Belting up: getting the measure of China’s new Silk Road project7th Nov '17
Sue Anne Tay assesses the global impact of the Belt and Road (BRI) Initiative
China’s Belt and Road Initiative (BRI) is probably the largest and most ambitious international infrastructure project under way in the world today. The policy, announced by Chinese President Xi Jinping in 2013, is intended to enable a huge increase in the value of trade flowing between China and more than 65 countries across Asia, the Middle East, Africa and Europe.
To realise this vision, China’s BRI calls for the construction of major new transport and logistics infrastructure including roads, bridges, railways and ports, that will allow much greater volumes of cross-border trade to move faster and more easily between dozens of countries, including the fast-developing members of the Association of South-East Asian Nations (ASEAN). A vital part of the financing for the scores of projects involved will come from China – PwC predicts that BRI will mobilise as much as US$1 trillion of international state financing from its government and banks over the next decade.
This boost to infrastructure spending across developing Asia is much-needed: the Asian Development Bank recently updated its estimate of the infrastructure investment required to maintain economic growth across the region, to be US$ 26 trillion through to 2030, an annual figure of US$1.7 trillion.
By October 2016, more than 300 Chinese-backed companies had invested almost US$1.8bn to set up operations across eight ASEAN countries, and in May 2017 President Xi pledged another US$124 billion in funds to support the BRI.
Already, a series of international infrastructure projects that form elements of the BRI are underway. ASEAN economies including Malaysia, Thailand and Indonesia have launched BRI-related deals with China, with several projects now entering the implementation stage and many more in the pipeline. Among the cross-border infrastructure projects already in prospect are a highway in Pakistan; a port in Vietnam; and a 7,000km high-speed rail line from Kunming in southern China through Laos and Thailand’s industrial eastern coast to Singapore.
China’s BRI is likely to have many major consequences. In the construction phase, it will greatly increase the sums available to invest in infrastructure across Asian countries, many of which face very large funding gaps. Rapid urbanisation among the 639-million population of ASEAN is pushing these countries’ infrastructures to the limit: HSBC estimates that US$2.1 trillion of infrastructure is required across the six major ASEAN countries but current spending trends will cover only US$910 billion of that. International funding unlocked by the BRI – not only from China but further afield, including Europe – will help to bridge the gap.
The multi-year infrastructure boom in Asia and the Middle East now under way will have an immense effect on global trade and finance. The BRI aims to boost trade flows across Asia very significantly – to an estimated US$2.5 trillion a year in the coming decade, compared with about US$1 trillion now. In the process, it promises to create huge numbers of jobs in local markets across the entire region and boost economic growth.
In the short term, the surge in infrastructure investment and construction fuelled by the BRI will also create major commercial opportunities for companies from all over the world that are involved in engineering, construction, maintenance, logistics, architecture and business services. European companies, known for their technical expertise, are well placed to benefit. The 2016 EU-ASEAN Business Sentiment survey found that 85% of European companies are planning to increase their regional trade and investment, in part due to the emerging infrastructure boom across the ASEAN member states.
The huge expansion will bring widespread benefits: research by Bruegel, the economic think-tank, suggests that the 10 nations that will benefit most, with an annual trade boost of at least 8.2 per cent each, are in Continental Europe. And a growing proportion of the trade that flows between China and the rest of the world is likely to be settled in the renminbi (RMB), projects will also be increasingly funded in RMB. The BRI will no doubt help to promote international adoption of the Chinese currency for trade finance and payments, investment and financing.
Taken together, the many effects of this initiative could well represent the biggest opportunity to stimulate international trade since the creation of the World Trade Organization, more than 20 years ago.