Thursday Nov 21, 2024

EP87: Is Globalism Dead, or Can China's BRI Revive It?: BRI vs. Reshoring: The Battle for the Future of Global Trade

Summary:

In this episode, we explore the implications of China's Belt and Road Initiative (BRI) for the future of globalism. The BRI is a massive infrastructure project aimed at connecting Asia, Africa, Europe, and the Middle East through land and sea routes. The initiative aims to sustain and perhaps reshape globalism by creating new trade networks and fostering economic interdependence, particularly in the Global South. We examine both the potential benefits and challenges of the BRI, including its impact on global trade patterns, the role of debt dependency, and the possibility of a Sino-centric globalism. Ultimately, we suggest that the BRI could either save globalism by providing alternative economic networks or transform it into a new model centered around Chinese economic interests. We also go over the current and past BRI projects.

Questions to consider as you read/listen:

What is the potential impact of the Belt and Road Initiative (BRI) on the future of globalization?
How does China's BRI initiative attempt to address the challenges of global trade, particularly in the context of reshoring and nearshoring?
What are the key criticisms and potential risks associated with China's Belt and Road Initiative (BRI)?

Long format:

China's BRI Revive

Is Globalism Dead, or Can China's BRI Revive It?: BRI vs. Reshoring: The Battle for the Future of Global Trade

By Justin James McShane

TL;DR

Globalism, the ideology supporting globalization, is under threat as nations shift toward reshoring and nearshoring. China's Belt and Road Initiative (BRI) is a massive infrastructure project aiming to connect continents and sustain global trade networks. With over 150 countries participating, the BRI fosters economic interdependence and offers an alternative to U.S.-led globalization. Critics argue it creates debt dependency and shifts power toward China, but its scale could reshape globalism into a Sino-centric model. The BRI’s success depends on balancing geopolitical ambitions with genuine economic integration. Whether it saves or transforms globalism remains a key debate for the future of global trade.

Introduction

The concept of globalism, a system advocating for free and open cross-border exchanges, has been central to the post-World War II economic order. However, recent trends such as reshoring and nearshoring are challenging its viability, raising questions about the future of globalization. Against this backdrop, China's Belt and Road Initiative (BRI) emerges as a significant player, potentially redefining global economic integration. This initiative, a monumental infrastructure project spanning continents, aims to sustain and perhaps reshape globalism by creating new trade networks and fostering economic interdependence. Could the BRI be the key to preserving globalism in an era of increasing isolationism and fragmented supply chains? This discussion explores the essence of globalism, the ambitions behind the BRI, its global impact, and its potential to counteract economic decoupling. Here we examine its major projects.

GLOBALISM AND GLOBALIZATION

Globalism is an ideology that supports globalization, while globalization is the process of cross-border exchanges. An ideology that advocates for the free movement of goods, services, capital, and people across borders. Globalists often support free trade, freedom of immigration, and global governance. However, the term can be politically loaded and is sometimes used by those who oppose globalization. The process of cross-border exchanges of products, services, people, information, and finance. Globalization can include both voluntary economic activities and involuntary geopolitical activities. Globalization has been the mainstay of the current post WWII economic global model. It is currently under threat or revision depending on your point of view by reshoring or nearshoring.

BASIC BACKGROUND OF BRI:

The Belt and Road Initiative (BRI) is a Chinese led and largely Chinese funded massive infrastructure project that aims to connect Asia, Africa, Europe, and the Middle East through a network of land and maritime routes. The BRI is a strategy to increase trade, improve regional integration, and stimulate economic growth. The BRI was proposed by President Xi Jinping in 2013 and is inspired by the ancient Silk Road trade routes that connected China to the Mediterranean. The BRI has been described as one of the most ambitious infrastructure projects ever undertaken. The BRI is made up of two parts generally The Silk Road Economic Belt which is a land route that connects China with Central Asia, Russia, Europe, and South and Southeast Asia and the 21st Century Maritime Silk Road which is a sea route that connects China with the Middle East, Eastern Africa, South and Southeast Asia, the South Pacific, and Europe.

GLOBAL IMPACT OF THE BRI

As of December 2023, 150 countries have signed documents to join China's Belt and Road Initiative (BRI), including China itself. Countries join the BRI by signing a Memorandum of Understanding (MoU) with China. Depending upon who does the counting, there are certainly more countries in the BRI then outside of the BRI.

