Table of Contents

iii Preface
Johannes F. Linn, Distinguished Resident Fellow, Emerging Markets Forum, Washington, USA
Leo Zucker, Project & Research Associate, Emerging Markets Forum, Washington, USA

1 Building the Belt and Road: The Impact on China and Central Asia
Hu Biliang, Dean, Emerging Markets Institute; Director, Belt and Road Research Institute, Beijing, China

1 1. Background: China and Central Asian Countries Are All Developing Countries
1 2. The Economic Development of China and Central Asian Countries Faces Constraints
2 3. Building the Belt and Road: Conducive to Easing the Economic Development Constraints facing China
and Central Asian Countries
3 4. Cooperation between China and Central Asian Countries is Conducive to Promoting Common Economic
Development
4 5. How to Promote and Build the Belt and Road in Central Asia
5 6. International Platforms to Promote Development in Central Asia
6 7. Cooperation with Major Countries to Jointly Promote the Development of the Belt and Road Initiative in
Central Asia

9 European Perspectives on the Chinese Belt and Road Initiative

Michael Emerson, Associate Senior Research Fellow, Centre for European Policy Studies, Brussels, Bel-
gium

9 1. Introduction
9 2. Transport Infrastructure for EU-China Trade
10 3. The EU’s Interests in Central Asia and the South Caucasus
11 4. Regulatory Issues in Central Asia and the South Caucasus
12 5. Trade Policy Aspects for Central Asia and the South Caucasus
13 6. Trade Policy and Legal Aspects in EU-Chinese Relations
14 7. China’s 16+1 Initiative
16 8. China’s Growing Strategic Presence in Europe
18 9. Conclusions
19 Annex: Issues Warranting Further Research
19 References

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21 Study on the Belt and Road Initiative in Central Asia and the South Caucasus: A Note on
the Indian Perspective
Rajat M. Nag, Distinguished Fellow, Emerging Markets Forum, Washington, DC

21 1. Introduction
21 2. India-Central Asia Relations
23 3. India’s Perspectives on the Belt and Road Initiative
28 4. India’s Possible Reactions
33 5. Conclusions

34 References
TABLE OF CONTENTS

35 The Belt and Road Initiative from a Russian Perspective

Evgeny Vinokurov, Chief Economist, Eurasian Fund for Stabilization and Development, Moscow, Russia

35 1. Introduction
36 2. Overview of the BRI Corridors through Russia, Central Asia, and the South Caucasus
38 3. Russia’s Interests
39 4. The Need for National and Regional Institutional Capacity to Manage BRI-related Policy Coordination,
Economic Development, and Investments
41 5. Conclusion
41 References

43 U.S. Perspectives on China’s Belt and Road Initiative in the South Caucasus and Central
Asia
S. Frederick Starr, Chairman, Central Asia-Caucasus Institute and Silk Road Studies Program, Washington,
USA

49 References
 Preface

Johannes F. Linn and Leo Zucker

The Belt and Road Initiative (BRI) is a development a success (or a failure, as the case may be). This Working
program undertaken by China, beginning in 2013, with Paper compiles the five background notes prepared by
a global reach and potentially far-reaching economic and experts from these outside powers. We believe they con-
geopolitical implications. Much has been written about tribute very helpful insights for all stakeholders in the CASC
various aspects of the BRI since its inception, with a lot region as they try to gain a comprehensive understanding
of speculation on China’s motives in launching the initia- of the potential benefits and risks of the BRI.
tive, its current and expected future scale, and its possible Based on these ten background notes and on addi-
impact on participant countries. Most of the literature on tional research, we have prepared an overview paper which
this topic has been contributed by experts and journalists provides an assessment of what we know about the BRI in
from industrialized countries and based on the limited infor- the CASC region, including its potential benefits and risks
mation available on the BRI at a global level. Little has been (as seen from the perspective of participating countries),
written by experts from the participating countries based how outside partner countries are likely to engage with it,
on country- and region-specific information; an “inside-out” what policy responses are appropriate, and what issues
view of the BRI is needed.1 could be usefully addressed by future research.
The Emerging Markets Forum, with financial support
from the Swiss National Bank, has undertaken a study of
the BRI’s impact on the eight countries of the Central Asia
and South Caucasus (CASC) region with the goal of filling
this gap. It has commissioned five experts in the region to
prepare notes on the BRI in the authors’ respective coun-
tries. These notes are compiled in an Emerging Markets
Forum Working Paper.
The Emerging Markets Forum has also commissioned
a set of five background notes on the perspectives of five
outside powers (China, Russia, the European Union, India
and the United States of America) on the BRI in the CASC
region. Most countries in the region have a multi-vector
approach to their external relations and hence would
expect to rely on multiple partners to help advance their
national economic and political agendas. Moreover, it is
clear that, for the best possible impact of the BRI, cooper-
ation not only among the countries of the region and with
China, but also with other partners—bilateral and multi-
lateral—will be needed. It is thus important for the CASC
countries to understand the motivations and concerns of
the outside powers that may have a role in making the BRI

1. See the comprehensive annotated bibliography compiled for this

current study: http://www.emergingmarketsforum.org/wp-content/up-
loads/2018/10/BRI-Annotated-Bibliography-2018-10-19.pdf

iii
 Building the Belt and Road: The Impact on
China and Central Asia

Hu Biliang

1. Background: China and Central Asian (82 percent), while the Kyrgyz Republic and Tajikistan
Countries Are All Developing Countries have reached only 11.4 and 7.5 percent of world average,
Among the 185 countries for which the World Bank respectively.
presents per capita GDP in current US dollar prices, China This demonstrates that China and the five Central
and the five Central Asian countries rank relatively low.1 Asian countries are all developing countries, among which
Take 2017 as an example: Kazakhstan, the group leader, Kazakhstan, China and Turkmenistan are middle-income
has a per capita GDP of only US$8,838 and ranks 71st in developing countries, while the other three countries are
the world; China lies second among the six countries with low-income developing countries. Therefore, the priority
US$8,827 and ranks 72nd globally; Turkmenistan ranks of these six countries is to promote development, espe-
80th with US$7,356. As for the other three countries, there cially economic development, and to improve the income
is a huge gap. The per capita GDPs of these countries are levels and living standards of their populations as quickly
just over US$1,000, or even less than US$1,000 (Table 1). as possible. In particular, because of their comparatively
According to the World Bank, the two highest-ranked lower income levels, Uzbekistan, the Kyrgyz Republic and
countries in terms of GDP per capita in 2017 were Luxem- Tajikistan rank among the world’s 35 poorest countries.
bourg and Switzerland, at US$104,103 and US$80,190,
respectively. The world average GDP per capita was 2. The Economic Development of China and
US$10,714 in the same year. We find that the per capita Central Asian Countries Faces Constraints
GDPs of China and the five Central Asian countries have As the largest economy in the world for a long time,
not reached the world average. Kazakhstan and China China once led the world’s economic development. The
have reached just over 80 percent of the world average five Central Asian countries have also had a glorious his-
tory, especially in the nearly 500 years around 1000 AD,
1. Afghanistan is not included in Central Asia here, although some ob- which is known as the “Golden Age” of Central Asia. At
servers count this country as belonging to Central Asia, and indeed a
persuasive case can be made for Afghanistan to be included as a part that time, Central Asia led in trade, manufacturing, tech-
of the Central Asia region. The same cannot be said for Pakistan, mainly nology, and finance. Later, due to the opening of sea
because both China and Pakistan have already made considerable efforts
to build the China-Pakistan Economic Corridor, with China having already routes from Europe to the East, coupled with religious
spent a great deal of money, and a separate economic corridor is already
established. Thus, under the Belt and Road Initiative it would not be not conflicts and other factors, the “Golden Age” of Central
suitable to include Pakistan in the definition of the Central Asia region.
Asia gradually faded.

Table 1: Level and Global Ranking of China Therefore, in terms of economic development, China
and Five Central Asian Countries by GDP Per and the five Central Asian countries have a very glorious
Capita past, and they have very strong desires to achieve a great
Current Global revival of nationhood. However, with historical develop-
US$ Ranking ment, the situation has undergone dramatic changes.
Kazakhstan 8,837 71 Currently, economic development in both China and the
China 8,827 72
Turkmenistan 7,356 80
Uzbekistan 1,504 150
Kyrgyz Republic 1,220 154
Tajikistan 801 164
World Average 10,714
Source: World Bank

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five Central Asian countries has been subject to some 3. Building the Belt and Road: Conducive to
serious constraints. Easing the Economic Development Constraints
facing China and Central Asian Countries
2.1. Constraints to Economic Development in Central As China and the five Central Asian countries have
Asian Countries increasingly recognized the above-mentioned constraints,
For the five Central Asian countries, to main constraints they have begun to realize the importance and value of
to economic development currently exist. One is the region’s strengthening cooperation. If the five Central Asian coun-
poor transportation and communication infrastructure. tries strengthen cooperation with China, the economic
Kazakhstan and Uzbekistan are relatively better endowed development constraints facing the two sides mentioned
with roads, while the other three countries are much less above can be alleviated to a large extent, and some
so. For Turkmenistan, the situation is extremely bad. As aspects of these constraints can be completely eliminated.

for railways, Kazakhstan and Uzbekistan enjoy better In theory, this should be the case. What is the reality? Let
conditions than other three countries. In term of Internet us look at some specific facts.
HU BILIANG

access, the proportion of people using the Internet is very

low in Central Asia, and particularly in the Kyrgyz Republic 3.1. China Helps Central Asia Countries Build and
and Uzbekistan, leading to higher trade costs. The other Improve Transportation Infrastructure
constraint is the region’s underdeveloped manufacturing Under the framework of Belt and Road cooperation,
industry. Uzbekistan has some small joint ventures in the China and Central Asian countries have completed some
production of automobiles, trucks and buses, and Kazakh- important transportation infrastructure projects, such as
stan and Uzbekistan have a small number of ventures for the Wahdat-Yovon Railway (Wahdat-Yovon), the first rail-
chemical and pharmaceutical production, as well as some way built by Chinese railway construction enterprises in
production of textiles, cement, aluminum, wine, dairy, and Central Asia—and in extremely difficult “high mountain”
so on. However, on the whole, the economic development areas of central and southern Tajikistan, no less. After
model of Central Asian countries is still based on exporting starting construction on May 15, 2015, it was successfully
primary products and importing manufactured goods. opened to traffic on August 24, 2016 after just 15 months.
The first railway tunnel built by Chinese companies in Cen-
2.2. Constraints to China’s Economic Development tral Asia was Uzbekistan’s Angren-Pap railway tunnel. It
In China’s case, a very critical economic develop- was also opened in June 2016.
ment constraint is the domestic supply of certain natural
resources, especially crude oil, natural gas, iron ore, soy- 3.2. The Belt and Road Connects Central Asia Coun-
beans, and so forth. In China, domestic production of tries with the Outside World
these commodities cannot meet current demand. There- Under the framework of BRI international cooperation,
fore, China must import from the international market every Kazakhstan and China have jointly established a logistics
year in very large quantities. In 2017, China imported 420 park in Lianyungang City, Jiangsu Province, China. In this
million tons of crude oil while domestic crude oil produc- way, Kazakhstan has, in effect, a port in China, which
tion was only 190 million tons; imports thus accounted allows it to transport its goods through the Yellow Sea to
for 68.9 percent of total demand. In the same year, China South Korea, through the East China Sea to Japan, and
consumed 237.3 billion cubic meters of natural gas, of through the South China Sea to Southeast Asia and other
which 83.8 billion cubic meters were imported, accounting regions. Kazakhstan has also cooperated with China to
for 35.3 percent of annual consumption. Soybean imports build the Khorgos Economic and Trade Zone in Khorgos
accounted for an even higher proportion: China imported on the Sino-Kazakh border, thus promoting trade with
95.42 million tons of soybeans from the international China and with other countries through China.
market, accounting for 86.3 percent of the total domestic In the meantime, China is preparing to build the
consumption of 110.59 million tons. In 2017, China’s net China-Kyrgyz Republic-Uzbekistan Railway and the Chi-
import of iron ore reached 1.07 billion tons, accounting na-Kyrgyz Republic-Tajikistan-Afghanistan-Iranian Railway.
for 46.5 percent of the total demand of 2.3 billion tons Once these two railways are completed, the landlocked
that year. countries of Central Asia will be more closely linked to the
 3

outside world, which will greatly promote their trade and D line natural gas pipeline, which is still under construction,
industrial development. starting at the Turkmenistan-Uzbekistan border and cross-
ing Tajikistan and the Kyrgyz Republic to Wuqia County in
3.3. China Has Built Industrial Parks and Agricultural Xinjiang. The designed gas transmission capacity of line D
Parks in Central Asian Countries is 30 billion cubic meters per year.
In Central Asia, China advances international capacity As for petroleum pipelines, the China-Kazakhstan
cooperation, builds industrial parks and promotes modern petroleum pipeline starts in Atyrau in western Kazakhstan
agriculture. China has set up the US$2 billion China-Ka- and extends to Alashankou in China, a distance of 2,800
zakhstan Production Capacity Fund for the purpose of miles. Its designed annual oil transmission capacity is 20
developing high-quality production capacity in Kazakhstan. million tons. It operates well right now.
China and Uzbekistan have jointly established Pengsheng Evidently, to China, the value and significance of Cen-

Industrial Park, which not only promotes the development tral Asian countries are mainly reflected in energy exports.
of processing industries in Uzbekistan, but also provides Currently, natural gas imports from Central Asia account

BUILDING THE BELT AND ROAD: THE IMPACT ON CHINA AND CENTRAL ASIA
more than 1,000 new jobs for local people and 20 per- for about 60 percent of China’s total gas import volume,
cent more tax revenues for the state budget. Additionally, and China’s oil imports from Kazakhstan have reached
Chinese private-owned companies have established a about 100 million tons. Therefore, China is now the larg-
wholly-owned Asian Star Agricultural Industrial Park in the est energy export market for Kazakhstan, Turkmenistan
Kyrgyz Republic to promote the development of modern and Uzbekistan.
agriculture in Central Asia.
4. Cooperation between China and Central
3.4. Chinese Investment in Central Asian Countries Is Asian Countries is Conducive to Promoting
Increasing Common Economic Development
By the end of 2016, China’s investment in Central Asia Due to different natural endowments and states of eco-
had reached US$9.14 billion, with the largest investment nomic development, economic cooperation between China
in Kazakhstan of US$5.43 billion, accounting for 59.4 per- and Central Asian countries under the framework of the
cent of the total investment stock. China has become the Belt and Road Initiative provides mutual benefit. It builds on
second-largest source of investment in Kazakhstan, and the complementarity of natural resource endowments and
its investment has greatly exceeded Russia’s; China is also seeks to develop complementary economic structures,
the largest investor in Turkmenistan, the Kyrgyz Republic so that all countries can ultimately overcome their own
and Tajikistan. constraints and achieve shared economic development.
By strengthening trade and investment cooperation with
3.5. Central Asian Countries Provide Petroleum and Central Asian countries, China is able to obtain crude oil
Natural Gas for China and natural gas to meet its urgent demands (China is the
China needs to import a large amount of both petro- largest commodity importer for every Central Asian country
leum and natural gas, so China has built a relatively except Turkmenistan); by strengthening economic coop-
complete energy pipeline network in Central Asia, includ- eration with China, Central Asian countries can obtain the
ing natural gas pipelines and oil pipelines. The natural gas Chinese goods, investment, infrastructure improvements
pipelines include the China-Central Asia natural gas pipe- and industrial development they need. Additionally, due to
lines A and B, which run from the Turkmenistan-Uzbekistan the geographic proximity of China and Central Asia, further
border via Uzbekistan and Kazakhstan to Alashankou in transport infrastructure improvements will lower transport
Xinjiang Autonomous Region. The total length is about costs, which will greatly boost the economic development
10,000 kilometers and the annual gas transmission capac- of China and Central Asia and improve the living standards
ity is about 30 billion cubic meters. Both pipelines mainly of their populations.
carry Turkmen gas; the C line, which also originates at
the Turkmenistan-Uzbekistan border but enters China at
the Khorgos port in Xinjiang, has a designed annual gas
transmission capacity of 25 billion cubic meters. Line C
mainly carries Uzbek gas. These three natural gas pipe-
lines have started gas transmission. In addition, there is a
 4

5. How to Promote and Build the Belt and Road Generally, China is the one that invests the most, and other
in Central Asia countries usually invest less than half.

5.1. The Priorities and Procedures of International 5.2. Main Criteria and Basic Principles for Selecting
Cooperation on the Belt and Road Belt and Road Projects
From the perspective of institutional frameworks In choosing Belt and Road partner countries or Belt
and promotion procedures, the starting point of Belt and Road projects, the most crucial criterion is that the
and Road international cooperation lies in the signing decisions are based on the actual needs of both parties,
of an intergovernmental cooperation document, the that they are conducive to the complementary develop-
Memorandum of Understanding (MOU), between a ment of both sides, with mutual benefit so as to create a
country that is willing to participate in cooperation and win-win situation. Therefore, the design of and decision on

China. Then on this basis, the two parties will check their any project is based on one basic principle, that is, the prin-
respective development strategies and plans to identify ciple of “Consulting (planning) together, Building together
HU BILIANG

investment projects of common interest. After in-depth and Sharing together.” In short, actions are discussed,
discussion on the projects, a very detailed investment negotiated and decided jointly by the parties instead of
and construction plan will be proposed and carried out by one country being in the lead and other countries following.
Chinese enterprises and enterprises from or governments
of relevant countries. 5.3. Managing Debt Risk
So far, with the exception of Turkmenistan, Central For the government, there are many considerations
Asian countries have signed intergovernmental cooperation for choosing a construction project, including from the
documents on building the Belt and Road jointly with China. perspective of politics and social development; however,
They also engage in substantive discussions with the aim for enterprises, the priority consideration is a project’s
of reaching consensus on how to link BRI investments financial viability. This means that the enterprises involved
with their national development strategies. For example, need to consider whether there will be enough return from
based on such in-depth discussions, China’s Belt and the completed project to repay any debt and make a profit.
Road Initiative has already been linked with Tajikistan’s Through field research on the Kyrgyz Republic and
“2030 National Development Strategy,” the Kyrgyz Repub- Kazakhstan, I found that Chinese companies have a strong
lic’s “Stable Development Strategy,” Uzbekistan’s “Action ability to control debt risk, both for the country of proj-
Strategy” and Kazakhstan’s key development strategies. ect construction and for China’s construction enterprises.
In this way, China and its Central Asian partners have For example, 80 percent of new highways in the Kyrgyz
reached a collective understanding and identified some Republic are built by China Communications Construction
projects of common interest for which construction has Company Ltd. (CCCC), and when this company chooses
begun, and is some cases has already been completed. to build a project, the first consideration is to ensure appro-
In the case of Turkmenistan, although it has not signed priate funding for the project. The funding sources for the
a formal agreement with China on the co-construction project are typically diversified, with many projects relying
of the Belt and Road, the country has also conducted on grants, including Chinese government donations and
in-depth discussions on Belt and Road construction and grants from other governments, as well as from interna-
its Revival of the Ancient Silk Road strategy, and linked tional financial institutions. In Kazakhstan, many projects
and selected projects. solve the funding problem via a PPP model, as well as
Once the projects of common interest are determined, through the participation of various partners to mitigate
it is necessary to ensure their smooth implementation, debt risks.
including in such areas as security and funding. There is Some investment projects come from private
no doubt that adequate funding is a crucial issue. Without companies. For example, Asian Star, an agricultural
it, it is usually impossible to start a construction project. development project involving investment by a Chinese
company in the Kyrgyz Republic, is a private enterprise
investment project. All investments for it come from private
owners who are currently operating it profitably.
 5

6. International Platforms to Promote consists mostly of SCO members. Therefore, SCO member
Development in Central Asia states are the main backbone for the construction of these
economic corridors. From this point of view, using the SCO
6.1. Shanghai Cooperation Organization (SCO) as the platform to actively promote the construction of the
There were at least two important and historically Belt and Road Initiative is not only of great significance, but
significant developments at the SCO Summit held in also highly feasible.
Qingdao this year: first, heads of state of India and Paki- Finally, the SCO has attached great importance to
stan attended the conference for the first time since their security cooperation from the beginning, sparing no efforts
countries joined the SCO in June 2017; second, Chinese to focus on the “three evil forces” of terrorism, extrem-
President Xi Jinping highlighted the importance of the SCO ism and separatism. It has held regular joint anti-terrorism
countries’ active participation in Belt and Road cooperation. drills such as the “Peace Mission” over many years. Hence,

Therefore, the SCO will be a very important international member states of the SCO currently have good safeguards
platform in the future and will play an increasingly important in the domains of defense security, law enforcement secu-

