Since China and the European Union (EU), first established relations in 1975, there has been a dramatic increase in co-operation related to trade, science and technology and other projects between the two regions. In 2015, the EU replaced the United States as China’s largest trading partner (CFIE, 2016). For the EU, China is the second largest trading partner after the United States (Europa, 2017). China is the EU’s largest foreign direct investment (FDI) partner while investments made by European firms like Airbus, Siemens, Nokia and Volkswagen have made the EU the fourth largest FDI investor in China (Wong, 2017). According to Eurostat (2017), the EU sources most of its imports from China with the Chinese market being the second biggest export market for the EU. The EU is China’s largest and most important supplier of technology. Manufactured goods such as industrial machinery & equipment, footwear, clothing, motor vehicles, chemicals, aircraft form the major exports and imports from the EU to China and vice versa. The value of trade between both regions is over €1 billion a day (European Commission, 2016).
Moreover, both China and the EU adopted the EU-China 2020 Strategic Agenda for Cooperation in 2013, according to which the EU reaffirmed the territorial integrity of China whilst China confirmed its support for greater EU integration (Europa, 2015). According to this treaty, both regions must co-operate to promote “peace, prosperity, sustainable development and people-to-people exchanges”. Every year, an EU-China summit is held to discuss political, economic, global and regional issues (Casarini, 2016). An indicator of growing co-operation between both regions, is the constant negotiations and revisions made on agreements on areas as diverse as environmental protection, energy, human rights, climate change, space exploration and education. These findings suggest that the EU and China are both inter-dependent economies, important trading partners and collaborate mutually in a host of areas. It may be inferred that the continued growth, progress and economic prosperity of both regions is dependent on their further integration.
In 2013, China unveiled the ‘One Belt, One Road’ or OBOR initiative to further strengthen and grow trade, commerce and economic ties with the EU (Tonchev, 2016). The OBOR project integrates the Chinese and EU markets by knitting together a vast network of infrastructure – including roads, railways, seaports, airports and oil pipelines across Europe, Asia and part of Africa (Shen, 2016). According to Meunier (2014a), OBOR combines the Silk Road Economic Belt (which is an economic corridor across Europe and Asia) and the 21st Century Maritime Silk Road (which is a network of sea based trade routes that links Asia with Africa and Europe). OBOR is the English acronym for the Chinese term ‘yidai yilu’ (一带一路) (Yan, 2015). It is also known as the ‘New Silk Road’ that connects China with the EU through South East and Central Asia & the Middle East. OBOR will link 65 countries that together account for 55% of global GDP, 70% of the world’s population and 75% of its energy reserves (Brauner, 2014). According to Wacker (2016), China has already contributed $300 billion towards loans for infrastructure and trade financing for OBOR with its total financial commitment expected to reach $1.4 trillion. The EU has committed an investment of €315 billion for OBOR.
There are various benefits and advantages that OBOR will bring to both the EU and China. For the EU, this project is expected to revitalize the flagging EU economy, stimulate growth and create new jobs in sectors like research, education, transport and infrastructure (Garcia and Xu, 2016). OBOR is expected to increase trade and investment, improve connectivity, modernize its infrastructure as well as provide the EU with access to new markets (Fallon, 2016). This is also the objective of China which aims to leverage OBOR to stimulate growth, development, connectivity and collaboration on various projects with the EU. For China, OBOR will provide better access to the EU which has the world’s largest and richest 500 million strong consumer market (Casarini, 2015).
The OBOR project is expected to furnish China with new export markets and sources of raw materials (Rajagopalan, 2016). OBOR will transition the export-based Chinese economy to one based on consumption and investment. Loans given to countries linked by OBOR will upgrade the Chinese economy. OBOR will stimulate exports that will help China offload its current domestic overcapacity and lead to restructuring of various sectors including manufacturing, transport and energy.
At the same time, there are various political, economic and security implications that OBOR will have for both China and Europe. For example, Wacker (2015) states that the increasing inflow of Chinese capital can lead to greater indebtedness of European markets with OBOR threatening to undermine the integrity of the EU by bringing divisions between individual countries. With the financial benefits of OBOR yet to increase, China runs the risk of committing vast amounts of capital on the project. This implies that there are both advantages and disadvantages associated with OBOR for both China and the EU.
