China’s One Belt, One Road: Will it reshape global trade?
- One Belt, One Road (OBOR) has the potential to be the world’s largest trade platform, encompassing one-third of global GDP
- OBOR’s success will depend on the availability of massive funds and the ability to properly deploy those funds
- Enthusiasm for OBOR has so far been fairly strong, and many parties are invested in making it work
At one level, One Belt, One Road has the potential to be perhaps the world’s largest platform for regional collaboration. What does that actually mean? There are two parts to this, the belt and the road, and it’s a little confusing. The belt is the physical road, which takes one from here all the way through Europe to somewhere up north in Scandinavia. That is the physical road. What they call the road is actually the maritime Silk Road, in other words, shipping lanes, essentially from here to Venice. Therefore it’s very ambitious—potentially ambitious—covering about 65 percent of the world’s population, about one-third of the world’s GDP, and about a quarter of all the goods and services the world moves.
That is what’s at the core of this—at least a potential trading route. The belt, the physical road, and the maritime Silk Road would re-create the shipping routes that made China one of the world’s foremost powers many, many years ago.
China is seeing a bit of a slowing down in its growth. A lot of people are saying that that’s part of the next growth wave of Chinese exports, which is that it’s going to have its influence and its infrastructure build-out in many of these countries, most of them emerging markets, in lots of things that frankly have fueled the very high growth in China over the past decade.
What remains to be seen is if that can be replicated in many of these countries in the next ten years. That is very significant. Because many of these countries are really lacking in this infrastructure. I remember when I take groups of delegates into China; they always marvel at the trains, the railway stations, the airports, and all that, which frankly is a bit of a miraculous creation in the past two decades.
The question is going to be how these are financed: whether there is going to be long-term planning that’s required, and whether the local governments and the state governments are able to take the Chinese model and the Chinese infrastructure and figure out how they can have their own version.
Some people have talked about this being the second Marshall Plan. It’s worth recalling that the Marshall Plan, which obviously was at the heart of the regeneration of Europe after the Second World War, was one-twelfth the size of what is being contemplated in the One Belt, One Road initiative.
So the question is the scale. The ambition is enormous, and the sums of money are equally enormous. That is why I think whether this initiative is successful will have two parts to it. One will be that the funds are indeed available and that governments are willing to deploy them.
The second is that the money can actually be deployed wisely. There is a real risk that this becomes a source of funding that gets misdeployed and doesn’t end up contributing to greater trade or greater economic collaboration but just gets wasted on projects that really should never have been funded in the first place.
I think the skepticism around whether this could be delivered has been at least partially allayed by looking at what’s already been achieved. Maybe let’s turn to the funding side and talk about that for a moment. The Asian Infrastructure Investment Bank (AIIB) has come into being.
There were lots of questions around whether that would happen. It’s $100 billion, the funding of which China provides somewhere between one-third and one-half, depending on how you look at it. That’s happened. Its governance is still being debated. But interestingly the governance model seems to have become a bit more transparent, a bit more recognized by the European powers that are involved than had initially been expected. So you tick one box and say that’s progress.
The Silk Road Fund has also come into being. Again, we’ll see how that unfolds. But that’s somewhere around $40 billion of investment. There were probably some bets around whether that would happen. Then there is the New Development Bank, which is the funding source for the BRICS countries. That has another $100 billion of investment allocated against it. These funding sources theoretically are beginning to move from the drawing board to at least some form of reality. How they operate, how they deploy, is still to be determined. But at least you can start to see how the big hurdle of funding is beginning to manifest itself in terms of tangible sources.