The ancient silk route was a caravan trade corridor between China, Transoxiana, Persia, Caucasia, Anatolia, the Levant and Europe. Plans for the new one will go along the same routes but include modern facilities for transportation and infrastructure. The Chinese government organized a forum on May 14-15 and announced its long-anticipated “One Belt, One Road (OBOR)” initiative in Beijing. First proposed by the current Chinese president Xi Jinping in 2013, the new Silk Road project is aimed at reinvigorating commerce and trade by Chinese-led economic globalization.

As the global balance of power has been shifting towards Asia, the Chinese leadership has portrayed the Belt and Road initiative as the “project of the century”. An estimated 65 countries, roughly 60% of the world’s population which produce nearly 70% of the global GDP, will take part in the project. The OBOR initiative will consist of both territorial and maritime routes between China and Eurasia and Africa westward, and from the Asia-Pacific in the southward direction.

China has pledged to spend $124 billion for the project which fundamentally envisages reducing time and distance for the shipment of commodities between China and Europe and vice versa. Beijing inaugurated the Asian Infrastructure and Investment Bank (AIIB) together with more than 45 countries in 2016 and the Silk Road Fund with Russia in 2015, allocating a huge amount of money to finance and materialize all these ambitious mega projects in the near future.

Once finished, the average duration of commercial transportation will be decreased from more than 45 days to a minimum of 10 between London/Hamburg and Beijing/Shanghai. The modern Silk Road project entails the construction of high-speed railway networks, highway connections, ports, logistic centres, energy pipelines and other infrastructure facilities in the corridor countries. For the time being, Beijing’s ongoing development in the China-Pakistan economic corridor, like along the Karakorum Highway and the Gwadar port are among the most concrete examples of the project.

The project entirely reflects the commercial pragmatism of Chinese foreign policy, which has involved pursuing Beijing’s economic interests in the world since China became a member in the World Trade Organization in 2001. In this way, China aims to access new energy areas and raw material-rich basins for fuelling the unsatisfied needs of its booming economy.

The OBOR will also expand Beijing’s political and cultural influences despite the Chinese government’s official rhetoric, which emphasizes economic gains of the project for the participant countries. It will require China to closely cooperate with some economic and security blocks in which Beijing is not a member, such as the ASEAN, the Eurasian Economic Union, the African Union, the Arab League and the European Union.

Arguably, all these initiatives are a natural extension of China’s western development plan, an economic modernization and reform project aimed at integrating ethnic minority areas like Tibet, Xinjiang and Inner Mongolia with the Han majority eastern provinces. Started at a local level, and now transformed into a global aspiration, the proposed Silk Road Economic Belt promises a lot for China in particular and for the aforementioned regions in general. It is expected to increase GDP levels between 4-7 percent by boosting trade and mutual economic relations among the participant countries.

Turkey on the Silk Road: Infrastructure defines superstructure   

Given the significance of its geographical position, Turkey, which straddles between Europe and Asia, is one of the most important countries in the project. In this regard, the new Silk Road seems to enhance cooperation between China and Turkey, namely the two corners of the Asian continent. China has so far urged Ankara to actively participate in the project and sought commercial opportunities in Turkey to integrate in its east-west economic corridor.

Turkey’s leadership has also been very keen to increase cooperation with China as the country’s decadent relations with the West in recent years created social and political discontent and mistrust among the Turkish public. Thus, Turkey has attempted to diversify its markets in order to reduce its decades-old economic dependency on the EU bloc countries since the 2008 financial-economic crisis.

Under these circumstances, Turkey and China sealed a strategic partnership agreement in 2010 which gradually increased economic cooperation, most favourably for the latter. As a result, China has surpassed Germany and become the top source of imports for Turkey since then. The parties now have a roughly $28 billion trade volume with a deficit more than $25 billion, in favour of China. As the Chinese government proposed the new Silk Road initiatives, both countries have decided to deepen such an economic cooperation despite the ongoing problems considering the separatist cause of ethnically Turkic Muslim Uyghurs in China’s restive north-western province of Xinjiang.

These trends in Ankara-Beijing bilateral relations have undoubtedly caused some apprehensions in the West about Turkey’s geopolitical shift towards Asia, particularly China. But, the main driving force behind Turkey’s flourishing ties with China has so far been the economy (infrastructure) which of course shaped its politics (superstructure) with China and other Asian countries like India and Japan in the past few years. Therefore, President Recep Tayyip Erdogan’s attendance at the OBOR forum has signified that Turkey’s political will is keen to further pursue its booming economic interests in Asia.

