19th November 2019
Allport Cargo Services has been following the roll-out of China’s Belt and Road Initiative (BRI) closely. The ambitious programme aims to connect Asia with Africa and Europe via road, train and maritime networks along six corridors. With a constantly expanding reach, it currently covers 70 countries, 65% of world’s population and incorporates a third of the world’s GDP. What are the origins of the BRI, what are its challenges and what implications are there for global trade and logistics?
The BRI is China’s primary strategy of global engagement and aims to improve regional integration, increase trade and stimulate economic growth. Trade and logistics throughout these routes are currently a challenge due to lack of connectivity and poor infrastructure; an issue that can impact supply chain operations. The five major priorities of the BRI are policy coordination, infrastructure connectivity, unimpeded trade, financial integration and connecting people. The construction projects that are planned are on an incomparable scale and countries along the route have pledged support.
A new ‘Silk Road’
Named by China’s President, Xi Jinping, the Belt and Road Initiative, announced in 2013, is central to his ‘Chinese Dream’ and signature foreign policy. The name takes its inspiration from the concept of the Silk Road – a network of trade routes established when the Han Dynasty opened trade with the West in 130BC. The Silk Road routes connected China to the Mediterranean and Eurasia and existed until 1453AD when the Ottoman Empire boycotted trade with China and closed them. Through these routes paper making, printing, gunpowder, the compass and silk spinning were introduced to the West. This new ‘silk road’ of trade routes is broader in both geographic and economic scope.
Issues and debate
The enormity of this undertaking can’t be underestimated. As the most expensive infrastructure project in history, it’s projected to involve US $1 trillion in investments for infrastructure development at ports, roads, railways and airports, as well as power plants and telecommunications networks.
China has an excess of capacity and resources. It also produces more steel than it needs, so the BRI aims to move this capacity to new markets, improving standards of living and connecting remote rural areas along the way. By improving the infrastructure, China hopes to kick-start industrialisation in poorer areas.
Indonesia is receiving belt and road investments. In the region where tea plantations fill the landscape and people still fish with bamboo poles, the commuter trains are old and slow, and the roads make it expensive for logistics. Currently the road from Jakarta to Bandung is a 90-mile trip that takes five hours. To address this, a tunnel for a high-speed train is being built in a $6bn project that will be the fastest train in Southern Asia; able to travel at 215 mph. The new railroad will reduce that same journey to 45 minutes. China is working with Indonesian companies to collaborate and lift people out of poverty. Skilled Chinese workers are training unskilled Indonesian people, creating new industry, employment and production.
However, the ‘one belt, one road’ strategy is not without its critics. There are reports that China has secured $340bn in construction contracts and that local contractors in partner countries are losing out. There are also concerns it could push vulnerable countries – such as Mongolia, Laos and Pakistan – into a debt crisis.
In Malaysia, the Prime Minister Mahathir Mohammed, was re-elected at the age of 92. At the time, he called belt and road projects predatory, with all parts, materials and resources coming from China and payments being made in China. Mohammed renegotiated with China to create a new rail link, following a 30% reduction in the construction price, with increased employment for Malaysian workers.
Although investment is being made into more environmentally friendly transport networks like rail (the ‘belt’), the WWF has warned that planned corridors overlap 265 threatened species, which will have huge environmental consequences especially in poorer countries where there are weaker environmental regulations.
Blue Dot Network – a rival to BRI
Having accused China of ‘drowning partners in a sea of debt’, the US recently backed an infrastructure scheme to rival the BRI. The ‘Blue Dot Network’ aims to capitalise on unease in Asia about risks of the BRI and has unveiled a certification for international standards for big infrastructure projects. It has pledged US $17 billion to projects under the scheme.
The announcement came in the same week that there were positive signs the US-China trade war, which has stifled economic growth, is coming to an end as the world’s two largest economies agreed to roll back tariffs in phases. With a trade deficit of over $300 billion, the US wants China to buy more of its goods and the trade war resulted in imposed tariffs on billions of dollars goods, to which China retaliated with further tariff increases.
Implications for logistics and the supply chain
There’s no doubt that this has big implications for global trade. Strong logistics means products can reach more consumers, with increased certainty and speed, and with more reliable transport and infrastructure systems, more companies will invest in developing countries. The BRI will provide a boost to global connectivity through the export of infrastructure development capabilities.
ACS is following progress carefully and looking for ways that we can capitalise on the growing infrastructure, creating increasingly flexible and scalable routes from and to market across the region. The countries of Asean, Malaysia, Thailand and Indonesia have joint belt and road deals with China, mainly in railway construction. This will link up Southeast Asia and the Indian Sub-Continent, which, along with China, are key sourcing regions for the West. South East Asia is important to the advancement of the initiative, which is filling gaps in infrastructure investment that has hampered development. A recent report found gaps in trade and transport-related infrastructure in BRI economies. Improving the transport networks will help China, which has good logistics performance internally, but where the countries surrounding it have poor logistics. Improvements will also mean the creation of economic zones, with more logistics parks and bonded warehousing.