What does China's Silk Road policy mean in practice?
views: date:2017-06-18 11:57:57
The Silk Road is one of the world’s most powerful brands, perhaps even bigger than Disney or Coca-Cola. In my conversations across the region, whether speaking with a Chinese policy official or Egyptian taxi driver, simple mention of the Silk Road brings immediate recognition.
By adopting the concept to explain China’s own regional ambitions, President Xi Jinping has leveraged the brand at little cost. And his early November announcement that China would fund a $40 billion Silk Road Fund rightly caught news headlines around the world.
And yet trying to decipher the implications of China’s strategic ambition is less straightforward. What does it mean in practice?
Scale matters when it comes to China
There is speculation that China’s Silk Road policy, more popularly known as One Belt, One Road, is intended to support the country’s GDP growth at a time of slowing domestic activity. But that isn’t going to happen; China is simply too big and most of the Silk Road’s economies too small.
Just consider that China’s five largest provincial economies would rank among the Silk Road’s 10 largest economies; or the fact that Bangladesh, Cambodia, Laos, Mongolia, Myanmar, Pakistan, and Tajikistan collectively have a GDP smaller than southern Guangdong province.
To be fair, the policy will benefit individual Chinese firms, especially smaller and midsized firms. But it’s critical to recognize that the benefits to national GDP from China’s One Belt, One Road policy are more likely to be felt by the country’s neighbors rather than by China itself.
Are you aligned with government policy?
I’ve heard concerns from multinationals that foreign companies will be squeezed out from bidding on construction projects in many Silk Road countries as a result of the policy. This is always a risk, but CEOs should always be considering the political benefits to aligning themselves with China.
The opportunities lie in the reality that many Chinese companies, aside from the largest, lack truly global operations and so may struggle to realize the government’s ambitions. Many may find it helpful to collaborate with foreign companies in areas where they lack capabilities.
This would result in not only financial gains, but also political gains. It’s a common practice for local and foreign companies to align themselves with Beijing’s policy priorities. Being helpful to China is a strategy that can reap rewards and the One Belt, One Road policy offers similar opportunities.
A public versus private Silk Road For all the tendency to focus on China’s biggest state-firms building out infrastructure, it’s the country’s private sector that will ultimately determine whether the policy is a success at home as they make the most of improved market access and distribution.
There are early signs of success, such as in India where Chinese smartphone makers are already seeing strong market share gains: Xiaomi talks of investing in local research and development capabilities and Gionee recently sponsored Bollywood’s annual music awards extravaganza.
And yet, they are also in the minority. Speaking with C-level executives across a range of foreign multinationals in Southeast Asia earlier this year, I was struck by the number who said they aren’t yet bumping up against serious Chinese competition. They can see it coming eventually, but not just yet.
Infrastructure isn’t just about capital
There are signs that China is already having an impact on the region’s infrastructure. Speaking with Karachi-based industrialists a few weeks ago, I heard reports of Chinese construction companies widening roads in Sindh and building small hydroelectric dams in Punjab.
The Silk Road Fund and Asian Infrastructure Investment Bank will only add to the momentum as they provide much needed capital, technical expertise, and possibly an intention to take a light touch with respect to the environmental and social safeguards that slow down the World Bank’s capacity to invest.
And yet the region’s infrastructure shortfalls aren’t just capital related. Corruption, bureaucracy, and litigation are equally important and it’s not clear whether the Silk Road Fund or AIIB will be any more successful in forcing projects through where delays aren’t purely capital or expertise related.
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