The world’s economic centre of gravity is returning to Asia. With it, the historic trade routes of the Silk Road are emerging from centuries in the shadows, creating new opportunities for trade, economic growth, and development. Where caravans of donkeys, camels, and horses once carried goods and ideas between East and West, today it is trucks, trains, ships and the internet that are binding one end of the Eurasian landmass to the other. Since 2011, trains have transported Hewlett-Packard laptop computers and other electronics from factories in Chongqing to Duisburg, an inland port at the heart of Germany’s industrial Ruhr region. The 11,000-kilometre Yuxinou Railway carries BMW and Audi auto parts back in the opposite direction, through Poland, Belarus, Russia, and Kazakhstan, destined for assembly plants in China. The journey, at around 20 days, takes half as long as by container ship via Shanghai or Shenzhen, and costs one-third as much as air freight.
China’s announcement of the ‘One Belt, One Road’ (OBOR) initiative in 2013 gave a major boost to efforts to deepen trade, investment, and infrastructure ties across Eurasia. President Xi Jinping has outlined plans for a land-based ‘New Silk Road Economic Belt’ through Central and Western Asia, coupled with a ‘21st Century Maritime Silk Road’, reaching from Southeast Asia through the Indian Ocean to the African coast. The latter traces the path of the voyages of the fabled 14th century Chinese expeditionary fleet led by Admiral Zheng He.
Beijing has since led the establishment of the Asian Infrastructure Investment Bank and unveiled schemes like the $40 billion Silk Road Fund to invest in infrastructure development across continents. Trains now connect places in China with cities as far afield as Madrid, Warsaw, and Tehran. Roads are being constructed along key transport routes, such as the China Pakistan Economic Corridor.
New oil pipelines, power lines, high-speed rail, roads, fiber optic cables and shipping connections promise to link Chinese markets and producers to Southeast Asia, the Caspian and Black Seas, the Arab region, Africa and beyond.
Just like its historic predecessor, the new Silk Road is about much more than transport. By lowering the cost of trading with inland China, it promises to spur growth in the country’s interior, narrowing the growing income gap with coastal regions. Further afield, Chinese investment also has the potential to drive the economic rejuvenation of landlocked Central Asia.
Samarkand and Merv were once trading hubs renowned for their prosperity. Today, high trading costs have relegated Central Asia to the margins of international value chains, except as suppliers of raw materials like oil, gas, gold, and uranium. A highly networked Central Asia would not only lay the groundwork for increased value addition and better jobs for people from Armenia to Tajikistan, it would provide growing markets for companies from China and elsewhere. It would also serve as an example for comparable investments in Africa.
This week in Beijing, leaders from around the world will gather together with top international officials, business representatives, and academics, to improve coordination in driving the OBOR initiative forward. Its outcomes will include a joint statement of principles and cooperative infrastructure projects that the International Trade Centre will be part of.
Sharing the gains from growth
To maximize OBOR’s contribution to growth and poverty reduction, and to achieving the United Nations Sustainable Development Goals, one additional ingredient will be essential: ensuring that small and medium enterprises (SMEs) can take advantage of the new trade opportunities. Because they account for the vast majority of businesses and jobs, SMEs are central to ensuring that the gains from trade are broadly shared across society, including by women and youth. Competitive, internationally integrated SMEs can translate into inclusive growth across the new Silk Road.
Research by the International Trade Centre points to how governments can act at home and with their trading partners to enable SMEs to tap into international production networks. OBOR’s ‘hard’ infrastructure must be accompanied by investments in ‘soft’ infrastructure: policies and institutions to support business and trade.
For instance, governments can work together to lower non-tariff barriers by simplifying, harmonizing or recognizing each other’s technical standards and regulations for goods and services. They can swiftly implement the World Trade Organization’s agreement on trade facilitation to cut border delays and costs. At home, countries can act to strengthen the institutions that help businesses comply with health and safety regulations, while expanding access to finance for SMEs. They can create open and competitive services markets, not least for the logistics sectors that are essential for e-commerce to function smoothly.
China and its partners this week have an opportunity to send the world a powerful signal about the importance of open markets for growth and development. They also have a chance to lay the foundations for SMEs to benefit from the new trade highways in Asia, Africa, and beyond.