It shows extraordinary economic and political ambition.
China’s mission to reinvent the Silk Road – trade routes which linked the country with the Mediterranean basin in ancient times – is a project of continental scope.
One Belt, One Road (OBOR) is aimed at developing connectivity by promoting economic prosperity and regional co-operation throughout Eurasia. It is seen as the largest global economic initiative ever undertaken.
Gianluca Salsecci, head of Intesa Sanpaolo’s international research network, believes it is China’s way of developing a bigger international role after decades spent looking inwards.
“This project can develop international investment and trade links between China, Russia and Europe as well as promote economic integration right across Eurasian and Central Asian countries,” he says.
"This project can create investment and trade links as well as promote economic integration right across the continent to Russia and Europe"Gianluca Salsecci, head of Intesa Sanpaolo’s international research network
From China’s point of view, the initiative is often regarded as a powerful means to address the chronic domestic overcapacity in construction and infrastructure. Nevertheless “all the nations along the trade routes can benefit from it”, Salsecci thinks.
China’s decision to launch the OBOR plan from Kazakhstan in 2013 was a sign that the latter country is keen to play a central role in the project in Eurasia.
Kazakhstan immediately seized the opportunity to integrate the OBOR initiative with its National Plan – the so-called ‘100 Steps’ – focused on improving infrastructure, boosting trade and foreign investment, and linking its local industries into global value chains.
The initial reaction in Russia was one of scepticism. It saw OBOR as a possible threat to the Eurasian Economic Union (EAEU) and its Central Asian sphere of influence, according to Salsecci.
“That has changed, though. The benefits are now seen as outweighing the risks which has put a new complexion on relations between the countries,” he says.
All the nations along the trade routes can benefit from it
Gianluca Salsecci, head of the international research network
This change of attitude was apparent in Russia’s decision in 2015 to sign an accord with China to create a “common economic space” in Eurasia that may lead to a free trade agreement.
“Given the tensions with Western powers over Ukraine – among other issues – this has been interpreted as Russia ‘turning eastwards’ in its political strategy,” Salsecci explains.
A high-speed railway line between Moscow and Kazan is likely to grow into a $242 billion project to create a direct link between Moscow and Beijing. There are also ambitious energy projects in the pipeline involving Russia with China.
China plans to provide the bulk of the financing, but there will be ample scope for outside investment, especially for local projects. The initiative is to be supported by the Silk Road Fund, established in 2014 as part of the OBOR framework, together with several multilateral financial institutions such as the AIIB and New Development Bank. National banks are also involved in local projects, including Intesa Sanpaolo.
Some countries in Europe, especially in the Balkans, are also expected to benefit from OBOR. Chief among these is Serbia.
Dragica Mihajlovic, chief financial officer and executive board member at Banca Intesa, notes that the country has long been a strategic partner of China.
“Serbia is strategically positioned to tap the immense potential of this project that can bolster economic growth and competitiveness,” she says.
Dragica Mihajlovic, chief financial officer and executive board member at Banca Intesa
Mihajlovic believes benefits will include increased foreign investment, advances in technology and access to export markets. But the country could also be a gateway to Europe.
“Serbia is in a position to provide China with duty-free access to a market of over one billion people through free trade agreements – including with Russia and the EU, as well as signatories of the Central European Free Trade Agreement (CEFTA),” she says.