The New Silk Road and Ukraine: Five Key Questions

Investments in the implementation of the “New Silk Road” strategy are measured in trillions of dollars. Ukraine began appearing on the list of potential transit countries for Chinese goods this year.
21 December 2015 15:59

01. What is "One Belt, One Road?"

"One Belt, One Road" is the development strategy that China announced in autumn 2013, in which it set itself the goal of deepening cooperation between the countries through which the Europe-Asia transit corridor passes. The strategy consists of two components of the program for construction of the "New Silk Road:" the land-based "Silk Road Economic Belt" and the oceangoing "Maritime Silk Road." The strategy underlines China's push to take a bigger role in global affairs, and its need to export China's production capacity in areas of overproduction such as steel manufacturing.

02. What are the components of the New Silk Road?

The Silk Road Economic Belt includes countries situated on the original Silk Road through Central Asia, West Asia, the Middle East, and Europe and calls for the integration of the region into a cohesive economic area through building infrastructure, increasing cultural exchanges, and broadening trade.

The Maritime Silk Road complements the Silk Road Economic Belt, and it is a complementary initiative aimed at fostering collaboration in Southeast Asia, Oceania, and North Africa, through development of infrastructure projects in the marine industry. In particular, the project provides for construction of two canals: one in Nicaragua as an alternative to the Panama Canal and the second through the Isthmus of Kra in Thailand, the narrowest part of the Malay Peninsula, as an alternative to the traditional route through the Strait of Malacca.

03. Why does China want to implement this strategy?

The basis for the project is the country’s logistical security. However, the Chinese authorities are positioning the project not as an ordinary transport corridor, but as a way of strengthening China’s influence in the transit countries. In addition, China's aggressive investment in infrastructure is designed to support and stimulate economic growth. China is the world's largest investor in infrastructure - China invested an average of 8.5% of GDP in infrastructure projects (mainly in construction of roads, power facilities, and railways) in the period from 1992 to 2011, which exceeds the levels of investments by the United States and the European Union. China’s annual investments in infrastructure increased from USD 160 billion in 2002 to almost USD 480 billion in 2010.

04. What are the cost and the sources of funding for the New Silk Road?

Investments in the implementation of the strategy are estimated in trillions of dollars. In particular, the cost of construction of the Nicaraguan canal is USD 50 billion, the cost of construction of the Malaccan canal is USD 28 billion. According to the ADB, the requirement for investment in infrastructure in the Asia-Pacific region is USD 750 billion per year.

The Chinese government established an investment fund of USD 40 billion in 2014 for implementation of the project. This fund will not only lend money but also invest in businesses. China is also successfully lobbying for establishment of an Asian Bank for Infrastructure Investments with an initial authorized capital of USD 50 billion. In addition to economic goals, establishment of the bank also pursues political goals – China’s influence in the world's major financial institutions (the World Bank, the International Monetary Fund, and the ADB) is limited and does not meet the current requirements of the Chinese leadership.

05. Is there a place for Ukraine in the New Silk Road?

Theoretically, Ukraine can expect a fraction of the trade volume between China and the European Union, which totals more than 260 million tons. However, a number of barriers make large-scale involvement of Ukraine in the New Silk Road project unlikely. Firstly, Ukraine is not a member of the European Union, as opposed to Bulgaria and Romania, which complicates border crossing. Ukraine also has an opaque and protracted mechanism for customs clearance of goods, which, against the backdrop of the high cost of ship calls (25-35% higher than in Bulgaria and Romania without discounts,) and the lack of good roads for automobile links with the European Union, makes the country less attractive compare with other countries of the European Union.

Tags: road, China