China’s ambition to revive an ancient trading route stretching from Asia to Europe could leave an economic legacy bigger than the Marshall Plan or the European Union’s enlargement, according to a new analysis.
Dubbed “One Belt, One Road”, the plan to build rail, highways and ports will embolden China’s soft-power status by spreading economic prosperity during a time of heightened political uncertainty in both the United States and European Union, according to Stephen L. Jen, chief executive officer at Eurizon SLJ Capital, who estimates a value of US$1.4 trillion for the project.
It will also boost trading links and help internationalise the yuan as banks open branches along the route, according to Jen.
“This is a quintessential example of a geopolitical event that will likely be consequential for the global economy and the balance of political power in the long run,” said Jen, a former International Monetary Fund economist.
Reaching from east to west, the Silk Road Economic Belt will extend to Europe through Central Asia and the Maritime Silk Road will link sea lanes to Southeast Asia, the Middle East and Africa.
While China’s authorities aren’t calling their Silk Road a new Marshall Plan, that’s not stopping comparisons with the US effort to rebuild western Europe after the second world war.
With the potential to touch on 64 countries, 4.4 billion people and around 40 per cent of the global economy, Jen estimates that the “One Belt, One Road” project will be 12 times bigger in absolute dollar terms than the Marshall Plan.
China may spend as much as 9 per cent of gross domestic product – about double the US’ boost to post-war Europe in those terms.
“The ‘One Belt, One Road’ project, in terms of its size, could be multiple times larger and more ambitious than the Marshall Plan or the European enlargement,” said Jen.
It’s not all upside. Undertaking an expansive plan like this one will inevitably run the risk of corruption, project delays and local opposition.
Chinese-backed projects have frequently run into trouble before, especially in Africa, and there’s no guarantee that potential recipient nations will put up their hand for the aid.
In addition, resurrecting the trading route will need funding during a time of slowing growth and rising bad loans in the nation’s banks. Sending money abroad when it’s needed at home may not have an enduring appeal.
Still, at least China has a plan.
“The fact that this is a 30-40 year plan is remarkable as China is the only country with any long-term development plan, and this underscores the policy long-termism in China, in contrast to the dominance of policy short-termism in much of the West,” Jen said.
And that’s a win-win for soft power.
“The ‘One Belt, One Road’ project could be a huge PR exercise that could win over government and public support in these countries,” he said.