Understanding the Chinese Belt and Road Initiative

Rural China
National involvement is necessary for the development of rural China.

 

By Rosario Santa Gadea

The Belt and Road Initiative is an example of how the Chinese invoke their millenary history in their current strategies. In 2013, President Xi Jinping called upon the spirit of the Silk Road, a two-millennia trade route that connected China to Central Asia, Africa and Europe, to build the New Silk Road Economic Belt and the 21st Century Maritime Silk Road, hence the nickname Belt and Road Initiative (BRI for short). 

The BRI has progressively become a global initiative for China. One expression of that is the invitation made, a year ago, in May 2017, by President Xi to Latin American countries, to become part of it. In January 2018, the Second Ministerial Meeting of  China- Community of Latin America and the Caribbean States (CELAC) Forum issued a special declaration about the BRI. However, the declaration is still very general. Basically, it says that China explained the Initiative and the Latin American and Caribbean countries listened with interest. 

The task now for us is deepening our understanding of the BRI in order to design a good and efficient strategy on how we could be involved in the Initiative. 

 

Advancing Research on BRI and Latin America

Recently, I have had the opportunity to study this question. The Community of Chinese and Latin American Studies (Comunidad de Estudios Chinos y Latinoamericanos, CECLA), together with the Institute of Latin America of the Chinese Academy of Social Sciences (ILAS-CASS), based in Beijing,  undertook a book project, The Belt and Road Initiative and Latin America: New Opportunities and New Challenges, to comprehensively explore and analyze how Latin American countries could be involved in the BRI, with the contribution of researchers from China and Latin America. The cases of Argentina, Brazil, Chile, Mexico and Peru are analyzed. 

I was invited to write the Peruvian country-specific chapter that I entitled “The BRI and Peru: Strategic Vision from the Perspective of South American Physical Integration and Competitive Insertion in Asia-Pacific.”  This research paper, originally written in Spanish, will be published, first, in the Journal of Latin American Studies of ILAS-CASS,  in a Chinese version. Subsequently, the book, including all of my contributions, will be released, in both Chinese and Spanish versions. The present article is based on this research. 

I have had a second recent opportunity to deepen my understanding of the BRI, since I  participated at the “2018 Seminar on China Issue Experts for BRI Countries” invited by the Chinese government. This seminar was organized by the Graduate School of the Chinese Academy of Social Sciences (GSCASS), under the sponsorship of the Ministry of Commerce of China. It took place in Beijing, between June 28th and July 18th, 2018, and included a field trip to Yunan Province in the southwest of China. It certainly enriched my perspective on this topic and helped me to understand that the BRI is not only an international initiative for China, it is also part of a national strategy to bring development to the western and southern parts of the country that are less advanced than the eastern and coastal areas. 

Belt and Road Forum
Belt and Road Forum

 

My perspective is shaped by my decade-long work  on the physical integration of South America, first, as a government official and, later as a research scholar (Santa Gadea, 2012). This background helped me to trace the convergence between key concepts of the scheme of physical integration in South America and those of the BRI. Both approaches move from a sectorial to a territorial vision of development, in which connectivity should be achieved through investments in “integration infrastructure” as a key element for territorial development. 

I believe that this convergence of approaches could serve as a basis for renewing the agenda of China’s cooperation with South America, and Peru in particular.

 

Understanding the BRI

Four principal points stand out. First, the key concept of the BRI is connectivity. This concept relates, principally, to the provision of infrastructure in the areas of transportation, energy and communications—three basic foundations of development. However, the BRI should not necessarily account for all the infrastructure needs of member countries since the idea is to connect those countries with China. Therefore, we should focus on improving connectivity for making more efficient trade and investment with China.

A second key concept of the Initiative relates to “economic corridors.” There are six economic corridors designed so far between China and the countries involved in the BRI. Building economic corridors is more than just providing infrastructure. It is necessary to generate the conditions for development in the areas connected by the infrastructure through productive integration, logistic facilities and other complementary measures. The BRI tends to promote development within a specific territory, which is connected by the infrastructure, and this is the importance of the economic corridors.

Map 1

The third principal concept I found in the BRI is that it refers to connectivity by land and by sea. As already mentioned, the BRI is the combination of the Silk Road Economic Belt and the 21st Century Maritime Silk Road. And this differentiation is very important for Latin America. In fact, the involvement of Latin America in the Chinese Initiative requires the extension of the 21st Century Maritime Silk Road to the Pacific Ocean,—more a bit later about this subject.

Map 2

My fourth point concerning the way to understand BRI is that we should not reduce the Initiative to investments in infrastructure. There are five pillars in the Chinese Initiative: 

• Coordination of economic policies or development strategies. 

• Free trade (within the corridors). 

•  Financial integration including, among others, banks and funds created to finance projects, for example, the Asian Infrastructure InvestmentBank (AIIB). Investment in infrastructure. 

• People-to-people links. 

Therefore, national involvement in the Initiative should include ways of working in the five pillars and not only in one. In general, the spotlight on the BRI put more attention on its infrastructure component, but in fact it is more like a comprehensive program for economic integration. 

Map 3
One Belt, One Road.

