New Zealand can play its part on Silk Road

Professor Siah Hwee Ang Bank of New Zealand Chair in Business in Asia at Victoria.

Opinion

The One Belt One Road (OBOR) Initiative may well be one of the most ambitious development plans of the last few decades.

The initiative, most commonly referred to by our Chinese counterparts as BRI (Belt-Road Initiative), capitalises on infrastructural and logistical developments to facilitate world trade.

There are two components to the OBOR: the Silk Road Economic Belt initiated in September 2013 and the 21st Century Maritime Silk Road initiated in October 2013. The five major goals of the initiative are: policy co-ordination, connectivity of facilities, unimpeded trade, financial integration, and people-to-people bonds.

An early conceptualisation of the initiative involved more than 64 countries, with an estimated 38 per cent of global GDP, and covered more than 64 per cent of the global population. Unfortunately, it did not include the South Pacific countries.

Nonetheless, Asian and European countries were invited to join the initiative in October 2014.

Various funding mechanisms were also set up to help service this initiative, including the New Development Bank, Silk Road Fund, and the Asian Infrastructure Investment Bank (AIIB), of which New Zealand is a founding member.

In the past two years, we have observed great progress on major infrastructural projects relating to railways, highways and airports under the umbrella of the OBOR in various countries and within China.

OBOR is unique in its design. While we are used to the co-operative model largely reliant on contracts, such as free trade agreements, the OBOR works on the premise of an invitation to participate.

That is, China will encourage other countries to participate. Interested parties would then generate projects along the Silk Road Economic Belt and the 21st Century Maritime Silk Road.

Given the infrastructural gaps in some continents, the OBOR and its funding mechanisms serve as a refreshing approach to development.

Asia alone needs more than US$8 trillion for development this decade.

There is a sense that trade is impeded by logistical challenges. We have relied too much on logistics companies to pursue logistical developments, and this is starting to show.

Despite the fact that the number of free trade agreements and ongoing negotiations continues to go up, world trade is down, and China is slowing down.

At the start of the OBOR initiative, China hoped to grow its annual trade volume with OBOR countries from US$1 trillion in 2013 to US$2.5 trillion within a decade.

This amounts to 9.6 per cent of annual growth. China and world trade could do with this support from the OBOR. In fact, China's trade with its non-FTA partners is growing faster than its trade with its FTA partners.

There is a lot of room for New Zealand's involvement, especially now that South Pacific countries have been given attention.

Siah Hwee Ang

Eight of NZ's top 20 export markets are along the OBOR and 10 of NZ's top 20 export markets have signed up for OBOR. The numbers are rising as more countries enter the picture.

Given the scope of the OBOR, there is a lot of room for New Zealand's involvement, especially now that South Pacific countries have been given attention. A major hub in the South Pacific is up for grabs.

Faster transit times can also mean competition for some of New Zealand's products in the form of trade substitution. This increases the need to engage.

Better logistics between Asia and Europe will allow New Zealand companies to explore supply chain options along the OBOR.

New Zealand was ranked 15th in terms of media and netizen (internet user) interest by a recent Chinese report on the progress of the OBOR so far.

With a good head start, we can continue to generate more individual and business awareness about the initiative, and seek ways to participate in OBOR over time.

Professor Siah Hwee Ang is Bank of New Zealand Chair in Business in Asia at Victoria University, Wellington.