Based on the information above, it becomes clear that there are quite some advantages and disadvantages of OBOR for both China and the EU. However it still remains unclear what kind of effects this project will have on China and the EU. Therefore, this paper will be focusing on several aspects surrounding this topic.
Methodology
This chapter describes how the research was set up and which research method per sub-question was chosen. Also will be explained how the research has been carried out and what is being done to guarantee the reliability and validity of this research. Finally, there will be described in which way collected data has been analyzed and processed. A qualitative research method was chose for the implementation of the practice-oriented research. Both desk research and in-depth interviews will be included during this research process.
Desk research data will be made up of different articles from the Internet, such as Meta search engines and scholar.google.com. These articles contain data that focus on the topic from different perspectives thus giving the reader an overall view. The information I will be gathering will be fact based and proven such as statistics. It will mostly come from literature written by professionals and experts thus granting credibility. Through in-depth interviews qualitative sub-questions are researched. In qualitative methods, the experience of the persons studied is central. The researcher can obtain in-depth information by responding to underlying motivations, opinions, wishes and needs (Verhoeven, 2011). In-depth interviews can help to find out what cannot be obtained from other sources.
A source that is used during this research is interviews with experts on the topic. An example is interviewing experts who have a better understanding of the advantages of the Belt and Road initiative and information regarding the economic development. The topics that are described in the desk research are investigated further by means of a questionnaire.
Field Research will be done through in-depth interviews with professors at University’s who focus on Business in Asia thus holding knowledge about the subject and researchers who are experts in both the economical and political field. Even at The Hague University there are professors from Chinese Descent which focus on Asian Studies who aware of the Belt and have useful information. These experts will hold information I won’t attain from other ways of research and will be contacted and interviewed.
During the literature review, reliability and validity are in different ways guaranteed and enlarged. With regards to reliability, different sources are in this research compared with each other in order to gain basic knowledge and insight about the research topic. To be able to measured and after that assessed by means of general (quality) criteria.
The following criteria have been used for this, originating from: relevance, reliability, authority, topicality and verifiability. Internal validity is guaranteed by using different types of data in the research (Verhoeven, 2011).
Chapter 2. Literature Review
In this chapter the key characteristics of the OBOR will first be discussed followed by an analysis of how the belt is being financed, OBOR’s possible financial impact compared to the old Silk Road, the objectives China seeks to fulfill through OBOR and the current steps already in place for OBOR. This will be followed by an analysis of the advantages of OBOR for China vis-à-vis Europe and the potential threats for OBOR for China. Through this structure, the main research questions and the sub-questions will get covered.
2.1. OBOR Defined
This section answers the first research sub-question which is to examine what is meant by OBOR. The inspiration for OBOR is the ancient Silk Route that originated in China and terminated in Europe 2000 years ago. The Silk Route was a major trade link that connected the East and the West. OBOR envisages leveraging modern transportation and technology to redefine the original silk route according to the requirements of the contemporary world. OBOR comprises of land and sea based routes (termed the New Silk Roads) both of which originate in China and terminate in Venice (Italy) with a stop in Athens (Greece) (Fasslabend, 2015). The first route to be launched by the Chinese Premier, Xi Jinping in September 2013, is land based and called the ‘Silk Road Economic Belt’ (Xinua, 2016a). The second route is seabased and thus called the ‘’21st Century Maritime Silk Road’ having been launched by Jinping in Jakart on October 2013 (Du, 206). Both these names evoke the ancient silk route and reinforce the point that the objective of both routes is trade, commerce and greater integration of China with the West. Figure 2.1 indicates both the routes.
Figure 2.1. Routes of the 21st-Century Maritime Silk road and the Silk Road Economic Belt
Source: Xinhua (2016a)
OBOR includes a total of six Economic corridors along the New Silk Roads connecting China with Central and South Asia as well as Europe and Africa. These corridors consist of the China-Mongolia-Russia Economic Corridor, China-Central Asia-West Asia Economic Corridor, China-Indochina Peninsula Economic and the New Eurasia Land Bridge (The Economist Intelligence Unit, 2016). The OBOR project will focus on the building of the Bangladesh-China-India-Myanmar Economic Corridor and the China-Pakistan Economic Corridor through the 21st-Century Maritime Silk Road (National Development and Reform Commission, 2015). These economic corridors include key ports and major cities in the countries through which they pass.
