Silk Road Headlines_12th September, 2018

This week the Silkroad Headlines shall compare recent events to understand the outcome of research on the macro-economic impact of the BRI within Asia.

AidData analysed a dataset of geo-located projects in 138 countries financed by the Chinese government between 2000 and 2014, and ascertained that these projects help donor-countries boost their economy by increasing infrastructure. However, it pointed out the following negative externalities, e.g. local corruption, environmental degradation and lower levels of trade union participation. The paper states that there are indications that the recipient governments could be burdened with unsustainable debt. The paper closes by stating that the overall impact of BRI within its region is too complex to measure at this stage [Connective Financing: Chinese Infrastructure Projects and the Diffusion of Economic Activity in Developing Countries].

How is this theory put into practice? Recently, the Nepalese government has become less neutral vis-à-vis BRI at the expense of India. Both countries could reduce transportation costs by utilizing the (land) ports Lanzhou, Lhasa and Xigatse (Nepal). More so, Nepal could access the North-Asian region more efficiently through this partnership. Furthermore, both countries intend to integrate their own infrastructure (railroads) and power supply (electric grid). Lastly, both countries plan to conduct a feasibility study for a free trade agreement, thus endangering India’s monopoly position in Nepal [ Nepal Says China to Allow Access to Ports, Ending Indian Monopoly on Transit].

Critique within Pakistan is growing, which might freeze bilateral relations between Pakistan and China. The new government is scrutinizing the (non-) formal agreements with China on CPEC (China Pakistani and Economic Corridor). This might result in suspending the project for another five years. Allegedly, Chinese companies might be favoured over Pakistani companies via tax breaks. This critique gains in strength by the adhering adverse (macro-) economic developments of Pakistan. Foreign currency reserves of Pakistan went from $16 billion (2017) to $ 9,9 billion (2018). Also, the Pakistani rupee has been devalued more than once last year (In total: -/- 20 %). Pakistan is not keen on a bailout from the IMF, akin to the recent Argentinian bailout. Nonetheless, parties are optimistic about the future of the CPEC [Pakistan Official's Criticism of China's 'Silk Road' Projects Raises Worries].

Yogi Berra once stated: “In theory there is no difference between practice and theory. In practice, there is.” The complexity of BRI does not make it easier to understand. Therefore, I am pleased to ascertain, regarding the reporting on BRI, that the light that SRH spreads, functions as a beacon.

A. Cikmazkara