BUILDING THE BELT AND ROAD: THE IMPACT ON CHINA AND CENTRAL ASIA
role in promoting economic cooperation and development rity, information security, and so forth. This in turn has laid
between China and Central Asian countries. a good foundation for the implementation and promotion
The first reason why the SCO is of great significance of Belt and Road cooperation. Security and humanitar-
to both Belt and Road cooperation and the development ian cooperation within the SCO therefore provide a good
of Central Asia is the large overall demographic size of safeguard for advancing the Belt and Road agenda and
the SCO. According to statistics from the World Bank, in promoting the development of Central Asia.
2016, the total population of the eight official members of
the SCO was 3.1 billion, accounting for 67 percent of the 6.2. Eurasian Economic Union (EEU)
total population of the countries along the Belt and Road The relationship between the EEU and the the Belt
(referring to 64 countries not including Palestine); their and Road Initiative is very close. If the two sides are able
combined GDP is US$15.2 trillion, accounting for 65 per- to establish a good cooperative relationship, it will play a
cent of that of all 64 BRI countries. In other words, the SCO very positive role for both; if they cannot establish a good
basically accounts for two-thirds of the BRI’s total popula- relationship, it will be extremely disadvantageous to the
tion and GDP. Obviously, if the eight SCO countries were development of both.
not to participate actively in the Belt and Road Initiative, the From China’s perspective, two of the six corridors of
implementation of the BRI would face serious problems. the Silk Road Economic Belt advocated by China pass
Secondly, in terms of regional distribution, the current through EEU countries. If the construction of the Silk
eight member countries of the SCO are distributed across Road Economic Belt does not establish good cooperative
the regions of East, Central and South Asia, as well as relations with the EEU and its member states, it will be
North Asia and Northeastern Europe thanks to Russia’s impossible to promote these corridors. From the EEU’s
membership. As a key role, therefore, the eight countries perspective, the current economic strength of the EEU
maintain peace and stability and promote the development countries is limited. If they are to build an integrated,
of the Asian region, as well as parts of Eastern Northern strong organization like the European Union, cooperation
Europe. In this region, if Belt and Road cooperation is in trade and investment with China and its Belt and Road
able to take the lead effectively, it will improve connectivity, Initiative will be essential. Hence, one would expect that
prosperity and the influence of the SCO member coun- the member countries of the Eurasian Economic Union
tries throughout. Judging from the current situation, except will seek cooperation with China under the Belt and
for India, the other seven countries have not only signed Road Initiative.
relevant agreements with China on the implementation of When China initially proposed the Belt and Road Ini-
Belt and Road cooperation, but also have participated in tiative, Russia may have had some concerns, but Russia
relevant construction projects actively. The overall out- soon realized the positive significance of the Belt and Road
look for continued BRI cooperation by SCO members Initiative as a factor that would help accelerate the inte-
is promising. gration of the EEU. Thus, on May 8, 2015, President Xi
In addition, the country coverage of the six land-based Jinping and President Putin signed the “Joint Statement of
economic corridors2 under the Belt and Road framework the People’s Republic of China and the Russian Federation
on the Construction of the Silk Road Economic Belt and
2. Except for the China-Indochina Peninsula economic corridor.
 6

the Construction of the Eurasian Economic Union.” The well. It will be based on mutually beneficial cooperation
joint statement clearly stated that Russia supports the con- and mutual promotion.
struction of the Silk Road Economic Belt and is willing to
work closely with China to promote the implementation of 6.4. International Organizations
the initiative. China also supports Russia actively in pro- Attaching great importance to the role of international
moting the integration process within the framework of the organizations in promoting the construction of the Belt and
Eurasian Economic Union. Road Initiative, China has signed Memoranda of Under-
This joint statement contained the following key standing (MOU) on cooperation Belt and Road cooperation
elements for intensified cooperation: (1) expansion of with more than 30 international organizations, including
investment and trade cooperation between China and the the World Bank Group (WBG), Asian Development Bank
EEU countries to promote economic growth and expand (ADB), Asian Infrastructure Investment Bank (AIIB), Euro-

employment; (2) implementation of large-scale investment pean Bank for Reconstruction and Development (EBRD),
cooperation projects to jointly build industrial parks and European Investment Bank (EIB), and BRICS New Devel-
HU BILIANG

cross-border economic cooperation zones; (3) implemen- opment Bank (NDB). Other international organizations
tation of infrastructure development projects; (4) research include institutions within the United Nations system, such
on promoting the establishment of a China-EEU free trade as the United Nations Development Programme (UNDP),
zone; (5) creation of a good environment for the devel- the United Nations Industrial Development Organization
opment of small and medium-sized enterprises; and (6) (UNIDO), the United Nations Conference on Trade and
expansion of financial cooperation. Development (UNCTAD), the United Nations Environment
This shows that China and the Belt and Road Initiative Programme (UNEP), the World Health Organization (WHO),
are expected to play a very positive role in promoting infra- the World Intellectual Property Organization (WIPO), and
structure construction, trade, investment and industrial so forth.
development in the Central Asian members of the EEU, Judging from the current situation, this cooperation is
as well as in increasing employment opportunities. At the still at the initial phase, consisting mostly of signing MOUs
same time, with the high degree of interdependency and and expressing positive cooperation intentions. Specific
the potential for mutual benefit and win-win situations, the cooperation projects are still being prepared. Therefore, it
integration and further development of the EEU will also is as yet difficult to assess the extent and potential positive
play a supporting role in promoting the Belt and Road impact of the engagement of multilateral agencies in sup-
Initiative advocated by China. port of the Belt and Road Initiative generally, and in Central
Asia specifically. However, it is clear that China actively
6.3. Central Asia Regional Economic Cooperation supports the participation of international organizations
(CAREC) Program in the Belt and Road Initiative, and more generally also
China attaches great importance to CAREC, because actively supports the work of international organizations in
its member countries (Afghanistan, Azerbaijan, Georgia, cooperation with China to promote economic and social
Kazakhstan, the Kyrgyz Republic, Mongolia, Pakistan, development in Central Asia.
Tajikistan, Turkmenistan and Uzbekistan) and CAREC’s
traditional cooperation priorities (transportation, energy 7. Cooperation with Major Countries to Jointly
and trade cooperation) are highly consistent with those of Promote the Development of the Belt and Road
the Belt and Road Initiative.Therefore, with the continuous Initiative in Central Asia
advancement of the Belt and Road Initiative, CAREC will Europe is an important export destination for China
play an increasingly important role. and hence a major reason to promote the Belt and Road
China has already supported the establishment of the Initiative and the trade development it will facilitate. The
Central Asia Regional Economic Cooperation Institute destinations of the China-Europe Railway Express are
in Xinjiang Autonomous Region. In the future, it may spread across 48 cities in 15 countries, all European.
undertake more research and training tasks linked to Belt Clearly, China sincerely hopes to work closely with EU
and Road construction, and more and more construction countries to promote the Belt and Road Initiative. Yet so
projects may rely on CAREC; meanwhile, the Belt and far, the effect is unsatisfactory, and no EU countries have
Road Initiative will also provide the impetus for better signed Belt and Road cooperation agreements with China.
development of CAREC, and make it more dynamic as China will continue to promote this important cooperation
 7

goal. Considering that China is a large market, one would

expect that the EU will gradually change its attitude and
strengthen cooperation with China on the Belt and Road
step by step. The reason is very simple: not only will this be
conducive to promoting the economic development of the
EU, but it also will be conducive to promoting the EU’s goal
of greater integration internally and internationally.
For Russia, there is currently no obstacle to Belt and
Road cooperation, because President Xi Jinping and Pres-
ident Putin have reached a consensus in this regard and
signed a cooperation agreement. More importantly, Russia

and Central Asian countries have obtained numerous tan-
gible benefits from the Belt and Road Initiative since China

BUILDING THE BELT AND ROAD: THE IMPACT ON CHINA AND CENTRAL ASIA
proposed it five years ago.
As for cooperation with the United States on the Belt
and Road Initiative, China shows a positive and open
attitude. If the United States is willing to cooperate, China
will agree. Therefore, cooperation will depend mostly on
the attitude of the United States, not China.
 European Perspectives on the Chinese Belt
and Road Initiative

Michael Emerson

1. Introduction between the EU and China. Both routes are solidly estab-
This paper addresses the interests of the EU and its lished thanks to huge investments in ships, aircraft and
member states in the Chinese Belt and Road Initiative tailored logistic facilities at each end. The sea routes serve
(BRI) as a transport infrastructure project facilitating trade the relatively low-value cargoes that do not perish on the
between the EU and China—specifically its role in rela- way. The air routes serve to quickly deliver very high-value
tion to Central Asia and the South Caucasus—and as a or perishable commodities. The sea route component of
component of China’s increasing overall strategic presence the BRI embraces various port facilities on the way, includ-
in Europe. ing the Chinese-owned Piraeus port near Athens. The sea
The overall picture is far more complex and qualified routes are served by massive and cost-effective container
than the political proclamations coming from the Chinese ships that carry the bulk of trade volumes. The air freight
side about a ‘win-win’ proposition for all, with several business has the characteristic of great flexibility, arranging
cross-cutting arguments coming into play. all possible point-to-point connections that trade flows may
A pertinent survey of mainly Western experts’ opinions justify. EU-China trade is currently worth about US$560-
about the BRI has recently been undertaken by the journal 600 billion annually, with a physical weight of about 90-100
International Economy. A few major themes dominated the million tons. Of this, only 1 million tons were sent by rail and
responses. China is seen as motivated by a convenient nearly 2 million by air freight in 2016, thus making up only
combination of domestic economic concerns (to develop a very marginal 1 percent and 2 percent of the total for rail
its Western regions and export construction services and and air freight, respectively. Around 80 percent of this traffic
related products such as steel and cement where it has is containerized. Total EU-China trade sees over 12 million
excess capacity) and its interests in political and economic containers (forty-foot equivalent units—FEUs) transported,
power projection broadly across the Eurasian landmass of which only about 1.5 percent are transported by rail.
and beyond. For the recipient countries there are risks of The technical and regulatory limitations on the growth
accumulating debt burdens unmatched by adequate proj- of rail transport between China and Europe are several. The
ect rates of return. This can link to backlash by recipient most conspicuous is the need to cope with differences in
governments and populations wary of increasing Chinese width of rail gauges, namely 1,435 mm in China and most
influence, of which there are examples already emerging of Europe versus 1,520 mm in the former Soviet Union.
(Ang et al. 2018). This is overcome technically with various techniques, but
This paper proceeds with a review of the most import- at a cost of time and money. Other regulatory differences
ant chapters of European interests and concerns, starting concern, for example, the length of trains, axle loads, cou-
with the relatively technical matter of transport infrastruc- pling systems, electrification standards, tariffs, etc., all of
tures and ending with geopolitical matters. which are deemed even more troublesome than the gauge
differences (Vinokurov & Tsukarev 2017).
2. Transport Infrastructure for EU-China Trade Road routes do not suffer from the particular prob-
By contributing to the build-up of intercontinental lem of rail gauges, but road haulage over intercontinental
Eurasian transport infrastructure, the BRI is of interest to distances is otherwise hopelessly uneconomic and cli-
European business, but only for a certain niche of trans- mate-polluting compared to sea or rail transport. The
port services in comparison with what already functions number of organized rail routes from China to the EU has
by sea and air freight. Both sea and air routes are wonder- been increasing and the number of containers carried on
fully simple, with no frontier formalities at all to perform in

9
 10
Table 1: Container Trains’ Frequency of Departure and Volume of Freight Traffic along
PRC-Europe-PRC Routes, 2011-2020
2011 2012 2013 2014 2015 2016 2020 (est.)
Volume of Container Traffic (thousand FEU) 7 14 10 22 40 74 200-250
Number of Train Departures per Week (units) 0.3 1 2 6 16 33 100
Source: Vinokurov & Tsukarev (2017)
Note: FEU = Forty Foot Equivalent Unit

these routes has been increasing fast from a very small or products and machinery, whose transit through Russia
previously practically non-existent base. has been blocked. Ukraine therefore is keenly interested
The actual rail and multimodal routes from China to in the trans-Black Sea-Caucasus-Caspian Sea-Central
Europe follow three basic corridors. The first and most-used Asian route, which Georgia, Azerbaijan, Kazakhstan and
one is logistically relatively simple: China-Kazakhstan-Rus- China are also keen to develop. Transport infrastructure

sia-Belarus-Poland. However, the Belarus-Poland crossing investments are being made or planned in ports and rail
point has limited capacity, and would need heavy invest- and road connections across the South Caucasus. A new
MICHAEL EMERSON

ment to increase capacity substantially. Baku-Tbilisi-Kars railway line has been completed. There
The second one is much more complicated, with are port developments in Azerbaijan on the Caspian Sea
land-sea multimodal connections as well as more frontier and in Georgia on the Black Sea. Georgia, Azerbaijan and
crossings: China-Kazakhstan-Caspian Sea-Caucasus-Tur- Kazakhstan have signed a Trans-Caspian International
key/Black Sea. Transport Route agreement (TITR), as a result of which the
This route has to compete with a third route, a sea-land China Railway International Group is expressing interest in
hybrid, which goes by sea from China to the Greek port investing in the proposed new Anaklia port on the Geor-
of Piraeus, where it connects with the ‘Balkan Silk Road’ gian Black Sea coast.
by road or rail up into core European markets. This saves
a considerable amount of transit time for trade between 3. The EU’s Interests in Central Asia and the
China and Europe: Shanghai to Hamburg takes 36 days, South Caucasus
whereas Shanghai to Piraeus can be 10 days less. The EU has structured cooperative relations with all
A valuable summary of the capacity and current cost of the states of the South Caucasus and Central Asia. The
seven routes—five through Russia, two through the South closest relationship is with Georgia, by virtue of its Asso-
Caucasus and one through Iran—has been assembled by ciation Agreement and Deep and Comprehensive Free
Vinokurov & Tsukarev (2017). The story in brief is that the Trade Area (DCFTA) with the EU. This was due to be the
simplest Shanghai-to-EU route through Russia via Vladivo- case also with Armenia, but at the last minute before the
stok costs US$2,200 per TEU. The route from Urumqi in signing in 2013 the Armenian President was pressured by
Western China to the EU via Kazakhstan and Russia costs the Russian president into swapping horses and joining
US$4,300, and the multimodal route across the Caspian the EAEU instead. However, Armenia was able to make a
Sea, South Caucasus and Black Sea costs US$9,000. compromise agreement with the EU in 2018. Azerbaijan for
The EU views these routes as having contradictory its part seeks a new agreement with the EU, and already
attractions and drawbacks. The Russian route is the most has strategic oil and gas pipelines and rail connections
attractive land route economically for geographic-logistic extending across Georgia heading towards EU markets.
reasons. However, the more southerly route, and of course The EU also sustains a Central Asia ‘Strategy,’ whose
the sea routes, have the interest of geopolitical and strate- title may be an exaggeration, which nevertheless provides
gic diversification away from any reliance on transit through as common framework for cooperative relations with all
Russia. five states of the region. This involves dialogue over many
Since recent years have been characterized by acute policy questions, two of which merit special mention.
geopolitical tensions between the EU and Russia, leading There is a set of bilateral human rights dialogues with all five
to various sanctions imposed by both sides, the case for states, which are not easy matters, but still allows profes-
route diversification is a serious one. In the particular case sional contacts with both official legal institutions and civil
of Ukraine, epicenter of current tensions, there have actu- society organizations where they exist (Kazakhstan and
ally been transit limitations imposed by Russia on Ukraine’s the Kyrgyz Republic). It goes without saying that neither
trade with Central Asia. Ukraine has important and bulky Russia nor China extend their presence in the region to
trade volumes with Kazakhstan, in particular for food interest in such matters.
 11

The EU has also consistently tried to encourage program brings together transport officials and experts
regional cooperation between the five states and has con- from Bulgaria, Romania, Moldova, Ukraine, the three
vened and moderated several meetings of all five states South Caucasus states and four Central Asian states (all
together. Water supply is a natural and desperately import- except Turkmenistan), Turkey and Iran. It has operated
ant agenda item for regional cooperation in Central Asia. continuously since its founding conference in 1993, and
Regional cooperation has never really progressed until now has a permanent secretariat in Baku. There are four sec-
due to tension between Kazakhstan and Uzbekistan over toral working groups (Trade Facilitation, Road, Rail and
ideas about regional leadership. In addition, there was a Maritime Transport), which are responsible for identification
raw confrontation between Uzbekistan and Tajikistan over of projects for EU financing. In 2016 it adopted a Strate-
the construction by the latter of the Rogun hydroelectric gic Plan 2016-20261, which addresses institutional-legal
dam. This is due to be the highest in the world and would barriers for transport and international trade facing all

generate substantial energy export capacity for Tajikistan. transport modes: maritime, railways, roads, inland water-
However, Uzbekistan’s new post-Karimov leadership ways, and air traffic. TRACECA is a grant-funded technical

EUROPEAN PERSPECTIVES ON THE CHINESE BELT AND ROAD INITIATIVE

has changed its policy 180 degrees, now advocating assistance project, supporting only a limited number of
regional cooperation and withdrawing its objections to small-scale investment projects for rehabilitating transport
Rogun. Large-scale funding will be required for Rogun, and infrastructures. Its main objective is to improve the level of
this might be an attractive project for support from the BRI, transport regulatory policies and facilitate the reduction of
especially since due diligence studies by the World Bank non-physical border barriers. Overall TRACECA aims for
were completed for environmental and technical aspects the creation of an infrastructure chain ensuring multimodal
of the project, which gave a green light. transport, with integration of the corridor into the Trans-Eu-
The EU’s most developed relationship in Central Asia is ropean Transport Networks (TENs). The TRACECA is thus
with Kazakhstan, with which it signed an Enhanced Part- in principle complementary with the BRI, which does the
nership and Cooperation Agreement in 2015, and where heavy lifting in funding of infrastructures. Politically, how-
its companies in the oil and gas sectors are the biggest for- ever, TRACECA suffers from two important weaknesses:
eign direct investors. A further enhanced agreement with the absence of both Russia and China.
the Kyrgyz Republic is also now under negotiation. This leads into the broader practical problems posed
As for officially funded investment, both the EBRD by the two international systems of railway transport law
and European Investment Bank (EIB) are mandated to and cooperation, that of the ‘OTIF,’ in which the EU has
fund projects in Central Asia and the South Caucasus. In a leading role, and ‘OSJD,’ whose membership is a relic
Georgia they are the biggest foreign investors. The EBRD of the former Communist bloc (USSR, the Warsaw Pact
considers itself to be a natural partner for the BRI. The or Comecon countries, China and even Cuba—see Box
EBRD has the expertise to promote the so-called “soft” 1). As an example of the problems that result, there is the
infrastructure of investment projects, including high envi- need to streamline transit procedures and border crossing
ronmental, social and corporate governance standards. with the aid of a single uniform railway consignment note
The EBRD is interested in partnering with the BRI, as recognized by customs services, covering the whole route
long as projects fit into its screening. Whether this part- from the point of departure to the port of destination. This
nership will work in practice remains to be seen. The BRI would mean rationalizing the divergent ‘CIM’ and ‘SMGS’
has suffered reputational damage as a result of several rules of the ‘OTIF’ and ‘OSJD’ respectively. Border frictions
major project setbacks (for example in Malaysia, Pakistan, and delays consist of complicated customs procedures
Sri Lanka, Djibouti, etc.) resulting from project selection at crossing points (e.g. random inspections that require
policies that had not been at the level applied by the mul- sealed transit containers to be opened); bad coordination
tilateral development organizations. between the railways, the customs and forwarding agents
and the customs brokers; the number of documents
4. Regulatory Issues in Central Asia and the required; and long registration procedures with numerous
South Caucasus state agencies2.
The EU’s project of most precise relevance to the BRI
in Central Asia and the South Caucasus is a long-standing 1. ‘Strategy of the Intergovernmental Commission TRACECA for develop-
ment of the international transport corridor Europe-Caucasus-Asia 2016-
technical assistance program called TRACECA, stand- 2016.’ The strategy is available at www.traceca-org.org.
ing for Transport Corridor Europe Caucasus Asia. The 2. Comparisons between EU (OTIF) and OSJD systems have been exhaus-
tively documented in M. Rafsendjani and C.-T. Stempfle (2007).
 12
Box 1: The Alphabet Soup of International Railway Regulation

OTIF = Intergovernmental Organisation of International OSJD = Organization for Cooperation between Railways,
Carriage by Rail, Berne; members are Europe plus the former Warsaw; originally founded in 1956, with Communist bloc
Soviet Union; has defined CIM = Uniform Rule concerning countries (USSR, Comecon states, Mongolia, China, Vietnam,
the Contract of International Carriage of Goods. OTIF works North Korea and Cuba; since 1992, also the independent,
closely with the EU, which is a member alongside its member former USSR states) as members; has defined SMGS =
states. EU member states are allowed to give legal priority to Agreement on International Goods Transport by Rail.
EU law where it conflicts with the rules of the OTIF. Central and Eastern European states, including Russia, are
members of both OTIF and OSJD.


MICHAEL EMERSON

This confusing overlap of competences between the that OTIF is working on extending to China the use of its
international railway organizations should be a subject of model ‘electronic consignment note,’ which is the key legal
reconsideration by all parties in light of the BRI, which in document supporting international freight consignments.
principle demands a harmonized system of regulation of The BRI raises the bar in terms of conceivable and
cross-border rail traffic. The question then becomes which desirable progress in railway cooperation along the whole
rules could be adopted by all. way from China to Europe. While progress in regulatory
A constructive example has emerged in the field of convergence is slow, railway technology and infrastruc-
technical regulations and standards for trade in goods, tures for high-speed trains have advanced by leaps and
where the standards set by European and international bounds. The romantic idea of a New Silk Road Orient
standards organizations (CEN, CENELEC, ISO) are Express, crossing frontiers at high speed (as in the EU
increasingly adopted also by the Eurasian Economic already for many years) all the way from Beijing to Paris no
Union (EAEU), replacing GOCT standards inherited from longer needs to be considered science fiction. This may
the USSR. The EAEU decided to do this autonomously, still have an element of romantic fantasy, but at least it can
with technical assistance from the EU, with the result that register as a long-run vision appealing to citizens of the
nowadays identical standards are increasingly used by the entire Eurasian space, way above the dry technical matters
EU and EAEU (Emerson & Kofner 2018). of regulatory convergence.
For railways the question might be whether to merge or
restructure OTIF and OSJD, profiting from the EU’s expe- 5. Trade Policy Aspects for Central Asia and
rience at working out modern railway law for multilateral the South Caucasus
adoption. To take a more precise example of the attempt A clear objective for the countries of Central Asia and
to secure regulatory convergence, in 2018 it was reported the South Caucasus is that the BRI should not just see
 13

trains of containers transiting their lands with no economic 6. Trade Policy and Legal Aspects in
impact other than some railway tariff income. It should EU-Chinese Relations
also see value-adding industries and services developing The BRI and other Chinese project funding activities in
along the way3. But how can this be engineered? There the EU raise issues of respect for EU law, as well as ques-
is one model case being tested, that of Georgia, which tions over whether EU legislation needs to be reinforced for
has complemented its deep free trade agreement (FTA) relations with third countries such as China. These issues
with the EU with a thinner FTA with China. The idea is also arise for the EU’s neighbors that seek EU membership
that both Chinese and European enterprises might see and already are in the process of adopting EU market law,
advantages in locating value-adding processes in Geor- including those participating in the 16+1 initiative (see the
gia, where inputs imported tariff-free from one side would next section), as well as Georgia, Moldova and Ukraine,
undergo sufficient value addition to be eligible for tariff-free which share DCFTAs with the EU. There are several pre-

export to the other side. The first step, to extend free trade cise areas of relevance here, namely public procurement,
agreements between Georgia and both the EU and China, competition and subsidy control policy, and controls over

