Kirton: Shaping a Sustainable Silk Road

Professor John Kirton
Co-director, G20 Research Group, University of Toronto
Non-Resident Senior Fellow, Chongyang Institute for Financial Studies, Renmin University of China
May 22, 2016

Paper prepared for a conference on "Conducting Consultations to Develop Mutual Trust: Jointly Building the Belt and Road to Achieve Win-Win Results," Guangdong Foreign Studies University, Guangzhou, China, May 10, 2016. I am grateful for the research collaboration of Khilola B. Zakhidova and the research assistance of Alissa Wang.

Introduction

At either end of China's prospective New Silk Road stand two relatively rich emerging countries that have served as hosts of the Group of Twenty (G20) summit of systemically significant states — China at the east and Turkey at the west. Both have long served in the G20 and globally as champions for the poor — China for developing countries in general and Turkey for the least developed of them. The success of the New Silk Road will thus ultimately be judged by what it does, not for the relatively rich at either end but for the poor in the middle along the way. They include some of the poorest countries in the world, notably conflict-plagued Afghanistan. But at the core stand the currently peaceful if poverty stricken Central Asian countries in the middle — Kazakhstan, Kyrgyzstan, Uzbekistan, Tajikistan, and Turkmenistan — before Iran takes travelers on the Road to Turkey at the Eurasian end. The New Silk Road can propel these Central Asian countries, China and their partners into the innovative, sustainable, economy, ecology and society of the twenty-first century.

To do so, all partners must come together to shape a shared, ecologically sustainable Silk Road from the start. This should be done in five key ways.

First, it must be guided by President Xi's vision of an ecological civilization, with a goal of ultimately having an ecological footprint as light as the original Silk Road did. It should be green — not black — silk road.

Second, it must be designed and delivered to mobilize the major new sources of green finance now emerging in the world.

Third, it must avoid investments in the stranded assets, staring with coal, that ensure that the massive initial costs will not be recouped in the long term.

Fourth, it must start by supporting the new innovative, internet-enabled, service sectors of the twenty-first century rather than the manufacturing and resource sectors of centuries past, just as China is doing in its economic development strategy at home and in the G20 Summit it will host at Hangzhou on September 4-5, 2016.

Fifth, to ensure this strategy is supported by all parts of the participating governments, the project should be governed at the leaders' level, through regular summits of the heads of all the countries along the way.

1. Enhancing an Ecological Civilization

First, the project must be shaped throughout by President Xi's vision of building an ecological civilization for China, and thus necessarily for its neighbours and partners beyond. This means putting in first place poor peoples in poor countries and the natural environment on which their lives overwhelmingly depend.

The concept of an ecological civilization was initiated by President Hu in his 16th Central Committee of the Communist Party Report to the 17th Party Congress, as a requirement for establishing a well-off society. It first appeared officially in 2007 in the Chinese Communist Party's 17th National People's Congress.

As summarized by Chinese environmental Ma Jun (2007), it "is based on a reconsideration of the unsustainable model of development that has arisen out of industrial civilisation … [China]'s economy has grown rapidly, but we are paying a high price in terms of our resources and environment … Ultimately, our model of industrial civilisation is unsustainable … The global environment is heading quicker than ever towards crisis point. And it is with this background that China's leadership put forward its 'ecological civilisation' plan … Ecological civilisation requires that humans live in harmony with our environment because the environment is the foundation of our very existence." In short, if the environment is the very foundation of human existence, rather than an afterthought, add-on or luxury good for the rich, its protection and enhancement must be out first.

President Xi promised, in the 2013 Third Plenary Session, that China would implement "ecological civilization reforms." This was central in China's 13th Five-year plan, along with the "Two 100 years" and "Chinese Dream". The current defining document is the "Central Document Number 12: Opinions of the Central Committee of the Communist Party of China and the State Council on Further Promoting the Development of Ecological Civilisation" released on April 25th, 2015.

It declares: "Building an ecological civilisation is an important component of Socialism with Chinese characteristic, is closely connected to people's welfare, is an important determinant of the nation's future, and is an important determinant of achieving both the "two-100 years" goal as well as the Chinese Dream". The document outlines basic principles of maintaining green development, sustainable development, low carbon development while deepening economic reforms. Its targets and goals include the pledge that by 2020 the ecological civilization will be confirmed, the quality of environment will improve, that natural shorelines will be at least 35%, and that green urbanization will improve.

Given the short time and the scale of the New Silk Road project, these goals cannot be met unless a sustainable Silk Road is shaped from the start in both its land and maritime forms.

Immediately adjacent to China stand Kazakhstan, Kyrgyzstan, and Uzbekistan with Tajikistan and Turkmenistan just down the road. If an ecological civilization is to be built in China, it must equally embrace them.

There is little doubt about the needs of the central Asian countries and peoples along the route and the potential for the road to connected them to the rich world of today and the smart, sustainable future they seek. By almost all standard economic indicators, they are very poor. With the recent collapse in global commodity prices, all are in facing formidable challenges, with some having to go to the International Monetary Fund (IMF) for financial support. As all are land-locked countries, they cannot easily get their commodities and heavy manufactured goods to ports to sell them in the global export trade. As a result, inward foreign direct investment lags. At the same time, they badly need infrastructure investment, to replace the aging, low quality infrastructure that their former Soviet masters left.

Ecological stresses join the economic ones. The Central Asian countries are afflicted by water scarcity, high levels of water and air pollution, aging hydro and urban infrastructure, and potential resource conflicts over shared water sources in Kazakhstan, Uzbekistan, and Tajikistan. Compounding climate change will bring increasing drought and other extreme weather events.

