Maritime Silk Road Initiative (MSRI): Economic Objectives & Challenges

The blue economy is viewed vital for national interest in the twenty-first century, and it is also included in the 14 Sustainable Development Goals (SDGs). Several initiatives and plans are being laid down across the globe to enhance “Blue Growth”. Unlike other countries, China unveiled a unique and broader concept of economic connectivity and maritime cooperation through its Maritime Silk Road Initiative (MSRI) in 2013. This initiative will help the developing states develop their economies and have a significant impact on the Blue Growth of participating countries.

The MSRI aims to develop infrastructure and enhance maritime cooperation across East Africa, the Indian Ocean, Oceania, and Southeast Asia. Three “Blue Economic Passages” are part of this initiative; China-Indian Ocean-Africa-Mediterranean Sea Blue Economic Passage, China-Oceania-South Pacific Blue Economic Passage, and China’s connection with Europe via Arctic Ocean. In its initial phase, China is investing in infrastructure development, energy sectors, and particularly construction of ports of geographically important states in the Indian Ocean. There are several objectives of MSRI, but here the focus is on economic sector. The challenges to these specific objectives are also part of the analysis.

For China, the MSRI’s core goal is to enhance the economic growth by increasing exports through the 21st Century Maritime Silk Road. The Chinese government is of the view that the increased Chinese foreign direct investment (FDI), the reduction of non-tariff and tariff barriers, opening of new markets, the vertical integration of trading activities, the construction of industrial parks, trade zones, Special Economic Zones (SEZs) and reduction in transportation costs will boost the Chinese exports and also result in the exponential growth of participating countries in the initiative.

Furthermore, MSRI will provide a foundation to increase exports of China. The networks of people, services, and capital will be energized by MSRI that are keys to economic exchange. The investment in the development of hard infrastructure has already increased the opportunities of sale and services for China-based firms. Moreover, MSRI is offering several profitable ways to use substantial foreign currency reserves. For instance, the money will go to financial institutions of China like China Development Bank (CDB), the Asian Infrastructure Investment Bank (AIIB), and SRF, which will lend money for the projects of MSRI. These institutions will earn from the given loans, and interestingly the MSRI will also contribute to the efforts to Internationalize RMB as the companies and countries involved in MSRI are expected to use RMB for swaps, debt issuances, trade pricing, trade financing, currency speculation, and investment to reduce the costs of the transaction.

Chinese private companies also view MSRI as a source of new opportunities to expand their businesses. They are of the opinion that it will enlarge the existing markets and open new markets for their products and services.  Adding more to it, MSRI will further ease access to the production unties, and also enhance the companies ability to diversify and expand the client base. It will also offer them new opportunities for joint ventures overseas. Moreover, the Chinese firms can build regional production bases that will exponentially boost their profit margins.

For instance, Alibaba, a Chinese-based company, has plans to build a cross-border e-commerce platform that will involve financial services, logistics, and customs clearance services to promote trade across the Maritime Silk Road. The IZP Technologies aims to develop transnational clearing and payment systems, and dual-currency credit cards that will help finance medium and small enterprises in building strong regional marketing networks.

Moreover, a state-owned railway company considers MSRI as a source of great opportunities in terms of building light-rail systems and trunks, selling trains, and setting up regional manufacturing units. The leadership of a Chinese food giant, COFCO, believes that the MSRI will provide them the opportunities to build agricultural product supply chains across the Maritime Silk Road.

It is pertinent to mention that many participants of MSRI have been facing economic problems that also include shortage of capital, poor economic connectivity with neighboring countries, and lack of markets. The MSRI can help these countries to develop their economies as it can sort out these problems. The leading country of MSRI, China, is offering a huge market, especially for raw materials. In addition, China has pledged to invest billions of dollars in the MSRI participants to resolve the shortage of capital. These investments will result in multiple positive outcomes. For example, China’s investment in Pakistan’s power infrastructure has boosted Pakistan’s energy capacity and enhanced its industrial capacity. This enhanced capacity will eventually increase the economic growth and potential for exports of Pakistan. Such is a win-win situation for China too as China will also earn more by lending money to the countries and gain new opportunities to strengthen its economy.

Apart from the economic opportunities, MSRI will also be facing serious challenges. It will be immensely challenging to realize China’s MSRI. It could not be otherwise given the MSRI’s size, the number of massive infrastructure projects involved, and variation in regional financial, logistics, and transportation systems. Furthermore, the MSRI will have to develop in an environment that lacks solid, extant infrastructure and legal institutions. On top of this, the future of the MSRI will be closely linked to the economic situation in China and other countries. Regarding economics, it remains uncertain if all the MSRI’s infrastructure projects make economic sense, with some, for example, expressing doubt if train-based systems are more cost-effective than ships.

A significant economic issue is that the MSRI has little chance of reaching its full potential unless India enthusiastically participates. Nevertheless, almost all the contributors to this volume seem sceptical because the Chinese MSRI is posing challenges to Indian ambitions vis-à-vis the Indian Ocean. Power, military, economic, prestige, and identity considerations and China’s close relations with Pakistan, have made India quite cautious about the project. Indeed, Delhi has been adopting various measures that directly or indirectly counter or slow the MSRI. Examples include building better relations with MSRI countries such as the Maldives and Sri Lanka and active involvement in their domestic politics, launching an Indian MSRI “equivalent” (Project Mausam), seeking better ties with extra-regional powers like Japan, and building up its naval capabilities, and so on. Even if the Indian government was on board, Indian political parties have expressed robust and uniform concern about the project.  Moreover, the Indian strategic community has been voicing against end goals of China’s MSRI: deeming it a scheme to balance against India, establish a “string of pearls” (bases) that would allow it to dominate the Indian Ocean and trade across it, and “cement Chinese influence in its near and extended neighbourhood at the exclusion of other significant actors such as the US, Japan, Russia, and India.”

One of the most enormous challenges being faced by China concerning the successful implementation of the MSRI will be the actions of Chinese businesses, which often lack adequate knowledge of the cultural, social, and environmental contexts in which they will operate abroad, do not understand the political and credit risks they face, and are ignorant about foreign bureaucracies, legal mechanisms, and regulatory procedures, as well as local partners. These defects, plus each firm’s self-interests, can cause businesses to take actions that diminish the appeal of the MSRI, disrupt efforts to complete projects, and waste financial resources. Ensuring Chinese companies behave in accordance Beijing’s wishes will not be easy as they will be operating far away from Beijing.

Therefore, despite the challenges, Maritime Silk Road Initiative (MSRI) is offering immense opportunities, especially to the developing countries, to strengthen their weak economies. It is a win-win situation for all states that are part of MSRI due to its commitment to develop hard infrastructure and mitigate their major economic problems of participating countries. On the other hand, it will help China earn more money by using its massive foreign currency reserves and open new opportunities to strengthen its economy further.

Newsletter SignUp

About Zeeshan Shoukat 10 Articles
The author is a Geopolitical and Strategic Analyst. He writes on Indo-Pak Ties, Geopolitics of Indian Ocean, Evolving Dynamics in the Middle East, and Global Power Politics. He tweets at @_IamZeeshan