THE BIGGEST PROJECTS OF THE BRI:

The Belt and Road Initiative (BRI) encompasses a vast array of infrastructure projects around the world. Here are some of the largest and most expensive projects associated with China's Belt and Road Initiative:

1 China-Pakistan Economic Corridor (CPEC) with an estimated cost at $62 billion is a corridor that involves a series of infrastructure projects including highways, railways like the ML-1 railway, energy projects, and the development of Gwadar Port. The Sukkur-Multan Motorway, part of CPEC, has been highlighted as one of the largest projects under this initiative. CPEC was initially envisioned as a 15-year project when it was formally launched in 2015, with the planned completion date set around 2030. However, this timeline encompasses various phases, and the completion of individual projects within CPEC varies. Many initial infrastructure and energy projects were either completed within the first few years or are in advanced stages of completion. This phase primarily focused on energy generation and key infrastructure like highways. Beyond the early projects, there are phases involving industrial cooperation, economic zone development, and further infrastructure enhancements like railway upgrades (e.g., ML-1), which are slated for completion over time, with some major projects like the railway upgradation facing delays or renegotiations. Security issues in regions like Balochistan, where Gwadar Port is located, continue to pose challenges to project timelines. Gwadar Port is operational, handling cargo, but it has not yet transformed into the bustling international trade hub it was envisioned to be. The port's development continues with plans for further expansion, including the creation of a free economic zone.

2 China-Europe Railway Express is not a single project but a network. It is impossible to put an exact price on this project. Notable routes include: From Chongqing or Chengdu to Duisburg, Germany; From Yiwu in China to Madrid, Spain, known as the Yiwu-Madrid line and From Xi'an to Rotterdam or Hamburg, among others. Specific railway projects under BRI, like the Budapest-Belgrade railway, have been priced around $2.89 billion, with the possibility of rising above $3 billion.

This project has grown significantly in terms of routes and freight volume. This rail connection between China and Europe, part of the BRI, has seen over 77,000 trains operated by 2023, transporting goods worth billions. The infrastructure development along these routes involves substantial investment, though exact costs for the network as a whole are not typically consolidated into one figure due to its broad scope across multiple countries. It is potentially faster than shipping, but is not cheaper.

3 East Coast Rail Link (ECRL) in Malaysia with an initial estimated cost at $17 billion but revised to around $10 billion after renegotiations is rail project that aims to connect Malaysia's east coast with its west, significantly reducing travel time and boosting economic development in the less developed eastern regions. It is anticipated to be completed but December 2026 with rail service to begin operations in January 2027. It connects important ports like Port Klang with the East Coast, potentially altering trade routes by offering an alternative to the traditional maritime routes through Singapore.

4 Jakarta-Bandung High-Speed Railway with an estimated cost of over $6 billion is a high-speed rail project in Indonesia aims to connect the capital city Jakarta with Bandung. It's one of the flagship BRI projects in Southeast Asia, designed to cut travel time significantly between these two cities. The Jakarta-Bandung High-Speed Railway, also known as "Whoosh," began commercial operations on October 2, 2023. Therefore, as of now, the project is not only completed but has been operational for over a year.

5 Mombasa-Nairobi Standard Gauge Railway (SGR) in Kenya with an estimated cost of pproximately $5 billion for the initial phase is a railway connects the Kenyan port of Mombasa to the capital Nairobi, with plans to extend further into East Africa. It's part of a broader initiative to modernize transport infrastructure across Africa. Phase 1 (Mombasa to Nairobi) was completed and has been operational since May 31, 2017. Phase 2A (Nairobi to Naivasha) is an extension that was completed and opened in October 2019. For any new or upcoming phases or extensions of the SGR, like the Naivasha-Kisumu-Malaba section, there have been delays and financial negotiations. The SGR significantly enhances the capacity for freight transport, aiming to shift a large portion of cargo movement from road to rail, reducing road congestion and wear. The SGR is intended to be part of a larger railway network connecting not just Mombasa to Nairobi but also extending to neighboring countries like Uganda, Rwanda, and South Sudan, promoting regional trade and economic integration within the East African Community. The railway improves logistics at the Port of Mombasa by providing a more efficient way to move cargo inland, reducing port congestion and turnaround times for ships.

6 The Addis Ababa-Djibouti Railway with its approximate $4 billion cost is an electric railway that connects Ethiopia's capital, Addis Ababa, to the port city of Djibouti, providing landlocked Ethiopia with direct rail access to the sea. It is one of the largest BRI projects in Africa, enhancing regional trade and connectivity. It was completed and officially inaugurated for commercial operations on January 1, 2018. For Ethiopia, the railway provides an essential route to the sea, crucial for its import and export activities, reinforcing its economic strategy. Recall that China has a military base in Djibouti.

