imports to the country. 

While Chinese role as a lender, investor, and trading partner to Sri Lankan economy is undebatable, is Sri Lanka also a significant destination in the 21st-Century Maritime Silk Road? To answer this question, China’s maritime power aspirations over energy supply chain across the Indian Ocean region should be recognised. 

Since its opening up in the late 1970s, China has undergone very high energy consumption growth due to its explosive economic expansion and industrialisation. As a consequence, China’s oil demand began to outstrip its domestic supply in the 1990s. Subsequently, in September 2013, China overtook the United States as the world’s largest net importer of crude oil. 

Today the Indian Ocean and the South China Sea are major transit routes transporting oil and gas from the Middle East and Africa to China. Thus, as per international analysts, Chinese intention in building maritime power in these sea routes is unsurprising. However, in contrary to US strategies, China steadily builds its maritime power through peaceful and mutually-beneficial cooperation. 

This Chinese master plan identifies Sri Lanka as a tactical location with deep-water coastline close to Indian Ocean shipping lanes. A sizeable deep-water port in Sri Lanka will be an ideal transhipment point for goods and natural resources entering and departing the subcontinent. 

In this backdrop, as per Chinese officials, “Sri Lanka will be well-positioned to play a strategic role in the one-belt-one-road initiative of the government of the People’s Republic of China.” As a consequence, when the new Maritime Silk Road was extended to South Asia in September 2014, Chinese President Xi Jinping secured the support of Sri Lanka by signing major transport infrastructure investment agreements while visiting the country. 

The recent Chinese investments in the Hambantota Port is a major strategic move made by China under the one-belt-one-road initiative to secure its power in the Indian Ocean. In contrary to benefits received by China, Sri Lanka will also obtain operational skill, clout, capital, and commercial relationships with shippers inside China and out, to attract significant traffic to Hambantota. In other words, it is a win-win cooperation that has promising economic benefits to both countries.

There is a common Chinese saying: “To get rich, you start by building a road.” Chinese ‘One Belt & One Road initiative’ that seeks major economic, financial, and technical assistance to help facilitate successful economic connection across continents is well-meaning to this statement. In this context, while Sri Lanka plays a strategic role in bridging 21st-Century Maritime Silk Road, as a nation we should be mindful to strategically position such international cooperation to safeguard the nation’s future economic reforms.  

(The writer is Lecturer, Department of Industrial Management, University of Kelaniya. He can be reached via amilaw@kln.ac.lk.)

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