By Rashna Mahzabin
Belt Road Initiative or yi dai yi lu is a 21st-century silk road which is made up of a belt of overland corridors and a maritime road of shipping lines. It is a development strategy adopted by the Chinese government for infrastructural development and economic advancement.
An Interesting Initiative
China’s virtually closed economy transformed into a major trading nation success story in the 1970s. After opening to the outside world at the end of the 1970s, China realized an economic miracle by expanding exports enormously and absorbing foreign direct investment (FDI) massively. Throughout the period, the foreign-invested enterprises (FIEs) have made great contributions to the Chinese economy. Three decades later, however, China was faced with growing “twin surpluses” in current and capital accounts. Their negative impact has been gradually apparent due to excessive liquidity, over-investment/production, soaring asset prices (wages, land prices, resource prices, and exchange rates), and external trade friction. As a result, China has been trying to shift its development model from investment/export-led to consumption/domestic demand-led growth. While following the outward-oriented development model, China endeavored to acquire foreign currency and technology on a bilateral basis. Along with the change in the development model, China’s opening-up policy enters a new stage and currently strives to adjust its economic structure and existing industries by transferring production factors not only to domestic interior provinces but also abroad. In this context, China is increasingly deepening its commitment to the global governance of various multilateral regimes. At this critical point, General Secretary Xi Jinping’s leadership was established in changing economic environments called the “new normal” aiming for stability without pursuing just high growth. Proposing the “China Dream of Grand Rejuvenation,” Xi Jinping launched the Belt and Road Initiative (BRI) in 2013.
Vision & Scope
The vision of the initiative is to connect the people over the world in terms of political dimensions, economic dimensions, and cultural dimensions. The major goals of the Belt Road initiative are achieving policy coordination among partners, building infrastructure for improving connectivity, promoting trades, motivating financial integration and improving relationships among the people of partner countries. Policy coordination also requires agreement between partners particularly free trade agreement in terms of custom, approval and inspection management. The Belt Road Initiative already focuses on missing links in existing routes of transportation, port facilities, high-quality railways, airways and seaways, a pipeline of oil and gas and telecommunication for enhancing connectivity among partner countries. The Silk Road economic belt connects China to central Asia, Russia, central Asia, and West Asia through the Gulf Mediterranean Sea and China to Southeast Asia and South Asia through the Indian Ocean. On the other hand, the 21st Century Maritime Silk Road connects China to Europe and Africa through the South China Sea and the Indian Ocean.
Five Priorities of Cooperation
POLICY COORDINATION – Promoting intergovernmental cooperation, Building a multilevel intergovernmental mechanism for macro policy exchange and communication
UNIMPEDED TRADE – Removing barriers to investment and trade, Discussing free trade areas with
countries and regions along the B&R
PEOPLE-TO-PEOPLE BONDS – Inheriting and promoting the spirit of friendship and cooperation along the Silk Road, Carrying out extensive cultural, academic and talent exchanges
CONNECTING INFRASTRUCTURE – Planning and building connected infrastructure, Aligning technical standards, Creating an infrastructure network that connects all subregions in Asia, and connects the continents of Asia, Europe, and Africa
FINANCIAL INTEGRATION – Deepening financial cooperation, Promoting systems for monetary stability system, investment and financing, and credit construction across Asia
China’s Gain
The BRI has the potential to yield considerable economic and political gains for China. Many of these have been explicitly acknowledged in China’s official policy communiques, such as the expansion of China’s export markets, the promotion of the Renminbi (RMB) as an international currency, and the reduction of trade frictions like tariffs and transport costs. Developing and connecting hard infrastructure with neighboring countries will help reduce transport times and costs. Establishing soft infrastructure with partner countries will allow for a broader range of goods to be traded with fewer regulatory hurdles. Raising capital for these infrastructure projects by issuing bonds in RMB will encourage its use in international financial centers. China will also boost growth in its lower-income western provinces by building overland economic connectivity with Central Asia. If successfully implemented, the BRI could help reorient a large part of the world economy toward China. Increasing the amount of trade, investment, and connectivity between China and countries throughout Eurasia will also render these countries more dependent on the Chinese economy, increasing China’s economic leverage over them. This may empower China to more readily shape the rules and norms that govern the economic affairs of the region. The BRI may also win China political gains. Beijing may be able to exploit its financial largesse to influence partner country policies to align with its own interests, particularly in certain countries in Central and South Asia that lack good governance and robust rule of law. Some countries that are part of BRI rank unfavorably on Transparency International’s Corruption Perceptions Index, an index running from 0, indicating very high corruption, to 100, indicating very low corruption. BRI recipient countries with particularly poor Corruption Perceptions Index scores include Turkmenistan (22), Pakistan (32), and Sri Lanka (36). Accepting Chinese capital may come with expectations that Chinese companies will then be contracted to manage infrastructure, giving them at the least some influence over critical infrastructure. From China’s perspective, investment into strategic locations like Gwadar will help diversify China’s transport network for critical natural resources like oil and gas, which could help reduce dependency on trade routes, such as the Strait of Malacca, through which China currently receives much of its oil and gas. Partner countries should likewise reap concrete benefits. Fulfilling the infrastructure needs of these countries will speed development by helping them export their products to overseas markets, which could help create new jobs and foster stable growth. Other potential sources of infrastructure finance, such as the World Bank, tie lending to conditions that recipient governments may feel encroach on their sovereignty, such as stipulations that governments limit spending to a certain level or enact anti-corruption measures. Chinese investment, on the other hand, has been historically less likely to require recipient countries to adhere to such conditions.