EUROPEAN PERSPECTIVES ON THE CHINESE BELT AND ROAD INITIATIVE

has been taken. A further piece of supporting regulatory foreign investment on security grounds. The Chinese
infrastructure is also seen as Georgia enters the Pan authorities are at least aware of these issues, to the point
Euro-Mediterranean (PEM) system of rule of origin prefer- of having organized some international conferences in Bei-
ences, allowing for cumulation of value-added with other jing with foreign experts on legal issues raised by the BRI4.
PEM states, starting with Turkey as an important partner Public procurement. As soon as there are BRI projects
for Georgia. The principles at play here, i.e. for states that located on EU territory or that of neighboring countries
might have free trade with both China and the EU, cou- following EU regulatory standards, the issue arises over
pled to rules of origin preferences, are of general relevance the lack of a level playing field for public procurement. The
to states along the Belt and Road. However, for the time EU and China have very different systems. The EU is party
being Georgia is a unique case, and the countries of the to the WTO’s Government Procurement Agreement (GPA),
EAEU in particular are constrained from following Georgia’s to which China also has applied to join since 20075. China
lead because of their participation in the EAEU customs has made six offers at the WTO to accede to the GPA, but
union. The EAEU has been keen to make an agreement these have not been accepted as adequate. China has a
with China, but only a non-preferential agreement, which strong tendency to isolate public procurement from com-
means no tariff-free trade. petition from abroad, and EU companies are frustrated that
The EU observes this with interest. It hopes to see access to the Chinese market is much less open that that
Georgia succeed in developing new value-adding activities of the EU, with complaints over weak observance of the
in supply chains between China and the EU. Armenia next principles of non-discrimination and transparency.
door would naturally like to do the same, but is unable to The EU’s market is governed by strict public procure-
do so because of its switch in 2014 from its draft deep FTA ment directives, based on the principles of competition,
with the EU to joining the EAEU under Russian pressure. transparency and non-discrimination. EU law makes no
Basically, the EAEU made an economic policy mistake in distinction between EU and foreign enterprises, even to the
going for a customs union rather than a deep FTA, since point that Chinese companies have won an open tender
there are too big divergences of economic and trade struc- for a major project funded by EU grants (the Croatian Pelje-
tures between the petrostates (Russia and Kazakhstan) sac bridge—see further below). Also, many of the EU’s free
and the others. It would be better if the EAEU dropped trade agreements contain public procurement provisions,
the constraint of its common external tariff, which still whereas those of China do not.
only exists in theory, since there have already been so Looking ahead to possible negotiations between China
many breaches. These issues are now especially worthy and the EU on public procurement, the first challenge is
of consideration by post-Karimov Uzbekistan, which has to reach an agreement over Chinese accession to the
FTAs with other CIS states but remains outside the EAEU GPA of the WTO. However, it may be expected that the
customs union. EU side would want to go further with complementary

4. The author is indebted for information on this point to his colleagues

3. As was the case with the Silk Road of earlier millennia, when the Persian Steven Blockmans, who has participated in these conferences, and to
empire and the Central Asia of the golden age of Samarkand were highly Jacques Pelkmans for the work cited next.
developed economic centres. See P. Frankopan (2015). 5. For a detailed review see Jacques Pelkmans et al. (2018), chapter 12.
 14

commitments, including specific provisions regarding about the lack of a common policy in this field, but are
state-owned enterprises. nonetheless adept at negotiating with member states on
State-owned enterprises (SOEs) and competition policy. a bilateral basis. Two recent cases stand out. In Germany,
There is a basic asymmetry of structure in that China has Chinese interests bought out a leading robot manufacturer,
a huge collection of SOEs, whereas in the EU they are which set off political alarm bells, and led to a more dis-
few. In China, 96 percent of the biggest enterprises are criminating control over investments that have strategic
SOEs, whereas in Germany there are only 11 percent and economic or security implications. In Portugal, Chinese
in France (long home of important SOEs) only 17 percent interests have acquired control of the major electricity gen-
(Pelkmans et al. 2018, ch. 14). Moreover, given the strict- erating and grid enterprise, which also has similar assets
ness of EU competition and anti-subsidy rules, such SOEs in Spain. This acquisition has been accepted, but stands
as exist in the EU have in any case lost most of the priv- out as a cession of control over strategic economic infra-

ileges of state ownership. Reform of SOEs in China has structure that many governments in the EU will not want
been high on the political agenda since the 1970s, and to replicate.
MICHAEL EMERSON

state policy declares that they operate in accordance with Within the EU there are manifest differences in how
market principles. However, realities include large-scale individual member states view the BRI and China’s
excess capacities in sectors massively involved in the BRI, increasing presence. The main fault line is between core
such as construction, steel, cement and related materials. Western Europe and new member states in Central and
While there have been many bankruptcies and restructur- Southeastern Europe, with the latter much more actively
ing operations, there has also been much soft financing seeking Chinese investments. This fault line has actually
of SOEs, with high reliance on debt (including preferential been developed by China itself with its 16+1 initiative, to
debt terms and large-scale non-performing loans) rather which the next section turns. Broadly speaking, the coun-
than equity capital. tries most favorable to Chinese investment are small-sized,
On the related question of competition policy there relatively poor, and often with shaky democracies.
have been policy developments in China. Still the EU con-
siders that these do not add up to a level playing field, 7. China’s 16+1 Initiative
notably on grounds of transparency, legal predictability and The 16+1 brings together China with 11 EU member
the special conditions from which SOEs may benefit. states and 5 non-EU member states. The EU member
Regulation of foreign investment. This is the main field states include the Baltic three (Estonia, Latvia, Lithuania),
in which the EU and China are currently actually negotiat- the Visegrad four (Czech Republic, Hungary, Poland, Slo-
ing, with a view to concluding a Comprehensive Agreement vakia), the two Black Sea states (Bulgaria, Romania) and
on Investment (CAI). The negotiations began in 2012, and two Balkan states (Croatia, Slovenia). The non-member
their scope widened in 2016. President Xi has proposed states, all in the Balkans (Albania, Bosnia, Macedonia,
that a CAI be integrated into a comprehensive free trade Montenegro, Serbia), are either in the process of nego-
agreement, but the EU prefers to conclude a CAI first. tiating accession to the EU or wish to start doing so as
Meanwhile, the context changes with the case for soon as possible. Other EU member states (outside the
greater and more selective control over foreign invest- 16+1 grouping) that stand out for having welcomed import-
ment, in particular from China, gaining ground within the ant Chinese investments include Greece with the port of
EU, as in the US. So far Chinese firms have had rather Piraeus and Portugal for its electricity sector.
easy access for investing in the EU, whereas EU firms find The 16+1 initiative is signaling the divergences of inter-
the Chinese market extremely difficult to break into. Over ests in Europe between core Western Europe and several of
the last decade or so China has eased its restrictions, but the EU’s new member states of Central and Southeastern
from a starting point of extreme restrictiveness (Pelkmans Europe, as well as the Balkan states aspiring to EU mem-
et al. 2018, ch. 15). While the EU and China are negotiating bership. The first core group of ‘old EU’ states already have
over investment protection, the EU itself has limited com- adequate or excellent transport infrastructures and access
petence for the screening of foreign investments, which to finance for viable projects. They do not need the BRI on
remains in national hands. In September 2017 the Euro- their own territories, but can see advantages in hooking
pean Commission proposed a framework for screening up with new transport infrastructures that connect to Asia.
foreign investments, but this remains an aspiration for the The second group of states are far more ‘investment-hun-
time being. At the same time, Chinese interests complain gry,’ both to develop their infrastructural endowments and
 15

to attract new investment in the manufacturing and service respective competences of each other and EU standards
sectors. This second group of countries are often weak and policies for EU member countries and candidate coun-
in terms of credit rating. Their leaderships are therefore tries.” Thus, a diplomatic gesture to the EU was made, and
more inclined to be attracted by project funding on less the EU was present at Sofia as an observer. But whether
demanding terms, such as from the Export-Import Bank or how this translates into concrete realities remains to
of China, than are offered by the IFIs. An example is seen be seen.
in the case of Greece, already mentioned, which in the In April 2018 it was reported in the press that 27 of the
midst of its prolonged euro-debt crisis has seen Chinese EU’s 28 member states’ embassies in China had signed a
investment in the port of Piraeus, which in turn became the report for Brussels that was critical of the BRI on several
gateway to the Balkan Silk Road. points. The only dissenting member state was Hungary.
July 2018 saw the 8 16+1 Summit meeting, hosted by
th
Although the report has not been published, it is said to

Bulgaria in Sofia. Its final declaration contained 18 detailed argue that the BRI “pushes the balance in favor of subsi-
pages of conclusions in the ‘The Sofia Guidelines between dized Chinese companies” (Heide et al. 2018).

EUROPEAN PERSPECTIVES ON THE CHINESE BELT AND ROAD INITIATIVE

China and Central Eastern European Countries.’ The Guide- A striking and very concrete interaction between EU
lines are remarkably extensive, with chapters covering: instruments and Chinese interests in the Balkans is the
• Strengthening 16+1 Coordination; Croatian Peljesac bridge project. This major €347 million
• Deepening Practical Cooperation in Trade, Invest- project is being largely grant-funded by the EU’s structural
ment and Connectivity. funds. Put out to open tender, a Chinese construction com-
• Cultivating new drivers for Cooperation in Science, pany won the contract, amid protests by EU construction
Technology, Innovation, Finance, Green Environ- companies which complained about unfair competition.
mental Protection, Agriculture, Energy, Forestry, The complaints were taken to the courts in Croatia and
and Health; dismissed. So here was EU law at work, doing a remark-
• Expanding People-to-People Exchanges. able favor to Chinese interests. As remarked above, this is
One may observe that this covers a large extent of because EU public procurement law does not discriminate
the competences of the EU, which raises questions over between EU and non-EU bidders. The example is one of
the operational and legal commitments being taken by legal correctness for the time being, but of dubious political
the 16+1 parties in relation to EU laws and policies, which sustainability. The project has been described as a politi-
of course wholly apply to the 11 EU member states and cal ‘white elephant’ for which Croatia and the EU have to
increasingly also to the 5 non-member states. take responsibility, while Chinese interests can view it more
In concrete terms, this most sharply raises issues of simply as a business opportunity.
public procurement law, as discussed above, especially Another project in the headlines is the much bigger €3
over infrastructure projects. There have already been a billion highway project in Montenegro (Box 2), which should
number of cases where the Commission had to intervene traverse the country from the Adriatic port of Bar across to
to stop a BRI project that did not observe EU public pro- landlocked Serbia (see the box for details). The project is
curement rules (for example the Budapest to Belgrade strongly supported by Montenegro’s president for its long-
railway) from going ahead. term strategic significance, alongside warnings from IFIs
More broadly, the EU has expressed concern over Chi- that it is not viable financially. This is suggestive of China’s
na’s 16+1 strategy, since it separates the 11 ‘new’ from willing to use the BRI as an instrument for debt-funding
the ‘old’ member states, and initially excluded the EU insti- projects to be built by leading Chinese construction com-
tutions, while adding in the 5 Balkan non-member states. panies under conditions that would not satisfy the IFIs,
China was thus adopting a format that cut across the with minimal feedback into the local economy in terms
EU and its policies and created suspicions of ‘divide and of employment and procurement supplies, thus leaving a
rule’ geopolitical tactics. The most recent 16+1 summit in major debt burden as hangover for the host government.
Bulgaria at least showed awareness of these sensitivities. The EBRD has undertaken or sponsored several
Its concluding Guidelines devoted one page at the begin- studies on Chinese investments in Southeastern Europe,
ning to language about “a positive complementarity to the signaling its interest in the potential complementarity of EU
relationship between China and the EU,” and on how the and IFI investment in the region with those financed by
BRI projects “would also complement EU policies and China (Bastian 2017, Levitin et al. 2016). Broadly speak-
projects…in accordance with the laws, regulations and ing, these studies show the very extensive investments
 16
Box 2: “Chinese ‘highway to nowhere’ haunts Montenegro”

Such is the title of a detailed report by Reuters on a 165 km To proceed with the remaining stages of the project, it has
highway being constructed in Montenegro between the Adri- been decided to go for a public-private-partnership (PPP) form
atic port of Bar and the frontier with Serbia by the China Road of contract, for which the CRBC has signed a MoU with the
and Bridge Corporation (CRBC). Construction of the initial 41 government. Both the European Investment Bank and IMF
km stretch is being funded largely by a €809 million loan from have warned that the PPP model would not be bankable,
the Export-Import Bank of China. The mountainous terrain requiring large subsidies to make a toll-based concession
means that much of the route has to consist of bridges and acceptable to an investor. However, the already-sunk costs
tunnels, hence its high cost per kilometer. 3,605 workers are makes it very difficult politically not to proceed to the project’s
on site, two-thirds of whom are Chinese. The CRBC negotiated completion, which in total will cost around €3 billion, corre-
terms that included the exemption of imported materials from sponding to 70 percent of Montenegro’s annual GDP (€4.3
both customs duties and value added tax. billion in 2017).
 Three feasibility studies have been conducted, one by a Montenegro has been cited as one of eight countries that are
French consulting company for the Montenegrin govern- the most heavily exposed to debt risks resulting from Chinese
ment, and another for the European Investment Bank. Both BRI projects, alongside Tajikistan and the Kyrgyz Republic in
MICHAEL EMERSON

concluded that the project was not viable economically, with Central Asia.
insufficient projected traffic demand to give an adequate
rate of return. A third study, commissioned by Export-Import Sources: Barkin & Vasovic (2018), Hurley et al. (2018)
Bank of China, concluded that the project was viable, but this
has not been published and attempts by Reuters to see it
were unsuccessful.

benefit, by comprehensively implementing the EU-China

currently being made by China in the region, with a lot 2020 Strategic Agenda for Cooperation.”
of overlap with EU plans for its extended transport net-
works (TEN-T). However, the obvious issue of coordination The text went on later to speak of the BRI in positive
between European and Chinese efforts seems to be so far and cooperative terms:
only at an early stage of practical consideration, since the “The two sides will continue to forge synergies between
Chinese ‘16+1’ initiative has been essentially a bilateral China’s Belt and Road Initiative and the EU’s initiatives,
affair between China and the individual 16 states, with little including the EU Investment Plan and extended Trans-Eu-
apparent regard—at least initially—for existing EU policies ropean Transport Networks, and to promote cooperation
in hardware and software connectivity through interoper-
or IFI standards of project evaluation.
able maritime, land and air transport, energy and digital
networks. The two sides stressed that this cooperation
8. China’s Growing Strategic Presence in should improve the economic, social, fiscal, financial and
Europe environmental sustainability of Europe-Asia connectivity.
The rise of China’s interests in Europe is seen as being Such cooperation should abide by the shared principles of
inexorable, a fact of life of the 21 century. It has many
st market rules, transparency, open procurement and a level
aspects of economic and geopolitical power projection, of playing field for all investors, and comply with established
international norms and standards, respective international
which the BRI and the 16+1 initiative are only examples.
obligations, as well as the law of the countries benefitting
At the summit level, the EU and China work hard
from the projects, while taking into account their policies
together on a very broad agenda for cooperation. The and individual situations.”
20th EU-China summit in July 2018 opened with splendid
language: More concretely, the EU-China summit in June 2017

“On the occasion of this 20th EU-China Summit, the two launched a new fund to support BRI operations in Europe.
sides celebrated the 15   anniversary of the EU-China
th The China-EU Co-Investment Fund, backed by the Euro-
Comprehensive Strategic Partnership. This has greatly pean Investment Bank and the (Chinese) Silk Road Fund,
enhanced the level of EU-China relations, with fruitful is expected to provide €500 million (US$540 million) to
outcomes achieved in politics, economy, trade, culture, support equity investment across Europe. The China-EU
people-to-people exchanges and other fields. The Leaders
Co-Investment Fund is intended to develop synergies
reaffirmed their commitment to deepening their partnership
between China’s BRI and the EU’s so-called “Juncker
for peace, growth, reform and civilisation, based on the
principles of mutual respect, trust, equality and mutual
 17

Plan,” the latter seeking to mobilize €315 billion of new The most recent summit meeting between the EU and
public and private investment across Europe. Asia, on 18-19 October 2018, saw an agreed text favoring
The above summit language is in accordance with open and rule-based trade and improved connectivity (see
European interests, but there is room for skepticism Box 3). This text stands out first as a marker to record the
whether these words will translate into realities on the two continents’ common rejection of President Trump’s
Chinese side. The EU’s concerns are not that different stances on trade, climate, Iran, and his general disregard
from those of the Trump administration over such matters for the rule-based multilateral order. It is also setting out the
as subsidization of state-owned enterprises, respect for EU’s concerns that relations between the two continents
intellectual property rights, and lack of transparency and assure a level playing field and respect for international
accessibility for European investors. As a result, the EU standards. The language may be sufficiently general to
still does not recognize China as a ‘market economy’ for have been acceptable for all, yet the principles laid down

trade policy purposes. However, President Trump’s trade are a serious matter for the EU side, much more than ano-
war policy is equally antithetical to both the EU and China, dyne diplomatic language.

EUROPEAN PERSPECTIVES ON THE CHINESE BELT AND ROAD INITIATIVE

such that both are brought together as supporters of the At the geopolitical and ideological levels, the EU sees
multilateral trade order of the WTO. China as pursuing to some extent the same agenda as
The EU’s reticence over making any whole-hearted Russia, albeit more carefully at a diplomatic level. Both
endorsement of the BRI seems to emerge from a reading are authoritarian states that seek to expand their global
of its quite detailed 13-page policy paper on ‘Connecting influence without seeking to impose political conditions
Europe and Asia’ (European Commission 2018). While the on their relations with partner states or taking objection
paper was addressed to the whole of Asia, it discussed to regimes that the EU considers objectionable in terms
all modes of air, land and sea transport connecting with of political and human rights values and practices. The
Asia without referring to the BRI. The paper is explicit Chinese Communist Party quite explicitly adopted in 2013,
about stepping up cooperation “with relevant third coun- at the beginning of President Xi’s leadership term, the now
tries, including the EU-Chinese Connectivity Platform, to (in)famous Document 9, which lists the seven most seri-
promote the digital economy, efficient transport connec- ous threats to the Chinese state, which amount to a total
tivity, and smart, sustainable and secure mobility, based antithesis to traditional European liberal political values
on extension of the TEN-T network, and promote a level (ChinaFile 2013). Adding to this element of doctrine is the
playing field for investment.” The paper goes on to empha- extraordinary expansion of the Chinese security apparatus,
size the role of the international financial institutions (IFIs) with omnipresent CCTV networks linked to facial recogni-
and multilateral development banks (MDBs), with the tion and big data bank capabilities, which for the European
aims to “facilitate investment for Euro-Asian connectlvity observer could come straight out of Orwell’s 1984 (Finan-
through the investment facilities and guarantees, involving cial Times 2018b). Further, China is reportedly preparing its
European public banks, (EIB, EBRD and member states’ ‘counter-terrorism’ forces to play a bigger role in protecting
national banks and institutions, and OFIs, in line with inter- its strategic interests overseas. Zhang Xiaopi, head of intel-
national standards and level playing field [sic]” (European ligence for the army police, declares, “We must strive to
Commission 2018). become a deterrent force to safeguard national security, a

Box 3: Asia-Europe Meeting in Brussels, 18-19 October 2018: Chair’s Statements (Extracts)

Leaders underlined their joint commitment to open, free, and implementing and enforcing obligations under the WTO by its
non-discriminatory trade, as a prerequisite for long term growth members, including the ongoing work to implement its Trade
and prosperity. They reiterated the need to further strengthen, Facilitation Agreement. …
and reform the WTO to help it meet new challenges and to To ensure better connectivity between Europe and Asia they
improve its transparency, monitoring, dispute settlement mech- also stressed the importance of developing and strengthening
anism, and its rulemaking functions. They committed to ensure transport systems and infrastructure that are environmentally,
free and open trade on a level-playing field and fight all forms of socially and fiscally sustainable, financially viable, afford-
protectionism, including protectionist unilateral measures and able and accessible and are in accordance with relevant
unfair trade practices. Leaders underlined the importance of international standards.
 18

pioneering force to protect overseas interests and an elite likely to remain only a marginal niche affair in total
force for universal fighting” (Financial Times 2018a). EU-China trade.
China’s propaganda efforts are quite massive, but 3. The EU has an interest in the development of the
mainly about praising all things Chinese, avoiding Rus- southern BRI routes, through Kazakhstan and
sia’s kind of invidious disinformation aimed at undermining either across the Caspian Sea and South Cau-
Western democracies . 6
casus or through Iran into Turkey. For the time
The puzzle for Europeans and maybe the Chinese being, the main train connections take a north-
themselves is how long or far the doctrines and control ern route through Russia and Belarus to Poland,
mechanisms of the ruling Communist party can survive but for the EU, strategic considerations militate
the ongoing transformation of Chinese society, with its in favor of alternative routes to avoid a Russian
increasing numbers of the well-educated and cosmopol- transit monopoly. This is more than a theoretical

itan younger generation—sometimes called the ‘Chuppy’ concern, since Russia has actually blocked transit
(or Chinese yuppy) generation—who now travel abroad in traffic between Ukraine and Kazakhstan. Georgia,
MICHAEL EMERSON

massive numbers. There is no answer to these questions which like Ukraine has a deep association agree-
today, but overall the puzzle is a reason why many Euro- ment with the EU, also wishes to see the southern
peans feel cautious towards China’s inexorably increasing trans-Caucasian route developed in cooperation
external presence. with both the EU and China for strategic as well as
commercial reasons.
9. Conclusions 4. The EU can see the interest of the states of Central
Europe’s views on China’s BRI are, in one word, mixed. Asia and the South Caucasus in a BRI that would
There are both positive aspects and concerns, while Chi- rise above a mere transit function and develop
nese diplomatic speeches about the BRI as a ‘win-win’ for supply chains linkages that add value to trade
the world at large are regarded as simplistic propaganda. flows. The most promising example here is Geor-
Several cross-cutting European perspectives emerge. gia, which now has free trade agreements with
1. The EU agrees in summit statements with China both the EU and China, as well as with other Asian
over the pursuit of synergies between the BRI states. However, it is too early to see whether this
and the EU’s own trillion-euro investment plan, leads to significantly positive results. On the other
which includes its extended European Transport hand, the states of the Eurasian Economic Union
networks (TEN-T). However, what this means in are less well placed to do this, given their member-
practice is not yet clear. The EU itself and most of ship of the customs union with Russia. However,
its member states have little need for BRI projects, the new post-Karimov Uzbekistan does not have
since their own transport and other infrastructures these constraints, and has the region’s most sub-
are generally of adequate or high quality, and new stantial industrial sector to build on.
investments can find funding from the EU and 5. The BRI connects with China’s ‘16+1’ initiative,
other sources. Questions of functional linkages which brings together 11 ‘new’ EU member states
between BRI projects and the European networks in central and eastern Europe with five ‘not-yet’
are not yet thoroughly addressed, and deserve EU member states in the Balkans. This raises two
deeper research. types of concern. First, in the strictly economic
2. Freight train traffic between China and the EU is sphere, there are concerns over respect for EU
already growing, and this is appreciated by var- law in the contracting of BRI public infrastructure
ious business interests on both sides. However, projects and, further, whether EU law (on public
today the China-EU rail connections carry only 1 procurement, competition policy, trade policy
percent of total China-EU trade flows alongside the and foreign investment screening) needs to be
other 99 percent that goes by sea and air freight strengthened in relation to third countries such as
without any transit border complications. This China. This would address problems where ‘level
rail traffic is expected to increase, but still seems playing field’ conditions are not met by Chinese
enterprises, such as in the construction sector.
6. The ‘16+1’ initiative also raises political concerns
6. For a detailed account of China’s increasing political influence in Europe, that it may serve as a ‘divide and rule’ instrument
see Benners et al. (2018).
 19

of Chinese power play. More precisely, it seems Annex: Issues Warranting Further Research
that China is establishing client dependency rela- 1. Coordination between the EU/EIB/EBRD over
tionships with some of the 16+1 states, which European networks overlapping with or connect-
translate into complications for EU foreign pol- ing with BRI projects. Only general principles are
icymaking that requires unanimity (for example, publicly announced. To cover this major issue
Hungary recently declined to sign onto a note of concretely there would have to be systematic inter-
concern about the BRI by all other EU embassies views in the institutions mentioned, as well as in
in Beijing). host governments, specified down to the project
7. The EU and its member states are major suppliers level.
of international development aid and support- 2. Operational progress with the China-EU Co-Invest-
ers of the international financial institutions (IFIs), ment Fund, backed by the EIB and Chinese Silk

and therefore stakeholders in the promotion of Road Fund; interviews required.
high standards of global governance. In this con- 3. Differences in terms of project selection/evalua-

