Can the US-backed 'modern spice route' challenge China's new Silk Road?

On the sidelines of the G20 summit held in New Delhi on 9 September, India's Prime Minister Narendra Modi and US President Joe Biden co-chaired a special event to announce the plan to build the India-Middle East-Europe Economic Corridor (IMEC), under the Partnership for Global Infrastructure and Investment (PGII), which is a collaborative initiative by the G7 nations to invest in infrastructure projects in the developing countries.

Leaders of Saudi Arabia, France, Germany, Italy, the European Union (EU), Japan, the United Arab Emirates (UAE) and the World Bank participated in the IMEC event. The IMEC will be a new economic corridor connecting railways and ports in the Middle East, India and Europe to strengthen connectivity and economic integration between India, the Arabian Gulf and Europe. The IMEC initiative also plans to build a hydrogen pipeline and lay fibre optic communications cables.

The plan to build the cross-border ship-to-rail transit corridor is ambitious and bold. Many Western and domestic media outlets in India refer to the IMEC as the "modern spice route", which will clearly be in competition with China's Silk Road. It is anticipated that bilateral trade between India and Europe could increase by 40% when the multinational IMEC is completed.

According to the released Memorandum of Understanding on the Principles of an India-Middle East-Europe Economic Corridor, the IMEC will consist of two parts: the eastern corridor which will link India to the Arabian Gulf and the northern corridor which will connect the Arabian Gulf to Europe. The IMEC aims to connect commercial hubs through railways and ports, to lay undersea cables for electricity and digital connectivity, to build more energy grids and telecommunication facilities, and to promote clean energy technology.

President Biden hailed the IMEC as a game changer, claiming that "this is a big deal, and this is a really big deal". The US is dominant in the unfolding of the IMEC plan. Washington has planned the project and engaged in behind the scenes discussions with the countries involved since last July. The IMEC was also envisioned to help to normalise relations between Saudi Arabia and Israel.

The IMEC vision starts in India, and will pass through Saudi Arabia, UAE, Jordan and Israel before reaching Europe. India is not involved in China's Belt and Road Initiative (BRI), and the country has faced many obstacles to improving connectivity with the Middle East and Europe. Pakistan, India's arch rival, has long denied India overland access to the Eurasian landmass. India therefore has had to find alternative channels to gain the connectivity with these regions needed to promote bilateral trade and investment, which the planned IMEC is intended to provide.

India is clearly a winner in this multinational deal. Meanwhile, Arabian signatories of the IMEC, such as Saudi Arabia and UAE, firmly believe that the Arabian Gulf could act as a bridge between India and Europe.

Any connectivity initiative that can unlock investment in infrastructure development in developing countries, to bolster economic and trade development and forge regional economic integration by strengthening connectivity, is desirable. It should be welcomed by the world. Many developing nations urgently require investment in infrastructure projects to improve connectivity as they attempt to hasten the pace of industrialisation. There is a huge demand for financing infrastructure projects in the countries in the global south.

Recent years have seen the unfolding of a successive wave of competing regional and global initiatives, all of which aim to accelerate inter-regional connectivity through infrastructure investment and construction. Examples include Japan's Partnership for Quality Infrastructure, Russia's Eurasian Economic Union, China's BRI, the EU's Global Gateway plan, and the G7 PGII.

While the vision behind the modern spice route is laudable, translating the vision into reality is at its very early stages. It is far from a done deal. Although its geostrategic intentions have surfaced and are much reported, the details of the IMEC are pretty scant at the time of writing this commentary.

The specific development plan, the funding sources and the construction schedule of the proposed IMEC so far remain unknown. A coordinating working group drawn from the signatory countries is expected to be established within the next two months to discuss the details of the IMEC, such as project design, funding, regulatory standards and project development timeline.

Implementation of the IMEC on the ground will face many daunting challenges and obstacles. First, constructing railways connecting the Middle East and Europe will be fraught with both technical challenges and risks deriving from the complicated and volatile geopolitical situation in the Middle East region. Both Iran and Turkey will be unhappy to see a transit corridor built across the region without their participation.

