Question

Write an outlook report on the 21st-century trade and logistics in the Eurasia region with an explicit analysis of the Belt and Road Initiative. Consider the political, economic, socio-cultural and technological factors as well (P.E.S.T. Analysis).

Answer 1

A major route for China’s Belt & Road Initiative is the ”Road” section, which stretches along its main corridor from Xinjiang Province in Western China, through Kazakhstan, across to Azerbaijan, Georgia and onto Turkey and the European Union. Known as the Eurasian Land Bridge, the route is the fastest way from China to Europe. Over 6,300 trains made the journey from China overland to Europe last year, while the journey time from Shanghai in Eastern China to Istanbul in Turkey via Kazakhstan, Azerbaijan, and Georgia, including two sea transit segments, for arrival in Istanbul takes just 14 days.

In this article I examine the various Free Trade Zones that exist on the borders of these countries and which may therefore be useful when planning manufacturing ventures and available logistics and tax incentives along these routes, and taking advantage of the train network that is already becoming a standard Eurasian transportation mode.

Free Trade Zones (sometimes called slightly different names in other countries) are highly useful tools for foreign manufacturers as they generally allow the duty free importation of goods, and exemption from VAT. They also permit the claim-back of any VAT originally paid on purchasing goods in the respective host country. Consequently they are valuable sites within which added value production, such as assembly, or working on component parts from different origins can be conducted on a tax free basis. This is a significant factor in reducing manufacturing cash flow operational costs, and also allows for the addition of lower cost labor, depending upon the location, to be factored into the overall production cost rather than being exposed to one salary band in just one country such as China.

The geostrategic importance of Eurasia, the landmass comprising the continents of Asia and Europe, is increasing as a consequence of the ongoing global power shift. Within this theme, we analyze how a rising China has increased its economic and political influence through policies such as the Belt and Road Initiative. Our research also includes major power competition as a central factor shaping the new landscape in Eurasia, especially the China-​Russia-United States relationship.

1. Trade: Some very preliminary evidence was presented in this chapter on trade,
distinguishing trade creation effects within a trade bloc from extra-bloc effects for other
countries resulting from any positive flow-on income and other effects. Trade creation is
greater in regions where connectivity is likely to be less problematic, and extra-bloc effects
on exports and imports for BRI-participating economies are strong when they originate
from trade blocs where either China or the United States are members. This underlines the
need for investment that promotes greater connectivity and China’s role in the BRI is
especially important given the gravity effects of its economy.
2. Finance: China alone cannot fund all of the infrastructure needs of developing Asia; these
needs are very large and China faces its own financial constraints at home. This means that there is a need for more effort by OECD (Organization for Economic Cooperation and Development ) countries to
engage with those of the BRI and vice versa. The future of all economies is improved when
well-being rises around the world. This requires a sound investment environment to attract
the capital required and to ensure that host countries get the best value for money.
3. Co-operation: the OECD is in a sound position to help countries to improve their
investment environments. As living standards rise, history teaches that the role of markets
becomes more important in allocation decisions. Property rights, competition, level
playing fields, and sound governance based on voice and accountability have helped to
manage the transition. This is likely to become necessary in BRI-participating economies
too, and moving in this direction will encourage more funding from advanced economies
and multilateral lending institutions. The OECD has a number of regional initiatives under
way that are proving fruitful. The Central Asia Competitiveness Initiative (which is part of
the OECD Eurasia Competitiveness Programme) aims to help countries to enhance
productivity by supporting entrepreneurship, private sector development, inclusiveness
and the building of suitable knowledge-based economies. The OECD South-East Asia
Regional programme also works to achieve similar goals. Countries work with OECD
Committees covering a number of areas such as corporate governance, foreign direct
investment, competition, bribery and corruption, pensions, the environment, social policies
and taxation.

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