EUROPEAN PERSPECTIVES ON THE CHINESE BELT AND ROAD INITIATIVE

text, the BRI is seen as having sponsored quite a tion practice between those financed by the IFIs
number of major projects that were not screened and MDBs, including the Asian Infrastructure
as rigorously as they would have been by the IFIs. Investment Bank, on the one hand, and those
Excessive debt burdens from ‘white elephant’ proj- BRI projects funded by the Export-Import Bank of
ects are hazards that developing countries along China on the other.
the BRI route need to avoid. 4. More precise examination of the overlap and
8. Finally, there is the wider question of the overall coherence between EU policies in the Balkans and
EU-Chinese relationship, of which the BRI is an the Chinese-supported ‘Balkan Silk Road.’
important aspect. The EU has now to look at its 5. How far the international railway regulators, OTIF
relationship with China as part of the big global and OSJD, might be willing and able to merge
‘quadrilateral,’ alongside its relationships with the or converge in their activities; interviews at both
US and Russia. This big quadrilateral is in a state of required.
unprecedented uncertainty and tensions. For the 6. Commodity structure of EU-China-Asia trade
EU there are problems with all three major part- flows moving along the newly emerging rail routes,
ners: the Trump administration, which undermines and prospects for further growth; industry/port
the existing international order; Russia, which is interviews needed.
unacceptably aggressive in the European neigh- 7. Evidence of the BRI leading to value-adding pro-
borhood; and China, whose global economic cesses in the transit countries; comparison of
expansion lacks ‘level playing field’ conditions experiences in this respect of economies with
and whose political values are so different. The DCFTA agreements with the EU and Eurasian Eco-
October 2018 EU-Asia (ASEM) summit was itself nomic Union states.
remarkable for its agreement between the two 8. New EU-Central Asia strategy under preparation;
continents on desirable principles for the world interviews required.
economic order, while seeking implicitly to counter 9. Developments in the EU over policies to screen
the destructiveness of the Trump administration. foreign (notably Chinese) investments that have
This text covered the ground rules both for trade security implications; possible developments in
and for investments in intercontinental connectivity, EU law.
to which the BRI contributes. Reading between
the lines, the European side is still proceeding References
with caution in its relationship with China. Through Ang, Yuen Yuen, Anders Åslund, Michael J. Boskin, Ian
coded language about level playing fields and polit- Bremmer, Gene H. Chang, Bernard Connolly, Rich-
ical values, the EU and its member states see the ard N. Cooper, Patrick M. Cronin, W. Bowman Cutter,
need to ‘protect’ against the excessive or insuffi- Mansoor Dailami, Andrew DeWit, Barry Eichengreen,
ciently principled expansion of Chinese interests. Richard D. Erb, James K. Galbraith, James E. Glass-
man, Jonathan E. Hillman, R. Glenn Hubbard, Richard
Jerram, Gary N. Kleiman, Arthur Kroeber, Hongyi Lai,
 20

Chris Leung, Chong-Pin Lin, Edward N. Luttwak, investment links.” European Bank for Reconstruction
Robert A. Manning, Greg Mastel, Joseph S. Nye, Jim and Development.
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sors, Daniel Twining, Makoto Utsumi, R. Christopher Di Salvo, Joseph Francois, Eddy Bekkers, Miriam
Whalen, Logan Wright, and Friedrich Wu (2018). “Will Manchin, and Patrick Tomberger (2018). Tomorrow’s
China’s New Trade/Debt Diplomacy Strategy Reshape Silk Road: Assessing an EU-China Free Trade Agree-
The World? A Symposium of Views.” The International ment. Brussels and London: CEPS and Rowman and
Economy, Winter 2018: 8-33. Littlefield International.
Barkin, Noah, and Aleksandar Vasovic (2018). “Chinese Rafsendjani, E. M., and C.-T. Stempfle (2007). “Compli-
‘highway to nowhere’ haunts Montenegro.” Reuters. ance regarding EU-Railway law and OSJD-Railway
Bastian, J. (2017). “The potential for growth through law.” Study for the European Commission.

Chinese infrastructure investments in Central and Vinokurov, E., V. Lobyrev, A. Tikhomirov, and T. Tsukarev
South-Eastern Europe along the “Balkan Silk Road”.” (2018). Silk Road Transport Corridors: Assessment of
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European Bank for Reconstruction and Development. Trans-EAEU Freight Traffic Growth Potential.
Beifort, A., Y. Shcherbanin, and E. Vinokurov (2018). Vinokurov, E., and T. Tsukarev (2017). “The Belt and Road
“Trans-Eurasian Land Transport Corridors: Assess- Initiative and the Transit Countries: an Economic
ment of Prospects and Barriers.” IIASA. Assessment of Land Transport Corridors.” Area Devel-
Benners, T., J. Gaspers, M. Ohlberg, L. Poggetti, and K. opment and Policy 2 (4).
Shi-Kupfer (2018).“Advance - Responding to China’s
Growing Political Influence in Europe.” GPPI and Mer-
cator Institute for Chinese Studies.
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Transport Corridors: Barriers and Investments.” Eur-
asian Development Bank.
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Emerson, M., and J. Kofner (2018). “Technical Product
Standards and Regulations in the EU and EAEU –
Comparisons and Scope for Convergence.” IIASA.
European Commission and High Representative of the
Union for Foreign Affairs and Security Policy (2018).
“Connecting Europe and Asia – Building blocks for an
EU Strategy.” Joint Communication to the European
Parliament, the Council, the European Economic and
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the European Investment Bank.
Financial Times (2018a). China seeks global role for elite
counter-terrorism forces.
Financial Times (2018b). Inside China’s Surveillance State.
Frankopan, P. (2015). The Silk Roads – A New History of
the World. London: Bloomsbury.
Heide, Dana, Till Hoppe, Stephan Scheuer, and Klaus
Stratmann (2018). “EU ambassadors band together
against Silk Road.” Handelsblatt Global.
Hurley, John, Scott Morris, and Gailyn Portelance (2018).
“Examining the Debt Implications of the Belt and
Road Initiative from a Policy Perspective.” Center for
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South-Eastern Europe: Infrastructure, trade and
 Study on the Belt and Road Initiative in
Central Asia and the South Caucasus: A Note
on the Indian Perspective

Rajat M. Nag

1. Introduction Asia in an increasingly multipolar world. This is discussed

India sees the BRI through a multilayered prism. in Section 3.2.
Interactions of past history, global geostrategic Many observers, including India, have raised concerns
imperatives, regional rivalries, mutual mistrust and interde- about the possible debt burdens which BRI borrowing
pendence, and economic and political considerations all countries may incur, which may be unsustainable and
come into play, producing an Indian view of the BRI which beyond their capacity to ultimately repay, pushing these
is, of necessity, complex and complicated. countries into a vicious ‘debt trap.’ In addition to obviously
At one level, it could be argued that while not nec- detrimental economic effects, the ‘debt trap’ could also
essarily universally held, the views of the political and have serious geostrategic consequences for India and the
bureaucratic elite in the country are largely skeptical. borrowing countries. This is analyzed in Section 3.3.
This paper will argue, however, that such a representa- So, in light of the above concerns, what should India
tion of India’s views, while not totally inaccurate, would be do? What can India do? How do two large neighbors, India
perhaps rather simplistic. and China, both very important in their own right on the
India’s views and compulsions are significantly more regional and global stage, continue to pursue their own
nuanced and need a careful analysis and understanding understandable interests and aspirations? How do they
to help the two major countries of Asia play their right- manage their complex relationship in a spirit of ‘competi-
ful and critically important regional and global roles in the tive co-operation’ for their own and the larger good? These
21st century. are the issues of interest in Section 4.
It is understandable that India’s perspective on the BRI Section 5 concludes.
would be influenced by events in its immediate neighbor-
hood in South Asia. However, Central Asia and the South 2. India-Central Asia Relations
Caucasus are part of India’s ‘extended neighborhood’ and India and Central Asia have deep and long historical
thus of considerable importance and relevance as well for relations going back almost to the first century BC. A group
India. And, as the focus of this study is on that region, this of tribal nomads, the Kushans, had settled in Afghanistan,
paper first places the India-Central Asia relationship in a and “between 100 BC and 200 AD, they ruled a vast ter-
historical, geostrategic context (Section 2). ritory stretching from Khursana to Punjab in India” (Starr
Broadly, India’s perspective on the BRI can be consid- 2013, p. 53). Historically, Khursana referred to a large area
ered under three broad groupings. (Section 3). east and northeast of the Persian Empire, parts which are
India considers the BRI as building on the rich heritage currently in Iran, Afghanistan, Tajikistan, Turkmenistan and
of the ancient Silk Road, which is an important part of its Uzbekistan (Bukhara and Samarkand).
own historical past as well. For India, its perspective on the The ancient Silk Route (see Section 3.1 below) allowed
modern day BRI is thus shaped by that historical heritage, an increasing flow of culture and religion in both directions,
and this is presented in Section 3.1 below. resulting in the establishment of a Muslim Sultanate in Delhi
For India, the BRI is much more than just enhancing as early as the 12th century followed by several Muslim
physical connectivity, important as it might be. In India’s sultans who had their origins in Central Asia. By 1526, a
view, the BRI is not just an aggregation of roads, railways young king, Babur from Ferghana, Uzbekistan, had estab-
and ports: it has significant geostrategic aspects as well. lished the Mughal dynasty in India, which was to last for
India thus needs to also consider how the BRI affects its almost 300 years.
position in the regional power architecture in a multipolar

21
 22

During most of the twentieth century, India’s relations growing influence and presence in India’s immediate neigh-
with Central Asia were within the framework of these coun- borhood in South Asia.
tries being part of the Soviet Union, with which independent Declaring Central Asia as part of its “extended neighbor-
India had close economic and political relationships. hood,” India also unveiled a “Connect Central Asia Policy”
Following the breakup of the Soviet Union in 1991, at the first meeting of the India-Central Asia Dialogue in
India’s relations with the now-independent Central Asian Bishkek in June 2012. This was a much-needed boost to
republics continued but were somewhat muted for a while. not only encourage better progress in implementing the
This happened as India tried to balance out its strategic INSTC, but also to build on the centuries-old “civilizational
alignments with the West in a post-Soviet world and as bonds” with the region, going beyond just the confines of
the Central Asian republics coped with the dramatic eco- economics and energy. Greater cultural exchanges, edu-
nomic shocks of their breakup and the massive drop-offs cation, tourism (including medical, banking and finance),

of economic support from Moscow. and people-to-people connections were foreseen as
But the rich natural resources of the region, particularly important components of this policy “to reconnect with
RAJAT M. NAG

its mineral and energy resources, not to mention its geo- this neighborhood, with which we are bound by the silken
strategically critical location at the crossroads of Europe bonds of centuries of common history” (Ahamed 2012).
and Asia, soon revived the keen interest of major external Strengthening strategic and security cooperation
powers to again pay serious attention to the region, remi- between India and Central Asia “seen in the context of
niscent of the Great Game machinations of the British and a quest for a world order which is multipolar” (Ahamed
the Russians in the 19 century, albeit with an altered cast
th
2012) is also a key aspect of the Connect Central Asia
of players. Policy. This has now been significantly enhanced by India
The new cast now principally includes China, the US, (and Pakistan) formally being included (since June 2017) in
Europe and lately India. the Shanghai Cooperation Organization (SCO) after having
China has, in recent years, made significant invest- been an observer for over a decade.
ments in Central Asia and has now overtaken Russia as The SCO, with four Central Asian countries (Kazakh-
Central Asia’s largest trading partner. In spite of an increas- stan, Kyrgyzstan, Tajikistan, and Uzbekistan) plus China,
ing trend, India’s trade with Central Asia is paltry, importing Russia, India and Pakistan, is an important regional forum,
only about 1 percent of the region’s exports (mostly oil from with its countries representing about 3.5 billion people,
Kazakhstan) and exporting less than 1.5 percent of its total almost half the global population. Notwithstanding some
global exports to this region. reservations in India about the perceived domination of
A major constraint for India to increased trade with China in this forum, there is general consensus among
landlocked Central Asia is lack of direct connectivity with Indian policymakers that by becoming a full member of the
the region. The most direct land route would be through SCO, India has strongly indicated its keen interest in the
Pakistan (and Afghanistan), but transit through Pakistan Central Asian region, where it still lags behind China and
has not been possible due to major political challenges Russia but with which it wishes to significantly enhance
between the two countries. The only other option would its engagement.
then be a combination of sea and land routes, and such This then is a bird’s eye view of a long and ancient
a route (a 7,200 km long multimodal International North relationship, with deep cultural and religious interactions,
South Corridor, INSTC, discussed further in Sec 4.1 below) muted at times due to exigencies of history and difficult
linking India through Iran to Central Asia and thereafter to connectivity but renewed with vigor in the recent past and
Russia and North Europe was first mooted as far back as with great anticipation for the future.
the turn of the 21st century. It is in this context that the BRI needs to be seen from
China’s growing interest and influence in Central Asia India’s perspective. From India’s point of view, the BRI,
(with which it shares an almost 3,000 km long border while particularly in Central Asia, is not just a project enhancing
India has none), evidenced by its significant investments much needed physical connectivity, but part of a much
and support in developing and extending direct connectiv- larger geostrategic initiative in a region where India has a
ity to the region (well before the BRI was formally proposed long history of association and one with which it very much
in 2013), also served as an important motivation for India wishes to remain engaged.
to do the same. This was further bolstered by China’s
 23

3. India’s Perspectives on the Belt and Road but also with two Indian Buddhist monks to preach in
Initiative China” (Behera 2002, p. 5,078).
Buddhism, originating in India in the 6th century BC,
3.1. A Sense of Pique: the More Inclusive Ancient Silk ultimately spread west and east of the country along the
Road and Spice Route vs. the BRI Silk Road, reaching the western part of China by around
As early as the second century BC, Emperor Wudi had 4th-5th century AD under the Northern Wei dynasty, who
sent his emissary General Zhang Qian, the man generally actively promoted Buddhism. By the early 6th century AD,
credited as being the founder of the Silk Road, to seek there were already about 2 million Buddhists in China.
connectivity westwards. Over the next 1600 years, the Silk Greater movement of scholars, preachers and pil-
Road gradually came to traverse a distance of over 7,000 grims between India, Central Asia and China followed.
miles connecting the Yellow River Valley in China to the Sacred Buddhist religious texts and scriptures began to

Mediterranean Sea. be translated to local languages, and more travels to India
But as can be imagined, it was not a single road. It was by Chinese priests and monks only hastened the process

STUDY ON THE BELT AND ROAD INITIATIVE IN CENTRAL ASIA AND THE SOUTH CAUCASUS: A NOTE ON THE INDIAN PERSPECTIVE
instead a vast network of caravan routes and trading posts, of greater cultural (particularly artistic and musical) and
with several branches and spurs spread over a vast area religious exchanges.
from China through Central Asia, northern India and the Though it came much later, around the 14th century
Parthian Empire to the Roman Empire. AD, the Silk Road’s influence on India was even greater
One of such spurs veered South, across the Karakoram in the Islamic context. Muslim traders and preachers trav-
passes to the towns of Leh and Srinagar, finally reaching elled along this route carrying with them their rich traditions,
North and Northwestern India. This then connected to cultures, ideas and religious beliefs. Sufism was one such
other trails and roads throughout the Indian subcontinent. critical Islamic tradition whose spiritual stirrings deeply per-
Contrary to what its name implies (a name of much meated Indian religious thoughts. It was in turn significantly
more recent origin, given by Baron Ferdinand von Richtho- influenced by India’s Upanishads and the Bhakti traditions
ven, a German cartographer in 1877), the Silk Road traded characterized by devotional philosophies emphasizing
in many more commodities than silk alone. As a matter the divine.
of fact, even in the very early years of this route, Chinese A couple of centuries later, a young Uzbek king, Zahir-
traders exchanged their silk with their Indian counterparts ud-din Muhammad Babur, having been deposed from his
for precious stones and metals such as gold and silver; the own throne in Ferghana, and failing to capture Samarkand,
latter in turn traded the silk further west. marched down the Khyber Pass on the Silk Road, first to
Capturing the above, Starr observes that perhaps Kabul and then onwards to Delhi. There, at the famous
Richthoven had erred in naming the Road as the Silk Road, Battle of Panipat (1526 AD), Babur defeated the Delhi
which could just as easily have been called a “‘Lapus Lazuli Sultan (Ibrahim Lodi) and established the Mughal Dynasty
Road’ from Afghanistan to Egypt and India” or a “‘Gold in India, which ruled the country for the next 300 years.
Road or a ‘Copper Road’ to the capitals of the Middle East” India was equally integral to another ancient trade net-
(Starr 2013, p. 43). work, the Spice Route, used for maritime transportation
And, perhaps even more important from the point of of exotic spices (cinnamon, pepper, ginger, cloves and
view of emphasizing India’s close interaction with the Silk nutmeg) from the Molucca Islands (Spice Islands) in Indo-
Road, is Starr’s observation that “he [Richthoven] also nesia through India to the Middle East and beyond via the
erred in assuming that the great corridors of transport ran Arabian Sea and the Mediterranean. But, as in the case of
mainly to China and not, equally, to India as well” (Starr the Silk Road, the Spice Route carried much more than
2013, p. 43). spices, and over time expanded to include textiles, pre-
While the Silk Road obviously enhanced trade and cious stones, timber, incense, and saffron and stretched
commerce, it played an even more important role in over 15,000 km, encompassing Japan and China as well.
enabling religious and cultural exchanges between India Over the centuries, the Silk Road and the Spice Route
and her near and far-flung neighbors. also served as critical conduits of exchange of people and
There is evidence of Han Emperor Mingti (57-75 AD) culture and ideas—be it in music, arts, architecture, reli-
sending his emissary Cai Yin to India to learn more about gious beliefs and traditions—between India and countries
Buddhism. Cai Yin returned to China three years later “not to its west and north, particularly Central Asia; to its east
only with images of the Buddha and Buddhist scriptures and northeast, extending to China and beyond; and to
 24

its Southeast, all the way to Indonesia and the regions A critical concept relevant to India’s perception of
in between. the BRI has its roots in something that happened almost
No wonder then that through the millennia, the Silk 370 years ago: the signing of the Peace of Westphalia
Road and the Spice Route have occupied an important in 1648. While its immediate effect was to bring an end
space in the Indian imagination, psyche and commerce, to two debilitating wars of religion in Europe which had
but not so much in a proprietary sense of these routes raged for decades, a far more fundamental influence on
belonging to India exclusively but to the region as a whole. world history was that it “…represented the first attempt to
Rather, it was more as a belief, instinctively felt, that these institutionalize an international order on the basis of agreed
were much more than mere trade routes but an integral rules and limits and to base it on a multiplicity of powers
part of the Indian heritage. rather than the dominance of a single country” (Kissinger
This historical and geographical context of the Silk 2014, p.30).

Road and the Spice Route (Figure 1) perhaps influences This was the genesis of the concept of a global multipo-
India’s views on the BRI much more deeply than might be lar order and it resonates strongly with Indian policymakers
RAJAT M. NAG

readily apparent. and political leaders. India believes that a global multipolar
While many might take President Xi’s enunciation of the economic architecture will increasingly include Asia as the
BRI in November 2013 as a bold, global strategy of interre- center of gravity of the global economy gradually shifts
gional/intercontinental connectivity, many in India saw it as eastwards to the Asia Pacific region. Several Asian econo-
a Chinese strategy, negating a fundamental aspect of the mies, currently led by China and Japan, with India rapidly
ancient Silk Road and Spice Route in the Indian psyche as catching up together with a number of large economies in
belonging to no one country in particular but to the region East and Southeast Asia (Korea, Indonesia among them)
as a whole. are important regional and global players in their own right.
And indeed, there can be no global multipolar order with-
3.2. Exacerbated by a Sense of Mutual Mistrust: the out a multipolar Asia.
Panda Hug As a populous (projected to overtake China as the
As would be expected from two proud, old civilizations, world’s most populous country within the next five years)
nothing between China and India happens without refer- and fast-growing economy that remains only a fifth the
ence to history and the BRI is no exception. size of the Chinese economy, India’s strategic advantage is

Figure 1: The Ancient Silk Road and the Spice Route

Source: UNESCO (2018)

 25

clearly in promoting a multipolar Asia in a multipolar world. the 2016 level of US$700 million) and the two are increas-
That is what India strongly desires. ingly collaborating on the regional and international stage
During an official visit to India in April 2005, the (such as on climate issues, or in setting up the New Devel-
then-Chinese Premier Wen Jiabao asserted a similar view opment Bank, or in India being a founding member of the
on China’s part as well. At his meeting with the then-Indian Asian Infrastructure Investment Bank and also the largest
Prime Minister Manmohan Singh, the two leaders “spelt borrower from this institution).
out the elements of consensus underlying the develop- It is in this context of a relationship marked by suspicion
ment of India-China relations in the new millennium” (Saran and mistrust, and yet a mutual dependency of economics
2017, p. 145). and being neighbors, that India warily views the BRI as part
In a clear nod to the Westphalian philosophy, the joint of a Chinese grand strategy of a ‘panda hug’ of countries
statement issued at the end of Wen Jiabao’s visit said: in Asia and Africa (Figure 2).

