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.