Zhang Monan, Professor, Deputy Director of Institute of American and European Studies
Committed to its goal of peaceful development and international cooperation, the Belt and Road Initiative (BRI) has fuelled the momentum of economic globalisation since its inception. The project is defined by its focus on the “five connectivities” and the principles of equal-footed dialogue, shared responsibilities, and mutual benefits, as it strives towards building a community with a shared future for mankind. BRI has contributed to significant reductions in development costs, increasing returns to development; it also fuels the growth of the world economy as it empowers stakeholders with opportunities for development and deepens connectivity between nations, regions, and sub-regions. With the changing international and domestic landscapes that are to be expected in the next decade, China is recalibrating its BRI approach as it continues to strive for high quality growth and development.
BRI and the New Global Economic Cycle in Past Decade
Over the past 10 years, the trade relations between China and the countries or regions participating in BRI have seen notable improvements. According to statistics from China’s Ministry of Commerce, during the period 2013 to 2022, the total trade volume between China and BRI countries have doubled from US$1.04 trillion to US$2.07 trillion, registering an annual rate of growth of 7.96%. In 2022 alone, the total value of Chinese export to BRI countries reached US$1.18 trillion, while import in the same year stood at US$891.32 billion: a sharp surge by 107.5% and 89.1% from 2013 respectively. ASEAN countries, in particular, rank among China’s top trade partners, accounting for 47.1% of the total trade volume. China and ASEAN continue to deepen their cooperation in trade, investment, and industrial supply chain integration, as China shifts its focus from the US to ASEAN against the backdrop of the US-China trade war, which the US instigated in 2018.
Concurrently, China is also now the largest source of investment in BRI countries. During the period 2013 to 2022, bilateral investment between China and BRI countries amalgamated to over US$270 billion, with Singapore, Indonesia, Vietnam, Thailand and Malaysia being the top investment destinations; popular industries of interest include manufacturing, wholesale & retail, construction, and emerging technologies.
BRI stimulates growth of the world economy by injecting momentum to the new economic cycle. The World Bank reports that BRI countries see on average a growth of 4.1% in trade and 5% in foreign investment, and even 3.4% in GDP for countries with low income; it also predicts that by 2023, BRI projects will be generating annual returns of US$1.6 trillion for the global economy, accounting for 1.3% of global GDP.
BRI Opens New Windows of Opportunities for the Next Decade
In recent years, international trade has seen drastic decrease as globalization faces harsh headwinds; growth of the global economy stagnates, along with a steady decline in the long-term potential growth rate. The factors that have driven growth and contributed to the prosperity of the global economy are deteriorated and weak. Deglobalisation, unilateralism and protectionism spliced the world economy into mere fragments of what it used to be; geopolitical tensions are rising everywhere; the global industrial supply chain has taken huge blows, which leads to further fragmentation as countries continue to erect barriers of protectionism. BRI is also confronted with a new set of circumstances, including managing geopolitical conflicts, adapting to the emerging technological revolution, and rising to meet the challenges of global climate governance, etc.
As BRI enters its second decade, Chinese president Xi Jinping announced eight major steps China intents to take to support high quality Belt and Road cooperation: China will build a multidimensional Belt and Road connectivity network, support an open world economy, carry out practical cooperation for the BRI, promote green development, advance scientific and technological innovation, support people-to-people exchanges, as well as strengthen the institutional building for international Belt and Road cooperation. As China recalibrates its approach to BRI, as various aspects of BRI projects – including cooperation mechanisms, project objectives and industrial focus – undergo profound shifts to deepen cooperation between stakeholders, achieving win-win as BRI evolves into a cooperative framework for global multi-lateral development that is inclusive, respectful, and sustainable.