“As two major developing countries, India and China Of particular concern to India is what the BRI would
acknowledged the importance of their respective roles in mean in its immediate neighborhood. The China Pakistan

STUDY ON THE BELT AND ROAD INITIATIVE IN CENTRAL ASIA AND THE SOUTH CAUCASUS: A NOTE ON THE INDIAN PERSPECTIVE
the shaping of a new international political and economic Economic Corridor (CPEC), a 2,700 km spur from Kashgar
order” (Saran 2017, p. 146). in Xianjiang to the Gwadar Port of Pakistan via a network
of highways, railways and pipelines, is of particular con-
In a remarkable acknowledgment of China’s and cern. India has strenuously argued that this routing violates
India’s roles in a multipolar Asia, the two leaders agreed India’s sovereignty and territorial integrity, as the CPEC
that “there was enough room in both Asia and the world passes through what India calls “Pakistan-occupied Kash-
to accommodate the simultaneous and rapid rise of both mir” and Pakistan calls “Azad Kashmir” (Free Kashmir).
India and China. Both welcomed the rise of the other and The recent event of Hambantota Port in Sri Lanka pass-
declared that neither posed a threat to the other” (Saran ing to Chinese hands on a 99-year lease, as well as airport
2017, p. 146). and sea port developments in the Maldives, all cause India
However, more than a decade later, while China still great concern about the growing Chinese influence and
professes a similar wish for a multipolar Asia, many in presence in its immediate neighborhood through what
India have grown skeptical about China’s intentions and some in Delhi have called a “Panda hug.”
aspirations. China’s overwhelming economic clout, grow-
ing military strength, assertive moves in the South China 3.3. The Debt Trap
Sea, and increasing presence and influence in Pakistan India’s third major concern, one shared by several
and other immediate neighbors of India are all seen as evi- national Governments and international organizations, is
dence of a country intent on establishing its superior place about the debt burdens, owed mostly to China, which the
in the hierarchy of nations rather than simply being a pole borrowing countries are taking on to finance BRI projects.
of a multipolar Asia. According to many Indian observers, Many countries around the world suffer from very sig-
China now seeks a new type of ‘great power relations,’ nificant infrastructure deficits, particularly in transportation
benchmarking itself with the US as part of a G2 global and energy. Their financing requirements are correspond-
power architecture rather than in a multipolar Asia in a ingly very high. In a recently completed study, ADB (2017)
multipolar world. estimated that the developing countries of Asia and the
The Indian psyche is still deeply affected by the trau- Pacific (including China and India) would need climate-ad-
matic and humiliating defeat in the 1962 border war with justed infrastructure investments of some US$26 trillion
China, and in spite of periods of accommodation and good- over the period 2016-30 (or US$1.7 trillion annually). Even
will, border issues still lurk beneath the surface. Standoffs without climate change mitigation and adaptation mea-
(as recent as last year) at Doklam at the India-China-Bhu- sures (an unwise and unsustainable proposition, in any
tan border only reinforce such apprehensions. case), the costs would still be about US$1.5 trillion annually.
And yet the two countries know they need each other. However, bilateral and multilateral organizations such
China is India’s largest trading partner (with a total trade as ADB, AIIB, and the World Bank are able to meet only a
of over US$80 billion in 2017, an increase of about 18 fraction (less than even 5 percent) of this demand, having
percent over 2016, after having stagnated at about US$70 provided an average of about US$50 billion annually over
billion for several years). Chinese investments in India are the last five years.
increasing rapidly (at US$2 billion in 2017, up sharply from
 26

Figure 2: A Schematic of the Belt and Road Initiative


RAJAT M. NAG

Source: Mercator Institute for Chinese Studies

China’s BRI strategy is largely, though not exclusively, developing countries. Getting Chinese financing
focused on financing infrastructure projects, responding significantly reduces such burdens.
to the huge unmet demand for infrastructure development ii. In contrast with multilateral lenders, China is
around the world. In pursuing the “project of the century,” seen by many borrowers as being more sensitive
as President Xi has hailed the BRI, China is responding (accommodating) to host country needs and con-
to a genuine development constraint for many countries: straints, particularly budget constraints, and willing
inadequate (and often poor quality) infrastructure. to provide large amounts of funding up front, par-
The critical issue is thus not whether such infrastruc- ticularly for big infrastructure projects.
ture projects are needed (they mostly are, and India fully iii. China is also seen as being more nimble in
accepts this point) but how such projects can be financed, approving projects, contrasted with the long and
whether the host countries can afford them, and whether cumbersome approval processes of the MDBs, at
they are the right priority and financially viable so that the least as perceived by the borrowers. A centralized
borrowing countries would be able to repay the debts decision-making mechanism within the Chinese
so incurred. Government efficiently brings together various min-
In contrast to obtaining financing from official, multilat- istries and agencies of the Government, speeding
eral sources (many of the countries participating in the BRI up the approval process, a feature which is even
would not be able to tap private sector funding, and those more readily apparent and appreciated in imple-
that could would face unattractive costs and terms), Chi- mentation of the projects.
nese financing is generally perceived to be more attractive, iv. China is also more flexible in negotiating payment
on at least four counts: terms, being willing to defer the start of repay-
i. China actively seeks out projects for financ- ments, offer longer terms of maturity, and accept
ing, rather than waiting for borrowing countries barter repayments and debt for equity swaps.
to propose projects. The process of preparing While each of these four factors are often attractive
projects for international financing—including for borrowers, particularly for the smaller and poorer ones,
undertaking detailed feasibility and engineering they often simultaneously entail the possibility of significant
studies, assessing the social and environmental long-term risks.
impacts, designing mitigation measures, etc.—are
often very demanding and challenging for many
 27

True, preparation of projects for international funding Apprehensions about BRI participation leading many
can often be demanding, but it reduces the possibility of countries into a debt trap is not an Indian concern alone.
undertaking unviable or undesirable projects. Several western countries, including some borrowing
While flexibility of Chinese funding, particularly on the countries themselves and international organizations, have
amounts provided, is welcomed by resource-constrained voiced similar concerns.
countries, this may also be interpreted as China being less It is significant that only very recently (August 2018),
demanding and willing to fund projects which the MDBs Prime Minister Mahathir of Malaysia decided to cancel two
might have been reluctant to support. China-funded mega projects, the US$20 billion East Coast
Similarly, an important counterbalance of faster Rail Link and the US$2+ billion Trans Sabah Gas Pipeline
approval and implementation is that such Chinese funded projects, on grounds of non-affordability and the future
projects are significantly less open to local and interna- debt burdens these projects would impose on the country.

tional participation. A recent report by CSIS indicated To systematically assess the risk of debt stress in the
that in China-funded projects, Chinese companies could BRI borrowing countries, the Center of Global Develop-

STUDY ON THE BELT AND ROAD INITIATIVE IN CENTRAL ASIA AND THE SOUTH CAUCASUS: A NOTE ON THE INDIAN PERSPECTIVE
account for as much as 90 percent of the contractors used, ment (CGD), a Washington-based non-profit think tank,
compared to less than 30 percent on those funded by the recently undertook a study of potential debt problems
MDBs (Hillman 2018). in the 68 countries identified as potential BRI borrowers
But perhaps the most important consideration of all is (Hurley et al. 2018).
the issue of flexibility on payment terms. True, there is flex- At one level, the Study’s conclusions were reassuring in
ibility on the period and nature of repayments, but “China that the BRI is “unlikely to cause a systemic debt problem
has long insisted that the BRI is a commercial venture, not in the regions of the initiative’s focus” (Hurley et al. 2018,
an aid program” (Deloitte 2018). p. 5). At the same time, the Study’s conclusions were also
This is reflected in the fact that almost three-quarters rather sobering.
of Chinese lending for infrastructure development during It found that 23 of these countries are already at risk
2000-2014 (amounting to slightly over US$350 billion) of debt distress today. Of these, 10-15 could suffer from
were at commercial terms, provided principally by CDB and debt distress due to future BRI-related financing, with eight
CHEXIM. Principally, many observers argue that “China is mostly small and relatively poor countries of particular
successful at locking in higher rates because it agrees to concern, as they would face a significant risk of sovereign
assume risks that other lenders will not” (Hillman 2018). debt default when future potential BRI-related financing is
The situation is further exacerbated by the fact that also considered.
borrowers also face considerable exchange rate risks as These eight countries are Djibouti, Kyrgyz Republic,
most CDB and CHEXIM loans are usually denominated in Laos, Maldives, Mongolia, Montenegro, Pakistan and Tajik-
US dollars or Chinese renminbi. istan. While Afghanistan and Sri Lanka are not in the most
Hambantota Port in Sri Lanka is a case in point to illus- vulnerable “eight,” they are in the list of 10-15 debt-dis-
trate these concerns. tressed countries. In other words, four of India’s immediate
China provided a loan of about US$1.3 billion to neighbors in South Asia are vulnerable to fall into the debt
develop this deep-sea port after such funding was not trap as a consequence of the BRI.
forthcoming from multilateral sources. But as the country In Pakistan, for example, CPEC (China Pakistan Eco-
failed to meet its interest payments and after several exten- nomic Corridor) serves as a flagship BRI Project. Leaving
sions and renegotiations, Sri Lanka finally handed over the aside the sovereignty issue raised by India, as discussed
port and 15,000 acres of adjacent land to a Chinese SOE earlier, the debt burden on Pakistan due to CPEC is
on a 99-year lease in December 2017. worrisome. The total value of CPEC projects is currently
India considers the Hambantota Port, situated on Sri estimated at US$62 billion, with China expected to
Lanka’s southern coast and providing access to critical finance about 80 percent of that amount. The IMF has
Indian Ocean sea lanes, to be of significant geostrategic already warned Pakistan’s public debt ratios could rise
importance. Thus, notwithstanding Sri Lankan assurances well above 70 percent, requiring perhaps another round
that the port will not be used for any military activity by any of IMF assistance.
foreign power, India is deeply concerned about Chinese In the Maldives, China is heavily involved in the coun-
ownership of that port. try’s three most prominent investment projects: an airport
upgrade (US$830 million), the development of a new
 28

township and bridge near the airport (US$400 million) and in several connectivity projects there as well. These are
the relocation of a major port (costs unknown). Both the briefly discussed below.
World Bank and the IMF consider the Maldives to be at
high risk of debt distress, hence India’s concerns about 4.1. The International North South Transport Corridor
the country’s vulnerability a la Hambantota. (INSTC)
Similar concerns are voiced about a proposed US$7.3 Mooted by Russia, India and Iran in 2000, the INSTC
billion deep water port (and an associated special eco- essentially follows an ancient route that had connected
nomic zone) at Kyaukpyu in Myanmar on the Bay of Bengal. South Asia with Northern Europe for centuries, widely used
Its economic and financial viability (from Myanmar’s point by European, Russian, Central Asian and Indian traders.
of view) is far from clear, and yet a Chinese state-owned The modern INSTC is a multimodal transportation route
conglomerate will take a 70 percent equity stake in the linking the Persian Gulf to the Caspian Sea via Iran and link-

port and run it for 50 years. The remaining 30 percent ing Afghanistan and Central Asia to the Caucasus, Russia
ownership will be financed by loans from China (at terms and then beyond (Figure 3).
RAJAT M. NAG

which are still unclear) with significant heavy debt burdens According to some estimates, this route (when opera-
in the future. tional) could almost halve the transportation time between
While India might officially argue that its reservations Mumbai and Moscow, compared to the current route
about the debt trap are universally true for all borrowing through the Suez Canal (Sharma & Sano 2018, p. 4).
countries, the author believes that India’s concerns are The implementation of this project has been painstak-
also based on security concerns, a la Panda hug. Thus, ingly slow, with very limited progress almost till 2012, when
India’s debt trap concerns for its immediate neighbors is India enunciated its “Connect Central Asia” policy, at which
not necessarily only due to altruistic neighborly feelings but point the sponsoring countries started seriously address-
also due to geostrategic concerns of greater Chinese influ- ing the financing and other institutional issues.
ence, presence, and, even more worrisome, ownership of A key link still missing in the corridor is the railway line
physical infrastructure assets. between the Iranian cities of Rasht and Astara, for which
Azerbaijan has recently (early 2018) extended a US$500
4. India’s Possible Reactions million loan to Iran. Iran expects this segment to be com-
India faces major strategic challenges in responding pleted by 2020, marking the completion of the INSTC itself.
to the BRI. No matter how strongly it might feel about the Without a doubt, there will still be major institutional
three concerns (historical legacy, security concerns [“the and software challenges to be sorted out: issues such as
Panda Hug”], debt trap) about the BRI as noted above, border crossing rules and documentation requirements,
merely raising them at international fora and protesting is alignment of customs processes and procedures, and
not very helpful either for itself or anybody else. misaligned tariffs (higher tariffs by rail rather than by road
There is widespread consensus about huge infra- for movement of cargo from Bandar Abbas to Tehran). Yet,
structure deficits in Asia and the Pacific, and indeed in the physical completion of the INSTC itself will indeed be
all developing countries of the world. Intra-country and a major achievement.
regional connectivity in various parts of Asia (especially in For India, the importance of the INSTC cannot be
Central, South and Southeast Asia) is poor. India’s own overemphasized. Under current geopolitical situations and
connectivity with its neighbors and beyond is a major con- relations with Pakistan, the INSTC is the only possible sea
straint to expanding its access to and trade with them. and land connectivity with Central Asia and beyond.
As a matter of fact, India is herself a major proponent of Iran is the gateway through which India can export “its
enhancing regional connectivity and is actively supporting/ clothing, chemicals and agricultural products to consum-
financing several major projects in its immediate neighbor- ers in Central Asia and Europe, while at the same time
hood: the India Myanmar Thailand (IMT) Trilateral Highway, procuring oil, natural gas and metals from Central Asia’s
ultimately connecting India to the ASEAN highway network; landlocked countries” (Sharma and Sano 2018, p. 6), at
the Bangladesh-China-India-Myanmar (BCIM) Corridor, least till a proposed gas pipeline from Turkmenistan is built
connecting Kolkata and Kunming; and various rail, road (discussed below).
and energy trade projects with Bangladesh. India has thus courted Iran assiduously and invested
Similarly, given India’s strategic interests in Central Asia almost US$500 million in the Chabahar Port on Iran’s
as part of its ‘extended neighborhood,’ it is deeply involved Persian Gulf coast. In return, Iran has agreed to let an
 29

Figure 3: The International North South Corridor

STUDY ON THE BELT AND ROAD INITIATIVE IN CENTRAL ASIA AND THE SOUTH CAUCASUS: A NOTE ON THE INDIAN PERSPECTIVE
Source: Sharma & Sano (2018)

Indian Company manage the first phase of the Chabahar It is not the length of the pipeline (though not an insig-
Port, but only for a period of 18 months (not 99 years a la nificant 1,800 km) that is particularly extraordinary and
Hambantota Port). imaginative, but the fact that it will traverse some high
India will also fund a railway link from Chabahar to security risk areas in Afghanistan (Herat and Kandahar)
Zahedan, on the border with Afghanistan, making possible and Pakistan (Quetta and Multan) before reaching its ulti-
a side spur to Uzbekistan and other Central Asian countries. mate destination at Fazilka at the India-Pakistan border
While Iran has historically been close to India, and in Punjab.
genuinely considers the past historical, cultural and civi- Dubbed the “Peace Pipeline,” it will test the resolve of
lizational links as important in defining current strong and the transit countries to assure safe passage of gas and
good relations with India, it also recognizes China’s impor- serve as an example of cooperation between countries
tance in its geostrategic calculations. Iran is China’s largest even when there are many contentious issues still out-
oil supplier and Chinese investments are critical for Iran’s standing between them.
infrastructural plans. As recently as March 2018, for exam- Conceptualized in the 1990s, it took quite a long time
ple, China inked a deal (through a SOE) to build a US$700 to get the fundamental institutional framework in place.
million train link between the cities of Shiraz and Bushehr. A special-purpose consortium, led by Turkmenistan’s
The important takeaway is that while India and China Turkmengaz, and including the Afghan Gas Enterprise,
might consider the INSTC and the BRI as possible coun- Interstate Gas Services of Pakistan and the Gas Authority
terfoils to each other, countries in the region do not see of India Ltd (GAIL), was incorporated in late 2014 to build,
these two routes as “an either/or proposition” and will own and operate the estimated US$7.5 billion pipeline.
instead aim to strike a balance between the two countries The pipeline is designed for an economic life of 30 years
and maximize the benefits from both. with an annual carrying capacity of 33 bcm (billion cubic
meters). Construction began in 2015 and is expected to be
4.2. Turkmenistan-Afghanistan-Pakistan-India Gas commissioned in 2020. India and Pakistan will each take
Pipeline (TAPI) about 42 percent of the output, with Afghanistan taking the
In another example of dreaming big, TAPI proposes to remaining 16 percent.
carry natural gas from energy-rich Turkmenistan, boasting Undoubtedly, TAPI is important for Turkmenistan to
the world’s fourth largest gas reserves, to energy-hungry diversify its destination market (currently dependent heavily
India and Pakistan. on China, particularly after Russia’s Gazprom wound down
 30

its imports from Turkmenistan in 2016) and for India to To reduce the dependence of the current participants in
diversify its sources of much-needed clean energy to fuel the BRI, particularly those who are already debt-stressed
its brisk economic growth and also meet the challenges and most vulnerable, multilateralization of the Chinese sup-
of reducing greenhouse gas emissions as per the Paris port would obviously be a desirable process. India strongly
climate accord commitments. Pakistan and Afghanistan supports and advocates such multilateralization efforts, but
will also benefit significantly from the transit fees they will the demand for infrastructure is so huge (as noted earlier)
earn, which for the latter could be as high as US$400 mil- that even the combined financing of the World Bank, ADB,
lion a year. AIIB and NDB can meet only a small fraction (less than a
However, several major unsolved issues still plague tenth) of such demand.
the pipeline. These mainly pertain to the final pricing of The bottom line therefore remains that unless India can
the gas (as currently negotiated, the delivered price to the offer alternative sources of funding support, other sover-

ultimate consumer in India is seriously uncompetitive with eign nations, including those in India’s own neighborhood,
domestically produced gas), security of supply and signif- will find seeking and accepting (readily available) support
RAJAT M. NAG

icant funding gaps. from the BRI a very difficult and tempting proposition to
Nevertheless, all the four partner countries are still very turn down.
hopeful that these issues will be satisfactorily resolved and The very slow pace of implementation of many
that the pipeline will indeed become operational by 2020, India-supported projects, particularly compared to the
ushering in another era of significant cooperation between speedy execution and completion of China-funded Proj-
Central and South Asia. ects, is another major challenge for India. Even while
Four relevant observations emerge from the above dis- accounting for differing administrative systems, which often
cussion on the INSTC and TAPI. require time-consuming processes, including for awards of
First, that India is not averse (and is in fact keen) to contracts and local involvement, there is no denying the
support large infrastructure projects in Central Asia. But, fact that the IMT Trilateral Highway Project, for example,
second, that India wishes that such projects involve multi- has suffered several serious delays and is currently running
ple partners in their financing, design and implementation. almost five years behind schedule.
Third, India’s objectives, scope and interests in supporting/ The situation in India’s immediate neighborhood is fur-
sponsoring, say, the INTSC or TAPI need not necessarily ther exacerbated by what the smaller states perceive to
be in conflict with China’s sponsorship of the BRI. The be India’s often high-handed and insensitive approach to
complementarity and overlap of the INTSC and the BRI their own priorities, compulsions and aspirations. Except
were noted and there are some reports that China has for Bangladesh and Bhutan, India’s bilateral relations with
even expressed interested in supporting a spur line off TAPI her immediate South Asian neighbors remain fraught with
to reach China (Drazen 2018). And fourth, the participat- mutual suspicions to varying degrees, which often leads
ing countries themselves do not see such infrastructure these countries to reach out to China as a counterbalance.
projects as being mutually exclusive. They are keen to No doubt, China for its part sees considerable strategic
participate in all these projects to maximize the benefits advantages in responding generously to such overtures
accruing to them. and, in fact, actively seeks them out to expand its circle
While the above observations have been drawn from of influence.
India-supported projects in Central Asia, they would India is thus faced with simultaneous interplay of three
equally apply to projects elsewhere as well. factors: limited financial resources of its own to counterof-
It follows therefore that many countries, particularly the fer to other countries, particularly in its own neighborhood;
smaller and poorer ones, are willing participants in the BRI, a poor track record of implementation of several proj-
not necessarily because they are unaware of the risks (of ects which it is supporting elsewhere in the region; and
the debt trap, for example), but because of the access to declining political and diplomatic capital and goodwill in
funds that China provides and which others, including the its neighborhood.
multilaterals, are unwilling or unable to offer. To counter While data on investments in and financial assistance
this, India will either have to offer much larger financial to their neighbors in South Asia by both India and China
assistance than it is able to or mobilize funds from other (particularly for the latter) are rather difficult to obtain, it is
sources (say, by stronger lobbying and support from the no surprise that China leads India by a wide margin in all
multilateral institutions). cases. For example, in spite of a significant increase (of
 31

over 70 percent), India’s aid to Nepal (at US$150 million) India also needs to take an even more proactive role
during the current fiscal year is still expected to be less in regional and sub-regional groupings in Asia. There are
than a third of China’s during the same period. Similarly, encouraging signs of more robust engagement by India
China has been the largest foreign investor in Nepal for with its Southeast Asian neighbors through its Act East
the past several years and is expected to invest more than Policy. India is now actively pursuing projects and pro-
twice as much as India, the next largest investor. The differ- grams of cooperation with ASEAN in general, as well as a
entials are even more striking in Bangladesh, where China’s sub-regional initiative involving South and Southeast Asian
aid program is almost six times the size of India’s (US$1 countries through the BIMSTEC Program.
billion compared to US$150 million). India’s concerns about the BRI are understandable, but
Given India’s limited financial resources and its econ- the BRI cannot be countered by simply resisting it with
omy being only a fifth of the size of the Chinese economy, a ‘dog in the manger’ attitude; this would be counterpro-

it will be unrealistic (and perhaps even undesirable) to even ductive. There are indeed genuine concerns about the
expect India to be able to do much more on the first of the economic and financial viability and social and environ-

