China’s New Silk Road – and what about us?

The “Belt and Road Initiative” is one of the largest infrastructure and economic projects in the history of humankind, initiated a few years ago by the world power China. It is also known as the “New Silk Road”, alluding to the historic Silk Road, which is an old network of shipping and caravan routes that allowed trade between Europe, Central Asia and East Asia. With the New Silk Road, China not only links up with the historical trade routes but also spans a gigantic trade network that includes South America and Africa.
Although freight trains already run daily between China and Germany, the topic still receives relatively little attention in Germany and only few people have any idea what significance the Belt and Road Initiative can have for the future development of the global economy.
Dr. Vermeer, who has been advising European companies on strategy issues related to Asia for more than 25 years, has published numerous specialist books and articles on China. In the following, he provides an insight into the Belt and Road Initiative and asks the question what it could mean for us.

by Dr. Manuel Vermeer

When silk came to the Romans 2 000 years ago, they didn’t even know where it came from or how it was produced. Some wool-­like stuff, growing on trees? Anyway, Plinius the Elder complained about the amount of money his fellow men had to spend on this fabric, just to “make clothed girls look naked”. In the 21st century, we again talk about the Silk Road, but this time it is Chinese-built infrastructure, harbors and digital communication coming to Europe. And not only to Europe, but to Africa, to South America… From China, again, and again we don’t seem to know how to react. So, what is it all about, and how does it concern us?
One of the mythical heroes of Chinese history is King Goujian, the ruler of the state of Yue from 496 to 465 BC. Defeated by King Fuchai of Wu, Goujian was held in captivity for several years as Fuchai’s servant. He was then permitted to return to Yue. While pretending to be humble and grateful, he never forgot the humiliation. Secretly, he started to build up his kingdom and its army. To strengthen himself, he is said to have slept on fire logs and to have eaten goose gall before dinner every day. From 476 to 473 BC, Goujian attacked Wu and laid siege to the capital at the end of which Wu was annexed by Yue. The Chinese idiom “lying on brushwood and tasting gall” (卧薪尝胆) refers to the hardships endured by King Goujian and his resolve to come back and ­succeed.

Why do I relate this story, known to every Chinese kid? Contrary to many people’s belief, it is not true that Europe (let alone the US) has always been, is and will be the center of the developed world, and now the Chinese are copying our products to become number one themselves. No, the bad news for the so-called Western world is that the Chinese were there first. As may be seen from the chart, China (and India, though to a lesser extent), dominated world trade as early as 2000 years ago.

And this was true more or less until the 16th century; only then Europe (seen as a whole, problematic enough) started off and invented the steam engine and discovered electricity, etc. The US have been relevant for a maximum of seventy years, since World War II. And now, 20 years into the 21st century, it’s China again. So, similar to King Goujian, the Chinese politicians in Zhongnanhai, the center of political Beijing, have found their narrative. China is back, after having endured hard times, i. e. the colonization following the Opium Wars from 1840 onwards. Work hard, keep low profile, and then come back (韬光养晦), as Deng Xiaoping, China’s ruler in the nineteen-eighties, put it. “Keep low profile and bide your time”. This is what China has been doing for the last 30 years. And now they are back, and not just copying: they are actually at the forefront of inventions and new developments, especially in the fields crucial for our future, e. g. Artificial Intelligence (AI) and digitalization.

Development of Gross Domestic Products (GDP) in the last 2000 years to 2017 and share of global GDP based on purchasing power parity (PPP) for 2017 for world’s major powers.

The term “Silk Road” was coined by the German geographer Ferdinand von Richthofen in the 19th century; you might also hear “Belt and Road Initiative”, short BRI, or “One Belt One Road” (corresponding to the Chinese 一带一路). The Chinese President and General Secretary of the Communist Party in China, Xi Jinping, who is also the most powerful man in the world according to the magazine The Economist, announced the launch of the initiative in 2013. It all started as an initiative to further develop relations within the Eurasian continent through better infra­structure (trains, roads, etc.), digital communication and so on. Soon it became clear that it would encompass not only Europe and Asia, but rather aim at the resource-rich African continent and even South America, which is needed by China to meet its demand for soybeans and lithium (from Bolivia) through imports.
Interestingly, China hasn’t published any exact data or plans regarding the BRI; although the amount of more than one trillion U.S. dollars China plans to invest is often cited. Until when? Where exactly? Who will pay? And where are the milestones and key performance indicators? Nothing whatsoever in terms of timeline, frame, geographical extension. We are talking about more than 100 countries involved, half of the world’s population, 30 percent of the world economy. So maybe we better familiarize ourselves with the goals and possible outcomes.
So why? Why did China start this initiative? Is it about power and military dominance? Maybe not in the first place. But we definitely see a struggle for technological dominance in broad commercial and military spheres that goes beyond trade. Over the next few years, China’s economic prospects will be more clouded, as the country will have to address a confluence of factors that will weigh on growth and on policymakers. These include the economy’s more limited capacity to bear and service high levels of debt, a rapidly aging population, and strategies to avoid falling into the looming middle-income trap. Where is the Silk Road helping?

