Wade Shepard
The New Silk Road is a multifaceted, multinational initiative to establish a network of enhanced overland and maritime economic corridors extending between China and Europe, better integrating a region that consists of over 60 countries and 60% of the population, 75% of the energy resources, and 70% of GDP in the world. It's potentially an earth-shaking, paradigm-breaking disruption that would more fluidly connect the economic giants of China, Russia, Iran, India, and Europe into a loosely affiliated geo-economic bloc that could shift the balance of global power.
While this broad endeavor first began informally in the late 1990s and early 2000s, it was taken to a new height in 2013 when China announced its Belt and Road initiative (BRI or OBOR). This move towards formalizing and taking ownership of the pre-existing Silk Road project -- along with promises of trillions of dollars in funding -- led to a boom of activity along the entire network, as countries like Kazakhstan, Azerbaijan, Georgia, Belarus, and Poland began delving into large-scale infrastructure development.
2016 was without doubt the biggest year so far for the New Silk Road initiative. The Chinese shipping company COSCO acquired a majority stake in Greece’s Piraeus Port. The first projects of the China-led AIIB were initiated and financed (albeit in partnership with other, more established international investment banks). The EU-China Connectivity Platform commenced. The CEE-China 16+1 fund was announced. The Colombo Financial City mega-project got started again. The China-Pakistan Economic Corridor saw its first action. Chinese firms shattered records for outbound M&A investment, signing 242 deals worth $171 billion outside of Asia. While Xi Jinping visited many key New Silk Road countries, including Serbia, Poland, Cambodia, and Bangladesh, signing billions of dollars worth of trade pacts and laying down the political framework for enhanced future cooperation.
Given the momentum that was built up along this pan-Eurasian economic network this year, what should we expect in 2017?
1. Leaps towards more of an institutionalized framework
"I think the major development for BRI in 2017 will be more concrete steps towards the institutionalization of the initiative," said Moritz Rudolf, a former researcher at Germany’s Mercator Institute for China Studies (MERICS) who is currently working on a PhD about China's view of international law. "In the past, it was one of the major obstacles that the initiative was promoted on various levels, using sometimes overlapping institutions."
The lack of this institutionalization was confusing for European policy makers, in particular, who often had a difficult time grasping what the BRI even was. With a more formalized approach, look for the New Silk Road to get more support from Europe beyond its current splattering of bi-lateral trade pacts.
Rudolf also stated that Beijing will soon host an international conference for the heads of state of Belt and Road countries, where it will become clear -- perhaps for the first time -- who is really in and who has opted out.
2. Continued on the ground development
While 2016 saw some relatively large infrastructure building steps taken along the New Silk Road, 2017 should double down on this momentum. Look for China to start making good on some of its previously unrequited MOUs, such as the Khorgos SEZ in Kazakhstan, as the processions of delegations and promises begin giving way to solid, on-the-ground construction projects.
"The New Silk Road will stretch further in 2017, creating opportunities but also encountering obstacles," said Jonathan Hillman, a researcher at the Center for Strategic International Studies (CSIS), a Washington DC-based think tank who just released a list of 17 Silk Road projects to watch in 2017.
We should also closely follow the developments of key emerging Silk Road projects in 2017, such as the New Port of Baku at Aylat, which just really got rolling in 2016; the Anaklia deep sea port, which is set to commence construction in 2017; the Baku-Tbilisi-Kars rail line, which should open sometime next year; Terespol municipality in Poland, where new dry ports are being built as well as a new city to support them; and, especially, the China-Pakistan Economic Corridor, which just began running in beta a couple of months ago.
Also look for China's Sri Lanka debacle to either get straightened out or fall apart in 2017. This is probably the best lens through which to view how China deals with vacillating, shape-shifting democracies in the long-term development of major infrastructure projects. In January, an 80% share of the Hambantota deep sea port and the Mattala International Airport (the world's emptiest) are expected to be officially signed over to Chinese companies and the highly controversial Colombo Financial City should see significant construction progress throughout the year.
3. Increased participation from Europe
Another thing to watch for this coming year along the New Silk Road is increased participation from Europe. Beyond the further development of key trans-Eurasian logistics hubs on the Poland/ Belarus border and Piraeus port in Greece, look for more high-end European products going overland by rail to China.
Many of Europe’s major logistics companies have put a large amount of effort into promoting Europe-China rail transport in 2016, and in 2017 we should see these efforts start producing results. With the initial concept of the New Silk Road as a mere pipeline for China to dump cheap products onto European markets being largely refuted, European freight forwarders, manufacturers, and policy makers are now waking up to the fact that these newly enhanced trade corridors are providing ample opportunity to get more of their high-value products to the booming markets of China and the rest of Asia. European pharmaceutical, chemical, automotive, luxury, and food companies started jumping in throughout 2016 -- a movement that's expected to grow in the coming year.
4. The opening of new trade routes and the joining together of the overland and maritime Silk Road
With Russia recently announcing that its embargo on many EU agricultural products will be extended through 2017, watch for various workarounds being put into practice this coming year. One of the main alternatives is to bolster the southern corridor of the New Silk Road, which connects China and Europe via Turkey and the South Caucasus, completely bypassing Russia.
"As a result of the Russian limitations on the transit by train of agricultural produce from the EU to China and of delays at Małaszewicze, rail links between Europe and China via Turkey and the Black Sea are likely to increase," said Frans-Paul van der Putten of the Clingendael Institute, a Dutch think tank.
Turkey, Georgia, and Azerbaijan have been busy at work building their transportation capacities, and projects like the New Port of Baku at Aylat, Georgia's Poti port, the port of Aktau in Kazakhstan, and the port of Turkmenbashi in Turkmenistan have all been undergoing rapid development throughout 2016, and 2017 could be the year this route starts to have a measurable impact on the global supply chain. If the Baku-Tbilisi-Kars rail line is actually commissioned next year, this impact could be exponentially larger.
2017 may also be the year that the overland and maritime sections of the New Silk Road really start coming together. With a master plan that consists of four parallel overland trade routes and one maritime route between China and Europe, the points where the land and sea come together will become some of the most important logistical nodes of the entire network. Xiamen, on the southeast coast of China, has the 17th busiest container port in the world that directly feeds into a rail line that goes to Lodz, Poland via Chengdu at the new Fujian FTZ. Gwadar port in Pakistan recently began receiving its first ships, and directly connects to an emerging overland trade corridor that heads north to China. The port at Bandar Abbas in Iran is also looking to become a key connection point between sea and overland Silk Road trade corridors in 2017. While the now Chinese-controlled Piraeus port in Greece is the western terminus of China's "21st Century Maritime Silk Road," which is where the watery portion of the BRI meets the rail and highway network of Europe.
5. Increased synergy between Russia, Japan, and India's international development plans with China's Belt and Road
While they are marketed as separate, potentially competing plans that are pined over and carried out by separate nation-states, endeavors like India's "Act East" and "Connect Central Asia" plans, Japan's hundreds of billions of dollars that are being pumped into Asian infrastructure development, and Russia's Eurasian Economic Union at first may appear to counter China's growing influence in Eurasia, they are ultimately parts of the same project -- whether the participating countries like it or not. No matter who connects the dots, much of the new infrastructure that is being constructed across Eurasia will be usable by all participating parties. The New Silk Road is a network -- a collection of hubs that all connect together -- and the inherently synergistic nature of this project should be one of the biggest upheavals to expect in 2017, as the broader initiative starts looking a little more like its ancient namesake.
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