4. The “Belt and Road” Initiative and Economic Integration

After the Initiative was first suggested by China President Xi Jinping in 2013, only the Chinese name of the Initiative was given, and it was later, for convenience, called “One Belt and One Road”, in Chinese. For nearly 2 years, no official English names for the components had been given. Foreign analysts used several ways to identify the Initiative, such as “one belt, one road”, “one belt and one road”, “silk road belt and maritime silk road”, “OBAOR”, “OBOR”, “BAR”, “B&R”, and so on. Eventually, in September 2015, the Chinese government came out with official English names: the full name being “the Silk Road Economic Belt and the 21st-Century Maritime Silk Road” Initiative, the short name being “the Belt and Road” Initiative, or abbreviated as the “B&R” Initiative. See http://​n.​cztv.​com/​news2014/​1082149.​html.

It should be noted that the Land Silk Road means that most parts of the road are on land, but having part of it on water has not been ruled out. Similarly, the Sea Silk Road has most parts of it on sea, but part of it can be on land.

The list of countries included in the Initiative may be revised as the projects are being developed.

The total area of a country includes the land and water areas.

http://​hk.​crntt.​com/​crn-webapp/​doc/​docDetailCNML.​jsp?​coluid=​7&​kindid=​0&​docid=​104102593.

Ironically, China was not a very open economy, but there was a big demand in Europe for Chinese commodities such as silk. The silk road was developed by those traders who brought commodities from China to Europe.

In the field of foreign trade, integration of economies usually refers to trade liberalization, i.e. the reduction or removal of trade barriers, while the costs of transport are usually held constant. The B&R Initiative, on the other hand, focuses more on the improvement of existing transport facilities and the construction of new facilities, while trade barriers between countries are assumed to be constant.

The Land Silk Road also includes streamlining customs inspection processes as commodities go from one country to a neighbouring one. The purpose is move commodities faster across countries.

The maritime component of the Initiative would also include streamlining the customs inspection process since commodities would have to move from one country to another.

See “High-speed rail in China” in Wikipedia for more details of the HSR in China, https://​en.​wikipedia.​org/​wiki/​High-speed_​rail_​in_​China.

In addition to economic impacts, the Initiative could have other impacts such as political, cultural, social and legal. In this chapter, we focus only on the economic impacts.

The reader should keep in mind that the estimate made here is an illustration only.

Take two standard trade textbooks, Krugman et al. (2015) and Appleyard and Field (2014) as an example: both have very little discussion about the roles of transport costs in foreign trade.

For an explanation of the Gravity Model, see, for example, Feenstra (2004).

In 2015, the USA imported much more from China than from Canada, even though the USA exported more to Canada than to China.

Since apparently no empirical studies of this kind have been published, we are not able to present any estimates of how trade between China and other countries may be affected.

More work will be needed to apply the analysis here to estimate the economic impacts of the Initiative. For more details of the theoretical framework, please see Wong (2015).

This is the industry coded 87 in the HS system, and is labelled “Vehicles other than railway or tramway rolling-stock, and parts and accessories thereof”.

Statistical trade data presented in this paper are from the United Nations Commodity Trade Statistics Database, unless stated otherwise.

For more details about the Viner’s arguments, see, for example, Appleyard and Field (2014).

Later economists argued that there are some trade-diverting cases in which a local economy can benefit.

Since the China-ASEAN FTA was due to China’s aggressive action, the FTA can be called an aggressive FTA. The Japan FTA and South Korea FTA, which were formed with the main purpose of levelling the playing field, can be called defensive FTAs.

Part of the network has started or is still under negotiation with various countries. For example, it was reported that the work on the route from Kunming to Vientiane has started. As of March 2016, it was indicated that Thailand and China had signed a contract to build part of the railway from Vientiane to Bangkok. The work has not yet started and the two countries are still working on the financing details.

This is not easy as North Korea so far had not shown much interest in the Initiative.

In Eq. (4.1), ∣E _j − M _j ∣ is the absolute number (magnitude) of the difference between export and import volumes of the industry, while E _j + M _j is the total trade volume.

We are using Germany as an example to examine the possible changes in foreign trade China will expect to experience. Similar work can be extended to examine China’s trade with other trading partners.

For more details about this approach and other approaches, see Wong (1995).

The simplest example (cause) of economies of scale is the existence of a fixed cost.

The reason is that if two firms are producing an identical product, then they will find that they can improve the competitiveness of their product by producing a larger quantity of output. Eventually, the one that can successfully produce more will be able to drive the other firm out of the market, leaving only one firm in the market.

As explained, the major part of the needed external funds will probably come from regional and international organizations such as the Asian Infrastructure Investment Bank, the World Bank and the Asian Development Bank.

For a survey on the theory of endogenous growth and a discussion of various growth factors, see Long and Wong (1997).

While it is generally believed that the Initiative will cause an increase in national income, how this will affect population growth is usually ambiguous.