On March 2015 two ministries of the People’s Republic of China, i.e., The Ministry of Commerce and Ministry of Foreign Affairs together with the National Development and Reform Commission published a Vision and Action Plan that laid down the key expectations from OBOR. (Haggai, 2016). According to this vision plan, China is aiming for development and expansion of its global influence together with increasing its integration and cooperation with other regional countries (Yu, 2016). This is to be done through policies and instruments that affect global economy and trade. OBOR is a key factor in this overall plan and is to be used for trade and economic development along with increased cultural exchanges and improved infrastructure.
OBOR however, is not only going to be a tool of inter-country integration but will also facilitate greater integration inside China. The OBOR project will integrate road and railroad networks across 9 provinces in China. With the inland route going through Gansu, Qinhai, Ningxia Autonomous Region, Xinjang Uygur Autonomous Region and Shaanxi, the maritime road will be connected to ports in Guangxi Autonomous Region, Hainan and Fujian (The National Development and Reform Commission, 2015). The National Development and Reform Commission (2015) also observed that the initiative will be highly convenient for cities and provinces around the roads, potentially helping them develop and grow further. For example, the Chinese province of Yunnan which is geographically located at the borders of Myanmar, Vietnam and Laos will form the entrance into China for these South East Asian Countries. According to Haggai (2016) out of the 31 provinces in China, as many as 22 of them will eventually be part of OBOR. Even investors not directly linked to OBOR will experience the spill-over effects from those provinces that experience higher growth due to the initiative.
2.2. Financing OBOR
This section examines the second research sub-question which is to analyze how OBOR will be financed. According to Cui et al., (2015), OBOR will be funded through the government and private capital. The potential contribution from governments associated with the project is about $190 billion as indicated in table 1.
Table 1. Four International Funds Potentially Involved with OBOR Funding.
Name Year Founded Size (US$ bn) Destination countries
Silk Road Fund 2014 40 OBOR Countries
Asian Infrastucture Investment Bank 2014 50 Bangladesh, Brunei, Combida, China, India, Indonesia, Kazakhstan, Kuwai, Laos, Malaysia, Maldives, Mongolia, Mynmar, Nepal, New Zealand, Oman, Pakistan, Phillipines, Qatar, Saudi Arabia, Singapore, Sri Lnka, Tajikistan, Thailand, UK, Uzbekistan, and Vietnam
BRIC Development Bank 2013 100 Brazil, China, India, Russia, and South Africa
SCO Development Bank To be set up NA China, Kazakhstan, Kyrgyzstan, Russia, Tajikistan, and Uzbekistan
Source: BofA Merril Lynch Global Research (2016)
Investing in OBOR will take about 5 years, assuming an annual investment of $40 billion by all the OBOR countries (Cui et al., 2015). Private capital funding is mainly from banks which have gradually shown interest in the project (Global Capital, 2017). Ever since Jinping announced an initial investment of $44 billion in OBOR, Chinese banks have also wanted to invest in the project (Global Capital, 2017). Haggai (2016) states that the Chinese government gets its funding of OBOR through state owned banks. These banks have raised about $100 billion dollars for this Project. With 21 state owned banks in China having signed the Memorandum of Understandings (MOUs) with international banks like the Asian Development Bank to raise capital for OBOR (Ng, 2015).
According to Fallon (2017), China has put new financing mechanisms in place to provide funding for State Owned Enterprises (SOEs) participating in OBOR. Examples include the Silk Road Fund (SRF) and the Asian Infrastructure Investment Bank (AIIB). International banks that have also shown interest in the project include The World BANK, ADB Bank and the New Development Bank. In addition, private sector firms can also support OBOR. Frankopan (2015) said that those of China’s private companies that have positive cash flows and wish to expand into international markets are likely to invest in OBOR. Such companies are important partners for the Chinese government to take forward the OBOR initiative.
The Chinese government also leverages support from strategic international partners. For example, in April 2015 the Private Power and Infrastructure Committee of Pakistan together with the Three Gorges Group of China decided to sign an agreement to work together on the development of the Pakistan Card Lott Station costing a total of $1.65 billion dollars. This was the first foreign investment project funded by the Silk Road Fund and the construction of station is expected to get completed by 2020 (Ng, 2015).
Cui et al., (2015) conducted an analysis of the financial implications of OBOR for China given its massive investments in the projects which resulted in several possible scenarios. These include:
• OBOR countries (win) – China (loses) scenario: In this scenario, development in the countries along the OBOR route, will be subsidized by China. The terms will not be stringent on the beneficiary nations with China will providing most of the investments and funds.
