Blogs relating to financial/economic risks or issues.

China’s Belt & Road Initiative – Blog #10

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(Image credit: srilankabrief.org)

This is the tenth Blog in a series based on The Geopolitical Significance of the Chinese Belt and Road Initiative and What it may Mean for Supply Chain Operations Worldwide, a Whitepaper (47 pg, 241 endnotes) researched and written for RAAD360 LLC (raad360.com). The goal is to alert supply chain managers worldwide to the complex risks inherent in BRI. RAAD360 provides RAAD™, a cloud-based supply chain risk management platform.

Worldwide Supply Chain Risk Series

China’s Belt & Road Initiative

Blog #10 – China-Pakistan Economic Corridor

 

Source: ESCAP (From Presentation by Binyam Reja, Ph.D., The World Bank at the 2018 Annual Meeting of the Transportation Research Board, Washington, D.C.)

The China-Pakistan Economic Corridor is important to China for both economic and geopolitical reasons.  The proposed corridor projects have been valued at $62 billion. They include plans for energy infrastructure (pipelines), roads and railroads to connect Kashgar in the underdeveloped Xinjiang region in China to the port of Gwadar on the Indian Ocean coastline of Pakistan.  China’s vision of a connection through Pakistan to the Indian Ocean precedes the “Belt and Road Initiative”, originating well before 2010.[1]

Gwadar has great geopolitical importance—it is a key node in China’s overall “Belt and Road” network and gives China access to the Indian Ocean and the Arabian Sea, and proximity to the Strait of Hormuz and Iran.  This is discussed below.  The massive port upgrades and expansions confirm the importance China is according this once-sleepy, backwater.

China is providing the funding for about 80% of the cost of the port development.[2]  In a break with its funding practices in other “Belt and Road” countries, China is making some sizable grants ($500 million) to Pakistan to pay for other projects like drinking water infrastructure and other community needs, including a hospital, college and airport.[3]  However, the vast portion of China’s investments in the China-Pakistan Economic Corridor is in the form of interest-bearing loans to a degree that Pakistan cannot afford.

This financial exposure has become an international concern.  The International Monetary Fund (IMF) has expressed concern about the level of Pakistan’s debt to China and IMF contributing nations, such as the United States, have communicated opposition to use of its IMF contributions to “bail out” Chinese investors.[4]

Port enhancements include new breakwaters, new berthing areas and channel dredging.[5]  The port expansions will enable Gwadar to accommodate not only giant container ships and tankers but also large warships, which makes Pakistan’s neighbors in the region nervous, particularly India.

The deal with Pakistan reportedly includes providing China with a naval base.[6]  An industrial zone is also developing around the port that is intended to support port operations and to generate commerce for the port.  So far, the port has attracted little traffic.  Even though the port is unprofitable now and will be for the foreseeable future, China intends to double down on its port investment by committing to an interest-free loan to fund a much-needed road to connect the port to Pakistan’s existing road network.[7]

The land connections and development within the Corridor are also critically important.  The Gwadar-Kashgar rail line is an incredibly ambitious project, as it will traverse extremely difficult terrain.  It is a key to completion of China’s overall plans for the Corridor as the road connections are inadequate for much commercial use.  Part of the year the existing road is impassable, due to weather conditions.[8]

The plans for the highway from Kashgar in China’s Xinjiang province to Gwadar have been at least temporarily stymied.  Parts of it have been built but timing of the completion of the rest is highly uncertain.  Another Chinese-funded rail project, the Lahore metro project (Orange Line) was meant to be a symbol of modern urban transportation.  Instead, this USD 2 billion project has become an albatross that cannot operate without large subsidies.[9]

The China-Pakistan Economic Corridor’s energy infrastructure plans are central to Pakistan’s desire to diversify its energy sources and to reduce its reliance on oil and LNG imports, unfortunately with a heavy focus on coal-fired electricity generation—more than half of the money China has promised Pakistan for the CPEC is meant for this means of energy generation.  This puts China in the position of supporting the development of non-green energy at the same time that China striving to “go green” itself.[10]

Government instability and general lawlessness in Western Pakistan have proved to be serious impediments to progress on energy and transportation infrastructure, as well as to development of the Gwadar port itself.[11]  The uncertainties and risks caused by the political upheaval, terrorism and other disturbances have made even the Chinese nervous.  Pakistan has had to commit to the Chinese to secure Gwadar with a large number of armed troops.

The pipeline is important to China’s energy security.  Once completed, China expects that 70%-80% of its oil imports from the Middle East and Africa can be diverted from passage through the Strait of Malacca, with a significant saving in both time and cost,[12] and also allaying China’s fears of a blockades and piracy that would deprive it of vital oil and gas imports.

 

Questions –

Where does my supply chain intersect with China’s “Belt and Road” transportation network?

What about my supplier’s supply chain?

Can China’s monopoly power increase transportation times in my supply chain?

Can China’s monopoly power increase transportation costs in my supply chain?

____________

BRI Blog next Monday will be:

Bangladesh-China-India-Myanmar Economic Corridor

_________________

There is a wealth of information in the end notes to each Blog article.  Click the URLs to bring the sources onto your computer screen for review.

[1] AsiaNews.   “Kashgar-Gwadar railway line would give Beijing a window on the Persian Gulf.   12 July 2010.  http://www.asianews.it/news-en/Kashgar-Gwadar-railway-line-would-give-Beijing-a-window-on-the-Persian-Gulf-18908.html

[2] Shahani, Imran.  “Gwadar vs Chabahar—Op Ed.” Eurasia Review. 9 February 2018. https://www.eurasiareview.com/09022018-gwadar-vs-chabahar-oped/

[3] The News/Reuters. “China  lavishes aid on Pakistan’s Gwadar.”   17 December 2017.                https://www.thenews.com.pk/latest/257224-china-lavishes-aid-on-pakistan-town

[4] Shah, Saeed and Bill Spindle.  “U.S. Seeks to Avoid a Pakistan Bailout That Would Repay China.”  The Wall Street Journal.  31 July 2018.  https://www.wsj.com/articles/u-s-seeks-to-avoid-a-pakistan-bailout-that-would-repay-china-1533056638,

[5]Bennett, Mia.  “Will All Roads Lead to China ?” The Maritime Executive.   3 December 2017.   https://www.maritime-executive.com/magazine/will-all-roads-lead-to-china#gs.gFN7ZOE

[6] Shahani, ImranOp. cit.

[7] Thorne, Devin and Ben Spevack.   C4ADS. “Harbored Ambitions.  How China’s Port Investments Are Strategically Re-Shaping the Indo-Pacific.“ 2017.  p. 35.  https://static1.squarespace.com/static/566ef8b4d8af107232d5358a/t/5ad5e20ef950b777a94b55c3/1523966489456/Harbored+Ambitions.pdf

[8] AsiaNews.   “Kashgar-Gwadar railway line would give Beijing a window on the Persian Gulf.   12 July 2010.http://www.asianews.it/news-en/Kashgar-Gwadar-railway-line-would-give-Beijing-a-window-on-the-Persian-Gulf-18908.html

[9] Page, Jeremy and Saeed Shah. Op,cit  https://www.wsj.com/articles/chinas-global-building-spree-runs-into-trouble-in-pakistan-1532280460?mod=searchresults&page=1&pos=1

[10] Herberg, Mikkal E.  “Introduction:  Asia’s Energy Security and China’s Belt and Road Initiative.” In Asia’s Energy Security and China’s Belt and Road Initiative.   National Bureau of Asian Research.  NBR Special Report #68.  November 2017.  http://www.nbr.org/publications/element.aspx?id=969

[11] Kugelman, Michael.  “The China-Pakistan Economic Corridor: What It Is, How It Is Perceived, and Implications for Energy Geopolitics.”  Hong Kong Trade and Development Council.  8 May 2018.  http://beltandroad.hktdc.com/en/insights/china-pakistan-economic-corridor-what-it-how-it-perceived-and-implications-energy

[12] Travel China Guide.  https://www.travelchinaguide.com/china-trains/pakistan/ Accessed 31 May 2018

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© Shirley M. Loveless, Ph.D. 2018

Dr. Loveless is a consultant, author, and educator in transportation systems, supply chain risk analysis, emergency management, and economic development.  She is a Member of the Transportation Research Board of the National Academies of Sciences, Engineering and Medicine, and an appointed member of several TRB Standing Committees.  She works with RAAD360 LLC as a supply chain transportation consultant.

China’s Belt & Road Initiative – Blog #9

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(Image credit: srilankabrief.org)

This is the ninth Blog in a series based on The Geopolitical Significance of the Chinese Belt and Road Initiative and What it may Mean for Supply Chain Operations Worldwide, a Whitepaper (47 pg, 241 endnotes) researched and written for RAAD360 LLC (raad360.com). The goal is to alert supply chain managers worldwide to the complex risks inherent in BRI. RAAD360 provides RAAD™, a cloud-based supply chain risk management platform.

Worldwide Supply Chain Risk Series

China’s Belt & Road Initiative

Blog #9 – Central and Southeast Asia Connection with New Eurasia Land Bridge

 

Source: ESCAP (From Presentation by Binyam Reja, Ph.D., The World Bank at the 2018 Annual Meeting of the Transportation Research Board, Washington, D.C.)

In Central and Southeast Asia, China is using the drop-downs from the New Eurasia Land Bridge Economic Corridor shown in the map above—the China-Pakistan Economic Corridor, the Bangladesh-China-India-Myanmar Economic Corridor, and the China-Indochina Peninsula Economic Corridor—to focus its investments in the countries falling within them.  All of the Southeast Asian countries are members of the Association of Southeast Asian Nations (ASEAN), an organization that “promotes Pan-Asianism and intergovernmental cooperation and facilitates economic, political, security, military, educational and socio-cultural integration amongst its members and other Asian countries, and globally.”[1]

Member states see the organization giving them more weight in protecting their interests vis-à-vis China; China sees things somewhat differently.  The geographical proximity of these ’burgeoning‘ economies presents a ripe opportunity for China to link them into the “Belt and Road”, to some of China’s poorer interior provinces.  The ASEAN countries, with the exception of Singapore and, to a lesser extent, Malaysia, have very inadequate infrastructure and lack sufficient internal finance to build it but they are eager to acquire it.  Economic ties between China and the ASEAN countries have mushroomed, with the advent of “Belt and Road”.

Before the end of 2016, China had funded more than 300 enterprises in 26 economic cooperation zones in eight ASEAN countries, an investment totaling $1.77 billion.[2]  ASEAN’s response to the “Belt and Road Initiative” to date, has been measured.  The organization has been discouraged from trying to engage China in a multilateral way because China’s modus operandi so far has been to deal with the countries individually in bilateral negotiations and agreements.

The “Belt and Road Initiative” has been described as having immense potential for the ASEAN countries.  Peter Wong, deputy chairman and chief executive of the Hongkong and Shanghai Banking Corporation Limited, characterized it as follows:

“The formation of the Asean Economic Community in 2015 is bringing Southeast Asian economies together as a single market and production base.  The belt and road initiative will offer further integration by developing physical infrastructure and a robust trade regime. The region will be ideally positioned to sit at the centre of global value chains.”[3]

This begs the question of whose “global value chains” and thus, who are the prime beneficiaries?  The results so far have been mixed for China’s ASEAN member partners as well as for other Asian nations.

