Iran Views OBOR as An Opportunity

One Belt One Road initiative is a wise and strategic economic strategy proposed by Xi Jinping, president of China, at 2013 to revive the ancient Silk Road. There are some major objectives behind such a decision, including: To facilitate and boost regional and international trade, and flow of capital and services between east and west, and to make a regional and international infrastructure network to foster economic cooperation between countries and enhance global supply chain. As a global manufacturer, China has been trying to revive its ancient silk road to provide links to its suppliers and vast consumption market, to take another step to retain and expand its economic dominance globally. The “Belt” refers to overland road and train infrastructure connecting hinterlands of countries from west of china through Central Asia and Middle East to Western Europe. The “Road” refers to maritime sea route that connects Chinese southern ports through South Asia and South East Asia, West Asia and North Africa to Italy and European Union. The 65 countries on the land-maritime route of new Silk Road encompass 29% percent of World’s GDP and 63% of World’s population.

News ID: 77489

Date: 29 November 2017 - 11:34

In order to delve this issue further, Payam Draya magazine conducted an interview with Mohammad Pourhaji, MSc in Maritime Economics and Logistics, Senior Maritime Officer and Analyst and Harbor Master of Guilan Ports and Maritime Administration. The transcript of this interview has been laid out in the upcoming lines:

Given the decrease in China’s growth rate in the recent years, why is it necessary to revive the Silk Road?

China encountered a downturn in its economic growth from 2012 onward as it is shown in the following table:

According to experts, model of growth in China is changing from investment driven growth to consumer demand, and thus investment in infrastructure and manufacturing encounters slowing. This is partly because of increasing revenue per capita in China and the desire for consumption rather than manufacturing. The other reason could be Chinese companies` tendency toward investing on infrastructure of other trading countries. Although growth rate in China decreased during recent years, but, they started an ambitious plan to revive their ancient Silk Road as One Belt, One Road. China after a soaring growth rate in last decade has shifted investment outward its borders. Many state owned enterprises and private companies in China invested in other countries such as Malaysia and Singapore to supply them with main components of their products. This is a two way transport and a win-win deal which enables China to retain a sustainable, stable, steady economy despite its descending growth rate. Employment and GDP growth are achieved in China, but environment is under a severe damage, so it is the time for this country to shift some industries beyond its borders and move toward outward economy and follow its ambitious plan to link its manufacturing hubs to their suppliers and consumption market through so called One Belt, One Road and revive ancient economic Silk Road. It has both economic and political importance for Xi Jinping to have a broad road, rail and maritime access to its trade partners across the World.

From economic point of view, the new silk route provides many business opportunity for countries involved including new infrastructures, jobs and employment. Chinese companies have investment on many projects overseas through which they are connected to global economy and facilitate transport to destinations. On the other hand, it is always a necessity for a country to have more market and supplier access alternatives to survive at the increasing competitive market. From political point of view, china seeks sustainable security by investing on vast global projects. Economic ties with other countries brings more security to Chinese companies as they are spread at many places and own assets out of their country. By Silk Road revival, Chinese companies which transferred their manufacturing infrastructures and investment to the countries along with the Silk Road, will have a secure and viable supply chain and the political importance is that, the entire route will be at control of China, because no cargo flow will be equal to no employment and no income for countries on the route. Thus, in such a way, this project causes dependency. This promises a sustainable economy and security. China has been looking for more effective role on political scenes and OBOR provides a great and new opportunity to increase China`s international influence, and this is another reason for reviving the Silk Road.

Taking a brisk glance at the infrastructures of the countries involved in One Way One Belt project, which China has designed to revive the Silk Road, we perceive that a large budget is needed for the project’s prospects to be achieved. So the first question that comes to mind is whether or not this project is executable under current world conditions.

