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The Silk Road Economic Belt and

the 21st Century Maritime Silk Road

May 2015
Table of Contents

Page

I. Introduction 2

II. The Vision 6

III. Actions Already Performed 8

IV. Business Implications 9

Appendix I 11

Appendix II 12
I. Introduction
The concepts of the Silk Road Economic On 28 March 2015, during the Boao
Belt and the Maritime Silk Road were Forum for Asia, Chinas National
first introduced by Chinese President Xi Development and Reform Commission,
Jinping during his visits to Kazakhstan in conjunction with Chinas Foreign
and Indonesia in 2013. Ministry and Commerce Ministry,
issued an action plan for the Belt and
The Central Government has since then Road, bringing the concept one
further elaborated on the idea of important step closer to realization.
building the Silk Road Economic Belt
and the 21st Century Maritime Silk Titled the Vision and Actions on Jointly
Road. The concept is often Building Silk Road Economic Belt and
shorthanded as the One Belt One 21st Century Maritime Silk Road, the
Road Initiative, or more simply as the official document lays out the basic
Belt and Road. goals of the One Belt One Road
Initiative: It is aimed at promoting
orderly and free flow of economic
The Belt and Road: New Sourcing and factors, highly efficient allocation of
Selling Opportunities resources and deep integration of
markets; encouraging the countries
While the Belt provides ample along the Belt and Road to achieve
opportunities for sourcing resources economic policy coordination and carry
and commodities from the West and out broader and more in-depth
Central Asia, the emerging South and regional cooperation of higher
Southeast Asian countries along the standards; and jointly creating an open,
Road are potentially vast consumer inclusive and balanced regional
markets. According to a report by economic cooperation architecture that
Ernst & Young in 2013, emerging Asia benefits all.
will account for one quarter of the
global consumer products market and The Initiatives current priority is
generate 38% of the global consumer infrastructure connectivity. Towards
products growth by 2017. that end, the Chinese government has
facilitated the establishment of the
Asian Infrastructure Investment Bank
and set up a US$40 billion Silk Road
Fund.

Source: Compiled by the Fung Business Intelligence


Centre

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The Silk Road Economic Belt and
the 21st Century Maritime Silk Road

Geographic Coverage

According to the action plan, the Belt Based on the five routes specified by
will have three routes and the Road will the action plan, the Fung Business
have two routes (for a graphic Intelligence Centre has identified 58
representation of these routes, please countries that are most likely to be
refer to Exhibit 1). taking part in the Initiative (please see
the Appendix for the full list of the
The Silk Road Economic Belt: countries and the relevant economic
o ChinaCentral AsiaRussia indicators).
Europe (the Baltic)
o ChinaCentral AsiaWest Together, the countries along the Belt
AsiaPersian Gulf and Road will create an economic
Mediterranean Sea cooperation area that stretches from
o ChinaSoutheast AsiaSouth the Western Pacific to the Baltic Sea.
AsiaIndian Ocean According to our research, these 58
countries jointly account for 64.2%,
The 21st Century Maritime Silk Road: 37.3% and 31.4% of the worlds
o Coastal ChinaSouth China population, GDP and household
SeaIndian OceanEurope consumption respectively today
o Coastal ChinaSouth China (Exhibit 2). Many of these countries are
SeaSouth Pacific home to the emerging middle class and
hold the key to economic growth in the
On the same day that the official action future.
plan of the Initiative was announced,
Chinas President Xi also revealed in his The action plan also specifies the
speech that around 60 countries along positioning of various regions and
the routes have shown interest in provinces in China in the Initiative
taking part in the development of the (Exhibit 3).
Belt and Road.

