What Is OBOR And Its Key Aims

OBOR consists of two major parts. The Silk Road economic belt, a road stretching to Europe from China that encompasses infrastructure projects such as high speed railways and roads. It also consists the 21st century Maritime Silk Road, a sea-based network ports and shipping lanes throughout Asia to the Suez Canal.

Due to China’s runaway economic growth slowing in recent years (mainly due to the financial crisis in 2008) the economy has suffered from widespread overcapacity in heavy, state controlled industries in cement, aluminium and steel. The overcapacity issue stems from the huge stimulus package the Chinese employed to steer the economy away from recession in 2008/9. An example that vividly highlights how much production surged with the stimulus package is that of steel. China’s annual steel production was 512 tonnes in 2008, this increased to 803 million tonnes in 2015. The increase in 7 years is larger than the combined production of the European Union and United States. The excess capacity problem has become one of the top priorities for Beijing, describing it themselves as the “sword of Damocles” waiting to behead them. A couple of the problems excess capacity causes are increasing debt levels and state-owned-enterprise (SOE) profits falling. Accordingly, the government has laid of roughly 1.8 million workers in the mining and steel industries. OBOR provides an answer to this issue, however, not necessarily in the way most people would assume. It can be assumed OBOR’s vast infrastructure projects abroad will create a market for China’s heavy industries to export their overcapacity. Currently, despite its size, OBOR is still too small to absorb China’s overcapacity. The Lowy Institute cites ‘Beijing wants to use OBOR to migrate whole production facilities’, their point is supported by Li Keqiang in his address to the leaders of ASEAN countries when he said ‘we want companies to move this excess production capacity through direct foreign investment to ASEAN countries who need to build their infrastructure’.

The Chairman of the China Development Bank, Hu Huaibang stresses one of the key aims of OBOR is to help china upgrade its industries through structural reform. This effort will allow China to reduce supply domestically and help other countries build up their own industry, reducing its own liabilities and turn them into overseas assets. By choosing to move excess capacity abroad China is following a similar model to that of Germany and Japan 30 years ago. Displaced workers in the long run will be able to find jobs in different, more high tech industries. Productivity in these sectors is far higher and in turn this will eventually lead higher rates of growth and higher standards of living. However, to take a more realistic approach, the success of this plan is heavily reliant on countries in Africa and East/South-East Asia’s ability to absorb and facilitate this plan. Also, many of these countries are in direct competition in industrial sectors of the economy. Furthermore, politically, the plan is not sound. Many countries will simply not want China’s unwanted excess capacity.