The Maritime Silk Road – an EU perspective Fraser Cameron is Director of the EU-Asia Centre in Brussels Introduction The Maritime Silk Road (MSR) is a general term used to describe Chinese plans to develop the ancient trade routes between China and Europe and deepen economic cooperation with countries situated along the route. In today’s ever-more, inter-dependent world, maritime commerce is the backbone of globalization with huge container ships playing a major role in enhancing commercial exchanges. The MSR initiative thus builds on an existing trend towards greater globalization and seeks to enhance common interests that China shares with participating countries. If successful the MSR should lead to a considerable increase in China’s influence among the states along the route. The plan relies on China’s continuing economic growth, its financial diplomacy and ability to oversee major infrastructure developments. The MSR could thus have a major impact on global trade and international relations, especially EU-China relations. Why the MSR? The MSR initiative was formally launched by President Xi in October 2013 during a visit to Indonesia when he said that the MSR would be ‘a win-win proposal for both China and the 10 members of the Association of Southeast Asian Nations (ASEAN)’. Though the initial target of the MSR was Southeast Asia, the agenda of expanding port access to support maritime trade extends across the Indian Ocean to the Persian Gulf, East Africa, and through the Red Sea into the Mediterranean and Adriatic. The MSR and the Silk Road Economic Belt initiatives are linked in Chinese minds and referred to as ‘One Belt, One Road’. Together, the two Silk Roads constitute a grand vision of Eurasian integration under China’s leadership. This vision is inspired by China’s rise to great power status and the growing reality that China’s neighbours are becoming ever more dependent on it for trade and finance. The WTO is stalled and China is excluded from the TPP negotiations. In 2014 the trade volume of countries along the route accounted for nearly 26% of China’s total trade in goods. The objectives of the MSR are multiple. The first aim is domestic: to develop and thereby stabilise China's western regions by integrating them into international trade routes and by developing Central Asian markets for Chinese goods produced. Second, it aims to improve energy security by increased connectivity. Third, it seeks to avoid overdependence on Russia for trade routes to Europe and to counter Russian influence in Central Asia. Fourth, it sees the MSR as an opportunity to export overcapacities abroad (cement, steel, shipping, rolling stock, etc) and to mobilise its foreign exchange reserves by investing abroad, especially to secure access to new sources of raw materials. China can now export higher value-added goods and services, including electronic parts, consumer durables, heavy equipment, and construction and engineering services, but it still lacks access to export markets. The MSR also has a peace and security dimension. By facilitating communication between countries along the MSR, it is hoped that there will be an increase in common interests and a narrowing of differences. The MSR will thus be a pillar of a series of initiatives to promote closer links between China and Europe. Apart from the ‘One Belt, One Road’ there is the ‘Bangladesh-China-India-Myanmar Economic Corridor’ and the ‘China-Pakistan Economic Corridor.’ There is no timeframe for the completion of these projects although one is looking at decades rather than years given the number of countries and the complexity of the issues involved. The MSR runs through a number of countries and regions that differ in size, development, history, religion, language and culture. The MSR will require better marine connectivity which means investment in ports, wharves and information networks to ensure the open flow of goods and information. Maritime security will be a key aspect and attention will have to be paid to the security of shipping lanes. The MSR could also give a boost to shipbuilding and the general development of the marine economy. China has again intimated that it would be willing to finance joint ventures in areas such as fishing, aquaculture, marine food processing, desalination and tourism. There could be special economic zones established to facilitate such cooperation and promote all industries linked to maritime development. Cultural cooperation will also be promoted in an effort to promote mutual understanding between the peoples along the MSR. Current developments In the past year China has announced a number of major infrastructure projects to support the MSR including a $16 billion fund to build and expand railways, roads and pipelines in Chinese provinces that are part of the planned Silk Road Economic Belt. The massive investments will help boost economic development in China’s poorer inland regions, a key goal of the MSR initiative. Meanwhile, China is also encouraging its state owned enterprises and banks to support infrastructure development along the two routes. This is in addition to the substantial funds that China had already promised to Silk Road partners. For example Beijing has promised $1.4 billion for developing port infrastructure in Sri Lanka and over $50 billion to support infrastructure and energy deals in Central Asia. With the establishment of China’s new Asian Infrastructure Investment Bank (AIIB), we can expect to see even more money flowing into the region to shore up infrastructure capabilities. Studies from the Asia Development Bank data suggest that Asia’s infrastructure demand is expected to be over $730 billion per year by 2020. In April President Xi Jinping announced Chinese investment of over 40 billion euros during a visit to Pakistan. The focus of spending is on building a China-Pakistan Economic Corridor (CPEC) - a network of roads, railway and pipelines between the long-time allies - which will run some 3,000km from Gwadar in Pakistan to China's western Xinjiang region. The projects will give China direct access to the Indian Ocean and beyond. Pakistan, for its part, hopes the investment will boost its struggling economy and help end chronic power shortages. But there are questions over Pakistan's ability to absorb this investment given its chronic problems with militancy, separatism, political volatility and official corruption. China is worried about violence from ethnic Uighurs in its mostly Muslim north-western Xinjiang region and fears hard-line separatists could team up with Uighur Islamic militants fighting alongside members of Pakistan's Taliban. In Pakistan, a decade-old separatist insurgency in Balochistan province, where the economic corridor starts, makes that area extremely volatile. The number of potential partners is also expanding. Afghanistan, Bangladesh, Pakistan, Sri Lanka, Tajikistan, Indonesia and Russia all want to be involved as they view the MSR as an attractive proposition. Most regional partners – including several European states - are keen to secure Chinese assistance in building critical infrastructure, whether for ports, roads or railways. Impact on the EU The European Union (EU) is the largest trade power in the world and China’s main overseas market. 