Silk Roads, Night Trains, and the Third Industrial Revolution in China
The U.S. is transfixed by its multibillion-dollar electoral circus. The European Union is paralyzed by austerity, fear of refugees, and now all-out jihad in the streets of Paris. So the West might be excused if it’s barely caught the echoes of a Chinese version of Roy Orbison’s “All I Have to Do Is Dream.” And that new Chinese dream even comes with a road map.
The crooner is President Xi Jinping and that road map is the ambitious, recently unveiled 13th Five-Year-Plan, or in the pop-video version, the Shisanwu. After years of explosive economic expansion, it sanctifies the country’s lower “new normal” gross domestic product growth rate of 6.5% a year through at least 2020.
It also sanctifies an updated economic formula for the country: out with a model based on low-wage manufacturing of export goods and in with the shock of the new, namely, a Chinese version of the third industrial revolution. And while China’s leadership is focused on creating a middle-class future powered by a consumer economy, its president is telling whoever is willing to listen that, despite the fears of the Obama administration and of some of the country’s neighbors, there’s no reason for war ever to be on the agenda for the U.S. and China.
Given the alarm in Washington about what is touted as a Beijing quietly pursuing expansionism in the South China Sea, Xi has been remarkably blunt on the subject of late. Neither Beijing nor Washington, he insists, should be caught in the Thucydides trap, the belief that a rising power and the ruling imperial power of the planet are condemned to go to war with each other sooner or later.
It was only two months ago in Seattle that Xi told a group of digital economy heavyweights, “There is no such thing as the so-called Thucydides trap in the world. But should major countries time and again make the mistakes of strategic miscalculation, they might create such traps for themselves.”
A case can be made — and Xi’s ready to make it — that Washington, which, from Afghanistan to Iraq, Libya to Syria, has gained something of a reputation for “strategic miscalculation” in the twenty-first century, might be doing it again. After all, U.S. military strategy documents and top Pentagon figures have quite publicly started to label China (like Russia) as an official “threat.”
To grasp why Washington is starting to think of China that way, however, you need to take your eyes off the South China Sea for a moment, turn off Donald Trump, Ben Carson, and the rest of the posse, and consider the real game-changer — or “threat” — that’s rattling Beltway nerves in Washington when it comes to the new Great Game in Eurasia.
Xi’s Bedside Reading
Swarms of Chinese tourists iPhoning away and buying everything in sight in major Western capitals already prefigure a Eurasian future closely tied to and anchored by a Chinese economy turbo-charging toward that third industrial revolution. If all goes according to plan, it will harness everything from total connectivity and efficient high-tech infrastructure to the expansion of green, clean energy hubs. Solar plants in the Gobi desert, anyone?
Yes, Xi is a reader of economic and social theorist Jeremy Rifkin, who first conceived of a possible third industrial revolution powered by both the Internet and renewable energy sources.
It turns out that the Chinese leadership has no problem with the idea of harnessing cutting-edge Western soft power for its own purposes. In fact, they seem convinced that no possible tool should be overlooked when it comes to moving the country on to the next stage in the process that China’s Little Helmsman, former leader Deng Xiaoping, decades ago designated as the era in which “to get rich is glorious.”
It helps when you have $4 trillion in foreign currency reserves and massive surpluses of steel and cement. That’s the sort of thing that allows you to go “nation-building” on a pan-Eurasian scale. Hence, Xi’s idea of creating the kind of infrastructure that could, in the end, connect China to Central Asia, the Middle East, and Western Europe. It’s what the Chinese call “One Belt, One Road”; that is, the junction of the Silk Road Economic Belt and the Twenty-First Century Maritime Silk Road.
Since Xi announced his One Belt, One Road policy in Kazakhstan in 2013, PricewaterhouseCoopers in Hong Kong estimates that the state has ploughed more than $250 billion into Silk Road-oriented projects ranging from railways to power plants. Meanwhile, every significant Chinese business player is on board, from telecom equipment giant Huawei to e-commerce monster Alibaba (fresh from its Singles Day online blockbuster). The Bank of China has already provided a $50 billion credit line for myriad Silk Road-related projects. China’s top cement-maker Anhui Conch is building at least six monster cement plants in Indonesia, Vietnam, and Laos. Work aimed at tying the Asian part of Eurasia together is proceeding at a striking pace. For instance, the China-Laos, China-Thailand, and Jakarta-Bandung railways — contracts worth over $20 billion — are to be completed by Chinese companies before 2020.
With business booming, right now the third industrial revolution in China looks ever more like a mad scramble toward a new form of modernity.
The One Belt, One Road plan for Eurasia reaches far beyond the Rudyard Kipling-coined nineteenth century phrase “the Great Game,” which in its day was meant to describe the British-Russian tournament of shadows for the control of Central Asia. At the heart of the twenty-first century’s Great Game lies China’s currency, the yuan, which may, by November 30th, join the International Monetary Fund’s Special Drawing Rights reserve-currency basket. If so, this will in practice mean the total integration of the yuan, and so of Beijing, into global financial markets, as an extra basket of countries will add it to their foreign exchange holdings and subsequent currency shifts may amount to the equivalent of trillions of U.S. dollars.