Dealing with less-developed countries with primitive financial sectors, high existing debt, little to no experience in undertaking and managing big infrastructure projects, outsized expectations, unstable and corrupt governments and local bill-paying attitudes (as in Pakistan where the government has “fallen behind on payments for electricity from new Chinese power projects . . . because of longstanding problems getting Pakistanis to pay their bills),”[4] has proven to be a challenging learning experience for China.

Several large projects have been abandoned or significantly delayed.  Pakistan pulled out of the huge, $14 billion Dimer-Bhasha dam project because of its discomfort with the deal’s financial terms, and Nepal terminated a planned $2.5 billion hydroelectric dam deal with a Chinese SOE, because of what was characterized as the lack of openness in the tender process.[5]

Chinese companies have been accused of insensitivity to local norms and customs and of “poor business practices, such as undercutting local suppliers, failing to honour contracts and to comply with local regulations, while delivering inferior quality and reliability, such as plagued Chinese-built power plants in Indonesia.” [6]

These conditions pose risks to foreign investors and to both internal and external supply chains.  This is not to say that there haven’t been some remarkable successes in the developing countries, too, such as “Belt and Road” rail projects, in Malaysia, Thailand, Laos, and Indonesia, in Southeast Asia, and Kenya in Africa, but even these projects have had their difficulties.  The map below shows key planned infrastructure, as of December 2015.  Numerous new projects have been added to the drawing board since then.

 

Questions –

Where does my supply chain intersect with China’s “Belt and Road” transportation network?

What about my supplier’s supply chain?

Can China’s monopoly power increase transportation times in my supply chain?

Can China’s monopoly power increase transportation costs in my supply chain?

____________

BRI Blog next Monday will be:

China-Pakistan Economic Corridor

_________________

There is a wealth of information in the end notes to each Blog article.  Click the URLs to bring the sources onto your computer screen for review.

[1] Wikipedia.  https://en.wikipedia.org/wiki/Associ.ation_of_Southeast_Asian_Nations .  Accessed 24 May 2018.

[2] Wong, Peter.  “How China’s belt and road is transforming Asean.”   South China Morning Post.  8 January 2017. (updated 1 May 2017).  https://www.scmp.com/print/comment/insight-opinion/article/2059916/how-chinas-belt-and-road-transforming-asean

[3] Ibid. https://www.scmp.com/print/comment/insight-opinion/article/2059916/how-chinas-belt-and-road-transforming-asean

[4] Page, Jeremy and Saeed Shah.  “China’s Global Building Spree Runs into Trouble in Pakistan.” The Wall Street Journal.  22 July 2018.  https://www.wsj.com/articles/chinas-global-building-spree-runs-into-trouble-in-pakistan-1532280460?mod=searchresults&page=1&pos=1

[5]Wijeratne, David, Mark Rathbone, and Gabriel Wong.  “A Strategist’s Guide to China’s Belt and Road  Strategy + Business, Issue 90, Spring 2018. p. 9.  https://www.strategy-business.com/feature/A-Strategists-Guide-to-Chinas-Belt-and-Road-Initiative?gko=a98e0

[6] Lim, Linda. RSIS.   Op.cit.   http://www.eurasiareview.com/30032018-chinas-belt-and-road-initiative-future-bonanza-or-nightmare-analysis/

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© Shirley M. Loveless, Ph.D. 2018

Dr. Loveless is a consultant, author, and educator in transportation systems, supply chain risk analysis, emergency management, and economic development.  She is a Member of the Transportation Research Board of the National Academies of Sciences, Engineering and Medicine, and an appointed member of several TRB Standing Committees.  She works with RAAD360 LLC as a supply chain transportation consultant.

China’s Belt & Road Initiative – Blog #8

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(Image credit: srilankabrief.org)

This is the eighth Blog in a series based on The Geopolitical Significance of the Chinese Belt and Road Initiative and What it may Mean for Supply Chain Operations Worldwide, a Whitepaper (47 pg, 241 endnotes) researched and written for RAAD360 LLC (raad360.com). The goal is to alert supply chain managers worldwide to the complex risks inherent in BRI. RAAD360 provides RAAD™, a cloud-based supply chain risk management platform.

Worldwide Supply Chain Risk Series

China’s Belt & Road Initiative

Blog #8 – China-Central Asia-West Asia Economic Corridor

 

Source: ESCAP (From Presentation by Binyam Reja, Ph.D., The World Bank at the 2018 Annual Meeting of the Transportation Research Board, Washington, D.C.)

A key project in this corridor is the Khorgos Gateway, which connects China by rail, to a ‘dry’ port (not on any body of water) in Kazakhstan.  Kazakhstan, in turn, is a major link to Europe and Khorgos is critically important to the rail network between China and Europe.  This facility is where the rail system deals with rail gauge differences.  Using large cranes, the containers are lifted from one train on one track gauge to another train on a different rail gauge.  (As a former Soviet republic, Kazakhstan has a wider gauge track than Chinese rail and Western rail.[1]  When trains reach the Belarus-Poland border, the procedure has to be repeated in reverse).[2]  Supply chains using rail systems going between China and former Soviet countries or between Western countries and former Soviet states must be aware of possible delays that can occur if rail traffic is heavy and beyond the facility’s capacity to move train cargoes quickly.  The huge facility also includes factories and warehouses and lots of land for expansion to accommodate expected economic development and rail traffic.[3]

Khorgos also has a vital position in other important rail networks. From Khorgos to Almaty in Kazakhstan, the rail line goes to Tode Bi, where one line goes north to Western Europe (London is the endpoint) and one line goes west and then south and west again to Iran.[4]  These both build upon legacy railways dating from when Kazakhstan and the other countries along the path that were part of the Soviet Union.  These long-distance rail lines are discussed below.

Again, as has happened in other countries with major “Belt and Road” projects, Kazakhstan has ended up selling a significant share of the Khorgos Port to China, in this case, to COSCO Shipping Corporation and Jiangsu Lianyungang Port Co, each of which each now owns 24.5%.[5]

China is Kazakhstan’s major trading partner in an exchange pattern that follows most of China’s trade with less-developed countries.  Most of Kazakhstan’s exports to China are oil and minerals.[6]  China expects this corridor to be a major route not only for its exports to Kazakhstan but also for goods bound for Europe.  China has also become a major direct investor in Kazakhstan with its 2005 purchase of PetroKazakhstan, which controls the second-largest proven oil reserves in the country.[7]

Becoming part of the “Belt and Road Initiative” has brought a flood of loans, grants, investments, and technical assistance to Kazakhstan, not just from China directly, but also from sources such as the World Bank, the European Bank for Reconstruction and Development, and the Asian Development Bank.[8]  These funds will greatly help Kazakhstan continue toward its goal of becoming a major regional player.  Kazakhstan has signed an agreement with the OECD that it will foster government transparency and improvement of the investment climate for foreigners.  Kazakhstan hopes association with the OECD will assist it in achieving its development goals.[9]

Another major infrastructure project in this Corridor—or rather several projects, including ones going back to when Kazakhstan was part of the Soviet Union—is the Central Asian Gas Pipeline.  The original pipelines connected Russia via Uzbekistan and Kazakhstan to Turkmenistan’s Dzharkak field in the Amu Darya Basin.  Before the “Belt and Road Initiative” (in 2006), China contracted with Turkmenistan for a long-term supply of natural gas.  It expects to import 65 million cubic meters per year.  Four pipelines are now operational.  China is seeking reliable natural gas supplies to enable it to meet more of its energy needs with cleaner natural gas instead of petroleum.[10]

The train lines referenced above are major parts in the “belts” of the overall “Belt and Road” strategy.  The train line from China to Iran continues from Tode Bi in Kazakhstan to Arys and then south to Tashkent in Uzbekistan and west to Samarkand and Bukhara.  From here, it crosses into Turkmenistan, continuing to Bayramaly and then to Mashhad in Iran.  The endpoint of the 10,400km journey from China is Tehran.  The journey takes 14 days,[11] at least twenty days shorter than a sea-land journey between the two countries.[12]

The China to London route is the other major transnational railway that runs through Khorgos.  This 12,000 km. line runs from Yiwu in the far East of China through Central Asia and Eastern Europe and the Eurotunnel into London, England.  The journey takes 18 days and passes through some of the most challenging terrain on earth, including the Gobi Desert and the Qilian Mountains.[13]

Both of these rail lines represent breakthrough connections between China and Iran and China and Europe and greatly reduce transit times, compared to any other land or sea alternatives.  However, the areas through which the lines pass and in some places the lines themselves, are not without significant risks to supply chains, in the form of political unrest, local corruption, various types of infrastructure risks—including substandard roads and communications, legal and regulatory risks, and foreign trade and payment risks.[14] [15]

As one observer has noted, “For China’s global ambitions, ‘Iran is at the center of everything.’”[16]  Iran has been a trading hub in East-West trade for centuries going back to the original Silk Road.  China’s involvement with Iran has changed over time, in response to economic considerations as well as geo-political ones, but China has been a relatively reliable trade and development partner with Iran throughout all of the political upheavals of the last half century.  With the departure of the U.S. from the Iran nuclear agreement and the re-imposition of sanctions, Iran will increasingly turn to China.  China is the largest importer of Iranian petroleum already and Beijing has indicated that it might not yield to the threat of U.S. sanctions and will continue its imports from Iran.  In addition, many expect that as Western companies yield to the sanctions and shut down their Iran operations, the Chinese will step in and take them over.[17]

Beyond trade, China has been very important to Iran’s economic development, especially during periods when Iran has been treated as an international pariah and has lacked both capital and technical assistance from other countries.  Iran’s road and rail networks are sparse and still antiquated overall, but China has had a major role in providing what is there.  Also, over the years, Chinese engineers have built bridges, roads, dams, tunnels throughout Iran and the metro (subway system) in Tehran.[18]

China has invested in rail infrastructure leading to Iran, as noted above.   The Mashhad-Tehran line, part of the “Belt and Road” railroad line running from Khorgos through Almaty in Kazakhstan and then west and south, has been operational for freight for a couple of years now. (See below).

Attention now is on developing an electrified line between Mashhad and Tehran and links from Tehran to Turkey, connecting to Europe in the future and enabling faster transit times.[19]  The contract for this work is with China National Machinery Import and Export Corporation (CMC), with two-thirds of the cost underwritten by the Chinese government and the balance by Chinese insurer China Export and Credit Insurance.[20]

Until recently, China has focused its port development in the Persian Gulf/Gulf of Oman/Arabian Sea region in Gwadar, Pakistan, even though another port on the Gulf of Oman across the border in Iran may be in a better geographic location to serve China’s “Belt and Road” needs, with potentially shorter distances to  various parts of “belt and Road” network.[21]  China has avoided this port—Chabahar—because it is a project sponsored by China’s Asian arch-rival, India.  That may be about to change.  Iran has sought faster progress on the port projects and, earlier this year, invited both China and Pakistan to participate in the port development, much to India’s consternation.  What India’s response might be if China steps in is unclear.  “Indian officials have repeatedly said the port is crucial for India as it will allow India to bypass Pakistan in accessing Afghanistan and central Asia.”[22]  More than that, Chabahar is a vital factor in India’s maritime strength and a counter to China’s growing dominance of all of the oceans and seas from the Pacific Ocean through the Indian Ocean to the Red Sea.

