The Silk Road Economic Belt and Maritime Silk Road, more widely known as the OBOR initiative, is a Chinese government-driven foreign trade policy with the goal of trade integration and trade related investment in Eurasia. The name OBOR is an umbrella term for an amalgam of infrastructure projects mainly in Eurasia.
The policy is set to boost trade among countries by creating a network mainly consistent of railroads spanning from China through Central Asia, India, Eastern Europe to Western European countries such as Germany. The first related projects started in 2013 with many more ongoing or yet to be launched. Some of those projects will be mentioned in the main part of this paper.
Interestingly, when speaking of OBOR, it’s not clear what concretely is meant by it, but the project’s size is significantly large, mirrored by funding of nearly 1 trillion USD. The general idea of this initiative originates from the infamous Silk Road which from 2nd century BC to 14th century AD served as a trade route starting from today’s Chang’an and ending at the Mediterranean in Europe, thus connecting the Chinese empire with the Roman empire.
OBOR is also a crucial part of the plan to vitalize the economic activities in western, economically weaker parts of China. In this regard, the north-western province of Xinjiang plays a key role as it shares a common border with Kazakhstan. In the opinion of Central Asian elites, via the regional initiatives in Central Asia, China is going one step further to become the region’s leader.
When looking at Central Asia’s dependency on China, one can not only see that China invests heavily in the infrastructure of the area’s countries, but consequently, has created a significant financial dependency. This is manifested in the vast volume of loans that most of the five countries still have standing out.
To demonstrate, Kyrgyzstan had agreed to a US$ 400 million loan to construct High Speed Rail roads and as in 2015, Kyrgyzistan owed about US$ 1.8 million to China, which makes up more than half of the Krygyz Republic’s total external debt.
The same goes for Tajikistan whose total external debt is to 46% comprised of loans received by China in 2015. Furthermore, China has invested into several energy pipelines which lead from Central Asian countries to China such as natural gas pipeline from Turkmenistan and an oil pipeline from Kazakhstan.
China is going to continue investing in the transportation and energy infrastructure of Central Asia. For this purpose, several entities were set up. For the funding of OBOR there is the Asian Infrastructure Investment Bankand the Silk Road Infrastructure Fund. The Shanghai Cooperation Organization, which was founded in 1996, serves as an official discussion forum for the leaders of China and Central Asia.
Without doubt, the construction of transportation and energy infrastructure in the Central Asian region is going to support economic development and in the long run will arguably increase domestic demand which in turn leads to further growth of the trade volume. However, as the Central Asian region is rich of natural resources and China’s oil and gas production cannot keep up with its consumption, exports going into China will continue to be dominated by energy related goods.
Energy policy is pushing the transition to renewable energy and China is the world’s leading nation in that endeavour as China is attempting to increase the proportion of energy that is supplied by renewable energy resources. In the long-run, the demand for oil and gas would not increase at the same rate as it can be partly substituted by renewable energy sources.
Regarding Chinese exports to Central Asia, along with Central Asian countries, especially Kyrgyz Republic, Tajikistan and Uzbekistan getting to the next level on the path of economic development, the export product pattern will change.
There will be an increase of the export share of machinery goods, especially transport equipment, because of the rising number of infrastructure projects in Central Asia in the framework of OBOR and furthermore, after 30 years of big scale infrastructure construction, Chinese companies have sufficient expertise in infrastructure construction and will welcome new projects abroad, as the number infrastructure projects domestically is shrinking.
However, as of now, Central Asian countries lack export competitiveness in almost every sector except for the energy sector and unless there will be an increase in labor productivity, better infrastructure, and efficient institutions, this status quo will most likely remain unchanged.
Intra-industry trade will further increase as China is driving economic growth in the region. Based on the differences in consumption culture and different comparative advantages, intra-industry trade is probably going to be the dominant mode of trade.
"China has a big interest in keeping the region stable and leading it to economic prosperity."
The countries along the Silk Road Economic Belt have and will benefit from China’s willingness to improve transport infrastructure in respective regions. This is beneficial for Central Asia, because the lack of viable infrastructure represents a core hindrance to further economic growth. China has in the past few years and will continue to invest not only in Central Asia but also in several other regions around the world, particularly in Africa. As proven in the past, developing countries generally from infrastructure investments from China, although they come with certain conditions, such as the use of Chinese labour and materials.
Although there have been many voices raised opposing OBOR, Central Asian leadership needs to apply evidence-based policymaking derived from quality research and applied analysis. It will be instrumental in producing better policy options, reducing poverty, stimulating economic growth and enhancing the quality of life in Central Asia.
China has a big interest in keeping the region stable and leading it to economic prosperity. If all parties involved are willing to accept the negative aspects of OBOR, it can be a win-win situation for both Central Asia and China.
This article is contributed by one of Crosslinked's associates and strictly represents the author's own opinion. Any further queries can be sent to firstname.lastname@example.org