ONE BELT, ETC.: ANALYZING THE DREAM 

"[O]ur circle of friends along the 'Belt and Road' is growing bigger."

Xi Jinping

January 17, 2017

"One Belt, One Road" is the shorthand for China's breathtakingly ambitious development vision. President Xi Jinping talked about it in his important speech at this year's World Economic Forum in Davos, Switzerland. He didn't use the words "One belt, one road" until the end of his speech. We don't think it was an afterthought. To the contrary, we are inclined to see the first three-quarters for the speech as a build up to the short but pointed discussion of One Belt, One Road, or, if you prefer the acronym, OBOR.

We have largely ignored the One Belt, One Road initiative up to this point, but the time has come to try to understand it -- what it is, what it entails, and what it might mean. That's not a goal we are going to attain in this short space. This is one of those journeys of a thousand miles. We will, however, venture a first step or two.

President Xi could not be more closely associated with the "One Belt, One Road" initiative. He announced the project almost four year ago (September 2013) in a speech at Nazarbayev University in Astana, Kazakhstan. As noted, he talked about it at Davos this past January, and next month, May 14-15, he will host a Belt and Road Summit in Beijing. We'll share some short segments of those two speeches in a moment. The point to note is that what is contemplated and promised by the phrase "One Belt, One Road" is an enormous series of infrastructure projects involving well over 60 countries. The Wikipedia article on OBOR estimates the costs of these projects as being in the range from $4 to $8 trillion.

As for its geographic scope, Kevin Sneader of McKinsey summed it up this way:

But let's go back to Xi Jinping for a moment. At Nazarbayev University in 2013 he wrapped the OBOR proposal in the romance of the Silk Road of 2,000 years ago:

In Davos, this past January, President Xi had a lot to report:

It is hard to know how to approach any very large undertaking, and that is certainly true of the "One Belt, One Road" initiative. Is it best to approach it one project at a time? One country at a time? Does an examination of motives lead to the best understanding? Or is the wisest course simply to follow the money? Our guess is that one needs to do all of those things. We shall begin with just a few, somewhat disparate observations.

Country by Country. If you are interested in taking this approach to One Belt, One Road, you could do worse than to start with a look at The Belt and Road Initiative: Country Profiles, prepared by the Hong Kong Trade Development Council. The link will take you to the online publication of this material.

The Motives. The topic worthy of a thousand-page book. These might be some of the chapter headings:

Commercial. First, there is China's clear wish to bind countries in Eurasia and across the Pacific and Indian Oceans more closely to the Middle Kingdom. And there are strong commercial incentives for doing so, not the least of which, we suspect, is keeping those Chinese steel mills humming.

Military. Professor Emeritus Franklin Allen of the Wharton School took note of the potential military component. "It is an economic initiative," he said, "but along the way China will expand its military bases and so forth. ... On the sea routes they will develop their military capability and on the land routes, too."

Financial-The Borrowers. To be sure the Belt and Road initiative has its critics. One of those surfaced yesterday when an article by Patrick McCabe of the U.S. Pacific Command appeared in The Wall Street Journal. The title was "The Folly of Investing in China's 'One Belt, One Road.'" Among other things, Mr. McCabe asked, "How will China extract its pound of flesh from developing nations who borrow but cannot repay?"

Financial-The Lenders. We shall end with a fact and a question regarding the financing for One Belt, One Road. The fact is that not all the financing will come from China and Chinese companies. The Asia Infrastructure Investment Bank looms large in any discussion of OBOR financing. And although the AIIB is very much a China inspired institution, what the Chinese rightly get credit for is creating a very international one, with a membership that includes, among others, France, the UK, Sweden, and Switzerland. So the question is, how much of a say will those members have over the terms of OBOR projects that are financed, at least in part, by the Asia Infrastructure Investment Bank?