Couple the One Belt, One Road project with the recently founded, China-led Asian Infrastructure Investment Bank and Beijing’s Silk Road Infrastructure Fund ($40 billion committed to it so far). Mix in an internationalized yuan and you have the groundwork for Chinese companies to turbo-charge their way into a pan-Eurasian (and even African) building spree of roads, high-speed rail lines, fiber-optic networks, ports, pipelines, and power grids.
According to the Washington-dominated Asian Development Bank (ADB), there is, at present, a monstrous gap of $800 billion in the funding of Asian infrastructure development to 2020 and it’s yearning to be filled. Beijing is now stepping right into what promises to be a paradigm-breaking binge of economic development.
And don’t forget about the bonuses that could conceivably follow such developments. After all, in China’s stunningly ambitious plans at least, its Eurasian project will end up covering no less than 65 countries on three continents, potentially affecting 4.4 billion people. If it succeeds even in part, it could take the gloss off al-Qaeda- and ISIS-style Wahhabi-influenced jihadism not only in China’s Xinjiang Province, but also in Pakistan, Afghanistan, and Central Asia. Imagine it as a new kind of Eurasian war on terror whose “weapons” would be trade and development. After all, Beijing’s planners expect the country’s annual trade volume with belt-and-road partners to surpass $2.5 trillion by 2025.
At the same time, another kind of binding geography — what I’ve long called Pipelineistan, the vast network of energy pipelines crisscrossing the region, bringing its oil and natural gas supplies to China — is coming into being. It’s already spreading across Pakistan and Myanmar, and China is planning to double down on this attempt to reinforce its escape-from-the-Straits-of-Malacca strategy. (That bottleneck is still a transit point for 75% of Chinese oil imports.) Beijing prefers a world in which most of those energy imports are not water-borne and so at the mercy of the U.S. Navy. More than 50% of China’s natural gas already comes overland from two Central Asian “stans” (Kazakhstan and Turkmenistan) and that percentage will only increase once pipelines to bring Siberian natural gas to China come online before the end of the decade.
Of course, the concept behind all this, which might be sloganized as “to go west (and south) is glorious” could induce a tectonic shift in Eurasian relations at every level, but that depends on how it comes to be viewed by the nations involved and by Washington.
Leaving economics aside for a moment, the success of the whole enterprise will require superhuman PR skills from Beijing, something not always in evidence. And there are many other problems to face (or duck): these include Beijing’s Han superiority complex, not always exactly a hit among either minority ethnic groups or neighboring states, as well as an economic push that is often seen by China’s ethnic minorities as benefiting only the Han Chinese. Mix in a rising tide of nationalist feeling, the expansion of the Chinese military (including its navy), conflict in its southern seas, and a growing security obsession in Beijing. Add to that a foreign policy minefield, which will work against maintaining a carefully calibrated respect for the sovereignty of neighbors. Throw in the Obama administration’s “pivot” to Asia and its urge both to form anti-Chinese alliances of “containment” and to beef up its own naval and air power in waters close to China. And finally don’t forget red tape and bureaucracy, a Central Asian staple. All of this adds up to a formidable package of obstacles to Xi’s Chinese dream and a new Eurasia.
All Aboard the Night Train
The Silk Road revival started out as a modest idea floated in China’s Ministry of Commerce. The initial goal was nothing more than getting extra “contracts for Chinese construction companies overseas.” How far the country has traveled since then. Starting from zero in 2003, China has ended up building no less than 16,000 kilometers of high-speed rail tracks in these years — more than the rest of the planet combined.
And that’s just the beginning. Beijing is now negotiating with 30 countries to build another 5,000 kilometers of high-speed rail at a total investment of $157 billion. Cost is, of course, king; a made-in-China high-speed network (top speed: 350 kilometers an hour) costs around $17 million to $21 million per kilometer. Comparable European costs: $25 million to $39 million per kilometer. So no wonder the Chinese are bidding for an $18 billion project linking London with northern England, and another linking Los Angeles to Las Vegas, while outbidding German companies to lay tracks in Russia.
On another front, even though it’s not directly part of China’s new Silk Road planning, don’t forget about the Iran-India-Afghanistan Agreement on Transit and International Transportation Cooperation. This India-Iran project to develop roads, railways, and ports is particularly focused on the Iranian port of Chabahar, which is to be linked by new roads and railways to the Afghan capital Kabul and then to parts of Central Asia.
Why Chabahar? Because this is India’s preferred transit corridor to Central Asia and Russia, as the Khyber Pass in the Afghan-Pakistani borderlands, the country’s traditional linking point for this, remains too volatile. Built by Iran, the transit corridor from Chabahar to Milak on the Iran-Afghanistan border is now ready. By rail, Chabahar will then be connected to the Uzbek border at Termez, which translates into Indian products reaching Central Asia and Russia.
