5 things to know about China’s One Belt One Road Initiative

One Belt and One Road Initiative (OBOR) is a development strategy proposed by China’s paramount leader Xi Jinping that focuses on connectivity and cooperation between Eurasian countries. (Photo: BDO Singapore)

  1. What is it?

Announced in 2013 by President Xi Jinping, the “One Belt One Road” (OBOR) initiative is a vital foreign policy of China that is based on two main components – the land-based Silk Road Economic Belt and the 21st Century Maritime Silk Road.

BDO Singapore described the initiative as an attempt to enhance political and trade relations amongst China, Asia and Europe, while allowing China to boost its growth by exporting its technology, capital and capacity globally.

Under the OBOR implementing guideline released by China’s National Development and Reform Commission (NDRC), development plans along the trade route aim to improve connectivity in five areas – people, trade, currency, infrastructure and policy.

  1. How does it work?

The OBOR aims to improve trade and investment facilitation by removing investment and trade barriers; promote people-to-people relations via extensive academic and cultural exchanges, and enhance financial integration between countries by building a currency stability system as well as an investment and financing system.

It also aims to improve key transportation passageways for countries along the Belt and Road. Notably, these countries may form an infrastructure network that could bring together all sub-regions within Asia, Africa and Europe while taking into account their respective security and sovereignty concerns.

  1. The Asian Infrastructure Investment Bank and its role in the OBOR

To fulfil the One Belt One Road initiative, a large amount of capital injection is necessary, hence the need for the Asian Infrastructure Investment Bank (AIIB), said BDO Singapore.

AIIB is a multilateral development bank (MDB), in which about 60 countries have expressed “their willingness to participate in a variety of content along the way, including policy communication, unity of facilities, trade flow, financial inter-mediation and people connection”. It serves as a vital backing for Asia’s economic development by supporting developing nations achieve common growth.

  1. OBOR’s benefits to Singapore

As China’s top trading partner, Singapore is expected to benefit from the Belt and Road initiative. Channel News Asia reported that bilateral trade between Singapore and China amounted to $ 121.5 billion in 2014.

And given its excellent infrastructure and competence in the logistics industry, Chinese enterprises have raised their investment in Singapore’s infrastructure.

As the countries become more interconnected under the OBOR, the city-state also stands to benefit from the increased number of visitor arrivals. The initiative would also bring increased opportunities for professional services companies in Singapore, which is one of the world’s premier financial hub, to raise and distribute equity and debt capital.

  1. Possible challenges

The initiative, however, is not without challenges. The global expansion of companies may lead to a rise in the risk of disruption in a certain country. Credit risk, for instance, may be a concern as foreign customers operate on different credit and payment terms. The Diplomat noted that Chinese firms participating in insurance programmes would have then to ensure against such credit risks and counterparty defaults.

The increase in cross-border activities may also give rise to political uncertainty relating to trade embargoes as well as infrastructure impediment and corruption, particularly among developing countries.

The shifting of its overcapacity to other countries may also have their social implications. In 2015, the China Labor Bulletin reported that worker strikes in China significantly increased in 2014 from the previous year, due to the economic slowdown.

 

This article was edited by Keshia Faculin.

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