One Belt, One Road

Question 1

What are the opportunities of OBOR

Answer 1

1. Size and scope - BRI economies accounts for 1/3 of global GDP and 2/3 of the world’s population. If OBOR is successful it could help reduce poverty for many people.
2. Large unexploited potential - Many BRI countries trade below potential due to lack of infrastructure. OBOR could help countries fully integrate into the global economy.
3. Improving connectivity - Increase transport infrastructure leads to increase in trade, investment and growth. Eg: high-speed railway from Badung to Jakarta, journey time reduced from 3.5 hours to 45 minutes.

Question 2

What are the risks of OBOR

Answer 2

1. Policy barriers create thick borders, resulting in delays.
2. Large infrastructure projects have environmental, social and corruption risk.
3. Macro risks - Borrowing may expand debt to unsustainable amounts.

Question 3

What are the 3 economic challenges of OBOR

Answer 3

1. Regional development.
2. Upgrading Chinese industries and exporting standards.
3. Excess capacity.

Question 4

Explain the challenge of regional development

Answer 4

Inequality between the western and eastern regions is high, Shanghai is 5x wealthier than inland Gansu. Majority of expenditure is going towards railways, roads and airports.

Question 5

Explain upgrading Chinese industries and exporting standards

Answer 5

China has become the world’s factory but rising wages have resulted in its comparative advantage disappearing. The “Made in China 2025 strategy” aims to increase innovation by focusing on quality over quantity and restructure their manufacturing base. OBOR allows firms to become more internationally competitive by unlocking new markets. Eg: Railway technology, half of the world’s high-speed rail is in China.

Question 6

Explain excess capacity in China

Answer 6

Following the 2008 stimulus package, there was a lot of excess capacity especially in steel and cement. Excess capacity leads to decreased profits, higher debt levels and increased financial market vulnerability. OBOR allows China to export excess products to neighbours and helps countries industrialise. However, if the country is competing with China, they may not want to help China’s unwanted capacity.

Question 7

What have been some other challenges with OBOR, therefore resulting in slow progress in terms of projects outside of China

Answer 7

1. Lack of trust - lack of political trust between OBOR countries and China, eg: India.
2. Sovereign credit ratings - 2/3 of OBOR countries have a sovereign credit rating of below investment grade.
3. Risk-averse Chinese finances - many banks are worried about the feasibility of projects.

Question 8

Explain the fiscal risks, governance risks and corruption

Answer 8

Fiscal risks: World Bank (2019) identified $575 billion invested in 70 BRI countries resulting in large debt. Poor performance of Mega-projects, 1/10 delivered on time. Lack of transparency of the terms and size of BRI financing poses risks for borrowing countries.

Governance risk: How close does BRI procurement conform to international best practice, ensuring best value for money.

Corruption: The abuse of public office for private gain. Bribes, kickbacks, collusion, bid rigging and fraud are all examples. Audits and integrity pacts cam reduce this corruption however.