Analysis of Belt and Road Initiative

On March 28, China’s top economic planning agency, the National Development and Reform Commission (NDRC), released a new action plan outlining key details of Beijing’s “One Belt, One Road” initiative. Chinese president Xi Jinping has made the program a centerpiece of both his foreign policy and domestic economic strategy. Initially billed as a network of regional infrastructure projects, this latest release indicates that the scope of the “Belt and Road” initiative has continued to expand and will now include promotion of enhanced policy coordination across the Asian continent, financial integration, trade liberalization, and people-to-people connectivity. China’s efforts to implement this initiative will likely have an important effect on the region’s economic architecture—patterns of regional trade, investment, infrastructure development—and in turn have strategic implications for China, the United States, and other major powers.

Q1: What is the “One Belt, One Road,” and what is in the new plan?

The “Silk Road Economic Belt” and “21st Century Maritime Silk Road” are initiatives first introduced by Xi in the fall of 2013 during visits to Kazakhstan and Indonesia, respectively. They are expected to feature prominently in China’s 13th Five-Year Plan, which will run from 2016 to 2020 and guide national investment strategy throughout that period.

Often referred to jointly as the “One Belt, One Road,” details released so far by China’s official media outlets show the “Belt” as a planned network of overland road and rail routes, oil and natural gas pipelines, and other infrastructure projects that will stretch from Xi’an in central China, through Central Asia, and ultimately reach as far as Moscow, Rotterdam, and Venice. Perhaps awkwardly named, the “Road” is its maritime equivalent: a network of planned port and other coastal infrastructure projects that dot the map from South and Southeast Asia to East Africa and the northern Mediterranean Sea.

The new Belt and Road plan, jointly released by the NDRC and the Ministries of Foreign Affairs and Commerce, highlights that the scope of the initiative will extend well beyond infrastructure construction. The program will also include efforts to promote greater financial integration and use of the Renminbi by foreign countries, create an “Information Silk Road” linking regional information and communications technology networks, and lower barriers to cross-border trade and investment in the region, among other initiatives. New regional institutions, such as the Asian Infrastructure Investment Bank (AIIB) and New Silk Road Fund (NSRF), are also designed in part to complement and support the Belt and Road’s development.

The plan is also notable for its mixing of traditional Chinese diplomatic language (e.g., emphasizing sovereignty and nonintervention) alongside a newer rhetorical focus on adherence to high standards and international norms and the “decisive” role of the market and industry in driving the initiative. This echoes the pledge made by China’s leadership at the November 2013 Third Plenum to “give the market a decisive role in resource allocation,” but it remains to be seen whether or not market forces and commercial considerations will in fact play a critical role in driving the new Silk Road forward.

Q2:Does this initiative involve a free trade area or the creation of another kind of international institution?

No, this is clearly not a regional free trade area, and it involves no binding state-to-state agreements. Instead, it is at its heart a pledge by China to use its economic resources and diplomatic skill to promote infrastructure investment and economic development that more closely links China to the rest of Asia and onward to Europe. In this regard, it reflects China’s preference to avoid if possible formal treaties with measurable compliance requirements in favor of less formal arrangements that give it flexibility and allow it to maximize its economic and political skills.

Q3: What are the potential benefits to Asia?

A4: The “One Belt, One Road” has been referred to as China’s version of the Marshall Plan, a comparison Beijing has sought to downplay as being freighted with geopolitical undertones that it claims are absent in its initiative.

Motivations aside, the initiative is a powerful illustration of China’s growing capacity and economic clout—and the Xi administration’s intent to deploy them abroad. Properly implemented, the projects that comprise the Belt and Road could help enhance regional economic growth, development, and integration. According to the Asian Development Bank, there is an annual “gap” between the supply and demand for infrastructure spending in Asia on the order of $800 billion. Given that infrastructure is at the heart of the Belt and Road, there is room for the initiative to play a constructive role in regional economic architecture. In addition, if this leads to more sustainable and inclusive growth, it could help strengthen the political institutions in the region and reduce the incentives and opportunities for terrorist movements.

Unimpeded trade:

Investment and trade cooperation is a major task in building the Belt and Road. We should strive to improve investment and trade facilitation, and remove investment and trade barriers for the creation of a sound business environment within the region and in all related countries. We will discuss with countries and regions along the Belt and Road on opening free trade areas so as to unleash the potential for expanded cooperation.

Countries along the Belt and Road should enhance customs cooperation such as information exchange, mutual recognition of regulations, and mutual assistance in law enforcement; improve bilateral and multilateral cooperation in the fields of inspection and quarantine, certification and accreditation, standard measurement, and statistical information; and work to ensure that the WTO Trade Facilitation Agreement takes effect and is implemented. We should improve the customs clearance facilities of border ports, establish a "single-window" in border ports, reduce customs clearance costs, and improve customs clearance capability. We should increase cooperation in supply chain safety and convenience, improve the coordination of cross-border supervision procedures, promote online checking of inspection and quarantine certificates, and facilitate mutual recognition of Authorized Economic Operators. We should lower non-tariff barriers, jointly improve the transparency of technical trade measures, and enhance trade liberalization and facilitation.

We should push forward cooperation in emerging industries. In accordance with the principles of mutual complementarity and mutual benefit, we should promote in-depth cooperation with other countries along the Belt and Road in new-generation information technology, biotechnology, new energy technology, new materials and other emerging industries, and establish entrepreneurial and investment cooperation mechanisms.

