In International Shipping News 12/07/2016
Recent news highlighted further progress in building China’s ‘One Belt, One Road’ mega-project. Chinese involvement in possible expansion at Port Klang, Malaysia apparently is under discussion while, at the other end of the route, huge additional Chinese investment at the port of Piraeus in Greece has just been agreed. This article looks at how the plan is evolving.
OBOR is a grand scheme of international sea and land trade route elaboration and related infrastructure augmentation initiated by China. It harmonises with President Xi Jinping’s ideas about a ‘Chinese Dream’, an aspiration emphasising the rejuvenation of China. The Maritime Silk Road plan was unveiled almost three years ago in October 2013, following the ideas announced earlier that year for a land-based route.
The two parts of the OBOR, the ‘Belt’ or Silk Road Economic Belt, and the ‘Road’ or Maritime Silk Road are designed to be complementary. The 21st Century Maritime Silk Road has not been evolving as rapidly as its overland counterpart, but it has significant implications for the global shipping industry and could have a greater impact over the next few years.
‘Silk Road’ is the name given to an ancient trade route opened up by Chinese merchants in the second century, linking China with the West for movements of silk, spices and other goods. Changing political and military circumstances caused the precise route to vary. More accurately the term refers to a network of historic routes across Asia.
What characterises the modern version, for which the original name has been revived? The land-based Silk Road Economic Belt, also described as a corridor, consists of a broad band of central China, reaching through a large number of Asian countries and stretching into the eastern European region. These countries are or will be linked by existing or planned railways and roads, with bridges and tunnels, as well as pipelines, energy projects, industrial parks and logistics centres.
The Maritime Silk Road or corridor is principally a sea route from the South China Sea and South East Asia, through the Indian Ocean and Middle East area into the eastern Mediterranean. It also extends in other directions. Its main feature is port infrastructure projects, some linking with the parts of the land-based project.
A persuasive rationale
China’s justification for the OBOR concept is a need to facilitate trade route connectivity and efficiency, reducing the costs of transporting goods, while improving the security of the country’s enormous import and export flows. Other prominent reasons for such a vast and what is described as hugely ‘ambitious’ grand plan, is to promote additional work for Chinese construction companies on large-scale building projects, while boosting potential for manufactured goods exports from China in new markets.
The OBOR is designed to enrich the economies of China and about sixty of its nearby trading partners, and enthusiasm for participation has been seen in many countries throughout the region. There are potential strategic advantages also as countries involved in the OBOR become more closely integrated with China.
These imperatives partly reflect the pronounced economic slowdown and accompanying rebalancing of economic activity in China. The process is expected to continue well into the future, possibly for several years. As a consequence, large excess capacity has been revealed in some major industries, such as steelmaking, construction and equipment manufacturing: this capacity could be directed towards other markets.
A paper published last year by Clingendael, Netherlands Institute of International Relations, assessed the rationale for the Maritime Silk Road in particular. It concluded that the MSR “is not aimed primarily at changing China’s role in international shipping, but rather is part of a highly ambitious long-term programme for the economic integration of a vast zone…on the basis of infrastructure development”.
This analysis pointed out that, especially in developing countries, Chinese investment in key infrastructure projects can lead to increased leverage for Beijing in its relations with the host government. Leverage is further enhanced when China-controlled entities provide financing.
The Clingendael report concludes that the OBOR programme focus “is not on military dominance”. However, the authors suggest that “the initiatives…are accelerating the growth of its (China’s) influence on maritime trade patterns as well as in Asia, Africa and Europe more broadly”. A later paper published this year by the Peterson Institute for International Economics similarly concludes that the OBOR “appears to be entirely a mercantile endeavour designed to fortify China’s economic interests around the world”.
OBOR components
Familiarity with aspects of the OBOR, and accumulating evidence of progress achieved, has clarified the framework and content. Initially the plan, while undoubtedly impressive in scale and scope, seemed somewhat vague and amorphous, resulted in the project lacking defining features. This impression is now fading. Nevertheless, there is still considerable uncertainty about how some parts will evolve in the years ahead.
The scale of this super-sized programme implies an enormous and ongoing financing requirement. Principal channels involved are China’s four state-owned banks (Bank of China, Industrial and Commercial Bank of China, China Construction Bank, and Agricultural Bank of China). Also contributing are the Chinese state’s $40 billion Silk Road Fund, the multi-national Asian Infrastructure Investment Bank, and others.