  • Significant steel and cement production overcapacity in China.
    Over the past decades, China has built up an enormous capacity, now overcapacity, in this field; building the country, making it possible for the new middle class to fulfill their dreams of an own house, high-class infrastructure. BRI helps to get rid of this overcapacity by pouring it over several states to the west of China.
  • Infrastructure projects in South East Asia and CIS-States*.
    From ports in Pakistan, Sri Lanka and Greece to railway connections between China and Europe, passing through Teheran, to the Maritime Silk Road winding along the Indian Ocean, China’s influence in the region cannot be over­estimated.
  • Military advantage.
    The Nine-Dash Line in the South China Sea, the topic of the Diaoyu Islands between China and Japan, of course the Taiwan issue – all of this comes into perspective with the BRI. And then, further on, China built its first overseas military outpost in Djibouti, conveniently located near the pirate infested coastline of East Africa. Obviously, one of the goals is to secure transportation of oil and gas to China.
  • Creation of dependence from China.
    As pointed out earlier, China sees itself as having been colonized, too, as many ­African states have been, and now, having overcome the hard times and having developed the necessary power, is trying to help its “brother nations” in Africa by investing in infrastructure over there. But what it does is create dependence, as many African states won’t be able to pay back the loans they took from China to build all these roads, harbors, railroads. So, what will happen if Kenia can’t pay for the new track from Nairobi to Mombasa? In Sri Lanka the Chinese got the harbor of Hambantota on a 99 years lease when the country couldn’t fulfil its obligations. Will this happen in Kenia? Or in Ethiopia, regarding the new highway to Addis Ababa Bole airport? China consumes half of the world’s pork, half of the world’s coal, and 70 percent of its soybean consumption come from overseas. This is also illustrated by the attached chart which shows China‘s share of global demand for selected goods.

But there is also a growing pushback against China’s governance and financing habits among many countries partnering on the infrastructure investment of the Belt and Road Initiative. This is true for Malaysia, where a 30-billion-dollar project was cancelled, for Pakistan, where the separatists vow to target BRI projects; even in Myanmar a dam project was postponed due to local protests. All this testifies to the limits of China’s capacity to implement its characteristic foreign policy.
And what about India, the other Asian giant? President Xi just visited India, and Prime Minister Modi did his best to impress the guest as China-India relations haven’t been the best for the last 2 000 years. Issues are the disputed border areas in Tibet and especially in Kashmir. Also on the agenda: the interest both super powers have in the Indian Ocean, where India is building “Smart Islands”* on the Andaman and Nicobar Islands, and China is in charge of Hambantota on Sri Lanka. President Xi Jinping said bilateral differences should not be allowed to „dilute“ the cooperation and “the dance of the dragon and the elephant”* is the only „correct choice“ for both sides. He then went on to Nepal to discuss the planned extension of the rail link from Tibet to Nepal’s capital, Kathmandu. The link will be part of Beijing’s Belt and Road Initiative that Nepal joined two years ago. Pakistan, where a series of projects worth 46 billion U.S. dollars are being constructed under the China-Pakistan Economic Corridor (CPEC), is dependent on the corridor running through Kashmir as the only direct link to China. As China is building the Pakistan port of Gwadar, avoiding the bottleneck of the Malacca Strait near Singapore to transport oil directly to China, Pakistan cannot give up on Kashmir, where India just changed Kashmir’s special status in August 2019, much to the annoyance of Pakistan and China. India itself has snubbed the BRI and questioned the transparency of funding agreements.

The recent deepening of China’s relations with Russia is being seen as mutually beneficial. The pursuit of greater connectivity through infrastructure and energy linkages constitutes an explicit reference to Chinese BRI strategy. So, this leaves us with Europe and the European Union’s stand on the Silk Road issue.

In April 2018 the Chairman and Managing Director of the International Monetary Fund (IWF), Christine Lagarde, warned China “not to create financial problems in other countries!” This threat must be terrifying to Chinese ears, especially if one compares the EU’s recently increased external action budget of 123 million Euros for the period 2021 to 2027 to the one trillion Dollars which China proclaimed to invest within the BRI.
Meanwhile, the current political occurrences in Europe offer new opportunities for China: The Brexit – a new chance for China for divide and rule.

We seem to be totally lacking any understanding of this organized economic and political activity concerning not only Europe, but the world.

