THE DRAGON’S GAMEPLAY

More than ten years ago, the international rating agency PwC developed a model of world economic growth until 2050. Since then, the agency has annually published the updated versions of its forecasts. In all of these forecasts, China's inevitable economic leadership has not been questioned. PwC experts predict a gradual decline in the growth rate of the Chinese economy to the world average but from the mid-2020s, China's share in global GDP should stabilise at 20%. The runner-up countries of this fight will be the U.S. and India. Currently, the U.S. produces 24.3% of the world GDP (WB data for Feb 2017). China holds the second place with 14.8%.

China's breakthrough as the leading world economy was possible due to a successful implementation of the "Four Modernisations Program: Agriculture, Industry, National Security, Science and Technology" announced by Deng Xiaoping in 1975.

Xi Jinping, who became the head of the country in 2012, has concluded that the country's economic power had not automatically led to the expansion of China’s international influence and had not reduced dependence on the global rules of the game dictated by other countries.

It is time for China to create its own concepts of international cooperation to become an independent player of the world, not the region.

In addition, it is necessary to solve the intra-economic problems in a new way. Although China's GDP growth rates remain one of the highest in the world, they are gradually slowing down. In 2016, China's economy grew only by 6.6% (14.2% in 2007) demonstrating a long-term minimum. At the same time, the country's national debt is growing. In 2015-2016, it was 16.7% and 20.1% of GDP, respectively. China's total debt (including domestic debt) exceeded 250% of GDP by the end of last year. According to the forecasts of Moody's, the national debt can reach 40% of GDP by 2018.

These concerns made Moody’s to change on May 24 China's long-term credit rating for the first time since 1989. It was lowered from Aa3 to A1 reaching the ratings of countries such as Japan, the Czech Republic and Saudi Arabia. The other two rating agencies have not changed their ratings so far: S&P gave AA (corresponds to Aa3 of Moody's), Fitch – A+ (A1 of Moody's).

Beijing sets a goal not to fall below 6.5% of GDP growth per year, but it is necessary not only to seek new markets for its products but also to create them.

The task of strengthening the economy of the north-western and inner regions, which are severely lagging behind in their development from the eastern provinces along the coast, is especially challenging for the country's leadership.

Superpower Ambitions

In autumn 2013, President Xi Jinping announced the revival of the ancient Silk Road used to serve as China’s trade path to the West more than two thousand years ago. This time, however, the Chinese government has defined the tasks that are more ambitious: political coordination, interconnection of infrastructures, unimpeded trade and free movement of capital.

Beijing intends to link Eurasia as a single high-speed transport infrastructure - to build roads and railways, pipelines, seaports and airports. Therefore, $40-billion-worth Silk Road Fund was launched in December 2014. The Asian Bank for Infrastructure Investments commissioned in December 2015 also joined the project investing $100 billion.

One of the most ambitious infrastructure projects of the 21^st century, One Belt - One Way, includes two sea and three overland routes: the northern (China - Central Asia – Russia - Europe), central (China - Central and West Asia - Persian Gulf and the Mediterranean Sea) and southern (China - Southeast Asia - South Asia - Indian Ocean).

It covers the territory inhabited by 63% of the world's population and, according to Chinese experts, 60% of the world's countries will be involved in the project in the next ten years. More than 100 countries and international organisations have already supported it. Over the past three years, China has invested more than $50 billion in the economies of the countries along the route, implemented 1,676 infrastructure and energy projects. The total volume of China's trade with countries along the One Belt - One Way in 2014-2016 exceeded $3 trillion.

Dialogue Instead of Confrontation

China started intensifying its trade with the countries of Western Europe in the mid-1960s. Over time, the EU became the largest trading partner of Beijing. During the first four months of 2017, trade turnover between them amounted to $165 billion, or 14.8% of China's total foreign trade.

Of course, Europe is interested in expanding trade with China and with the entire Asian region, in general, but it puts forward an obligatory condition for coordinating the New Silk Road with EU initiatives. The specially created structure, the EU-China Communications Platform is designed to develop a common position in trade with China in order to prevent further bilateral contacts with individual EU members. The European Parliament explains these steps by a desire to avoid possible ‘divide and conquer’ tactics of China in Europe.

In addition, European business is unhappy with China’s reluctance to abolish the legal obstacles and various restrictions for access to its market. Everyday Europe buys €1-billion-worth of Chinese goods, while China imports twice as much. In 2016, Chinese investment in Europe was four times higher than the European investment portfolio in China.