7 The Thailand-China High-Speed Railway with a total project cost that is expected to exceed $5 billion for the initial phase is a high-speed rail project aims to connect Bangkok with Nong Khai on the border with Laos, with plans to eventually reach Kunming in China through Laos. It's part of an effort to enhance connectivity within Southeast Asia and between Southeast Asia and China. Phase 1 (Bangkok to Nakhon Ratchasima), initially, the first phase was expected to be completed by 2026, with commercial operations starting then. However, due to delays, the latest information suggests that this phase might begin operations around 2027. The entire project from Bangkok to Nong Khai, which includes a second phase from Nakhon Ratchasima to Nong Khai, has been projected to be completed by 2028. This timeline reflects the Thai government's commitment to finish the line, though delays have been common due to various reasons including funding, land acquisition, and construction challenges. This is designed to be a segment of a broader network envisioned to connect China with Singapore, potentially extending through Laos, Thailand, Malaysia, and beyond. This connectivity aims at fostering regional economic integration.

8 The Chancay Megaport in Peru is well covered in our episode 83 https://www.geopoliticsunplugged.com/audio/ep83-chancay-port-in-peru-the-new-frontline-in-the-us-china-global-trade-wars-how-the-port-could-bypass-the-panama-canal-and-challenge-u-s-trade/

9 The Karot Hydropower Project in Pakistan with costs around $1.7 billion is part of the CPEC (see above), this 720-megawatt hydropower project on the Jhelum River aims to provide sustainable energy to Pakistan. While not as large in investment as some infrastructure projects, its strategic importance in the energy sector makes it significant. The Karot Hydropower Project in Pakistan was successfully commissioned and started its commercial operations on June 29, 2022. The project operates on a Build-Own-Operate-Transfer (BOOT) basis, meaning after 30 years of operation by a Chinese-led consortium, ownership will transfer to the Pakistani government, ensuring long-term benefits for Pakistan.

10 The Port City Colombo in Sri Lanka was initially estimated at around $1.5 billion, but could be higher with ongoing expansions. This project involves reclaiming land from the sea to build a new city adjacent to Colombo. It includes residential, commercial, and leisure facilities, aiming to establish Colombo as a major financial hub in South Asia. The completion of The Port City Colombo in Sri Lanka is anticipated for 2041. The project aligns with China's Maritime Silk Road, aiming to secure sea routes crucial for trade. It is located near significant shipping lanes in the Indian Ocean, Sri Lanka's strategic location enhances China's maritime presence. The development of PCC and other projects in Sri Lanka can be seen as part of China's strategy to balance India's influence in the Indian Ocean region.

Other significant BRI projects that are being considered include: China-Kyrgyzstan-Uzbekistan Railway, Kyzyl-Kala - Makanchi Railway (Kazakhstan), Jalalabad Road (Kyrgyzstan), Piraeus Port (Greece), Budapest-Belgrade Railway (Serbia and Hungary), Lamu Port-South Sudan-Ethiopia Transport (LAPSSET) Corridor, Haifa Port (Israel).

CAN THE BRI BE THOUGHT OF AS A WAY TO COUNTER TRUMP, ISOLATIONISM, RESHORING OR NEARSHORING?

The Chinese Belt and Road Initiative (BRI) could indeed serve as a mechanism to sustain or potentially redefine globalism if the United States were to pursue significantly more decoupling, reshoring, or nearshoring of its industries and manufacturing.

The current Chinese economy in its current form only works if globalism continues. If globalization is severed or if it collapses with continued global reshoring or nearshoring, China will survive but it will not likely be as strong as it is today. China sees the BRI initiative as a means to hedge its bets against these trends.

A PUSH TO DOMESTIC CONSUMPTION-DRIVEN ECONOMY

China has been transitioning towards a more domestic consumption-driven economy, which could theoretically insulate it somewhat from global trade disruptions. The Chinese government has emphasized policies like "Dual Circulation," aiming to enhance domestic economic cycles while still engaging with the global market. China has implemented policies like providing subsidies for consumer goods, encouraging trade-ins for old products, expanding access to social housing, promoting upgrades to home appliances, and investing in developing the service sector, all aimed at putting more spending power in the hands of Chinese consumers. There are certainly no quick fixes to this persistent issue. Unemployment, overproduction, consumer confidence, the housing inventory (real estate market dependence) and issues surrounding capital flight or attempts of that (high savings rates) are strong headwinds for the Chinese economy.

All of this suggests an intention to continue economic growth even if global trade diminishes, by stimulating domestic demand. China already has a massive domestic market, which could provide a significant buffer against a decline in exports if it can effectively stimulate internal consumption. Recall, according to data from the World Bank, in 2023, approximately 16.22% of China's total exports went to the United States. The US was its single largest export partner by 2x. So while exports to the US are significant, it is not total.

