The Silk Road as Past and Future for China

More than 2,000 years ago, traders opened the transcontinental passage that connects Asia, Europe and Africa, nowadays known as the Silk Road. Trading ships created sea routes connecting the East with the West, forming the maritime Silk Road. These ancient silk routes opened windows of dialogue between peoples and nations. The modern China of the beginning second millennium A.D. under the leadership of Xi Jinping sees much more in the Silk Road than just ancient history. For China, the Silk Road is both past and future.

In 2013, China introduced the Belt and Road Initiative (also called One Belt, One Road Initiative “OBOR”), which aims to create a new Silk Road geared to the global needs of the 21st century. With an estimated investment volume of almost a quadrillion US dollars, it is the largest development program since the Marshall Plan, with which the USA helped the destroyed Western Europe back on its feet after the Second World War (Spiegel). Based on the Historic Silk Roads, OBOR focuses on large areas of Asia, Africa and Europe. The systematic expansion of infrastructure is intended to create opportunities to intensify trade and international cooperation. However, the program will have far-reaching consequences and will have an enormous impact on the economy of the countries involved. Alongside other European countries, Germany also plays an important role in Beijing's plans. This paper will deal with the question whether the Chinese initiative can have a clearly positive influence on the German economy or not.

China’s perspectives

For almost 30 years now, China has been experiencing an incredible period of development and economic growth. Between 1990 and 2017, the nominal GDP rose to a good USD 12 trillion, making the country the world’s second largest economy after the USA (worldbank). This immense economic upswing was the result of various economic reforms introduced by the party leadership in Beijing. For example, special economic zones have been created and citizens were encouraged to start their own, albeit not free from political influence, businesses.

Since the introduction of economic reforms, China’s economy has grown substantially faster than during the pre-reform period. However, the global economic slowdown commencing in 2008 had a significant impact on China as export partners struggled with production and consumption. Although the GDP continued to grow, the crisis led to a significant slowdown in growth rates. This had not been the case for many years, as the country always seemed to be heading in one direction, namely upwards.

In the meantime, China has earned itself a reputation as the 'workbench of the world'. Yet in China there is a different understanding of the country's position. To a certain extent, this is correct since the economic growth of recent years has been accompanied by steadily rising wages and an incipient structural change away from mere production towards high technology and innovation. Many jobs, especially in the textile industry, are migrating to cheaper regions of the world (forbes zu teuer). Therefore, China no longer sees itself as an emerging force, but tries to demonstrate strength and influence in various ways. Nonetheless, China continues to flood the world market with (low-priced) mass-produced goods and is therefore also the world's largest exporter of goods.

For many years, the strong economic growth has also been fueled by huge domestic infrastructure projects. Between summer 2008 and summer 2018, for example, almost 28,000km of high-speed train lines (speed >200km/h) were opened, so that two thirds of the world's high-speed rail network are now in China (zug).

In order to counteract economic downturn and to additionally ensure that China continues to play a leading role in international trade, the OBOR initiative comes into the game. With infrastructure projects and new trade and sales opportunities, it secures China's economic prosperity. Through enormous investments, however, China also makes quite a few countries dependent on the Middle Kingdom. For China, OBOR is therefore a means to an end: Intensifying economic activities and not only strengthening its position as a global power but expanding it to a whole new level.

Germany and the Belt and Road Initiative

Germany plays a significant role in China's BRI. However, the role assignment has to be considered in a differentiated way. Some countries need major foreign investments in companies and infrastructure in order to generate substantial economic growth and prosperity at all. In these countries the Chinese are not necessarily celebrated as saviors, but it is relatively easy to strengthen one's position there with investments and to open up new sales markets or new sources of resources.

A simple example of this is Pakistan. China and the Pakistani government founded the China-Pakistan Economic Corridor (CPEC). What does this mean in plain language? Pakistan allows the Chinese to build thousands of kilometers of motorways, railways and gas pipelines in their own country.

