Understanding The Maritime Silk Road and OBOR

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China is a country that is always looking to better its position in the global economic scenario. In 2013, the President of China announced a comprehensive plan to develop the Maritime Silk Road of the 21st Century.

This Maritime Silk Road of the 21st Century is part of a bigger project known as the “One Belt and One Road (OBOR)”. The OBOR, along with the Maritime Silk Road, also consists of the Silk Road Economic Belt which connects China with Central Asia, the Arabian Gulf and Europe by land. The Maritime Silk Road connects China with South East Asian countries, West Africa and reaches up to Mediterranean Sea.

The current Chinese leadership seems fairly optimistic in its effort to reshape the country’s global profile in a bold and creative way, a key element of which is to build up an economic system with China at the centre of it. Undoubtedly, the proposal of reviving the ancient Maritime Silk Road (MSR) demonstrates this innovative approach.

The 21st century Maritime Silk Road, together with the Silk Road Economic Belt, has emerged as a signature foreign policy initiative and is the first global strategy for enhancing trade and ‘fostering peace’  proposed by the new Chinese leadership under President Xi Jinping. The OBOR region includes three continents and sixty-six countries with a total GDP of trillion dollars, which is expected to cover more than 60% of the world’s population, about one-third of the world’s GDP, and about 25% of all the goods which are moved around the world.

China has called for up to USD 5 trillion in infrastructure investments over the next five years in the 65 countries along these routes. Ports in Sri Lanka, railways in Thailand, and massive roads and power plants in Pakistan are just a few examples of the planned investments. Speaking at the Belt and Road Forum in Beijing in May this year, Xi said, “In pursuing the Belt and Road Initiative, we should focus on the fundamental issue of development, release the growth potential of various countries, and achieve economic integration and interconnected development, and deliver benefits to all.”

The China-Pakistan Economic Corridor (CPEC), is a prime example of a combination of transport and energy projects under the OBOR initiative. CPEC includes the development of a major sea port at Gwadar in Pakistan, which offers China direct access to the Indian Ocean. If China ships more of its goods through Gwadar port, as opposed to the South China Sea, it will reduce transport times to Europe, and some of the world’s fastest-growing markets in Africa and the Middle East. To access the Gwadar port, China is also investing billions of dollars in upgrading and expanding the Karakorum highway through the mountains, on the border between China and Pakistan. By developing this route, China is creating a much shorter route to western markets.

How will this affect the maritime industry? Xeneta offers both perspectives and states,

They should not be worried:

  • Chinese government subsidies to build additional rail-freight capacity will end in 2020, and no follow-on private sector companies have indicated interest to finance any continued expansion.
  • Maersk CEO Soren Skou told The Economist that while trains may take away some future growth from ships, it would not affect not their existing business

They should be worried:

  • Kazakhstan’s national rail company, KTZ, says by 2020 it will have capacity for 1.7m containers annually to pass through the country between Europe and China.
  • A complete modernisation of the existing main three rail routes from China to Europe would provide capacity of 3 million TEU’s- similar to today’s ocean shipping, rates will be used to attract cargo, which would come at the expense of ocean and air.
  • The cargo shipped is hi-value cargo such as computers, frozen foods, alcohol, auto parts, and pharmaceuticals, most of which are currently ocean cargos; if these higher-rates cargos leave, the ocean carriers will have mega ships carrying low-priced cargos such as copper scraps – and China recently banned most other scrap items, which is already freeing-up east-bound capacity.

While it is still to early to determine the consequences of this project, what cannot be disputed is the fact that if it is to really take off, it will boost international trade. The repercussions will be strongly felt whether different industries in the maritime sector may benefit or fail to benefit from this ambitious project. What is undeniable though is the fact that the world will be keeping a close eye on the developments of this mammoth project and as and when it unfolds, it will change the face of global trade and economics.

Sea News Feature, November 14