Chabahar has problems other than the China-India rivalry—Saudi opposition to development of the port and its surrounding area (apparently because of potential competition to Saudi oil, among other reasons)[23] and aggressive U.S. efforts to isolate Iran again, following the withdrawal of the U.S. from the Joint Comprehensive Plan of Action (JCPOA—Iran nuclear agreement).   What happens next for Chabahar in this highly-charged political atmosphere is anybody’s guess.

RAIL ROUTE FROM XINJIANG PROVINCE, CHINA TO TEHRAN

Source: Financial Tribune, “Iran, China Team Up on New Silk Road Project”, https://financialtribune.com/articles/domestic-economy/66450/iran-china-team-up-on-new-silk-road-project

 

Questions –

Where does my supply chain intersect with China’s “Belt and Road” transportation network?

What about my supplier’s supply chain?

Can China’s monopoly power increase transportation times in my supply chain?

Can China’s monopoly power increase transportation costs in my supply chain?

____________

BRI Blog next Monday will be:

Central and Southeast Asia Connection with New Eurasia

_________________

There is a wealth of information in the end notes to each Blog article.  Click the URLs to bring the sources onto your computer screen for review.

[1] South China Morning Post.  Chapter 5—Belt and Road Initiative.  “Khorgos:  the biggest dry-port in the world.” http://multimedia.scmp.com/news/china/article/One-Belt-One-Road/khorgos.html.   Accessed 17 July 2018.

[2]Ibid.  http://multimedia.scmp.com/news/china/article/One-Belt-One-Road/khorgos.html

[3]Rapoza, Kenneth.  “Kazakhstan Bets Big on China’s Silk Road.”  Forbes.   18 July 2017.  https://www.forbes.com/sites/kenrapoza/2017/07/18/kazakhstan-bets-big-on-chinas-silk-road/#25827a685805.  .

[4] South China Morning Post.  Chapter 3:  Belt and Road Initiative.  “Iran is a key access point to the Middle East.”  Accessed July 17, 2018.  http://multimedia.scmp.com/news/china/article/One-Belt-One-Road/iran.html.

[5] Rapoza, Kenneth. Op.cit.   https://www.forbes.com/sites/kenrapoza/2017/07/18/kazakhstan-bets-big-on-chinas-silk-road/#25827a685805

[6] Runde, Daniel.  “Kazakhstan:  the Buckle in One Belt One Road.” Forbes.  29 June 2015.  https://www.forbes.com/sites/danielrunde/2015/06/29/kazakhstan-buckle-one-belt-one-road/#205394ee6b5b.

[7] Ibid.   https://www.forbes.com/sites/danielrunde/2015/06/29/kazakhstan-buckle-one-belt-one-road/#205394ee6b5b

[8] Ibid.  https://www.forbes.com/sites/danielrunde/2015/06/29/kazakhstan-buckle-one-belt-one-road/#205394ee6b5b.

[9] Rapoza, Ken.  Op.cit.  https://www.forbes.com/sites/kenrapoza/2017/07/18/kazakhstan-bets-big-on-chinas-silk-road/#2cc1c0658053.

[10] South China Morning Post.  Chapter 4.  Belt and Road Initiative. “The Central Asian gas pipeline”.   Accessed 17 July 2018.  http://multimedia.scmp.com/news/china/article/One-Belt-One-Road/gasPipeline.html

[11] South China Morning Post.   Chapter  3.   Belt and Road Initiative.  “The railway to Iran.”  Accessed 17 July 2018.  http://multimedia.scmp.com/news/china/article/One-Belt-One-Road/iran.html

[12] Noack, Rick.  “China’s new train line to Iran sends a message to Trump:  We’ll keep trading anyway.”  The Washington Post.  11 May 2018.  https://www.washingtonpost.com/news/world/wp/2018/05/11/chinas-new-train-line-to-iran-sends-message-to-trump-well-keep-trading-anyway/?utm_term=.9e88fecc4506

[13] South China Morning Post.  Chapter 1.  Belt and Road Initiative.  “Plugging China into Europe.”   Accessed 17 July 2018.  http://multimedia.scmp.com/news/china/article/One-Belt-One-Road/europe.html

[14] South China Morning Post.  Belt and Road Initiative.  “The Railway to Iran.” Op.cit    http://multimedia.scmp.com/news/china/article/One-Belt-One-Road/iran.html

[15] South China Morning Post.  “Plugging China into Europe.”  Op.cit. http://multimedia.scmp.com/news/china/article/One-Belt-One-Road/europe.html

[16] Erdbrink, Thomas.  “For China’s Global Ambitions, ‘China Is at the Center of Everything’” The New York Times.  25 July 2018.  https://www.nytimes.com/2017/07/25/world/middleeast/iran-china-business-ties.html

[17] Taylor, Guy and Dan Boylan.  “China moves to cash in after Trump exits Iran nuclear deal.”  The Washington Times.   7 June 2018.  https://www.washingtontimes.com/news/2018/jun/7/china-steps-business-iran-after-trump-exits-nuclea/

[18] Harold, Scott and Alireza Nader.   “Occasional Paper.  China and Iran.  Economic, Political and Military Relations.”  RAND Corporation, Center for Middle East Public Policy.  2012.  Pp. 11-12.  https://www.rand.org/pubs/occasional_papers/OP351.html

[19]Erdbrink.  Op. cit. https://www.nytimes.com/2017/07/25/world/middleeast/iran-china-business-ties.html

[20] Jalili, Saeed.   “Iran, China Team Up on New Silk Road Project.”  Financial Tribune.   14 June 2018.  https://financialtribune.com/articles/domestic-economy/66450/iran-china-team-up-on-new-silk-road-project

[21]Erdbrink. Op. cit.  https://www.nytimes.com/2017/07/25/world/middleeast/iran-china-business-ties.html

[22] The Times of India.  “Iran says it has offered Pak, China participation in Chabahar’s port project.”  14 March 2018.  https://timesofindia.indiatimes.com/india/iran-says-it-has-offered-pak-china-participation-in-indias-chabahar-port-project/articleshow/63292150.cms

[23] Financial Tribune.  “Rivalry at Iran’s Chabahar Port”.  2 July 2018.  https://financialtribune.com/articles/economy-domestic-economy/89034/rivalry-at-iran-s-chabahar-port

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© Shirley M. Loveless, Ph.D. 2018

Dr. Loveless is a consultant, author, and educator in transportation systems, supply chain risk analysis, emergency management, and economic development.  She is a Member of the Transportation Research Board of the National Academies of Sciences, Engineering and Medicine, and an appointed member of several TRB Standing Committees.  She works with RAAD360 LLC as a supply chain transportation consultant.

China’s Belt & Road Initiative – Blog #7

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(Image credit: srilankabrief.org)

This is the seventh Blog in a series based on The Geopolitical Significance of the Chinese Belt and Road Initiative and What it may Mean for Supply Chain Operations Worldwide, a Whitepaper (45 pg, 230 endnotes) researched and written for RAAD360 LLC (raad360.com). The goal is to alert supply chain managers worldwide to the complex risks inherent in BRI. RAAD360 provides RAAD™, a cloud-based supply chain risk management platform.

Worldwide Supply Chain Risk Series

China’s Belt & Road Initiative

Blog #7 – China-Mongolia-Russia Economic Corridor

 

Source: ESCAP (From Presentation by Binyam Reja, Ph.D., The World Bank at the 2018 Annual Meeting of the Transportation Research Board, Washington, D.C.)

The China-Mongolia-Russia Economic Corridor, first proposed by Chinese President Xi Jinping in September 2014, emphasizes development of interconnected rail systems that will fully integrate Mongolia with its neighbor to the south—China—and its neighbor to the north—Russia.  The infrastructure development follows the characteristic “Belt and Road” model of connecting ports and foreign markets to extractive industries.  The map below shows Mongolia’s major coal basins and coal mine locations.  Existing rail lines connect the port of Tianjin to Mongolia and to the famed Trans-Siberian Railway which extends to Khabarovsk and the port of Vladivostok in far-eastern Siberia, and to the Trans-Manchurian secondary line, to Harbin, China.  Mongolia’s rail policy envisions two major north-south lines that will pass into Russia.  A link under construction will connect the north-south rail lines through southern Mongolia and another planned one will connect the north-south lines in the north.[1]

President Xi envisions Mongolia as a ‘transit corridor’ linking the Chinese and Russian economies and, along with President Putin, he regards the economic ties and integrated infrastructure as means of weakening Mongolia’s bonds with the U.S.[2]  (Since the late 1980s, the U.S. and Mongolia have had close bilateral defense arrangements).  Development plans also include the creation of a transnational power grid.

The connectivity benefits to Mongolia are obvious.  The benefits to China of better access to mining sites in Mongolia are also obvious.  The port-to-port connections between Vladivostok in far-eastern Siberia to Tianjin in China may be less obvious but are also important, particularly to Russia, which may find access to Tianjin shortens some key commercial routes for its own trade.

EXISTING AND PLANNED RAIL ROUTES IN MONGOLIA

www.unuudur.com/wp-content/uploads/20150731-Project-Location-and-Rail-Policy.jpg, Accessed 9 August 2018

 

Questions –

Where does my supply chain intersect with China’s “Belt and Road” transportation network?

What about my supplier’s supply chain?

Can China’s monopoly power increase transportation times in my supply chain?

Can China’s monopoly power increase transportation costs in my supply chain?

____________

BRI Blog next Monday will be:

China-Central Asia-West Asia Economic Corridors

_________________

There is a wealth of information in the end notes to each Blog article.  Click the URLs to bring the sources onto your computer screen for review.

[1] Wikipedia.  “Mongolia-United States relations.   https://en.wikipedia.org/wiki/Mongolia–United_States_relations . Accessed 9 July 2018.

[2] The BRICS Post “China, Russia, Mongolia to create economic corridor.”  21 September 2014.  www.thebricspost.com/china-russia-mongolia-to-create-economic-corridor/#.W0J6D_ZFxRQ

 

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© Shirley M. Loveless, Ph.D. 2018

Dr. Loveless is a consultant, author, and educator in transportation systems, supply chain risk analysis, emergency management, and economic development.  She is a Member of the Transportation Research Board of the National Academies of Sciences, Engineering and Medicine, and an appointed member of several TRB Standing Committees.  She works with RAAD360 LLC as a supply chain transportation consultant.

