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?

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BRI Blog next Monday will be:

China-Pakistan Economic Corridor

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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.