It is a multi- trillion investment plan that so far has received $1 trillion and will be doubled in next years and if achieved, can benefit the countries on the way of the Belt and Road $ 2.1 trillion in GDP. So far 100 countries and international organizations have joined the project and Chinese businesses have helped 56 economic and trade cooperation zones in 20 countries along OBOR, with investment exceeding $18 billion, helping generate more than $1billion and more than 160000 jobs (WALIZAHID 2017). Although President Jinping recently pledged extra $124 billion to fund OBOR to guarantee financial support to the project, still 5% of the budget is spent on the plan1and to fulfill this project, many infrastructures such as bridges, roads, ports, rails, official buildings, customs, energy suppliers to be built by domestic and international companies at countries in Asia, Africa and Europe. They need a large amount of budget/investment and governments along the “Belt” often are not able to fund their own part and leave the ground for international businesses and financial service providers to have partnership in projects.

It is believed that investment in some projects of the OBOR has no short term benefit or at least has long term investment return. But, as the government of China is determined to implement the plan, China financial bodies such as state owned banks, private investors, pension funds, and some financial institutes have started financing projects in other countries to accelerate project completion. In other words, more than 90% of Asian infrastructure is invested by public sector and there is no more room for public sector financing and therefore a new model of investment and financing encompassing a mix of public-private capital is required to fund the projects. Chinese financial firms and banks are pioneer for financing projects relevant to OBOR and the government by establishing summits tries to encourage other countries to do so. Due to increasing rate of population and trade all over the world and consistency of trade dominant route from east to west, if adequate funds are matched to investable projects, even under current economic condition of the World, the project is executable.

Maritime transportation seems to have been disregarded in the modern Silk Road project, whereas maritime transportation is much faster, safer and cheaper than other means of transportation. Now the question is: Is this project executable without maritime transportation?

The advantage of the project is using diversified ways of transport, which includes road, rail and maritime mode in different corridors. During past years, china has extended its access to the countries along modern Silk Road through its integrated railway system. The trains from origins in china reached different destinations in Europe, England, Middle East within days based on monthly or weekly basis to test access feasibility. A train passed 9 countries within 18 days and 12000 km journey to reach London. China Railway Company is planning to increase number and frequency of journeys to handle more cargo.

Maritime transportation is not disregarded in the project, as “Road” in One Belt One Road refers to maritime link between the countries of South and south Eastern Asian through Asia and east coast of Africa to Europe. There are many ports that take part at the project; moreover, the round maritime trip covers a dozens of seaports to link manufacturing hubs to their consumption market.

Although trains carry a limited number of containers, China Railway Company has been trying to increase the frequency and speed of the trains to carry more cargoes through the route. But, by entering 22000 TEU containerships in east-west dominant route, the maritime transport is still the most cheapest, economic way of moving a vast volume of cargo between China and Europe. In other words, road and rail transport are complementary to maritime transport, but they cannot substitute it, and the project without maritime transport will be costly and time consuming.

What is the role of Iran in the OBOR initiative?

Iran benefits a strategic location and has been land bridge between east and west for millennium. Iran is on the way of China overland belt route to West and due to its strategic geographical location provides an strategic access to big consumption market around, including CIS countries in North,

Afghanistan in east, Persian Gulf states in south, Turkey in west. Railway system connects China to Europe passing through northeastern Iran from Turkmenistan and exits in northwest to Turkey.The first train reached Tehran in 2016 within14 days passing 10339 km carrying 32 forty foot container from Zhejiang. The maritime route to Iran takes 45 days. This rail route, both facilitate carrying cargo to market of Iran, and after continuing its way toward Europe, delivers cargoes to European destinations. So, as a regional rail hub, the route will be stretched to Azerbaijan to connect the missing node of North South Transit Corridor through which it can be connected to Anaklia, the Georgian port at Black Sea and an subsidiary route will becreated for international trade. President Rouhani has declared that Iran iswilling to have its role in OBOR and considersit as an opportunity. Therefore, an MOU wassettled between Presidents of Russia, Azerbaijan and Iran in Baku to accelerate rail connection construction between Astra of Iran and Astra of Azerbaijan. It is part of a rail way project to connect Bandar Abbas, the major port of South of Iran, to national railways, and then to be extended to Azerbaijan, Russia and Northern Europe. Iran is a major player at the OBOR project and tries to exploit it to reduce rate of unemployment and boost its projected economic growth.