The economic growth and development effects of China's One Belt, One Road Initiative

• Date: 01 September 2018
• Author: Peter Enderwick
• DOI: http://doi.org/10.1002/jsc.2229
• Published date: 01 September 2018

RESEARCH ARTICLE

The economic growth and development effects of China's One

Belt, One Road Initiative

Peter Enderwick

AUT University, Auckland, New Zealand

Correspondence

Peter Enderwick, AUT University, Private Bag

92006, Auckland 1142, New Zealand.

Email: peter.enderwick@aut.ac.nz

Abstract

China's One Belt One Road (OBOR) initiative should increase the efficiency of resource move-

ments and trade, integrate previously marginalized regions and economies, and strengthen

China's economic and strategic position. The article evaluates the likely economic impact on

trade and growth of China's OBOR initiative. It examines approaches based on historical experi-

ence, comparable program, and simulations. It finds that its benefits will not be shared equally,

and unsurprisingly, China is the primary beneficiary. The complexity, embryonic stage, and sig-

nificant challenges surrounding the initiative mean that any evaluation is highly tentative.

1|INTRODUCTION

China's announcement in 2013 of a proposal to increase cooperation

between Eurasian countries, the One Belt, One Road (OBOR) plan, is

the largest such initiative by a single nation and has the potential to

radically alter world trade and the focus of development. The pro-

posed initiative covers almost two-thirds of the world's population,

one-third of global GDP, and a quarter of world trade (McKinsey,

2016). The scheme comprises two key elements: the Belt, or new Silk

Road, a land based development of road, rail, pipelines, and related

infrastructure connecting inner China to Europe through Central Asia

and the Middle East; and the Road or maritime project involving ports,

shipping routes, and maritime infrastructure connecting China's east

coast to south Asia and Europe through the Indian Ocean and North

Africa. In reality, there are multiple branches built around these key

routes. Figure 1 provides an illustration of the geographical scope of

the initiative.

The scale and complexity of OBOR means that it will hinge on

accessing key cities and ports and will focus on six “international eco-

nomic cooperation corridors”: the (a) New Eurasia Land Bridge;

(b) PRC-Mongolia-Russia; (c) PRC-Central Asia-West Asia; (d) PRC—

“Indochina Peninsula”; (e) PRC-Pakistan; and (f) Bangladesh-PRC-In-

dia-Myanmar corridors.

One of the distinguishing features of the OBOR initiative is its

focus on investment in infrastructure. Improvement in infrastructure

is a critical factor in the Eurasian region. According to a recent Asian

Development Bank report infrastructure needs in the Asia Pacific

region will be some US$1.7 trillion a year until 2030 (Asian Develop-

ment Bank, 2017). China sees an opportunity for mutual benefit in the

region with upgrades to neighboring economies and to its ability to

maintain export- and capital-led growth for its own economy. It has

already invested a significant amount and, in recent years, has

increased its trade relations with the region. The OBOR region

accounts for almost a quarter of China's trade compared with 34%

accounted for by the United States, the Eurozone and Japan com-

bined (WTO, 2016).

Funding the OBOR initiative will be challenging. China, in its lead-

ership role, has allocated considerable sums: US$100 billion to the

newly created Asian Infrastructure Investment Bank (AIIB), a multina-

tional financial institution; US$40 billion to the Silk Road Fund; and

US$100 billion to the New Development Bank. Significantly more

capital will be required, at least US$1 trillion per year, and the plan is

to utilize private-public partnerships. Funding is just one of the many

complexities that will need to be overcome.

The aim of this article is to offer a tentative assessment of the

likely economic impacts of the OBOR initiative. In particular, we are

interested in the trade and growth effects. For a number of reasons, a

tentative assessment is all that can be attempted at this stage. This is

the case because the initiative is at a very early stage, relatively few

projects are underway and their significant interdependencies means

that any impacts will, at best, be only partial for many years. Second,

the initiative is a very long-term one: estimates suggest that it could

take 50 years to achieve. To assume a linear and incremental evolu-

tion of the initiative, while facilitating evaluation, is simplistic. Third,

assessment is hindered by the vague nature of the OBOR plan. It is

still a conception without an explicit strategy. Its goals are multiple

JEL Classification codes: O11, O53, R11

DOI: 10.1002/jsc.2229

Strategic Change. 2018;27:447–454. wileyonlinelibrary.com/journal/jsc © 2018 John Wiley & Sons, Ltd. 447