BRIEF March 29, 2018

Belt and Road Initiative

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The Belt and Road Initiative includes includes 1/3 of world trade and GDP and over 60% of the world's population.


Overview | Research | Blogs 

Overview

The Belt and Road Initiative (BRI) is an ambitious effort to improve regional cooperation and connectivity on a trans-continental scale. The initiative aims to strengthen infrastructure, trade, and investment links between China and some 65 other countries that account collectively for over 30 percent of global GDP, 62 percent of population, and 75 percent of known energy reserves. The BRI consists primarily of the Silk Road Economic Belt, linking China to Central and South Asia and onward to Europe, and the New Maritime Silk Road, linking China to the nations of South East Asia, the Gulf Countries, North Africa, and on to Europe. Six other economic corridors have been identified to link other countries to the Belt and the Road. The scope of the initiative is still taking shape—more recently the initiative has been interpreted to be open to all countries as well as international and regional organizations.

Why is important to study the BRI?

The Belt and Road Initiative can transform the economic environment in which economies in the region operate. Regional cooperation on the new and improved transport infrastructure and policy reforms could substantially reduce trade costs and improve connectivity, leading to higher cross-border trade and investment and improved growth in the region. For example, shipment times from China to Central Europe are approximately 30 days, as most goods travel by sea. Shipment times by train are about half as long, but given current infrastructure, much costlier. Hence, improving the capacity and network of rail infrastructure could radically change average travel times. And while rail transport will remain costlier than maritime for these routes, the time and cost reduction will have significant consequences for certain goods impacting the mode choice and total flows of international trade.

However, there are significant economic and policy challenges, and the realization of the potential benefits of BRI is by no means automatic.  Policy reforms could have large effects. For example, Doing Business indicators show that in Central Asia it can take up to 50 days to comply with all procedures to import goods. It takes less than 10 in G7 countries, indicating the large scope for improvements at the border in the region. More generally, the return on investment in infrastructure is likely to be low or even negative unless complementary reforms are carried to improve institutions and the policy environment.

For individual countries, it will be important to evaluate the possible effects of participating to the BRI and the needed policies and institutional reforms. Some of the infrastructure and policy reforms envisaged by the BRI will be difficult to implement, creating risks ranging from fiscal sustainability, to negative environmental and social implications. There are also potential economic shocks created by the reduced trade costs that will require policies to deal with the adjustment and the lagging and negatively affected territories. Finally, opportunities for growth and poverty reduction will likely be contingent on appropriate macroeconomic conditions and supportive institutions and will differ for different countries and different social groups within countries depending on their comparative advantage, initial conditions and ability to reform. 

World Bank Group Engagement on the Belt and Road Initiative

The World Bank Group is already deeply engaged in countries along the Belt and Road, based on the respective country partnership frameworks.  The World Bank Group has commitments of about US$80 billion for infrastructure in Belt and Road countries. The World Bank Group also has numerous projects addressing infrastructure, trade, and connectivity in its project pipeline. Furthermore, the World Bank Group helps countries address trade and connectivity issues by providing advisory services and analytics (ASA).  The WBG engages through various channels: (i) convening; (ii) analytical and advisory services; (iii) project origination and preparation; (iv) project financing; and (v) implementation support. 

The World Bank Group is undertaking a study to analyze the economics of the BRI. The research will be based on a series of ongoing and planned papers from the World Bank Group as well as partner organizations. The study is designed to help policymakers assess the effects of the BRI and to identify policies that will help maximize the benefits and mitigate the risks. It focuses on three main areas of analysis:

  • An assessment of the connectivity gaps (e.g. transport, communications, trade, investment) in the broad BRI region.
  • An assessment of the economic effects of proposed BRI infrastructure improvements, including the impact on international trade, cross-border investment, allocation of economic activity, and inclusive and sustainable growth in the BRI countries.
  • Identification of complementary policies and institutions that will support welfare maximization for all BRI countries, including, for example, trade, investment and procurement reforms, and social, environmental and governance safeguards.  

Research

The Growth and Welfare Effects of the Belt and Road Initiative on East Asia Pacific Countries De Soyres, Francois Michel Marie Raphael,  World Bank Group, October 2018 (English)

How Much Will the Belt and Road Initiative Reduce Trade Costs? François de Soyres, Alen Mulabdic, Siobhan Murray, Nadia Rocha, Michele Ruta, World Bank Group, October 2018 (English)

Trade Linkages Between Belt and Road Economies, Mauro Boffa, World Bank Group, May 2018

Exposure of Belt and Road Economies to China Trade Shocks, Paulo Bastos, World Bank Group, June 2018

Trade Facilitation Challenges and Reform Priorities for Maximizing the Impact of the Belt and Road Initiative, Marcus Bartley Johns, September 2018

Connectivity Along Overland Corridors of the Belt and Road Initiative, Charles Kunaka, Ben Joseph Romain Derudder, and Xingjian Liu, October 2018

Foreign Investment across the Belt and Road: Patterns, Determinants and Effects, Maggie Xiaoyang Chen and Chuanhao Lin, October 2018

Blogs

How Much Will the Belt and Road Initiative Reduce Trade Costs?

3 Risks and 3 Opportunities of the Belt and Road Initiative

Trade Linkages Among Belt and Road Economies: Three Facts and One Prediction

Exposure of Belt & Road Economies to China Trade Shocks

Beyond Infrastructure: Trade Facilitation Priorities for the Belt and Road Initiative

Six Corridors of Integration: Connectivity Along the Overland Corridors of the Belt and Road Initiative

Foreign Investment Growth in the Belt and Road Economies



Experts

Michele Ruta

Lead Economist