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Exhibit 1. Geographic Coverage of the Silk Road Economic Belt and the 21st Century Maritime
Silk Road

Source: Compiled by the Fung Business Intelligence Centre based on the FRAMEWORK chapter of the Vision and Actions on Jointly
Building Silk Road Economic Belt and 21st Century Maritime Silk Road

Exhibit 2. Economic Significance of One Belt One Road Countries

* For a full list of the countries included in the computation, please refer to the Appendix.
Source: The World Bank, compiled by the Fung Business Intelligence Centre

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The Silk Road Economic Belt and
the 21st Century Maritime Silk Road

Exhibit 3. Regions & Provinces in China: Positioning in the One Belt One Road Initiative

Source: Vision and Actions on Jointly Building Silk Road Economic Belt and 21st Century Maritime Silk Road, compiled by the Fung
Business Intelligence Centre

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II. The Vision
The vision of the One Belt One Road in land-water transportation
Initiative is to realize the Five Links, channels, promote cooperation of
which refer to linkages in policies, ports, and increase sea routes and
infrastructure, trade, finance and the number of voyages.
people. The Five Links can be Countries will expand platforms
summarized as follows: for comprehensive civil aviation
cooperation and improve aviation
infrastructure.
The Five Links Cooperation in the connectivity of
energy infrastructure will also be
While the traditional Silk Road was promoted.
primarily a route for trading goods and Countries will jointly advance the
cultural and technological exchange, construction of communications
the new Silk Road set out the Five networks, such as cross-border
Links as its goal. The Five Links refer optical cable networks and
to linkages in policies, infrastructure, satellite information networks.
trade, finance and people. Countries will strengthen
cooperation in science and
technology by establishing joint
1. Policy coordination laboratories and promoting
Policy coordination among the personnel exchanges.
countries along the Belt and Road
is crucial for the success of the
Initiative. According to the Huge Need for Infrastructure
Initiatives vision, the countries will Financing in Asia
coordinate their economic
development strategies and According to the Asian Development
policies, and work out together Bank, between 2010 and 2020, Asia
plans and measures for regional needs to invest a total of around
cooperation. US$8 trillion in national
Countries along the Belt and Road infrastructure in order to maintain
will set up a multi-level inter- current levels of economic growth.
governmental macro policy However, many Asian countries are
exchange and communication suffering from a large infrastructure
mechanism. deficit, mainly due to budgetary
constraints and a lack of investment
2. Capacity building capital.
Countries along the Belt and Road
will improve the connectivity of
their infrastructure and harmonize China will advance cooperation
standards. between countries along the Belt
Countries will push forward and Road on areas such as youth
constructions of port employment, entrepreneurship
infrastructure, remove bottlenecks training and vocational skills

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The Silk Road Economic Belt and
the 21st Century Maritime Silk Road

development. technology and new materials.


Countries along the Belt and Road Countries will cooperate in
will also boost student exchange building various forms of industrial
programmes. parks such as overseas economic
and trade cooperation zones and
3. Liberalization and facilitation of cross-border economic
trade and investment cooperation zones.
Countries along the Belt and Road
will enhance customs cooperation 4. Financial cooperation
in areas such as information Countries along the Belt and Road
exchange, mutual recognition of will strengthen financial
regulations and mutual assistance cooperation and increase their
in law enforcement. A Single- efforts to build currency stability
window system will be systems, investment & financing
established in border ports. systems and credit information
Moreover, the countries will systems in Asia.
promote online checking of Countries will push forward the
inspection and quarantine establishment of the Asian
certificates and facilitate mutual Infrastructure Investment Bank,
recognition of Authorized the BRICS New Development Bank,
Economic Operators (AEOs). the Shanghai Cooperation
Countries will lower non-tariff Organization (SCO) financing
barriers and improve the institution and the Silk Road Fund.
transparency of technical trade Countries will create or further
measures. develop their bond markets. China
Countries will take actions to will support the governments in
advance investment facilitation the countries along the Belt and
and to eliminate investment Road as well as companies and
barriers. Negotiations on bilateral financial institutions with good
investment protection agreements credit-ratings to issue yuan bonds
and double taxation avoidance in China. Meanwhile, qualified
agreements will also be pushed Chinese financial institutions and
forward. companies will be encouraged to
Countries will expand mutual issue bonds in yuan or in other
investment areas. In particular, currencies outside China.
cooperation in non-fossil energy Countries will expand the scope
sectors such as hydropower, and scale of bilateral currency
nuclear power, wind power and swaps and settlements.
solar power will be strengthened. Commercial equity investment
Countries will also promote funds and private funds will be
cooperation in emerging industries encouraged to participate in the
such as new-generation construction of key projects of the
information technology, Initiative.
biotechnology, new energy

