Friction over trade between the world’s two largest economies naturally captures the attention of the business and investment community.
The fact that cross-border trade within Asia is already much bigger than Asia’s exchange of goods and services with the U.S. or Europe makes fewer headlines, but is no less important.
It begs the question of what kind of networks, relationships and institutions will shape the future of international trade and the answer to this question is beginning to emerge.
In partnership with China, which we expect to become the world’s biggest economy by 2030, a growing number of countries are rejecting economic isolation and beginning to work together to develop a new kind multilateralism.
While this process is in its infancy, I believe that a more collaborative approach to connecting economies that is built around growth in Asia has the potential to be the world’s biggest driver of cross-border trade and investment in the decades ahead.
Such a dynamic would clearly be an historic opportunity for business and investors everywhere. In order to outline how this could take shape, it is worth considering some context. Asia’s growth over the past half-century has been remarkable.
What holds back the world’s most populous region from achieving even greater prosperity is not ambition, entrepreneurial-ism or a skilled workforce: it is connectivity. This means physical infrastructure such as railways and ports as well as the many other ways that trade is facilitated, such as customs arrangements, digital links and as people-to-people connections.
The shift towards a more connected global economy is already underway and the catalyst is China. In 2013, President Xi Jinping stated China’s intention to “forge closer economic ties, deepen cooperation and expand development space in the Eurasian region.”
This was the origin of the Belt & Road Initiative (BRI), which has been widely regarded since that time as a series of infrastructure projects and which has raised concerns that those projects created “debt traps” for developing countries and that the BRI was essentially closed to non-Chinese businesses.
The BRI was never intended as a simply philanthropic aid initiative; the pragmatic calculation behind it is that helping other countries to grow will contribute to China’s own growth. But this can only work when there is broad international engagement with the BRI. The Second Belt and Road Forum for International Co-operation, held in Beijing in late April, marked the launch of BRI 2.0.
“We need to be guided by the principle of extensive consultation, joint contribution and shared benefits,” President Xi told 36 national leaders and some 5,000 delegates including myself at the Forum.
China’s commitment to a more transparent BRI addressed concerns about debt sustainability and exclusivity, winning support from countries such as Malaysia that had previously expressed concerns. It also enables a new wave of international collaboration and recognises that the BRI cannot thrive without it.
This approach is proving effective. Our discussions suggest that at least 100 countries are now involved in the BRI, which reaches as far south as New Zealand, as far west as the UK, and as far north as the Polar Silk Road.
International engagement like this makes a great deal possible.
It broadens the spectrum of financing available for BRI projects. Developing Asia alone requires estimated infrastructure investment of USD1.7 trillion a year. China’s ability to mobilise hundreds of billions of dollars of financing through its policy banks is unique, but meeting needs on this scale will require global private sector capital from institutional investors, commercial banks and multilateral lenders.
International support also opens the door for more companies to participate in the BRI. A high quality, more inclusive BRI is good news for global firms in engineering, project design, professional services and many other sectors. It’s especially meaningful for firms from countries like Japan, France, Australia, Italy and Singapore that have signed “third-party market co-operation” agreements with China under which their firms will partner with Chinese companies to build infrastructure in emerging markets.
And in the supply chains for BRI projects, there should also be more opportunities for local companies and workers, ensuring that the BRI’s benefits are more broadly distributed in the markets it touches.
Six years since its inception, the BRI has proved itself to be a powerful catalyst for growth in cross-border trade and investment. According to official data, the value of trade in goods between China and other Belt and Road countries in 2018 reached 1.3 trillion US dollars, growing by 16.4 per cent year on year.
The BRI is also strengthening forms of connectivity that go well beyond physical infrastructure, demonstrating that it was always about more than transportation and energy projects.
For example, the value of goods going through China Customs’ e-commerce platform rose by 50 per cent last year, while China signing mutual visa exemption agreements for different types of passports with 57 Belt and Road countries.
As it energises business and investment, the BRI is bringing together networks of trade and investment that are beginning to reveal the outlines of the new multilateralism. This system already has some institutions such as the Asian Infrastructure Investment Bank and is beginning to develop its own standards, such as the Green Investment Principles for Belt and Road. However, the BRI is a multi-decade strategy and it will need to involve more institutions and standards to ensure its long term success.
Indeed, these are still early days in the evolution of a new network built on ancient routes that has China and Asia at its centre, but which extends to the rest of the world.
International participation in the BRI is going to be vital, both for the success of the Initiative itself and as an opportunity for companies and investors everywhere.
China’s progression to BRI 2.0 brings that international participation and the new multilateralism that comes with it one step closer. While trade tensions may be with US for a while yet, this new phase for BRI is a reason to be optimistic about the future of global trade and investment.