Summary

China’s “Belt and Road Initiative” (BRI), the new Silk Road project, is expected to affect 60 to 100 countries in Africa, Asia, and Europe. What is the project about, and what are its benefits and risks, especially for countries in the European Union and the Eurasian Economic Union? A panel discussion on these issues took place at the JVI on May 18, 2018. Chaired by Franz Nauschnigg from the Oesterreichische Nationalbank (OeNB), the panel consisted of Amat Adarov, Vienna Institute for International Economic Studies; Stephan Barisitz, OeNB; and Christian Trattner, Austrian Railways.

Mr. Adarov gave an overview of the project. BRI is a very ambitious endeavor that spans both land and maritime connections across three continents. This is not just about transport infrastructure. According to the list of priorities communicated by China, it is also expected to spur trade, capital flows, and tourism, and possibly induce policy coordination between participating countries.

BRI is not an altruistic initiative of the Chinese government. It has both explicit and implicit national strategic goals: (1) It may be an extension of China’s reassessment of its economic growth and development model. (2) It aims to facilitate economic development in the country’s regions that are lagging. (3) China also wishes to secure access to strategic natural resources and new markets for trade and promote the Chinese currency. (4) Not less important are China’s geopolitical interests, in particular political and economic stability at its borders.

Mr. Adarov considers BRI’s main strengths to be its solid financial foundation—Chinese financial institutions have already committed US$100 billion—and the fact that the Chinese economy is both large and highly competitive. An additional strength of the initiative is its flexibility: it allows for a discretionary approach to each partner country and stage of the project. However, the flexibility may also be a weakness, because it increases uncertainty about how the project will be regulated.

While BRI offers participating countries enormous opportunities, Mr. Adarov noted, it also carries risks for them. In Central Asia, one long-run risk could be higher dependency on China. In the EU, some countries are wary of China’s possible political intentions. How to reduce risks and harness the opportunities? The way forward is pragmatic dialogue: identify areas of common interest and avoid forcing “either-or” choices on the countries concerned.

Mr. Barisitz expanded on the risks and benefits of the initiative. BRI is enormously ambitious:  total financing is projected to be as much as US$1.5 trillion. Its main goal is to reduce transportation infrastructure bottlenecks throughout Eurasia and Africa, which offers many countries in the region a great opportunity to spur economic development. The main risk in this case, Mr. Barisitz noted, is that in some of those countries, governance inadequacies imply low capacity to carry out large infrastructure projects in a sustainable way. Another potential risk is Chinese dominance in most subprojects in terms of labor as well as capital.

Mr. Trattner gave an example of a planned BRI project – construction of a broad-gauge railway from the Slovakian-Ukrainian border to Vienna. With an investment cost of €6.5 billion at current price level, the new railway would expand the current transport volume to Vienna six-fold and thus relax capacity constraints at other railway junctions on the eastern EU border.

The question and answer session that followed the panel discussion was lively. One question concerned the governance of the initiative and whether there was any strategy for participating countries to exit. Mr. Adarov noted again that how it would be regulated is not yet clear, and agreed that capacity constraints in some participating countries are indeed a weakness for BRI. Mr. Barisitz added that these constraints could be eased by the assistance that China offers to the participating countries, as well as by the capacity development that international organizations, e.g. the IMF, offer to Chinese public officials. Another questioner asked how the initiative might affect the environment. Mr. Trattner pointed out that trains pollute less than trucks, so expansion of railway transportation is environmentally friendly. However, Mr. Adarov added, while China’s environmental issues are well known, not all countries participating in the BRI have adopted adequate environmental regulations, and the differences in the technical standards of participating countries may well become problematic.

Maksym Ivanyna, Senior Economist, JVI