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  • Writer's pictureJennifer Light

The Belt and Road's Savior

The Belt and Road Initiative (BRI), often referred to as the New Silk Road, is a plan created by China to invest in countries around the world to provide infrastructure, support, and funding to those who need it. Is the EU joining to support the Belt and Road Initiative the solution we need to create a strong, interconnected worldwide economy? Keep reading to find out!

Developing countries have extremely weak economies. But the BRI is able to solve this problem, as it invests in infrastructure and cuts trading times. China has signed cooperation documents on jointly building the Belt and Road with 18 Arabian countries. In 2018, bilateral trade volume between China and Arabian countries reached $244 billion, jumping 28 percent. The World Bank ‘19 explains that countries such as Uzbekistan, Iran, and Maldives benefit the most after improvements in trading times, with an increase in their exports above 9 percent.

The impact of the BRI on developing countries is set to have a massive impact. Jones 2017 reports that there are “[14 million] people living below an adequate standard of living in the UK alone,” specifically because of the increase in living costs driven by the rising prices of goods. As the World Bank quantifies “BRI transport projects could reduce travel times along economic corridors by 12%, increase trade [by] 9.7%, increase income by up to 3.4% and lift 7.6 million people from extreme poverty.” The World Trade Organization found in 2015 that “Trade contributes directly to poverty reduction by opening up new employment opportunities,” and by bringing about structural changes in the economy that increase employment of low-skilled, poor workers in the informal sector.

Additionally, the joining of the BRI would allow for additional EU leverage.

Currently, the BRI is losing funding and failing as China struggles to fund it. The problem is the lack of transparency the BRI currently has, driving away potential investors. However, the EU joining has the potential to save the project, as Moravcsik 2017 finds that the EU’s economic power is 63 percent larger than that of China, leading Ciurtin 2017 to conclude, “the only possible [...] partner [for the success of BRI] is the European Union.” This means that not only will the BRI receive the boost it needs, the EU will have financial leverage over China, and can push them to increase transparency. This also solves because investors that were worried about transparency before can now invest.

The EU has a unique incentive to fund the BRI to strengthen relationships with China. Yiwei 2019 China and the EU are negotiating on a bilateral investment pact, and going through feasibility research of an EU-China free trade agreement. The BRI will provide greater energy for these efforts, and also promote the development of China-EU partnership of peace, growth, reform and civilization. Currently, the China Railway Express has made 14,000 trips between China and 49 cities in 15 European countries, linking countries together for shared development and building a new type of partnership featuring cooperation and win-win results.

The BRI would allow China to solve their current overcapacity of steel.

As China loses funds, the BRI slows. While China has been able to push their steel into EU infrastructure projects, China currently has an overcapacity of steel.

In the status quo, Hernandez of the New York Times writes that the failure of Chinese leaders to tackle the problem of excess production like Chinese steel and concrete has intensified an economic slowdown in China and threatens to wreak havoc on global markets, but the problem has worsened significantly in recent years.

Cheng writes that the overcapacity rate has recently surpassed 30 percent, the threshold at which overproduction may trigger loan defaults by companies that have borrowed. Pei writes in 2019 that it is also a safe bet that Beijing's funding for BRI will decline measurably this year -- and in the coming years. Freeman finds that a relatively modest 5% growth rate in such assets could create 137 million tons of demand for Chinese steel. This could reduce oversupply by 14%. The EU joining would solve this issue, as European funding would benefit this as implementation and BRI projects would create a demand for steel fueling China’s economy.

Cheng 15 finds “China nonetheless faces a high probability of being the next major power to face economic collapse and is now at a tipping point.” Too much steel could result in a Chinese economic collapse that will devastate the global economy as Belt and road news finds that “a China shock could potentially [create], one of the darkest economic periods in recorded history.”

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