China's Belt and Road Initiative

 •  Filed under China, International economics

PIIE BRIEFING 16-2: China's Belt and Road Initiative: Motives, Scope, and Challenges:

China's commercial ties with the outside world have long been symbolized by the ancient Silk Road, which began as a tortuous trading network of mountain paths and sea routes that provided a lifeline for the Chinese economy. Now the leadership in Beijing is reviving the concept with an ambitious plan to build and upgrade highways, railways, ports, and other infrastructure throughout Asia and Europe designed to enrich the economies of China and some 60 of its nearby trading partners. The so-called Belt and Road Initiative has generated enthusiasm and high hopes but also skepticism and wariness. And as big as China's ambitions are, many obstacles stand in the way.

From Simeon Djankov's chapter on China's motivations:

China has several reasons to promote its new Silk Road plan. As the world’s biggest trading nation, China’s main interest is to reduce the costs of transporting goods. Projects that are already funded under the initiative all report statistics on how much travel time and cost will be reduced as a result of their completion. Because such improvements will affect all cargo using these transport routes, they will benefit world trade. ...

Besides reducing trade costs, there are four other goals for the initiative. First, China is attempting to decrease the economy’s dependence on domestic infrastructure investment and the associated growth that comes with such investment. ...

Second, the infrastructure focus helps China in its quest for greater international stature for the renminbi, to achieve the status of a global reserve currency...

The third motivation for the Belt and Road Initiative is to secure China’s energy supply through new pipelines in Central Asia, Russia, and Southeast Asia’s deepwater ports. Energy suffi ciency has been a consistent worry for Chinese enterprises, and for good reason. ...

Fourth, infrastructure development in countries along the Belt and Road routes may increase growth in their economies and thus contribute to a growing demand for China’s goods and services.

China Outlook 2016, KPMG Report:

In January 2016, China became a member of the European Bank for Reconstruction and Development (EBRD) which opens the way for the EBRD to support ‘Belt and Road’ projects in member countries. In a speech outlining the benefits of China’s membership at the 4th China-CEE summit in 2015, Jean-Marc Peterschmitt, Managing Director, Countries of Operations and Chief Operating Officer for Banking at the EBRD said: “[o]ne key area where we see huge potential for cooperation is in the infrastructure sector, where China has taken the lead with its important [‘Belt and Road’] initiative. We welcome this plan, since it holds the promise of deepening and strengthening China’s integration into the global economy through creating a network of transport links between Asia and Europe, crossing many of the countries where the EBRD invests.