China is Spending Nearly $1 Trillion to Rebuild the Silk Road

March 4, 2016

Among the first visible signs of the massive land and sea infrastructure network China is constructing across Eurasia was a cargo train that left eastern China and arrived in Tehran this past February 16. It marked the beginning of China's use of global road and rail building to stimulate its economy, expand its trade routes, and secure its access to oil.

Why is China taking on such a huge project now in light of its current economic downturn?

Ease of transport and keeping people employed have been two constants for nations seeking to grow their economies for centuries. Ask the Romans. By rebuilding the Silk Road, the ancient trade route from China to the Middle East and Europe, China hopes to create a web of trade that will span 60 countries that are home to 4.4 billion people - that is half of the world's population.

The $1 trillion plan, known as One Belt, One Road, includes a land component that will connect China by road and rail to the far reaches of Eurasia. The second component of the plan involves developing ports and shipping routes connecting Chinese harbors to Europe and the South Pacific.

Funding for the massive infrastructure project began with a $40 billion "Silk Road Fund" that invested in power projects in Russia and Pakistan. Next, there is the newly created $100 billion Asian Infrastructure Investment Bank in which China controls 26 percent of the votes. Then there is the China Development Bank which has promised $890 billion for the One Belt, One Road project.

Since slowdown of its recent building boom, China faces significant overcapacity in its steel and construction sectors. Building roads, ports, rails and other infrastructure will help deploy some of these otherwise idle human and capital resources. Investing abroad might also strengthen the economies of emerging trading partners, thereby securing future demand for Chinese goods and services. 

Current sea trade routes available to China are deeply vulnerable and if those routes are blocked, China's economy would be crushed. Improving and securing maritime routes will also cut valuable shipping time. On land, the new Silk Road will help secure China's access to energy. They plan to build a 2,000 mile high-speed railway between western China and Tehran.

Analysts say the One Belt, One Road project will generate significant geopolitical growth for China, allowing it to influence the development of poorer countries within its reach. Analysts also say this will help balance the influence of India and Russia in western China that are experiencing some domestic instability.

Not surprisingly, some countries are cautious or just plain against the China trade route expansion. Some feel this mega-construction project will reshape the world's economy for the 21st century. Others think the Chinese network of roads, rail and shipping connecting the country to much of the eastern hemisphere might produce international tensions.

One Belt, One Road is an ambitious undertaking. But, China has a history of big infrastructure builds. There's that wall they put together a while back........

Source: PBS; Reuters