In recent years mainstream Chinese economic rhetoric has focused on the nations slowing GDP growth rate and the government’s apparent short term policy focus, yet little light has been shed on the longer term picture. Media attention on the underlying “Going Global” strategy, nurtured by the nation’s leadership over the last decade, has been minimal. In this piece we will attempt to unpick the basic premise behind “China’s new Silk route”, more conventionally known as the “One Belt, One Road” (B&R) initiative. We begin by gaining an understanding of the underlying intricacy that led to its conceptions, while assessing the scope and scale of its potential. Following this, we discuss the incentives it may or may not provide for national, regional and global actors. Finally, we assess the implications it could have on the global maritime industry, and more specifically the Specialised Products market.
The “One Belt, One Road” initiative was first unveiled in the autumn of 2013 whilst Chinese President Xi Jinping visited Kazakhstan and Indonesia. Over the course of the state visits it became clear the initiative was built from two fundamental concepts; the land based “Silk Road Economic Belt” (SREB) and the ocean based “Maritime Silk Road” (MSR). The land based initiative aims to connect central China to Western Europe via a vast rail and road network that crosses through much of China, central Asia, the Middle East, southern Europe and Russia. Its ocean going sibling will travel from Shanghai to the Mediterranean via South East Asia, India and Africa. These routes are forecast to cover over 60% of the global population, reaching an estimated 4.4 billion people. Clearly the scope of these projects is vast, however these grandiose concepts have been kept deliberately vague, with many portraying them as a vision expressing China’s ambition rather than rigid development structure. The core principle of the B&R targets connectivity, with prevailing thought suggesting increased connectivity encourages investment, integration and trade.
These policy initiatives have developed in light of the nation’s domestic economic and structural investment issues. It is no secret that untampered public and private sector investment has led to huge industrial capacity and a national economy reliant on exports and construction. In to secure long term stability and security, the Chinese government is attempting to shift the economy away from an export driven primary industry model, towards a consumer driven, service based model. The B&R plays a fundamental role in achieving this, with the development of both the land and maritime trade corridors expected to aid in absorbing forms of excess. Initially it is thought that the vast overcapacity in the Chinese construction industry will be offshored, with regional and global nations relying on Chinese companies for infrastructure development. It is then theorised that the development of this infrastructure will then help alleviate the aforementioned industrial overcapacity, by promoting Chinese exports and curtailing economic weakness. This initiative is also characterised by the nation’s geopolitical aspirations. It is thought that through the enhancement of ties with regional and global actors the nation plans to increase its influence and solidify its role on the geopolitical spectrum. The method of regional and global infrastructure development lends itself to this, as it enables China to enhance ties to national actors through the loans and aid required to develop these initiatives.
So how does this affect the maritime industry, and more pertinently the Specialised Products sector? Clearly both the SREB and the MSR incorporate various threats and opportunities for the global maritime industry. On the one hand the creation of an efficient road and rail network from the east to the west could spell further trouble for an already wavering ex-Asia export market. Yet on the other hand the establishment of the MSR could undeniably benefit maritime trade. In terms of Specialised Products, whilst the establishment of these networks will likely bolster global demand, the export centric focus from China reduces its implications for the industry. Domestic chemical production capacity is far short of requirements, and whilst projects are in place, they will take years to establish and hence we expect heavy import reliance foreseeable future. Whilst exports play their part, it is Chinese Specialised Products imports that are of paramount importance to the market. To put this in perspective, Chinese Specialised Products imports equated to over 52 million tonnes in 2015, whilst exports for the same year reached just over 5.6 million tonnes. As we can see from the graph Chinese imports have by and large grown in volume since 2007, with an annual increase of 8% recorded from 2014 to 2015. That said, growth in the first 8 months 2016 was 3% slower than the same period in 2015. Clearly the scope and scale of the “One Belt, One Road” initiative is vast, and with the overarching goals expected to affect more than half of the global population, we must watch its development and expansion with a keen eye.