An interconnected infrastructure network would be obviously beneficial for Turkey’s opening up to the East, where huge commercial and market potentials as well as investment opportunities will have a positive turnaround over its economy, especially in south-eastern Anatolia. Turkey has constructed some mega projects in recent years, such as a third bridge and underway tunnels on the Bosporus together with massive highway and railway connections in and around the region like Baku-Tbilisi-Kars railway, in order to integrate its transportation facilities with its eastern neighbours.

The Chinese side on the other hand has already shown its enthusiasm when Beijing granted a $750 million loan to Turkey in 2007 for the construction of Ankara-Istanbul high-speed railway connection. Besides, China expects to collaborate on the construction of Turkey’s third nuclear power plant, a lucrative bonanza on which Xi and Erdogan agreed to accelerate work during a meeting on the sidelines of the OBOR forum.

The parties will continue to speed up mutual economic cooperation as they also agreed to hold a Turkey tourism year in China next year as well as establishing cultural centres in both countries. In addition, the Chinese media giant Startimes has announced that it plans to invest in Turkey which includes bringing new technologies and exportation of Turkish TV series to more countries in Africa and Asia. In brief, the Sino-Turkish economic partnership holds great potential, but the only thing raising concerns in Ankara is the ever-increasing trade deficit which is an unavoidable result of China’s competitive advantage, an issue that the Turkish side needs to cope with in the medium term.

More than an economic corridor: A security belt between China and Turkey

Both China and Turkey also pursue security interests in Asia, where some non-conventional transboundary threats have been challenging their domestic security. Hence, the new silk road project is regarded as an economic panacea to those threats since it is also expected to generate a security belt with the integration of its participant states. In this way, the project might be said to contribute to the mitigation of regional and international threats and conflicts in line with China’s foreign security concept, which heavily stresses economic cooperation elsewhere in the world.

As for Turkey, the Silk Road economic corridor might also align Turkey and Asian countries in terms of security priorities and military cooperation.

As for Turkey, the Silk Road economic corridor might also align Turkey and Asian countries in terms of security priorities and military cooperation. Turkey has long been a destination route of some transboundary security problems that come from mainly its Asian neighbourhood, such as the increasing number of refugees, human trafficking, smuggling, terrorism and radical movements. For instance, the country has often been targeted by Daesh through Central Asian recruits who were benefiting from the ongoing conflicts in Syria. Besides, a refugee influx from the post-Soviet Turkic republics, Afghanistan, Iran and South Asian countries created a security vacuum which made Turkey vulnerable to non-conventional threats in recent years.

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All these challenges oblige Ankara to enhance security cooperation in Eurasia where Russian and Chinese-led organizations have come to the fore as a geopolitical counterbalance to the West since President Erdogan announced that Turkey could become a member of the Shanghai Cooperation Organization (SCO). Although it is not an economic alternative to the European Union or NATO’s collective security, the SCO is a functional security platform that aims to struggle with the “three sources of evil” in the region, namely terrorism, separatism and extremism. In this respect, Turkey’s bid to join the SCO, in which Ankara is already a dialogue partner since 2012, would be an unavoidable process as a result of its economic integration with Asia and/or China.

China is also eager to cooperate on security issues with Turkey as it considers possible Turkish membership in the SCO. Despite their boosting commercial ties, diplomatic tensions have increased between the parties due to the Chinese government’s oppressive policies against ethnic Uyghurs in Xinjiang. The Turkish public has been very sensitive on the basic rights, religious freedoms and life standards of Uyghurs since the Urumqi riots of 2009 and its aftermath.

However, the Chinese side has long been securitizing the Uyghur issue within the framework of the so-called ‘war on terror’ as some Uyghur separatists have organized under the flagship of the Turkistan Islamic Party (TIP), previously known as the East Turkistan Islamic Movement (ETIM). When thousands of TIP militants joined the war in Syria on behalf of terror groups like Daesh and al Qaeda, China urged Turkey to check the militants’ clandestine entrance and exit routes on the Turkish-Syrian border, over fears they could return to China to launch terrorist attacks there. Thus, during their meeting China’s President Xi offered President Erdogan a greater counter-terrorism cooperation which included an agreement on the extradition of alleged criminals.

So, Beijing skilfully uses its economic influences to diminish security threats on the Silk Road, or vice versa, it promotes sustainable economic development to alleviate conflicts and disputes in the region. It becomes unequivocally a Chinese strategy in its foreign relations, especially with Turkey, which has had a low level relationship with China since diplomatic ties were established in 1971.

However, the relationship between the two nations is now reaching a new level, as the Chinese side is keen to call a strategic partnership on the one hand, but on the other, Turkey still seems ambivalent on whether or not to geopolitically shift towards a Chinese-led world order. Yet, Ankara should also use such a partnership with Beijing to boost its political, economic and security interests in the greater Eurasia basin. Needless to say, it will positively contribute to Turkey’s realignment with the Turkic world, where Ankara’s influence has been limited due to other developments surrounding its domestic and foreign policies.