1. BRI in the Era of Rising Geopolitical Tensions: Balancing Development and Security
With the prolonged war between Russia and Ukraine, the Red Sea crisis, and the ongoing Israel-Palestine conflict with little hope of swift resolution in sight, escalating geopolitical tensions are the new norm of our world today. Competition between global superpowers is expected to intensify, regional stability seems difficult to restore as animosity remains high, while geopolitical risks and political extremism around the world are on the rise. These factors, in turn, translate into greater risks and uncertainties that BRI would have to combat. China attempts to strike a balance between economic, political and risk mitigation considerations as it takes on a more selective stance in choosing BRI partners, avoiding “dangerous and turmoiled places” and strengthening risk control mechanisms while prioritizing low-risk, high-yield investment projects in regions that enjoy a greater degree of relative stability and have a more sizeable appetite for infrastructural development; sustainability and inclusiveness are the primary emphasis of such “small and beautiful” BRI projects going forward.
2. ASEAN to Become the Strategic Focus of High-Level BRI International Cooperation
China’s diplomatic approach to its neighbours remain unchanged: the neighbouring countries take on a pivotal role in its diplomacy as China seeks to pursue friendship and partnership with ASEAN, APEC and other regional organisation, with its firm belief in multilateralism, and safety and prosperity for all.
The Asia-Pacific has been the most dynamic region in the world in recent years; the South-east Asian economies are also ranked at the top in terms of growth potential. With RCEP entering into full force in 2023, further economic integration of regional markets can be expected, thanks to the cumulation rule which allows inputs from any RCEP region to count as local when manufactured in a member state. BRI would also support development in the region and seize growth opportunities as it continues to increase investments in South-east Asia. ASEAN exports may also tap on the markets of China and Europe with greater ease, as China continues its work on the construction of the “Maritime Silk Road” and the New International Land-Sea Trade Corridor; these projects would encourage partnership and mutually beneficial integration of industrial and supply chains between China and ASEAN, but within the Eurasian continent as well.
3. BRI’s Green, Digital Transition: Strategic Path Towards High-Quality Growth
With the structural shifts of the world economy and the new round of industrial revolution unfolding, BRI is also under a process of constant evolution with its focus shifting gradually from traditional fields, such as processing and manufacturing, engineering machinery, energy, and agriculture, to emerging fronts of technological and economic advancements, including the digital economy, green economy, e-commerce, and fintech. However, one should also consider the fact that the development level of digital infrastructure among the BRI countries and regions varies vastly; different stakeholders involved would therefore be very much focused on the bridging of the great “digital divide”, so that deepening collaboration in areas such as AI, fintech, e-commerce and smart city would be possible.
BRI would continue to uphold its vision of sustainable green development, promoting low-carbon development with its efforts in green infrastructure, green investments, green finance, green technologies, as well as green industrial cooperation. Currently, the BRI green investment gap remains relatively substantial; data shows that BRI countries account for 40% of total land area on the planet, while carbon dioxide emissions stand at 55% of the world total. In November 2018, the Green Finance Committee (GFC) of China Society for Finance and Banking, in partnership with the City of London’s Green Finance Initiative (GFI), published a set of “Green Investment Principles for the Belt and Road” (GIP). The 7 principles proposed include embedding sustainability into corporate governance, understanding Environmental, Social and Governance (ESG) risks, disclosing environmental information, enhancing communication with stakeholders, utilising green financial instruments, and adopting green supply chain management, etc. The number of GIP signatories is currently 33 and counting; 14 of these participants are Chinese institutions, while the rest are foreign financial institutions from Germany, the UK, the Middle East, North Africa, and other parts of Asia. Climate finance flows reached an impressive US$1.4 trillion total in 2022, according to the Climate Policy Initiative, marking a historic high; however, there is still a long way to go, considering that the annual climate finance required by 2030 to fight climate change is estimated to stand at US$5.2 trillion, out of which US$2.4 trillion needs to come from the pockets of the developing countries.
As of today, the green financing instruments available under the BRI are still undermined by a lack in variety. A more diverse range of green loans and green funds may be achieved by scaling up and partnering up with local financial institutions of the host countries, sovereign wealth funds, private capital, and international financing institutions; this allows for the introduction of multi-layered mechanisms with different financial partners, the mitigation of the stark financing gap, and the deepening BRI cooperation, too.
Zhang Monan, Professor, Deputy Director of Institute of American and European Studies
April 2024