Impact on International Trade
Trade between Asia and Europe (not including trade between EU countries) accounts for 28% of world trade, so making those trade flows easier has a large potential impact. The size of this impact depends on the sensitivity of trade to changes in relative costs, which can be estimated in gravity models of international trade. These models describe trade flows in terms of the size of countries and the relative costs of trade between them. The relationships in the gravity model also allow us to calculate approximate individual country effects when trade costs change. The impact of the BRI will also depend on where trade costs fall as a result of BRI projects. Trade costs may fall between a very small set of countries, or much more widely across Asia and Europe.
Merchandise trade between China and the countries targeted by its “Belt and Road Initiative” is predicted to grow by US$117 billion this year, according to a new analysis. For China, this will mean US$56 billion in additional exports, while it will import an extra US$61 billion worth of goods from the 80 countries named in the Chinese government’s official manifesto, research from trade credit insurer Euler Hermes shows. The report estimates that this will add 0.3 percent to global trade and 0.1 percent to global growth, at a time when fears are mounting about a slowdown across the world economy, but most notably in China.
Bangladesh’s Role
This BRI initiative produced various implications for Bangladesh. As the labor cost is rising and the population is aging in China, its labor-intensive industries such as the garment industry will be looking for places to relocate. China will continue to move away from labor-intensive low-tech industries towards high margin and high-tech manufacturing like IT, aerospace, and telecommunication. Therefore, these sunset industries which is producing low-end labor-intensive products will be looking for places with cheap labor to relocate their plants.
As the second largest garments producer and exporter in the world market after China, Bangladesh’s ready-made garment industry is one of the most important sector among other sectors, which serves a big market all over the world. Ready-made garments (RMG) of Bangladesh is considered as the backbone of its economy and has a great prospect to become the leading garment producer and exporter in the world market near future. Considering the biggest initiative of BRI, Bangladesh is considered as a very important land both geographically and economically and has already declared to join in this initiative. While in recent years, the production cost of apparel in China is increasing very high and the opportunity cost of garments production is much higher than that of Bangladesh. Therefore, many buyers and producers are looking for a new destination for their investments and apparel business. In this situation, BRI initiative could be a window of opportunity for Bangladesh to attract foreign direct investment (FDI) especially for the RMG industry of Bangladesh.
From the bigger scheme of a regional power play to the unexplored potential in commerce and connectivity, Bangladesh is one of the most vital countries for China in expanding its sphere of influence in South and Southeast Asia. Hence, it is no surprise that the 2016 visit by President Xi Jinping, first in more than three decades, saw China-Bangladesh relations elevated to ‘Strategic Partnership of Cooperation’ from ‘Comprehensive Partnership’. It is now for Bangladesh to gain leverage from China’s checkbook diplomacy while maintaining the delicate balance of regional geopolitics.
India is opposing the project, as one of its crucial routes will go through Pakistan-governed Kashmir that India claims as its own land. It is not possible for India to accept BRI in terms of this sovereignty issue. However, India has no issue regarding the implementation of the proposed Bangladesh-China-India-Myanmar (BCIM) corridor at its eastern border. Bangladesh prefers to maintain strategic balance with India and China. The government has long been maintaining a balance with these two giant powers and the aim of Bangladesh will still remain the same because of the geographic positioning of Bangladesh and its relationship with India and future superpower China.