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III. Actions Already Performed

For more than a year, the Chinese fields of infrastructure


government has been actively connectivity, industrial
promoting the One Belt One Road investment, resource
Initiative. development, economic & trade
China has signed Memorandum of cooperation, financial
Understandings (MOUs) of cooperation, cultural exchanges,
cooperation on the joint ecological protection and
development of the Belt and Road maritime cooperation.
with some countries, and on The Chinese government has
regional cooperation, border facilitated the establishment of
cooperation, or mid- to long-term the Asian Infrastructure
development plans for economic Investment Bank and the Silk Road
and trade cooperation with other Fund, and has reinforced the
countries. It has also proposed investment function of the China-
outlines of regional cooperation Eurasia Economic Cooperation
plans with certain adjacent Fund.
countries.
China has enhanced China has also promised to offer
communication and consultation 10,000 scholarships to countries
with countries along the Belt and along the Belt and Road every year.
Road, and promoted a number of
key cooperation projects in the

The Asian Infrastructure Investment Bank and the Silk Road Fund

The Asian Infrastructure Investment Bank (AIIB) was formally established in


October 2014. As of 29 March 2015, 42 countries had joined or applied to join the
AIIB as founding members, including the UK, Germany, France and Italy.

In December 2014, Beijing launched its US$40 billion Silk Road Fund along the lines
of a long-term private equity venture to improve transport and trade links in
countries and regions along the Silk Road. The Fund is expected to be similar to the
World Banks investment arm International Finance Corp and the African
Development Banks mutual development fund. Financed by a small group of
investors, the Fund targets infrastructure construction, exploration of natural
resources, and industrial and financial cooperation.

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IV. Business Implications


1. Infrastructure construction well as overseas to fund projects
Capacity building to start with for the One Belt One Road
hardware, especially in the early stage Initiative. The move is expected to
of the One Belt One Road Initiative boost demand for the currency.
Infrastructure projects related to As trade and other economic
the Initiative, such as those activities along the Belt and Road
invested by the Asian expand, the demand for settling
Infrastructure Investment Bank trade in yuan will also increase, if
and the Silk Road Fund, will only to reduce exchange risks.
benefit the construction
machinery companies, 3. Trade and logistics Regional flows
infrastructure construction to enjoy rapid growth
companies, building materials According to the Initiative, China is
producers, as well as infrastructure going to negotiate with countries
operators. and regions along the Belt and
According to the Initiative, priority Road to establish more free trade
will be given to linking up areas.
unconnected road sections and In addition, China will cooperate
removing transport bottlenecks. with countries along the Belt and
In particular, the plan for the Road to lower non-tariff barriers
construction of a Eurasian high- and to jointly improve the
speed transport corridor linking transparency of technical trade
Beijing and Moscow will be measures, which will in turn
pushed forward. liberalize and facilitate trade.
Connectivity within the Belt and China will also promote cross-
Road region will be greatly border e-commerce and other
enhanced. similar innovations to bring
consumers cheaper and better
2. Finance Yuan internationalization imported products.
to accelerate The increased level of trading
Financial integration is an activities will also benefit the
important underpinning for logistics industry.
implementing the Belt and Road
Initiative, the process of which will 4. Distribution and retail The
create demand for more Maritime Silk Road is well positioned
professional services in financial to capture the emerging middle class
and related sectors. According to an OECD study in
The fundraising for large-scale 2010, globally, the size of the
infrastructure projects will provide middle class may increase from 1.8
opportunities for the further billion people in 2009 to 3.2 billion
development of bond markets in by 2020 and to 4.9 billion by 2030.
Asia. Almost all of this growth (85%)
China will encourage companies to comes from Asia: by 2030, Asia will
issue yuan bonds within China as represent 66% of the global

