Abstract
What is the Belt Road Initiative and why is it said to be an important initiative in the world today? Why should anyone care and what are the implications of such an initiative? Essentially, this paper will cover China’s One Belt Road Initiative in order to provide a targeted yet general understanding of what this initiative is and why it matters to China and the rest of the world. Overall, this paper will take various information currently available about the initiative and aggregate it into a brief report for the readers. The target audience is those who are interested in Chinese growth and development but have limited to no knowledge about the Belt Road Initiative. The primary focus is to introduce those to the hopes, strategy, and investment of this movement. The structure of this report will be separated into a couple sections: the initiative, expenditures, other nations, projected economic effects, and concluding remarks. The initiative section will focus on providing the historical background, hopes, and general ideology behind the initiative. In expenditures, the paper will take a look at the investments into this project and what they have done to get it off the ground, while the other nations section will focus on other nations parts in this movement and what it has done for them. After, this report will provide an overview of projected future economic effects through the knowledge in the earlier sections and other reports. The report will end with a consolidated overview on the Belt Road Initiative and touch on why this initiative should be important to the reader and intended audience.
Introduction
Over many years China has been working toward developing and growing its economy and nation through massive expenditures in: infrastructure, manufacturing, trade routes, and clean energy. Analyzing recent economic data there is no question that China’s growth in the past several years has been impressive(cite) In fact, it is one of the major economic powerhouses in the world today. This paper’s main drive is to focus on one key initiative that has helped China achieve such significant growth, the Belt Road Initiative which targets growth and development. The Belt Road Initiative or the Silk Road is an international trade network that funnels raw materials, goods and finished products from key locations with the goal of having rapid transport of assets and less trade barriers(cite).
The primary undertaking of this paper is to aggregate information and knowledge about the belt road initiative and provide the reader a clear concise understanding of the program in general, what it has done and its importance to China, and why this program matters to the rest of the world. In order to accomplish these goals, the following questions will serve as the necessary framework to complete this analysis. What is the Belt Road Initiative’s origins and goals? Who are the key participants? What are the investments into the Belt Road Initiative and the current and projected economic effects of the initiative? What does it mean to China and the world and why should we care?
Methods
The best approach to answer these questions would be to first gather information on the Belt Road Initiative, starting with history, goals and key players. With this knowledge, this report will provide a concise overview of what the structure, history and inputs in the One Belt Road Initiative. With a stronger understanding of the initiative, the next step would be to dive into the investments in the project followed by the results of these investments. When looking at the implications of these inputs, this report will focus on what it means for China and the participants of the Belt Road Initiative. Then this report will, combine the effects of the inputs for the nations involved and talk briefly talk about changes in supply chain costs and long term expected supply costs, making sure to relate them to economic growth. After the report will touch on globalization because the initiative is a recent real-world example of countries becoming more globalized. With this combined information, this study will then be able to sum up the economic effects of this project and projected future hurdles and economic effects. Finally the report will conclude with an overview of the Belt Road Initiative, paying special attention to key players, implications, and economic theories such as supply and globalization. The conclusion will also touch on the importance of this movement for the participating parties and why everyone should have at least a basic understanding of the Belt Road Initiative and things that can be learned from it.
Expected Results
China is a country focused on growth and development through infrastructure and trade. In recent history China has been growing at a significant rate and it is due to many programs such as the Belt Road Initiative. The Belt Road Initiative is a program that is targeted to improve infrastructure and connect many nations via an influx of capital and collaborative efforts. This analysis will provide an insight into the Belt Road initiative and dive into the economic effects of this program, taking time to discuss supply chain effects and expected long term aggregate supply. Since the One Belt Road is a recent international initiative, globalization will be also tied into the report in order to show a real-world example. Touching on globalization will also tie in well with supply chain effects and the underlying incentives or goals of countries and companies globalizing. With this knowledge this paper seeks to quantify the overall importance and scale of this program and how effective it has been thus far. Since China’s growth and size of their economy has been the topic of many news articles and trade surplus in political news, it should be expected that the nation is accomplishing their goal to some extent.
Since the initiative includes many investments in infrastructure that can help develop trade routes, it is also expected that the movement saved time in shipping goods. When shipping becomes more efficient and quicker it is likely that costs of shipping decreased as well, leading to lower costs of supplying goods. With cost savings, lower barriers of trade, and efficiency, the Belt Road Initiative is expected to help China grow and generate more value as measured by Gross Domestic Product. Overall, this report will provide an understanding of the Belt Road Initiative for those who are not familiar with it and how it has benefitted the nations involved along the way.
The Belt Road Initiative
According to B.K. Sharma (2016), the belt road was first named the Silk Road in 1877 and historically was a was a trade route that connected the East and West (). In the early years of the Silk road, it “developed and enhanced trade and commerce in the areas but also facilitated cultural and social interaction across the continents.” (sharma ) With enhanced trade and commerce it can be said that this early globalization through the Silk road helped make the participants better off.
The initiatives for a “Silk Road Economic Belt and a Twenty- First Century Maritime Silk Road” were announced in 2013. (Bardal A.B. 2018) The Initiative was brought back by Xi Jinpang(sharma). Overall, “The strategy entails developing infrastructure, creating a large economic market by strengthening relations between China, and nations in Asia, Europe, Middle East and Africa, easing excess production capacity by exporting, thereby promoting its economic growth.”(Chen S.-C 2018) In essence, China plans to invest heavily in infrastructure in order to help the nation develop in order to decrease trade barriers. Along with the investment in infrastructure, through strengthened relationships with other participating nations, China believes that this will stimulate economic growth. Sharma noted that the sea routes are set up to connect ports in the south china sea Indian Ocean, and the Mediterranean Sea while the continental routes on land connect west china, central asia, and Europe. While in the past the globalization benefits of the route were strengthened relationships in the area, increased ease of trade, and increased potential for growth.
