The Belt and Road Initiative (BRI): The Great Game and Supply Chains
Poonam Datta
C-Level Management | Maritime, Logistics & Supply Chain
“Supreme excellence consists of breaking the enemy’s back without fighting.” - Sun Tzu, The Art of War
Introduction
Anyone who has played chess against a very strong opponent has experienced the situation whereby the game is controlled by the opponent from the start. Even though you may have all your pieces on the board, your pieces seem to be working against you, in tandem with your opponent’s pieces in order to effect a checkmate. The BRI is such a giant chess game being played out in the international arena. That being said, this article seeks to steer away from the discourse of geopolitics about the BRI. It seeks, instead, to delineate the impact of the BRI to global supply chains with special emphasis on the UAE.
Background
The ancient Silk Road dates back to about 2000 years ago. It was probably the first example of globalization with trade, culture, technology, and religion flowing across the porous and ever-changing borders of empires. The story of civilization is the story of supply chains. Fast forward to 2013 when the Chinese premier Xi Jinping resurrected the Silk Road and the collective vision of the Chinese Dream.
What it is
The Belt and Road Initiative (BRI) (known earlier as the One Belt One Road aka OBOR) is a gargantuan Chinese government undertaking to connect the Chinese economy to the economies of Eurasia and Africa. The plan is breath-taking, audacious and ambitious in scope. It envisages the land-based Silk Road Economic Belt (SREB) and the ocean-based Maritime Silk Road (MSR). The official reasons are - (i) Policy co-ordination, (ii) Facilities connectivity (iii) Unimpeded trade, (iv) Financial integration and (v) People-to-people bond.
The plan has 4 main infrastructure pillars essential for trade – (i) Transport, (ii) Energy (iii) Telecommunications and (iv) Special Economic Zones. Depending upon the country, ‘Transport’ could mean modernizing or setting up from scratch of roads (including bridges), rail (including metros), waterways (including ports) and airports. ‘Energy’ could mean modernizing or developing power plants (hydro, solar, coal, wind) as well as laying oil and gas pipelines. The third pillar of ‘Telecommunications’ is modernizing or setting up telecommunications networks (optical cables, satellites). The fourth pillar is the setting up of Special Economic Zones (SEZ’s) such as Gwadar (Pakistan) or Djibouti which serve as a funnel for trade to pass through.
A back of the napkin calculation shows that the BRI will cover almost 1/3rd of the world’s countries and land area, about 2/3rd of the global population, close to 1/3rd of global GDP and 1/3rd of Household Consumption. It is expected to lead to trillions of dollars invested in thousands of major and minor projects in these countries. The primary inbound flows towards China will be commodities and resources whereas the primary outbound flows will be manufactured products. As is expected for a project of this size and scope, the completion date is expected to be 2049 to coincide with the centenary of the founding of the People’s Republic of China. Needless to say, such a huge undertaking will have far-reaching consequences to global supply chains. Let’s look at these in a little more detail.
The terrestrial corridors
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The New Eurasian Land Bridge (NELB)
The NELB is a 10,000 km plus overland cross-border road and rail network linking Eastern China with Western Europe. It passes through Kazakhstan, Russia, Belarus, and Poland. Currently, the rail network links about 40 odd Chinese cities with 40 plus European cities (in 13 countries). An example of a link is the freight train line from China's Tangshan (Hebei Province) to Antwerp, Belgium. This line cuts transport time to just 16 days thereby shaving travel time by sea by a third. It thus offers a more efficient supply chain for goods from North Eastern China, Japan, South Korea and East Russia.
China is the largest partner for EU imports and the second largest partner for EU exports in 2017. The value of exports from China to the EU was USD 450 billion while imports into China from the EU add up to $240 billion. Manufactured goods (Machinery, Chemicals etc.) dominate both the exports of goods from the EU to China and imports from China to the EU, accounting for 85 % of the total exports and 97 % of total imports. Add to this, Japan and South Korea’s trade with the EU and one may see a disruption of existing shipping lines transporting goods from North-East Asia to the EU.
