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China’s belt and road initiative for international trade involves the construction of a trans-regional international trade logistics network governed by common policies, rules and standards.

What Does China’s Belt and Road Initiative Mean for International Traders?ARTICLE

By Karen Lynch

China’s Belt and Road Initiative (BRI) is a multi-year and potentially multi-trillion-dollar1 infrastructure development program conceived in the spirit of the storied Silk Road, a network of international trade routes that connected Asia, Europe and Africa through the Middle Ages. While the BRI’s geopolitical implications have captured much of the world’s attention to date, its dollars-and-cents potential for businesses and import-export traders is the subject of increasing analysis.

What is China’s Belt and Road Initiative?

China’s Belt and Road Initiative, detailed in a May 2017 speech to world leaders by Chinese President Xi Jinping, is a plan to build a trans-regional international trade logistics network governed by common policies, rules and standards for land, maritime, air, and digital connectivity. Since 2013, China has been forging cooperative agreements with dozens of countries and organizations along these routes and beyond, as well as providing financing and breaking ground on relevant infrastructure projects. “Today, a multi-dimensional infrastructure network is taking shape, one that is underpinned by economic corridors such as the China-Pakistan Economic Corridor, China-Mongolia-Russia Economic Corridor and New Eurasian Continental Bridge, featuring land-sea-air transportation routes and information expressways and supported by major railway, port and pipeline projects,” Xi said.2

The BRI (also known as “One Belt, One Road”) has been variously described by observers as born of geopolitical ambitions,3 as a welcome import-export trade plan for development in countries too long neglected by the world’s largest economies,4 and as a means for the country to employ some of its industrial overcapacity amid a slowing national economy.5

In terms of scale, media accounts tend to use words like “massive” and “megaproject.” For his part, Xi described the BRI as “an open platform of cooperation [to] uphold and grow an open world economy.”6 Dozens of countries are already participating in different ways, and the international trade infrastructure initiative is actually open to those in any part of the world.7

The BRI’s inspiration, the Silk Road, was in use from about 130 BCE8 until the 15th century, when an Ottoman Empire boycott closed much of the over-land network of international trade routes while maritime trade rose in importance.9 Along the way, innovations such as paper, porcelain and gun powder travelled West, as well as the eponymous silk. “These vast networks carried more than just merchandise and precious commodities however: the constant movement and mixing of populations also brought about the transmission of knowledge, ideas, cultures and beliefs, which had a profound impact on the history and civilizations of the Eurasian peoples,” according to the United Nations Educational, Scientific and Cultural Organization (UNESCO).10

Belt and Road Initiative Takes Shape

The China Ocean Shipping Company acquired 51 percent of Greece’s largest port in August 2016.11 A weekly freight rail service between China and the Port of Rotterdam became fully operational in September 2016.12 In March 2017, Chinese e-commerce giant Alibaba joined with the Malaysian government to launch a digital international free trade zone, in the name of the BRI.13 These are three examples of the myriad BRI projects in the pipeline.

When opening the May 2017 Belt and Road Forum for International Cooperation in Beijing, Xi said China had taken a “solid first step” in the initiative since 2013, including:

  • 100 countries represented at the forum (including Russian President Vladimir Putin);
  • 56 economic cooperation zones in over 20 countries;
  • International trade between China and other Belt-and-Road countries exceeding $3 trillion in 2014-2016;
  • Chinese investment in Belt-and-Road countries of over $50 billion; and
  • Loans of $1.7 billion for nine BRI projects from the Asian Infrastructure Investment Bank (AIIB), which was formed by China and 56 other countries in 2016.

The forum itself added more momentum, with inter-governmental agreements including a joint communique on BRI objectives, principles, and measures for cooperation.14

  • Improved infrastructure conditions along the BRI’s land and sea routes could help lower transportation costs for import-export trade and enable companies to tap into the lower wages of more emerging economies.
  • Improvements in the business climate and in disposable income in participating countries are also likely to drive demand for imported consumer goods and food and beverages.
  • The removal of non-tariff barriers could make it easier to carry out business.
  • The trading, tourism, logistics, energy and infrastructure sectors could benefit from upgrades in infrastructure and utilities.16

Infrastructure projects may be supplied predominantly by Chinese firms. “Given Beijing’s ability to finance projects and its leverage over recipients of these loans, Chinese made high-end industrial goods such as high-speed rail, power generation equipment, and telecommunications equipment are likely to be used widely,” according to a report from the Lowy Institute for International Policy.17

Still, “there are opportunities for non-Chinese firms as well,” according to one major global bank, which cited potential contracts for multinational manufacturers of heavy duty machinery as an example.18 “Steel produced in China will be used along the road, and that of course is good for demand for our commodities,” said one Australian mining executive who currently exports to China.19 Even small and medium-sized enterprises (SMEs) could benefit as international trade corridors expand digitally, as well as physically, observers say, citing the example of the Malaysian digital free trade zone mentioned above.

