China’s Maritime Silk Road Initiative as the Next Great Investment Frontier (or Not)

Dr. Jean-Marc F. Blanchard's picture

In 2013, Chinese President Xi Jinping launched the 21st Century Maritime Silk Road Initiative (MSRI). His ambitious scheme seeks to connect China to Europe through a package of ports, logistics facilities, railways and roads, power grids, and other infrastructure spanning from East China through the South China Sea, the Indian Ocean, and the Mediterranean. The MSRI’s strategic ramifications have been vigorously debated, but its business implications have received limited attention. This is odd. First, China plans to allocate hundreds of billions of dollars to the MSRI, though it remains unclear what percentage of this money will consist of foreign direct investment, loans, or aid. Second, the MSRI has the potential to transform growth, investment, and trade patterns within both the MSRI’s confines and MSRI participant countries. Third, the MSRI also is about soft infrastructure which means it may yield significant developments in regional free trade agreements, national legal institutions, and investment dispute settlement mechanisms. Should foreign businesses set sail on the MSRI? The journey will be a choppy one given the MSRI’s scope, the immense amount of capital needed to support it (which goes way beyond what China alone can supply), and the risks present in multiple MSRI countries like Myanmar. Yet there are dangers in standing on the dock too long given China’s strong interest in advancing the MSRI and the fact it appears to be one of President Xi’s central foreign policy planks. Moreover, while China is capable of (and disposed to) doing much MSRI related work itself, there will be national, sub-regional, and regional-scale projects where China will need foreign cooperation to address parts, services, risk diversification, localization, and other requirements. Foreign companies participating in the MSRI may find themselves occasionally “seasick,” but the cruise may be a rewarding one if they carefully participate along the way.