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Belt and Road Insights - June 2017

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Summary: Welcome to BLP’s ‘Belt and Road Insights' June 2017 issue – a selection of interesting Belt and Road news items, distilled into a monthly ‘speed read’. In this month’s edition we explore what has been the impact of the Belt and Road Initiative on Africa and the Middle East.

Updates from the New Silk Road

The Belt and Road Initiative is a major development strategy launched by the Chinese government in September 2013 to sponsor and promote economic co-operation among countries along the proposed Belt and Road routes. With our focus on built environment and infrastructure development, we aim to keep you updated on the latest developments.

The importance of the Gulf to the Belt and Road Initiative

Although not located on either the overland “Belt” or the maritime “Road”, the Gulf is of huge strategic importance to China. This can be seen, not least of all, in the energy sector; fully one-half of China’s oil supply and one-third of China’s natural gas supply comes from the Gulf. In addition, the strategic objectives for the Belt and Road Initiative align closely with many of the larger projects in the region. For example, Oman’s Duqm Special Economic Zone and Qatar’s National Vision 2030 have both attracted significant interest from Chinese investors and contractors.

That said, the waters of the Gulf are not always placid. As we have seen recently, relations between the Gulf states can be rocky, especially in relation to Iran. The Belt and Road Initiative specifically targets Iran; an overland freight rail connection from China to Iran has now been completed, with the first services commencing in February 2016. To successfully tie the Gulf into the Belt and Road Initiative will require careful sailing on the part of China.

The possible implications of the Qatar crisis to the Belt and Road Initiative

With growing tensions between several Gulf Arab nations having recently cut diplomatic ties with Qatar, there is a potential threat that the imposed sanctions against the Arab State, will severely interrupt a major piece in China’s planned modern silk road.

In an increasingly challenging environment, expectations are that Belt and Road projects in the region are either going to increase in cost, or fail to complete. Furthermore, given a rise in risk ratings China may find it progressively challenging to attract willing investors and lenders.

Furthermore, there are question marks given China’s interest in the region as to whether it will have to adjust its neutral position on the conflict, shifting its current position of focusing solely on economic cooperation and its diplomatic policy of non-interference.

Governments of India and Japan present plans for the establishment of Asia-Africa sea corridor

As one possible alternative to China’s all-encompassing Belt and Road initiative, the Governments of India and Japan have recently presented plans, for their vision of the establishment of an Asia-Africa Growth Corridor ("AAGC"). The AAGC as its focus will target the more economical and lower carbon footprint option of re-establishing former Asia-Africa sea-routes over the development of any land corridors.

As a joint-effort to promote economic development projects in Africa, the AAGC has targeted opportunities within the skill enhancement, agriculture, disaster management and health sectors. In addition to developing the necessary sea corridors, which will see for example the port in Jamnagar (Gujarat) being connected to Djibouti, the Governments pledge to oversee the development of the necessary transport and industrial infrastructure which will be required between the two continents.

With representatives from Japan and India both opting out of attending Beijing’s recent Belt and Road Summit, plans for the development of the AAGC have become more prominent, with its formation being promoted as a consultative process between all participating nations, which will steer away from the government funded model of the Belt and Road, with the private sector expected to play a major role.

Further updates on this collaboration between Japan and India are likely to be revealed when both heads of state meet at the G20 Hamburg summit in early July.

Egypt on course to become a major beneficiary of the Belt and Road Initiative

In 2016 China invested over US$10 billion into Egypt, making it Africa’s third largest trade partner with China. With Egypt viewed by the Chinese Government as a gateway to Africa, through upcoming planned development projects connected to the Belt and Road Initiative a further US$40 billion is likely to invested over the coming years. In light of these projections and new trend is seeing some of Egypt’s largest banks establish branches in China, in order to maximise on the flows of trade between the two countries.

During the course of the May Belt and Road Summit six memorandum of understanding were signed which included Banque Misr through its Guangzhou branch, and China Development Bank agreeing to a US$500 million loan agreement, which will help to finance joint projects in Egypt over the course of the next 8 years.

Egypt and in particular the Suez canal are central to China’s maritime ambitions with currently over a quarter of all trade containers passing through the canal recognised as Chinese traffic.

The projection of soft power is the early victory for the Belt and Road Initiative

The Belt and Road Initiative garners many headlines about its reach and potential; about its transformative effect on global trade and on the economies of countries along its route. What hasn’t been fully reported on in the news are the projects which are speeding towards completion.

The noise about the potential impact of the Belt & Road Initiative will continue even as projects stall, are redesigned or are shelved. Given the magnitude and ambition of the Initiative, such things are to be expected; it will be some time before we see a significant number of Belt and Road projects reaching the operations stage.

There are a number of factors which must be overcome to successfully deliver projects. As well as delays stemming from changes in governments of Belt and Road countries, projects face terrorism and other security challenges. But even as the projects progress slowly, a growing leadership and policy body is developing, enhancing China’s stature on the Belt and Road and more widely.

 

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