China’s Belt and Road Initiative as globalization

FROM A DISTANCE - Carmen N. Pedrosa (The Philippine Star) - October 20, 2019 - 12:00am

This is a long article that could not fit in the column space I am allotted. It answers only the most important questions that ordinary Filipinos should know.

It is from an article written by Alvin Camba for the Chinese Studies Journal for a basic knowledge about the Belt and Road Initiative of China. The BRI is a huge project but if successfully carried out despite problems and risks would be true globalization. Lastly, should the Philippines participate in it?

“In 2013, President Xi Jinping introduced the Belt and Road Initiative (BRI), bannering it as China’s key initiative designed to engage neighboring states and regions in international cooperation through overland and maritime connections. It was an old idea to connect Europe to Asia through infrastructure projects that would promote not only physical connectivity between regions, but also trade and people-to-people linkages.

As far as the Philippines is concerned this column would encourage the Philippine government, to work with the initiative. It will help BRI’s congruence with its domestic goal of ushering a “golden age of infrastructure” under President Rodrigo Duterte’s regime.

BRI will revive the ancient Silk Road by building its first component, an overland route from China to Western Europe, sweeping through South Asia and Southeast Asia, Russia, the Persian Gulf, the Middle East, North Africa, and the Mediterranean. Dubbed as the Silk Road Economic Belt (SREB),

The second component is a maritime route which runs southbound down the east coast of China, through the South China Sea and into the South Pacific before heading westbound through the Indian Ocean and Mediterranean Sea to Europe referred to as the 21st Century Maritime Silk Road (MSR). The concept of a “Maritime Silk Road” is nothing new as it dates back to as early as the 19th century, when ancient merchants journeyed the route of China’s eastern coast, the southernmost region of India, East Africa, the Persian Gulf, and the Red Sea to enhance economic and cultural relations.

The BRI provides the opportunity to tap the Asian Infrastructure Investment Bank (AIIB), the BRICS New Development Bank, the China-ASEAN Interbank Association and SCO Interbank Association, including the Silk Road Fund and sovereign wealth funds, to finance the initiative’s projects.

It encompasses China’s future role in the world, promoting its ideas and philosophies and demonstrating how China can cooperate with the rest of the world and build mutually beneficial partnerships with other countries.

No standard guidelines were given by the Chinese government on how interested parties could sign up. As the project rolled out, what was seen was that interested parties entered into bilateral agreements with China on infrastructure cooperation projects, while some signed up to become members of the Asian Infrastructure Investment Bank (AIIB) in the hopes of getting into the BRI project. In a statement by Laurel Ostfield, the head of communications for the AIIB, however, it was explained that membership in AIIB does not translate to participation in BRI because the two are separate entities.

Clearly, the world has not seen anything like the BRI. Thus, it needs to be followed closely as it unfolds. Monitoring BRI-related progress and developments would provide a clearer picture that could help stakeholders understand the initiative better.

As for the Philippines, President Duterte, in his 10-point Socioeconomic Agenda, targeted poverty reduction from 21.6 percent in 2015 to 13-15 percent by 2022.25 To accomplish this, one reform that is being pushed by the administration is infrastructure acceleration and industry development through the “Build, Build, Build” (BBB) Program. The administration aims to achieve a “Golden Age of Infrastructure,” calling the “Build, Build, Build” program “the boldest, most ambitious infrastructure program in Philippine history.”

The levels of predictability of geopolitical, financial and operational risks vary. While geopolitical conditions and developments are more difficult to forecast, financial and operational risks could be analyzed and calculated. A review of existing policies and practices concerning infrastructure funding would aid in mitigating financial risks. The National Economic Development Authority, for one, has clarified that the government will make use of an optimal mix of government domestic financing, aid, and private capital in funding infrastructure projects. To avoid being debt-trapped, the current administration has pushed for 80:20 debt mix, with the larger bulk falling on local financing.

Following the same strategy, the Philippine government is said to work with the advantage of having the means to borrow at lower rates. Under the Official Development Assistance Act of 1996, ODA funds are excluded from foreign debt limit to facilitate absorption and optimization of the utilization of funds.  This facilitates longer-term maturity and favorable concessional financing terms, with a grant element of at least 25 percent, and provides wider access to knowledge, experience, and technology.

To address operational risks, careful planning and thorough consultation with partners are needed. Central to this is the crafting of the project contract containing clear terms and agreement on how these terms will be interpreted and implemented.

Nonetheless, BRI still poses impressive prospects for the Philippines. The scale of the project is unprecedented and exudes so much potential. First, the aligned infrastructure goals will bring both China and the Philippines to a higher level of engagement. Knowledge exchange and access to huge, potentially profitable projects will be attained by both countries. In the end, what is clear is that the success of BRI projects will surely impact not just China but also participating countries, with implications spanning economic, political, and sociocultural aspects.

With the potential of the initiative to become a catalytic project that would change the geopolitical arena, the Philippines would be amiss not to take part in it. However, it is always good to be equipped with a comprehensive understanding of the initiative and each specific project under it to be able to balance the risks and benefits. It is important for the Philippines, with its direction toward a “golden age of infrastructure,” to not just see the agenda but also be cautious of the risks.”

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