A summit in May 2017 was an opportunity for China’s President Xi to host leaders and representatives from 109 countries, presenting his expansive vision for global trade and securing further cooperation for the $900 billion Belt and Road Initiative (BRI) mega project. The geopolitical symbolism of China announcing a major international trade and investment programme, a few months after the Trump administration had withdrawn the United States from the Trans-Pacific Partnership – and, not long thereafter, the Paris climate agreement – was an important underlying narrative of the summit. It was also a chance for China to reaffirm the seriousness of its ambitions.

Since May, China’s biggest banks have announced their plans for a substantial capital raising round to fund more BRI investment. China Daily has reported the plans of China Construction Bank Corporation for a $15bn BRI fund. Bank of China has a similar $3bn fund of its own in the works, while $15bn has been committed to the Silk Road Fund, a state-owned, BRI-dedicated investment vehicle of the Chinese government, which President Xi announced in May. A further $57bn worth of lending has been made available by China Development Bank and EXIM Bank to support BRI projects. Chinese corporations are also positioning themselves to benefit from China’s global investment by buying-up firms within the BRI orbit. Investors from the world’s second largest economy completed $33bn worth of M&A activity in the first half of 2017, including an $11.6bn private equity deal to acquire Global Logistic Properties, the largest warehouse operator in Asia, led by Hopu Investment Management.

Opposition: Those pushing back against China’s trade vision include India and Japan. India opposes the $62bn China-Pakistan Economic Corridor [CPEC] – one of six economic corridors within the BRI area – because, they claim, the route infringes on their sovereign territory in Kashmir. Sino-Indian relations have long been tense where questions of territorial integrity are concerned, and recent military skirmishes between the two powers do not bode well for increased cooperation in the foreseeable future. Yet China will recognise they probably cannot plausibly hope to build a truly Eurasian trade network without India’s participation. Japan, keen to retain its historic economic influence in the Asia-Pacific, has ramped up its regional infrastructure investment. Prime Minister Abe launched a $200bn ‘Partnership for High Quality Infrastructure’ partnership programme. The title is seen by some as an indirect jibe at the quality of Chinese-made infrastructure, or the possible lack thereof. Japan is attempting to match or outperform Chinese investment in road and railway projects across Southeast Asia. For example, Japan and India are partnering up to develop Chabahar Port in in south-eastern Iran to rival China’s Gwadar Port, situated less than 100km to the east, in southern Pakistan. The project can be seen as a multipurpose investment, on one hand a geopolitical manoeuvre, on the other, an energy play. As analysis from Synergia Foundation identifies, the Japanese are keen to diversify their energy supply away from the Gulf, and Iran’s re-emerging oil industry provides that diversity.

Free Zone Perspective: Free trade and special economic zones within the BRI orbit will play an important vehicle in incubating Chinese overseas investment. In particular, China will use its existing network of national overseas economic and trade cooperation zones. These zones, which began to spring up in the mid-2000s, are (often) Chinese built commercial facilities, such as industrial parks or manufacturing plants, overseas, which other Chinese firms utilise in order to expand global trade and production. There are already 17 overseas zones in 14 countries across 4 continents (list), concentrated in the textiles, household appliances, electricity and electronics industries. And China is keen to develop more. In January 2017, Chinese firms broke ground on a massive new FTZ in Djibouti. At 48km2 it is expected to be the largest on the continent, creating 15,000 jobs and handling $7bn worth of trade. As part of the deal, Djibouti will institute a unified customs arrangement with China and establish a transit trade centre. However, despite the heavy investment in infrastructural investment, there are concerns that Chinese policy makers have not allocated enough to pay for the necessary subsidies in these overseas zones – estimated at 2 billion RMB by Professor Changqi Wu of Peking University’s Guanghua School of Management. Domestically, the Chinese are also establishing BRI-specific economic infrastructure, such as the new 120km2 Chongqing FTZ, which will connect the overland Silk Road to the Yangtze River. The Chongqing FTZ will comprise three areas, including specialist biotechnologies, microelectronics, and logistics zones.

Despite not being directly situated on the land or maritime BRI routes, countries in the Arabian Gulf have enthusiastically courted Chinese investment, at a time when a prolonged low oil price and regional instability sharpen their need to diversify their economies. China, in turn, has obliged. Last August, Chinese investors announced a partnership with Oman to build an $11bn industrial city near the port of Duqm. The announcement included plans to develop around 12km2 of land within the adjacent Duqm Special Economic Zone. The first of these SEZ developments was announced in April 2017: a $3bn project to develop an array of manufacturing facilities, including a power plant, solar equipment, oilfield technologies and a methanol processing plant. In Saudi Arabia, China’s Development Research Centre signed a framework agreement with national oil company, Saudi Aramco, to work together on economic development projects, including a plan to build the region’s largest oil and gas shipyard.

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