China Belt and Road Initiative: How revival of the silk road could impact world trade

Abstract

In 2013, Chinese President Xi Jinping announced plans to build a Silk Road Economic Belt and a 21st Century Maritime Silk Road, which have come to be known as the Belt and Road Initiative (BRI). The BRI is geared towards encouraging policy coordination, infrastructure connectivity, investment and trade cooperation, financial integration, cultural exchange and regional cooperation between Asia, Europe and Africa by creating jointly built trade routes emulating the ancient Silk Road. The colossal scale of the BRI is exemplified by the 4.4 billion people (70 per cent of the world population) and the cumulative gross domestic product (GDP) of around US$21 trillion that it is set to encompass. The Silk Road Economic Belt connects China, Central Asia, Russia and Europe, and the 21st Century Maritime Silk Road runs along China's coast towards Europe in one direction and from China's coast, cutting through the South China Sea and the South Pacific, in the other. The overland path will leverage existing international transport routes and key economic industrial parks as springboards for cooperation, while the sea route aims to build transport routes bridging major sea ports across the BRI. Main research question: understanding the impact of improving multimodal transport connectivity on multilateral trade and economic growth in countries and regions across the BRI This project aimed to gather evidence to understand and quantify the potential impact of the BRI investment on multilateral trade and economic growth. The research team undertook both qualitative and quantitative analyses consisting of desk research, literature review and econometric modelling. This is a proof-of-concept study which is targeted at stimulating discussion and providing empirical evidence on the impact of transport infrastructure improvements in the BRI region. The study's findings aim to be of use to policymakers and stakeholders who are interested in this infrastructure plan. Key findings Qualitative research suggests that multimodal transport infrastructure and connectivity is key to boosting international trade and economic growth More specifically: Good transport infrastructure reduces transport costs and transport times and improves delivery reliability. Empirical evidence shows that cost of transport, in both

Belt and road initiative (BRI) supply chain risks: propositions and model development

“…Other suggestions to help improve ROI and ensure some level of certainty about achieving it include: (1) providing government subsidies (e.g. on rail transportation linking China to Europe) (Kundu and Sheu, 2019); (2) establishing national risk early warning system to update investors on risks to BRI projects on an ongoing basis (Yuan et al , 2019); (3) facilitating lower transportation costs and ensuring good transportation infrastructure (Lu et al , 2018); and (4) improving coordination at governmental level to seek support for all the stakeholders for smooth completion and operation of BRI projects (Das, 2017).…”

“…As such, while BRI is a multi-country strategic endeavor (Notteboom and Yang, 2017), 25% of China's international cooperation projects (30 out of 120) have been regarded as “challenged” for various reasons during the 10-year period from 2005 to 2014 (Len, 2015) entailing potential risks for BRI SCs. Poor infrastructure and lower level of transport connectivity add to SC disruptions posing serious economic risks to BRI success (Chhetri et al , 2018; Lu et al , 2018).…”

“…Further, speed and cost of goods transportation entail significant operational risks to BRI SCs (Lu et al , 2018). Kundu and Sheu (2019) concur as they point to one such operational risks due to high cost of transportation along BRI rail corridor compared to traditional maritime route, resulting in low load factor of freight trains which significantly affect the realization of potential benefits of connectivity between China and Europe through Russia and Central Asia.…”

“…Discrepancies in laws, regulations and political systems are some of the other operational risks confronting the BRI SCs (Lu et al , 2018). Simplifying and streamlining the border crossing procedures and strengthening governance could help reduce BRI SC risks (Bersenev et al , 2020; Le et al , 2019).…”

“…Therefore, parties entering into a BRI SC face difficulties in evaluating the risks related to counterparties in SC. A lack of transparency could result in lack of SC visibility and information asymmetry which remain some of the major concerns for achieving SC performance (Lu et al , 2018; Thürer et al , 2020).…”