All this is not possible in Germany in this form. Germany is one of the world's largest economies. The country is not dependent on Chinese investments in infrastructure and similar large-scale projects. On the contrary, Germany even exports many of its own achievements worldwide.

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A particular argument for this is that the above-mentioned development of high-speed trains in China was only possible with the help of German, French and Japanese technology. With the purchase of foreign technology, the development of the Chinese railway industry exploded and meanwhile the Chinese also produce their own high-speed trains. But if you look at it soberly, you could also describe the sudden boost in development that way: The Chinese bought the world's leading technologies and tested them for some time. Subsequently, the respective advantages were used to create their own 'newly developed' trains and railway technology.

As a result, China has recognized that influence in Germany can only be gained by other means. Germany is a serious partner whose own products enjoy a very good reputation, especially in China.

Regarding OBOR, the Chinese have recognized that Germany has a very central location in Europe, which enables the country to develop as a transshipment point for its goods.

This is exactly where the city of Duisburg comes into play. It lies not only in the heart of North Rhine-Westphalia, the economically most important and most populated German state, but also in the heart of the blue banana. In addition, the city is perfectly connected to the infrastructure. In the Chinese plans, the city is therefore currently the most important German location. So important, in fact, that President Xi Jinping travelled to Duisburg especially for the opening of the railway line to Chongqing.

From a German point of view, it is of course not as easy as the Chinese might think. The German government welcomes the Chinese project externally, as did State Secretary Markus Ederer during his speech at the 'OBOR Inventory' event in February 2016: “We welcome the resolution and effectiveness with which China is putting its vision of Eurasia into practice”. At first Chancellor Angela Merkel also welcomed the initiative as an opportunity for exchange, job creation and further networking. These statements were initially positive because it was not possible to classify exactly what the Chinese really intended. Or one did not want to burden the bilateral relationship, because the economic interdependencies are too close.

However, it is now increasingly clear what the Chinese mean by intensified cooperation between Germany and China: Billions of euros are being used to buy into up-and-coming and future-proof companies, or even better, to take them over completely. For example, the Chinese bought Augsburg-based robot manufacturer KUKA. In 2018, Chinese investors also took over 10% of Daimler shares.

In addition, the Chinese want to ensure that they can have an increasing influence on logistics between China and Germany, which is why important German infrastructures such as ports and airports are also on Beijing's shopping list.

For example, various Chinese shipping companies have been trying for years (in vain so far) to buy themselves into the largest German port in Hamburg. Furthermore, in 2017, Chinese investors took over 82.5% of the shares of Hahn airport, an important air freight hub.

In the meantime, there is a widespread opinion in government and expert circles that Germany is selling its expertise and thus its future economic basis. However, according to the Institute of the German Economy, Chinese activities are still low compared to other foreign investments and takeovers in Germany. The Chinese share for 2017 is estimated at only around 6.6%. The largest share of investors, 22.3%, came from the USA.

Conclusion

The Chinese have arrived, and they have come to stay. But of course, it should be clear to everyone that they can't and shouldn't necessarily be regarded as saviours. They pursue their own interests, which are not always congruent with the Germans. From current trends, however, it is also the case that the Chinese investments have not had any negative effects. Ultimately, Germany should be prepared to come to terms with the Chinese if it wants to remain a globally important economic power. Together it is easier for both sides to achieve a win-win situation.

It remains to be seen to what extent OBOR will influence Germany's economy. Decisions by the government that will either further open or close the market for major Chinese investments will be essential for the positive or negative outcome for Germany. Provided there are no changes in the general conditions, it can be assumed that OBOR will have a clearly positive impact on the German economy. Because the efforts of the Chinese are opening up completely new sales markets and channels. With the Chinese investments in other countries, additional sales markets could also be created for German products, markets which are not located in Germany or China, but for example in Kazakhstan. Ultimately, all this leads to better economic conditions for Germany, combined with increasingly peaceful global networking of countries and cultures.