Contemporary Issues in Global Economics

Workshop Case #3: International Trade

Chinas new Silk Road to change global trade1

While China will always be driven by its own national interests, its global
initiatives has the potential to spur global economic growth, writes Shannon
Ebrahim.
China is ready to lead. That was the main take-away from Chinas much-
publicised National Peoples Congress (NPC) this week, which reveals the
thinking of the countrys political leadership. While Chinese Foreign Minister
Wang Yi was at great pains to emphasise the value of collaboration with the US, as
opposed to confrontation, his seminal speech made it clear that China is ready to
play a global leadership role.
While China will always be driven by its own national interests, its global
initiatives such as the One Belt One Road (OBOR) has the potential to spur global
economic growth and create development dividends for all associated countries.
The One Belt One Road initiative, which was launched in 2013, has created
a vehicle for a new global economic and political order, with China as the driver of
the regional and global economy.
Essentially, OBOR is the centrepiece of Chinas economic diplomacy,
connecting Asia, Europe and Africa along five different routes. The initiative
incorporates 60 countries along a new Silk Road and has started to gain traction as
Chinas most important strategic initiative.
What China has to gain from the initiative is to explore new markets and
investment options at a time when many production sectors in China have been
facing over-capacity since 2006. Linking China's western less-developed border
regions with Asia and Europe creates new opportunities for development and
economic integration.
By developing an economic corridor from Beijing to Western Europe, China
has created a cross-continental mercantile strategy incorporating 100 countries and
international organisations. Over the past three years, 40 co-operation agreements
have been signed in 10 key industries and the initiative has created $3.1 trillion
(R40.8 trillion) in trade.
A rationale in this global strategy on Chinas part would be to reduce its
reliance on the US in terms of trade, and penetrate new markets. With the trend
towards protectionism of the Trump administration, such a strategy to deepen and
broaden alternative trade relations is a matter of survival.
The strategy is already bearing fruit as Chinese exports to OBOR countries
now exceed those to the US and EU - Chinas traditionally top two export
destinations.
For the countries it partners with, OBOR will improve global trade and
increase commodity demand at a time of rising uncertainty, which will boost
global growth. The irony is that China - which is the country of socialism with
Chinese characteristics - is now the driver of globalisation and multilateralism,

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https://www.iol.co.za/news/opinion/chinas-new-silk-road-to-change-global-trade-8152926
while the US recoils and becomes inward-looking. From the perspective of Chinas
President Xi Jinping, the US approach is problematic, and he has equated it with
locking oneself in a dark room.
An important trend that will accompany Chinas opening up is the
internationalisation of the Renminbi. China has already expanded its local currency
swop programmes to 21 countries, and set up settlement banks in eight countries. It
is also using the Asia Infrastructure Investment Bank, the New Development Bank
and the Silk Road Fund to internationalise its currency. This new trend will change
global trade and reduce reliance on the US dollar.
The One Belt One Road initiative has a heavy focus on transport
connectivity across the economic corridor, with commitments to build railways,
highways and strategic port facilities. The China-Pakistan Economic Corridor
(CPEC), is a prime example of a combination of transport and energy projects
under the OBOR initiative. CPEC includes the development of a major deep sea
port at Gwadar in Pakistan, offering China direct access to the Indian Ocean, for
which it has committed funding of $46 billion.
If China ships more of its goods through Gwadar port as opposed to the
South China Sea, it will reduce transport times to Europe, and some of the worlds
fastest-growing markets in Africa and the Middle East. To access the Gwadar port,
China is also investing billions of dollars in upgrading and expanding the
Karakorum highway through the mountains on the border between China and
Pakistan. By developing this route, China is creating a much shorter route to
western markets.
A key focus of Chinas NPC this week was to discuss the Belt and Road
Summit due to take place in China in May. China is expecting the leaders of 20
countries to attend. Not only will it examine funding gaps and opportunities, but
also the infrastructure network, and levels of trade and investment. They will also
assess the impact of the China Railway express trains to Europe, which are now
operational.
We are witnessing the rise of a new global leader whose strategies have the
potential to boost growth around the world.
 Questions

I. Are the fallowing statements True or False?

1. China is becoming leading player in global trade.

True / False

2. OBOR has spurred global economic growth and created development

dividends for all associated countries.
True / False

3. Chinese global project all the continents of the world.

True / False

4. The main benefit of OBOR to Chinese economy is the opportunity to

utilize over-capacity in western less-developed regions of China.
True / False

II. Choose the best answer.

5. How many countries are engaged in OBOR?

a) About 40
b) About 60
c) About 100
d) About 160

6. How much trade was created due to OBOR so far?

a) 40 billion USD
b) 40.8 trillion USD
c) 46 billion USD
d) 3.1 trillion USD

7. Who is the main trading partner of China?

a) US
b) EU
c) Countries across OBOR
d) Not given

8. Choose the correct opinion according to the text.

a) China is more powerful than EU and US
b) Chinese currency is replacing USD
c) OBOR initiative creates more opportunity to trade
d) None of them