The Old and the New Silk Roads
China’s bid for dominance in global trade and politics, but not in finance
Kumar David-November 10, 2018, 12:00 pm
This piece is in danger of falling between two stools. I want talk about a magical digital exhibition of the Mogao caves at the north-western end of the Hershi Corridor which is the gateway into Xinjiang Province (where tens of thousands of Muslims are interned for brain-washing today) which borders Central Asia; but I also want to comment on the ways in which new silk road (Belt and Road Initiative – what an ugly clunky name) differs from the great Silk Road of long ago. Let’s see how I bridge the dichotomy. The Old Silk Road (OSR) was a 6,500 km overland network from the ancient capital Xian through fabled cities Samarkand and Bukhara into Persia and thence Damascus and Mediterranean ports Tyre and Antioch and then by sea to Rome; or via a more northerly overland route to Cappadocia in modern Turkey and to ancient Byzantium.
The Han Dynasty (206 BC-220 AD) whose capital was Xian consolidated the route through north-western China and Central Asia. Silk was not the only product; the Chinese exported tea, sugar, porcelain, and spices. Most exports were luxury goods; imports were cotton, ivory, wool, gold, and silver; two-way commerce thrived. There was also a less important maritime network linking Chinese ports to South East Asia and India. Not only commerce but ideas and philosophies (and later on disease like the plague) traversed the OSR, prime was the transmission of Buddhism to China. Emperor Asoka is said to have sent missions but I could not find evidence on my travels on the OSR some years ago. Monks and scholars traversed the route in later centuries, spent many years in India and took back texts which were translated into Chinese. Traditional Chinese people call themselves Buddhists (practices are different from Lanka), not Confusions, because the latter is more ethics and a code of conduct. There are about 200 million people who accept Buddhist philosophy in China today.
A famous group of about 1000 Ajanta-like caves dug into a rock face in Mogao is near the modern town of Dun Huang. The first cave was dug in 366 AD (or 332?) by itinerant monk Le Zun who experienced visions. Soon he was followed by others and over centuries the caves won imperial patronage. The high point was the Tang Dynasty (618-907 AD), the pinnacle of Chinese civilisation. After the Tang, the caves were neglected, and by the Yuan (Mongol) Dynasty (1279-1368) forgotten till rediscovered in the early 20-th Century. This was mixed a blessing; "archaeologists" from Hungary, Japan, Russia, France and America robbed everything they could carry away from books to petit statues and small murals.
What I want to introduce is a breath-taking digital exhibition created by China’s Dunhuang Academy in collaboration with scientific institutions to preserve and display high-fidelity displays of murals, grottos and stucco images. High-fidelity photography, laser scanning, digital databases and multi-media technologies create an "as if you are there" experience. I was captivated by a visit to the Hong Kong Heritage Museum where the exhibition is on display for three months. It is stunning; capture the QR-code beside each exhibit on a mobile phone and it will link you to an information bank about the exhibit. While viewing large replicas or wall-to-wall murals move a cursor on a table top version and a pointer moves on the big exhibit giving a commentary on the selected portion of the original. I urge you to visit the websites below for an experience of a grand show. Remember, as you "walk" through the video that these are not web images but an amazing laser and digital, light and sound show that you could physically walk through if only you were here.
https://www.e-dunhuang.com/cave/10.0001/0001.0001.0254| https://m.youtube.com/watch?v=2Y54iHtfxgQ
This then is the right moment to switch to the New Silk Road (NSR), China’s attempt to reshape the world for a Chinese Century. Oh, maybe it’s only a return to square one; for all recorded history, except from the rise of capitalism to today, China and India were the largest global economies.
The New Silk Road
OSR was an artery of trade in exotic and luxury merchandise but commerce is only one of the purposes of NSR. It is in addition an arena of geopolitical rivalry, a growth model for new economies, and a market for China’s burgeoning economy. On the infrastructure side, the skeleton is:
a) Two railways one through Russia to Europe, one through Central Asia to the Mediterranean
b) A land route through Pakistan to the Indian Ocean
c) An interconnected rail network in Thailand, Burma, Malaysia and Bangladesh
d) A short new railway line into Mongolia and Russian Siberia
e) Maritime routes, harbours and railways in the Indian Ocean littoral, East Africa and the Mediterranean to Greece – the new Hambantota Port is one such harbour
There is big money involved but it is hard to get a handle on quite what’s what. Estimates put the long term cost at $1 trillion and $340 billion of contracts have been awarded to Chinese construction companies already. China says $50 billion has been earmarked for infrastructure development in other countries (Thailand, Laos, Malaysia, Indonesia, Bangladesh, Sri Lanka, Pakistan, Kenya, Ethiopia and Greece) but in view of the scale of the undertakings this is woefully inadequate. Malaysia’s Mahathir Mohamad cancelled three NSR projects valued at $30 billion citing internal fiscal problems. "Deferred until such time we can afford and maybe reduce costs". The Chinese vice finance minister responded "We know debt sustainability of participant countries is a complicated issue, but we will take care of it". Clearly, China is keeping a fat wad in its back pocket for a rainy day.
