China’s Modern Silk Road

China has embarked on the mother of all infrastructure projects: a rail system linking Europe and Asia.

The Silk Road: the words evoke images of an ancient trade route linking China, central Asia and the ancient eastern civilised world. It was a complex network of trade and commerce renowned for its cultural, artistic and scientific achievements and of course, for the brutality of Genghis Khan.

The new Silk Road

Now a modern version of the Silk Road is coming, driven by a Chinese government committed to enhancing the country’s influence in Asia and the world, increasing foreign trade and strengthening its economy, especially by energising the small business sector. China has launched an ambitious and rapidly advancing project to establish a transport infrastructure linking 40 countries from East and Central Asia to Europe, joining points as far west as Spain and as far east as Xi’an in central China. Fourteen countries have signed up so far.

The massive Silk Road and Silk Belt plan dwarfs all other projects the world has known in both scope and ambition, recreating the ancient Silk Road concept with a modern high speed, high capacity transport network covering rail, road and sea.

That includes a maritime route linking China to India and Africa, and Rod was in China for the launch of that part of the project. While there he spoke at the Boao Forum, China’s exclusive leadership summit that brings together 2,000 CEOs and government leaders from China, Asia and the wider world. China uses the annual conference to engage regional and world leaders in public discussions and private meetings, and the Silk Road project was an important subject for discussion this year.

Magnitude

Just as the First Transcontinental Railroad revolutionised the settlement of the American west when it linked the Pacific coast with the east in the 1860s, this project is expected to unite the broader Eurasian region through a 10,000-kilometre high-speed rail line from China to Europe. The project is breathtaking in its scope: beyond its core railroad component, it also encompasses highways, a world-class air cargo network, a maritime academy, ships, harbours and ports, energy creation and distribution, information networks and technology, and science and industrial parks.

But at what a cost: the total bill may reach US $8 trillion. By comparison, the United States will spend between US $5 and 7 trillion on defence over the next 10 years. The rail link alone – with trains over 200mph – will cost about US $240 billion.

Recently Rod spent a day with the harbourmasters of Los Angeles and Long Beach, California, looking at the economics of America’s sea trade. He learned that US ports cannot handle big Chinese container ships and must expand to accommodate them. For LA, that means a US $2.4 billion investment to increase capacity.

That figure is a rounding error compared to the Silk Road project’s US $40 billion plus commitment to beef up Pakistan’s Karachi harbour alone.

Where is the money coming from?

This massive project requires significant financing, and 10-20 percent of the cost is likely to come from governments, the rest from the private sector.

Part of the cost – perhaps US $100 billion or more – will come from the Asian Infrastructure Investment Bank, the multilateral development bank being established to promote regional cooperation and partnership and to foster economic growth in Asia through infrastructure financing. The bank is expected to be fully established by the end of 2015; 57 nations to date have indicated their intention to be founding members.

China has committed US $50 billion to the AIIB and intends to raise a total of US $100 billion; it has said it will invest more if necessary. The decision-making structure of the new bank is significant in that China will have no special power or influence over other members; a unanimous vote of the board will be required for project approvals.

Conclusion

The sheer audacity of the Silk Road project – its scale and its brilliance – is inspiring the countries of the region to take part. No one is complaining about China’s lead role in the project; the advantages are very clear.

If leadership is inspiring others to follow, China is the region’s undisputed leader. It is not driving this massive project solely to improve the region’s transport. It is an act of geopolitical brilliance: it understands that by integrating itself with its neighbours and linking their economic fates, the Chinese link their political futures as well.