Opening remarks at Side event on the Belt and Road Initiative
Delivered at Side event on the Belt and Road Initiative
Ladies and Gentlemen
Our deliberations over the past few days have underscored the benefits and challenges of regional cooperation and integration - RECI – in Asia and the Pacific. Recognizing the RECI’s merits, Asia’s leadership have launched several initiatives from infrastructure development to trade deals negotiations. The bulk of these initiatives are either sub-regional or localized to the adjoining neighbors.
President Xi’s blue print for the Belt and Road Initiative (BRI) is a cross continental and transformational agenda which has potential to deepen all dimensions of RECI. It should do so by embracing the 2030 Sustainable Development Agenda and mainstreaming it into its constituent parts. This global, cross continental endeavor - fosters multi-modal linkages across national, regional and international corridors. It aims to do so by ensuring Asia is better connected and able to transact more smoothly with Africa, Europe, the Middle East and North Africa. Seeking prosperity for all parties involved, the architecture of BRI will not only facilitate people-to-people connectivity, but will promote market integration by facilitating unimpeded trade, deeper financial markets and their integration, while spurring innovation and competitiveness. BRI has the potential to promote balanced and equitable development. Effectively coordinated and speedily implemented, BRI could make a major contribution to RECI. It holds the promise of changing the landscape of our economies and the destiny of our people. Looking ahead, I want to make six points.
First, ESCAP analysis confirms BRI could help raise participating countries economic output levels by an average of 6 per cent across the six priority corridors identified in the mapping of BRI. If BRI-linked countries lowered border transaction costs and import tariffs, the difference the BRI could make would be greater still. Our studies show a 30 per cent reduction in trade and investment barriers in the China-Indochina corridor could generate nearly 2 per cent of GDP growth in China and up to 17 per cent GDP growth for other participating countries. Comparatively, a 1 per cent improvement in three areas - trade facilitation procedures, the quality of transport infrastructure and ICT – in all corridors would respectively deliver 1.5 per cent, 0.7 per cent and 1.4 per cent increases in the region’s exports. Gains would be higher where trade agreements already exist, underscoring the importance of multilateral cooperation.
Second, BRI will entail enormous financial requirements but what is reassuring that Asia Pacific has large pool of savings which can be leverage with the seed funding allocated for BRI. Estimates suggest BRI’s financial requirements could be anywhere between $4 trillion to $8 trillion over the next decades. Resources lined up include the New Silk Road Fund that has been increased from $40 billion to $124 billion. PwC predicts the BRI will mobilize up to US$1 trillion of outbound state financing from China over the next 10 years. Most of this funding will come in the form of preferential commercial debt funding, but some will be raised from equity and bond markets. With broader shareholding, specific vehicles such as AIIB and BRICs have been established to help finance appropriate infrastructure projects and initiatives. Funding is also expected to be forthcoming from China’s Development Banks whose commitments are estimated to be $200 billion.
Third, along with dedicated pool of funds made available for BRI, financial markets are likely to be undergoing transformation to cater for equity, bond and other long-term financing instruments. BRI has the potential to catalyze regional financial integration – an area lagging behind within Asia. The BRI is providing new and innovative opportunities which would foster tangible movement towards financial integration among the BRI nations. The most immediate results could be seen in the local and regional bond markets. Banks are developing new products including a standardized bond for the use in the region. Their market-making activity linked specifically to the infrastructure investment demanded by BRI could offer much needed investment vehicles for long term investors such as pension and insurance investors that would offer long term alternate sources of financing and fill the gaps to bank financing. To lend confidence to the markets 27 countries Ministers of Finance have signed off on a Guiding Principles on Financing the Development of BRI which calls on “governments, financial institutions and companies to follow the principles of equal footing participation, mutual benefits and risk sharing as markets build a long term, stable and sustainable financing system that is well placed to manage risks.”
Fourth, the development of BRI could support market liberalization and competitiveness through the realignment of production structures and sourcing activities. Countries with the right expertise will have the opportunity to export their infrastructure, development expertise and associated skills in areas in which they enjoy a competitive advantage. This should support global and regional value chains promoting manufacturing and services hubs. The establishment of industrial and eco zones along corridors could facilitate the development of specialized economic and technological centers.
Fifth, using the opportunity of BRI framework, our region should now position itself to promote the Regional Economic Comprehensive Partnership (RECP) as it has broader geographical coverage and the potential to streamline investment and trade facilitation. It could help realise the Free Trade Area of the Asia-Pacific which also focuses on the removal of non-tariff measures as well as ensure consistency and harmonization of investment and associated legal regulatory framework.
Sixth, BRI implementation is already underway in number of countries. To name a few, BRI investment supporting the Sri Lanka-China Logistics and Industrial Zone is expected to boost Sri Lanka’s shipping and industrial sectors and transform the fortunes of the Port of Hambantota, Sri Lanka’s second-largest marine freight handling facility. In Vietnam, the Hanoi light-railway network is scheduled to become operational in 2018. The construction of some 13.5 km and 12 station urban light railway should help improve traffic management in Hanoi. Here in Thailand, the go-ahead has been given for the High-Speed Rail Link between Bangkok and Nakhon Ratchasima: a four-year, $5.3 billion project which should develop 250km of rail connection. In 2016, work began on the Kunming-Laos link, another key component of the wider high-speed rail network the BRI is seeking to promote. In 2016 Bangladesh and China signed deals amounting to $21.5 billion for projects which include financing the Bangladesh-India-China-Myanmar (BCIM) corridor.
To conclude, BRI is an integral component of Asia and Pacific wide RECI and has the potential to fast track it. Promise of BRI guided by RECI framework with supportive environmental and social safeguards and improved debt management capacity of the beneficiary governments can reinforce 2030 sustainable development and would augur well for enhancing productivity and competitiveness of the region, and to nurture balanced and equitable development. There is great promise of BRI to promote further trade and financial integration.