Here’s what can change the dynamics of world trade

By: | Updated: March 20, 2018 6:14 PM

As against 30 days of time required for import from China through sea route, there is now a rail option of just 16 days. This is just one benefit of “Silk Road Economic Belt-SREB.”

World Trade, China Trade, Silk Road Economic Belt, Maritime Silk Road, OBOR, China-Pakistan Economic Corridor, BCIM, dynamics of world tradeAs against 30 days of time required for import from China through sea route, there is now a rail option of just 16 days. This is just one benefit of “Silk Road Economic Belt-SREB.” (Source: Reuters)

 

On January 1, 2017, a freight train departed from Yiwu (Zhejiang Province) and arrived at Barking station (London) in about 16 days, covering 12,000 km across nine countries (China, Kazakhstan, Russia, Belarus, Poland, Germany, Belgium, France and the UK). This freight train service costs 50% less than air-freight, while reducing the shipment time by 50% compared to sea-freight. As against 30 days of time required for import from China through sea route, there is now a rail option of just 16 days. This is just one benefit of “Silk Road Economic Belt-SREB.” On the other hand, “Maritime Silk Road-MSR” will provide connectivity with resource-rich African countries. This is going to bring in big changes in the way trade happens between China and EU and other countries, which lie on Silk Road Economic Belt.

In September 2013, President Xi Jinping during his visit to Turkmenistan, Kazakhstan, Uzbekistan and Kyrgyzstan called upon Central Asian countries to join hands in building a “Silk Road Economic Belt-SREB.” The SREB will connect China with Central Asian countries and Europe via an extensive network of roads, rail, pipelines and SEZs. Subsequently, “Maritime Silk Road” was announced, which is supposed to traverse through South China sea, South Pacific Ocean, Indian ocean, Suez canal to Mediterranean sea. Collectively, both SREB and MSR have officially been labelled as “One Belt, One Road” or in other words “Belt & Road” initiative.

The OBOR comprises two physical routes, with six economic corridors, and is one of the biggest infrastructure projects of modern world. These two different routes will ultimately connect China with about 100 countries in Europe, Africa and Asia. These countries represent about 70% of the global population, 55% of global GDP and 24% of global trade.

It is quite evident that the OBOR initiative has great potential. However, the size of the project brings various challenges. Even though ground transport is less expensive, it stalls each time when the shipment crosses a border which may result in increase in cost in the form of tariffs and arbitrary delays. However, if OBOR initiative operates with a single unified customs system and effective trade facilitation mechanism, then trade can happen smoothly across boundaries, combining the efficiency of air shipments with the low cost of land transport.

According to various estimates, countries along the OBOR route will collectively need $5 trillion of investment in transport infrastructure until 2020. The massive investment will create over 70,000 new jobs and 12,000 engineering contracts until the completion of OBOR. OBOR countries will also receive significant amount in foreign direct investment (FDI). The benefit will rest not only with China, but also with countries along the OBOR project.
On the west of South Asia, China-Pakistan Economic Corridor (CPEC) is getting constructed which plans to connect Gwadar Port in Pakistan with Xinjiang province in western China. This corridor will be used for shipment destined for Africa and Middle East. China, in turn, is expected to facilitate its energy imports from Middle East through CPEC. The corridor is being built with an investment of approximately $50 billion. In the eastern part of South Asia, the planned Bangladesh, China, India and Myanmar Economic Corridor (BCIM) joins eastern part of India with OBOR, and navigates through Bangladesh and Myanmar.

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Even though the project is being led by China, it would be incomplete if India is not a part of complete OBOR. India is strategically located along both the land route as well as sea route of OBOR. From India’s point of view, it has huge infrastructure requirement internally and externally. OBOR brings opportunity for India to connect with East Asia, Central Asia and Eastern Europe. Despite India having its own concern regarding the sovereignty of the country, it would have to work in close cooperation with Pakistan and China in order to reap the full benefit of logistic facilities. Since 2013, till the end of 2016, China has entered into over 50 cooperation agreement and has issued joint statement along with the OBOR countries.

Going forward China would have to coordinate with over 100 countries and align its vision that can fructify into concrete measures. If the OBOR project takes concrete shape then it will change the dynamics of world trade in coming years.

The author is a corporate economist based in Mumbai.

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