Characteristics of land-based portions of the OBOR differ from those of the sea routes. There is a pressing need for additional or upgraded land infrastructure in many Asian countries. Much of the existing rail and road infrastructure is deficient and therefore hampering trade flows across the region by causing congestion, delays and the higher costs resulting. Consequently there is a clear requirement for more major investment, which can improve and cheapen land transport and connection with sea routes.
Maritime Silk Road progress
Within the Maritime Silk Road, substantial investment in port facilities in various locations is planned or under way. New, expanded or more advanced capacity will improve connections between sea and land legs of trade movements, raising overall transport efficiency and reducing costs.
Enthusiasm for the project has been especially notable in Southeast Asia. The economic logic may be most compelling in this region, assisting greater flows of goods, people and capital and promoting economic growth in all countries along the route. There is also a trade security aspect. Land connections from China to ports in Southeast Asia reduce dependence on maritime trade passing through the congested and potentially insecure ‘choke point’ of the Straits of Malacca.
One of the high profile port projects in Southeast Asia is Gwadar in Pakistan, operated by China Overseas Port Holdings and built by China Harbour Engineering Company. CHEC’s other involvements in Pakistan include an extension of the port at Qasim. An agreement to create an ‘economic corridor’ between Pakistan and China was finalised in early 2014, including upgrades to roads and railways linking the two countries.
Other examples are prominent. In Myanmar a contract was agreed at the end of 2015 with a Chinese consortium, including CHEC and led by CITIC Group Corporation, which will build a deep-sea port at Kyaukphyu. A new deep-sea port at Sonadia Island, Bangladesh is being constructed with Chinese involvement. Two projects in Sri Lanka involving China are a Colombo container terminal and new port at Hambantota.
At the other end of the Maritime Silk Road, a showpiece project is China’s investment in the port of Piraeus, Greece. Seven years ago COSCO (now China Cosco Shipping after its merger) obtained a concession from the Greek government to operate part of the port’s container terminal over a thirty-five years period. Expansion of capacity has enabled much higher throughput. Then, in early 2016, a two-thirds holding in Piraeus Port Authority was acquired. Subsequently plans to greatly increase port investment have been announced.
Maritime transport carrying capacity is another aspect. Further investment to enhance the scale and efficiency of shipping services has been discussed, but there have not yet been many direct developments.
Arguably the 21st Century Maritime Silk Road is already heavily, and comprehensively, provided with high-quality Chinese and foreign shipping services offering enormous capacity for moving cargoes efficiently. Extra investment by the companies involved has been proceeding for many years. The China-owned fleet of deep-sea trading ships continues to expand rapidly, with a large number of new ships due to be completed in the next few years, and many more purchased secondhand from foreign shipowners. This pattern seems to satisfy current and foreseeable requirements.
Earlier in 2016, in an implicit acknowledgement that Maritime Silk Road progress was lagging, or at least need reinvigorating, a Chinese government official stated that a new action plan would be introduced this year. This intention follows an action plan covering both Road and Belt routes and priorities announced in March 2015. One suggested explanation for the limited progress of the maritime strategy is concerns, among some of China’s neighbours in Southeast Asia, about Chinese maritime territorial claims. These claims have become a more contentious issue over the past few years.
A colossal, multi-faceted enterprise
China has previously organised huge commercial projects and trade activity. In an historical context, one example is of particular significance.
In the early fifteenth century the Yongle Emperor ordered the construction of a vast imperial fleet to undertake lengthy international voyages. The remarkable treasure ship expeditions were commanded by famous admiral and diplomat Zheng He. These extended voyages to Southeast Asia, Arabian Sea ports and East Africa took place from 1405 to 1433. Each of the seven expeditions, apparently involving up to 200 ships and 20,000 mariners, lasted two years. Some ships involved were far bigger and more technically advanced than others built anywhere else in the world at that time.
This massive enterprise can be regarded as a precursor for the present 21st Century Maritime Silk Road, although infrastructure building was limited in the earlier expeditions. Today great endeavours designed to increase China’s participation in, and influence on, cargo movements along the route, are progressively taking shape. Although the eventual outcome is still difficult to foresee, it seems predictable that more OBOR features will be added over the next few years.
Source: Article for Hellenic Shipping News by Richard Scott, associate, China Centre (Maritime), Solent University and MD, Bulk Shipping Analysis
