The battle to boost a weak global economy and adapt to major structural changes in the trade and investment landscape has taken many forms since the world financial crisis. Could China's revival of ancient Eurasian trade routes be the answer?
New models of international cooperation and global governance are in demand, and the resuscitated Belt and Road Initiative seeks to inject fresh energy into global development. But how does the initiative work, and who benefits?
Source the Fiji Times/Chinese Embassy
What is the Belt and Road Initiative?
The Belt and Road Initiative, comprising the New Silk Road Economic Belt and 21st Century Maritime Silk Road, is a development strategy and framework based on the ancient Silk Road concept and routes. It was proposed by Chinese President Xi Jinping in late 2013.
The New Silk Road Economic Belt runs westward from China, crossing central Asia and finally reaching Western Europe, while the 21st Century Maritime Silk Road loops south from China, linking Southeast Asian countries, Africa and Europe. Neither the belt nor the road follows any clear line geographically speaking, but both serve as roadmaps for how China wants to further integrate itself into the world economy and strengthen its influence in these regions.
China works with countries along the routes on infrastructure construction and advanced equipment manufacturing by taking advantage of the cooperation mechanism.
Who will benefit? And how?
Connecting the Asia-Pacific economic circle in the East and the European economic circle in the West, the Belt and Road is currently the longest economic corridor with the greatest potential in the world, with more than 100 countries and international organisations participating in the initiative.
As of July 2016, Chinese enterprises had established 52 economic cooperation zones in more than 20 countries while paying one billion US dollars in taxes and creating nearly 160,000 jobs. Business opportunities lie in sectors such as infrastructure construction, finance, trade and logistics, distribution and retail. Also, during the first 11 months of 2016, China's trade volume with countries along the Belt and Road has reached $US848.9 billion ($F1,758.8b), accounting for 25.7 per cent of China's total foreign trade volume over the same period.
Developing countries, with comparatively poor infrastructure construction and economic capability, play a key role in the initiative. Populations with per capita GDP of between $US1046 ($F2169) and $US4125 ($F8555), considered a moderate and low income group, constituted 55.2 per cent of the total population within the relevant regions. This is also the group that benefits most from the strategy.
With multiple railways, highways and ports built and scheduled along the routes, regional industrial cooperation will be stepped up and individuals will have greater opportunities to travel and trade. Unimpeded trade and money circulation among countries under the new framework is set to bring a greater choice of foreign commodities and at lower prices. Those who run businesses which cooperate across borders may pay less tax while getting more opportunities, under a standardized regulation system.
How does the new initiative work?
The initiative features five major areas for cooperation:
Policy communication: to build a multilevel intergovernmental macro policy exchange, and to jointly provide policy support for the implementation of practical cooperation and large-scale projects.
Road connectivity: to push forward the construction of international trunk passageways, such as the China-Pakistan Economic Corridor and the Bangladesh-China-India-Myanmar Economic Corridor, and form an infrastructure network connecting all sub-regions in Asia, and between Asia, Europe and Africa.
Unimpeded trade: to improve investment and trade facilitation, and remove investment and trade barriers.
Money circulation: to expand the scope and scale of bilateral currency swaps and settlements with other countries, and to open and develop the bond market in Asia.
Cultural understanding: to promote extensive academic exchanges, personnel cooperation and volunteer services, and to expand the scale of tourism.
The essence of the initiative, therefore, is an inclusive project open to all countries and international and regional organisations, taking full advantage of the multilateral cooperation mechanisms based on the five above areas.
The constructive role of such mechanisms and platforms has been encouraged, such as the Shanghai Cooperation Organisation (SCO), ASEAN Plus China (10+1), and Asia-Pacific Economic Cooperation (APEC). There have also been international forums and exhibitions hosted by countries along the routes, including the Boao Forum for Asia and the China-ASEAN Expo.
Where are the funds from?
Funding resource of the belt and road initiative
1. Funding Source
* Foreign exchange reserve
* Provincial Silk Road Fund
* Social capital from debt and equity financing
* Renminbi — denominated bonds.
2. Funding Pool
Silk Road Fund
A state-owned fund which fosters investment in countries along the Belt and Road routes. The Chinese government pledged $US40 billion ($F82.9billion) for the creation of the investment fund, which was established on December 29, 2014.
Asian Infrastructure Investment Bank
An international financial institution, first proposed by China in October 2013, which supports the building of infrastructure in the Asia-Pacific region. Over one trillion yuan ($US160b) ($F331.8b) of infrastructure projects are in planning or under construction.
New Development Bank
Established by the BRICS states (Brazil, Russia, India, China and South Africa) to support public or private projects through loans, guarantees, equity participation and other financial instruments.
The SCO Development Bank
Established by the Shanghai Cooperation Organization (SCO) to support member countries' projects and help fend off financial crises.
3. Is Used for
* Infrastructure construction
* Exploitation of energy resources
* Industry cooperation
* Financial cooperation