China’s New Silk Road to significantly boost global trade

June 08,2018

China’s ambitious multi-trillion-dollar One Belt One Road Initiative could increase global trade by as much as 12 percent, cutting trading costs by half for the countries involved, senior economist with ING Joanna Konings said.

“Trade between Asia and Europe, not including trade between EU countries, accounts for 28 percent of world trade, so making those trade flows easier has a large potential impact,” said Konings, who specializes in international trade analysis. “The size of this impact depends on the sensitivity of trade to changes in relative costs,” she added.

Countries in Eastern Europe and Central Asia are set to benefit most, the economist said, explaining that the benefits will depend on where trade costs fall.

Konings considered three scenarios with a varying number of countries affected by the initiative, while assuming a 50-percent drop in costs. In the most conservative case, which includes only countries along the Eurasian economic corridor (China, Kazakhstan, Russia, Belarus, and Poland), BRI will boost global trade by four percent.

In the most optimistic scenario involving both BRI countries and their partners, nations in Central Asia and Eastern Europe will see the biggest increases. Trade for Russia, Kazakhstan, Poland, Nepal, and Myanmar would rise by an estimated 35 percent to 45 percent. China would see its trade jump by about 20 percent, Konings estimates.

“If trade costs are slow to fall, effects on world trade growth will be small in any given year,” she said. However, “significant falls in trade costs, even over a long period, could lead to large impacts on international trade.”