China’s One Belt One Road Initiative: What we know thus far

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President Xi Jinping launched China’s “One Belt, One Road” (OBOR) initiative in 2013 with the stated aim to connect major Eurasian economies through infrastructure, trade and investment. The initiative was later specified to contain two international trade connections: The land-based "Silk Road Economic Belt" and oceangoing "Maritime Silk Road." 
The “Belt” is a network of overland road and rail routes, oil and natural gas pipelines, and other infrastructure projects that will stretch from Xi’an in central China through Central Asia and ultimately reach as far as Moscow, Rotterdam, and Venice. Rather than one route, belt corridors are set to run along the major Eurasian Land Bridges, through China-Mongolia-Russia, China-Central and West Asia, China-Indochina Peninsula, China-Pakistan, Bangladesh-China-India-Myanmar.
The “Road” is its maritime equivalent: a network of planned ports and other coastal infrastructure projects that dot the map from South and Southeast Asia to East Africa and the northern Mediterranean Sea.
At this stage, the concept, scope and nature of the initiative are still fluid and the shape of OBOR is likely to evolve over time. Because it was launched by President Xi, the initiative is likely to be prominent in China’s overseas investment throughout his term in office.
How big is it?
OBOR can be big, indeed.  In its largest definition, OBOR would include 65 countries, 4.4 billion people and about 40 percent of global GDP. China is backing the plan with considerable resources, setting up a New Silk Road Fund of $40 billion to promote private investment along OBOR. The New Silk Road Fund is sponsored by China’s foreign exchange reserves, as well as government investment and lending arms.
In addition, the Asia Infrastructure Investment Bank is widely expected to support the initiative with a considerable share of its $100 billion in lending, and the China Development Bank reportedly said it would invest almost $900 billion into more than 900 projects involving 60 countries to bolster the initiative. The Economist magazine reported that $1 trillion in “government money” would be spent on the initiative.
More than infrastructure
The vision document for OBOR[1] goes well beyond infrastructure, envisioning closer coordination of economic development policies, harmonization of technical standards for infrastructure, removal of investment and trade barriers, establishment of free trade areas, financial cooperation and “people to people bonds” involving cultural and academic exchanges, personnel exchanges and cooperation, media cooperation, youth and women exchanges, and volunteer services.
What could be the impact of the initiative? 
OBOR could stimulate Asian and global economic growth and make it more sustainable. In particular, countries along the corridor — especially those with underdeveloped infrastructure, low investment rates, and low per-capita incomes — could experience a boost in trade flows and benefit from infrastructure development. China would be able to better secure its energy and raw materials supply — which now predominantly gets shipped through the Strait of Malacca and the South China Sea.
Some consider the initiative China’s plan to ensure markets for its growing excess capacity in the construction industries as economic expansion and domestic investment slow. While it is true that the New Silk Road needs a lot of investment, even the highest estimates would constitute a relatively modest share of China’s $5 trillion annual investments back home. Investments of $1 trillion over 10-15 years is not going to absorb a lot of China’s overcapacity.
There are at least four reasons why OBOR can succeed better than individual countries fending for themselves: network effects, finance, leadership and China’s current stage of economic development.
On network effects, benefits to individual countries accrue if each part of the Belt and Road gets built. It simply does not pay for individual countries to move forward on their own. In addition, the initiative helps individual countries align with each other, and China’s finances and leadership provide vital credibility.
In my view, China’s current stage of development further bolsters the credibility of OBOR. In the past decade, China has become a major player in foreign investment based on natural resources development. As China’s domestic economy is now changing, its overseas investment is gradually shifting toward manufacturing rather than just natural resources. There are good reasons for this transition: at home, China faces rising labor costs and increasing environmental demands on production. Shifting some of its production base overseas makes sense — as long as the infrastructure exists to move the goods produced there. Chinese investment through OBOR provides countries along the Road and Belt an added incentive to join the initiative.
Will it work?
China’s top planning body, the National Development and Reform Commission, has issued a document on its vision for OBOR that discusses strengthening bilateral cooperation and improving existing regional cooperation mechanisms. However the document stops short of “multilaterilazation” of the initiative, such as a formal treaty or partnership. 
The question is whether OBOR would need a more formal agreement at some point — covering trade, investment and business climate issues — to maximize its benefits. For now, countries along the Belt and Road have highly diverse development conditions, and some have challenging governance environment that has made investment in infrastructure hard. 
So using the initiative to help countries improve their investment climate, technical standards and customs and logistics procedures through a formal agreement could bring major benefits. If a more formal agreement were to ensue, it would be among the largest of its kind, and similar in size to the just-concluded Trans-Pacific Partnership Agreement (TPP).
[1] “Vision and Actions on Jointly Building Silk Road Economic Belt and 21st-Century Maritime Silk Road” (2015/03/28), issued by the National Development and Reform Commission,  Ministry of Foreign Affairs, and Ministry of Commerce of the People's Republic of China, with State Council authorization.

(This blog is based on a presentation at the DRC-CIRSD Silk Road Forum 2015, Madrid, Spain, October 2015.)


Bert Hofman

Country Director, China, Mongolia and Korea, East Asia and Pacific

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