For the first few decades of its ‘reform and opening up,’ China’s economic energy flowed east. Like the flows of China’s great rivers, the Yellow and the Yangtze, people, money, and products poured eastward out of central China and into the burgeoning cities along China’s coast: Dalian, Qingdao, Beijing, Tianjin, Shanghai, Guangzhou, and Shenzhen.
The result was a dramatic transformation. The streets of Shanghai now feel like those any other great Asian city, and indeed Shanghai’s per capital GDP has reached developed world levels.
China’s industrial planners now hope to duplicate this feat by reaching out to their nation’s far Western regions and linking them into the dynamism of coastal China. Even more ambitiously, they envision western China as a bridge to Central Asia, the Middle East, and on to Europe.
Emboldening these ambitions is the one central, inescapable fact of China from which all observations must begin: 1.4 billion.
As former Premier Wen Jiaobao once quipped: 1.4 billion is a huge number. Take any figure and divide it by 1.4 billion and it quickly shrinks; take any number and multiple by 1.4 billion and it immediately balloons. This almost unimaginable figure means that China is at once rich and poor. It is the scale of China’s population that renders initiatives such as the New Silk Road imaginable—even as it multiples the challenges.
The implications of this 1.4 billion were brought home to me amidst the summer heat of Changsha and Lanzhou, from whence my journey began on July 22.
Suburbs ringing these cities stretch out from the city’s core at a frantic pace, like a lanky teenager whose arms and legs have grown faster than he ever expected. Six-lane highways meet each other at unbearably long red-light intersections. Shiny new glass-and-steel commercial complexes have popped up in former rice paddies, ringed by vast concrete expanses readied for the invasion of automobiles.
Skeptical Westerners gleefully point to these empty apartments and open highways as wasteful over-investment. Yet these skeptics, who similarly dismiss China’s high-speed trains, should travel, as I did, on China’s newest high-speed train from Lanzhou to Urumqi. First class was sold out. We traveled second-class, grateful for our seats, as many of our fellow passengers paid full price only to sit on the floor for most of the nine-hour journey to Urumqi.
Urban middle-class Chinese citizens are traveling aboard these high-speed trains to the edges of the People’s Republic. On the train to Urumqi, we meet tourists from Hangzhou, migrant workers heading home to see their children, a Shenzhen businessman out to ‘kaocha’ (investigate) for opportunities, a group of bicycle enthusiasts from Suzhou, and university students returning home for the summer.
China has capitalized upon its well-established and effective train system to build a world-class, highly-effective high speed train system linking the nation’s urban centers together. The result is transformative—for China; and soon, for its neighbors.
The best parallel is with the United States of the late 1800s, when the construction of cross-continental railways—a massive state-and-corporate industrial project widely denounced as wasteful at the time—laid the foundation for the US’s subsequent surge to prosperity and, eventually, global preeminence.
China’s high-speed trains carry with them the most important factor of production for the New Silk Road: Chinese businesspeople. Chinese merchants grew up in the rough-and-tumble economies of the eastern seaboard. They are finely attuned to the arithmetic of trading and investment—attentive to expenses and income, costs and benefits, investment opportunities and market gaps.
They bring with them the networks of connections that ease transaction costs: trusting relationships honed through hours at banquet tables, karaoke bars and massage parlors. These guanxi (relationship) networks ensure their access to market information, distribution networks, and low-cost investment capital. Such relationships help identify new business partners and ease regulatory hurdles, while mitigating the risks from unpredictable policy shifts or unexpected market changes.
Capital is the second most important factor of production along China’s new Silk Road. State-owned banks and enterprises, flush with cash and emboldened by government support, are funding the sinews of a modern industrial economy. These new railways, highways, oil and gas pipelines, electrical lines, and hydropower projects are replacing the decrepit infrastructure last built by the Soviets half a century ago. Along these roadways and railways, Chinese products are once again flowing along the Silk Road, bringing Chinese cell phones, televisions, washing machines, and motorcycles to consumers across Eurasia.
People, goods, and money: as these three essential factors of production that eastern China has in abundance begin to flow west they are creating a new economic geography along the ancient Silk Road. By linking Eurasian societies into the economic dynamism of eastern China, they may very well turn Beijing’s dream of a new Silk Road into a reality.
By JAMES REILLY 26 July 2015