Outside of China, the Belt rOad Initiative, is more of a cooperative idea that’s focused on development with the nations involved. (sharma ) This initiative “rel;ies on the existing multilateral mechanism between china and relavent countries,” in order to “ proactively and peacefully develop their economic partnerships, which share common interests and demands, in order to pursue fast development.” (sharma pg 8) In short China is collaboratively working with the nations in the area of the Belt Road to accomplish common goals in order to develop rapidly. Within China, this route can help upgrade the infrastructure of less developed, more inland parts of china, mentions Sharma (2016). With these massive inputs of capital and resources, china believes that connecting the nation and these regions will help grow the less developed parts of china in order to increase their standard of living and as a side effect those nations participating or in close proximity to the route, will likely reap the rewards of this program as well and overall help benefit the nation.
Expenditures/What it means for China
According to Jenn-Jaw Soong, in 2015, “Xi Jinping has pledged US$ 2 billion fund and would reach US$ 15 billion to assist developing countries.” (Soong, J.-J. 2016) Chinese direct investment “between 2004 to 2014 in Belt Road nations rose from nearly $400 million to over $13 billion and cumulative investment reached $30 billion in 2017 and in 2015 EU’s investment plan and the One Belt One Road were both part of the EU- China strategic agenda.” (Yilmaz, S. 2018) Through their combined efforts, China and Europe collaborated to make trade easier and essentially stimulate growth. By working with China Europe gained more access to “one of the world’s most dynamic economies and creating new investment opportunities in energy, trade, and infrastructure.” (Yilmaz, S. 2018)
With significant investment in infrastructure, energy and trade, the potential for growth is great. As some of the costs of doing business decrease and the new infrastructure is expected to lead to greater productivity and efficiency, the expectation for the future long run aggregate supply curve is to show GDP growth or growth in the overall productivity of the nations involved in these initiatives. The other expectation is that some of the costs of involved in supplying goods should decrease. That does not mean that the overall cost of producing a good will decrease but rather a component of that price such as shipping or other expenses that may decrease from these investments.
Other Nations
For the world, on average shipping time will decrease between 1.2 to 2.5 percent from the One Belt Road Initiative, leading to aggregate trade costs decreasing by 1.1 to 2.2 percent. (de Soyres, Francois) For Belt Road Economies, on average shipping time will decrease between 1.7 to 3.2 percent and trade costs will decrease by 1.5 to 2.8%. For the nations along the belt road, shipping itmes are expected to be recuced by up to 11.9 percent and costs are expected to decrease by 10.2 percent. (de Soyres, Francois) With the reduction of shipping times and shipping costs, this can create an opportunity for companies to either profit more or offer more competitive prices in order to stay relevant in the market economy. This will allow companies to put more money into orders, inventory, and other expenses due to the savings from this initiative. According to Alicia Garcia Herrero, there is statistic evidence proving that there is a correlation between the reduction of transportation costs and increase in fostering trade. (Herrero, A. G. 2017) In fact the study found that , “a 10 percent reduction in railway, air and maritime costs increases trade by 2 percent, 5.5 percent and 1.1 percent respectively.” (Herrero, A. G. 2017) These results seem to be consistent with economic knowlodge that as prices go down, people want to consume more.
Urantsetseg Enkhbaatar found that that after working on the belt road initiative, Chinese investment in Russia went from $135.9 million to $1271 million. (Enkhbaatar, U. 2016)
In hopes of deeper cooperation China, Russia and Mongolia are trying to build a large scale railroad that will help make trade easier. (Enkhbaatar, U. 2016) With the completion of the railway, just as the previous cost reduction example, it should be expected that the overall cost and time of shipping will most likely both decrease.
Globalization
As China and other nations participating in the One Belt One Road Initiative work together and collaborate to generate future economic growth and development, the underlying economic theory of globalization becomes more and more evident. In short globalization is when individuals, companies or countries work with others internationally. In general economics, it is common knowledge that trade with others can make everyone better off. Globalization includes trade but these interactions are not typically for the fun of it. The main reason countries and individuals are drawn to globalization is because the relationship with others may prove useful for trade or development. For example, if one nation can produce textiles with lower tradeoffs than another nation and the other produces software more with less tradeoffs, it would be in ther best interest to trade. Since because both nations can produce what they are better at, they can trade for the other good and be better off because they can have a larger mix of the two products than simply producing the products themselves. Typically, globalization can be seen in many major companies, such as Apple. Apple produce phones in China and sells them worldwide. For countries, a common example of globalization is trade between China and the United States. For example, the United States sells American cars and other products to China and China trades products such as clothing with the United States.
An important takeaway from the China’s One Belt Road initiative is a recent insight into how nations globalize. By following capital investments in infrastructure, energy, and trade, China’s expenditures in the program show a real world example of the process of globalization. Creating an initiative to bring back a historic trade route was just step one. With expenditures in infrastructure in ground transport and transport via the sea, China was able to build the roads and connect train routes to bring nations together. As will be mentioned in the preceding section, some of the investment helped connect China to Russia via train routes. (Enkhbaatar, U. 2016) Over the years with continued investments, development and trade, relationships are positive, and trade barriers have decreased. With investment in Russia and the collaboration with all the nations participating in the Silk Road Initiative, China and the participating nations were able to successfully globalize. Through their continued collaboration, one can expect that new opportunities for growth and development have sprung up and the easier trade is helping all of their economies.