China’s Belt & Road Initiative – Blog #6

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(Image credit: srilankabrief.org)

This is the sixth Blog in a series based on The Geopolitical Significance of the Chinese Belt and Road Initiative and What it may Mean for Supply Chain Operations Worldwide, a Whitepaper (40 pg, 193 endnotes) researched and written for RAAD360 LLC (raad360.com). The goal is to alert supply chain managers worldwide to the complex risks inherent in BRI. RAAD360 provides RAAD™, a cloud-based supply chain risk management platform.

Worldwide Supply Chain Risk Series

China’s Belt & Road Initiative

Blog #6 – New Eurasia Land Bridge Economic Corridor

The avowed aim of coordinating development policies with partner countries has not always been obvious in Chinese actions. Project contracts sometimes look to be geared more to the advantage of Chinese companies than to the development needs of the supposed target countries.

A case in point:  The recent Chinese foray into the European e-commerce market through a major new logistics hub to be built on the Polish border with Germany.  The plan ties to the concept of Economic Corridors.  The location of the hub in Poland is described as being in “the primary land conduit between China and the mega-markets of Europe, particularly Germany’s 81-million strong consumer base.”[1]  An announcement of the project by HKTDC (Hong Kong Trade and Development Council) calls it  a “major new AliExpress logistics centre, serving its host country as well as online shoppers in neighbouring Germany and the Czech Republic.”[2]

The logistics center is a tri-partite venture involving AliExpress, (an e-marketplace like Amazon), Worldwide Logistics Group (based in Shanghai), and ATC Cargo (a Polish multi-modal freight delivery company).[3]  The beneficiary is AliExpress (owned by the Chinese mega-business, Alibaba), at the potential expense of the existing Polish e-commerce marketplace site, Allegro, and Amazon, which is in the process of building its own logistics hub in the Polish city of Szczecin, also close to the German border.

Poland already has robust rail and road networks, though the road network in the eastern part of the country has a lower density and level of service than the western portion.  China anticipates that the “Belt and Road Initiative” will substantially increase the volume of trade passing through Poland.[4]  The EU has and is financing major upgrades and additions to the Polish transportation infrastructure–the EU recently made a loan of 650 million euros to upgrade Poland’s rail network and more will be forthcoming.[5] But, if China is correct in assuming the new logistics hub will attract much heavier traffic, will the EU-financed infrastructure improvements be sufficient?  If not, who will pay? The impact of much heavier volumes on existing infrastructure is likely to cause disruptions in other supply chains in or passing through Poland.

Source: ESCAP (From Presentation by Binyam Reja, Ph.D., The World Bank at the 2018 Annual Meeting of the Transportation Research Board, Washington, D.C.)

In Belarus, China’s investments have been more in the form of direct investments in manufacturing businesses—notably electronics, electrical equipment and home appliances—than in transportation infrastructure, in spite of Belarus’s key geographic location between Russia and Poland on two heavily-traveled pan-European corridors (Berlin-Moscow and Helsinki-Greece) and eight rail container routes passing between China and Western Europe.  An exception to this trend is the planned China Gansu International Corporation for Economic and Technical Co-operation (CGICOP) transport and logistics complex in the Grodno region, close to a major cargo and passenger border crossing point, on the western border with Poland.[6] Rail transshipment facilities are imperative because of the need to accommodate the transition between broad gauge and standard gauge tracks. Additionally, transshipment hubs are needed for repackaging, sorting, and transshipping Chinese goods arriving in Belarus in large shipments into smaller, market-targeted shipments.

Manufacture of Chinese goods within more developed countries, including Eastern European ones such as Belarus, is becoming more common.  Production in Belarus allows China to access highly-trained tech labor at lower prices than in Western Europe and closer proximity to the ultimate Western European markets for these goods.  China has also taken advantage of Free Economic Zones that offer “preferential arrangements on corporate income, real estate and land taxes” and Industrial Parks (e.g., the Free Economic Zone Minsk) and industrial parks that offer agglomeration opportunities, such as the China-

Belarus Industrial Park (also known as the Great Stone Industrial Park), co-founded by the Hong Kong-based China Merchants Group.[7]  Tenants in this industrial park include ZTE, Huawei, Zoomlion, YTO Group Corporation, Xinzhu Corporation, Lotusland Renewable Energy and CGICOP.[8]

Chinese investments in some EU countries are not so much directed to projects to build infrastructure or business facilities as they are to purchasing control of existing firms in EU countries and improving China’s competitive position in the global economy. This is true for investments by SOEs (state-owned enterprises) but also for Chinese private investors, such as Anbang Insurance Group, which are dependent upon government approval and support—Anbang received a $10 billion bailout to keep it from collapsing and was then taken over by the government.[9]

In Belgium, which has received modest Chinese investment to date, two noteworthy acquisitions included the Belgian division of Delta Lloyd Bank by Anbang, a large Chinese insurance group, and Punch Powertrain, a high-tech producer of vehicular powertrains.[10]  The bank acquisition is thought to be a ‘trojan horse’ for Chinese investments in other EU countries, using the bank’s established connections. The Powertrain purchase possibly complements other Chinese vehicle-related acquisitions, such as Saab and Volvo.  One investment in Belgium clearly relevant to China’s OBOR/BRI plans is the 2017 acquisition by COSCO of the entire container terminal at Zeebrugge.[11]  This facility can accommodate the largest container ships, is directly across the English Channel from England, and is near the main shipping routes in northwestern Europe.  The Port of Zeebrugge  also includes the Fluxys terminal, the largest LNG terminal complex in Europe.[12]  Fluxys provides China with a link in Western Europe for LNG brought in by ice-class tankers from the Yamal gas fields in the Siberian Arctic, in which China has a major financial stake.[13]  The Yamal LNG will then be trans-shipped to destinations in Asia as well as in Europe.

COSCO also owns 25% of the Port of Antwerp’s container terminal facilities, purchased in 2004.  Antwerp’s port facilities are second in size only to Rotterdam’s in neighboring Netherlands.  Between container shipping capacity in Zeebrugge and that in Antwerp, China has acquired a large share of container shipping capacity in Belgium.  China’s investments in Antwerp appear to favor that port over Rotterdam for shipping, but Rotterdam is still the Western European endpoint for surface transportation using the Silk Road belt’s rail lines from China.

In the Czech Republic, China, through its state-owned enterprise, CRRC—the largest rolling stock manufacturer in the world–is seeking to take over Skoda Transportation, the largest train and locomotive producer in Central and Eastern Europe and license holder for the EU market. This would allow CRRC into the EU rail transportation space.[14]   Also on China’s shopping list in the Czech Republic are the largest Czech telecom firm—O2 CR—and TSS Cargo—the largest railway transporter in the Czech Republic.  The latter, would, of course, complement the acquisition of Skoda[15] and strengthen the rail links between China and Europe.  Again, these are acquisitions of existing assets, not the creation of new ones.

The recent in-depth study of the “Belt and Road Initiative” financial and investment relationships by the European Think-tank Network on China (ETNC), concluded that Chinese investments within the EU are driven by aspirations to gain:

  • Technology, to include established high-tech assets, emerging technologies and know-how
  • Access to the European market, for Chinese goods and services
  • Access to third markets via European corporate networks, especially Latin America and Africa
  • Brand names to improve marketability of Chinese products both abroad and the Chinese market
  • Integrated and global value chains in production, knowledge and transport
  • A stable legal, regulatory and political environment, particularly in context of global disruption and political uncertainty
  • Political/diplomatic influence in a region that in aggregate terms remains the second largest economy after the US.[16]

The EU-China relationship is not entirely one-sided.  From the perspective of the EU countries, “Chinese investment serves to create and/or maintain jobs, to provide capital for research, development and innovation, generate wealth and tax revenue for cash-strapped governments, create new market opportunities for European firms both in China and in third markets, build and improve infrastructure and even introduce technology and innovative business models into Europe”,[17] but, these positive expectations are tempered by general concerns about:

  • The role of the Chinese state in the economy
  • A lack of reciprocity and fair competition
  • National competitiveness and technological leadership
  • Uncertainty about security-related critical infrastructure and sensitive technologies
  • Investments as a source of political and geopolitical influence, and divisions within Europe
  • Broader regulatory concerns
  • A growing “promise fatigue[18]”

 

Questions –

Where does my supply chain intersect with China’s “Belt and Road” transportation network?

What about my supplier’s supply chain?

Can China’s monopoly power increase transportation times in my supply chain?

Can China’s monopoly power increase transportation costs in my supply chain?

____________

BRI Blog next Monday will be:

China-Mongolia-Russia Economic Corridors

_________________

There is a wealth of information in the end notes to each Blog article.  Click the URLs to bring the sources onto your computer screen for review.

[1] Dowgiallo, Anna. Poland Designated as Home to New BRI East European Logistics Hub.” Belt and Road.  HKTDC.  16 April 2018.  http://beltandroad.hktdc.com/en/insights/poland-designated-home-new-bri-east-european-logistics-hub

[2] Ibid.  http://beltandroad.hktdc.com/en/insights/poland-designated-home-new-bri-east-european-logistics-hub

[3] Ibid.  http://beltandroad.hktdc.com/en/insights/poland-designated-home-new-bri-east-european-logistics-hub

[4]  Encyclopedia of the Nations. “Poland:  Infrastructure, Power and Communications.” http://www.nationsencyclopedia.com/economies/Europe/Poland-INFRASTRUCTURE-POWER-AND-COMMUNICATIONS.html.   Accessed 28 July 2018.

[5] Railway Pro.  “Eur 650 million for Polish railway infrastructure.”  20 November 2017.  https:// www.railwaypro.com/wp/eur-650-million-polish-railway-infrastructure/

[6] Hong Kong Trade and Development Council (HKTDC)   “Belt and Road Initiative:  The Role of Belarus.”  20 April 2018.  http://beltandroad.hktdc.com/en/insights/belt-and-road-initiative-role-belarus/

[7] Ibid.  http://beltandroad.hktdc.com/en/insights/belt-and-road-initiative-role-belarus/

[8] Ibid.  http://beltandroad.hktdc.com/en/insights/belt-and-road-initiative-role-belarus/

[9] He, Laura.  Anbang Insurance gets US$10 billion rescue bailout from Beijing after ex-chair Wu Xiaohui admits fraud.”  South China Morning Post  4 April 2018. http://www.scmp.com/business/companies/article/2140250/china-rescues-anbang-insurance-us10-billion-bailout-after-ex

[10] Renard, Thomas.  “Business vs Security:  The Conundrum of Chinese Investments in Belgium.” ETNC,  Chinese Investment in Europe .  A Country-Level Approach.  A Report by the European Think-tank Network on China. Eds.:   John Seaman, Mikko Huotari, Miguel Otero-Iglesias. p. 10.  December 2017 p. 34.  https://www.clingendael.org/sites/default/files/2017-12/ETNC_Report_2017.PDF

[11]Ibid. p. 35.  https://www.clingendael.org/sites/default/files/2017-12/ETNC_Report_2017.PDF

[12] Wikipedia.  “Zeebrugge.”   https://en.wikipedia.org/wiki/Zeebrugge .  Accessed 28 July 2018.