Where is the big picture that China is painting taking the world? (If you are seeking everyday details the web is saturated with data). There are four headings under which I will explore the big picture implications of the NSR for China and the world: What’s in it for Chinese industry; what’s in it for countries on the route; Chinese geopolitics and the standoff with the US; and finally China’s Achilles’ heel, finance-capital. Though brief it will help you get a bird’s eye view.
China’s construction overcapacity
China’s infrastructure building capability is prodigious unlike the west and especially the US where underinvestment in transport and infrastructure is horrifying; China pursued an infrastructure-based development strategy and its engineering and construction experience including highways, bridges, tunnels and railways is unmatched. Leveraging this capability to Asia and Africa when overcapacity in construction, cement, steel and manpower has surfaced at home is quite natural. This natural extension of an infrastructure-driven economic development model has promoted growth and is reshaping an Asian and African economic continuum.
Impact on countries along the route
To keep this comment manageable I will confine myself to Asia and Africa and leave out the Central Asian countries (Kazakhstan, Uzbekistan, Kyrgyzstan and Tajikistan) and Mongolia and Russia. In Africa I will mention only Kenya and Ethiopia and in Asia only Indonesia and Pakistan; that’s quite enough for a good sample - about Sri Lanka you know as much as I do. China’s total trade volume along NSR-route countries is $1 trillion annually and created $1 billion in additional annual revenue and 180,000 jobs in those economies.
The Mombasa–Nairobi 470km railway will reshape Kenya for generations though the price was hugely inflated by corruption in the host country, a phenomenon Lanka is very familiar with. At $3.2bn it is Kenya’s biggest infrastructure project, cuts travel time by 6 hours, carries a million passengers and 600,000 tons of cargo a year and created 45,000 jobs during construction. Ethiopia’s Eastern Industrial Zone (EIZ) is a China-built hub where dozens of Chinese manufacturers have set up plant and employed thousands. Significantly, it has transferred China’s state-led economic model for Ethiopian modernisation. The EIZ inspired similar zones across the country and is turning Ethiopia’s fast growing economy into an industrial hub. The most important long-term impact will be the transfer of the Chinese state-private economic model to Ethiopia.
Agriculture accounts for 40% of Ethiopia’s GDP and 85% of employment. The China inspired model is critical to its aspiration to become a middle-income economy. There are worries as in Sri Lanka whether partnering countries will be encumbered with large debts. The two differences are that Africa is borrowing for development and adopting an economic model while Lanka borrowed for showcase projects and to rob, and learnt nothing about development. The entrenchment dirigisme economic strategies as an alternative to failed neo-liberalism and liberalism will be the pivotal long-term impact of NSR in late-developing countries.
China is building Indonesia’s first high-speed 140-km Jakarta-Bandung railway. The project is running behind schedule due to land clearance issues and is likely to be a year or two behind its 2019 completion target. The China–Pakistan Economic Corridor is the most important NSR single country initiative. It invests in transport, energy and a major new port but there seem to be financing hiccups. By June 2018, 10,000 freight rail trips had been completed between Europe, Teheran and China. Trains out of the UK are often loaded with Scotch – hooray!
The Asian Infrastructure Investment Bank was set up to lend to NSR projects. China put up $160 billion but I am not sure how the participation of other countries is coming along and reveals China’s limited experience with finance-capital which I will mention at the end.
Geopolitics and the trade war with the US
The trade war with the US has rapped China on the knuckles and taught it a harsh lesson. It must diversify export markets, build infrastructure ties with Asia and Africa, reduce barriers to trade, align standards and address excess capacity in Chinese industry. NSR led export growth also helps inland provinces Xinjiang and Yunnan. Economic growth will pacify Xinjiang’s Uighur Muslim population and blunt separatism better than naked repression and internment of hundreds of thousands in virtual concentration camps. No Colombo state ever dreamt of using economic goodies as a tool to blunt Tamil separatism because they were all driven by racial hostility.
South Asian countries Pakistan, Nepal, Sri Lanka, Bangladesh, and Afghanistan will strengthen basic infrastructure and enhance Chinese trade and military influence. The NSR initiative is a way to extend influence at the expense of the US in the fight for regional leadership. The trade-war with the US is motivating China to redouble its efforts to find new export markets. GDP in 2018 Q3 declined marginally to 6.5% on an annual basis, but more serious is that domestic (Yuan) debt is at a huge $5.8 trillion dollar-equivalent because provincial governments have been on a spending spree. Hence turning too rapidly to the domestic market has its limits.
China is a novice in finance-capital
China does not have the experience of London and New York in capital deployment and nowhere near as deep pockets as American finance capital. Chinese banks have little experience in controlling risk or allocating resources efficiently. These weaknesses will slow down the big splash that China hopes to make via NSR. My guess is that it will be decades before the full fruits of NSR emerge. The yuan has just joined the dollar, euro, yen and pound in the IMF’s special drawing rights basket and this may help China challenge the petrodollar as the sole currency of the oil trade. This is a first step but not a substitute for learning to play with the big boys in the game of finance-capital which is now hegemonic in global capitalism.
