domingo, 8 de março de 2015

China, Indonesia, India and the 21st Century Maritime Silk Road initiative

China’s President Xi Jinping announced last November that China will promote Asia’s connectivity by creating a $40 billion USD fund for the 21st Century Maritime Silk Road. This is part of the now called Chinese Dream, which according to President Xi Jinping consists on “the great rejuvenation of the Chinese nation”. [1] And according to SCMP, the “New Silk Road Economic Belt” and the “21st Century Maritime Silk Road” will build roads, ports, airports and railways across Central and South Asia”. [2]

President Xi Jinping was also quoted saying that “the Silk Road Fund will be open and welcome investors from Asia and beyond to actively take part in the project”. [3] It is therefore evident that this investment is not only a business opportunity for many regional and global companies, but also a political opportunity of regional cooperation for the countries of Southeast Asia, South Asia, Central Asia, East Africa and Middle East. This is a project that might have a positive global impact and could even re-launch the much needed regional cooperation with strategic partnerships in the South China Sea and the Indian Ocean.
Picture 1 - Current and Xi Jinping's routes [2]

The main challenges and opportunities of the “21st Century Maritime Silk Road” initiative are considerably dependent on how other key regional players – such as Indonesia and India – will engage with or influence the Chinese plan.

Let’s start by Indonesia. Indonesia has a new leader, President Joko Widodo, who is a pro-business reformer with an ambitious modernization plan for the country, projecting Indonesia as a “maritime axis” between the Pacific and the Indian oceans. Last Thursday, the 5th of March 2015, I was privileged to meet in Brussels the Indonesian Deputy Minister of the Coordinating Ministry of Maritime Affairs, Mr Arif Havas Oegroseno. As he said, the 5 pillars of Indonesia’s new maritime strategy are:
- Maritime Culture
- Maritime Economy
- Maritime Connectivity
- Maritime Security
- Maritime Diplomacy

According to Mr Oegroseno, next 4 years Indonesia will invest $57 billion USD in upgrading 24 harbors and 5 deep sea ports. Additionally, Indonesia will invest $70 billion USD in building 7 new yacht and cruise harbors and 9 new airports. This fundraising is currently being done and in Europe the main investors are from Denmark, France, Spain, Italy, Netherlands and Germany. All of these goals seem to work well for the Chinese Maritime Silk Road initiative. Moreover, general perception is that China and Indonesia have very close relations and Indonesia’s leadership in the Indian-Ocean Rim Association (IORA) next 2 years could play favorably for China’s projects in the Indian Ocean. Indonesia could also be helpful in softening relations between China and other ASEAN countries as Vietnam and the Philippines, with which there are some sovereignty disputes over islands and reefs in the South China Sea. The Silk Road Fund has definitely a big potential to be a key diplomatic and economic integration tool from which China and ASEAN countries can benefit.

Historically Indonesia has had an important role in Chinese exports to places like, for instance, Oman. Indonesia’s efforts to restore its infrastructures are crucial for the country to maintain that status of “maritime axis” between the Pacific and Indian oceans. Economic projections are also positive for the country. Indonesia is currently the 16th biggest economy in the world. As we can see below, PricewaterhouseCoopers (PwC) projects that Indonesia will be the 11th biggest economy by 2030 and the 8th biggest economy by 2050. While China will have a stable status quo as leader, India will dispute the 2nd place with the United States. [4]
Table 1 - Actual and projected top 20 economies ranked based on GDP in PPP terms [4]

Regarding South Asia, the situation is not simple. We must bear in mind India’s crucial role in it. China has a strong alliance with Pakistan, as we can see by emblematic Chinese sponsored infrastructures such as the Karakoram highway and the Gwadar deep-sea port. Besides that, China has a close relation with the current government of the Maldives [5] and has major investments in Sri Lanka and Bangladesh. This is why the String of Pearls Theory is popular not only in India but also within international analysts. According to this theory, China would have as strategy the encirclement towards India, its economy and military, in order to dominate the Indian Ocean. In fact, the “21st Century Maritime Silk Road initiative” has been seen by the Indian media as a Chinese rebranding of its String of Pearls. [6]

With the election of Prime-Minister Narendra Modi in India last year, many things have been changing India as well as in South Asia. With programmes like “Make in India” [7] or by reducing bureaucracy, the new Indian government has shown that pro-business policies are their main priority. Also in neighbor countries like Sri Lanka things are changing. Sri Lanka’s previous President Mahinda Rajapaksa developed in his 10 years consulate a very close relation with China, endorsing China’s Maritime Silk Road initiative and welcoming Chinese investment in the country’s infrastructures, such as in the ports of Colombo, Tricomalee and others. [8] But in January 2015, against all odds, President Rajapaksa lost the elections and the new President Maithripala Sirisena took office. President Sirisena is much closer to India than its predecessor was and he promised to establish “equal relations” between China, India, Pakistan and Japan. [9] In Sri Lanka, as in Bangladesh and also in inland countries as Nepal and Bhutan, China must have India’s role in consideration for its Maritime Silk Road project. China has some diplomatic challenges in these cases, since cooperation and even coordination with India will probably be much more effective for business than competition or confrontation. Prime-Minister Modi is visiting its neighbor countries in South Asia in a second round since his election last year. This tells us that India will not open hand of his leading role in the region.

Other countries like Japan, Australia or New Zealand could be also interested in the new infrastructures and opportunities generated by the “21st Century Maritime Silk Road” initiative. Arguably, the ongoing negotiations of the Trans-Pacific Partnership (TPP) and the Regional Comprehensive Economic Partnership (RCEP) can somehow affect the flow of investment, commerce and partnerships related to the Maritime Silk Road. However, for the time being, this threat is not meaningful for two main reasons: first, the negotiations completion will take time; and second, it will probably result in a complementary market rather than in damaging competition.

Picture 2 - CSCL Globe, the biggest cargo ship in the world, with capacity for 19100 TEU containers

In Europe the “21st Century Maritime Silk Road” initiative is being received with great expectations. Just this week the Chinese cargo ship passed by the Port of Zeebrugge in Belgium, increasing people’s interest on the issue. [10] Illustrating this, the Port of Zeebrugge has offices in Shanghai and the King of Belgium will visit China by June 2015.

Finally, this week Heritage Foundation and New Direction Foundation presented in Brussels [11] the 2015 Index of Economic Freedom [12]. According to this index, Hong Kong maintained the status as the world’s freest economy for the 21st consecutive year. Singapore ranks 2nd in this index that considers as indicators the rule of law, government size, regulatory efficiency and open markets. As Goldman Sachs recognizes, the Shanghai-Hong Kong Stock Connect launching in the 17th of November 2014 “allows mainland Chinese investors to purchase select Hong Kong and Chinese companies listed in Hong Kong, and lets foreigners buy Chinese A shares listed in Shanghai in a less restrictive manner than has previously been the case.” [13] Such policies and the Maritime Silk Road investments will allow Hong Kong and Singapore to reinforce their status as the main business centers of Southeast Asia.

António M.C. Vieira da Cruz
Brussels, the 7th of March 2015


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