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middle-class population. 5. Tourism More frequent exchanges
Equally striking is the growth in among the Belt and Road countries
purchasing power of the middle
class in Asia. Globally, consumer China will cooperate with
spending from the middle class countries along the Belt and Road
may grow from US$21 trillion in on tourism.
2009 to US$56 trillion by 2030. Application processes for tourist
Again, over 80% of the growth visas in countries along the Belt
comes from Asia: by 2030, Asia will and Road will be streamlined.
represent 59% of the global In particular, tourism cooperation
middle-class consumer spending. between the Tibet Autonomous
Region and neighboring countries
Asian spending power could be such as Nepal will be promoted.
large enough to offset the
stagnant spending growth in the
developed economies. The shift in
demand will also be disruptive to
the existing global supply chains.

The Emerging Middle Class along the


Silk Road

Globally, consumer spending from the


middle class may grow from US$21
trillion in 2009 to US$56 trillion by
2030. Over 80% of the growth comes
from Asia: by 2030 Asia will represent
59% of the global middle-class
consumer spending.

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Appendix I

List of Countries Included in Computing the Percentage Shares Shown in


Exhibit 2 - Economic Significance of One Belt One Road Countries
The following countries are selected by the Fung Business Intelligence Centre, based on
the FRAMEWORK Chapter of the Vision and Actions on Jointly Building Silk Road
Economic Belt and 21st Century Maritime Silk Road and President Xi Jinpings speech
on 28 March 2015.

Source: The World Bank, compiled by the Fung Business Intelligence Centre

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Appendix II

Latest Developments on the One Belt One Road Initiative (as of end
April 2015)

have diplomatic ties with China, and to


continue to provide assistance to
developing countries without any
political preconditions.
China pledges to deepen
cooperation with Asian and President Xi also announced that, in the
African countries coming five years, China would offer
100,000 training opportunities to
At the Asian-African Summit 2015 held in developing countries in Asia and Africa;
Jakarta, Indonesia, Chinas President Xi continue hosting gathering among Asian
Jinping delivered a speech calling for and African youths to promote
win-win cooperation among Asian and friendship and would invite 2,000 Asian
African countries. and African young people to visit China
and join the gathering; establish a
President Xi promised to grant zero-tariff China-Asia-Africa cooperation center
treatment by the end of this year to 97% to promote exchanges and
of the tariff items imported from the cooperation; and set up an exchange
least developed countries (LDCs) which and study program on international

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the 21st Century Maritime Silk Road

law between China and the China's US$40 billion Silk Road Fund.
Asian-African Legal Consultative
Organization. The two countries also set the target of
lifting bilateral trade to US$20 billion in
three years, up from the current US$16
billion.

Talking about the China-Pakistan


China promises investment of Economic corridor, the Pakistani Prime
US$46 billion in Pakistan Minister Nawaz Sharif said, This corridor
will benefit all provinces and areas in
During the landmark two-day visit of Pakistan, and transform our country into
Chinas President Xi Jinping to Pakistan in a regional hub and pivot for commerce
April, China signed agreements with and investment. It will also enable China
Pakistan promising investment of to create a shorter and cheaper route for
$46 billion. The focus of the spending is trade and investment in south, central
on building a China-Pakistan Economic and west Asia, and the Middle East
Corridor (CPEC), a 3,000-kilometre road and Africa. This corridor will become a
and rail link from Chinas north-western symbol for peace and prosperity.
city of Kashgar to Pakistans Gwadar
Port, a deep-sea port situated on the
Arabian Sea. The mega plan not only
covers the construction of highways and
railways, but also oil and gas pipelines
and electricity projects. Silk Road Fund makes
its first investment
The CPEC is expected to spur
investments, boost bilateral trade flows Chinas Silk Road Fund makes its first
between the two countries, improve investment in a hydropower project in
infrastructure, and help ease the energy Pakistan. During Chinas President Xi
shortage in Pakistan. According to Jinpings visit to Pakistan, the Silk Road
Reuters, under the CPEC agreement, Fund unveiled its investment in the Karot
US$15.5 billion worth of coal, wind, solar Hydropower Project in Pakistan, the first
and hydro energy projects will be built investment project since the Funds
by 2017, which will add 10,400 establishment in December 2014. The
megawatts of power to Pakistans project is expected to cost about
national grid. By 2021, another 6,120 US$1.65 billion. (As of the time of
megawatts will be added to the writing, it is still not clear how much of
countrys national grid at a cost of the investment amount will come from
US$18.2 billion. A US$44 million optical the Silk Road Fund.)
fibre cable between the two countries
will also be built. The Karot Hydropower Project, which
is scheduled to start operation by
Also during Xi's visit, Pakistan's Karot 2020, will be run by the Chinese side
Hydropower Project became the first for 30 years before being handed over
recipient of funding support from to the Pakistan government.