[13] Port of Zeebrugge.  “Zeebrugge receives first LNG load from Yamal.”  9 April 2018.  https://www.portofzeebrugge.be/en/news-events/zeebrugge-receives-first-lng-load-yamal

[14] Furst, Rudolph.  “The Czech Republic:  Receiving the First Relevant Chinese Investments.”   Op.cit. ETNC, pp. 43-44.  https://www.clingendael.org/sites/default/files/2017-12/ETNC_Report_2017.PDF

[15] Ibid.  https://www.clingendael.org/sites/default/files/2017-12/ETNC_Report_2017.PDF

[16] ETNC, “Introduction:  Sizing Up Chinese Investments in Europe, “p. 10.  https://www.clingendael.org/sites/default/files/2017-12/ETNC_Report_2017.PDF

[17] ETNC, op.cit. “Introduction,”p. 11. https://www.clingendael.org/sites/default/files/2017-12/ETNC_Report_2017.PDF

[18] ETNC,  “Introduction,”p. 12  https://www.clingendael.org/sites/default/files/2017-12/ETNC_Report_2017.PDF

 

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© Shirley M. Loveless, Ph.D. 2018

Dr. Loveless is a consultant, author, and educator in transportation systems, supply chain risk analysis, emergency management, and economic development.  She is a Member of the Transportation Research Board of the National Academies of Sciences, Engineering and Medicine, and an appointed member of several TRB Standing Committees.  She works with RAAD360 LLC as a supply chain transportation consultant.

China’s Belt & Road Initiative – Blog #5

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(Image credit: srilankabrief.org)

This is the fifth Blog in a series based on The Geopolitical Significance of the Chinese Belt and Road Initiative and What it may Mean for Supply Chain Operations Worldwide, a Whitepaper (35 pg, 172 endnotes) researched and written for RAAD360 LLC (raad360.com). The goal is to alert supply chain managers worldwide to the complex risks inherent in BRI. RAAD360 provides RAAD™, a cloud-based supply chain risk management platform.

Worldwide Supply Chain Risk Series

China’s Belt & Road Initiative

Blog #5 – Africa, Australia, South Pacific

Africa

China is Africa’s largest trading partner.  Trade between the African nations and China has historically been exports of rare minerals and other natural resources from Africa in return for imports of manufactured items from China.  The historic trade pattern between African nations and China has caused several problems for the African countries: not only has it depleted the African Continent’s natural resources and failed to generate many new African businesses, it has led to overwhelming debt burdens for several African governments and a problem of empty containers that brought goods from China now clogging ports up and down both coasts.  This last problem has repercussions for all port users.  Supply chain interruptions are practically guaranteed.

A summary of a recent (PricewaterhouseCoopers) PwC study concluded:  “The trade imbalance between imports and exports means that many containers return empty, thereby absorbing valuable port capacity and resulting in higher logistics costs for inbound traffic to offset the cost of an empty return leg. Improving Africa’s trade potential to export manufactured, semi-processed or agricultural goods would significantly improve the imbalance in containerized trade.”[1]

China has long had extensive development projects in Africa, pre-dating the “Belt and Road Initiative.”  These have been mostly in resource extraction and road and rail projects to provide access between mines and ports.  In 2015, China signed an MOU with the African Union declaring China would work with the 54 countries to connect all of the countries through highway, rail and airport infrastructure projects.  Such linkage would be helpful to continental economic development but implementation of actual projects has been slow.

China has engaged in port development projects undertaken under the “Belt and Road” framework, in several countries on the  African Continent, including Bizerte in Tunisia, Dakar in Senegal, Dar es Salaam, Tanzania, Port of Djibouti, Djibouti, Libreville, Gabon, Maputo, Mozambique, Tema, Ghana[2] and Mombasa in Kenya. But comprehensive port development and port connection infrastructure are still deficient, and this is impeding the Continent’s economic development.

China has increased investment in African businesses in recent years, particularly, in manufacturing businesses.  China has financed or is financing over 3,000 projects developed between 2000 and 2014, covered by more than $86 billion in commercial loans to African governments or state-owned entities.

These loans have made China Africa’s largest creditor and that raises the risk of serious financial strains on many African countries that may lack the ability to meet their loan commitments to the Chinese.[3]  Another problem with “these investments in African businesses is that these cases are so sporadic and PR-imbued that they raise more questions about the scope, systematic design, and consistency of China’s plan to transfer its labor-intensive industries to Africa (and hire locally).

Beyond the grand slogans and random cases, China needs to present more systematic, well-coordinated and industry-specific plans to convince Africa and the world that  China is indeed committed to and vested in job creation in Africa.”[4]  Foreign direct investment has its baggage.  As defined in Wikipedia, “a foreign direct investment (FDI) is an investment in the form of a controlling ownership in a business in one country by an entity based in another country.  It is thus distinguished from a foreign portfolio investment by a notion of direct control.”[5]  This would mean that these companies would be Chinese-owned or controlled.

 

Australia

Australia is one of the few countries that has refused the siren call of “Belt and Road” so far, though not for lack of China’s efforts.  Australia has been reluctant to join the “Belt and Road Initiative” officially, “at least in part from reservations against linking, at Beijing’s request, an extensive Northern Australia infrastructure development plan directly with China’s Silk Road.”[6]

Many planned Northern Australia projects have complementarity with “Belt and Road Initiative” objectives but the Australian government is concerned about losing control of its own development plans, given the Chinese track record for taking a dominant role in any joint enterprise.  But, at least some in Australia’s business community are pressing the government to come to agreement with China and join the “Belt and Road Initiative”.  Asialink, an Asia-Australia-promoting ‘think tank’ affiliated with the University of Melbourne, “identifies opportunities in sectors such as: agriculture, financial and legal and planning expertise”[7] that could come in a partnership with China.  Australia is linked unofficially to the “Belt and Road Initiative” through a public-private NGO created in 2016, the Australia-China OBOR Initiative (ACOBORI).[8]

While Australia has resisted Chinese involvement in its development plans for the Northern Territory, China has become a significant investor in several Australian ports:  Darwin—in the northern most part of the Northern Territory, Newcastle—on the northern coast of New South Wales, and Melbourne—at the southern end of New South Wales.[9]  The purchase of the Port of Darwin by Landbridge, a Chinese company founded by billionaire Ye Cheng, has caused concerns in Australia. The port also includes a base used by U.S. Marines, a situation with parallels to the Chinese base and port in Djibouti that is next to a U.S. base.

In addition to national security concerns, there is wariness about Landbridge’s financial strength to carry out the ambitious port area plans as the firm has sought to renegotiate existing loans and get new funding[10] and about what might happen to ownership and control of the facility, bearing in mind Ye Cheng’s use of the Port as security for a $500 billion loan from China’s Export-Import Bank.[11]

The hodge-podge collection of loans, including high-interest short-term ones from China’s shadow banking market underpinning Landbridge’s purchase of the port, left the firm with an unmanageable shortfall between revenues generated and loan repayments required.[12]  Under Landbridge’s lease terms, 20% of the Port must remain in Australian hands, (either the Northern Territories government or an Australian investor),[13] but this leaves operational control of the Port in Chinese hands.

Besides militarily, the Port of Darwin’s location is strategic in other ways:  it is the ‘northern gateway’ for Australasia trade;  it is a “key support hub for the expanding o?shore oil and gas ?elds in the Arafura Sea, Timor Sea and waters off the coast of Western Australia; it is the only port between Townsville and Fremantle with full access to multi-modal transport services;”[14] and its state-of-the art maritime facilities  are capable of handling the largest cargo ships.  The East Arm Wharf in the port handles Panamax vessels.

The purchase of the Port of Darwin appears to be a path to get Chinese interests into the Northern Territory for development purposes, seemingly an end-run around previous Australian policies to keep control of development in the Northern Territory.  Although Landbridge is primarily an energy and infrastructure firm,[15] it has declared ambitious plans to go beyond port development, to build a luxury resort with world-class hotels and luxury residences.  This looks to complement its plans to expand cruise ship facilities[16]and to generate more investment opportunities.

 

South Pacific

China has become very active in the small, scattered island nations in the South Pacific.  The economic value of these tiny countries to China or to the “Belt and Road Initiative” would seem limited, but the strategic value, due to their location is immense and that appears to be the driver behind recent Chinese investments in places like Vanuatu, with a population of 270,400 for the entire island nation’s archipelago.[17]

A large, gleaming new wharf on Santo Island, Vanuatu, is a centerpiece, though it appears to exist more to meet hopeful expectations of marine traffic than current volumes, and the long-term future of all of these islands is threatened by sea level rise.  The wharf was built by a Chinese company and financed by the Chinese government.  Given the experiences of other recipient countries with Chinese infrastructure loans, such as Sri Lanka, some financial experts have expressed concern that Vanuatu will not be meet loan repayment terms and will default on the project, resulting in Chinese acquisition of the facility.[18]

The wharf is just one of many Chinese projects in Vanuatu; others include government buildings,  stadiums, convention centers, roads, and extensions to the airport’s runaway to accommodate larger planes.[19] Perhaps not coincidentally, Vanuatu was the first Pacific nation to support China’s contested claims to islands in the South China Sea.[20]

Guadalcanal, in the Solomon Islands, has been inundated by the steady stream of Chinese immigrants and money into this tiny island.  Chinese immigrants now own dozens of businesses and buildings and a large gold mine, bought in 2014 from an Australian firm.

The United States and Australia have taken note of the growing Chinese presence and are stepping up their development aid.  The fear is “this stretch of jungle–a linchpin of the Australian-American alliance with a long history of naval importance—has become the stage for a new cold war of strategic competition.”[21]

These islands have long sought an undersea telecom cable because satellite-based internet connectivity is hampered by frequent storm clouds that interfere with signals.  Australia has dedicated a large portion of its aid budget to toward installing an undersea cable connecting Guadalcanal (and Papua,  New Guinea) to Australia’s global internet hub,“ a project that Australia promises will be up and running by 2019.[22]

This was Australia’s response to Huawei’s plans to lay a cable to provide the Solomon Islands with a high-speed internet connection reaching to Sydney, Australia.[23]  Australia considers Huawei a cybersecurity threat.  This proposed Chinese project set off alarm bells, especially in light of China’s other telecommunication moves, (discussed in a later section) and belligerence in and around the South China Sea.

 

Questions –

Where does my supply chain intersect with China’s “Belt and Road” transportation network?

What about my supplier’s supply chain?

Can China’s monopoly power increase transportation times in my supply chain?

Can China’s monopoly power increase transportation costs in my supply chain?

____________

There is a wealth of information in the end notes to each Blog article.  Click the URLs to bring the sources onto your computer screen for review.

