Hurdles ahead along the “New Silk Road”

China was urged to re-open its commercial trade routes In October 2012 by Wang Jisi, a professor at Beijing University. This route connects China with the West. While “One Road, One Belt” was an initiative proposed by China’s President Xi Jinping. This initiative was proposed for China and its neighboring countries. This proposal was presented in 2013. But what did China hope to achieve? China aimed to increase its annual trade through trade with other countries over the next 10 years. This additional income were proposed to be around $2.5tn.

What is the current state of the project and how likely is it to succeed?

New Silk Road
New Silk Road

The privatization has helped strengthen the connection between the East and the West. DB Schenker started trains that ran weekly between China and Germany in the year 2011. The trains transported around 40,000 TEU containers. These containers are equivalent to 20 foot units. These units were carried from 2012 through to 2014.

The Port of Rotterdam received its first batch of containers in 2015 by train. This trip shortened the delivery time from 60 (sea) to around 14 days (by land). In the coming times, trains covering around 10,800 km from Chongqing in China to Duisburg in Germany are estimated to decrease the delivery time to around ten days. Companies are aiming to channel their product from Chinese factories to their customers in Europe through this route. One example of such a company can be found in HP. These trains take products from China to Europe while on the return journey these containers are loaded with luxurious items like cars.

The result of this is that this project would focus on one of the most important regions of the world. The “New Silk Road” project promises to be one of the most important projects of the world. This project focuses on an area that has around 70% of the entire world’s population. This area produces 55% of the global GDP and boasts around 75% of the energy resources of the world. This project has taken some major steps but this project is far from completion.

This project requires close collaboration of all the countries along the entire route. These are around 40 countries. China has started taking steps towards the completion of this project by signing partnership agreements with countries like with Russia, Kazakhstan and Belarus that are important to the completion of the project.

 

This project would require heavy financial investment estimated to be around $8tn between 2010 and 2020. The Chinese government has made several assurances like the $40bn Silk Road Fund for projects focused on the Central Asian region. Other such commitments are a $50bn Asian Infrastructure Investment Bank (AIIB) and a Bank led by the BRICS with commitment of around $10bn. It is believed that the Chinese are willing to commit $160bn to $300bn to back this project, while the China Development Bank and the Maritime Silk Road Bank are ready to back such measures.

 

But this Silk Road Project has some obstacles to overcome. These obstacles are both technical and regulatory in nature. China and Europe use a different standard of metrics while Belarus, Russia, Mongolia and Kazakhstan use a different gauge. The former is a 1435mm gauge while the latter is a 1520mm gauge. These differences in metrics might pose a problem when it comes to border clearances and customs clearance. The processes need standardization. A technological makeover might help, as the digitization might help. This project might be a step towards a free trade avenue.

 

All the countries that are involved in this project must analyze their contribution to the project. The infrastructure and the government policies required to complement the project and the finances required to kick start the initiative and other factors would need to be analyzed and planned. The strategic planning of this project is essential to its success because only through a well thought out business plan that can add value to the outlook of the project. The business plan would highlight how this project would add new businesses and new jobs and how all these would create value for all the countries involved.

 

The differences in the economic strength and the trade strengths need to be included in the business model. For example, China’s exports are better than most of its trading partners. Another factor that needs to be included is the seasonality of trade where the trades go up or down on a seasonal or cyclical bases.

The New Silk Road is also heavily depends on the governance rules. This would also include factoring in the fact that whether this project needs its own separate and independent organization. And whether this project can control the decision making of strategic goals in a bilateral or a multi-lateral the success of the New Silk Road depends as well on clear governance rules and mechanisms. This includes the answer to the question of whether this project requires an independent organization or can handle strategic decision-making and dispute resolution in a bilateral or multilateral way.

The incentive to get this right is huge. The participating countries will be able to tap in a new source of growth and need to balance spending with progress. Currently, China is carrying the lion share of the approach.

The private organizations and the private parties involved would pull up the growth of the project and would complement the investments relative to the growth in infrastructure. If this project sees out its completion it would reinvigorate the old Silk Road and would provide incredible growth opportunities for all the countries involved. This road can provide an avenue to 66% of the worlds’ middle class.

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