Second, the enormous construction cost of building the Corridor with the intermodal transport is also an issue. The life cycle of infrastructure construction and development is long and the return will only be realised once the project is in operation. Meanwhile, who will pay for the IMEC project? It is reported that the Saudi government might contribute US$20 billion to build the IMEC. The realisation of the IMEC will remain questionable until the source of funding for this project becomes crystal clear.

In addition, through the boom in trade, China has achieved rapid economic growth based on its strong manufacturing and exporting capability. This has resulted in China's rise to become the world's second largest economy and the largest trading nation. Its economic strength has paved the way for Beijing to push for the BRI across the nations, whilst this is not the case for India.

Although India has a large market of 1.4 billion population and a dynamic economy, it is not a large trading nation, being largely a service industry-based economy. Compared to the corresponding figure of 15.5% for China, India's share in world merchandise exports was only 1.8% in 2021. Moreover, the bilateral trade volume between India and Europe and India and the Middle East is very low compared to the volume between China and those countries. The economic rationale and commercial viability of the IMEC are doubtful.

It is therefore far too early to assess whether the IMEC can yield any tangible economic benefits to India, the Middle East and beyond, let alone challenge China's BRI.

The G20 presidency in New Delhi this year has momentarily put India at the forefront of international diplomacy, as well as demonstrated its rising global influence and development. The admission of the African Union (AU) into the G20 has been the major achievement under India's G20 presidency. It has won support and praise from the international community, in particular from the developing countries in the global south.

The AU's permanent seat at the G20 reflects the rise of the global south in the global arena following the expansion of BRICS from the original five nations (Brazil, Russia, India, China and South Africa) into a group comprising 11 member states (new member states include Saudi Arabia, UAE, Iran, Ethiopia, Egypt, and Argentina), as announced in Johannesburg in August 2023.

Nevertheless, to claim that India is the champion of the global south is an overstatement. India simply cannot replace China's influence in the region or the world. Although India's economic growth rate has surpassed that of China in recent years, its economy is only about one-fifth of the size of China's, and the gap between the Indian economy and the Chinese economy has become wider over the years.

Since the announcement of the plan for the IMEC, many commentators have perceived the Corridor as a counterbalance to the BRI. Through the BRI, which celebrates its tenth anniversary this year, China is rapidly extending its geopolitical and geoeconomic influence in the participating countries.

The Biden administration has singled out China's BRI, with its global ambitions, as posing challenges to the interests of the US, ranging from political and economic to national security and overseas interests. President Biden has long proposed that the US should develop an initiative similar to the BRI, bringing together democratic nations to help developing nations upgrade their infrastructure. By unveiling the IMEC project, the US is keen to compete with China in infrastructure financing and construction for influence over the developing countries.

China's BRI is perceived as a charm offensive to the participating countries and is largely welcomed by the developing countries across the world. Nevertheless, BRI implementation also has been weak in terms of compliance with internationally recognised standards such as transparency and open bidding, and social, labour and environmental protection. In addition, some BRI infrastructure projects have been scaled back or suspended amidst concerns over rising debts for some recipient countries.

However, the IMEC will not undermine the Chinese-funded infrastructure projects worldwide under the BRI umbrella, let alone replace the BRI. Since launching the BRI in 2013, China has mobilised hundreds of billions in overseas investments and construction contracts for BRI projects in more than 100 nations. Through the BRI, China hopes to recreate the once glorious Eurasian continental trade along the ancient Silk Road, extending it geographically and expanding it to cover even more developments.

The BRI cooperation framework has expanded across numerous sectors, including infrastructure financing and construction, digitalisation, health, tourism, and education, even extending into the Polar regions. Given China's efficient transport and logistics network, its well-established upstream and downstream industrial network and its status as the hub of the global supply chain, neither the US nor India will be able to knock China off its perch as the world's main manufacturing hub in the foreseeable future.

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