STUDY ON THE BELT AND ROAD INITIATIVE IN CENTRAL ASIA AND THE SOUTH CAUCASUS: A NOTE ON THE INDIAN PERSPECTIVE
three points above. mental impacts of some of the projects being considered
India should certainly try hard to speed up the various for support under the BRI. Information on the pipeline of
projects under implementation. Encouragingly, this seems BRI projects is not readily available, nor are details of the
to have been recognized by the highest levels of the Indian financing being offered. Many international observers have
bureaucracy and indeed has drawn the attention of the noted the apparent lack of transparency in BRI discussions
political leadership itself. and negotiations. India performs a very useful role in pub-
A power interchange project with Bangladesh (at licly airing such concerns.
Behrampur) and rail connections between the two coun- At the same time, the dramatic sweep of the BRI’s cov-
tries (Akahura- Agartala) have recently been completed erage, ambitions, and possible resources China seems to
and are now operational. There seems to be a renewed be willing to put into “the project of the century” cannot
sense of urgency in completing the IMT Trilateral Highway. be ignored. Even allowing for some mistaken priorities of
Land border crossings between India and Myanmar have borrowing countries where leaders might be tempted to
been made easier with the recent opening of international agree to some BRI projects not necessarily in their long-
entry-exit checkpoints (at the Tamu-Moreh and the Rih- term national interests (financial, social, environmental,
khawdar-Zowkhawtar border crossings) between the two sovereignty and security), the fact remains that the BRI
countries. Showing the results of India-supported initia- is a transformational possibility for many countries, with
tives on the ground must be high on India’s to-do lists. resources being made available by China which these
India should also consciously reflect on why several countries cannot get anywhere else.
of its neighbors seem to increasingly mistrust and even India thus needs to think of the BRI in broad geostra-
resent India’s attitude towards them. While each sover- tegic terms. At one level, as noted earlier, it should make
eign country, big or small, would naturally balance out its all efforts to bilaterally enhance its own influence with the
strategic partnerships with the larger countries, particularly borrowing countries by being more sensitive to their needs
the regional and global major powers, several of India’s and aspirations. Equally importantly, India should come
immediate neighbors seem to be turning to China with across as the champion of the borrowing countries, par-
greater enthusiasm in the recent past. This should be of ticularly the smaller and the poorer ones, in their efforts to
great concern to India. get access to global infrastructure financing, including from
Even more important would be for India not to appear China, for viable and sustainable projects.
to be opposing the BRI without offering meaningful alter- While China pushes ahead with the BRI, it will need
natives to the participating countries in general and to its to be sensitive to the genuine concerns of countries like
neighbors in particular. India. India, on her part, will have to accept that the BRI
While alerting BRI countries of the dangers of the debt is a very serious commitment on the part of the Chinese
trap issue, for example (a concern shared by many others, leadership and in fact is now enshrined in the country’s
including the IMF and MDBs), India should make strenu- constitution. And, while India should make all genuine
ous efforts at all international fora to help poorer countries efforts to influence the course of the BRI for the greater
obtain as much financial support from the MDBs for infra- good of the world and, from its own national perspective,
structure financing as possible. it should think strategically how this may be best achieved.
 32

As a matter of fact, India might be able to better influence AAGC will focus on four areas: (i) undertaking develop-
the dialogue on and the course of the BRI by being a part ment corridor projects; (ii) enhancing quality infrastructure
of the BRI, which she has so far refused to do. and institutional connectivity; (iii) enhancing skills; and (iv)
In this context, Japan’s nuanced approach to the encouraging people-to-people partnership.
BRI may be instructive for India. China has consistently Interestingly, all four of these objectives are embedded
expressed its strong desire to have Japan participate in the in the BRI as well. India’s presence in the BRI could make
BRI, including by it joining the Asian Infrastructure Invest- the pursuit of these objectives more feasible. India could
ment Bank. But, without making any explicit commitments influence the BRI agenda more effectively by being at the
either way, Japan has indicated that it was open to partic- table rather than not.
ipating in those parts of the BRI “which were in sync with It may be appropriate to bring in another nuanced point
standards of the international community” (Shim 2018). here about India’s perspectives on the BRI. It would be fair

Prime Minister Abe has also alluded to the possibility of to say that all references made so far to India really refer
Japanese participation in the BRI selectively and on a proj- to the Delhi-based Central Government leadership (politi-
RAJAT M. NAG

ect-by-project basis but has emphasized that China needs cal and bureaucratic). While their views hold the principal
to ensure that the projects it finances are carried out on sway, the views of the state Governments, particularly of
the basis of “transparency, openness and accountability.” the border states, and those of the Indian private sector
India could consider following such an approach: Set towards the BRI are more accommodating. While they all
out the key principles it holds dear, and selectively sup- defer to the primacy of the Central Government on mat-
port only those projects which are consistent with those ters relating to the BRI, they see the benefits of greater
principles. An example of such an approach could be the and easier connectivity with their neighbors and the ready
Bangladesh-China-India-Myanmar (BCIM) Corridor linking access to neighboring markets that such connectivity
Kolkata with Kunming. This project could have significant would provide. The Indian private sector is very keen to
benefits to India, particularly in East and Northeast India, participate in the large infrastructure projects being con-
which are high priority areas of development for the Modi sidered under the BRI and see India’s reticence to join as
Government. The BCIM Corridor could also give a boost a brake on their potential involvement.
to the country’s Act East Policy. India might even include China, as the world’s second-largest economy (soon
domestic stakeholders (such as the state Governments to be number one) and India, as the world’s fastest grow-
and the private sector who would could benefit from such ing economy and destined to be in the top three or four
a corridor). economies of the world in the next ten to fifteen years, are
For China, the benefits of being flexible enough to be already the major drivers of the global economy. China,
able to bring India on board would be in making the BRI the world’s most populous country, will trade places with
a more inclusive initiative while also accruing direct ben- India on the population ladder within the next five years.
efits to itself from the projects so undertaken (the BCIM, Their combined importance on the global scene will thus
for example). only continue to grow as the center of the global economy
Another lesson from Japan’s approach is noteworthy. shifts eastward.
It has offered an approach for infrastructure development, India and China recognize that their economic and
the “Expanded Partnership for Quality Infrastructure” (EPQI), political priorities will not always coincide, and in fact would
which emphasizes building quality infrastructure following at times be in direct competition as the two large emerging
principles of transparency, accountability and sustainability. superpowers jostle for regional and global influence. But
India, for its part, has also emphasized a global this is where both the countries will be well advised to
development agenda based on a rules-based approach “develop an instinct for ‘variable geometry’—being comfort-
and principles of sustainability and equity, and has also able with participating in shifting coalitions depending on
acknowledged the synergy between economic growth and the policy issue under discussion” (Bery 2017).
national security. Under such a pragmatic approach, even as they
Using the above frameworks, Japan and India have remain economic and political rivals on the global stage,
formulated an “Asia Africa Growth Corridor (AAGC)” strat- China and India will have to continue cooperating, for their
egy to enhance connectivity between the two continents. own and indeed for the global welfare.
Unveiled by Prime Minister Modi at the African Devel-
opment Bank Annual Meeting held in May 2017 in India,
 33

5. Conclusions As in South Asia, India has similar concerns about the

India’s perspectives on the BRI are multilayered and BRI in Central Asia. India has had deep and long historical
driven by complex considerations. relations with Central Asia going back almost to the first
In one sense, given the huge infrastructure deficits in century BC.
Asia, including in Central Asia, and Africa, India welcomes India thus considers the BRI as part of a much larger
the BRI but also has some concerns and reservations. geostrategic initiative by China in a region which India con-
Given its long history of association with the ancient siders its “extended neighborhood” and with which it very
Silk Route, India feels a sense of pique at the BRI being much wishes to remain engaged.
branded as a Chinese initiative. Notwithstanding China’s India’s concerns about the BRI in Central Asia are
professed willingness (and even keen desire) to invite other further exacerbated by the fact that India supports some
countries, including India, to participate in the BRI, India major connectivity projects of its own in that region, namely

sees it as a China-centric initiative, rather than a multilateral the INSTC and TAPI. The former links India through Iran to
initiative, which India would prefer. Central Asia and thereafter to Russia and Northern Europe.

STUDY ON THE BELT AND ROAD INITIATIVE IN CENTRAL ASIA AND THE SOUTH CAUCASUS: A NOTE ON THE INDIAN PERSPECTIVE
Though the BRI is a network of roads, railways and The latter (TAPI) is a major pipeline project designed to
sea links, with spurs spreading out in several directions, transport gas from Turkmenistan to India via Afghanistan
India considers the proposed projects, particularly in South and Pakistan.
Asia, as a possible attempt at encirclement. In geostrategic To minimize, if not stave off the effects of the debt
terms, India fears that China will thus increasingly exert its trap and its consequent geostrategic and security impli-
influence and presence in India’s immediate neighborhood cations, India strongly supports efforts to multilateralize
in what could be seen as a less than benevolent ‘panda the BRI as far as possible by encouraging other donors
hug.’ This concern is particularly exacerbated by the pro- and multilateral institutions to participate. This would also
posed China Pakistan Economic Corridor (a key element have the desired effect of ensuring that international stan-
of the BRI), a 3,500 km transport corridor which India con- dards of project preparation, including adhering to required
siders a violation of its national sovereignty as the corridor environmental and social safeguards and standards of
passes through disputed territory. transparency and accountability, are followed.
India is also concerned about the potential ‘debt traps’ However, the demand for infrastructure by the BRI’s
which the poorer and weaker countries might find them- participating countries is so huge that even the combined
selves in as a result of participating in BRI. However, this financial support of international funding agencies will fall
concern is not simply the result of India’s altruistic con- far short, meeting only a tenth of their needs.
siderations for the economic welfare of its neighbors. It And, unless India and others can offer alternate sources
pertains mainly to China possibly gaining equity control of of funding support, borrowing countries, including in India’s
projects through debt for equity swaps to settle unservice- immediate and extended neighborhood, will find seeking
able debt burdens. A Chinese SOE gaining control of the and accepting (readily available) support from the BRI a
Hambantota Port in Sri Lanka through a 99-year lease to very difficult and tempting proposition to turn down. This
settle such a debt burden is a case in point. India thus sees is in spite of the risks (of falling into the debt trap, for exam-
the debt trap in geostrategic terms as potentially another ple) such borrowing would entail, though the borrowing
press of the ‘panda hug.’ countries are well aware of these risks.
It is fair to say then that while India appreciates the All the points discussed above confirm India’s skepti-
possibility of significant benefits to participating countries cism and reservations about the BRI, leading to India not
due to enhanced and improved connectivity, it also fears having agreed to formally endorse and join the BRI, at least
the risks of greater Chinese influence and presence in the as yet.
region. These could all potentially dilute India’s global and But even this has to be placed in the larger context of
regional geopolitical standing. India-China relations. Given their economic and population
Turning to Central Asia, it is important to note that given sizes, China and India are formidable players on the Asian
the region’s rich natural resources, particularly its mineral and global scenes which neither country can ignore. China
and energy resources, not to mention its geostrategically is the second-largest (soon to be the largest) economy
critical location at the crossroads of Europe and Asia, in the world and India is the fastest growing economy in
Central Asia continues to attract all major and emerging the world, and one of the top ten. They are both critically
powers, including China and India. important in a multipolar global architecture, and in fact
 34

need each other both for their market sizes and economic Kissinger, Henry (2014). World Order. London:
prowess and potential. They are both increasingly called Penguin Books.
upon to play an important role in matters of global com- Modi, Narendra (2018). Prime Minister’s Keynote Address
mons (climate change, for example) as the center of gravity at the Shangri La Dialogue.
gradually but inexorably shifts eastward. Nag, Rajat, Johannes F. Linn, and Harinder S. Kohli, eds.
These considerations have motivated, indeed pushed, (2016). Central Asia 2050: Unleashing the Region’s
both countries to take a larger geostrategic view of their Potential. New Delhi: Sage Publications.
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Shanghai Cooperation Organization) and equally important jostle for influence in Iran and Central Asia.” Nikkei
RAJAT M. NAG

informal means (the Wuhan Summit, for example). Asian Review.

Thus, India’s perspective on the BRI needs to be seen Shim, Elizabeth (2018). “Japan signals interest in China’s
in this larger context. Indeed, India has several concerns One Belt, One Road Initiative.” UPI.
and reservations about the BRI and it will continue to raise Starr, Frederick S. (2013). Lost Enlightenment: Central
them at various occasions and fora. But India, the author Asia’s Golden Age From the Arab Conquest to Tamer-
believes, will also continue to be pragmatic and hopefully lane. Princeton, NJ: Princeton University Press.
wise in practicing the art of realpolitik as befitting a country Tambi, Radhey (2018). “The Folly of Great Expectations
with an important role to play in a multipolar Asia and a from India China Relations.” The Diplomat.
multipolar world. UNESCO (2018). “About the Silk Road.” Silk Roads: Dia-
logue, Diversity & Development.
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Ahamed, E. (2012). Keynote address by MOS Shri E. The Diplomat.
Ahamed at First India-Central Asia Dialogue.
Asian Development Bank (2017). Meeting Asia’s
Infrastructure Needs.
Baruah, Darshana M. (2017). “Nepal joined the BRI: What
does that mean for India?” The Diplomat.
Behera, Subhakanta (2002). “India’s Encounter with the
Silk Road.” Economic and Political Weekly 37 (51):
5,077-80.
Bery, Suman (2017). “How India should respond to China’s
Belt and Road.” The Diplomat.
Deloitte Insights (2018). Embracing the BRI Ecosystem
in 2018.
Drazen, Jorgic (2018). “China Interested in joining TAPI
Pipeline Project.” Money News.
Hasimova, Umida (2018). “Why Central Asia is betting on
BRI.” The Diplomat.
Hillman, Jonathan (2018). “China’s Belt and Road Ini-
tiative: 5 years later.” Center for Strategic and
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“Examining the Debt Implications of the Belt and
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Global Development.
 The Belt and Road Initiative from a Russian
Perspective

Evgeny Vinokurov

1. Introduction envisaged to play a prominent role in the implementation

In the early 2010s, the growing economic and political of the BRI. On 8 May 2016, during the visit of Xi Jinping to
weight of China and its foreign policy ambitions led to the Moscow, Russian President Vladimir Putin and the Chinese
development of a qualitatively new foreign economic policy leader signed a decree on cooperation to tie the develop-
strategy. In 2013, China’s President Xi Jinping proposed a ment of the EAEU with the BRI. Later that year, at the
modern equivalent of the ancient Silk Roads—the Belt and Shanghai Cooperation Organization (SCO) Summit in Ufa
Road Initiative (BRI). In practical terms, China aims to pro- (Russia), this idea was consolidated in the SCO announce-
mote economic growth in potential markets and improve ment of negotiations on a non-preferential agreement on
connectivity with them. Among other things, the initiative trade and economic cooperation between the EAEU and
called for the building of a network of railways, roads, the PRC.
pipelines and other infrastructure that would link China to Russia appreciated the potential positive implications
Central Asia, West Asia, South Asia, Europe and Africa. of the BRI early on. One of the key advantages of Eurasian
In 2015, the State Council of the People’s Republic of continental cooperation is the opportunity it presents to
China (PRC) authorized the BRI action plan with two main increase transport capacity. By realizing the potential of
components: the Silk Road Economic Belt and the 21st trans-Eurasian links, work in this area will generate sev-
Century Maritime Silk Road. According to the plan, the BRI eral positive spillover effects, such as more efficient use
is a systemic project that must be built jointly through con- of transport capacity in transit countries. Most importantly,
sultation to meet the interests of all concerned states, with such cooperation should eventually lead to much better
efforts being made to integrate the development strategies internal connectivity between inner-Eurasian regions (Cen-
of the countries along the Belt and Road (State Council tral Asia, Siberia, the Urals and the Caucasus) (Nag et al.
of the PRC 2015). The BRI serves as an underlying idea 2016). For Russia and Central Asia countries, involvement
about how China’s foreign economic expansion and trans- in the BRI is also significant since it may open new regional
port policies might look in the coming years (Wang 2016). development opportunities, boost individual regions’
The PRC primarily seeks access to new markets, optimal investment appeal, energize interregional cooperation and
export terms and increased economic development of its speed up economic growth.
remote regions (Xinjiang Uyghur Autonomous Region, Tibet The structure of the paper is as follows. First, I provide
Autonomous Region, Qinghai, Gansu and Inner Mongolia). an overview of the BRI corridors traversing Russia, Central
To remedy the current situation, China intends to exploit Asia, and the South Caucasus. Then, I provide estimates
the resources and geographical advantages of its central of the container freight flows (since trans-Eurasian transit
and western provinces, unlocking the potential associated is primarily a ‘container story’). There will be three time
with their cooperation with neighboring countries and the dimensions to these estimates—the current situation, the
EU (Valdai 2015; Syroezhkin 2016; Toops 2016). The BRI short-term growth until 2020, and the long-term projec-
is one of the cornerstones of China’s contemporary vision tions. Here I rely on the extensive work made by the EDB
with dimensions that are not just economic, political and Center for Integration Studies under my supervision. A
strategic (Yu 2016) but also cultural, religious and scientific, discussion on Russia’s view and Russian national inter-
drawing on the symbolic meaning of the Silk Road (Liu & ests regarding the BRI follows. Further, along the way, I
Dunford 2016, p. 326). argue that the Belt and Road is virtually an ideal compo-
From the very beginning, Eurasian Economic Union nent of the nascent Greater Eurasia and suggest a set of
(EAEU) member states and Russia in particular were

35
 36

institutional arrangements of functional nature at various China-Kazakhstan-Turkmenistan-Iran; and (3)

levels and involving various actors. Urumqi-Aktau-Baku-Poti, and then on to the EU
(Port of Constanta, Burgas).
2. Overview of the BRI Corridors through • North-South International Transport Cor-
Russia, Central Asia, and the South Caucasus ridor (ITC), which includes: (1) an Eastern
Important components of any analysis of the pros- Route; (2) a Western Route; and (3) a Central
pects of Russia and Central Asian countries’ involvement Trans-Caspian Route.
in implementing the BRI are the identification of optimal Each corridor and its constituent routes differ in length,
transport routes along the China-EAEU-EU axis in terms number of transit states, throughput capacity, and level
of delivery costs and periods, and determination of the of development of transport and logistical infrastructure.
amount of investments required for further development. Based on a comparative analysis of route efficiency met-

Accordingly, four corridors and their constituent routes/ rics and current and anticipated cargo flows, the following
belts that could potentially support transcontinental cargo two land transport corridors appear to offer the highest
EVGENY VINOKUROV

flows were examined (Figure 1): improvement potential: (1) a Central Eurasian Corridor (two
• Northern Eurasian Corridor (China-Rus- routes: a northern route through Dostyk and Astana and
sia-Europe via the Russian Far East and Eastern a southern route through Khorgos, Almaty and Kyzylorda);
Siberia) which includes (1) the First Transport and (2) a Northern Eurasian Corridor through the Trans-Si-
Belt: Tyumen-Omsk-Novosibirsk-Krasnoyarsk-Ir- berian Railway (a detailed comparison and estimates are
kutsk; and (2) the Second Transport Belt: available in Vinokurov & Tsukarev 2018).
Irkutsk-Chita-Khabarovsk-Vladivostok. The Central Eurasian Corridor brings together routes
• Central Eurasian Corridor (China-Kazakh- traversing the territory of China, Kazakhstan and Russia.
stan-Russia-Europe, through the territory of It passes through the cities of Lianyungang, Zhengzhou,
Kazakhstan and then on to the transport infra- Lanzhou, Urumqi, Khorgos, Almaty, Kyzylorda, Aktobe,
structure of the Russian Federation). Orenburg, Kazan, Nizhny Novgorod, Moscow, and then
• Trans-Asian Corridors (routes to the south of on to Brest or Saint Petersburg and the ports of the Baltic
Russia) including: (1) Western China-Kazakh- Sea; or, alternatively, through the cities of Urumqi, Dostyk,
stan-Azerbaijan-Georgia-Turkey-EU; (2) Western Karaganda, Petropavlovsk, Yekaterinburg, Kazan and

Figure 1: Major Trans-Eurasian Corridors

Source: Eurasian Development Bank

 37

Moscow. This route supports the bulk of cargo carried other purposes, namely exporting raw materials (coal, oil,
by land between Europe and China. The overall length of oil products, wood and pulp, metals) to Asia-Pacific mar-
the route is 7,000-7,500 km, depending on the specific kets and ensuring smooth logistics in the Russian Far East.
path. It has a number of advantages over other routes: (1) Therefore, Russia is interested in promoting the trans-Ka-
an ability to use a single transport modality (e.g., only rail- zakhstan route which—let us not forget—also traverses
way transport); (2) a minimal number of border crossings several thousand kilometers of Russian soil, thus bring-
(only two: China-Kazakhstan and Russia/Belarus-EU); (3) ing adequate revenues. The real competitor for all these
‘traditional’ use and relative importance of the corridor, as routes is maritime transportation, which is still responsible
it is already used to carry cargo in both directions; and for 98.5-99 percent of China-Western Europe traffic.
(4) competitive shipping prices compared with the other Trans-Eurasian transit is primarily a ‘container story.’
Europe-China routes traversing EAEU countries. Most opportunities associated with transit traffic along

The Northern Eurasian Corridor’s central link is the BRI routes are related to the use of containers. Container
route running over the Trans-Siberian Railway (Transsib) transport remains virtually the only method of delivery of

