24 June 2016
Anticipating the World’s Third-Largest Trade Axis
By Zhang Monan (Researcher at the China Center for International Economic Exchanges)
The Belt and Road Initiative was proposed against the background of deep global economic and trade restructuring. Regional economic integration continues to deepen, world trade and investment pattern is undergoing profound changes and countries around the world are at a crucial stage of development transition. The world needs further stimulating development potential and needs a cooperative development momentum.
The global trade system is undergoing its biggest restructuring since The Uruguay Round in 1994 and since 2008. In terms of today’s world economic and trade pattern, two trade centers with strong regional features exist in the world market: one is the Atlantic trade center and the other is the Pacific trade center. The world third-largest trade center is expected to form based on China’s One Belt One Road Initiative within the next decade.
Since the 21st century, the most prominent feature of the world economic development is that most developing countries and the emerging economies including Asia, Latin America and Africa have a strong integration on the whole. In recent years, the regional economic growth was particularly noticeable in countries along the One Belt One Road, mainly consisting of the developing countries. The One Belt One Road region covers about 4.6 billion population (exceeding the world population 60%) and its total GDP reaches $20 trillion (about one-third of the total world GDP). From 1990 to 2013, the average annual growth of the total GDP in the One Belt One Road region arrived at 5.1%, two times the world economic growth over the same period. During the slow world economic growth period from 2010 to 2013, the average annual growth of the total GDP in the One Belt One Road region was 4.7%, higher than the world average annual growth of 2.4%. During this period, the One Belt One Road region’s contribution to the world economic growth hit 41.2%.
Besides, according to the World Bank data, during the period between 2010 and 2013 after the world financial crisis, the average annual growth of the One Belt One Road region’s foreign trade and the net foreign capital inflow reached 13.9% and 6.2% respectively, 4.6% and 3.4% higher than the world average annual level. The One Belt One Road region is forming the third-largest trade center in the world stretching from Asia to Europe, after the Atlantic trade center and the Pacific trade center.
Of course, the economic development of the One Belt One Road countries also faces great challenges and growth weakness, which is precisely the driving force behind a new round of cooperation. In fact, the infrastructure of the One Belt One Road region still falls behinds its economic growth and is bellow the international standard both in quality and quantity. The backward infrastructure of both hardware and software has become the biggest barrier to the intraregional economic and trade cooperation. For example, the new Eurasian Railway runs through many countries along different railway gauges and it takes time and efforts to change the gauges. Port cooperation mechanisms among these countries have not formed yet, hampering transport and creating a high logistics cost. The port facilities of some countries are backward, increasing the difficulty of the circulation of goods and services.
There is a huge gap in infrastructure investment. Asia Development Bank predicts that within the next 10 years, Asia infrastructure investment will need $8.22 trillion, i.e. $820 billion more infrastructure capital every year. However, in 2013, only three big economies of China, Japan and South Korea had about $8 trillion total GDP in Asia, so the infrastructure investment gap was large enough. According to the World Bank statistics, the capital formation of the lower-and-middle-income countries only accounts for about one-fourth of the GDP and the capital invested in infrastructure was only about 20%, around $400 billion. So a huge gap exists in financing.
The ratio of intra-regional trade is relatively low. Compared with EU, NAFTA and ASEAN which have made substantial progress in regional integration, the intra-regional trade among the Belt and Road related countries has a lower ratio in the total foreign trade. The cooperation of the regional countries is still in the early stage. But the future cooperation prospect foretells a huge development potential. One Belt One Road cooperation framework can be seen as a new Trade Coordination Strategy. Since the rapid development of economic globalization at the beginning of this century and especially since the global financial crisis, the world economic pattern has turned from the Center-External one-way system to a two-way system and coordinative trade growth. This will surely bring new adjustments of the trade growth mode, such as integration and interaction of trade and direct investment and the industrial shift, transition from inter-industry trade to intra-industry trade, readjustment of trade structure and trade terms, promotion of the coordinative development of trade and investment through institutional arrangements.
At present, the global intermediate goods trade plays a decisive role in the global trade growth. Since 1995, the proportion of the global intermediate product export in the total global export has been increasing by more than 50%, reaching its highest proportion (69.32%) in 2013. I suggest building a “global value chain partnership” to encourage more countries to integrate into the global value chain network system.
In fact, the One Belt One Road Vision and Action Plan announced by the Chinese government points out that the facilitation degree of investment and trade has further increased and a high standard network of free trade areas has basically formed.” The action plan demands that One Belt One Road should be based on a creative trade mode, including the expansion of cross-border e-commerce and service trade. The action plan also includes aims such as “accelerate the investment facilitation, eliminate investment barrier, reinforce the bilateral investment protection agreement”, green trade and global value chain trade.
The One Belt One Road cooperative framework can speed up implementing “digital trade agreement”. Through new policies like the lowest customs threshold, intermediary responsibility, privacy, intellectual property rights, consumer protection, electronic signature and settlement of issues, the framework can promote interconnection and inter-flow in information, trade and industry so as to bring a new boom via the new round of trade globalization.
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