NZ companies benefit from One Belt One Road Initiative

BELT AND ROAD AND THE NZ-CHINA CONNECTIVITY AGENDA
New Zealand and Chinese One Belt One Road Initiative

What is One Belt One Road Initiative (OBOR)?

Dates back two thousand years to a time when China’s Han Dynasty traded with Asia, the Middle East and Europe through a fabled Silk Road of trails and caravan routes.

Today the Chinese want to rediscover that heritage with ‘One Belt, One Road’, an incredibly ambitious plan for a new era of trade with the countries along the transport routes that stretch from China through Central Asia into Europe. In 2013 Chinese President Xi Jinping unveiled an ambitious economic and foreign policy – the “Silk Road Economic Belt” and the “21st Century Maritime Silk Road”.

New-Silk-Road
New-Silk-Road

China wants to revive the network of silk-trade routes across ocean and land of centuries past. It’s instigating an infrastructure-building boom across Central Asia up to Europe to boost trade and improve transport logistics. The land-based projects are the belt. Various economic corridors are on the cards too, including with Pakistan, Mongolia and Bangladesh.

The maritime route will connect up China’s southern provinces to south-east Asia and the east coast of Africa with ports and railways.

According to the One Belt One Road 2017 Summit, OBOR has $USD 1.3 trillion ($NZD 1.8 trillion) worth of projects already initiated. Chinese President Xi announced an extra $US124 billion at the summit. One Belt One Road is more than seven times larger than America’s Marshall Plan to rebuild Europe after the Second World War. There are 68 Countries involved.

Why China advocate OBOR?

It’s about the standard setting. China wants to shift from lower-level manufacturing to higher-end industrial goods. China does not export their ideology and political values to other countries. It believes emerging markets will be more willing to accept Chinese-made high-speed rail, energy generators and telecommunications equipment than developed countries.

Container
Container

China needs to channel “excess capacity” somewhere. China spent intensively in its infrastructure improvement during last 40 years. However, Chinese government invested more on infrastructure after the economic crisis after 2008. This caused the infrastructure industry overcapacity to produce needed for infrastructure.  But Chinese neighbouring countries need to improve their infrastructure, so Chinese companies start to contract with overseas projects.

China is trying to close the inequality gap between inland western provinces and its wealthy eastern seaboard. Chinese government trial its Open Door policy in coastal eastern cities, but its widened the gap of development between western provinces and eastern provinces.

The western provinces neighbouring with central Asia and bridging to Europe, which has important Geo-political advantages. OBOR could make Chinese products that made from eastern province reach Central Asia and Europe faster and cheaper than before. It can also bring more business opportunities to western provinces and eliminate the numbers of poverty.

The US dollar-dominated global financial system caused many problems in China as most Chinese foreign exchange reserves are in US dollar.  China wants to reach more countries to trade with Chinese currency to reduce the losses from the depreciation of US dollar. Beijing wants to make the Renminbi the main trade and investment currency in countries involved.

Pros and Cons?

Increased trade and faster transit of goods. Both UK prime minister Theresa May and French president Emmanuel Macron came to China and signed the business contracts to gain mutual benefits. It could boost Economic growth and international cooperation. Against the Trump trade protectionism, OBOR could offer more opportunities for global cooperation.

It will fill gaps in infrastructure projects for developing countries and good for peacebuilding. The Chinese government have a slogan “if you want to be rich, you have to build the road”. It was proved to be right in the about 40 years economic reform.

OBOR could improve the infrastructure of developing countries and open up their trade routine with each other. Afghanistan and Pakistan see it as a “path out of poverty”. The development of local areas will eliminate the poverty and enhance the peace.

However, there are many challenges for such a big project with so many countries. Two out of three countries involved have a sovereign credit rating below investment grade. Some countries are unstable, which poses security risks to Chinese companies and workers.

Some Chinese bankers are worried about the risks of investing, such as the feasibility of some projects and political instability. There are concerns poor countries could be left laden with massive debts.

Why should New Zealand care about OBOR?

New Zealand is unlikely to make much progress in the talks while China is focused on its OBOR strategy to develop economic cooperation with countries along the historic land Silk Road from eastern China to western Europe, and the maritime Silk Road via the sea.

While the much-touted but now stalled Trans-Pacific Partnership involved 12 countries, 38% of global GDP, 40% of global trade and 11% of the world’s population, OBOR includes at least 65 countries, 38% of global GDP and 64% of the world’s population.

New Zealand should actively seek to join OBOR by gaining recognition for projects involving Chinese infrastructure investment and seeking to become a trade hub for the Pacific route of OBOR.

The Ministry of Foreign Affairs and Trade says China’s belt and road initiative is a significant, ambitious project that will have major economic, commercial and financial implications for China and the countries within its scope. “A more open and efficient international trading environment is certainly in New Zealand’s interests,” an MFAT spokesman said.

Eight of New Zealand’s top 20 export markets are located along the OBOR and 10 of New Zealand’s top 20 export markets have signed up for OBOR projects.

Improved infrastructure is likely to mean goods will be delivered to market faster and more cheaply, which could improve New Zealand’s geographic remoteness. However, it could also result in some trade displacement as competition increases with countries along the OBOR route. Australia gained its trade agreement at about the same time it signed up to the Asian Infrastructure Investment Bank, of which New Zealand is also a member.

The greater benefit for NZ is likely to be in the “soft infrastructure” rather than the “hard infrastructure”the way goods, services, capital and people move along the belt and road rather than the road itself.

New Zealand has wide policy expertise and services to offer in this area which matches a number of the policy areas China has highlighted for Belt and Road including policy coordination, investment and trade facilitation, and cultural and social exchange.

New Zealand can contribute to OBOR, include trade facilitation, supply chain connectivity, innovation and trade policy and regulatory co-operation.

 

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