Monday, July 06, 2020

China’s Belt and Road initiative ripe with possibilities

Feb 02. 2016
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FOLLOWING THE launch of its ambitious Silk Road Economic Belt and 21st Century Maritime Silk Road (Belt and Road) initiative in a big way, China followed it up with last month’s official inauguration of the Asian Infrastructure Investment Bank (AIIB), whi
As one of the 60-plus countries who are shareholders of AIIB, Thailand is supporting the new development bank along with the long-established Asian Development Bank (ADB), as both entities are expected to play a complementary role in responding to the massive need for infrastructure investment in the region.
The Bt550-billion Thai-Chinese medium-speed railroad project, whose contract is being finalised by both countries, is a case in point as the planned route will link Thailand with Laos and southern China.
According to the May 2015 issue of Fung Business Intelligence Centre, the so-called Belt and Road initiative proposed by China will have a wide range of business and economic implications for infrastructure construction and internationalisation of yuan currency as well as trade, logistics, distribution and retail development in various countries along the routes of the Belt and Road initiative.
In terms of infrastructure construction, it will start with hardware, especially in the early stage of this initiative. Projects supported by the AIIB and the Silk Road Fund will benefit construction machinery companies, building materials makers, as well as infrastructure operators.
According to the report, priority will be given to projects that will link up unconnected road sections and remove transport bottlenecks. For example, one of the plans is to build a Eurasian high-speed transport network linking Beijing and Moscow. In addition, connectivity within other parts of Asia will be further improved.
The Belt and Road initiative will further internationalise the yuan, which is now one of the reserve currencies of the International Monetary Fund’s SDR (special drawing rights) facility. The report suggests that financial integration is crucial in underpinning the Belt and Road initiative while the process will create more demand for financial professional services.
Secondly, fundraising for large-scale infrastructure projects will create new opportunities for development of bond markets in Asia while China will also encourage more companies to issue yuan bonds in China and overseas to finance these projects. This will boost demand for the yuan.
In addition, trade and other economic activities along the routes of Belt and Road initiative will increase the demand for settlement in yuan to reduce exchange risks.
China also plans to negotiate with many countries along the Belt and Road routes to set up more free trade areas while cooperating with them to further reduce the non-tariff barriers and make technical trade measures more transparent.
Cross-border e-commerce and other innovations will be promoted to make products more affordable to consumers along with the routes of Belt and Road in initiative.
This will benefit the logistics industry in terms of delivering products to customers along these routes.
Based on a study by the Organisation for Economic Cooperation and Development, middle-class consumers around the world are forecast to increase from 1.8 billion in 2009 to 3.2 billion by 2020 and to 4.9 billion by 2030. About 85 per cent of this growth will come from Asia and by 2030 Asia will account for 66 per cent of the global total number of middle class. This will support the longer-term objective of the Belt and Road initiative in uplifting Asia’s economic well-being.

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