• Potential gains for trade and capital investment are significant — UNESCAP
Kathmandu, December 1 While the Belt and Road Initiative (BRI) is expected to promote economic cooperation among countries along the proposed routes, a new report has said that policy adjustments on several fronts is required to capitalise potential economic gains. According to the Year-End Update of Economic and Social Survey of Asia and the Pacific 2016 unveiled by United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) today, economies such as Nepal, Bangladesh, Cambodia and Pakistan specialise in exporting readymade garments, but China’s import demand for these products is rather small. “More extended transport networks brought about by BRI will help enhance connectivity in these countries, but policy changes to make their export products more competitive and increase their value addition are still needed.” Moreover, the UNESCAP report had highlighted on the need for BRI countries to also promote an enabling business environment to attract investment. “Although the China government has played a vital role in facilitating financing at this early stage of BRI, the amount of funds available is still modest relative to the total investment that has been envisaged.” Stating that the success of the initiative, thus, largely depends on the ability to attract more private capital, UNESCAP has said active participation by business sectors is, however, ‘being hampered by several factors, such as limited project preparation capacity, inadequate labour skills, lack of a transparent regulatory framework and sudden changes in policy direction’. While BRI offers various opportunities, it also presents challenges to participating economies, according to the report. At a broad level, eased access to large foreign loans for infrastructure projects, even if most of them tend to be on a concessional basis, could undermine macroeconomic stability in small economies with underdeveloped financial markets and less effective debt management, UNESCAP has said. On the environment front, unless properly managed, relocating heavy and natural resource-based industries out of China could worsen air quality and resource degradation in recipient countries. “There is, thus, a need for an upfront assessment of environmental safeguards.” On the social front, sections of the population could be marginalised, such as workers in industries that will no longer be competitive after the opening up of markets, the report says. The BRI was announced by Chinese President Xi Jinping in late 2013. In combining the so-called Silk Road Economic Belt and the 21st-Century Maritime Silk Road, the primary goal of BRI is to promote the freer flow of economic factors, such as capital, goods, services, energy, technology and people, in the Asia-Pacific region and beyond. Although an effort to realise a more connected Asia-Pacific region is not new, what is striking about BRI is its sheer scale. With more than 60 economies participating, the group represents about one-third of global output, 40 per cent of global trade, 60 per cent of world’s crude oil reserves and a total population of over four billion people. The potential gains for trade and capital investment are significant. According to estimates by the Chinese government, BRI could generate an additional $2.5 trillion in China’s goods trade with participating countries over the next decade, while total investment by China in other BRI economies would amount to about $4 trillion. “As overall economic prospects in developed economies will remain weak at the same time that trade protectionism rises, there is a need for the Asia-Pacific region to be focused more on domestic and regional demand in order to revive its growth momentum. Increased intra-regional trade will be critical; it will require enhanced connectivity through better transport infrastructure and streamlined cross-border regulations. These areas lie at the heart of BRI.”