But in the meantime Europe discusses other important projects, e. g. summer and winter time…
And Germany? Chancellor Merkel is trying to please everybody by not opposing President Trump as well as now allowing Chinese telecom giant Huawei to supply components for the German 5G network. So again, where are we standing? Where is a consistent German China policy, let alone a European China policy? Is there anyone with a plan in either Brussels or Berlin? From March 2019 on, the EU has depicted China as a “strategic rival”, marking a previously unheard view and maybe even a starting point for a new positioning vis-à-vis China. Under the newly elected Ursula von der Leyen the European parliament seems to be upholding this less conciliatory treatment of China and demanding more strategic autonomy and a level playing field.
In China, there is definitely a guy with a plan. In early August 2019, at the start of the Communist Party elite’s gathering at the Beidaihe conclave on the Chinese coast east of Beijing, Chinese media coined the term “Xiplomacy” to denote the unique policy line pursued by Xi Jinping and the Party’s elite of Zhongnanhai, contrasting the long-term big-picture focus of Xiplomacy with the current US policies that focus on short-term self-gains. “Xiplomacy staunchly advocates common efforts to create more shared interests,” Xinhua News agency explained. “Effective global governance is threatened by rising unilateralism* and trade protectionism*.” Beijing does not attempt to hide that the “multi­lateral efforts” will be guided and led by China, and that the ­“effective global governance” will ultimately be an instrument of China’s role as the global hegemon*. The key achievements of Xiplomacy are to “attain global recognition of the Belt and Road Initiative (BRI) as a ‘win-win’ proposition for China and the other participants, as well as tailoring international economic develop­ment after the BRI”.
We know China as the “Middle Kingdom”. But there is a fundamental difference between what we called kingdoms in Europe and the Chinese kingdom. Our European kings were kings of the country they presided over, maybe had some colonies somewhere in the world. The emperor of China had always been the master of everything “under heaven” (天下), meaning the whole world. This is what his mandate, the Mandate of Heaven, is about. All other rulers where therefore his vassals. The Chinese concept of empire was not one of colonial dominion (as seen in Europe) but of cultural suzerainty over the barbarians. The Chinese did not seek to conquer, but to absorb. This is what they did with the Mongols and with the Manchus. China had been conquered, but years later they had absorbed the conquerors and turned them into Chinese. I do believe the Chinese still do not want to conquer or rule others – but rather to strongly influence to the benefit of China and Chinese interests. And now, the Chinese ideology is in sharp contrast with the Westphalia System*, especially the ‘American World Order’ or the post-World War II and post-Cold War world order. So, we will have to decide and make our choice about political governance and the future ­world order. But we aren’t doing anything else than empty talk.
Xi has said that China is set to regain its might and re-ascend to the top of the world. The Chinese patriotic education increasingly focuses on heroic figures such as King Goujian. China’s past glory is due to come alive again. That is the Chinese narrative. What is ours?

The Commonwealth of Independent States (CIS) is a regional intergovernmental organization of ten countries, which were part of the Soviet Union until 1991. Member states are, for example, Russia, Tajikistan, Uzbekistan and Kazakhstan. The CIS encourages cooperation in economic, political and military affairs and has certain powers to coordinate trade, finance, lawmaking and security.

The Nine-Dash Line is a loose boundary line to define China‘s maritime territorial claims in the South China Sea. The (develop­ment of the) line dates back to the beginning of the 20th century and is still today a central issue in conflicts over territorial claims in Southeast Asia. The Diaoyu Islands (or also known as Senkaku Islands) are a group of uninhabited islands in the East China Sea in the east of Mainland China and northeast of Taiwan. The islands are disputed between Japan and China.

“Smart Islands” is a general concept on islands, which aims to create sustainable local economic development and a high quality of life for the local population of islands. The concept of “Smart Islands” is also applied in European ­countries.

This “dance” is a metaphor used in connection with the political relationship between China and India, where the dance as a mutual, coordinated and harmonizing movement is transferred to the bilateral relationship between the countries. The metaphor became particularly popular through the statement of China‘s Foreign Minister Wang Yi, who said in 2018: “The Chinese dragon and Indian elephant must not fight but dance with each other.” In his speech he appealed to the two nations to shed mental inhibitions, manage differences and meet each other halfway to enhance bilateral ties.

Protectionism is a form of trade policy by which a state tries to discriminate against foreign suppliers on the domestic market in order to protect domestic suppliers from foreign competition.

In politics, this is referred to the actions of a state which acts in its own interest without regard to the interests of others.

Hegemony is the political, economic, or military predominance or control of one state over others. It is also used to denote the social or cultural predominance or ascendancy of one group within a society or milieu.

The Westphalian System is the system of international relations, established in Europe in connection with the Peace of Westphalia, signed in 1648 after the Thirty Years‘ War. The term is closely linked to the concept of Westphalian Sovereignty, or state sovereignty, which is a principle in international law that each state has exclusive sovereignty over its territory. This principle underlies the modern international system of sovereign states and is enshrined in the United Nations Charter.