Turkey has lived through the biggest trauma in its recent history, as the members of the Fetullah Gülen Terror Organization (FETO) attempted a coup d’état on July 15, 2016. However, the heroic people of Turkey managed to quell this sordid attempt by literally standing unarmed against flying bullets and tank shells. Together with the people were the police, loyal soldiers and politicians, first and foremost being the president Recep Tayyip Erdoğan. As a country which has just survived a coup attempt, Turkey has astonished many with its political resilience. While systematically neutralizing coup plotters in multiple governmental organizations, such as the military, judiciary, bureaucracy, health and education sectors, which had been infiltrated by the FETO, the government preserved its functionality and managed to perform as normal.

In the same vein, to the astonishment of many, the Turkish economy showed great resilience in the aftermath of the failed coup attempt. Even in the first working day after the coup attempt, there was no panic in the financial markets. The Turkish lira only marginally lost its value against the US dollar and there was no rush on banks or bonds. In fact, the effect of the coup attempt on the financial markets was barely discernable. The Turkish democracy and economy have survived major setbacks in recent years and proved their resilience, the true extent of which has been understood more clearly in the light of the failed coup attempt.

It was absolutely vital to take necessary steps and give relevant messages to soothe the financial markets at such a critical time. The policymakers managed this process well in a calm and professional manner. The statements were to the point and the policy actions met the needs of the financial markets. In this vein, Turkish Deputy Prime Minister Mehmet Şimşek underlined that the policymakers were implementing best practices and Turkey was committed to the market economy. Şimşek also assured that capital controls were out of the question. Moreover, The Central Bank of the Republic of Turkey took immediate actions to ensure the efficient functioning of the banking sector and to relieve financial investors.

In addition to these statements and policy actions, a well-functioning financial system, strong public finances, a dynamic real sector and a moderate current account deficit helped the Turkish economy to stay afloat against the failed coup attempt.

After having endured financial troubles and two major financial crisis in 1994 and 2001, Turkey finally set out to establish financial infrastructure via several regulations and supervisory institutions such as Banking Regulation and Supervision Agency and Savings Deposit Insurance Fund. Having learnt the lesson from the financial troubles suffered, the Turkish financial system has become much more resilient than that of most countries in the world. That is why the Turkish financial industry stayed totally intact in the aftermath of the 2008-09 global financial crisis as financial industries around the world experienced hard times and even faced numerous bankruptcies, such as Lehman Brothers, as well as bail-outs, such as massive insurance company AIG. When we take a look at the important indicators of banking sector, such as credit growth, capital adequacy ratio, the non-performing loans ratio, return on assets and return on equity, it is clearly seen that the Turkish banking sector is not only financially robust, but also highly profitable compared to that of many countries and as far as historical records are concerned.

Public finance is also strong in Turkey. As of 2015, public debt as a share of GDP stood at only 33 percent in Turkey, while it is 249 percent for Japan, 178 percent for Greece, 104 percent for the US and 90 percent for the EU. While the interest burden was very high in the 1990s, as real interest rate of total domestic debt stock was more than 30 percent, it diminished tremendously as real interest rate plummeted to single digit levels in the 2000s. Moreover, Turkey has wiped off all debt owed to the IMF by paying the last installment of 421 million US dollars in 2013, which marked the end of the 52 year debt history with the IMF.

Real sector indicators such as the capacity utilization rate of manufacturing, real sector confidence index and firm entry & exit rates show that the current situation of the Turkish real sector provides a robust image. Current account deficit has been regarded as the Achilles heel of the Turkish economy, as Turkey relies on foreign capital inflows to finance the current account deficit, making it vulnerable to global economic fluctuations. However, although current account deficit and economic growth rates moved in the same direction until two years ago, with higher economic growth rates resulting in a widening current account deficit and lower economic growth rates reducing current account deficit, the economy has been growing in tandem with narrowing current account deficit for the last two years. To put this into numbers, current account balance as a share of GDP decreased from -7.7 percent in 2013 to -5.4 percent in 2014, before shrinking to -4.5 percent in 2015.

The Turkish economy showed the glimpses of its resilience in the aftermath of the failed coup attempt, such that the economy and financial system have worked very well without any instability; as if nothing major took place just a matter of days earlier. The Turkish economy survived serious challenges and actually fared markedly better than that of numerous countries, especially in Europe, in the last few years. It now faces a bigger challenge. However, Turkey, with its strong and healthy economy and financial system, has the required strength and resolution to overcome this challenge too, as the immediate aftermath of the failed coup attempt has attested.

Note: A longer version of this article was recently published by SETA Foundation with the title, “The Resilience of the Turkish Economy after the Failed Coup Attempt”