• China (win) – OBOR countries (lose) scenario: In this scenario, even though OBOR does not generate the profits that will cover the cost of capital, those countries that have been beneficiaries of Chinese loans will pay China back in ‘kind’ rather than in ‘cash’. For example, resource rich countries can provide China easy access to critical raw materials. Other examples are when beneficiary countries provide China with key defence technology or support China and its policies in international forums.
• OBOR countries (lose) – China (lose): This is the worst case scenario. China's investments would create corruption and division within beneficiary countries with most of the allocated funds not being used for the projects. The governments of these countries will benefit from Chinese investments whilst refusing to pay China back.
• OBOR Countries (win) – China (win): In this scenario, both China and the beneficiary countries win. The beneficiary countries leverage OBOR related Chinese investments in profitable projects that develop their respective economies and stimulate employment. These countries pay Chinese loans back enabling China to reap rich dividends from its OBOR investments.
The above scenarios indicate that China's attempts to focus on the funding and infrastructure requirements of OBOR countries whilst trying to rebalance its own economy, capital account surplus and efforts to secure its energy and food resources is a full of risks and difficult to achieve for.
In connection to this, Hansen and Wang (2013), said that the 4 scenarios discussed above indicate that if beneficiary countries default on their loan payments, the economic system in China can be severely impacted, given the vast investments made by the Chinese government in OBOR countries to secure their co-operation in this project. For example, between 2005-2016, China’s total foreign direct investments in OBOR may be segregated into various sectors including transportation (18%), agriculture (3%), metal mining (8%), energy (50%) and property construction (11%) as indicated in figure 2.2 (Global Investment Tracker, 2017).
Figure 2.2. Direct investments from China to BRI countries by sectors
Source: NBS, BBVA Research
Figure 2.2 shows that the potential threat of debt default by OBOR beneficiary countries to China is very real. China Economic Watch (2015) stated that over the period 2014 – 2017, the levels of indebtedness of OBOR countries have greatly increased with their domestic debt being far greater than the external debt.
An important observation is that even though the Chinese investments in OBOR countries have roughly jumped 4 times over the period 2012 – 2015, reaching $126 trillion by the end of 2015, its still considerably low at 3% in comparison with investments made by the United States in OBOR countries at (10%) and in Europe at (50%). This implies that the United States still exerts considerable political and economic clout over OBOR countries in general and over the EU in particular.
From the above views it may be inferred that there are multiple sources of funding for OBOR which, combined with Chinese expertise in infrastructural development, will go a long way in making the project a reality.
However, China will need to invest cautiously in order to avoid debt default which can potentially undermine the OBOR project. A fine balance needs to be achieved between higher investments in OBOR and returns on investment that accrue to China.
2.3. OBOR Compared with the Silk Road
This section discusses the third research question which is to examine how OBOR can be an economic asset to global Trade compared to the Silk Road.
The OBOR routes largely duplicate those originally covered by the Old Silk Road. OBOR thus represents a rejuvenation of this vital and ancient trade link between China and the West whose benefits were mainly economic and cultural. For example, Hansen (2000) points out that in the ancient Chinese capital of Xian, people from different countries came together to trade. Thus the Old Silk Road played a huge part in the development of Global Trade, bringing countries together from various places to trade peacefully alongside each other without religious based conflict. The Old Silk Route demonstrated how global trade could be conducted without strife and conflict. The primary objective of the old silk route was economic, whose main beneficiary was China. Hansen and Wang (2013) point out how there was enormous demand for Chinese goods like silk and porcelain in the West. These goods were paid for by gold which came back to China via the silk route. In addition, through the silk route, China got access to the horses of Arabia and Samarkhand which played an important role in strengthening the military might of the Chinese army (Liu, 1996). Just like the old silk route, OBOR also demonstrates how global trade can be achieved peacefully. The objective of OBOR is also to facilitate exchange of goods and services between the East and the West resulting in economic development in China as well as in countries associated with OBOR.
Having said this, there are some fundamental differences between the Old and the New Silk Road. According to Chanda (2015), while the old silk route fulfilled various economic and cultural objectives, China was not able to exert political influence through the ancient silk route. However, OBOR represents the emergence of China as a superpower in the global geopolitical landscape and an expression of its ambitions for greater power and influence in world affairs. This is indicated in the statement made by General Qiao Liang who in a speech at the Defense University in China said that the “One Belt, One Road project is a counter strategy by China to stop the US from moving eastward to much”’ (Hansen and Wang, 2013).
