New China infrastructure bank to support 'Maritime Silk Road'

New China infrastructure bank to support 'Maritime Silk Road'

A new China-based development bank and separate infrastructure fund, created by Chinese government to reinforce its trading relationships in Asia and Europe, is being seen as a major new funding source for port expansion.

China’s so-called “Silk Road” initiatives, including the Silk Road Economic Belt and the 21st century Maritime Silk Road, are seen as flush with opportunity by the 21 Asian nations that signed onto the new development bank upon its creation on Oct. 24th.

What is being called the Maritime Silk Road will link Chinese ports to ports in South Asian countries, as routes targeted for development will extend southward from China to South China Sea, then along the north Indian Ocean to the Persian Gulf, Red Sea and Gulf of Aden.

With a $40 billion Silk Road Fund, the Chinese government intends to “break the bottleneck in Asian connectivity by building a financing platform,” China President Xi Jinping said during the APEC summit. The Asian Infrastructure Investment Bank (AIIB), with an expected initial capital of $50 billion, is envisioned as also supporting China’s Silk Road initiatives. The objective of the Silk Road initiatives is to improve land and waterborne trade connectivity in Central Asia and South Asia by upgrading roads, railways, ports and airports.

 Two major international lending institutions, the Asian Development Bank and the World Bank, are respectively dominated by Japan and the U.S.. Establishment of the AIIB is a bid by China to exercise more control over development through the newly established bank.

A 2012 report by the Asian Development Bank Institute said China, India and Indonesia represent the top three countries in terms of infrastructure investment needed during the 2010-2020 period. The total amount of infrastructure investment needed, covering 32 ADB developing member countries, was estimated to be more than $8 trillion. “Meeting the huge financing needs of $776 billion per year during 2010-2020 is one of the largest challenges facing many developing countries in Asia,” according to the ADBI.   

While AIIB and separate Silk Road fund will largely support Asia - Europe trade route, countries like India are likely to capitalize on the new banking system.

“The setting up of the new Asian Infrastructure Investment Bank is one of the new avenues to be explored,” according Indian ministry of shipping’s concept note on the Sagar Mala project, an initiative to improve the country’s lengthy coastline, especially the existing ports. The project includes several key points: development of 3-4 modern seaports of  200 million tonnes, better connectivity between coastline and waterway and improvement in inland transport. Facing the limited capacity of cargo transport, Indian government is eager for improving its cargo-handling systems, along with logistics and warehousing facilities.

When China President Xi Jinping visited South Asian countries in September, he welcomed Sri Lanka and Maldives to participate in the Maritime Silk Road revival. China is helping the Maldives finance a preliminary survey before the construction of Male-Hulhule bridge - one of its infrastructure projects. Beside an estimated $3 to $4 million survey, the Chinese government, along with Exim Bank of China will also support bridge construction, according to Haveeru Online, Maldives’ online news.

Sri Lanka is also playing an active role. As a leading investor in Sri Lanka, China is getting more and more engaged in infrastructure upgrade. During his September visit, Xi launched a $5 billion artificial port project in Colombo, to which China granted $1.3 billion financial assistance, according to Sri Lanka Ports authority. The Colombo Port city will be the main hub on the maritime Silk Road with upgraded ports, airports, and highways.

Contact Qingqing Chen at qchen@joc.com and follow her on Twitter: @qingqingparis.