Wednesday, 12 July 2017

Opening up new trade corridors

Australia will benefit from China’s Belt and Road Initiative, which will connect and stimulate economic activity across more than 65 countries.

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The Belt and Road Initiative (BRI) is a long-term, geographically diverse strategy that will connect cities in more than 65 countries by land and sea along two primary trade routes.

China is Australia’s largest trading partner, with two-way trade worth AUD150 billion in 2015-16. Australia’s Trade Minister, Steven Ciobo, says the BRI should increase the two countries’ economic cooperation markedly.2 “These projects could be worth hundreds of billions of dollars over the next decade,” he says. “Australian companies have significant expertise and experience in infrastructure construction … and private sector involvement in such projects will help create Australian jobs.”

Belt and Road trade routes

The Silk Road Economic Belt, will create three corridors, including:

  • The New Eurasia Land Bridge Economic Corridor, linking Jiangsu province through Xinjiang to Rotterdam in The Netherlands
  • The China-Mongolia-Russia Economic Corridor, connecting China to Russia via Inner Mongolia
  • The China-Central Asia-West Asia Economic Corridor, running from Xinjiang to the Arabian Peninsula, Turkey and Iran.

The 21st Century Maritime Silk Road, will create the other three corridors:

  • The China-Indochina Peninsula Economic Corridor, joining the Pearl River Delta with Southeast Asian countries
  • The China-Pakistan Economic Corridor, connecting Kashgar in Xinjiang with the deep-sea port of Gwadar in Pakistan
  • The Bangladesh-China-India-Myanmar Economic Corridor, bridging China and South Asia.

According to Peter Wong, Deputy Chairman and Chief Executive for the Hong Kong and Shanghai Banking Corporation Limited, the BRI is more than just a conceptual framework. Instead, it is a well-planned, well-considered scheme with long-term goals. China estimates that opening corridors and developing digital economies will see annual trade along the Belt and Road exceed USD2.5 trillion3 in the next decade, up from about USD1 trillion in 2015.

The Bangladesh-China-India-Myanmar Economic Corridor, for example, will help reduce travel time to the 21 districts in southern Bangladesh3. Historically, travelling just 100 kilometres south from the capital, Dhaka, has taken as long as 14 or 15 hours. Construction of the Padma Bridge, the largest bridge China has built overseas, to connect Dhaka with the south began in August 2016. This kind of development along the Belt and Road will increase productivity and efficiency in the supply chain, making trade easier between Asia, Europe and Africa.

Scope to help Australian business

The Australia-China Belt & Road Initiative (ACBRI) is an Australian Government-supported policy institute established to help Australian businesses understand Belt and Road opportunities. The executive director of the ACBRI, Jean Dong, says financial institutions including superannuation funds could also identify investment opportunities in the BRI as many projects would involve some equity alongside core debt funding.4

“Australia’s financial services, professional and management consulting, and technical, trade­-related businesses offer both excellent reputations worldwide and embedded participation in Southeast Asia, which could play an important role in implementing mutually acceptable Belt and Road projects,” she says.5

China’s initiative has already created about 160,000 jobs, mainly on traditional infrastructure projects in BRI countries. Plus, more than 50 industrial cooperation zones are being built along the routes, which will lead to additional opportunities in manufacturing, finance, professional services and more.

Ms Dong says, however, that “because the BRI build is big, and the risk is high”, it would be better for small and medium-sized Australian companies to become involved via subcontracting as parts of the supply chains rather than at the front line.2

The impact on the rising middle classes

With access to more and better-paying jobs, nearly two-thirds of the world’s growing middle classes are expected to live in Asia and along the Belt and Road in the coming decades. As incomes rise and discretionary spending increases, the demand for low-value manufactured products and higher-end goods and services will go up.

Consumers will also have access to better technology and new brands. For example, by improving land and maritime routes, German cars, computers and chemicals will make the 8,500-kilometre journey to China’s eastern seaboard by direct rail – faster than sea and cheaper than air. Similarly, fruit producers in the Philippines will be able to ship to a Chinese port and transport goods by rail into central Asia in a far shorter time than previously.

Advice for Australia

Ms Dong says Australian businesses can also benefit from the BRI by:

  • using the framework of the initiative to attract Chinese partners in major Australian-based projects (which may also involve commonwealth or state government interaction or compliance with federal or state regulations)
  • using the BRI framework to partner with Chinese enterprises in projects in China and other Belt and Road countries.

“Australian industries and professions need to further capitalise on a strong trading relationship with China,” she says. “This requires not only to reinforce the strengths of traditional trading sectors, but also to use the scope of the initiative to identify other industry sectors where Australian businesses can bring comparative or competitive advantage.”

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