China's Regions in Pursuing Opening-Up

In advancing the Belt and Road Initiative, China will fully leverage the comparative advantages of its various regions, adopt a proactive strategy of further opening-up, strengthen interaction and cooperation among the eastern, western and central regions, and comprehensively improve the openness of the Chinese economy.

Northwestern and northeastern regions. We should make good use of Xinjiang's geographic advantages and its role as a window of westward opening-up to deepen communication and cooperation with Central, South and West Asian countries, make it a key transportation, trade, logistics, culture, science and education center, and a core area on the Silk Road Economic Belt. We should give full scope to the economic and cultural strengths of Shaanxi and Gansu provinces and the ethnic and cultural advantages of the Ningxia Hui autonomous region and Qinghai province, build Xi'an into a new focus of reform and opening-up in China's interior, speed up the development and opening-up of cities such as Lanzhou and Xining, and advance the building of the Ningxia Inland Opening-up Pilot Economic Zone with the goal of creating strategic channels, trade and logistics hubs and key bases for industrial and cultural exchanges opening to Central, South and West Asian countries. We should give full play to Inner Mongolia's proximity to Mongolia and Russia, improve the railway links connecting Heilongjiang province with Russia and the regional railway network, strengthen cooperation between China's Heilongjiang, Jilin and Liaoning provinces and Russia's Far East region on sea-land multimodal transport, and advance the construction of an Eurasian high-speed transport corridor linking Beijing and Moscow with the goal of building key windows opening to the north.

Southwestern region. We should give full play to the unique advantage of Guangxi Zhuang autonomous region as a neighbor of ASEAN countries, speed up the opening-up and development of the Beibu Gulf Economic Zone and the Pearl River-Xijiang Economic Zone, build an international corridor opening to the ASEAN region, create new strategic anchors for the opening-up and development of the southwest and mid-south regions of China, and form an important gateway connecting the Silk Road Economic Belt and the 21st-Century Maritime Silk Road. We should make good use of the geographic advantage of Yunnan province, advance the construction of an international transport corridor connecting China with neighboring countries, develop a new highlight of economic cooperation in the Greater Mekong Subregion, and make the region a pivot of China's opening-up to South and Southeast Asia. We should promote the border trade and tourism and culture cooperation between Tibet autonomous region and neighboring countries such as Nepal.

Coastal regions, and Hong Kong, Macao and Taiwan. We should leverage the strengths of the Yangtze River Delta, Pearl River Delta, west coast of the Taiwan Straits, Bohai Rim, and other areas with economic zones boasting a high level of openness, robust economic strengths and strong catalytic role, speed up the development of the China (Shanghai) Pilot Free Trade Zone, and support Fujian province in becoming a core area of the 21st-Century Maritime Silk Road. We should give full scope to the role of Qianhai (Shenzhen), Nansha (Guangzhou), Hengqin (Zhuhai) and Pingtan (Fujian) in opening-up and cooperation, deepen their cooperation with Hong Kong, Macao and Taiwan, and help to build the Guangdong-Hong Kong-Macao Big Bay Area. We should promote the development of the Zhejiang Marine Economy Development Demonstration Zone, Fujian Marine Economic Pilot Zone and Zhoushan Archipelago New Area, and further open Hainan province as an international tourism island. We should strengthen the port construction of coastal cities such as Shanghai, Tianjin, Ningbo-Zhoushan, Guangzhou, Shenzhen, Zhanjiang, Shantou, Qingdao, Yantai, Dalian, Fuzhou, Xiamen, Quanzhou, Haikou and Sanya, and strengthen the functions of international hub airports such as Shanghai and Guangzhou. We should use opening-up to motivate these areas to carry out deeper reform, create new systems and mechanisms of open economy, step up scientific and technological innovation, develop new advantages for participating in and leading international cooperation and competition, and become the pacesetter and main force in the Belt and Road Initiative, particularly the building of the 21st-Century Maritime Silk Road. We should leverage the unique role of overseas Chinese and the Hong Kong and Macao Special Administrative Regions, and encourage them to participate in and contribute to the Belt and Road Initiative. We should also make proper arrangements for the Taiwan region to be part of this effort.

Inland regions. We should make use of the advantages of inland regions, including a vast landmass, rich human resources and a strong industrial foundation, focus on such key regions as the city clusters along the middle reaches of the Yangtze River, around Chengdu and Chongqing, in central Henan province, around Hohhot, Baotou, Erdos and Yulin, and around Harbin and Changchun to propel regional interaction and cooperation and industrial concentration. We should build Chongqing into an important pivot for developing and opening up the western region, and make Chengdu, Zhengzhou, Wuhan, Changsha, Nanchang and Hefei leading areas of opening-up in the inland regions. We should accelerate cooperation between regions on the upper and middle reaches of the Yangtze River and their counterparts along Russia's Volga River. We should set up coordination mechanisms in terms of railway transport and port customs clearance for the China-Europe corridor, cultivate the brand of "China-Europe freight trains," and construct a cross-border transport corridor connecting the eastern, central and western regions. We should support inland cities such as Zhengzhou and Xi'an in building airports and international land ports, strengthen customs clearance cooperation between inland ports and ports in the coastal and border regions, and launch pilot e-commerce services for cross-border trade. We should optimize the layout of special customs oversight areas, develop new models of processing trade.