A PIVOT TO THE GLOBAL SOUTH

If the US reshores or nearshores, China might face challenges with its export-driven manufacturing sector. However, China has been actively diversifying its trade partners, especially with countries in Southeast Asia, Africa, and through initiatives like the Belt and Road. China has moved manufacturing to other countries, including Southeast Asia, to take advantage of new infrastructure and to sell goods in untapped markets. The Chinese launched the “Going Out” strategy in 1999 to encourage Chinese enterprises to invest overseas. The Chinese also established the Asian Infrastructure Investment Bank (AIIV) as a multilateral financial instruction that invests in infrastructure projects across Eurasia. This diversification could mitigate some impacts of reduced trade with the US. China might boost economic ties with the Global South, potentially increasing its geopolitical and economic influence in these regions as a counterbalance to Western economic policies as evidenced by Xi’s recent sweep through the global south.

IN SUM

However, a significant reduction in globalization, particularly if it involves decoupling from the US, could lead to economic difficulties. China's economy has historically relied heavily on exports, and a sudden or significant drop in this sector could lead to overcapacity, unemployment, and economic slowdown unless domestic consumption ramps up sufficiently or new markets are effectively tapped. China's political stability has often been tied to its economic performance. A collapse in globalization might test this link, potentially leading to domestic unrest if economic conditions worsen significantly, although the Chinese government has robust mechanisms to manage such scenarios.

In essence, even if globalization collapses and the US significantly reshores manufacturing, China is still likely to continue as a major economic power, but its economic growth could be significantly impacted, with a potential shift towards a more domestic-focused economy and a greater reliance on its large domestic market to sustain growth. However, the extent of this impact would depend on how quickly China can adapt to a changing global trade landscape and diversify its economy beyond exports.

THE THOUGHT BEHIND BRI

Generally BRI can be seen as a means to support globalism, but with a massive change in some of its features. It supports globalism in many ways. It provides alternative economic networks. If the US reduces its global economic engagement, the BRI can provide an alternative network of trade and investment. Countries that might lose US investment could turn to China for economic partnerships, thus maintaining a form of global economic integration. It provides for significant infrastructure development. By investing heavily in infrastructure across continents, China is creating physical and digital pathways for trade that aren't dependent on US economic policies. This could keep global trade flowing by providing new routes and hubs for commerce. It provides economic interdependence even without the US at the helm. The BRI fosters economic interdependence among participating countries, which might cushion against the effects of US withdrawal from some global economic activities. Countries involved in BRI projects could become more economically tied to China, thereby sustaining a form of globalism centered around Chinese economic interests. It continues global supply chains with China at the center. China's push to integrate more countries into its supply chain through BRI could offer a counterbalance to any US strategy aimed at reducing reliance on China. This could maintain the global nature of supply chains, albeit with different dominant players.

BRI IS GLOABLISM WITH A CHINESE FOCUS

Some argue that the BRI represents a different model of globalism, one that might not align with the liberal, rules-based international order historically championed by the US. It could be seen as promoting a version of globalism centered on state-led economics, infrastructure investment with political strings attached, and potentially less focus on democratic governance or environmental standards. The debt and dependency model is not at all like the current form of globalism. Critics of the BRI suggest that it might lead to debt dependency rather than genuine economic integration, where countries could find themselves heavily indebted to China, potentially influencing their foreign policy decisions in favor of Chinese interests. If the US decouples significantly, the global trade system might fragment rather than remain interconnected. The BRI might then be seen as creating a parallel global economic system rather than universally saving globalism as traditionally understood. The BRI is often viewed as part of China's broader geopolitical strategy to expand its influence, which includes economic, strategic, and political dimensions. This might not be about saving globalism per se but about reorienting it towards a Sino-centric model.

IN SUM

The Belt and Road Initiative could serve as a significant platform for maintaining global economic integration in the face of US economic withdrawal. However, the nature of this globalism would likely differ from the post-World War II order, potentially leading to a bifurcated or multi-polar economic world where different regions or blocs might operate under different economic philosophies and governance models. Whether this would "save" globalism in a form acceptable to all stakeholders remains a matter of debate, reflecting broader discussions on the future of global economic integration.

CONCLUSION

The Belt and Road Initiative reflects China's strategic response to shifts in global economic dynamics, positioning itself as a proponent of sustained globalization—albeit with a significant Sino-centric focus and a major shift in economic theory underlying. By building extensive trade routes and fostering economic partnerships, the BRI seeks to maintain global economic integration, even as Western nations embrace reshoring and nearshoring. While critics argue that the initiative may promote debt dependency and geopolitical leverage rather than equitable development, it undeniably creates an alternative framework for global trade. Whether the BRI "saves" globalism or redefines it in China's image, its implications for global economic order are profound. In an era of uncertainty, the BRI may serve as both a challenge and an opportunity, shaping the contours of a new multipolar economic world.

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https://www.chathamhouse.org/2021/09/what-chinas-belt-and-road-initiative-bri

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