Western banks and companies need to engage in China's world-changing Silk Road project or face being left on the sidelines, writes Brian Caplen.

China’s One Belt, One Road (OBOR) initiative has many critics. India’s prime minister, Narendra Modi, has called it “a colonial enterprise” that threatens to bring “debt and broken communities in its wake”. India and Japan have launched the Asia-Africa Growth Corridor as an alternative. 

Without doubt OBOR – also known as the New Silk Road project – will have a huge impact on world development and trade, for better or for worse.

The initiative is 12 times the size of the Marshall Plan used to rebuild Europe after the World War Two and to which it has been compared. It includes 68 countries accounting for two-thirds of the world’s population and one-third of world gross domestic product. It connects China to western Europe via both land (One Belt) and maritime (One Road) routes. 

Financing this massive investment in infrastructure requires $1300bn from lenders such as China’s big four state-owned banks, which lent $90bn to connected projects in 2017; China Development Bank, which has set aside $900bn; the Asian Infrastructure Investment Bank; and the New Development Bank. China has also set up a $40bn Silk Road Fund.

Western institutions and companies face the usual dilemma in considering a Chinese-led venture. Do they join an enterprise they have misgivings about, or take a back seat? 

Unsurprisingly, the rationale behind OBOR has more to do with China’s strategic ambitions than it does about fostering overseas development – although it may end up succeeding on that front.

One of China’s aims is geopolitical, as illustrated by the new ports at Hambantota in Sri Lanka and at Gwador in Pakistan – the latter is part of the $55bn China-Pakistan Economic Corridor that has made the Indian government so uneasy. The other aim is to resolve China’s overcapacity problem in heavy industry in a way that keeps the domestic economy growing and prevents any social unrest that might result from a downturn. 

Given these non-commercial factors, Western business has been deliberating its strategy. But whatever reservations Western business leaders may have, OBOR is going ahead and is epoch making. The only sensible position is to get involved, insist on high standards and earn whatever profits are available. 

Chinese companies are taking full advantage by acquiring logistic companies and ports in OBOR countries. Business connections are being made, even in areas unconnected with infrastructure and construction such as digital advertising

Western business leaders should put their concerns aside and make the most of this opportunity. They may even improve its implementation in the process.

Brian Caplen is the editor of The Banker. Follow him on Twitter @BrianCaplen

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