Abstract
This chapter offers an ‘economic perspective’ to the Belt and Road Initiative (BRI). It documents the economic relevance of BRI. It reveals that BRI is multi-faceted in terms of China’s foreign economic cooperation, and two salient facts can be highlighted. First, BRI offers market opportunities but with significant risks, administrative trade burden, and technological impediment to connectivity. Second, the China-BRI economic cooperation post-BRI has increased in absolute terms, but only relatively for exports and contracted infrastructure projects. This chapter outlines the economic drivers, economic impact, and politico-economic challenges of BRI. A few implications are drawn in light of these aspects.
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Notes
- 1.
Note that the GCI scale ranges from 1 to 7, with 1 being the absolute worst and 7, the absolute best. A higher value implies a high score in the said category and indicates its distance to the best. Any comparison would provide a ‘relative’ sense of how well a country or group of countries are doing.
- 2.
The Marshall Plan was a US initiative of ‘economic assistance’ to Western European economies to rebuild post-World War II.
- 3.
FDI flows contracting in 2016 and 2017 is the result of the tightening of regulation surrounding capital outflows, somewhat affecting labour flows as well in 2016.
- 4.
The investments channelled via British Virgin Islands and Hong Kong (China) normally have ultimate destination in Asia, Europe, or the United States. These have been termed as ‘pass-through locales’ or ‘conduit jurisdictions’ (Shambaugh 2013, p. 180).
- 5.
The implication is that the database focuses on ‘large’ investments and eschews smaller investments that can be numerous. As such, there may be a bias towards sectors where investments are few in numbers but large in value. Unfortunately, the China Trade and External Economic Statistical Yearbook and the Statistical Bulletin of China’s Outward Foreign Direct Investment, which are our preferred sources for the statistical overview, do not have a sectoral decomposition by country.
- 6.
Though not always, it would seem logical for companies to be willing to conduct their trade in RMB, as they ship more and more goods to and from China (Kroeber, p. 145).
- 7.
As a fascinating follow-up to this ‘story’ is how after the United States cancelled the TPP in 2017 it left a vacuum, which one could interpret as likely to further fuel the salience of BRI for the region; considering the retrenchment occurring through isolationist and protectionist positions and policies taken by the United States and the United Kingdom (Gao 2018).
- 8.
The difference-in-difference method enables the researcher to separate countries (unit of observation here) into control and treatment groups and thus allows one to make ‘causal inference’. One issue with studying economic ‘impact’ is establishing and inferring such casual effect. This is the issue that plagues most of the extant BRI ‘impact’ studies that make broad sweeping generalisation and claims about ‘impact’, when they are just gauging correlation at best. This also goes back to our motivation of focusing on ‘economic’ works and the ‘economics of BRI’ in this chapter.
- 9.
Yu (2018) highlights how the decision-making process about BRI within China is intricate and complex, where it can involve many stakeholders.
- 10.
There are three types of explanations behind megaprojects’ cost overruns and benefits shortfall: technical, psychological, and politico-economic. The first relates to inadequate data for computing things through; the second, to optimism bias; and the third, to strategic misrepresentation (Flyvbjerg 2017). It would not be surprising that a grand project like BRI could be affected by all three.
- 11.
Baker Mackenzie (2017) lists eight types of risks that projects related to BRI could face: project selection, project financing, project life cycle, legal and regulatory risk, political and security, M&A due diligence, financial exposure, and labour and corporate social responsibility.
- 12.
An example of this risk was the inability of Sri Lanka to service the debt made by China in building the Hambantota Port, which later turned into a debt-to-equity swap (Hillman 2018).
- 13.
This can also be seen as permeating push and pull factors, when thinking of drivers.
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Gunessee, S., Liu, J. (2020). The Economics of the Belt and Road Initiative. In: Chan, H.K., Chan, F.K.S., O'Brien, D. (eds) International Flows in the Belt and Road Initiative Context. Palgrave Series in Asia and Pacific Studies. Palgrave Macmillan, Singapore. https://doi.org/10.1007/978-981-15-3133-0_2
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