The Belt and Road initiative: reshaping the global value chain

The Belt and Road initiative: reshaping the global value chain

Lead ACCA author

Yuki Qian


History

More than 2,100 years ago, Zhang Qian made a trip as imperial envoy to the regions west of the Han Dynasty. Afterwards, Chinese merchants began to trade with people of the western regions by following his route, which was later called the ‘Silk Road’. About a century later, another silk road, the oceanic trade route, also came into being. The two roads connected the countries of the Eurasian continent by land and sea, and along these routes ancient China traded and made cultural exchanges with them. Objectively speaking, the development of the Silk Road and the Maritime Silk Road has promoted the friendly exchanges between people along their routes and strengthened the intermingling of Eastern and Western civilisations.

Today, as the global economy continues its path of recovery from the financial crisis of 2008–9, countries all over the world are seeking out mutually beneficial partnerships, and regional cooperation plays a vital role in the development of the world economy. Against this background, during his visit to central Asia and South-East Asia in September and October of 2013, President Xi Jinping of China proposed a plan for jointly developing the Silk Road Economic Belt and the 21stcentury Maritime Silk Road (the ‘Belt and Road’ or B&R), which immediately attracted wide attention from all over the world. The B&R Initiative supports current international and regional development trends, since it helps countries in similar situations to co-develop and collaborate in an open economic system and the global free trade system. As such, the Initiative has profound strategic significance which will open up a wide range of new opportunities for countries and regions along the B&R routes or ‘corridors’, and their people.

The Initiative in Detail

The B&R Initiative has five aspects:

• policy coordination

• connecting infrastructure

• unimpeded trade

• financial integration

• people-to-people bonds.

i. Policy coordination Policy coordination is vital to the implementation of the B&R Initiative. This requires close intergovernmental cooperation and a multilevel intergovernmental mechanism for macro policy exchange, in order to strengthen interest in the project, enhance mutual political trust and reach a consensus for cooperation.

ii. Connecting infrastructure Infrastructure connectivity is a priority for the B&R Initiative. While respecting each other’s sovereignty and security concerns, countries along the B&R should actively plan ways of connecting their infrastructure and bringing technical standards into line, working together to build international passageways and an infrastructure network that, step by step, will connect all sub-regions in Asia and link Asia, Europe and Africa together. This means making improvements to – or entirely new construction of – transportation infrastructure, energy infrastructure, and cross-border cable and other communications networks. At the same time, efforts should be made to promote green and low-carbon construction, operation and management.

iii. Unimpeded trade Investment and trade are major elements of the B&R. The aim is to remove barriers for investment and trade and create a sound business environment for countries and regions along the route – this should include active efforts among countries to build free trade zones jointly, to improve cooperation. The objective is to expand areas of trade, improve trade structures, explore new areas of growth and promote balanced trade. New trading channels, such as crossborder e-commerce, will consolidate and expand conventional business. Investment and trade are seen as complementary: one drives the development of the other. Barriers will be removed for investment, and bilateral investment protection agreements will be negotiated and signed to avoid double taxation and to protect the legitimate rights and interests of investors.

iv. Financial integration Financial integration is vital to the B&R Initiative. Stable currencies, an investment and financing system and a credit system in Asia will all contribute to closer financial cooperation. Countries along the B&R will expand the scope and scale of bilateral currency swaps and settlements, the bond market in Asia will be developed, and there will be a joint effort to support the Asian Infrastructure Investment Bank and BRICS New Development Bank. Work will continue to establish a Shanghai Cooperation Organisation (SCO) development bank and support the Silk Road Fund. The China-ASEAN Interbank Association and SCO Interbank Association will carry out multilateral cooperation in the form of syndicated loans and bank credit. Governments of the countries along the B&R, and their companies and financial institutions with a good credit rating, will be permitted to issue RMB-denominated bonds in China. Qualified Chinese financial institutions and companies are encouraged to issue bonds in both RMB and foreign currencies in these countries, and to use locally raised funds locally in countries along the B&R. Countries will cooperate in financial regulation, make good use of the Silk Road Fund and sovereign wealth funds, and encourage commercial equity investment funds and private funds to take part in the construction of key projects under the B&R Initiative.

v. People-to-people bonds People-to-people bonds underpin the B&R Initiative. The Silk Road’s spirit of friendly cooperation will be encouraged through the promotion of extensive cultural and academic exchanges, personnel exchanges and cooperation, media cooperation, youth and women exchanges and volunteer services. Student exchanges between countries along the B&R will also increase. Together, these programmes will help to win public support for deepening bilateral and multilateral cooperation.

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