China Expands its Global Supply Chain Network

The Bipartisan Congressional Trade Priorities and Accountability Act of 2015 (TPA-2015), which is widely regarded as progressive legislation to modernize and renew U.S. Trade Promotion Authority (TPA), has gained the support of prominent shipper associations—as well it should.

China trade analysts also note that TPA legislation is more important than ever for Pacific Rim shippers as the U.S. actively pursues the Trans-Pacific Partnership (TPP). That’s because China has been very busy crafting its own separate maritime trade agenda in the Pacific as well as shipping lanes around the world.

This became eminently clear when President Obama announced that the U.S. would try to restore diplomatic relationships with Cuba, another Communist country heavily reliant on Chinese investment in Port Mariel.
Nicaragua is counting on the same kind of monies to expand its Caribbean Basin designs by creating the “Grand Canal,” a potential rival to Panama—which, by the way, is heavily indebted to China.

A command economy like China’s has other advantages. For example, when Chinese President Xi Jinping put forward the concepts of “Silk Road Economic Belt” and “21st Century Maritime Silk Road” during his visits to Central Asia and Southeast Asia, the proposal garnered the interest of the global community as soon as it was announced.

The “One Belt” will link China with Europe through Central and Western Asia, while the “One Road” represents a maritime route through the Straight of Malacca to India, the Middle East, and East Africa. Over the past year, China and relevant countries, together with regional organizations, have put in a lot of effort to jointly build the “One Belt and One Road.” Furthermore, they have devised innovative methods to strengthen bilateral ties and enhance regional cooperation.

The international trade community views all of these developments with awe and respect, but also with some concern. China’s boldest gambit yet may be in the Arctic Circle, a move that could have profound Pacific Rim implications.

According to China Hands, the nation has been calling itself “a near Arctic state” recently, as it plans to clear its way to the Northeast Passage. The coveted route transits Russia and Scandinavia, thereby clearing the path for vessels to link Asia to Europe.

China-bound commodities are already flowing through the passage—gas condensate, liquefied natural gas, iron ore, coal—and Beijing wants to start sending consumer goods back the other way.

China’s northern ambitions stem from a philosophy that the Arctic belongs not just to those countries that can claim sovereignty over it, but also to those who need it most. Indeed, Arctic resources, say analysts, will be allocated according to the needs of the world, not only owned by certain countries. It’s worth noting that China has already won “official observer” status at the Arctic Council, which determines policy for the pan-Arctic region.

Earlier this year, China and Iceland signed a free-trade agreement in part due to Iceland’s strategic location in the heart of Arctic shipping lanes. In Reykjavik, China has built a giant embassy with space for 500 people. Last year, Chinese state-owned oil company CNOOC, with a local partner, won the right to explore for oil off Iceland’s shores.

The shortcut between Asia and Europe, which runs along the northern coast of Russia (a route completely different from the Northwest Passage through Canada’s Arctic Archipelago), cuts nearly six thousand miles and nine days off the normal southern route through the Strait of Malacca and the Suez Canal. Meanwhile, the number of vessels—most of them Russian—that sailed through the passage has nearly doubled over the past three years.

However, here’s the wake up call for our nation’s legislators. China moved one of its container ships through the Northeast Passage for the first time late last year, calling it “the new trunk route of Euro-Asia trade.”

Spokesmen for the Polar Research Institute of China have stated that 5 percent to 15 percent of China’s international trade would pass through the Northeast Passage by 2020. The midpoint of that estimate, 10 percent of the trade, would be worth nearly $700-billion. By contrast, fresh U.S. Pacific Rim trade goals seem modest in scale—but at least we are off to an overdue start.

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