To offset these existing and emerging ecological stresses, as the Silk Road is build, run and used, it should be done so in a way that gives it an economical footprint as light as the Old Silk Road.

2. Generating Green Finance

Second, the New Silk Road must be designed and delivered to mobilize the major new sources of green finance now emerging in the world.

As China's domestic needs mount and its formidable foreign exchange reserves shrink, it cannot afford to finance the News Silk Road by itself at the scale and speed it and its partners want.

New Chinese-centered regional development banks can help, notably the New Development Bank (NDB) and the Asian Infrastructure Investment Bank (AIIB). But they are just getting started, have modest financial resources, many conflicting claims on them, and little hope of raising more money from a declining Russia, Brazil and South Africa and a Europe with Greece, Portugal and Italian banks to bail out. Both new development banks lack participation from the first and third largest economies in the world, the United States and Japan.

The old development banks can help but are not big enough to do much. The Islamic Development Bank will be sympathetic to projects than meet the needs of its religious confrères on the Road, but has many demands from bigger Muslim states elsewhere. The Asian Development Bank can help, and has just partnered with the AIIB. But it has long been devoted to sustainable development and will demand high standards for the environment, labour, and good governance before its money can flow.

The G20 had long mobilized massive amounts of money to meet pressing global needs. It has recently adopted infrastructure investment as a priority and added innovation as the first priority for the summit that China will host at Hangzhou on September 4–5 this year. Yet the G20 has long had a strong environmental commitment, notably by its September 2009 summit promise to phase out inefficient fossil fuel subsidies by this year. China had added green growth and green finance to the G20's priorities this year.

Much money also lies in the World Bank Group and the International Monetary Fund (IMF), with the former recently dedicating 28% of its lending to climate finance. The IMF is also demanding that countries getting its loans, such as Ukraine must reduce their own fossil fuel subsidies in return.

The new Green Climate Fund housed in Korea has now started to disburse loans. All G20 and G7 countries are committed to raising $100 billion in climate finance annually by 2020. This is a vast increase from the $10 billion they have pledged and produced thus far.

Looking more broadly to the emerging major regimes for trade and investment, such as the Trans Pacific Partnership where the US and Japan are in the lead, high environmental standards are a core condition. Other countries must meet them if they wish to join.

In short, if China wants external finance, foreign direct investment and major export markets for its new Silk Road, it must put the environment in from the start.

3. Stopping Stranded Assets

Third, China must stop stranded assets from being supported by the Silk Road from the start. As China knows from its bold action at home, the coal-fired economy created by the first Industrial Revolution in 1715 is rapidly dying as the twenty first century unfolds.

The World Bank no longer supports projects using coal to generate electricity. The world's largest private sector coal company, Peabody in the US, has just gone bankrupt. Others are following in its wake. First Canada, then Britain have outlawed the use of coal to generate electricity at home.

Beyond coal lie other carbon-intensive products and activities that the Silk Road should shun. They include heavy oil, cement and roads that attract automobiles that burn hydrocarbon fuels and produce poisonous tailpipe emissions as they do. The Road should be build with charging stations for electric vehicles, where the electricity comes from carbon-free sources. And its transportation corridors should privilege waterways and rail over roads.

4. Investing in Innovation

Fourth, the New Silk Road must support the new innovative, internet-enabled, service sectors of the twenty-first century, rather than the manufacturing and resource sectors of centuries past. This is what China is doing in its economic development strategy at home and in the G20 summit at Hangzhou.

China's first priority for Hangzhou is innovation, with the "internet of things" and robotics driving the fourth industrial revolution. The New Silk Road should start here, by first building the broadband infrastructure that enables all entrepreneurs, old and new, to inform a global audience of their products and services, buy them at low cost and produce new ones not thought of yet. This broadband infrastructure has almost no ecological footprint, beyond the electricity needed to keep its high powered processors cool. It can instantly expand existing industries such as eco-tourism, that recreate the logic and the appeal of the Silk Road of old.

5. Silk Road Summitry

Fifth, sustained summitry is needed to ensure that this ecologically sustainable Silk Road is supported by all parts of the participating governments, with the ministries responsible for the environment, innovation, social policy and social diversity having an equal voice.

Only a country's leaders can bring them together in a coherent and coordinated way. To ensure that their do, and that all the partners along the Silk Road have an equal voice, they should meet periodically face to face in Silk Road Summits, with the hosting rotating, perhaps as the Road itself expands to reach new locales. The New Sustainable Silk Road is a megaproject worthy of leaders scare time and attention. And if President Xi invites them, they will surely come. To get a quick start, the Central Asian partners could be invited to the G20 Summit in Hangzhou.

Conclusion

This strategy applies at least equally to the Maritime Silk Road, where the G20 members of Indonesia and India, replete with poor people, are among the first ports of call, with Marco Polo's Italy, and Germany lying at the other end. With Germany hosting the G20 summit in 2016 and India very likely to do so in 2018, Silk Road summitry born in the bosom of the G20 is likely to be sustained. But the place and time to start is with the Central Asian partners this year.

References

Kirton, John (2013). G20 Governance for a Globalized World (Farnham: Ashgate).

Kirton, John and Ella Kokotsis (2015). The Global Governance of Climate Change: G7, G20 and UN Leadership (Farnham: Ashgate).

Liu, Qiang and Chaowen (2015). "Integrating Green Tourism of Jiangxi Province into 'One Belt and One Road' Strategy," Journal of Landscape Research 7(6): 99–101, 104.

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