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A first-time visitor to hot and humid Shenzhen, the port city of Guangdong province in southeast China, will be stuck by the grandeur of what is clearly a modern mega-city. The city, which abuts Hong Kong and a gateway to southern China, is a showcase of the country’s reforms era (1978-present).
What was once a fishing village in the late 1970s, has transformed itself after a special economic zone was designated there in 1979. Many parts were built up to accommodate businesses and factories to aid in the rapid urbanization that was wrought out from foreign investment, dedicated urban governance and by leveraging the coasts of the Pearl River delta and the South China Sea. Within four decades, the city has grown into a tertiary hub, host to high-technology companies, highly skilled manpower and an equivalent of the Silicon Valley of the United States. Today, the port city serves an important function in China’s outreach to the world by being a major outpost in the Maritime Silk Road project. It is also the base of some of the busiest container terminals on the Pearl River delta.
The Belt and the Road project is an ambitious exercise that was announced by the Chinese President Xi Jinping-led regime in 2013. It encompasses trade and investment hubs to the north of China by reaching out to Eurasia including a link via Myanmar to India (the New Silk Road Economic Belt). The other component, the Maritime Silk Road begins from the south of the land mass via the South China Sea, then going on towards Indo-China, south-East Asia and then traversing around the Indian Ocean by reaching out to Africa and Europe. Officials of the National Development and Reform Commission (NDRC) in China were upbeat about the initiative, explaining to a group of media persons, this writer included, and think tank representatives who visited China early in June, that it could play an important role in “global economic recovery”. They asserted that this would happen by allowing for better allocation of resources and investment in the Asian region in infrastructure, transport, maritime cooperation, resources and energy.
Economic imperative
The seriousness of the Chinese government in implementing this project was evident in the manner in which border provinces are being made responsible in leading initiatives for it. For example, Guangdong, among the most prosperous provinces in China — its nominal GDP topped $1.1 trillion in 2014 — has led the way in leveraging its strengths as the premier largest export/import zone in the country. The emphasis in Guangdong was evident to us. The Guangdong provincial government believes that engaging in the Maritime Silk Road project to enhance economic and people-to-people relations with nations on the Road will enable it in further pursuing its own structural transformation. India figures high in the list of priorities for the Guangdong government, which is keen to increase Indian tourist footfalls and promote collaboration with the Indian private sector with its own advanced firms in the private and the state-owned sectors.
Guangdong, which was a relative economic backwater, dependent on agriculture and traditional sectors before the reforms period, has now become a largely tertiary sector reliant economy. Government officials pointed out that only 4.7 per cent of the province’s GDP was reliant on the primary sector —agriculture — while the secondary and tertiary sectors contributed 42 per cent and 49 per cent respectively. The emphasis was on structurally changing Guangdong into a hub of services and “advanced manufacturing” as labour-intensive industries were either moved to relatively less prosperous provinces within China or to countries such as Vietnam which offered low wage labour. That said, Guangdong province is richer in areas that are closer to the coasts while the inland areas were relatively less prosperous.
The enthusiasm in Guangdong for the Maritime Silk Road project is a reflection of an economic imperative that is driving China to promote the Belt and the Road. Chinese officials are aware that their economy is undergoing a structural change, from one that was export and investment-led, labour intensive and manufacturing driven to a more diversified, industrially transformed, internal consumption driven, economic one. This push for a structural change came about after the drop in global demand for Chinese exports following the global financial crisis in the late 2000s which forced China to spur domestic demand by a massive economic stimulus in 2008. The consequence was an increase in investment in the construction and housing sectors, which created a situation of overcapacity in the industrial sector that persists today and one which China seeks to desperately address, including a need to ease an overheated real estate market. These have, apart from other reasons, resulted in a slowing down of the economy to a projected growth rate of about 7 per cent (still quite high in comparison to other countries) for 2015, which the government is not too worried about as it is more keen on structural change.
Indian response
Here is where the Belt and the Road strategy is expected to come in handy. While the Maritime Silk Road would be a way to build a route for the rerouting/export of Chinese capital and consumer goods, the Silk Road Belt will be a conduit for land-based projects that will provide for fixed asset investment in building pipelines, and infrastructure such as roads and rail-lines with partnering countries along the routes. China has committed $40 billion in initial investments for the Silk Road Infrastructure fund, over and above the investments that are to be funded by the newly constituted Asian Infrastructure Investment Bank (AIIB).