Many of the BRI’s import-export trade prospects are long-term, and significant hurdles remain to the cleared.20 Yet there is also much room for improvement in the international trade routes in place today, with many countries along the old Silk Road ranking in the bottom third of the World Bank’s 2016 Logistics Performance Index.21

The Takeaway

The potential benefits of China’s BRI for businesses and import-export trade are beginning to emerge, including better, less expensive global supply chain links and new markets for goods, as well as some roles in building this ambitious infrastructure initiative. Time will tell how sizable the opportunities will become.

Karen Lynch - The Author

The Author

Karen Lynch

Karen Lynch is a journalist who has covered global business, technology and policy in New York, Paris and Washington, DC, for more than 30 years. Karen also is a principal at Content Marketing Partners.

Sources

1.“China’s Plan to Develop Asian Infrastructure Could Cost Trillions,” CNBC; http://www.cnbc.com/2017/06/23/china-asian-infrastructure-trillions.html
2.“Full Text of President Xi’s Speech at Opening of Belt and Road Forum,”Xinhua; http://news.xinhuanet.com/english/2017-05/14/c_136282982.htm
3.“German Ambassador to China: Europe and U.S. Cannot Afford to Ignore China’s ‘Belt and Road,’” Business Insider; http://www.businessinsider.com/chinas-belt-and-road-project-infrastructure-us-europe-ignore-2017-6
4.“China’s Rejuvenation: West is Missing the Wood for the Trees,” Today; http://www.todayonline.com/voices/chinas-rejuvenation-west-missing-wood-trees
5.“China’s New Silk Road is Getting Muddy,” Foreign Policy; http://foreignpolicy.com/2017/01/09/chinas-new-silk-road-is-getting-muddy/
6.“Full Text of President Xi’s Speech at Opening of Belt and Road Forum,” Xinhua; http://news.xinhuanet.com/english/2017-05/14/c_136282982.htm
7.“The Belt and Road Initiative: Country Profiles,” HKTDC Research; http://china-trade-research.hktdc.com/business-news/article/The-Belt-and-Road-Initiative/The-Belt-and-Road-Initiative-Country-Profiles/obor/en/1/1X000000/1X0A36I0.htm
8.BCE, or Before Common Era, means essentially the same as BC, or Before Christ.
9.“Silk Road,” Ancient History Encyclopedia; http://www.ancient.eu/Silk_Road/
10.“About the Silk Road,” United Nations Educational, Scientific and Cultural Organization (UNESCO); http://en.unesco.org/silkroad/about-silk-road
11.“China’s Cosco Acquires 51 Percent Stake in Greece’s Piraeus Port,” Reuters; http://www.reuters.com/article/greece-privatisation-port-idUSL8N1AR252
12.“New China-Rotterdam Rail Service Becomes Fully Operational, American Shipper; http://www.americanshipper.com/main/news/new-chinarotterdam-rail-service-becomes-fully-oper-65516.aspx
13.“The Infrastructure Megaproject,” HSBC; http://www.rmb.hsbc.com/rmb-insights/articles/belt-and-road-initiative-the-infrastructure-megaproject
14.“Keynote Speech by H.E. Ambassador Liu Xiaoming at Bloomberg's ‘China: Navigate the New Silk Road’ Investor Roadshow,” Chinese Ministry of Foreign Affairs; http://www.fmprc.gov.cn/mfa_eng/wjb_663304/zwjg_665342/zwbd_665378/t1470988.shtml
15.“Use Local Currencies in China’s Silk Road Initiative for Financial Stability – Central Bank Officials,” Reuters; http://www.reuters.com/article/uk-china-yuan-silkroad-idUSKBN187179
16.“Deep Dive: One Belt One Road – Impact on Western Multinational Companies,” Fung Global Retail & Technology; http://ww1.prweb.com/prfiles/2016/10/24/13789558/OneBeltOneRoad.pdf
17.“Understanding China’s Belt and Road Initiative,” Lowy Institute for International Policy; http://china-trade-research.hktdc.com/business-news/article/The-Belt-and-Road-Initiative/Understanding-China-s-Belt-and-Road-Initiative/obor/en/1/1X3CGF6L/1X0AAEIC.htm
18.“The Infrastructure Megaproject,” HSBC; http://www.rmb.hsbc.com/rmb-insights/articles/belt-and-road-initiative-the-infrastructure-megaproject
19.“Top Miner Sees ‘Huge Demand’ Boost from China’s New Silk Road,” Bloomberg; https://www.bloomberg.com/news/articles/2017-06-01/top-miner-sees-huge-demand-boost-from-china-s-new-silk-road
20.“Understanding China’s Belt and Road Initiative,” Lowy Institute for International Policy; http://china-trade-research.hktdc.com/business-news/article/The-Belt-and-Road-Initiative/Understanding-China-s-Belt-and-Road-Initiative/obor/en/1/1X3CGF6L/1X0AAEIC.htm
21.“The Logistics Performance Index,” World Bank; https://wb-lpi-media.s3.amazonaws.com/LPI_Report_2016.pdf

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