This corridor is important for reasons of providing China direct access to the large markets of Europe. It connects the Yellow Sea, the East China Sea and the South China Sea with the Baltic Sea and the North Sea.
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The China–Mongolia–Russia Economic Corridor (CMREC)
The CMREC will run from Northern China to Eastern Russia. It has two branches. One starts from China's Beijing-Tianjin-Hebei region and extends to Hohhot (China). It then becomes the Steppe Road running through Mongolia connecting the Gashuun Sukhait Free Trade Zones (FTZ) on the Sino-Mongolian border to the Altanboulag FTZ on the Russian-Mongolian border. The other branch extends from China's Dalian, Shenyang, Changchun, Harbin, and Manzhouli to Russia's Chita, which serves as the gateway to Siberia and Russia’s Far East.
Trade between China and Russia was $84 billion in 2017 and is expected to touch $100 in 2018. It has been growing at the pace of 15-20% over the last decade. Russia surpassed Saudi Arabia as China’s largest source of foreign crude oil in 2016, exporting 1.2 million b/d to China in 2017. Trade between China and Mongolia in 2017 stands at $7 billion. Mongolia has abundant raw materials and mineral resources. The Steppe road will be especially important to serve the Oyu Tolgoi (copper and gold mines) and Tavan Tolgoi (coal mines) as well as meat products to Chinese markets.
This corridor is important for reasons of providing China with fuel, minerals and meat products. Besides, it provides access to Russia’s huge Siberian and Far Eastern territories.
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China-Central and West Asia Economic Corridor (CCWAEC)
The CCWAEC runs from Western China through Central Asia and branches out towards Turkey, Iran and perhaps eventually Saudi Arabia. It is expected to start in Urumqi in the Chinese province of Xinjiang and pass through Khorgas on the China-Kazakhstan border. It then moves onward through Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan, and Turkmenistan until it reaches Iran. In Iran, one section is expected to end at Bandar Abbas (Iran). Another section is expected to pass onward through Azerbaijan, Georgia and terminate in Turkey. A third may well end up reaching the Arabian Peninsula. Turkey further becomes the gateway to the Balkans, Eastern Europe and eventually Western Europe on one hand and the North African ports on the other. The Arabian Peninsula provides access to a large swathe of North-East Africa.
China surpassed the United States in annual gross crude oil imports in 2017, importing 8.4 million barrels per day (b/d). Saudi Arabia, Iraq, Iran, Oman are major exporters of oil to China. China has also surpassed South Korea to become the world’s second-largest importer of liquefied natural gas (LNG) in 2017 by importing on average, 5 billion cubic feet per day (Bcf/d) in 2017. Most countries along this corridor have large proven reserves of natural gas. Furthermore, China has 17 LNG import terminals at 14 ports along its coastline can be used to supply Japan and South Korea with their energy needs. Bilateral trade between China and Iran, Turkey and the GCC was $32 billion, $27 billion and $114 billion respectively in 2016 and has considerable room for growth.
This corridor is thus important for providing the fuel which will keep China’s economic engine humming nicely for the rest of the 21st century. Moreover, this corridor links Xinjiang to five water bodies viz. the Caspian Sea, the Strait of Hormuz, the Persian Gulf, the Black Sea and the Mediterranean Sea.
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China-Indo-China Peninsula Economic Corridor (CICPEC)
The CICPEC is expected to run from Southern China to Singapore. It envisages the linking of the southern cities of Kunming, Nanning and the Pearl River Delta cities (Hong Kong, Guangzhou) to the major cities in Vietnam, Laos, Cambodia, Thailand, Malaysia, Singapore and Myanmar. One such network under construction is the Pan-Asia Railway Network. Kunming in China and Bangkok in Thailand are the two regional hubs. There will be a Central route which will run from Kunming through Boten on the China-Laos border onto Vientiane in Laos and terminate in Bangkok. The Eastern route is expected to run from Kunming through Hekou on the China-Vietnam border on to the Vietnamese cities of Hanoi and Ho Chi Minh City and terminate in Bangkok. The Western route overlaps with the Bangladesh-China-India-Myanmar Economic Corridor (BCIMEC). It will from Kunming to Ruili on the China-Myanmar border on to the Burmese cities of Mandalay and Yangon and finally terminate in Bangkok. The final leg of the Railway network is from Bangkok through Kuala Lumpur in Malaysia and it terminates in Singapore.