This statement was extended by President Xi who said that “Several interests of Asian countries have crossed paths, triggering the Asian community to focus on a common goal”. Fallon (2015) interpreted this statement as meaning that OBOR performs the political objective of uniting and integrating all those Asian countries associated with the project. An implication of this statement was that an integrated Asian block would counter-balance to the United States and its influence in world affairs. According to President Xi, the sheer size of the Chinese nation, the fact that it has the world’s largest population, its military might and that fact that is has one of the fastest growing economies in the world means that China has to assume greater responsibility for regional and world development and peace (Chanda, 2015). OBOR becomes the tool with which to achieve this larger role China envisages for itself on the global stage.
A key area of difference between OBOR and the old Silk Road is its colossal scale. Geographic constraints forced traders traveling from China and Central Asia to pass through certain locations only. This prevented other regions from getting developed. In addition, the Chinese government in general discouraged travel of its citizens from beyond the country’s border (Frankopan, 2015). OBOR however, crosses multiple land and sea routes, with the Chinese government committed to developing transport and economic corridors. This infrastructure that covers as many as 60 countries in Eurasia is expected to stimulate large – scale economic development for all countries. Thus OBOR has the potential of reaching the objective of bringing together different countries and economies through multiple transportation networks. Fallon (2015) expressed this objective by stating that OBOR is like “A fabric by various drivers of interwoven ports and transport passages like the strands on a loom, improving security, trade and aid strategic penetration”. In addition, Chand (2015) pointed out that OBOR will provide access to sources of energy and of raw materials – something which the Old Silk Route never did.
Another key difference between OBOR and the old silk route is the very large investments required for the project. An indication of Chinese commitment to OBOR and to development of regional economies in Asia and elsewhere is the investment of $50 billion from the Asian Infrastructure Investment Bank and $40 billion from the Silk Road fund that the country has made in OBOR (Frankopan, 2015). According to Mah (2016), the economic potential of OBOR is slowly but surely attracting foreign investors from other countries as well. With as many as 60 countries involved in the project, a total of $21 trillion has already been accumulated of which 29% represents non-Chinese investment.
The above-mentioned analysis indicate that while the Old Silk Road focused on exchange of goods, OBOR will achieve infrastructural developments, facilitate exchange of men, money and materials and enable China to exert a greater political influence in world affairs than it did in ancient times.
2.4. OBOR Objectives
This section answers the fourth research question which is to explore, what China is trying to achieve through its Go Out Policy.
Macaes (2016) observed that the OBOR initiative must also be analyzed against the backdrop of China’s ascent as a global economic and political superpower and in an increasing multipolar world. OBOR is a means for China to reorganize the global economy and global value chains and establish the significance of China in international affairs. Markus (2016) stated that through OBOR, China will be recognized as an economic power and restore its pride after its subjugation by the European powers in the 19th century and more lately by Japanese imperialism. For Van Der Putten (2016) OBOR will bring to fruition Xi Jinping’s Chinese Dream and the Great Renaissance of China. Both these objectives have dominated Chinese political debate since 2014. OBOR will place China right at the centre of global affairs and in doing so the country will more than ever conform to its etymological definition of ‘‘Zhong Guo’ (中国) or the Middle Kingdom”.
After decades of isolation, OBOR indicates transition to a more open foreign policy more in keeping with the broader world environment in which China operates now (Chance, 2016). Here, Casarini (2015) said that OBOR is China’s biggest diplomatic outreach program in decades. OBOR marks Chinese advocacy and commitment towards global trade. Researchers such as Curran (2016) and Sabin (2017) said that apart from boosting exports, OBOR will help China fulfil political objectives of increased currency exports, undermining the influence of rival countries, gain diplomatic support and achieve strategic divisions in rival economies. Shen (2016) points out that OBOR will be used by China to counter potential threats to its national interests. For example, the Silk Road Economic Belt (SREB) corridor through Central Asia and Europe and the China Pakistan Economic Corridor (CPEC) will provide alternative transportation routes for China that are faster and cheaper. Figure 4 shows the current routes used by China for its imports and exports. It is observed that China is overwhelming dependent on maritime routes for both imports and exports. Clover and Hornsby (2015) observes that up to 85% of the country’s imports and between 70% – 85% of its energy supplies pass through such maritime chokepoints as the Strait of Malacca in the South China Sea.