Think of this as the Southern Silk Road, linking South Asia with Central Asia, and in the end, if all goes according to plan, West Asia with China. It is part of a wildly ambitious plan for a North-South Transport Corridor, an India-Iran-Russia joint project launched in 2002 and focused on the development of inter-Asian trade.
Of course, you won’t be surprised to know that, even here, China is deeply involved. Chinese companies have already built a high-speed rail line from the Iranian capital Tehran to Mashhad, near the Afghan border. China also financed a metro rail line from Imam Khomeini Airport to downtown Tehran. And it wants to use Chabahar as part of the so-called Iron Silk Road that is someday slated to cross Iran and extend all the way to Turkey. To top it off, China is already investing in the upgrading of Turkish ports.
Who Lost Eurasia?
For Chinese leaders, the One Belt, One Road plan — an “economic partnership map with multiple rings interconnected with one another” — is seen as an escape route from the Washington Consensus and the dollar-centered global financial system that goes with it. And while “guns” are being drawn, the “battlefield” of the future, as the Chinese see it, is essentially a global economic one.
On one side are the mega-economic pacts being touted by Washington — the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership — that would split Eurasia in two. On the other, there is the urge for a new pan-Eurasian integration program that would be focused on China, and feature Russia, Kazakhstan, Iran, and India as major players. Last May, Russia and China closed a deal to coordinate the Russian-led Eurasian Economic Union (EEU) with new Silk Road projects. As part of their developing strategic partnership, Russia is already China’s number one oil supplier.
With Ukraine’s fate still in the balance, there is, at present, little room for the sort of serious business dialogue between the European Union (EU) and the EEU that might someday fuse Europe and Russia into the Chinese vision of full-scale, continent-wide Eurasian integration. And yet German business types, in particular, remain focused on and fascinated by the limitless possibilities of the New Silk Road concept and the way it might profitably link the continent.
If you’re looking for a future first sign of détente on this score, keep an eye on any EU moves to engage economically with the Shanghai Cooperation Organization. Its membership at present: China, Russia, and four “stans” (Kazakhstan, Uzbekistan, Kyrgyzstan, and Tajikistan). India and Pakistan are to become members in 2016, and Iran once U.N. sanctions are completely lifted. A monster second step (no time soon) would be for this dialogue to become the springboard for the building of a trans-European “one-belt” zone. That could only happen after there was a genuine settlement in Ukraine and EU sanctions on Russia had been lifted. Think of it as the long and winding road towards what Russian President Vladimir Putin tried to sell the Germans in 2010: a Eurasian free-trade zone extending from Vladivostok to Lisbon.
Any such moves will, of course, only happen over Washington’s dead body. At the moment, inside the Beltway, sentiment ranges from gloating over the economic “death” of the BRICS nations (Brazil, Russia, India, China, and South Africa), most of which are facing daunting economic dislocations even as their political, diplomatic, and strategic integration proceeds apace, to fear or even downright anticipation of World War III and the Russian “threat.”
No one in Washington wants to “lose” Eurasia to China and its new Silk Roads. On what former National Security Adviser Zbigniew Brzezinski calls “the grand chessboard,” Beltway elites and the punditocracy that follows them will never resign themselves to seeing the U.S. relegated to the role of “offshore balancer,” while China dominates an integrating Eurasia. Hence, those two trade pacts and that “pivot,” the heightened U.S. naval presence in Asian waters, the new urge to “contain” China, and the demonization of both Putin’s Russia and the Chinese military threat.
Thucydides, Eat Your Heart Out
Which brings us full circle to Xi’s crush on Jeremy Rifkin. Make no mistake about it: whatever Washington may want, China is indeed the rising power in Eurasia and a larger-than-life economic magnet. From London to Berlin, there are signs in the EU that, despite so many decades of trans-Atlantic allegiance, there is also something too attractive to ignore about what China has to offer. There is already a push towards the configuration of a European-wide digital economy closely linked with China. The aim would be a Rifkin-esque digitally integrated economic space spanning Eurasia, which in turn would be an essential building block for that post-carbon third industrial revolution.
The G-20 this year was in Antalya, Turkey, and it was a fractious affair dominated by Islamic State jihadism in the streets of Paris. The G-20 in 2016 will be in Hangzhou, China, which also happens to be the hometown of Jack Ma and the headquarters for Alibaba. You can’t get more third industrial revolution than that.
One year is an eternity in geopolitics. But what if, in 2016, Hangzhou did indeed offer a vision of the future, of silk roads galore and night trains from Central Asia to Duisburg, Germany, a future arguably dominated by Xi’s vision. He is, at least, keen on enshrining the G-20 as a multipolar global mechanism for coordinating a common development framework. Within it, Washington and Beijing might sometimes actually work together in a world in which chess, not Battleship, would be the game of the century.
Thucydides, eat your heart out.