2015 marks the 40th anniversary of the establishment of diplomatic relations between the EU and China. Relations, especially in the past decade, have developed rapidly and now the two actors are not only strategic partners but engage in over 60 dialogues on issues from trade and investment to the environment and transport. The two sides are currently negotiating an investment treaty that should give a further boost to two-way trade and investment. The EU also has close relations with most of the countries along the MSR including the member states of ASEAN, India and the Gulf of Aden. The EU is thus following China’s plans to develop a MSR (as well as the land-based New Silk Road) with considerable interest. The two projects have major geostrategic, political and economic implications that the EU cannot ignore. During his visit to the EU in spring 2014 Chinese President Xi Jinping informed EU leaders about Beijing’s plans. They expressed interest in the initiative noting that it was very ambitious and would take a great deal of time and resources. In addition, the EU-China 2020 Strategic Agenda for Cooperation mandated both sides to strengthen their cooperation in ‘developing smart, upgraded and fully interconnected infrastructure systems,’ as well as ‘to explore models of infrastructure cooperation, including project bonds, project shareholding, joint contracting and co-financing, and further coordinate the cooperation among China, the EU and its member states.’ The new Silk Road initiatives present both challenges and opportunities for the EU. In the trade sector, Chinese subsidised transport goods can represent unfair competition for EU companies, but opening up new EU-China trade routes can be beneficial for both sides. Beijing's willingness to finance infrastructures in the EU can be an opportunity, if the right cooperation mechanisms are identified, if pertinent rules, especially on transparency, are applied. Chinese lobbying to obtain rail construction contracts and to sell their trains, which focus on connecting the port of Piraeus to the rest of the EU market, must be in line with commonly-agreed EU priorities defined in the Trans-European Networks. In third countries markets, the initiative's opaque infrastructure financing deals without open competition are a threat to the competitiveness of the EU, but China may also help to open up long-neglected markets. The EU is also watching to see if and how China exploits the MSR to increase its influence. Most countries throughout history, especially the European imperialists, have used trade to boost political influence. If and when completed, the Silk Roads would boost China’s trade with effectively the whole Eurasian continent. China would hope that many if not all countries along the Silk Roads would have a more favourable image of China and its policies – an example of soft power in operation. China has also provided naval support for the EU-led anti-piracy campaign in the Gulf of Aden (Operation Atalanta). This is an important transit route for container traffic between Europe and China and a signal of Beijing’s willingness to share international responsibility for freedom of navigation on the high seas, a burden largely borne by the US navy. The rail/sea connections are perhaps one of the most interesting features in the initiative. In their maps, Chinese policy-makers draw rail connections between Kunming (Yunnan) and the Myanmar port of Kyaukphyu, between Kashgar (Xinjiang) and the Pakistan port of Gwadar. Both would create sea connections between China and the EU circumventing the infamous Malacca Strait. Finally, and most importantly for the EU, there are Chinese plans to develop stronger rail links between the port of Piraeus and the rest of the EU via the Balkans. Chinese state-owned enterprises have already made substantial investments in foreign seaports, taking control of some terminals. In Asia, Colombo (Sri Lanka), Chittagong (Bangladesh) Gwadar and Karachi (Pakistan) have all received investments which are helping to modernise their infrastructure and may give them a more prominent role in international trade routes. A similar approach seems likely for developing new ports in the Maldives. Cosco has shares in the ports of Singapore, Port Said and Djibouti (the two doors of the Suez Canal), but also in Piraeus and Antwerp. As the Chinese MSR initiative involves many countries with which the EU has a partnership it is clear that Brussels will follow developments closely to assess the likely positive and negative implications. There could well be implications for trade relations and possibilities for joint activities. China is already discussing related infrastructure projects with the central and east European countries under the 16+1 format. There will also be problem areas not least in the different approaches the EU and China have to financial assistance to third countries. But the message from the EU side is clear – a desire to work together with China wherever and whenever possible for mutual advantage. From the EU side there are many imponderables about the MSR although there is a general willingness to engage with China and other partners in developing and strengthening new trade routes. EU officials are waiting for further details of how Beijing would manage the MSR, which agency would take the lead, and who would control the budget. Conclusion At present the MSR remains an ambiguous tool of Chinese foreign policy. It could be a powerful example of Chinese soft power if Beijing plays its cards right. But it will certainly be something that the EU watches closely in coming years, both for synergies to participate and to guard against threats to European interests. It is a potentially huge project with considerable implications on the political, security, trade, financial and environmental fronts. How China develops the MSR will help define the very nature of China as an actor in the 21st century. For the EU it will have to consider the best approach to engage with China in order to maximise synergies. It should also seek an increased dialogue with China on Africa to ensure respective interests there are not undermined. And as the MSR goes through some dangerous seas (eg. pirates off Somalia and Sumatra) it will be useful to engage China more in international efforts to combat piracy. Certainly the MSR will figure as a major item in EU-China relations for the foreseeable future.
The MSR will certainly be something that the EU watches closely in coming years, both for synergies to participate and to guard against threats to European interests