[1] The Maritime Executive.  “Africa Needs to Tackle Port Congestion.” 26 April 2018. https://www.maritime-executive.com/article/africa-needs-to-tackle-port-congestion#gs.Sd0n5=w

[2] Bateman, Sam, Rajni Gamage, and Jane Chan, Eds.  “Introduction.”  Footnote, p.9, in ASEAN and the Indian Ocean: The Key Maritime Links. RSIS Monograph No. 33.   July 2017. Bateman, Sam, Rajni Gamage, and Jane Chan.   https://www.rsis.edu.sg/wp-content/uploads/2017/08/Monograph33.pdf

[3]  Schneidman, Witney and Joel Wiegart.  “Competing in Africa: China, the European Union, and the United States.” Brookings.   16 April 2018.  https://www.brookings.edu/blog/africa-in-focus/2018/04/16/competing-in-africa-china-the-european-union-and-the-united-states/

[4] Sun, Yun.  Brookings/Africa in Focus.    “Inserting Africa  in China’s One Belt One Road strategy:  A new opportunity for jobs and infrastructure?” 2 March 2015.. https://www.brookings.edu/blog/africa-in-focus/2015/03/02/inserting-africa-into-chinas-one-belt-one-road-strategy-a-new-opportunity-for-jobs-and-infrastructure/

[5] Wikipedia.  Accessed 29 May 2018.  .https://en.wikipedia.org/wiki/Foreign_direct_investment

[6] The Straits Times (Reuters).  “Australia receptive to China’s One Belt, One Road, but national interest first.”       14 May 2017.  http://www.straitstimes.com/asia/australianz/australia-receptive-to-chinas-one-belt-one-road-but-national-interest-first

[7] Ibid.  http://www.straitstimes.com/asia/australianz/australia-receptive-to-chinas-one-belt-one-road-but-national-interest-first

[8] De Jonge, Alice.  “Australia risks missing out on China’s  One Belt One Road.”  The Conversation. 15 May [viii] 2017. https://theconversation.com/australia-risks-missing-out-on-chinas-one-belt-one-road-77704.

[9] Economist Intelligence Unit.   “China’s expanding investment in global ports.”  11 October 2017.  http://country.eiu.com/article.aspx?articleid=1125980496

[10] Smyth, Jamie.   “Australia port project highlights schism  over Chinese investment.”  Financial Times.   18 July 2017.  https://www.ft.com/content/b4d35440-5a68-11e7-9bc8-8055f264aa8b

[11] Davidson, Helen.  “Refinancing of Port of Darwin raises fresh concerns over Chinese lease.”  The Guardian.  9 June 2017.  https://www.theguardian.com/australia-news/2017/jun/09/refinancing-of-port-of-darwin-raises-fresh-concerns-over-chinese-lease

[12] Grigg, Angus.   “How Landbridge’s purchase of the Darwin Port killed perceived wisdom on China.”  Financial Review.  7 July 2017.    https://www.afr.com/news/world/asia/how-landbridges-purchase-of-the-darwin-port-killed-perceived-wisdom-on-china-20170706-gx66r8

[13] Zhen, Summer.  “Chinese company Landbridge wins 99-year lease on northern Australia’s Darwin port.”  South China Morning Post.  14 October 2015-updated 11 May 2016.  https://www.scmp.com/business/companies/article/1867514/chinese-company-landbridge-wins-99-year-lease-northern-australias

[14] Ports Australia 46th Biennial Conference.  “Australia’s Blue Highway.  Opportunities and Challenges.”  On-line Conference Program.—Social Program.    https://eee.eventsair.com/QuickEventWebsitePortal/ports-australia-46th-biennial-conference-2018/pa2018/ExtraContent/ContentPage?page=2.  Accessed 5 August 2018.

[15]Zhen, Summer.   Op. cit.  https://www.scmp.com/business/companies/article/1867514/chinese-company-landbridge-wins-99-year-lease-northern-australias

[16] Roberts, Greg.  “Chinese group to build luxury Darwin hotel.” The Australian.  11 July 2018 .  https://www.theaustralian.com.au/news/latest-news/chinese-group-to-build-luxury-darwin-hotel/news-story/a07e66a5af11cf38cbe43b65d3a4d6bd

[17]Wikipedia.  Vanuatu. https://en.wikipedia.org/wiki/Vanuatu.  Accessed 28 July 2018.

[18] Bohane, Ben.  “South Pacific Nation Shrugs Off Worries on China’s Influence.”  The New York Times.   13 June 2018.  https://www.nytimes.com/2018/06/13/world/asia/vanuatu-china-wharf.html

[19] Ibid.  https://www.nytimes.com/2018/06/13/world/asia/vanuatu-china-wharf.html

[20] Ibid. https://www.nytimes.com/2018/06/13/world/asia/vanuatu-china-wharf.html

[21] Cave, Damien.  “ A New Battle for Guadalcanal, This Time with China.”  The New York Times.  21 July 2018.  https://www.nytimes.com/2018/07/21/world/asia/china-australia-guadalcanal-solomon-islands.html

[22] Ibid.  https://www.nytimes.com/2018/07/21/world/asia/china-australia-guadalcanal-solomon-islands.html

[23] Ibid.  https://www.nytimes.com/2018/07/21/world/asia/china-australia-guadalcanal-solomon-islands.htm

_________________

BRI Blog next Monday will be:

New Eurasia Land Bridge Economic Corridor

————————————————————————————————-

© Shirley M. Loveless, Ph.D. 2018

Dr. Loveless is a consultant, author, and educator in transportation systems, supply chain risk analysis, emergency management, and economic development.  She is a Member of the Transportation Research Board of the National Academies of Sciences, Engineering and Medicine, and an appointed member of several TRB Standing Committees.  She works with RAAD360 LLC as a supply chain transportation consultant.

 

China’s Belt & Road Initiative – Blog #4

, , , ,
(Image credit: srilankabrief.org)

This is the fourth Blog in a series based on The Geopolitical Significance of the Chinese Belt and Road Initiative and What it may Mean for Supply Chain Operations Worldwide, a Whitepaper (35 pg, 171 endnotes) researched and written for RAAD360 LLC (raad360.com). The goal is to alert supply chain managers worldwide to the complex risks inherent in BRI. RAAD360 provides RAAD™, a cloud-based supply chain risk management platform.

Worldwide Supply Chain Risk Series

China’s Belt & Road Initiative

Blog #4 – The Arctic

China’s interests in the Arctic region go beyond expanding and utilizing new shipping routes opened by warming seas—the region is rich in many resources, especially oil and natural gas, and China wants to be able to exploit these.  The Arctic is estimated to have nearly one-third of the untapped natural gas reserves and 13% of undeveloped petroleum reserves.  China presently has a large stake in the Russian Yamal liquefied gas project in the Arctic[1] and has also been actively pursuing participation in a multilateral endeavor to lay telecom cable across the seabed in the Arctic Circle.  Other countries involved in the telecom venture are Finland, Russia, Japan, and Norway.[2]

QINGDAO AND CHINA’S POLAR SILK ROAD

Source: Mia Bennett, Cryopolitics

China is already extensively using the ‘Polar Silk Road’  shipping routes and intends to step up its Arctic maritime activity.  This will accelerate plans to develop the necessary infrastructure to support a rapid expansion in Chinese shipping and resource development in the Arctic.  Accordingly, China—as COSCO, the state-owned enterprise—is working with Russia to develop a deep water port on the Northern Dvina River near the northern Russian city of Archangelsk and a new railway that would carry natural resources from the Siberian heartland to China and other world markets.[3]

Source: Cryopolitics http://www.rcinet.ca/eye-on-the-arctic/2017/10/03/chinas-arctic-road-and-belt-gambit/

China is also developing ports at Klaipedia, Lithuania, Kirkenes, Norway and a deep-water port in Iceland.[4] Additionally, China’s state-owned oil company, Chinese National Petroleum Company (CNPC) and the China Development Bank have entered into agreement with the Russian firm, Novatek, to develop a logistics hub at Kamchatka, in Siberia, for the Yamal LNG project, in which China is also a partner with Russia.

China’s Arctic region partners now also include the State of Alaska’s Gasline Development Corporation (AGDC).   A $43 billion deal has been signed with Sinopec (a state-owned energy enterprise and the world’s largest LNG buyer), China Investment Corp., and  the Bank of China.  The project envisions an 800-mile pipeline to south central Alaska to supply the U.S. market and a liquefaction plant in Nikiski, on the Kenai Peninsula that will produce up to 20 million tons annually, for export to Asia, mostly to China.  Alaska will also gain about 12,000 temporary construction jobs.[5]  Producer revenue from the venture is estimated to be about $1 billion a year, of which Alaska would get 25%.[6]

Another Chinese Arctic interest is Greenland where China controls key mining projects—to extract rare earth minerals at Kvanefjeld, and potentially zinc, in the far north of the country. Greenland, an autonomous constituent country within the Kingdom of Denmark, is relatively poor and undeveloped.  It depends on an annual subsidy from Denmark, but many Greenlanders would like to see their country become economically self-sufficient.  Chinese investment and trade offers a possible path.  Greenland lacks roads connecting its settlements,[7] depending on small airports for connectivity. (The most prominent infrastructure is the Thule Air Base/Pituffik Airport and Thule deepwater port;  the airbase is part of the U.S.Air Force Space Command).  Greenland’s government has been trying to enlist Chinese help in infrastructure development.  China’s price for this is not yet known.  So far, despite trips by Greenland authorities to China to generate interest in this kind of development, no commitments from China are forthcoming.

In its official Arctic policy announcement, China couches its interest and intentions in terms of its desire to become a world leader in Arctic exploration and development for the benefit of mankind.  Much attention is given to plans to cooperate with other countries in scientific research, environmental improvement and alleviating poverty,[8] but China makes it very clear that it will aggressively pursue what it sees as its interests in the Arctic.

China’s Arctic push is already being incorporated into China’s overall “Belt and Road” visions—it is being referred to as ‘One Belt, One Road, One Circle,’ as in Arctic Circle.[9]  All Chinese companies are being urged to become active in Arctic enterprises, whether scientific or commercial endeavors.  China also intends to push for its own interests, within the objectives of its ‘Vision for Maritime Cooperation under the Belt and Road Initiative.’  For example, in Section 4.3 “Maritime Security” it states:

“China proposes an initiative for jointly developing and sharing maritime public services       along the Road, encouraging countries to jointly build ocean observation and monitoring networks, sharing the results of marine environmental surveys, and providing assistance to developing countries in this area. China is willing to strengthen cooperation in the application of the BeiDou Navigation Satellite System and remote sensing satellite system to provide satellite positioning and information services.”[10] (emphasis added). 

The promotion of the Chinese BeiDou system, a competitor to the U.S.’s GPS, the EU’s Galileo, and even the Russian Glonass systems, appears to be an attempt to impose the Chinese navigation system as the standard in the Arctic and elsewhere.  This could cause confusion and other navigational problems.

Questions –

Where does my supply chain intersect with China’s “Belt and Road” transportation network?

What about my supplier’s supply chain?

Can China’s monopoly power increase transportation times in my supply chain?

Can China’s monopoly power increase transportation costs in my supply chain?

____________

There is a wealth of information in the end notes to each Blog article.  Click the URLs to bring the sources onto your computer screen for review.

