Robert Blohm

(Managing Director, Keen Resources Asia Ltd.)

Author

Robert Blohm is an American and Canadian investment banker, economist and statistician, and also managing director of Keen Resources Asia Ltd. He has been in China for seven years advising Chinese government enterprises and agencies and foreign investment banks in China on financial and energy policy. He is the English editor of China's International Energy Economics monthly journal. Robert has contributed to the editorial page of The Wall Street Journal and The Wall Street Journal Asia frequently for the past 20 years, as well as Japan's Asahi Shimbun, the New York Times, the Los Angeles Times, People's Daily and China Daily. Robert has appeared on Fox Business Channel, Reuters TV, CCTV and Phoenix TV in Chinese.

Abstract

Don't stretch the Silk Road too far! Western culture has its collection of folk wisdom, one piece of which is the saying that "something that explains everything explains nothing", in other words has very limited practical use in problem solving. The Silk Road Economic Belt should not be too broadly interpreted, namely to embody China's trade ambitions with the entire Eastern Hemisphere of the globe: Europe, Africa and Asia, via both an overland and a maritime Silk Road. Otherwise the concept introduces little that is really new, except a visual geographic picture or a comparison with another historical period. Focus on Central Asia. It's more topical to focus the Silk Road Economic Belt concept on Central Asia, the locus of the ancient Silk Road concept, especially because it is precisely there that lie much of the most difficult challenges and opportunities currently facing the world. This was the scope of the "New Silk Road" economic development concept coined by the U.S. in 2011. Central Asia is the world's least economically integrated region. Intra-regional trade accounts for only 6.2 percent of total overall trade for the five Central Asian countries plus Afghanistan. By comparison, intra-EU trade represents 64 percent of the trade turnover among EU member states. China is driving the region's trade. In Central Asia intra-regional trade is growing, especially once barriers to cross-border movement of goods and people are removed. According to the Asia Development Bank, the value of intra-regional trade in food products, minerals, and textiles has doubled since 2008. Intra-regional and extra-regional trade grew by an average of 21 percent per year between 2001 and 2011. China is playing and stands to play a promising, dominant role in Central Asian development and economic integration. China is naturally the leader there in trade and investment. Trade volume between China and four Central Asian countries jumped to US$40.2 billion in 2013, nearly 100 times that of 1992. The sheer volume of trade puts China's currency in a position of facilitating stability among currencies in the region by serving as a "mediating" currency besides the US dollar. Central Asia is expected to be the second largest source of oil and gas after the Persian Gulf. Utilized effectively, Central Asia's abundant gas and hydropower resources can drive employment and investment, generate billions in public revenues, and meet rising energy demands, especially in south Asia. Development means physical connectivity plus local and intraregional rules of the road. When we speak of a Silk Road Economic Belt, we mean on the one hand physical connectivity – transport, communications, and energy infrastructure that links countries of the region together and links them with South Asia, East Asia, the Middle East, and Europe. On the other hand and equally important, we mean the practices, regulations, legislative bases, and international agreements in the areas of trade and transit that allow goods and services to flow efficiently from country to country across this infrastructure, and bring down the costs of doing business in the region, since we all know that trade, like water, finds the path of least resistance. In other words, improved "rules of the road" are needed by helping the Central Asian countries and Afghanistan develop and implement the practices, regulations, legislative bases, and international agreements to allow goods and services to flow more freely across borders. And training needs to be provided to ensure that terrorists and criminals, including narco-traffickers, don't take advantage of freer transit across borders for their own purposes. China shouldn't do just physical infrastructure and trade. These are not going to spontaneously appear on their own without concerted joint effort by the parties, public and private, within and between countries. China cannot just do physical infrastructure and trade while other countries and international institutions do the rest: China must be actively engaged. To connect their economies, the countries of the region must connect their business people – both men and women. The private sector must be the engine for the region's long-term economic growth. Intra-regional development initiatives. A number of such initiatives are already in progress in the region, from the Asia Development Bank's Central Asian Regional Economic Cooperation program and the Istanbul Heart of Asia process. Accession to the WTO by Kazakhstan and Afghanistan is impending. Uzbekistan is making efforts to revive its own accession negotiations and Turkmenistan has renewed interest in the organization. CASA-1000 project. The World Bank and Islamic Development Bank are supporting construction of the Central Asia South Asia CASA-1000 electricity transmission project, slated to begin construction in 2014. CASA would allow Tajikistan and Kyrgyzstan to sell electricity produced from existing, unused summer generation capacity to Pakistan, as a cheaper alternative to the oil-fueled power generation it has been using during its peak (summer) demand period. This "seasonal diversity" north-south linking of central and south Asia energy markets is a transformative "proof of concept" that could pave the way for similar regional seasonal-diversity electricity projects like the ADB's TUTAP project to flow electricity from Turkmenistan, Uzbekistan, and Tajikistan to Afghanistan and ultimately Pakistan. TAPI pipeline proposal. The TAPI pipeline bringing gas from Turkmenistan to Afghanistan, Pakistan, and India would be another transformative project whose construction, operation, and maintenance would generate thousands of jobs, and the pipeline would represent a major step forward in economic cooperation between Pakistan and India. The government of Turkmenistan and interested international oil companies are making progress toward the formation of a consortium to develop the project.