 

Now let’s consider  the reasons that have been driving China to undertake such an endeavor. At its national level, analysts point out that the Initiative would contribute to reducing the development gaps between the hinterland (the less developed regions) and the coast of China, through a greater integration of the former with the neighboring economies (Cai, 2017) and also with the more advanced regions of China. The BRI seeks to create strategic drivers for the development of the interior of the country (Niu, 2017) and it would generate new internal trade, reducing transportation costs (Amighini, 2017).

At an international level, it would create new markets for China, not only for the export of goods, but also for the relocation of productive overcapacity in some industries such as steel and cement (Amighini, 2017). Another advantage is the creation of a regional production chain, with China as a center for advanced manufacturing, innovation and establishment of new standards (Cai, 2017). Additionally, the BRI would allow China to attain a position of leadership in the world and strengthen ties with neighboring countries. In this sense, it could be considered as an example of globalization (Niu, 2018).

 

Map 4
Axes of Integration and Development, 2018 (COSIPLAN-AN IRSA).

 

Convergence of Concepts between BRI and South American Physical Integration

Very important matching points exist between the key concepts of the BRI, particularly the “economic corridors,” and those of the South American physical integration, especially the so-called “axis of integration and development,” defined originally within the Initiative for the Integration of the Regional Infrastructure of South America (IIRSA). 

In both cases, connectivity is crucial for economic development and it is important to plan and implement investments in infrastructure, particularly on transport, energy and communications with the perspective of regional and global integration. 

 

Peru and the BRI

Peru is geographically located in the central part of South America with its coast in the Pacific Rim. Because of this geographical location, Peru could be a hub in South America for intermediate trade between both sides of the Pacific Rim, particularly between China and South America. Therefore, the extension of the BRI to South America would imply building a trans-Pacific economic corridor between China and the region and, I believe, Peru could be the point of connection of that corridor on our side of the Pacific. 

Train
“Next Stop Vancouver."

This would necessitate the establishment of an efficient and regular direct maritime connection between South America and China with Peru as a hub. The idea is to consolidate cargo from other South American countries, mainly Brazil, in Peruvian ports, to reach a greater scale and make viable and more attractive (compared to other routes) such direct maritime traffic with Asia through the South Pacific, reducing logistics costs in international trade between China, Peru and the rest of South America. 

Physical integration in South America is a necessary complement of such direct transpacific maritime routes and the projects for bioceanic railways in the region should be re-examined in this perspective.  Two of these projects consider reaching a Peruvian port. The first one is the Brazil-Peru Bioceanic Railway project, which has been analyzed by a trilateral governmental group composed of China, Brazil and Peru. At present, this project is on hold due to its extremely high cost and its potential negative environmental effects. However, the basic study that supports these conclusions has not been made public. It is necessary to do so in order to undertake further assessment. The other project is the Central Bioceanic Railway, promoted by Bolivia and connecting this country with Brazil and Peru; feasibility studies are now underway.

I argue that a comparative assessment is necessary, not only of railways but of the entire set of connections, including port conditions and land and maritime connections. For example, some analysts point out that the distances to Asia, from the Atlantic and the Pacific ports, are not very different, while the cost of transport by land, when it is necessary to cross the Andean mountain range, is very high. This assessment suggests that large volumes of cargo generated in the center of the continent would not actually be diverted to Pacific ports. 

While the potential for South America to be part of an extension of the 21st Century Maritime Silk Road is perceived through a direct trans-Pacific connection between the subcontinent and China, it is necessary to undertake in-depth studies to assess the feasibility of such a trans-Pacific economic corridor. The studies should include logistics costs, travel time and frequency of ships, making comparisons between the trans-Pacific alternatives and the traditional maritime routes.

This is a vision for the extension of the BRI to Peru and South America. Other countries and other regions should build their own vision, too, and start a dialogue with China on that basis.

 

How to Cooperate with China

I believe that some countries have more instruments than others for this cooperation. In the case of Peru, for example, we already have a Free Trade Agreement with China. We are one of the only three countries in Latin America that have this type of agreement. We also have the status of Comprehensive Strategic Alliance with China, meaning that we have the possibility to coordinate economic strategies through the dialogue mechanisms already in place. Peru also has been accepted as a member of the AIIB. Therefore, we have advanced in several of the five pillars of the BRI.

With regards to investments, China concentrates mainly in extractive sectors, principally mining. Due to the importance of mining, Peru is the second destination of Chinese investments in Latin America, after Brazil. However, the arrival of Chinese firms in others sectors, such as infrastructure, is a recent and growing tendency. 

One important thing is that Chinese investment in infrastructure could not be a government-to-government arrangement. Chinese firms have to act according to the regulations of a market economy. This means that they would have to participate in international tenders and compete for the projects with firms from all over the world. The association with local firms is a good strategy. They also need to learn how to operate in Public-Private Partnerships (PPPs).

In sum, there is much to do to, first, complete a strategic vision; second, design the trans-Pacific economic corridor and third, assess its viability. Government, business sector and academia should cooperate in that effort with a long term view.

 

Rosario Santa Gadea is Director of the Center for China and Asia-Pacific Studies at Universidad del Pacífico, Lima, Peru. She is a Doctor in International Economics from the Université de Paris Ouest Nanterre La Défense. She has been a Fellow at the Weatherhead Center for International Affairs of Harvard University.

The author thanks Leolino Rezende, who collaborated with the preparation of this article. He has been Assistant to the Director at the Center for China and Asia-Pacific Studies and currently is pursuing a Master’s degree in International Relations at Peking University.