As the world’s economic centre of gravity returns to Asia, the old trade routes of the Silk Road are emerging from centuries in the shadows, creating new possibilities for trade and development. Where caravans of donkeys, camels, and horses once carried goods and ideas between East and West, today it is trucks, trains, aeroplanes and the internet that are binding one end of the Eurasian landmass to the other.
Since 2011, trains have transported Hewlett-Packard laptop computers and other electronics from Chongqing factories to Duisburg, an inland port at the heart of Germany’s industrial Ruhr region. BMW and Audi auto parts take the 11,000-kilometre Yuxinou Railway in the opposite direction, through Poland, Belarus, Russia, and Kazakhstan, destined for assembly plants in China. At less than 20 days, the journey is about twice as fast as sending the same goods by container ship via Shanghai or Shenzhen, and costs one third as much as air freight.
Trans-Eurasian integration received a major boost in 2013, when President Xi Jinping announced Beijing’s ‘One Belt, One Road’ initiative to deepen trade, investment, and infrastructure ties. He outlined plans for a land-based ‘New Silk Road Economic Belt’ through Central and Western Asia, coupled with a ‘21st Century Maritime Silk Road’, through Southeast Asia and the Indian Ocean.
China has since led the establishment of the Asian Infrastructure Investment Bank and unveiled schemes like the $40 billion Silk Road Fund to invest in infrastructure development across continents. Trains now connect places in China with cities as far afield as Madrid, Warsaw, and Tehran. Roads are being constructed along key transport corridors. New oil pipelines, power lines, high-speed rail, roads, telecoms, and shipping connections promise to link Chinese markets and producers to Southeast Asia, the Caspian and Black Seas, the Arab region, and beyond.
Just like its predecessor, the new Silk Road is about much more than transport connections. By lowering the cost of trading with inland China, it promises to narrow the growing income gap between the country’s interior and its richer coastal regions. But Chinese investment also has the potential to drive the economic rejuvenation of landlocked Central Asia.
Trading centres like Samarkand and Merv were once renowned for their prosperity. Today, high trading costs result in Central Asian countries being on the margins of international value chains, except as suppliers of raw materials like oil, gas, gold, and uranium. A highly networked Central Asia would not only lay the groundwork for increased value addition and better jobs for people from Armenia to Tajikistan, it would provide growing markets for companies in China and elsewhere in the world. It would also serve as a template for guiding comparable investments in Africa.
It is therefore welcome that the G20 meeting of finance ministers in Shanghai last February encouraged multilateral development banks to develop high-quality infrastructure projects and draw in greater private investment. Better connectivity will help capitalise on the positive spillovers of national infrastructure and create more investment opportunities.
But to maximise growth and poverty reduction two additional ingredients will be essential. First, focus on equipping small and medium enterprises (SMEs) with the tools to be more competitive and to take advantage of the new trade opportunities. SMEs account for over 95% of businesses and the lion’s share of jobs, and are thus central to achieving inclusive growth. SMEs are also essential to supporting the economic empowerment of women. Recent research by the International Trade Centre shows howgovernments can enable SMEs to tap into international production networks by adopting measures to support them to compete, to adapt to changing market conditions and to connect to foreign buyers and suppliers. A key means for SMEs to connect to more lucrative markets is e-commerce, w the potential of which remains largely untapped.
Second, hard and soft infrastructure must be tackled in tandem. Roads, physical connectivity and digital infrastructure are essential for goods and services to flow unfettered. But they require investments into ‘soft’ infrastructure:the right policies and institutions to support business and trade. Reducing non-tariff barriers, changing restrictive trade and investment laws, supporting trade credit for SMEs, liberalising trade in services – a key sector to enhance the competitiveness of businesses --robust health and safety institutions and policies as well as simpler border procedures: this is the oil that greases the wheels of SME trade and helps then access value chains.
Through its One Belt, One Road initiative and its chairmanship of the G20, China has a unique opportunity to ensure we lay the foundations for SMEs to benefit from the new trade highways in Asia, Africa, and beyond.
Arancha Gonzalez is Executive Director of the International Trade Centre, the United Nations-WTO trade development agency