Figure 2.4. CPEC Economic Corridor vs Current Trade Routes
Source: South China Morning Post, 2013
This region poses a host of threats to Chinese interests including overwhelming influence of the United States and its allies, potential blockade by the United States and its allies in the event of war, high incidence of piracy and maritime crime and proximity to the high conflict zone of the South China sea where China has territorial disputes with neighbouring countries like the Philippines and Thailand. In this scenario, the CPEC would allow China to access oil resources directly through CPEC and import goods through alternative routes through the Middle East, Africa and Europe as indicated in figure 2.4 (Ghiasy and Zhou, 2017). Similarly, OBOR includes the Thai Canal project that cuts across the Malaysian peninsula and enabling ships to completely bypass Singapore and the Straits of Malacca (Godement et al., 2011). Haggai (2016) observed that both CEPC, the Thai Canal project and other projects such as Bangladesh-China-India-Myanmar Economic Corridor (BCIMEC) and the China-Mongolia-Russia Corridor are motivated by the need to counter economic, political can security issues faced by China. Pillalamarri (2014) said that OBOR will significantly expand the political and economic leverage exerted by China over its neighbourhood as most of the countries that are recipients of Chinese funds for new infrastructure will be drawn into the trade and finance orbit of China.
There are several objectives that China seeks to achieve in the EU through OBOR as well. According to Wang (2016) OBOR will promote economic and cultural exchanges between the East and the West that are equitable and friendly. For this reason the EU must embrace the OBOR initiative. Zhao (2016) observed that OBOR will increase Chinese contribution to the global economy in ways that do not infringe the interests of other countries that are associated with this project. Islam (2015) states that investments made by China in OBOR related economic corridors in the EU is one of the ways through which financially vulnerable countries in the EU can resolve issues related to infrastructure development, debt and job creation. This is particularly true of East European countries through which OBOR routes will pass through. Other objectives include increased bilateral trade, enhanced levels of investments, new business opportunities for both EU and China based companies, greater employment, economic growth and infrastructure development in both China and in the EU.
The above views indicate that OBOR will address multiple and complex requirements that China faces as it becomes a global superpower. It is a tool that will enable China to fulfil various geostrategic, political and economic objectives and counter a range of internal and external challenges as well. The primary advantage of OBOR for China is that it will help the country achieve various high priority national interests.
2.5. OBOR – Current Status
This section answers the fifth subquestion which is to explore current steps towards OBOR. Firstly the objectives that are sought from OBOR have been clarified. The fundamental aim of OBOR is to leverage large scale infrastructure networks that will facilitate the exchange of goods, knowledge and capital not just between China and the EU but with all countries associated with OBOR and situated in Eurasia, the Middle East, Africa and Eastern Europe. These objectives are explained by D’Hooge (2016) who pointed out that OBOR will facilitate the movement of men, money and materials across the continents of Asia, Africa and Europe with the objective of facilitating global trade and investment, thereby promoting economic development. Casarini (2015) pointed out that OBOR will incorporate 55% of the Global GDP, 70% of the world’s population of 75% of known global energy reserves. According to Garcia and Xu (2016), OBOR will account for 9% of China’s GDP. These findings indicate that current objectives and expectations of OBOR have been clearly identified.
Secondly, the routes that OBOR must cover have also been clearly identified. OBOR will comprise of two main economic corridors. The first of these is the overland Silk Road Economic Belt (SREB) and the second one is the 21st Century Silk Road Maritime Belt or MSR. The road route is based on infrastructure that connects China with Europe through Central Asia or Eurasia. The various land routes that make up SREB have also been identified. According to Kroeber (2015), the Northern Route passes through Beijing, Russia, Germany and Northern Europe. The Middle Route comprises of oil and gas pipelines that pas through Beijing, Xian, Urumqi, Afghanistan, Kazakhastan, Hungary and terminating in Paris, France. There is a Southern route that is based on using the highways in different countries. This includes highways in Beijing – South Xinjinan – Pakistan – Iran – Iraq – Turkey – Italy and ending in Madrid, Spain.
