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The way forward: Asian connectivity in the 21st century

In the twenty-first century, arms races are not over weaponry but over connectivity. At the heart of the connectivity competition is infrastructure. Between 2005 and 2012, to keep up with urbanization, rising international travel, growing trade, the dispersal of supply chains, and increased dependence on global digital services, spending on infrastructure for transportation, energy, and communications has doubled from approximately $2 trillion per year around 2005 to $4 trillion by 2012. That figure is projected to rise to $9 trillion by 2020. With the world now crossed by a latticework of connections, the age of territorial conquest is largely over. International conflict has fallen; instead, nations compete to gain leverage in the connected world.

The China-led Asian Infrastructure and Investment Bank (AIIB) is one of the foremost examples of competitive connectivity. Since the collapse of the Soviet Union in the 1990s, successive waves of Chinese infrastructure investments have washed over the former Soviet States. China quickly settled border disputes (it borders more post-Soviet Central Asia republics than Russia does), put in place customs agreements, and completed multiple oil and gas pipelines from the Caspian Sea through Kazakhstan and Turkmenistan.

China has more neighbors than any country. It has tense and even hostile histories with some, and suspicions about all. But its strategy of choice was not war but roads, railways, pipelines, and other investments. China treats friends and foes alike: as construction projects to build, own, and operate.

China will not rival the United States in military power anytime soon, but it has a definitive home-court advantage in Eurasia. In fact, all infrastructure built on China's periphery-irrespective of who builds it-ultimately serves China. For example, when the AIIB announced its initial $100 billion commitment to the region, Japan declared its own intention to fund $110 billion in Asian infrastructure projects. Yet Japanese projects from Kazakhstan to Myanmar will only make these countries more efficient trading partners and passages for China. Japan might applaud itself for writing off $5 billion in Burmese debt and committing an estimated $3 billion in investment in Myanmar's airport, power sector, and special economic zones over the last several years, and the West can tout its lifting of sanctions on the country in exchange for a democratic transition, but China still dominates Myanmar's inbound investment and outbound exports. China is moving forward with pipelines and railways to connect the mainland to the Bay of Bengal so that China is less dependent on the Malacca Strait for shipping exports. Likewise, the United States' "Silk Road Roundabout" program, which is meant to buttress Afghanistan's ring road network, will no doubt benefit Afghanistan's farmers, but it will also aid in China's extraction of copper and lithium from a country where it has long been the largest foreign investor.

To be sure, China's expansionism might proceed smoothly for now, but it could easily derail as political times change. Mines can be expropriated, power plants and pipelines seized or blocked, and passage for freight railways denied. When countries swing against China, cancelling its contracts (as Iran has just done for gas exploration and Indonesia has on a high-speed rail project) and ejecting its workers (as Zambia has), Western powers can fill the gap, much as China did after the United States and Europe pulled back at the end of the Cold War. If they don't, vulnerable countries could eventually become sitting ducks if China decides to call in their enormous debts or seek retribution over assets.

In the coming years we will witness ever more such competition over the value of infrastructural connectivity as commodities prices stay flat, emerging markets privatize assets, and China's interests expand. This will not only be a very dynamic period geopolitically, but one full of exciting new opportunities for investors who appreciate the promise of connectivity.

Parag Khanna is a senior research fellow in the Centre on Asia and Globalisation at Lee Kuan Yew School of Public Policy at the National University of Singpore. Parag will be presenting Profiting from Connectivity: Eurasia's New Silk Roads, at FundForum Asia taking place in Hong Kong, 24-26 April. 

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