[1] “China unveils ‘Polar Silk Road’ in white paper on Arctic Policy.” The Strait Times. 26 January 2018. http://www.straitstimes.com/asia/east-asia/china-eyes-polar-silk-road-in-white-paper-on-arctic-policy

[2] Shih,Ting.  “As polar ice recedes, China plans for a massive telecom cable across the Arctic seabed.” National Post (Bloomberg News).  14 December 2017.  http://nationalpost.com/news/world/china-is-building-a-massive-telecom-cable-in-arctic-balancing-that-with-climate-change-is-now-in-its-hands

[3] Lateigne, Marc.  “Who  Benefits fromChina’s Belt and Road in the Artic?”  The Diplomat. 12 September 2017. https://thediplomat.com/2017/09/who-benefits-from-chinas-belt-and-road-in-the-arctic/

[4] Economist Intelligence Unit.  “China’s expanding investment in global ports.”  11 October 2017.  http://country.eiu.com/article.aspx?articleid=1125980496

[5] CNBC.  “Chinese companies agreed to develop LNG in Alaska as Trump visits.” 8 November 2017.  https://www.cnbc.com/2017/11/08/chinese-companies-agree-to-develop-lng-in-alaska-as-trump-visits.html

[6] Granger, Erin. “China backs landmark LNG  pipeline deal with Alaska.” Daily News-Miner. 8 November 2017. http://www.newsminer.com/news/alaska_news/china-backs-landmark-lng-pipeline-deal-with-alaska/article_6cbd6716-c509-11e7-a2aa-3f35507f1ce5.htm

[7] Bennett, Mia.  “With Siumut’s re-election , will Greenland welcome Chinese investments?” (Blog) Radio Canada International.  25 April 2018.    http://www.rcinet.ca/eye-on-the-arctic/2018/04/25/blog-with-siumuts-re-election-will-greenland-welcome-chinese-investment/

[8] China News Service.  Xinhua.   Ed. Gu Liping.  “Full text.  China’s Artic Policy.” 26 January 2018.     http://www.ecns.cn/2018/01-26/290236.shtml

[9] Moriyasu, Ken.  Op.cit.   https://asia.nikkei.com/Politics-Economy/Policy-Politics/China-expands-Belt-and-Road-to-the-Arctic

[10] Xinhua.  “Full text.  Vision for  Maritime Cooperation under the Belt and Road Initiative.” 20 June 2017.  http:// xinhuanet.com/english/2017-06/20/c_136380414.htm

_________________

BRI Blog next Monday will be:

AFRICA, AUSTRALIA, SOUTH PACIFIC

————————————————————————————————-

© Shirley M. Loveless, Ph.D. 2018

Dr. Loveless is a consultant, author, and educator in transportation systems, supply chain risk analysis, emergency management, and economic development.  She is a Member of the Transportation Research Board of the National Academies of Sciences, Engineering and Medicine, and an appointed member of several TRB Standing Committees.  She works with RAAD360 LLC as a supply chain transportation consultant.

 

China’s Belt & Road Initiative – Blog #3

, , , ,
(Image credit: srilankabrief.org)

This is the third RAAD blog in a series based on The Geopolitical Significance of the Chinese Belt and Road Initiative and What it may Mean for Supply Chain Operations Worldwide, a Whitepaper (27 pg., 128 endnotes) researched and written for RAAD360 LLC (raad360.com). The goal is to alert supply chain managers worldwide to the complex risks inherent in BRI.

Worldwide Supply Chain Risk Series

China’s Belt & Road Initiative

Blog #3 – Develop Robust Economic Corridors

The China Strategy – Part 2

Develop robust economic corridors that rely on the “Belt and Road” transportation network. Create or purchase businesses throughout these economic corridors that will generate greater commerce using “Belt and Road” in addition to exporting businesses in China and Chinese suppliers abroad.  Simultaneously build or buy the infrastructure necessary to accommodate robust economic corridors.  China is the driving force behind this global initiative and the overall benefit is to China, politically and economically.

Source: ESCAP (From Presentation by Binyam Reja, Ph.D., The World Bank at the 2018 Annual Meeting of the Transportation Research Board, Washington, D.C.)

China has designated six land-based ‘Economic Corridors’ in which infrastructure investments will be made to promote trade and economic development along the routes. The map above shows these six Economic Corridors but does not show similar corridors within Latin America, Africa or the Arctic Circle. There have been substantial Chinese projects in all three of these regions, along the ‘Road’, especially in Africa and increasingly in the Arctic Circle, but no formal Economic Corridors have been designated yet.

The plans and investments throughout “Belt and Road Initiative” to date raise a nagging question:  Who is/are the intended beneficiary/beneficiaries?  China is one.  Who are the others and in what order of magnitude?  That is not yet clear.

The ostensible purposes of the grand vision for the “Belt and Road Initiative” are to enhance five key areas of cooperation between China and the partner countries:

  • coordinating development policies
  • forging infrastructure and facilities networks
  • strengthening investment and trade relations
  • enhancing financial cooperation, and
  • deepening social and cultural exchanges[1]

The real Chinese motivations behind the “Belt and Road Initiative” often don’t follow  the lofty aims cited above.  In essence, the “Belt and Road Initiative”  is intended to foster “global commerce on China’s terms (emphasis added).”[2]  Projects within the Economic Corridors are meant to enhance the operation of the Belt—the land-based transportation within the corridors and the Road—the  maritime routes, and to generate commerce that will use this network.  This means the development of roads, railroads, distribution and warehousing centers, and ports, and whatever supporting facilities that are required, but also the development of resources and the production of goods to be transported on the “Belt and Road”.

An underlying driver of the “Belt and Road Initiative” is the use of the initiative for “exporting Chinese equipment, materials, management and labour to the recipient country.”  This means “minimal local content, job creation, training and supplier linkages,” and it “adds to the perception that [“Belt and Road”] projects are for China’s rather than the host countries’ benefit.”[3]

China also sees opportunities to use “Belt and Road” projects to infuse Chinese technology, leading to the adoption of Chinese standards and practices, to spread the use of Chinese currency, to early and exclusive access to raw materials, and to economic strength that increases Chinese political influence.   Examples will be described in subsequent Blogs.

It should be remembered that China has a command, not a free market, economy and an authoritarian government.  The “Belt and Road Initiative” is a program developed by the Chinese government.  In the most recent Communist Party Congress, held October 18-24, 2017, the “Belt and Road Initiative” was embedded in the Communist Party Constitution.[4]  This is more than a mere endorsement—it puts the full force of the state behind the “Belt and Road Initiative.”.

This may include the People’s Liberation Army.  There have been numerous official allusions to invoking a ‘soft’ military presence, “to both defend China’s overseas interests and provide public goods to the international community.  Such operations and, importantly, presence, may pave the way for the PLA’s involvement in one of the biggest economic and political policies of Xi Jinping’s administration: the “Belt and Road initiative.”[5]  This position causes more than a little international discomfort, especially in light of aggressive Chinese military actions in the South China Sea and most recently around Djibouti.[6]

Questions –

Where does my supply chain intersect with China’s “Belt and Road” transportation network?

What about my supplier’s supply chain?

Can China’s monopoly power increase transportation times in my supply chain?

Can China’s monopoly power increase transportation costs in my supply chain?

____________

There is a wealth of information in the end notes to each Blog article.  Follow the URLs to explore independently.

[1] Wade,Geoff, Foreign Affairs, Defence and Security, Commonwealth of Australia,  Parliamentary Briefing Book“China’s ‘One Belt, One Road’ Initiative.  August 2016. https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/BriefingBook45p/ChinasRoad

[2] Perlez, Jane and Yufan Huang. “Behind China’s $1 Trillion Plan to Shake Up the Economic Order.”  The New York Times.  13 MY 2017.  https://nyti.ms/2rc1mKd.

[3] Lim, Linda.  RSIS. “China’s Belt-and-Road Initiative:  Future Bonanza Or Nightmare? – Analysis. Eurasia Review.  30 March 2018.  http://www.eurasiareview.com/30032018-chinas-belt-and-road-initiative-future-bonanza-or-nightmare-analysis/

[4] The Straits Times (Reuters).  “19th Party Congress: Belt and Road in CCP charter shows China’s desire to take global leadership role.”  24 October 2017.  https://www.straitstimes.com/asia/east-asia/19th-party-congress-belt-and-road-in-ccp-charter-shows-chinas-desire-to-take-global

[5] Ghiselli, Andrea. (The Jamestown Foundation).  “The Belt, the Road and the PLA.”  China Brief,  Volume 15, Issue 20. 19 October 2015. https://jamestown.org/program/the-belt-the-road-and-the-pla/#.V5olHNIQbal

[6] Myers, Steven Lee.  “Laser User Heightens U.S.-China Military Tensions.” The New York Times.  4 May 2018. https://www.nytimes.com/2018/05/04/world/asia/china-united-states-lasers-pilots.html

_________________

BRI Blog next Monday will be:

Develop Outside Economic Corridors – THE ARCTIC

————————————————————————————————-

© Shirley M. Loveless, Ph.D. 2018

Dr. Loveless is a consultant, author, and educator in transportation systems, supply chain risk analysis, emergency management, and economic development.  She is a Member of the Transportation Research Board of the National Academies of Sciences, Engineering and Medicine, and an appointed member of several TRB Standing Committees.  She works with RAAD360 LLC as a supply chain transportation consultant.

 

China’s Belt & Road Initiative – Blog #2

, , , ,
(Image credit: srilankabrief.org)

This is the second RAAD blog in a series based on The Geopolitical Significance of the Chinese Belt and Road Initiative and What it may Mean for Supply Chain Operations Worldwide, a Whitepaper (27 pg., 128 endnotes) researched and written for RAAD360 LLC (raad360.com). The goal is to alert supply chain managers worldwide to the complex risks inherent in BRI.

Worldwide Supply Chain Risk Series

China’s Belt & Road Initiative

Blog #2 – The Silk Road Expansion

The China Strategy – Part 1 (continued)

Establish a far-reaching transportation network with China exerting substantial control over supply chain operations worldwide through control of key nodes and maritime routes in the network.

POLAR SILK ROAD SHORTCUT

In January 2018, the People’s Republic of China officially expanded the geography of its “One Belt, One Road (OBOR), alternatively called the “Belt and Road Initiative” or BRI, beyond what is shown in the map above, to include Latin America and the Arctic region.

The “Polar Silk Road” is audacious as China acknowledges it is barely a “near-Arctic” state, no closer than Poland is to the Arctic Circle.[1]  As a non-Arctic state, China has only observer status in the Arctic Council, the main intergovernmental forum for Arctic nations.  However, that gives China input on governance in the Arctic, if not a vote.[2]  China has wasted no time in making its presence felt. It has been fully involved in Arctic Council activities, legal and governance issues, from environmental protection, resource extraction and development, to expansion of commerce and shipping.

