Ports, railways and other infrastructure: The escalating challenge for the Middle Kingdom

Ports, railways and other infrastructure: The escalating challenge for the Middle Kingdom

An alternative headline for this article could quite easily have been: If the Chinese BRI is a debt trap for developing countries, then why do those that criticise offer alternative initiatives? (Ed. Note: A tad long!). This question became apparent through having recently written on the benefits that a developing country can achieve by adopting a ‘win – win’ approach to China’s BRI as well as the book that I have written on the subject.

I have also been intrigued by the increased activity by other nations in trying to address the perceived increased influence of China in Eurasia. Recently we have seen the India – Myanmar border opening to much fanfare, as well as the US/Australia/ Japan announcement to set up regional infrastructure to rival China’s BRI and influence. With these announcements comes the regular misinformation around the commercial and political motivations of China.

Some historical context needs to be given to why there is an increasing challenge for control of what is now seen as the modern Eurasian region. Important to this debate is the knowledge that Xi Jinping, in announcing the BRI in 2013, framed it around re-establishing the Silk Road.

It was more than 2,000 years ago that the Chinese emperor’s envoy, Zhang Qian, helped established one of the greatest trading routes in history. A network of trading routes so vast and a system so organised that it helped link China to Central Asia and the Arab world. Not only was the trading route named after the most important export good at that time; silk, but the road played a major role in bringing about the development of the region in numerous fields for hundreds of years. With China’s dominance within this trade network, the Chinese came to see themselves as the ‘Middle Kingdom’ in that the world was seen to revolve around China. Furthermore, it is often argued by economists, that whoever controls the economics of the Middle Kingdom (Asia / Eastern Europe/ South Asia) controls the world economy. It could be argued that the US achieved this under the guise of the Marshal Plan as it rebuilt Europe after World War II.

Contextually we see why the increased focus on the region has set up an interesting challenge. The US and Japan have leveraged resources through India to offer alternative options, particularly in attempts to shut down China’s push to secure energy and trade via access to the West – illustrated by the likes of Gwadar Port in Pakistan (pictured) and Kyauk Phyu in Myanmar.

India and Japan initiated the Asia Africa Growth Corridor (sometimes called the Freedom Corridor), focusing on infrastructure connecting Asia to Africa. However, this corridor is full of problems. Whilst India offers a market size of 1.3bn, it is largely a very poor country. Furthermore India does not have the funds to match China’s push. For example, China has foreign exchange reserves of $3.1trn and exports $80bn to India. India, on the other hand, has a trade deficit with $1.4trn external liability and trades in low value commodities. This would require Japan to provide the finance, but this can be problematic as India and Japan may have differing geopolitical strategies. Take for example, Japan’s investment in Gwadar Port, a project that India is hostile to. It is also material to note that based on current growth projections, China’s economy will be five times the size of Japan.

In the last few weeks, Australia announced its participation in an, as yet unnamed, infrastructure fund. This is a collaborative partnership with the US and Japan, with a stated aim of mobilising investment in projects that drive growth and opportunities. Whilst not mentioning China specifically, it can be read that the BRI is the target as it uses the same language in a call to arms as that was used when criticising the BRI. Terms such as ‘transparency”, ‘open competition’, ‘sustainability” and ‘avoiding unsustainable debt’ are dead giveaways.

The question is whether the US and the likes of Australia have the political will or financial resources to develop this alternative.

One also needs to question the validity of the ‘debt trap’ claims, coupled with the apparent disdain for debt – for – asset swaps. It is disingenuous to argue that the BRI projects are expensive and condemn a country to long-term debt. Infrastructure investment, by its very nature is expensive and long term. For example, how does one measure the return on government investment in major roads that help open access and build commercial activity? This takes years to achieve as clearly illustrated by the iconic Suez Canal. At the time of conception, it was flagged as being doomed to failure and was denigrated in its inception. Many don’t realise that the Suez Canal was first conceived by Napoleon in 1798 with official planning commencing in 1854. Similarly to criticism of the BRI, the British were very critical of the project – such criticism based on cost and perceived benefits. This did not stop the British in 1875 purchasing a 44% stake in the Suez after the cash strapped Egyptian government floated the project (maybe this a good example of how beneficiary countries can offset debt?). In the end, despite the debt and condemnation at the time, the Suez Canal has emerged as a vital and commercial cog in trade and shipping after more than a century since conception.

Applying this logic to the claims made about Sri Lanka and the Hambantota Port. Whilst the focus of the critique has been on the cost, little attention has been given to the logic behind the port. When selecting a port location, an important criteria is the geography, particularly with regards shipping routes. Hambantota is strategically located along the Europe-Asia trade route – it is for this reason that Colombo is the 25th busiest port in the world and among the fastest growing ports this year. We see this corridor carry 23.1m teu in 2017. Colombo can only handle 7m teu and acts mainly as a transhipment port that services India. Hambantota, on the other hand, is on the southern coast of Sri Lanka and is closer to this important trade route. Lack of back up infrastructure is a problem at the moment, but once built, the port becomes an important connector along the maritime Silk Road and can present an interesting alterative to the 23.1m teu that only pass 15 km from it.

As the push for control of the ‘Middle kingdom’ heats up, it is wise to carefully assess criticism of the BRI. This is particularly true when one considers the alternatives offered or suggested. If the Middle Kingdom was not of strategic importance, then why are so many alternatives being conceived despite the claims that the BRI does not make commercial sense?

Andre Wheeler

CEO of Asia Pacific Connex with more than 20 years’ experience in international business, with a diverse network throughout the USA, Asia, SE Asia , Africa and the United Kingdom. Holding a B. Science (Hons) degree and an MBA, he is currently working towards his Doctorate on the Impact of the China One Belt One Road initiative. Andre has expertise in oil/gas, construction, marine services and mining.

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