THE BELT AND ROAD INITIATIVE FROM A RUSSIAN PERSPECTIVE

and Baikal-Amur Railway (BAM), with Transsib utilization Eurasian transit cargoes. The use of containers guaran-
reaching 100 percent. The largest transport hubs along tees preservation of cargo, standard dimensions, reduced
the route are Vladivostok, Irkutsk, Krasnoyarsk, Novosi- packaging costs, accelerated cargo handling, unified ship-
birsk, Omsk, Tyumen, Yekaterinburg, Kazan and Moscow. ping documents and facilitated forwarding. If the bulk of
Besides its exceptional role in the development of Rus- freight traffic along the China-EAEU-EU axis does switch
sia’s eastern territories, the railway has considerable transit to land routes, it will be using 20- and 40-foot containers
potential. Using this corridor to carry transit cargo between (Vinokurov and Tsukarev 2018).
Europe and Asia reduces delivery times by 10-15 days. Growth of transit container traffic through the EAEU
Unfortunately, weak infrastructure seriously limits expan- will be contingent on development of trade between the
sion of transit capacity, and any significant improvement in PRC and the EU. Currently about 98 percent of mutual
the foreseeable future remains doubtful. Transit capacity EU-China deliveries are made by maritime transport, with
can only be boosted following completion of the BAM and aviation transport and railway transport accounting for
Transsib Development Program. 1.5-2 percent and 0.5-1 percent, respectively. Approx-
As for Kazakhstan, Turkmenistan and other Cen- imately 80 percent of EU-China cargoes are carried in
tral Asian states, they may also benefit from one of the containers, including about 90 percent of cargoes brought
Trans-Asian Corridor routes: Western China-Kazakh- to the EU from China and 70-75 percent of cargoes carried
stan-Turkmenistan-Iran. If overland trade between Iran from the EU to China.
and China is revitalized, this route will make ample use of There has been a considerable increase in railway con-
the southern leg of the Central Eurasian Corridor passing tainer traffic from the EU to China, from 1,300 TEU1 in
through Almaty and Kyzylorda. The total potential capacity 2010 to more than 50,000 TEU in 2016. Between 2010
of the Iranian market is staggering: about 600,000 tons of and 2016, transit container traffic from China to the EU
cargo are carried by land from China through Kazakhstan increased from 5,600 TEU to almost 100,000 TEU. At the
and Turkmenistan, and about 9 million tons of cargo are end of 2017, the volume of China-to-Europe and Europe-
carried by sea from Shanghai to the Port of Bandar Abbas. to-China transit container traffic crossing the EAEU reached
There is no conflict of interest between Russia and 262,000 TEU, exceeding the 2016 value by a factor of 1.8.
Kazakhstan in developing these two corridors simul- Increases in container traffic along the PRC-EAEU-EU
taneously. There are several reasons for that. First, our axis was largely supported by railway transport subsidies
calculations show that the upper bound of demand for provided by China. Our analysis shows that the annual
inland transportation lies at 1.3-2 million TEU, which is doubling of the number of container trains and volume
at least five times higher than the current volume. There of container cargoes along PRC-EAEU-EU routes in
is room for growth. Second, from the political economy 2013-2016 was largely attributable to subsidization of
point of view, this growth can only be achieved if all players export-oriented railway freight traffic by Chinese authori-
participate in boosting investment and ensuring conver- ties. With the Chinese transit container freight rate reduced
gence of technical regulations in order to lower the transit
tariff and attract additional cargo volumes. Third, it is in
Russia’s long-term interest to use Transsib primarily for 1. Twenty Foot Equivalent Unit, a conventional unit used to describe the
cargo capacity of container carriers and container terminals.
 38

almost to zero, cargo flows generated by Chinese export- empty containers), additional container traffic that may
ers rapidly switched from sea routes to railway transport. be attracted by EAEU railway networks is estimated at
Estimates show that total subsidies provided by Chi- 500-550,000 FEU, while total freight traffic along the axis
nese authorities amounted to about US$88 million in 2016. (including existing traffic) may be as high as 650,000 FEU.
This estimate assumes an average subsidy of US$2,500 If the existing East-West/West-East container traffic
per FEU , with the total number of subsidized containers
2
imbalance (2:1) persists and West-East trains additionally
originating from central PRC provinces standing at 35,000 take on any cargoes that can be containerized, aggregate
FEU. The average subsidy per FEU was merely 0.3-0.4 railway container traffic along the China-EAEU-EU axis
percent of the total value of container-shipped cargoes could, over the longer term, reach up to 1 million FEU per
(Lobyrev et al. 2018a). year (Lobyrev at al. 2018a).
Preservation and expansion of transport subsidies

by Chinese provinces is a key driver of continued con- 3. Russia’s Interests
tainer traffic growth. The growth of railway container traffic For Russia, the BRI is not only about transcontinental
EVGENY VINOKUROV

between China and the EU in 2011-2017 from 7,000 FEU transit. The picture of endless freight trains running from
to 131,000 FEU (or from 14,000 TEU to 262,000 TEU) has China through Russia to the EU and back appeals to media
been achieved at a through railway freight rate of US$4,800- outlets, but does not alone provide an adequate rationale
6,000 per FEU (subsidized by about 40 percent) (Figure 2a). for heavy country involvement. For transit countries, the
Subsidy-driven reduction of China-Europe railway freight Silk Road is, primarily, about boosting inter-regional con-
rates by 30-50 percent has resulted in a 19-fold increase of nectivity within the Eurasian landmass in the long run. The
container traffic. The current through freight rate (including future of regions such as Central Asia, the Russian Urals,
subsidies) of US$5,500 per FEU may encourage further Siberia and the Far East critically depends on improved
growth of container traffic to 200-250,000 FEU in 2020 (a access to markets. From Russia’s perspective, the BRI
twofold increase over three years). After that, keeping the will help capitalize on growing inland industrial centers
freight rate at US$5,500 per FEU will no longer produce and incorporate innovative industrial and agrarian clusters
such a pronounced effect and container growth rates will into the larger international economy. The BRI will be most
dramatically decrease (Figure 2b). beneficial for Russia if it will help develop innovative and
Container traffic growth from 200-250,000 FEU in competitive production centers, create opportunities for
2020 to 500,000 FEU by 2030 is possible subject to further small and medium-sized businesses, and provide a boost
reduction of the through freight rate by US$1,500 per FEU for regional development.
(from US$5,500 per FEU to US$4,000 per FEU). As concerns the latter, there is a forward-looking
With balanced container loads (containers travel- hypothesis that BRI transit would help propel inland ter-
ing both ways fully loaded with optimal cargoes; no ritorial and industrial development. We can neither prove
nor disprove this hypothesis at this particular point in time.
2. Forty Foot Equivalent Unit, a conventional unit used to describe the Container transit is growing extremely rapidly but from the
cargo capacity of container carriers and container terminals.

Figure 2: Dynamics of Railway Container Freight Rates and Long-Term Estimates of the
Volume of Freight along PRC-Europe Routes (estimated freight elasticity of demand)
(a) Scenario 1: freight rate reduction to $4,000 per FEU (b) Scenario 2: unchanged freight rate at $5,500 per FEU

Source: Lobyrev et al. (2018a)

 39

very low base. Hence, we currently witness significant would, first, allow for efficient logistics with Middle Eastern
territorial development in only two places on the Chi- countries (as well as between the Russian Far East and
nese-Kazakhstani border (Dostyk and Khorgos). the Korean Peninsula and northeast China); second, help
Russia appreciated the potential positive implications unlock the potential of transit countries (Armenia, Azer-
of the BRI very early on. To sum up, for Russia, the BRI baijan, Kazakhstan, Turkmenistan); and, third, provide
should be viewed as (1) a good business opportunity on tangible synergies for the East-West corridors and make
its own; (2) a means to advance ties with China and attract them more efficient within the BRI framework.
Chinese investments, and (3) generally, a political and eco- Furthermore, it is in the Russian interest to promote
nomic means to counteract Western policies. It also views coordination of positions within the EAEU framework.
the BRI as an inherent part of the nascent ‘Greater Eurasia’ EAEU countries need to assure the joint prioritization of
framework. Last but not least, there are several spheres key transport corridors and routes, and efficient coordina-

wherein EAEU policies should be developed to adjust to tion of related investment programs. In reality, the EAEU
the BRI (Libman 2016). Let us delve into these points in countries often implement their infrastructural projects

THE BELT AND ROAD INITIATIVE FROM A RUSSIAN PERSPECTIVE

more detail. asynchronously. This situation diminishes the efficiency of
BRI can be generally perceived within the priority task transcontinental shipments and undermines the prospects
of raising the economic efficiency of the national economy of increasing cargo flows. There is a lack of coordination
through raising the level of containerization. The Russian to develop infrastructure between large monopolies (for
transport complex is developed but undercontainerized example, Russian and Kazakhstan Railways). Coun-
(that also applies to CASC). Within the Russian Railways tries independently launch certain infrastructure projects,
traffic, containers accounts for only 2 percent of traffic and which de facto form parts of the same international trans-
6 percent of revenue. The current level of containeriza- port corridors. For example, within the framework of the
tion in Russia is more than three times lower than in the Europe-Western China Highway Project, Kazakhstan has
United States and China. In most Russian regions, export already completed construction of a modern automobile
and import container flows are unbalanced: many stations highway from the border with China to the border with
involved in container transport either only accept con- Russia. Russia, in turn, intends to finish its part of the
tainers or only dispatch them. Other enduring limitations works only in 2020.
include insufficient capital allocated for investments in con- A caveat on the Arctic Sea route. While there is a lot
tainer stations (logistics centers), and a shortage of light of talk on the prospects of the Northern route as a poten-
and medium cargo-handling tools and equipment. tially powerful gateway for Asia-Europe traffic, the reality
In fact, no ‘mega-projects’ are required to expand on the ground is much more subdued. While not going
the transport capacity of land corridors along the PRC- into a lengthy discussion of this route’s lacking transit
EAEU-EU axis and boost their competitiveness vis-à-vis infrastructure, questionable transit economics, and lim-
sea routes. What one needs is not a “second Trans-Si- ited availability of seasonal free passage, let us agree for
berian Railway” but selective elimination of transport now that the Arctic Sea route is a very long shot while
infrastructure bottlenecks, which can be managed with the overland railway transit is growing by 100 percent a
limited financial outlay: construction of additional railways, year already.
electrification of new railway sections, upgraded and mod-
ernized locomotives, acquisition of special rolling stock, 4. The Need for National and Regional
improvement of border crossing infrastructure, etc. Institutional Capacity to Manage BRI-related
Increasingly more attention is being paid to the Policy Coordination, Economic Development,
trans-Eurasian transport corridors which traverse the and Investments
continent from the East to the West. This is especially Several structural features of the Belt and Road Ini-
relevant in the context of the BRI. It is a positive phenom- tiative (BRI) in terms of transport corridors along the
enon. At the same time, meridional North-South transport PRC-EAEU-EU axis make it a practically ideal component
corridors should also be developed. I am referring to the of the emerging Greater Eurasia.
corridors running from Russia through Caucasus to the First, there is the applied nature of the BRI transport
Middle East, from Russia through Central Asia to Iran and corridors. The initiative implies both the development of
then on to India, from the Russian Far East through China hard infrastructure (railways, logistic hubs, border cross-
to the Korean peninsula, etc. The North-South corridors ings) and soft infrastructure.
 40

Second, there are positive effects of the BRI on the at least wishes to get rid of the ones that are already in use).
industrial and agricultural development of inland Eurasian It is easier to reach mutual understanding with a limited
regions as well as on the participation of these regions in number of countries involved.
global value chains. All this makes the transport corridors along the Chi-
Third, trans-Eurasian transport corridors are by defi- na-EAEU-EU axis an ideal component of the emerging
nition the objects of international economic cooperation. Greater Eurasia.
They gain a lot from effective international cooperation We are also dealing here with a perfect case study for
both in terms of physical infrastructure development (rail- international relations and political economy textbooks.
ways, border crossings points, marshalling capacities, The long-term success of land transport crucially depends
rolling stock, etc.) and standardisation of technical reg- on whether or not international cooperation within Eurasia
ulations, which will enable to reduce delivery times and will be successful. Moreover, land transport competes with

costs incurred by carriers. It is not enough for only one maritime transport, which is not dependent on continental
country to provide a boost—be it China with its significant cooperation but rather is a product of globalization.
EVGENY VINOKUROV

subsidies, Russia modernizing infrastructure (even though The realisation of the trans-Eurasian transport corridors’
Russia accounts for 50 or more percent of the total length fullest potential requires the concerted efforts of the coun-
of the route), or Poland, located squarely on the way to the tries in Western, Northern, Central and Eastern Eurasia.
main industrial regions of Europe. The maximum potential There are several tasks and they are interrelated. First, to
of railway container traffic which stands, according to our increase container traffic up to 2 million TEU (the current
estimates, at 2 million TEU, could only be reached when volume is 300 thousand TEU). Secondly, to remove bot-
the freight rate is about ‘deep sea + US$1,000.’ The latter tlenecks in their transport and logistical infrastructure and
is possible only if all the counterparties invest in this project thereby give impetus to the development of land-locked
and coordinate their efforts. Otherwise, 500-700,000 TEU Eurasian regions—the Russian Urals and Siberia, Central
will probably be set as a ceiling for transit container traffic Asia and the western provinces of China. Third, to create
(for comparison, at the end of 2017, the volume of transit new export opportunities for these regions and ensure their
container traffic reached 260 thousand TEU, and by the participation in the global economy. Thus, the historical
time this article is published, it is likely to stand at over 300 centrifugal forces in Greater Eurasia will partially give way
thousand TEU). to centripetal ones.
Currently all the railway routes used to connect China These tasks are solvable if certain steps discussed
with the EU countries pass through the EAEU countries. in the previous section are taken in the context of inter-
There is no uniform through freight rate along their entire national cooperation. It is a matter of neither regional nor
length. Each railway company charges its own freight rates global cooperation. Rather, it is situated on the meso-level
while changes in these freight rates are not synchronised. of trans-continental economic cooperation. Cooperation
Thus, no single railway operator can dramatically affect the at the interregional level will yield results that far exceed
aggregate amount of the freight rate by changing its freight those that can be gained at the global or (sub-) regional
rates without going beyond its profitability range. level. Therefore, the land transport corridors along
Fourth, from the functional point of view, the ultimate the China-EAEU-EU axis are an “ideal” project of the
success of the BRI transport corridors does not demand Greater Eurasia.
cooperation across the whole continent. The list of coun- One does not need, however, an encompassing insti-
ties and integration organizations is finite. It includes China, tutional structure to manage this process. Rather, there is
EAEU member states (Belarus, Kazakhstan, Russia), and a need for a set of arrangements of functional nature at
the EU countries—Poland in the first place, but also various levels and between various actors. Let us list a few:
Germany, which has a vital economic interest in the mod- • More work needs to be done to standardise nor-
ernization of Polish railways (see an extensive discussion of mative documents and technical regulations used
the place Poland takes in the BRI in Lobyrev et al. [2018b]). in Eurasian countries (rules for shipping various
Participation of these countries is just enough. There is no types of cargoes, rolling stock operating param-
need for the other 79 countries of the Eurasian continent to eters, environmental standards, etc.). To ensure
get involved in the initiative. Their involvement would be not regulatory convergence (CIM/SMGS consignment
only useless, but also potentially harmful (conflicting inter- notes, flawless functioning of border crossings,
ests, concerns with the development of other corridors, or etc.), international working groups representing the
 41

ministries of transport, the national railways, and Eurasian Corridors (through Kazakhstan) were identified
the leading industry players should suffice. as the most promising (Vinokurov & Tsukarev 2018). Not
• The coordination of transport policies can be coincidentally, these two routes are exactly where rapid
dealt with by means of similar working groups growth is already occurring, with transit cargo turnover
and inter-governmental commissions. SCO in Russia and Kazakhstan surging twofold in 2016. As
involvement into economy-related matters has so we have shown, there is no conflict of interest in devel-
far proved to be modest. At the same time, the oping these two routes simultaneously. This is a positive
EAEU is a more important player as many trans- fact for economic cooperation within the Eurasian Eco-
portation-related issues fall under its competence nomic Union, another Russian priority. Finally, it is in the
(technical regulations, common market regu- vital shared interest of Russia, Central Asian states, and
lations, coordination of transport development South Caucasus states to develop North-South corridors,

policies) and should therefore be dealt with by the which would complement the East-West ones, raising total
EAEU institutions. efficiency of national economies and effectively unlocking

THE BELT AND ROAD INITIATIVE FROM A RUSSIAN PERSPECTIVE

• Coordination among national and multilateral inner Eurasian regions and countries.
development banks is vitally important in this
regard. Such IFIs as the World Bank, ADB, AIIB, References
NDB, EFSD and EDB but also, very importantly, Bennett, M. (2016). “The Silk Road Goes North: Russia’s
such national institutions as the Chinese Silk Role Within China’s Belt and Road Initiative.” Area
Road Fund are key players. They may provide Development and Policy 1 (3): 341-351.
long-term financing for the capital-intensive parts Lobyrev, V., A. Tikhomirov, T. Tsukarev, and E. Vinokurov
of the BRI story. International financial institutions (2018a). “Silk Road Transport Corridors: Assessment
provide project financing based on signed and rat- of Trans-EAEU Freight Traffic Growth Potential.” EDB
ified international treaties that do not depend on Center for Integration Studies.
local legislation changes, which helps to mitigate Lobyrev, V., A. Tikhomirov, T. Tsukarev, and E. Vinokurov
certain risks. (2018b). “Silk Road Transport Corridors: Barriers and
• In the IFI-related context, I should also stress Investments.” EDB Center for Integration Studies.
importance of the availability of subsidized lending Libman, A. (2016). “Linking the Silk Road Economic Belt
as well as grants for technical feasibility studies. and the Eurasian Economic Union: Mission Impossi-
They are necessary in many occasions, in particular ble?” Caucasus International 6 (1): 41-53.
in Central Asia. Liu, W., and M. Dunford (2016). “Inclusive globalization:
Unpacking China’s belt and road initiative.” Area
5. Conclusion Development and Policy 1 (3): 323-340.
In terms of policy, the key area of common interest for Minghao, Z. (2016). “The Belt and Road Initiative and its
Russia, Central Asia countries and the BRI is the devel- Implications for China-Europe Relations.” The Interna-
opment of efficient cross-border infrastructure in Greater tional Spectator 51 (4): 109-118.
Eurasia. That means, in particular, modern railway and (to Nag, R. M., J. F. Linn, and H.S. Kohli (eds.) (2016). Central
a lesser degree) road transport corridors. If the physical Asia 2050: Unleashing the Region’s Potential. New
connectivity of Russia, Central Asian countries and China Delhi: SAGE Publications.
were greatly enhanced, it would unlock the potential of State Council of the PRC (2015). Action Plan on the Belt
inland regions: Xinjiang, Qinghai, Gansu, and Inner Mon- and Road Initiative.
golia for China; the Urals and Siberia for Russia; and all Syroezhkin, K. (2016). “Sopryazhenie EAES i EPShP. Ros-
five Central Asian countries. The optimal policy objective siya i Novye Gosudarstva [EAEU and SREB. Russia
is to achieve a substantially higher degree of internal con- and New States].” Rossiya i Novye Gosudarstva Evra-
nectivity between the inner-Eurasian regions (primarily, but zii [Russia and New States in Eurasia] 2: 37-55.
not exclusively, Kazakhstan, Kyrgyzstan, the Russian Urals Toops, S. (2016). “Reflections on China’s Belt and Road Ini-
and Siberia. tiative.” Area Development and Policy 1 (3): 352-360.
Based on the analysis of existing and potential land- Valdai Discussion Club (2015). Toward the Great
and multi-modal transport corridors, the Northern Eurasian Ocean-3 Creating Central Eurasia. The Silk Road
Corridor (essentially along the Transsib) and the Central
 42

Economic Belt and the Priorities of the Eurasian

States’ Joint Development.
Vinokurov, E., and T. Tsukarev (2018). “The Belt and Road
Initiative and the Interests of Transit Countries: an
Economic Assessment of Transport Corridors.” Area
Development and Policy 3 (1): 93-113.
Wang, Y. (2016). “Offensive for Defensive: The Belt and
Road Initiative and China’s New Grand Strategy.” The
Pacific Review 29 (3): 455-463.


EVGENY VINOKUROV
 U.S. Perspectives on China’s Belt and Road
Initiative in the South Caucasus and Central
Asia

S. Frederick Starr

China’s Belt and Road Initiative is one of the most ambi- the Pacific, completed in 1869. And it later built the 51-mile
tious development projects ever undertaken, comparable (82 km.) Panama Canal, opened in 1914. Surely these proj-
only to the post-World War II Marshall Plan and China’s ects, and others that could be cited, anticipate China’s
own Three Gorges Dam project. Significantly, China deftly BRI. Both the United States and China have long histo-
presented it to the world as a civic economic project ries of digging canals on their own territory to strengthen
designed to benefit all participating countries and many economic links between disparate regions and for using
other countries where its effect was expected to be indirect transport as an engine for economic development. Ameri-
but positive. Many countries have expressed enthusiasm ca’s Federal Highway Program, launched in the 1950s, and
for the project, while others have reacted more warily, China’s high-speed “bullet” trains of half a century later had
expressing concerns over the amount of indebtedness it the same objective of knitting disparate regions together.
may entail or giving voice to various geopolitical anxieties. As a result, each of these countries has solid historical
The position of the United States, as the world’s largest reasons for being predisposed to favor large infrastructure
economy, with respect to the Belt and Road (originally projects to foster transport and trade and for understand-
“One Belt One Road,” hereafter “BRI”) is of significance not ing when the other side did the same thing.
only to China but to all the other countries affected by it. The success of China’s effort to open land transport
About the time China announced its BRI, there was corridors across Central Asia and through the South
much speculation in the West, as well as in Turkey, that the Caucasus to Turkey will ultimately depend not on the infra-
United States might oppose it. Inevitably, the Washington structure, which is a prerequisite, but on the market. Thus,
think tanks produced numerous papers reviewing the posi- any judgment on the long-term viability of the BRI, and
tion of regional governments and advising the American hence any projection of the U.S.’s response to it, must
government on what it should and shouldn’t do. Some of wait until the governmentally driven infrastructure phase
these were useful,1 others less so. The Chinese-sponsored has been completed and the market begins to offer
Institute for China-America Studies in Washington issued its judgment.
a paper on “American Perspectives on the Belt and Road The existence of the BRI immediately raises questions
Initiative” that included, inter alia, dyspeptic comments by regarding its relationship to the Asia Development Bank’s
unnamed “experts” who predicted trouble ahead (Chance “Central Asia Regional Cooperation” Program, or CAREC.2
2017). Others took a less anxious view, and still others CAREC, which held its seventeenth annual ministerial con-
concluded that the U.S. was likely to take the new project ference in Ashgabat in November 2018, complements the
in its stride. BRI rather than competes with it. On the one hand, CAREC
From the outset there were solid historical reasons for is broader than the BRI, in that it includes activities to pro-
thinking the American response might be positive, or at mote trade by small and medium-size businesses, energy
least neutral. After all, the U.S. government constructed sector cooperation and development, and compliance
the Transcontinental Railroad, a 1,912-mile (3,077 km.) rail with WTO standards. On the other hand, CAREC focuses
link between the eastern and midwestern rail network and on transport and trade between its eleven members and
South Asia rather than east-west trade. It is regrettable
1. See Dr. Thomas Fingar (2016), “A Silk Road for the Twenty-First Cen- that CAREC has not promoted the so-called “Southern
tury? A Good Idea, Blown out of Proportion”; Johannes F. Linn (2016),
“Whither Eurasian Integration?”; and a series of reports drafted in 2015- Corridor” between the Indian sub-continent and the West
2016 by Andrew Kuchins and Jeffrey Mankoff on how regional govern-
ments in both Central Asia and the South Caucasus were treating the new
integrative projects. All of these papers were published by the Center for 2. For more on CAREC, see the program’s excellent website, https://www.
Strategic and International Studies. carecprogram.org/?page_id=24

