Blog by Bill Meahl, Chief Commercial Officer at DHL
China’s ambitious “Belt and Road” initiative is gaining momentum, but needs to remove obstacles before it can reach its full potential.
The city of London recently welcomed the first freight train from Yiwu, a commodities center in the eastern Chinese province of Zhejiang popular with foreign traders. Mainly loaded with textiles and consumer goods, it completed the journey in just 18 days, about half the time it takes to travel by ship.
The British capital is the latest destination on the now 12,000-mile China-Europe route and marks a new milestone in an expanding rail network that is part of China’s “Belt and Road” initiative. Proposed by President Xi Jinping in 2013, this government-led plan aims to establish a modern equivalent of the ancient Silk Road trading routes and spur trade and economic development between China and the rest of Eurasia.
You can certainly call Belt and Road ambitious. An estimated $4-8 trillion will be needed to achieve China’s vision of opening up a new avenue for global trade across more than 60 countries. But the project’s potential makes it more than worthwhile. Some experts estimate that Belt and Road could generate over $2.5 trillion in annual trade value by 2025, once fully activated.
From a logistics perspective, I see huge potential. The rail component of Belt & Road can both complement and provide an alternative to air and ocean transport, connecting the many land-locked countries across one of history’s most important international trading routes. It is more cost-effective and environmentally friendlier than air, yet faster than ocean. Over the past few years we have been leveraging the new infrastructure along Belt & Road to expand our own Asia-Europe-Asia multimodal network – and we’re quite pleased with the results. The route is becoming very popular with companies in the fashion, automotive, and electronics industries, who often ship more time-sensitive goods. Forecasters believe its popularity will only increase, with rail market volumes expected to reach around one million TEUs by 2020.
With some leaders around the world advocating protectionism, Belt and Road is gaining momentum at just the right moment. At the recent World Economic Forum in Davos, Chinese President Xi stood out by speaking up for globalization and economic cooperation. Indeed, the “new Silk Road” – and all the new railways, ports, roads, and airports that come with it – has the potential to foster trade and attract development to some of the least developed parts of the world. While it opens Chinese exports to new markets and creates jobs for the country’s workforce, it also blazes a new trail for trade to go east.
There are obstacles however that could slow down Belt and Road, not least of which are protectionism and bureaucracy. Complex and varying customs procedures make crossing so many borders excessively tedious and time consuming. If the plan is to reach its full potential, it is essential that the initiative also achieve its goal of creating a platform for economic cooperation that goes beyond infrastructure to include policy coordination, trade and financing collaboration, and social and cultural cooperation. The public and private sectors are going to have to work hand in hand to reduce bureaucratic delays and red tape and allow goods to flow more freely across borders. Governments in particular should focus on simplifying cross-border customs requirements as well as the overall regulatory framework. Implementing the WTO Trade Facilitation Agreement, which went into force in February, should be a top priority. This will ensure modern customs processes which will bring efficiency, transparency and stimulate GDP growth.
China’s first Belt and Road summit hosted by President Xi just concluded in Beijing, with some 30 state leaders endorsing the program, while others, such as the EU are asking for co-ownership, transparency and sustainability to be integrated as key factors. So, while there is no lack of enthusiasm and support for the project, much needs to still be done to unite countries behind its vision.
Like the ancient Silk Road, this new one has the potential to influence the development of the entire region across its path for many years to come. The opportunities to reach new markets and develop new multimodal trade lanes are more than plentiful. We are already seeing the early benefits of this ambitious plan. If the remaining obstacles are removed, Belt and Road might indeed transform and revitalize global trade.