MACROECONOMICS
In recent years, the two Asian giants, China and India, have embarked on ambitious infrastructure projects that have captured the world’s attention. China has promoted its Silk Road, an extensive plan to connect Asian and European regions through a network of railways, roads, ports, and trade corridors, while India has introduced its Cotton Road, a similar project focused on connectivity and infrastructure development. These ambitious plans not only promise to strengthen both nations’ positions in the global context but also have significant economic and financial implications for the rest of the world, particularly Europe.
In this article, we will examine both projects in detail, China and India’s international ambitions, their effects on the global economy and international financial markets, and the implications for Europe.
The Chinese Silk Road
China took the lead with its project known as the “New Silk Road” or “One Belt, One Road” (OBOR), first launched by President Xi Jinping in 2013. This ambitious plan aims to connect Asia to Europe through an extensive network of roads, railways, ports, and infrastructure. This initiative has become the cornerstone of Chinese foreign policy and aims to strengthen China’s economic and political position in the world. The Silk Road spans across Central Asia, the Middle East, Eastern and Southern Europe, involving over 140 countries.
Massive Chinese investments in this infrastructure have created significant economic opportunities for many countries along the Silk Road. However, there are concerns about the economic dependence these nations have developed on China. Additionally, the project has raised questions about China’s geopolitical intentions, as it is seen as a way to extend Chinese political influence worldwide.
The Indian Cotton Road
On the other side of Asia, India introduced its response to China’s Silk Road in 2016, known as the “Cotton Road” or “Cotton Route.” This project was launched to promote connectivity and infrastructure development between India and nations in East Africa, the Persian Gulf, and Southwest Asia. It focuses on enhancing trade routes and modernizing harbors.
India aims to consolidate its position as a key player in the Indian subcontinent and increase its influence in other regions crucial to international trade. The Cotton Road offers India the opportunity to expand its economic and political presence in these regions. However, until recent developments, limited funding and geopolitical challenges, such as tensions with Pakistan, posed significant obstacles to the success of this project.
Everything changed after the latest G20 summit in New Delhi, where Italy signed a memorandum of understanding for the implementation of this corridor officially called IMEC (The India-Middle East-Europe Economic Corridor), along with the leaders of the United States, India, Saudi Arabia, the United Arab Emirates, France, Germany, and the European Union. Specifically, the relaunched project includes two main connections: a railway link between Europe and the Gulf (United Arab Emirates, Saudi Arabia, Israel, Jordan) and a seaport link between India and the Gulf. It also involves laying cables for data and electricity transmission and building pipelines for green hydrogen supply. The project has been adopted by the Partnership for Global Infrastructure and Investment (PGII), an organization created by the G7 in 2022, and the European Union’s Global
Gateway, which has allocated up to 300 billion euros for foreign infrastructure investments between 2021 and 2027.
The active role in the project of the United Arab Emirates and Saudi Arabia on one side and Israel on the other, along with U.S. endorsement and European investments, have given new impetus to this initiative.
Comparing the Two Projects and the Positions of the USA and Europe
Both of these projects reflect the international ambitions of China and India. China, with its Silk Road, aims to consolidate its position as a global economic and political power by promoting trade and connectivity with nations along its routes. Similarly, India, with the Cotton Road, aims to strengthen its regional and global role by increasing influence in key areas.
The competition between these two projects is evident in some countries located at the crossroads of both initiatives. For example, Iran, with its Chabahar port, is a convergence point between the two initiatives and has sought to benefit from the rivalry between China and India.
In light of the new momentum gained through the latest G20 summit, there are now clear differences between the two projects.
While China started first, its project ultimately has the support of only emerging economies and not any major global economic leaders. China has consolidated its positions, but its infrastructure project does not seem to succeed in transforming it from a regional superpower into a global superpower.
On the other hand, the India-Middle East-Europe corridor, though initially launched quietly, is seen as one of the most promising projects, as it has strong economic foundations and significant political interest from the involved countries. For the United States and Europe, it has suddenly become strategic in terms of containing China’s economic and geopolitical influence. This project has become essential for defending American and European interests in Asia and Africa, recognizing that there is a growing demand for infrastructure investments in the Global South that exceeds the available supply. The concern is that if these gaps are not filled by the USA and Europe, China will take their place, as it has already done extensively in Africa, for example. Furthermore, it is supported by a network of alliances and agreements, such as the Abraham Accords, which facilitated the normalization of economic relations between Israel, the United Arab Emirates, and other countries in the region. Italy is particularly well-positioned geographically to play a leadership role in this initiative and could benefit economically from the project, especially regarding digital connectivity through submarine cables.
For Saudi Arabia and the United Arab Emirates, the corridor would represent an opportunity to diversify their economies and become crucial hubs between East and West. For Israel, it would mean investments and political benefits.
Effects on the Global Economy and Financial Markets
Both of these infrastructure projects have the potential to significantly influence the global economy. Both aim to increase connectivity between Asian and European markets, facilitating trade and economic cooperation. However, as mentioned earlier, it appears that the potential economic impact of the Chinese project is diminishing or at least focusing on non-major countries and markets.
Instead, the relaunch of the Cotton Road has been met with interest from companies and investors, with some expressing immediate interest even before the definition of an action plan. It is expected that project promoters will convene within the next 60 days to develop a list of infrastructure projects, including railways, energy, and more, seeking private financing for implementation. The economic and financial impact could potentially be much greater, given the
active involvement not only of the USA and Europe but also of Saudi Arabia and the United Arab Emirates, whose substantial capital is always looking for new medium- to long-term investments as part of diversification from oil and gas. On the other hand, massive infrastructure investments can open up additional new investment opportunities and influence global capital flows. Institutional investors are already seeking to identify sectors and companies that could benefit from these projects.
However, it is essential to carefully consider a certain level of underlying risk associated with such investments, especially if geopolitical tensions between China and the USA and between China and India were to intensify.
In summary, the Cotton Road represents a significant effort to strengthen economic and infrastructure connections between India, the Middle East, and Europe, with the goal of reducing infrastructure gaps in the Global South and offering an alternative to Chinese initiatives in the region. By embracing this project economically, for the first time, the USA and Europe seem to be counterattacking in the realm of major infrastructure in areas of the world where China previously acted unopposed. The geopolitical and economic struggle between the West and China continues, with an interesting twist: the active participation on the opposite side of China not only by India (its natural competitor in the Asian chessboard) but also by the United Arab Emirates and Saudi Arabia, together with Israel.
All of this is happening while China is dealing with an unusual crisis of confidence in its domestic market and a severe debt crisis triggered by the default of its real estate sector.
India, on the other hand, with a bigger population than China and an unprecedented intervention in the international mega-infrastructure sector, is positioning itself as a major player in the global economy. For this reason, it has effectively become the focus of attention for major international financial capitals.
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