43
 44

via the South Caucasus, a route that is older, more heavily An important element of United States diplomacy since
travelled and less frequently interrupted than the so-called the rise of Putin has been to prevent him from taking further
Silk Road to China (Starr 2018). But this project, which actions like his invasions of Georgia (2008) and Ukraine
would provide a southern complement to the BRI, has not (2014-present). While it long refused to provide these and
been possible because CAREC’s mandate stops at Paki- other threatened countries with even defensive weapons,
stan and does not extend to India. it had unbounded faith in economic instruments and also
Some have suggested that the so-called “Northern in traditional notions of balance among contending powers.
Distribution Network” (NDN), which NATO opened to trans- Because of this, the U.S. has worked to prevent any single
port supplies from the Baltic to the fighting in Afghanistan, outside power, or combination of outside powers, from
may provide insights on the viability of the BRI and the dominating Central Asia. In contrast to Russian thinking
U.S. response to it. This is not the case. NDN was set up
3
on the subject, such a strategy by Washington is not a

to meet strictly military needs. Russia, along with Latvia, covert means of taking control of the region itself, but a
Kazakhstan, and Uzbekistan, all consented to it and prof- way of strengthening the region’s sovereignty and capacity
S. FREDERICK STARR

ited from it. But Russia retained the right at any time to for self-government and at the same time preventing other
cut off transport along this route, a condition that would powers from controlling the territory.
have been clearly unacceptable to the Chinese designing This, as much as anything else, has shaped Ameri-
the BRI. can thinking about the BRI and accounts for its generally
Indeed, a major motivation for China to open the BRI positive stance with respect to the program in Central
across Kazakhstan to the Caspian and through Azerbaijan Asia, as opposed to its more skeptical view of its plans
and Georgia to Turkey was to avoid giving Russia veto for Southeast Asia and the Asia-Pacific region. Washing-
power over its transport links with the West. At confer- ton inevitably perceived as positive the gradual shift of
ences in St. Petersburg and Urumqi at the start of the BRI’s transport corridors from north-south, as had prevailed
planning stage, Moscow officials fought bitterly to divert throughout the tsarist and Soviet eras, to east-west, as
the railroad line from Urumqi in a northwestern direction is taking place under the BRI and related initiatives. To be
in order to connect with Russia’s Trans-Siberian Railroad sure, China poses serious challenges to the U.S., among
and to proceed thence to Europe. At the time, Russia which its BRI program in South and Southeast Asia is a
was proclaiming its friendship with Kazakhstan, yet at the conspicuous example. But for the time being the U.S. can
same time working relentlessly to prevent Kazakhstan welcome the BRI in Central Asia for the same reason the
from overcoming the isolation from both East and West Central Asians do: it enables the region’s states to more
that the Soviet system had imposed on it. But it failed. effectively pursue their strategy of balancing the pressures
China refused Moscow’s pleas, bluntly informing the Rus- exerted by external powers.
sians that it would proceed with its planned route across Indeed, the idea of preserving sovereignty by balanc-
Kazakhstan. By doing this it instituted an important check ing external pressures, first proposed in Central Asia in a
on Russia’s power in both Central Asia and the South Cau- 1997 book by Kazakhstani foreign minister Kassimjoomart
casus. To be sure, after crossing Kazakhstan, trains from Tokayev, is now the cornerstone of the foreign policies of
China can still be diverted northward through Russia to all regional states, as well as of Azerbaijan.4 The key to
northern Europe. This is actually happening today, largely this strategy is that each country must maintain cordial
because the route from Kazakhstan across the South relations with all the external powers while at the same
Caucasus to Europe is still under development. But the time carefully balancing them against each other. Were the
impending completion of the Azeri port at Alat and the relative strength of these pressures to change, for instance,
construction by Georgia of its major deep-water port at by China significantly expanding its influence in Central
Anaklia will greatly speed transport via the South Caucasus Asia from economic to strategic, it would of course be
and will likely reduce the proportion of Europe-China trade necessary to rethink this strategy. But it works very well for
conducted through Russia. In the long run it is likely that now. This explains why all the states of the region except
the Russian route will be used mainly for goods destined Armenia, which is open to joining the BRI but has not yet
only for northern Europe. done so, support the BRI, for it engages both China and

3. Kuchins (2009) advanced this notion as early as 2009. 4. For an excellent overview of the fate of this strategy in Kazakhstan, see
Clarke (2018).
 45

Europe in their balancing act. U.S. support for it hinges on advent of the BRI. But TRACECA remains an active player
this same reality (Zhao 2017). and will doubtless become more so as the infrastructure
A further reason for which Washington has to date phase of the new continental trade initiative is completed.
responded calmly and even positively to the BRI is that it The history of TRACECA helps explain Europe’s mixed
appreciates the extent to which the countries of the South response to the BRI. As Phillippe le Corre (2017) has
Caucasus and Central Asia have themselves invested in pointed out, the European Union and member countries ini-
transport infrastructure, independent of BRI. Until China tially voiced various objections to the project, many of them
committed to subsidizing the rail line from Kashgar through reflecting the fact that China had seemingly preempted
the Kyrgyz Republic to Uzbekistan in 2018, the Uzbeks Europe’s own initiative. However, by 2018 these objections
had expanded their transport infrastructure using their own had diminished to the status of reservations and cautions,
resources. Kazakhstan too invested heavily in infrastruc- which may reappear if China plays a stronger hand in east-

ture, including new ports on the Caspian, using mainly its west transport, but are more likely to vanish as discussion
own resources. Turkmenistan completely rebuilt both the of the new routes shifts away from geopolitical concerns

U.S. PERSPECTIVES ON CHINA’S BELT AND ROAD INITIATIVE IN THE SOUTH CAUCASUS AND CENTRAL ASIA
road and railroad from the Afghan border to the Caspian, towards commercial issues and market-driven concerns.
paying for them with profits from its energy sales to China, In reviewing the list of active players in the construction
and then proceeded on its own to build the ambitious new of infrastructure for east-west continental trade, special
port at Turkmenbashi. Azerbaijan meanwhile is using its mention should be made of Turkey. Not only did it play a
own resources to construct its impressive new port at Alat, key role in the development of the first pipeline from the
just as it generously subsidized road, rail and energy trans- Caspian to the Mediterranean, but it has spent billions of
port projects during its first two decades of independence. dollars to forge railroad and road connections between
Meanwhile, neighboring Georgia rebuilt its port of Batumi, Baku and Istanbul. The U.S. strongly supported Ankara in
while a private Georgian firm is planning the major new this effort, thus providing a further reason for Washington
deep-water port at Anaklia. to support China’s contribution to east-west transport.
As these many locally funded initiatives have gone The existence of TRACECA and NDN, along with the
forward, both the European Union and Turkey have also many projects undertaken by regional countries and by
invested in east-west transport routes through the South neighboring Turkey, change the common conception of
Caucasus to Central Asia via the Caspian. In a visionary the BRI as single-handedly conceiving and constructing
move in 1993, only two years after to collapse of the all the infrastructure needed for east-west continental
USSR, the European Union set up the Transport Corridor trade. Chinese mapmakers have included on their maps
Europe-Caucasus-Asia, or TRACECA. Fourteen regional of the BRI many routes that were in fact financed and con-
states in the South Caucasus and Central Asia joined structed by others. This has caused consternation in the
forces with the twenty-eight states of the European Union countries slighted and has led many analysts to overesti-
to mount a many-sided program to boost trade via the mate the scale of China’s involvement with the region and
Black Sea with the countries of the South Caucasus and to underestimate both the role of the international financial
Central Asia. TRACECA also envisioned the extension of institutions, such as the Asia Development Bank and the
its infrastructure to China. Iran subsequently joined the European Bank for Reconstruction and Development, and
program, but sanctions have prevented it from becoming of regional countries themselves. This reality in turn plays
actively involved. A Director Generalship and permanent a role in Americans’ evaluation of the BRI, and helps us to
secretariat were established in Baku in 2000, giving per- understand the calm spirit in which they have received it.
manence to the organization. But one might ask if the Chinese project was not an
The heart of TRACECA has been its reconstruction expanded version of the “New Silk Road Project” that
or construction of road and railroad links between the Secretary of State Clinton announced in Chennai, India in
Mediterranean and Caspian Sea. Air transport was also 2011. The prospect she offered was grandiose, featuring
included, but has turned out to be a secondary focus. The easy links by rail between India, Afghanistan, and the other
concept of TRACECA directly anticipated the BRI, and the states of Central Asia (Clinton 2011). Unfortunately, Clinton
Chinese doubtless studied it carefully. Where it failed was neither staffed nor funded the project adequately, and it
in attracting adequate funding to execute the most import- gradually died.
ant projects. In some cases, local governments stepped in A further and equally serious shortcoming of Hillary
to fill the breach, and in others nothing happened until the Clinton’s “New Silk Road” is that it connected the Indian
 46

subcontinent with Afghanistan and the rest of Central Asia spite of rising tensions between the U.S. and China over
but failed to extend its roads and railroads to the western the South China Sea and Indian Ocean, and over tariffs.
shore of the Caspian and thence to Europe. This stun- A further reason for Washington’s moderation was that
ning failure may be traced to the fact that all the countries it assumed that the major products transported along the
involved with Clinton’s project fell under the Department of new corridor would be European or Chinese, not Ameri-
State’s Bureau of South and Central Asia Affairs, whereas can. The United States’ economic interest in the project
the South Caucasus fell under the jurisdiction of the Euro- was linked more closely with its hopes for the economies
pean Bureau. Rather than solve this bureaucratic problem, of the former Soviet republics and of Afghanistan than
the Secretary capitulated before it. Her Silk Road project with its own economic prospects. To be sure, American
was a flop the moment it began. logistics firms dominated transport between Europe and
It has been suggested that the fact that the Chinese Afghanistan during the fighting there, but none is in a posi-

took the name of the failed American project and applied it tion to compete at such a distance with such European
to their own initiative might have caused opposition to the giants as Maersk, let alone their Chinese counterparts.
S. FREDERICK STARR

BRI in Washington. It is true that President Xi announced By reinforcing the new links between Azerbaijan, Georgia,
the Chinese “Silk Road Economic Belt” in a speech at Kazakhstan, the Kyrgyz Republic, Tajikistan, Turkmenistan,
Nazarbayev University in September 2013, and that at Uzbekistan, and Afghanistan and both China and Europe,
least a few in Washington were surprised that he would the U.S. will help those countries reduce their dependence
so brazenly appropriate the term. But by this time Clinton on Russia and thus limit somewhat Russia’s ability to shape
and her State Department were eager to forget their own their internal and foreign affairs. The American government
Silk Road project. This was all the easier since President did not see these as trivial concerns. Washington remem-
Obama never so much as mentioned it publicly. Given bered Putin’s words from April 2005 that the collapse of
the failure of its own “New Silk Road” project, the U.S. the USSR had been “the greatest geopolitical disaster of
State Department knew it was in no position to criticize the twentieth century” (Sanders 2014). It had watched
the Chinese for attempting to do the same thing, albeit in with horror as Putin continued to stir the Karabakh con-
improved form, or for pilfering the title it had used. There- flict in the South Caucasus, as he invaded both Georgia
fore no one in Washington raised so much as a peep about and Ukraine, and as he pushed the Kyrgyz Republic to
the issue. open new military bases there. As long as the BRI strength-
A second possible source of American opposition to the ened the economies of these and other regional countries,
BRI arose from concerns over China’s decision to ignore Washington was going to offer no serious opposition to it.5
environmental concerns when undertaking megaprojects. But what about the role of Iran in the BRI? Early maps
But this issue scarcely surfaced, and for a simple reason. issued by the Chinese government routed all traffic to
As has been noted above, back in the period 1998-2003, the West through Iran rather than the South Caucasus. A
Russia had pushed very hard to divert the main east-west number of western students of the BRI reproduced these
rail line from crossing Kazakhstan to running instead from maps, which were like a red flag to Washington.6 However,
Urumqi northwest to Siberia, where it was to connect with before Washington had a chance to object, China reversed
Russia’s Trans-Siberian Railroad. However, Russian envi- course and routed traffic from the Caspian ports through
ronmentalists complained bitterly that this would corrupt Azerbaijan, Georgia, and Turkey, as well as through Iran.
a pristine ecological zone and campaigned successfully This deft move averted what might otherwise have been a
against the proposal in Moscow. This would have enabled moment of conflict.
Chinese officials, if challenged by the U.S., to boast that Since 2013 China’s economy has continued to soar, but
their own project had averted an ecological disaster. And its trade policies and business practices have increasingly
so the issue never gained traction. aroused concern in the West, and particularly in the United
And with good reason. On the one hand, Washington States. Various reprisals have been undertaken, including
sought cordial relations with Beijing. On the other, it saw increased tariffs on certain Chinese goods. However, as
the BRI as potentially strengthening China’s ability to check
Russia’s neo-imperial aspirations in Central Asia and the 5. This approach is to be contrasted to that of Michael Emerson and Evge-
ny Vinokurov of Russia’s Eurasian Development Bank, who focus on steps
South Caucasus. For these reasons it therefore responded to engage Russia more directly in east-west transport. See “Optimisation
of Central Asian and Eurasian Trans-Continental Land Transport Corridors,”
calmly and in a guardedly positive manner to China’s proj- EUCAM Working Paper, No. 7, (2009 and 2017), p. 1-18.
ect. It has maintained this position fairly consistently in 6. See, for example, Chris Devonshire Ellis (2015): China’s New Economic
Silk Road, published by Asia Briefing.
 47

of the time of writing the U.S. government had not raised as a region capable of taking charge of its own economic
objections to Chinese practices concerning the BRI. The and social development and even its security without the
reasons for this are, first, that no trade problems have yet interference of outsiders. It passed the General Assembly,
arisen with respect to the BRI and, second, that recent with China, Russia, and the U.S. all supporting it (UNRCCA
developments within Central Asia and the South Caucasus 2018).7
make the BRI and China generally all the more important Thus, something akin to ASEAN or the Nordic Council
as a balance to Russia. These developments include a is being born in the region of Greater Central Asia. While
potentially epochal set of reforms in Uzbekistan and the this remained a distant dream as recently as two years
related emergence of Central Asia as a geopolitical reality ago, it is today being actively discussed not only among
on the world stage. the Central Asian states themselves, but also with existing
Even before he was elected President in 2016, Shavkat regional entities in order to glean from them “best prac-

Mirziyoyev, then Uzbekistan’s Prime Minister under Pres- tices.” Reinforced by expanded east-west interaction
ident Islam Karimov, had launched what has turned out across the Caspian, it is clear that the influence of this

U.S. PERSPECTIVES ON CHINA’S BELT AND ROAD INITIATIVE IN THE SOUTH CAUCASUS AND CENTRAL ASIA
to be a remarkable series of reforms. Internationally, he new regionalism will spread to encompass most of the BRI
lifted bans on intraregional transport and trade, resolved countries between Turkey and China. This new regional
decades-old disputes over territorial claims, and rushed spirit is also increasingly associated with more open forms
around the region building goodwill with the other leaders. of government, as seems to be happening in Uzbekistan.
On the domestic front he launched a program of massive Because of this, one can expect in the coming years
reform. He made the currency fully convertible, instituted for the West to take a deeper interest in the Belt and Road
habeas corpus, reformed and expanded the defense bar, region as a whole and to champion the interests of the
gave entrepreneurs the right to seek investors abroad and transit countries in the event of tensions with China. Indeed,
to invest abroad, removed thousands from lists of sus- the EU has recently grown more active in the South Cauca-
pected religious extremists, and gave the public the right sus and is working on a new strategy for Central Asia. And
to lodge complaints against bureaucrats at all levels (Starr for the same reason that they may take a deeper interest in
& Cornell 2018a,b). the region, the U.S. and Europe will surely seek to resolve
Of course, there is a distance between the cup and quickly and quietly any issues that may arise with respect
the lip: some of these reforms may never be instituted in to the BRI and not allow them to fester or become public.
practice. But they immediately elicited positive responses It should be stressed that the entire discussion of
from the U.S. and Europe, as well as Japan, India, etc. the BRI up to now has occurred during the period when
To the extent they are implemented, they will increase the hard infrastructure was being planned and constructed.
interest of the U.S. and other democratic countries in trade Because it centered on the delineation of specific routes
with Uzbekistan, which will deepen their interest in the BRI. that affected large populations, this inevitably called forth
If other regional countries imitate some of Uzbekistan’s discussions of the geopolitics of the project and led to pro-
reforms, they could deepen America’s engagement and posals to redraw certain routes or to supplement them with
that of the other countries noted above with most or all of others. Such concerns were inevitably the responsibility of
the BRI countries, and hence with the BRI. governments, which addressed them through the normal
Uzbekistan’s outreach to its neighbors, including channels of diplomacy.
Afghanistan, has already removed many of the interstate However, we noted at the outset that as the BRI
tensions that previous racked the region (Tashkent Times advances towards realization, the focus will shift from hard
2017). Trade within Greater Central Asia has greatly infrastructure to soft infrastructure, and from governmen-
expanded, as has trade across the Caspian to Azerbai- tal concerns and negotiators to the concerns of private
jan and Georgia. The presidents of the five Central Asian industry and trade, as well as to the businessmen whose
countries and Afghanistan have begun meeting regu- are most intimately concerned. Rather than asking how the
larly, and have organized conferences on such sensitive roadbed will be defined and constructed, discussion will
topics as water and hydroelectric energy. Outside powers, focus on which logistics firms and freight forwarders will
including Russia, China, Europe and the United States par- utilize the new routes, what companies will offer insurance
ticipate only as observers. Beyond this, in June of 2018 to shippers, and who will construct and manage storage
the region’s governments drafted a resolution for the UN’s
Security Council supporting the emergence of Central Asia 7. The full text of this resolution is available at http://www.un.org/en/ga/
search/view_doc.asp?symbol=A/RES/72/283 
 48

facilities and hotels. Henceforth, it will be the realities of the that Chinese money and standards would undermine the
private sector that will cause the BRI either to flourish or work of the World Bank and Asian Development Bank,
fail, with governments being cast increasingly into the role both of which Washington strongly supported. But even
of supporting players to the business folks. this negative response faded when it turned out that many
The chief demands the private sector will make to years would be needed before the institution could pose a
those who manage the BRI will pertain to the speed of serious threat to the existing development banks, and by
border crossing, costs per mile, taxation, and the mainte- that time some channels for cooperation might have been
nance of roadbeds. Shippers on all sections of the BRI’s
8
opened (Economy 2015).
infrastructure will be in touch with one another and will Even when the U.S. offers advice on debt and other
voice together their demands to governmental managers matters pertaining to the BRI, it is likely to work mainly with
of the BRI when they deem it necessary. Moreover, they officials of countries transited by the BRI rather than with

will do so on the basis of exhaustive hour-by-hour data and the Chinese themselves. It will stop far short of playing a
in full cognizance of the comparative cost of alternative leading role in the enterprise as a whole.
S. FREDERICK STARR

routes, i.e. shipping by sea. This will provide an austere We have already noted that the U.S. response to the
market discipline to all those who may wish to return the BRI in the South Caucasus and Central Asia may differ from
BRI to its earlier geopolitical identity. its more skeptical response to the program’s announced
As the shift to such concerns moves forward, it is likely intentions in Southeast Asia, the South China Sea and the
that the American role will diminish from the current level, Indian Ocean. This is quite normal, and it explains why
which is defined more by geopolitics than by economics, the U.S. position on the BRI in the heart of Asia might be
as will be the case in the future. This is quite separate stated obliquely rather than directly, and why it may prefer
from the U.S. stance towards the BRI as a whole, which is to deal with the BRI with and through the states of the
already growing more skeptical on account of its proposals region rather than over their heads with China directly.
for Southeast and South Asia, the South China Sea and Some have wished for the United States to take an
the Indian Ocean. European and Chinese logistics firms unequivocal stance in favor of the BRI’s actions in the South
will be the chief actors in this new game, not diplomats, Caucasus and Central Asia or in opposition to them. After
whether Chinese or American, whose level of activity will all, it has responded emphatically to the BRI’s program
have declined from the time when the main focus was on in the South Pacific region by convening a quadrilateral
hard infrastructure. diplomatic effort involving Japan, Australia, India, and the
Stated differently, the period of America’s greatest United States that called for a “free and open Indo-Pacific
concern over the BRI was at the planning stage and in region.” Neither will happen, and for three very good rea-
the early phase when the focus was on the financing and sons. First, as we have seen in this overview, in contrast
construction of hard infrastructure. It quietly encouraged to the situation in the South Pacific and Indian Ocean, the
certain routes and cautioned against others. As the shift BRI in this region offers several positive features to both the
to soft infrastructure begins, it may well champion some U.S. and its regional partners in the South Caucasus and
of its own firms to play a role in one area or another. It Central Asia. The negatives are real, and pertain mainly to
is also likely that it will caution the weaker participating the unknown future. Second, because of these benefits to
countries to be cautious about taking on too much debt its partners in the South Caucasus and Central Asia, the
on the false assumption that it will eventually be forgiven. 9
U.S. will in all likelihood maintain its current stance towards
For Washington was genuinely concerned in 2015 when the BRI, knowing that a change will only punish its regional
China announced the formation of the Asian Infrastructure partners and benefit Russia.
Investment Bank (AIIB), with fifty-seven countries as mem- And third, however important the BRI in Central Asia
bers and an initial capitalization of US$100 billion (of which and the South Caucasus may be to China, Europe, or the
only US$30 billion came from China). U.S. officials feared transited countries, it is at best a secondary concern of
the United States. Indeed, the same can be said of the
South Caucasus and Central Asia as a whole, with the
8. These will be comparable to the detailed data already being collected
by the International Road Transport Union in Geneva. See https://www. sole exception of Afghanistan. It is true that the Trump
iru.org/
9. This danger is discussed by Abdi Latif Dahir (2018): “The growing administration has already devoted far more attention to
membership of a China-led development bank challenges the IMF-World
Bank orthodoxy,” published by the Center for Global Development, https://
Central Asia and the South Caucasus than did the Obama
qz.com/africa/1273424/kenya-joins-china-led-asian-infrastructure-invest- administration. For example, it is actively supporting the
ment-bank-aiib/
 49

reforms in Uzbekistan and the efforts at regional integration Zhao Hong (2017). “Armenia open to the Belt and Road
now going forward. But there are limits to this interest and Initiative.” CGTN.
these have to do with world politics as a whole, and not
with the South Caucasus and Central Asia.
This reality will place constraints on the extent to which
Washington will engage with the BRI and with the vari-
ous participating countries of the region. Both can hope
to advance to the top of Washington’s list of secondary
concerns, but it is unlikely that they will rise further among
America’s priorities without the stimulus of some new geo-
political crisis in the region. At that point, however, it is

more than likely that Washington will respond carefully yet
vigorously in support of the sovereignty and self-determi-

U.S. PERSPECTIVES ON CHINA’S BELT AND ROAD INITIATIVE IN THE SOUTH CAUCASUS AND CENTRAL ASIA
nation of the regional states.

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