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Seeking Practical Cooperation
How can China ensure the Belt and Road Initiative meets a diverse set of needs?
By Li Ziguo | NO. 16 APRIL 21, 2016

After two years of discussions, evaluations and diplomatic efforts, the China-proposed initiative to build the Silk Road Economic Belt and the 21st-Century Maritime Silk Road (Belt and Road) has been recognized by most countries along the trade routes. This year, the international cooperation necessary to effectively implement the initiative between China and other countries is expected to yield concrete outcomes.

Many projects that have been discussed first as blueprints are being put into action, with forklifts, cranes and construction crews at the ready. The Asian Infrastructure Investment Bank (AIIB), based in Beijing, officially came online on January 16. The AIIB, consisting of 57 founding member states, is expected to become a critical lending mechanism as it provides financing for infrastructure projects along the Belt and Road routes.

To fulfill the Belt and Road Initiative, China and other participating countries need to adhere to the constant pursuit of practicality, and put common benefits ahead of individual interests.

Meeting needs

While promoting the Belt and Road Initiative to potential partners, China must ensure clarity and understanding of each participant's real needs. It should be aware of the strategic demands according to the specific conditions of each region and country, and understand which cooperative fields and projects those countries want and need most under the Belt and Road framework.

Kazakhstan is where Chinese President Xi Jinping first proposed the Silk Road Economic Belt in 2013. There are four strategic demands based on the country's own development strategy: make the country a Eurasian cross-border hub by accelerating the construction of domestic infrastructure; speed up the deep processing of raw materials and industrialization based on stable energy production so as to achieve economic diversification; develop agricultural modernization and fully utilize its abundant farmland resources to make the nation a major player in the global grain market; and advance innovative economies and explore new industries. If the above-mentioned strategic appeals of Kazakhstan can be satisfied, the country will surely become an active partner in building the Silk Road Economic Belt.

Therefore, China should find the common ground with concerned countries, accommodate their needs and search for cooperative areas to work together through project implementation.

In the meantime, there are huge differences in terms of resources, economic scale, geographic conditions and degrees of openness among the over 60 countries along the Belt and Road routes. Each of them has their own domestic concerns and foreign policy precedence. As a result, their priorities for cooperation with China have varied according to their different stage of national development.

In order to facilitate regional trade, the 10-member Association of Southeastern Asian Nations (ASEAN) is cooperating with China to upgrade their existing free trade agreement (FTA) to a 2.0 level, while the China-Japan-South Korea FTA talks are ongoing.

Yet not all countries share this objective. Uzbekistan, for example, has no current interest in signing an FTA with China for the fear that the larger economy's strong production capacity might undermine its relatively outdated manufacturing industry. While China may hope that will change one day, and that common interests can be found, it may not be immediate and will take work and patience.

If China does not clarify and understand what its many partners each want and need—regardless of FTA status—the ambitious initiative will face an enthusiasm gap.

A train stops at the entrance of the Qamchiq Tunnel on the Angren-Pap railway line in Uzbekistan on February 27. The tunnel, the longest in Central Asia, was built by the China Railway Tunnel Group (XINHUA)

What can China offer?

As the proposer of the Belt and Road Initiative, China should play a leading role in its implementation, especially in the initial stages. That is to say, what shape the initiative takes will largely depends on what China can offer.

To this point, China must be fully aware of what it is capable of doing and doing well in regards to the scale of investment, sources of funds and operational models. The Chinese Government should also be focused on where the nation's competitive edge lies, and where investment opportunities are not only most likely, most wise.

Furthermore, efforts should be made to build mature international financing channels, which should not be limited to the Silk Road Fund established by China and the China-led AIIB. China also needs to develop diversified fundraising channels and seek cooperation with other international financing organizations, such as the World Bank and the Asian Development Bank, since these organizations have rich experiences in poverty alleviation and funding projects in developing countries. Additionally, China should take advantage of the capital and capabilities commercial banks can offer.

Many countries along the Belt and Road routes are badly in need of more investment and financing. In the face of so many investment possibilities, China and its relevant partners should make a careful selection. A successful project in one country can produce a demonstration effect for the whole initiative. In most cases, it is the small and medium-sized projects that are most wanted by those countries, for these projects are likely to benefit local people most immediately.

When the Belt and Road Initiative was first put forward, many Chinese cities and enterprises wanted to take part in it immediately. But the fact was that most of their project proposals were lacking prudent considerations. Later, the domestic media took a closer look and many mentioned the possible risks involved. Some experts have also expressed their concerns about uncertainties in overseas investment.

Chinese and Pakistani representatives attend a ceremony to lay the cornerstone for the Karot Hydropower Plant in Pakistan, which is funded by the Silk Road Fund, on January 10 (XINHUA)

Beware of risks ahead

In the current stage, at least equal attention should be paid to both potential costs and benefits. Each country has different liabilities in implementing the Belt and Road Initiative, which Chinese investors know well. In the inland of the Eurasian continent, Syria, Iraq and Afghanistan are high-risk destinations for investors because conflicts in these countries are not likely to end in the near future. Many more Central Asian countries are also facing the threat of terrorism, separatism or extremism, or all of the above. Furthermore, disputes over territory and water resources between neighboring countries could also affect the international cooperation needed to successfully build the Silk Road Economic Belt.

Apart from bilateral disputes, domestic problems, including flawed legal systems, corruption and volatile foreign exchange rates should not be neglected.

Despite the aforementioned challenges, Chinese investors have enough reasons to feel confident about the prospect of the Belt and Road Initiative. After all, the general situation in regions along their routes is stable. Many Asian and African countries have a strong demand for development and investment, and China has prominent advantages in seeking cooperation opportunities with these countries.

While promoting the Belt and Road Initiative, it is necessary for the Chinese Government to help domestic investors keep alert of the possible risks ahead. A risk evaluation system should be established, and investment risk pre-warnings and precautionary measures should be made for potential investors' reference.

In addition, Chinese companies should attach great importance to environmental protection efforts. By participating in the Belt and Road Initiative, more and more Chinese companies will expand their businesses abroad. Apart from the economic benefits and job opportunities, it is natural—and therefore should be expected—that local people around the world will be concerned over environmental protection when a foreign company plans to establish a factory, mine or other project in their community.

For ecologically fragile areas, especially in Mongolia and Central Asian countries, pollution may also be a top concern for residents. Therefore, Chinese investors must be prudent when developing projects. Strict environmental impact assessments must be carried out. If one Chinese company causes environmental degradation, Chinese investment as a whole will incur the opposition of local residents, and the willingness to join the Belt and Road Initiative will be damaged.

Chinese businesses and workers alike cannot afford to underestimate the importance of respecting local cultures, the fragility of local ecosystems and the skepticism that they may face when working abroad. It is therefore essential that every party involved does its part to identify the pressing needs and desires of the local people, areas of potential cooperation with partners and government at all levels, and the terms of that cooperation to ensure the longevity and fruits of such enormous investment and effort.

The author is deputy director of the Belt and Road Initiative Research Center under the China Institute of International Studies

Copyedited by Mara Lee Durrell

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