April 22, 2021 House of Trust

China’s Belt And Road Initiative: Opportunity Or Threat?

As an ambitious effort to enhance regional cooperation and connectivity on a trans-continental scale, the Belt and Road Initiative (BRI) was unveiled by Xi Jinping in September 2013. Involving 70 countries which account collectively for over 4.4 billion or 65 percent of global population (European Bank for Reconstruction and Development, 2018), 30 percent of global Gross Domestic Product (GDP) and 75 percent of known energy reserves (World Bank, 2018)c, China’s BRI aims to strengthen infrastructure, trade, and investment links. In fact, BRI countries’ contribution to global exports has nearly doubled in the last 2 decades, magnifying the tremendous growth of trade in this region and its potential for exponential growth as a result of the BRI, as seen in Figure 1.

Figure 1: Growth of Trade among BRI countries
(Source: World Bank Group)

Consisting primarily of the Silk Road Economic Belt and the New Maritime Silk Road, the BRI is set to link China to central and South Asia, South East Asia, the Gulf countries and onward to Europe; taking advantage of international transport routes as well as core cities and key ports. In fact, six other economic corridors have been identified namely the New Eurasia Land Bridge, China-Mongolia-Russia, China-Central Asia-West Asia, China-Indochina Peninsula, China-Pakistan, and Bangladesh-China-India-Myanmar as seen in Figure 2. 

Figure 2: The Belt and Road Initiative: Six Economic Corridors
Spanning Asia, Europe and Africa
(Source: Hong Kong Trade Development Council Research) 

Specifically referring to the China-Indochina Peninsula Economic Corridor (CICPEC) of which Malaysia is part of,  it’s goal is to better connect cities in Vietnam, Laos, Cambodia, Thailand, Myanmar and Malaysia with a network of railways and highways to facilitate the flow of people, goods, capital and information. This is in line with the five major goals of the Belt and Road Initiative which are policy coordination, facilities connectivity, unimpeded trade, financial integration, and people-to-people bonds.

In terms of ‘facilities connectivity’, the BRI involves prioritizing the removal of barriers in the missing sections and bottleneck areas of core international transportation passages, advancing the construction of port infrastructure facilities, and clearing land-water intermodal transport passages. The connectivity of infrastructure facilities, including railways, highways, air routes, telecommunications, oil and natural gas pipelines and ports, will also be promoted (Hong Kong Trade Development Council Research, 2018). 

On the other hand, in terms of ‘unimpeded trade’, steps will be taken to resolve investment and trade facilitation issues, reduce investment and trade barriers, lower trade and investment costs, as well as to promote regional economic integration. Efforts will also be made to broaden the scope of trade, propel trade development through investment, and strengthen co-operation in the industry chain with all related countries.

These two major goals of facilities connectivity and unimpeded trade certainly will go a long way in enhancing trade facilitation across BRI regions as a result of improving transport networks. However, there are diverse opinions from experts on the impact of the BRI on global trade. For instance, as trade between countries involved accounts for more than a quarter of world trade, ING International Trade Analysis Senior Economist Joanna Konings (2018) reported that a halving in trade costs between countries could increase trade by 12 percent; stating that the benefits will depend on where the trade costs falls. The World Trade Organization (WTO) on the other hand calculated their improvements in trade facilitation could reduce BRI countries’ trade costs by between 12% and 23% (WTO, 2018). Meanwhile, Villafuerte, Corong and Zhuang (2016) estimated that the total exports of the countries involved could increase by about USD5 billion to USD135 billion. Villafuerte, Corong and Zhuang (2016) estimated that the total exports of the countries involved could increase by about USD5 billion to USD135 billion. However no research has been carried out specifically on BRI’s impact on Malaysia’s export of rubber products highlighting the literature gap which needs to be filled. 

It is also important to note that several BRI projects are currently under construction and are expected to be completed in the coming 5 years. Furthermore, the BRI is open-ended which imply that new projects are likely to be initiated in that time. Hence, any significant fall in trade costs will most likely take at least 5 years or more likely 10 years or possibly longer. 