Railways play an important role in connecting these locations and provide China with faster and cheaper alternatives to current maritime routes for the transport of freight (Wang, 2016). For example, since 2013, Chengdu which is the capital of the province of Sichuan is connected with Lodz in Poland through railway. In fact, Shen (2016) states that there are 12 cities in China that are connected by rail to 9 EU cities. For example, Suzhou is connected to Warsaw and Lianyugang to Rotterdam. Chongqing is connected to Duisburg, Yiwu to Madrid and Zhengzhou to Hamburg. Through these different routes, cargo trains which are cheaper than ship based transport are very relevant in OBOR. The sea routes connected with OBOR pass through the ASEAN region, South and West Asia, through North Africa and Europe and these routes have already been identified.
Another objective of OBOR that has already been finished are the financial commitments. According to Casarini (2015), China has committed a total of $1.4 trillion to the entire project. Investments from the Asian Infrastructure Investment Bank (AIIB) and from other EU member states have resulted in a contribution of $40 billion (called the Silk Road Fund) which have financed most of the projects already initiated under OBOR (Hansen and Wang, 2013). This contribution is expected to be raised to $100 billion over the next two years. China has already made a total contribution of $300 billion towards loans for infrastructural developments and trade financing (Fallon, 2015). Some of the other methods that have been initiated to secure funding for OBOR include joint share-holderships, contracting and co-financing.
Several OBOR projects have already been initiated, particularly those in south, central Europe and the Mediterranean. The ports of Greece have already benefited from investments under OBOR. Clover and Hornsby (2015) observe that the flagship project in Greece under OBOR is the land – sea route that links the Greek port of Piraeus to 8 Central and Eastern European countries. China has already committed Eur 2.2 billion to this project which has been sourced through funds from China’s Export – Import Bank. Work on this project began in 2015 and got completed in 2017 (Brinza, 2016). The port of Piraeus is located mid-way between Asia and Europe and provides China with a strategic entry point into the EU. It links China with the EU through the Mediterranean sea. Garcia and Xu (2016) said that there are several Chinese companies that are already established and operating in Piraeus. Huawei, which is one of China’s largest electronics companies, opened a logistics base in Piraeus in 2013. In 2014, the China Development Bank extended Eur 2 billion to Greece as part of a joint agreement for the building of new bulk cargo ships.
The Chinese company that is playing the most significant role in Piraeus is the state owned COSCO which is China’s largest shipping Cargo Company (Frankopan, 2015). COSCO has already obtained a 35 year lease from Greece to run two terminals at the port of Piraeus. The total investment going to be made by COSCO in Piraeus over this period is Eur 4.5 billion (Grieger, 2016). Terminals 1 and 2 have already been constructed by the COSCO, the old crane system has been upgraded and new deep-water docks have already been constructed that are capable of accommodating large, modern cargo ships. Because of these investments and infrastructural developments under the OBOR initiative, the capacity of Piraeus in 2014 increased by 9 times from that of 2008 before China started investing in the port (Kroeber, 2015). Further developments in the port are expected to make Piraeus a rival to the other large ports of Europe such as those of Hamburg and Rotterdam. There are several Chinese companies already established in Naples and Genoa (Italy) where COSCO and the China Shipping Company have made substantial investments under OBOR.
Another important infrastructural project in the EU that has already been completed is the railway line linking Piraeus with the almost 400 km long railway that links Belgrade with Budapest. This construction work started in 2015 and got completed in 2017 (Mah, 2016). State owned firms like the China Railway and the Construction Corporation have invested and built in this project. This railway directly links Piraeus with Eastern Europe. Under OBOR, China has also started upgrading the railway system in Greece, connecting the country with Macedonian railways through Thessaloniki. This connection improves connectivity between Greece, Macedonia, Hungary and Serbia (Ng, 2015). In addition, OBOR has resulted in railway and road infrastructure in the Balkan state of Montenegro and Serbia being upgraded. According to Ratfrey (2017), this upgraded road and railway infrastructure connects the countries along the Mediterranean with those along the Danube river, enabling trains to reach speeds of up to 200 km an hour and considerably reducing transport times from the port cities to the hinterland.
The above findings indicate that under the OBOR initiative, several infrastructural developments have already been completed in Europe, particularly in Southern European countries like Greece and Italy. This has made ports like Piraeus not just an important shipping hub and enhanced overall connectivity in the regions, but also established a base through which China can target the EU market.