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The Silk Road Fund will continue to find Bank (AIIB), according to a statement
investment opportunities for other released by Chinas Ministry of
projects under the framework of the Finance on 10 April. As a founding
China-Pakistan Economic Corridor, and member of the bank, Turkey possesses
will also look for opportunities the right to establish the rules for the
involved in the Belt and Road initiative. banks activities.

Founding members of China and Turkey boost


AIIB finalized at 57 economic ties

57 countries have submitted their Ever since China and Turkey upgraded
applications and become the founding their relations to a strategic partnership
members of the Asian Infrastructure in 2010, the two countries have enjoyed
Investment Bank (AIIB), with the booming development in bilateral trade
application deadline closing on 31 and investment relations.
March. Of the 57 founding members, 37
are from Asia and Oceania, and the rest In 2014, China became Turkeys 2nd
are from Europe, Africa and Latin largest source of imports and 19th
America. (Note that the deadline for largest market of exports, according to
founding membership application has data from the Turkish Statistical
passed. The AIIB will continue to accept Institute. Total trade volume between
ordinary members, which hold voting the two countries amounted to US$27.8
rights but have less say in the rule- billion in 2014, a 42.6% increase
making process.) compared with US$ 19.5 billion in 2010.
Representatives of the 57 founding
member countries will convene in late Besides, Turkey has become increasingly
April and late May to deliberate on the popular among Chinese investors. A
AIIB charter. With the signing of the group of Chinese enterprises, such as
charter expected to take place by Hainan Airlines, Chinas major
the end of June, the AIIB is set to be locomotive maker CSR Corporation Ltd.
launched by the end of this year. and agribusiness New Hope Group, have
already invested in Turkey, in areas such
as transportation, energy,
telecommunications, mining and
tourism. It is also noteworthy that the
Turkey joins AIIB as a Ankara-Istanbul high-speed railway, one
founding member of the signature projects of the Turkish
government, is jointly built by a Chinese-
Turkish Consortium.
Turkey has become a founding member
of the Asian Infrastructure Investment In November 2014, Turkish President
Recep Tayyip Erdogan expressed his

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The Silk Road Economic Belt and
the 21st Century Maritime Silk Road

support for the Silk Road Economic Belt Asia, Europe and the Middle East,
and Maritime Silk Road Initiative that put Turkeys participation in the Initiative
forward by China, during a meeting with will definitely help break infrastructure
Meng Jinzhou, special envoy of Chinas bottlenecks, further integrate markets,
President Xi Jinping. As a country that and better allocate resources in the
enjoys favorable location stretching to region.

Page 15
The Fung Group is a privately held multinational group of
companies headquartered in Hong Kong whose core businesses
are trading, logistics, distribution and retailing. The Fung Group
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The Fung Business Intelligence Centre collects and analyses


market data on sourcing, supply chains, distribution and retail. It
also provides thought leadership on technology and other key
issues shaping their future.
Headquartered in Hong Kong, FBIC leverages unique
relationships and information networks to track and report on
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Authors
Helen Chin
Fong Lau
Winnie He
Timothy Cheung

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