This region accounts for 7 of the ASEAN countries. It can be used to access the remaining three ASEAN countries of Indonesia, Philippines and Brunei. If ASEAN were a single entity, it would rank as the sixth largest economy in the world. In 2016, China remained as ASEAN’s top trading partner, with total trade in goods amounting to US$368 billion. The ASEAN territorial waters are three times larger than its total land making it particularly important in terms of sea lanes and fisheries. It can also be used as the gateway to Australia and New Zealand.
This corridor is important due to the pinch point of the Straits of Malacca through which China’s oil currently passes. Also, most of the ASEAN states are littoral to the South China Sea. Closer integration with ASEAN can mean closer cooperation in the South China Seas.
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Bangladesh-China-India-Myanmar Economic Corridor (BCIMEC)
The BCIMEC is expected to connect China’s Southwest provinces with Myanmar, Bangladesh and India’s North East. It is expected to link the cities of Kunming (China), Mandalay (Myanmar), Dhaka (Bangladesh) and Kolkata (India). The project envisages road, rail, waterways and air linkages. Also under the umbrella of BCIMEC, is the 2000 km expressway which starts from Southwest China’s Yunnan province and extends to the central Myanmar city of Mandalay, then to the south to the capital Yangon and also to the west to Sittwe and the Kyaukpyu Special Economic Zone. There is also a 2000 km long rail link between Kunming and Yangon.
Bilateral trade between China (excluding Hong Kong) and India, Bangladesh and Myanmar was $85 billion, $15 billion and $13.5 billion respectively in 2017. Chinese companies will be able to access the Bay of Bengal from multiple ports. Oil pipelines from some of these ports (Made port near Kyaukpyu) to Kunming are operational allowing China to obtain oil bypassing the straits of Malacca. Air routes are also opening up between Kunming and various cities in these three countries.
This corridor has the most economic potential among the corridors because it links 3 billion people together.
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The China–Pakistan Economic Corridor (CPEC)
The CPEC is one of the flagship projects under the BRI linking the Chinese province of Xinjiang to the Arabian Sea and the Gulf of Oman via Gwadar in Pakistan. The main artery of this $60+ billion project is the 3000 km long link between China’s Kashgar in Xinjiang and Pakistan’s Gwadar port on the Arabian Sea. New roads will also link Gwadar with Chaman on the Pakistan-Afghanistan border thereby providing an entry point into Afghanistan. Also on the anvil is a 1700 km railway line between Gwadar and Khunjerab on the Pakistan-China border.
China-Pakistan bilateral trade stands at about $18 billion in 2017. Gwadar is the gateway to the Gulf Cooperation Council states with which China has trade worth $114 billion in 2016. A third of China’s oil imports come from the GCC states and Qatar is one of China’s largest source of Natural gas. The CPEC is operational with Chinese cargo being transported overland to Gwadar Port for onward maritime shipment to Africa and West Asia. Sea Food originating in the Indian Ocean is making the trip in reverse, to be sold in the markets of Xinjiang and beyond. This land-based route significantly cuts the distance from Mainland China to the Persian Gulf compared to the sea-based route.
This corridor is of strategic importance because it is located not too far from another pinch point i.e. the Strait of Hormuz through which a large amount of oil destined for China passes. This reduces corridor reduces the dependence on the Straits of Malacca.
The Maritime routes aka Blue Economic Passages
The 21st Century Maritime Silk Road (MSR)
The MSR seeks to link China with the remaining ASEAN countries, Oceania and Africa. It thus complements the terrestrial corridors. It has two main components – (i) Coastal China - South China Sea – Indian Ocean – Mediterranean Sea/Atlantic Ocean – Europe and (ii) Coastal China – South China Sea / Philippine Sea – Australia / New Zealand.
