Xuefei Lu, 20 years of operational experience in multinational companies until 2018, in charge of strategic partnerships, business development and government & public affairs in China, now a trainer and consultant for Akteos, she was able to get an insight into the economic and political contexts of the New Silk Road.
The mythical Silk Road
The mythical Silk Road evokes a caravan of goods, transported from China to Europe through the Middle East between the 2nd century BC and the 15th century. In 2014, UNESCO has inscribed part of it on the World Heritage List. In the same year, China published the map of a new Silk Road, officially named One Belt, One Road, launched by President XI Jin Ping during his speech at Nazarbayev University in Kazakhstan in 2013.
Composed of a land route and a sea route, it covers 3 continents and more than 60 countries, with 27 stopover cities. China, which has been exporting goods for the last 40 years, is in the process of transforming itself into a capital exporter: acquisition of a stake in the port of Piraeus, or construction of the largest dry port (port without water) in Khorgos in Kazakhstan …
The origins of the Silk Road in the 21st century
What are the economic and political reasons for the new Silk Road of the 21st century?
The economic reasons
First of all, economically. China is no longer competitive in what is labour-intensive, one of the direct consequences of the one-child policy. The low fertility rate is leading to a decline in the labour force. The cost of labour is rising because the labour force is smaller and the standard of living is higher. Rising costs are undermining China’s competitiveness, which the country has benefited from being the workshop of the world for the last 4 decades. This poses many challenges to the social economy.
In addition, due to a poorly developed pension system and poor access to credit, individuals and companies in China are forced to save. Indeed, China is one of the world’s largest savers. It accumulates assets that can also be profitable, whether they are assets accumulated in the domestic or external economy. The country thus becomes an exporter of capital.
In the 1980s and 1990s, the Japanese also exported a lot of capital and invested all over the world. However, while in Japan this was a phenomenon mainly based on private behaviour on the part of individuals and companies, today in China it is being orchestrated by the government through the New Silk Road Initiative, due to a profound economic need.
Secondly, for political reasons. The first generation of Chinese leaders had revolutionary legitimacy. Prior to 1949, and for almost a century, China suffered Western colonization, Japanese invasion and civil war. The Communist Party is seen as the party that was able to put an end to these scourges and restore dignity to the people and the entire nation.
Then there was social legitimacy. The state took charge of everything and guaranteed employment for life.
Since the beginning of reform and opening up in 1979, in the space of 40 years, China has become the world’s second largest economy. By enriching the nation, China’s leaders enjoy economic legitimacy.
Now, with slower economic growth and a more complex and sometimes hostile external environment, it is now imperative for the government to think about what measures need to be taken to maintain social stability. The Silk Road is both an economic and a political response to these challenges. It goes beyond China’s borders and is part of the global geopolitical space.
The Chinese Dream
China is now putting concrete plans on its roadmap to realize the Chinese Dream, the country’s new political direction. It is being realised externally through the new Silk Road and internally through the Made-in-China 2025 strategic plan. This plan aims, through innovation, to transform the world’s factory country into a provider of higher-value products and services.
The Sino-American trade war
Nevertheless, geopolitical circumstances are becoming more complex. In 2017, the United States and the European Union opposed China’s market economy status, 16 years after its accession to the WTO. In 2018, the Sino-US trade war began, seen by some economists as the largest trade war in economic history…
Strategies of Chinese companies
Despite the current uncertain environment, the new Silk Road has created and continues to create business opportunities. What are the attitudes and strategies of Chinese companies? What impact will this have on your relations with your Chinese partners or shareholders? Above all, you need to ask yourself who your partners are. Is it a state-owned enterprise, a private company, or a foreign company based in China? Because they have different stakes, sometimes opposite decision-making processes and very different corporate cultures.
The Chinese have a realistic outlook on the world, marked by a spirit of pragmatism. The business world is changing extremely fast in China. So it will be counterproductive to look at it with an unchanged eye. Analysis through testimonials and concrete cases drawn from the recent operational experiences of professional actors in the field is the most effective and factual way to better understand Chinese companies in the context of the new Silk Road.
Xuefei Lu, Akteos consultant, leader of intercultural training courses