China has designated Qingdao, a city located southeast of Beijing, on the Yellow Sea, across from Seoul, Korea, and also across from Fukuoka, Japan, as a “hub for (its) Arctic pursuits.”[3]  Qingdao has a large iron ore handling facility and port developed by German colonialists prior to World War I.  It has been greatly expanded and now specializes in industries to support Chinese resource development in the Arctic, including high-tech shipbuilding, marine equipment manufacturing, and LNG production and storing equipment.[4]

Source: Mia Bennett, Cryopolitics

The map above shows Qingdao and the Polar Silk Road China envisions, going from Qingdao through the Korea Strait between South Korea and Japan, north into the Sea of Japan, then cutting through Japan at the narrow Tsugaru Strait between Honshu and Hokkaido over the Seikan Tunnel that connects the two islands.  Presumably, this is the preferred route because going further north and passing between the islands  of Hokkaido (Japan) and Sakhalin (Russia) into the Sea of Okhotsk has seasonal sea ice issues.

COSCO Shipping (China’s shipping giant) has already begun sailing through the Arctic’s Northeast Passage. Both the Northeast Passage and the Northwest Passage offer shortcuts for Chinese shipping.  The Northeast Passage could shorten the distance between Northeast Asia and the Atlantic Seaboard of the United States by 7,000 kilometers.[5]  The sea route to Western Europe is also dramatically shortened. The distance between Shanghai and Rotterdam using the northern route is reduced by 6,100 nautical miles, compared to the traditional route through the Strait of Malacca and the Suez Canal.  If not slowed by polar ice, the journey could take one week less and save ship owners $600,000 per ship.[6]

LATIN AMERICA

China’s outreach to Latin America was a natural extension of existing trade relations with several countries, including Brazil, Chile and Argentina, for whom China is their major trading partner.[7]  China’s trade with Latin America has been heavily weighted by Chinese imports of raw materials.  Export strength of Latin American countries has been weakened by sharp drops in commodity prices and a slowdown in Chinese raw material imports in recent years.  Joining the “Belt and Road Initiative” offers the prospect of having a stronger position in trade with China, not just in commodities but also manufactured goods.[8]

Until recently, Chinese direct investment in Latin America has been minimal and focused primarily in the primary goods and energy sectors.  Japan has been a much more important source of foreign direct investment, concentrating in manufacturing and services, but the plans for inclusion of Latin America in the “Belt and Road Initiative” has already led to a Chinese offer to invest $250 billion.[9]  The Latin American countries are hopeful that China will be more willing to facilitate major infrastructure projects they see as essential to the integration and growth of their economies, such as the proposed railway project linking the Brazilian port of Santos on the Atlantic Coast and the Peruvian port of Llo on the Pacific Coast.  This project would reduce transit time for cargo from Brazil to the Pacific by almost four weeks.[10]  Of course, this would benefit Chinese trade with Latin America, but it would also provide major intra-continental linkages.

CURRENT MARITIME ROADS

Map below shows the current maritime ‘roads.’

Source: Cryopolitics http://www.rcinet.ca/eye-on-the-arctic/2017/10/03/chinas-arctic-road-and-belt-gambit/

Questions —

Where does my supply chain intersect with China’s “Belt and Road” transportation network?

What about my supplier’s supply chain?

Can China’s monopoly power increase transportation times in my supply chain?

Can China’s monopoly power increase transportation costs in my supply chain?

____________

[1] Wong, Andrew.  “China:  We Are a ‘Near-Arctic State ‘ and We Want a ‘Polar Silk Road’. CNBC/Asia-Pacific News 14 February 2018. https://www.cnbc.com/2018/02/14/china-we-are-a-near-arctic-state-and-we-want-a-polar-silk-road.html.

[2] Zhen, Liu.  “China reveals ‘Polar Silk Road’ ambition in Arctic policy white paper.”   South China Morning Post.  26 January 2018.    http://www.scmp.com/news/china/diplomacy-defence/article/2130785/china-reveals-polar-silk-road-ambition-arctic-policy

[3] Bennett, Mia. “Qingdao: China’s Iron Gateway to the Arctic.” The Maritime Executive.  6 May 2018  https://maritime-executive.com/editorials/qingdao-china-s-iron-gateway-to-the-arctic#gs.eqmMGRE

[4] Ibid. https://maritime-executive.com/editorials/qingdao-china-s-iron-gateway-to-the-arctic#gs.eqmMGRE

[5] Radio Canada International.  “ China’s Arctic Road and Belt gambit.”  3 October 2017.  http://www.rcinet.ca/eye-on-the-arctic/2017/10/03/chinas-arctic-road-and-belt-gambit/

[6] Moriyasu, Ken.  “China expands Belt and Road to the Arctic.”   Nikkei Asian Review.   30 May 2017.  https://asia.nikkei.com/Politics-Economy/Policy-Politics/China-expands-Belt-and-Road-to-the-Arctic

[7] CNBC/Reuters. “China invites Latin America to take part in One Belt, One Road.” 22 January 2018.  https://www.cnbc.com/2018/01/22/reuters-america-china-invites-latin-america-to-take-part-in-one-belt-one-road.html

[8]Deorukhkar, Sumedh, Alvaro Ortiz, Tomasa Rodrigo, Le Xia. (BBVA Research). “China:  One Belt One Road What’s in it for Latin America?” China Economic Watch.  January 2018.  http://www.iberchina.org/files/2018/OBOR-LatAm_bbva.pdf.

[9] CNBC/Reuters. “China invites Latin America to take part in One Belt, One Road.” 22 January 2018.  https://www.cnbc.com/2018/01/22/china-invites-latin-america-to-take-part-in-one-belt-one-road.html

[10] Deorukhkar, et al.,  op. cit. p.6  http://www.iberchina.org/files/2018/OBOR-LatAm_bbva.pdf

_________________

BRI Blog next Monday will be:

The China Strategy – Part 2

“BELT AND ROAD” ECONOMIC CORRIDORS

There is a wealth of information in the end notes to each Blog article.  Follow the URLs to explore independently.

————————————————————————————————-

© Shirley M. Loveless, Ph.D. 2018

Dr. Loveless is a consultant, author, and educator in transportation systems, supply chain risk analysis, emergency management, and economic development.  She is a Member of the Transportation Research Board of the National Academies of Sciences, Engineering and Medicine, and an appointed member of several TRB Standing Committees.  She works with RAAD360 LLC as a supply chain transportation consultant.

China’s Belt and Road Initiative – Blog #1

, , , ,
(Image credit: srilankabrief.org)

This is the first RAAD blog in a series based on The Geopolitical Significance of the Chinese Belt and Road Initiative and What it may Mean for Supply Chain Operations Worldwide, a Whitepaper (27 pg., 128 endnotes) researched and written for RAAD360 LLC (raad360.com). The goal is to alert supply chain managers worldwide to the complex risks inherent in BRI.

Worldwide Supply Chain Risk Series

China’s Belt & Road Initiative

Blog #1 – The Silk Road Core

The China Strategy – Part 1

Establish a far-reaching transportation network with China having substantial control over supply chain operations worldwide through control of key nodes and maritime routes in the network.

Global trade, shipping patterns and, therefore, supply chains, are undergoing ‘sea changes’ in what China calls “a new era of globalization.”[1]  This is just the beginning.  In September 2013, Chinese President Xi Jinping announced the most ambitious infrastructure program in history, using the Old Silk Road as a metaphor for a transportation and trade plan that has come to encompass a land and maritime network, involving more than 60 countries, across Asia, the Middle East, Europe, Africa, Australia, and even South America and about 30%-40% of world GDP (estimates vary).

60 countries – 30% world GDP

Beyond the land and maritime transportation networks, China’s “Belt and Road Initiative” also includes attention to “developing the mines and oil and gas fields necessary to supply the raw materials for this vast undertaking.”[2]

The plan President Xi set forth in Visions and Actions on Jointly Building Silk Road Economic Belt and 21st Century Maritime Silk Road envisions five routes: 1) Central Asia-Russia; 2) Central Asia-West Asia; 3) mainland Southeast Asia-South Asia-Indian Ocean; 4) South China Sea-Indian Ocean; 5) South China Sea-South Pacific Ocean.[3]  The map above shows these land and sea routes.  Southeast Asia and the Indian Ocean are key factors in China’s overall scheme—with Southeast Asia being China’s “doorstep to the world” and the Indian Ocean the conduit from the Pacific and South China Sea to South Asia, the Middle East, Europe, and Africa.

Two Ocean Strategy

Underlying the geographic reach of this “Belt” and “Road” vision is what has been called China’s “Two Ocean “ Strategy, which itself is a response to the growing political and economic rivalry between India and China.[4]  The two oceans in this strategy are the Pacific and the Indian Oceans.  The “Two Ocean” strategy is based on three concepts:  1) the “Belt and Road Initiative” (BRI), to secure China’s economic interests; 2) a major Chinese naval modernization, including “development of force projection capabilities”[5]; and 3)  “obtaining greater Chinese access to ports in the Indian Ocean, usually by granting economic and military assistance to countries in the region.”[6]

 

Questions —

Where does my supply chain intersect with China’s “Belt and Road” transportation network?

What about my supplier’s supply chain?

Can China’s monopoly power increase transportation times in my supply chain?

Can China’s monopoly power increase transportation costs in my supply chain?

 

[1] Phillips, Thomas. “The $900bn question: What is the Belt and Road Initiative?” The Guardian. 11 May 2017. https://www.theguardian.com/world/2017/may/12/the-900bn-question-what-is-the-belt-and-road-initiative

[2] Russell,Clyde. “Damp squib or next commodity super-cycle? The Belt and Road dilemma.” Reuters. 4 April 2018. https://www.reuters.com/article/us-column-russell-china-beltroad/damp-squib-or-next-commodity-super-cycle-the-belt-and-road-dilemma-russell-idUSKCN1HB2BN.

[3] Visions and Actions on Jointly Building Silk Road Economic Belt and 21st Century Maritime Silk Road, cited in Irene Chan, “Current Trends in Southeast Asian Responses to the Belt and Road Initiative” in ASEAN and the Indian Ocean: Key Maritime Links, Eds.: Bateman, Sam, Rajni Gamage, and Jane Chan, RSIS Monograph No. 33, July 2017, S. Rajaratnam School of International Studies, Nanyang Technological University, p. 42. https://www.rsis.edu.sg/wp-content/uploads/2017/08/Monograph33.pdf

[4] Mukherjee, Anit.  “Indian Ocean Region Strategic Thinking.” In ASEAN and the Indian OceanKey Maritime Links, p. 22. https://www.rsis.edu.sg/wp-content/uploads/2017/08/Monograph33.pdf

[5] Ibid.  chahttps://www.rsis.edu.sg/wp-content/uploads/2017/08/Monograph33.pdf

[6] Ibid. https://www.rsis.edu.sg/wp-content/uploads/2017/08/Monograph33.pdf

 

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© Shirley M. Loveless, Ph.D. 2018

Dr. Loveless is a consultant, author, and educator in transportation systems, supply chain risk analysis, emergency management, and economic development.  She is a Member of the Transportation Research Board of the National Academies of Sciences, Engineering and Medicine, and an appointed member of several TRB Standing Committees.  She works with RAAD360 LLC as a supply chain transportation consultant.