Both of the components are the conventional routes. The first route has a military dimension to it and the military assets i.e. bases are referred to as ‘string of pearls’.
The Ice Silk Road (ISR)
The ISR seeks to link China with Europe and North America via the Arctic Ocean. It thus presents an alternative to existing routes via the Suez Canal or the Pacific Ocean. It has two main components viz. (i) Coastal China - Bering Sea – Arctic Ocean (hugging North Coastal Russia) – Scandinavia (Europe) and (ii) Coastal China – Bering Sea – Arctic Ocean (hugging North Coastal Canada) – USA (North America)
The Chinese state-owned shipping company Cosco has already begun sending container ships via the Ice Silk Road since 2013. Besides the obvious reasons of the Arctic Ocean holding substantial deposits of oil and natural gas, the Northern Route from Northern coastal China to Northern Europe is expected to cut distance traveled by a third and shipping time by a week.
Impact on UAE
Dubai Plan 2021’s vision “to become a global platform for knowledge-based, sustainable and innovative industries.” The 5 strategic objectives of the vision entail –
(i) Growth Engine - Increase total GDP and value-added of manufacturing
(ii) Innovation Based - Enhance depth of knowledge and innovation
(iii) Home for Global Businesses - Become the preferred manufacturing platform for global businesses
(iv) Environmentally Sustainable - Promote environmentally-friendly and energy efficient manufacturing
(v) Adopting Islamic Standard - Become a center for the global Islamic products market
The BRI dovetails seamlessly with these strategies. Trade between the UAE and China is forecasted to be about $80 billion in 2018. The economic potential is much higher. Dubai lies at the intersection of 2 of the terrestrial corridors and 1 of the maritime passages viz. CCWAEC, CPEC and MSR. Dubai’s forward-thinking leadership, international talent pool, rule of law, business-friendly atmosphere, world-class facilities and geopolitical neutrality is unmatched by any other city in the Middle East, South Asia or Africa. Dubai can thus be a pivot and be poised for a larger role in linking the following markets together – (i) China, Russia, Central Asia and the Middle East with Africa (ii) Europe, Middle East and North Africa with South Asia, the ASEAN countries and Oceania.
Benefits:
In the 1950’s, America set out building 40,000 plus miles of highways to link the nation together. According to one estimate, that project has returned more than $6 in economic productivity for every $1 it cost. The BRI is expected, according to Chinese government estimates, to generate a total economic turnover of over $20 trillion.
Although the primary beneficiaries will be China and Chinese companies, the economic benefits will cascade down across the board to countries, industries and companies across the globe. These supply chains will need multi-modal transport systems. The highways will need semi-trailer trucks. The maritime routes and waterways will need ships and ferries. The airports will need passenger and cargo planes. The improved infrastructure, lower transit costs and economic integration of many low-wage areas along the routes could see manufacturing operations shift to these areas. Apart from the windfall for the manufacturers of transportation equipment, the service industries will also stand to benefit. Companies involved in hospitality and financial services will benefit immensely. The economic prosperity of the participating nations will spur the demand for a whole slew of products including two and four wheelers, consumer goods, white goods and electronic goods.
Conclusion
The BRI is the linking of the Pacific Ocean to the Atlantic, Indian and Arctic Oceans via the Eurasian landmass. Due to the sheer magnitude and number of stakeholders, the going will not always be smooth as silk. In order to ensure the successful completion, it is imperative for the dominant stakeholder to take into account the considerations of the other stakeholders so that the project is successful. The BRI presents a new opportunity wherein trade can be the tool used to maintain peace between nations. If this ‘Great Game’ is played correctly, it can be a win-win scenario for all concerned.
Other Supply Chain articles by the same author –
The Global Trends driving Supply Chains
Virtual Supply Chains made easy
Lasting Impact of Last Mile Delivery
Blockchain for Shipping & Logistics
The Digitization of the Shipping Industry: 2020 CE and beyond