Still, Europe prefers having a dialogue instead of confrontation and has firmly opposed to the policy of China's isolationism in the international arena, promoted by the previous American administration. This was well demonstrated during the establishment of the Asian Bank for Infrastructure Investments initiated by China. Then the U.S. tried unsuccessfully to dissuade its allies from participating in this financial structure.

Investments Need to Be Protected

The first international forum One belt - One way was held in Beijing on May 14-15. It was quite an impressive event given the participation of more than 100 countries, including 29 represented by the heads of state and government. The leaders of the UN, IMF and World Bank also took part in the forum.

The high representation of international financial institutions was not accidental. China intends to attract as much money as possible to its project. The large-scale challenges in front of the One belt - One way initiative require serious investments. Chinese President Xi Jinping stressed that he will work with the Asian Bank for Infrastructure Investments, BRICS Bank and other banks to develop this project. In addition, China will additionally provide $14.5 billion to the Silk Road Fund, and also counts on assistance from Chinese banks, which are offered to provide $55 billion to support the project.

The participants of the forum supported the initiative One belt - One way, which "is aimed at strengthening the interconnection between Asia and Europe and in parallel is open to the participation of other regions, such as Africa and South America."

Africa and South America were represented at the conference by the leaders of Argentina, Chile, Kenya and Ethiopia.

But China’s closest neighbour, India, refused to participate at all in protest against Chinese investments in Kashmir, which is a hotbed of tension between India and Pakistan.

The construction work in Kashmir and China's military activities in the South China Sea are recognised by many as a manifest of an important shift in Chinese foreign policy.

The multibillion-dollar infrastructure investments of China make it to take an active part in the problems of international security. To protect its investments, China needs political and military levers of influence.

Partnerships

The favourable geographical position of Azerbaijan provides ample opportunities for its participation in various international infrastructure projects.

Three railway routes cross the territory of Azerbaijan: North-South (India-Iran-Azerbaijan-Russia-Europe), East-West (China-Kazakhstan-Caspian Sea-Azerbaijan-Georgia-Turkey and / or Black Sea-Europe) and South-West (India - Iran - Azerbaijan - Georgia - Black Sea - Europe).

Regular communication on the East-West railway corridor will become more intensive after the commissioning of the Baku-Tbilisi-Kars railway line (BTK). From Kars, the goods will be shipped to Istanbul, where a direct connection to the railway network of Europe has already been established.

According to the head of the Azerbaijani Railways Javid Gurbanov, negotiations are currently under way to create a new route that will deliver cargo to Azerbaijan from the southern regions of China to Europe through the territories of Kyrgyzstan, Uzbekistan and Turkmenistan.

The start of closer Azerbaijani-Chinese cooperation on the Silk Way project was laid during the visit of Azerbaijani President Ilham Aliyev to China in December 2015, when both leaders concluded a memorandum of understanding. The parties also reached agreements on cooperation in the areas of civil aviation, land transport, energy, construction of technology parks and so on.

Following the results of 2016, China entered the top five trade partners of Azerbaijan with a turnover of $975 million (imports from Azerbaijan - $271 million, exports - $704 million). Chinese investments in Azerbaijan equal to $300 million.

According to the Azerbaijani Deputy Minister of Economy Niyazi Safarov, Chinese companies participate in 12 projects in Azerbaijan with a total worth of over $640 million. In total, 77 companies with Chinese capital operate in Azerbaijan.

In the days of the Beijing Forum, the signing of an agreement on the construction of a gas processing and petrochemical complex located 15 kilometres from Baku and with a processing capacity of about 10 bcm of gas annually was signed. According to initial estimates, the project will cost approximately $4 billion. With the completion of the first stage of port facilities in Baku at the end of 2017, it is expected to increase Chinese investments in the region's infrastructure.

This year also marked the 25th anniversary of establishing diplomatic relations between Azerbaijan and China. Economic ties between countries are increasing. Azerbaijan seamlessly fits into the global infrastructure plans of the country with very big economic and political ambitions.

All participants of the Beijing Forum, including representatives of Azerbaijan, stressed the necessity to implement cooperation projects exclusively through consultations and negotiations. The participants agreed to consider the interests of each project participant, respect the natural and cultural differences between countries.

One of the most impressive infrastructure projects of the 21st century is being built upon trust, which cannot be bought by money.