As aptly stated by Klaus Schwab, the founder and executive chairman of the World Economic Forum, “The Belt and Road initiative is a pioneering, international framework based on an “open platform concept” which does not need a leader but a curator who acts as a catalyst and coordinator for ensuring win-win outcomes. Indeed, many world leaders have expressed their support for pursuing win-win outcomes for both China and the other participating countries. The question now is how do we pursue a win-win outcome by maximize the opportunities and mitigate the risks, to further expand Malaysia’s role as the world’s leading supplier of medical gloves, foley catheters, condoms and latex threads.  

References 

Anderson, James E; van Wincoop, Eric. (2003). Gravity with Gravitas: A Solution to the Border Puzzle. American Economic Review, 93(1): 170-192.

Boffa, Mauro. (2018). Trade linkages between the belt and road economies.Policy Research working paper no. WPS 8423. Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/460281525178627774/Trade-linkages-between-the-belt-and-road-economies

Centre for Strategic and International Studies. (2018). How will the Belt and Road Initiative advance China’s interests? China Power Project. https://chinapower.csis.org/china-belt-and-road-initiative/

De Soyres, Francois Michel Marie Raphael. (2018). The Growth and Welfare Effects of the Belt and Road Initiative on East Asia Pacific Countries. MTI Practice Note no. 4. Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/896581540306960489/The-Growth-and-Welfare-Effects-of-the-Belt-and-Road-Initiative-on-East-Asia-Pacific-Countries

De Soyres, Francois Michel Marie Raphael; Mulabdic, Alen; Murray, Siobhan; Rocha Gaffurri, Nadia Patrizia; Ruta, Michele. (2018). How Much Will the Belt and Road Initiative Reduce Trade Costs ? (English). Policy Research working paper no. WPS 8614. Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/592771539630482582/How-Much-Will-the-Belt-and-Road-Initiative-Reduce-Trade-Costs

European Bank for Reconstruction and Development (2018). Belt and Road Initiativehttps://www.ebrd.com/what-we-do/belt-and-road/overview.html

Head, Keith; Mayer, Thierry. (2013). Gravity Equations: Workhorse, Toolkit, and Cookbook.  Sciences Po Economics Discussion Papers 2013-02, Sciences Po Departement of Economics.

Hong Kong Trade Development Council. (2018, May 3). The Belt and Road Initiative. Hong Kong Trade Development Council Research. http://china-trade-research.hktdc.com/business-news/article/The-Belt-and-Road-Initiative/The-Belt-and-Road-Initiative/obor/en/1/1X000000/1X0A36B7.htm

Konings, Joanna. (2018). Trade Impacts of the Belt and Road Initiative. ING Economic & Financial Analysis. https://think.ing.com/uploads/reports/Tradebelt_final2.pdf

Lu, Hui; Charlene Rohr; Marco Hafner; Anna Knack. (2018). China Belt and Road Initiative: Measuring the impact of improving transportation connectivity on trade in the region. Santa Monica, CA: RAND Corporation. https://www.rand.org/pubs/research_reports/RR2625.html.

Tieying, Ma. (2018). Understanding China: BRI in Southeast Asia – Beyond Infrastructure.DBS Bank Research. https://www.dbs.com/aics/templatedata/article/generic/data/en/GR/082018/180820_insights_understanding_china_bri_in_southeast_asia_beyond_infrastructure.xml

Yuan Li; Hans-Jörg Schmerer. (2017). Trade and the New Silk Road: opportunities, challenges, and solutions. Journal of Chinese Economic and Business Studies,15(3): 205-213.

UNCTAD. (2016).Chapter 1: Partial equilibrium trade policy analysis with structural gravity: An Advanced Guide to Trade Policy Analysis: The Structural Gravity Modelhttps://vi.unctad.org/tpa/web/docs/vol2/ch1.pdf

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