How the BRI Is Shaping Global Trade and What to Expect From the Initiative in Its Second Decade



Clark Banach & Jacob Gunter | Mercator Institute for China Studies (MERICS)

At the end of November, China’s Belt and Road Construction Leadership Group released a ten year plan for the next phase of the BRI. This comes a month after Beijing celebrated ten years of China’s Belt and Road Initiative by hosting the Third BRI Forum with attendees from 150 countries. This special edition of the Global China Competition Tracker looks at the BRI’s first decade of evolution, assesses its impact, and asks what the future of Xi Jinping’s signature foreign policy initiative might look like. 

The BRI has had considerable influence on China, on BRI host countries and the world. It would be wrong to see it as a declining force simply because Beijing is allocating less finance to BRI projects: many of the BRI’s initial goals were achieved early on in its first decade. The BRI has evolved over time to suit Beijing’s strategic goals. This special edition of the tracker examines the BRI’s impact on trade flows through the ports sector – critical logistics nodes along the BRI. We look at the ports built, bought, operated and used by China’s state-owned national champions. 

First, Clark Banach maps out China’s footprint across global port ecosystems in a detailed map. Banach, who is MERICS Futures Fellow, explains the more deeply Chinese SOE’s are entrenched in a port, the more strongly it is pulled into China’s orbit at the expense of trade with other partners. 

Second, MERICS Lead Analyst Jacob Gunter builds on Banach’s quantitative analysis with a qualitative look at how China’s involvement in ports develops. Gunter details China’s presence in Mediterranean and Northern European shipping ecosystems and how ports can spread distortions emanating from China’s own economic model. He examines how port networks create potential dependency and influence risks. 

Banach and Gunter then take a closer look at four Mediterranean ports with Chinese participation. In each case study, they assess Chinese SOEs’ strategic and commercial success or failure. The case studies look at port holdings or operations in Greece, Spain, Algeria, and Israel and offer a way to benchmark Beijing’s desired outcomes and how far they are being achieved. 

Finally, they suggest what the future of the BRI might look like, drawing on President Xi Jinping’s speech to Third BRI Forum and their own research. The future BRI can be expected to leverage its extensive built infrastructure further, while shifting focus towards green energy and telecoms equipment. China’s green transition industries suffer from overcapacity, so they need export outlets, while telecoms giants like Huawei and ZTE must secure and expand their footprints in more neutral markets to compensate for restrictions on their activities in liberal democratic markets. 

Chinese port holdings and projects impact trade beyond the BRI

The BRI was officially introduced in 2013 as part of Xi Jinping’s agenda to expand China’s global influence. However, the initiative had been gathering speed since 1999, first as the “Go Out Policy” (which encouraged Chinese businesses to find partners in international markets), then as the “Going Global Strategy.” By the time Xi Jinping officially baptized the BRI as “One Belt One Road,” Chinese firms had secured terminal operating contracts at ports in 14 countries (in order of agreement: United Kingdom, Argentina, Pakistan, Belgium, Malta, Poland, Spain, Egypt, Angola, United States, Greece, Sweden, Nigeria, Sri Lanka and Togo). In the last 10 years, the network of global influence has expanded to over 75 countries. 

To better understand how this network of Chinese owned, operated or built port terminals affects world trade, we identified changes in exports, imports, and total trade flows after signing a contract. Our findings suggest China’s port network has played a significant role in reshaping international competition. The results indicate that terminal operating contracts have a significant impact on bilateral trade with China, while a completed port project will temporarily increase trade with the rest of the world (RoW).

Where Chinese firms operate ports, they appear to modify the host countries’ trade toward China and away from former trade partners. By contrast, infrastructure projects appear to bring temporary economic benefits to host economies that fade away about four years after completion. For the BRI’s trade network to function as a new development model, it would need to bring substantial benefits to host countries. While the BRI has generated extensive discussion and geopolitical debate, detailed analysis of its economic effects has been limited. At present, it remains uncertain whether the benefits of these relationships outweigh the risks, or if the new model of interconnectivity benefits host countries as much as they benefit China. 

These are not abstract matters, as Germany recently allowed Chinese state-owned shipping giant COSCO to take a significant stake in the port of Hamburg. An expansive presence in Mediterranean ports has also garnered substantial attention, as it could offer strategic advantages for China among growing tensions between Europe and Asia.

The Maritime Silk Road stretches further than its official footprint

China’s reach extends far beyond the BRI’s official membership boundaries and is fortified by its prolific investment in overseas ports. This ambitious expansion fits within China’s broader global economic strategy. Although the official Maritime Silk Road (MSR) serves as a primary channel for international flows, additional port contracts with Chinese firms can be considered tributaries along a wider network of influence. Countries along this extended MSR can transact relatively easily with Chinese firms due to shared standards and practices along the supply chain.

The BRI’s stated objectives include policy coordination, facilities connectivity, unimpeded trade, financial integration, and people-to-people bonds. This reduces uncertainty as well as the transaction costs of trade between partners, which can manifest as fees, commissions, insurances and legal expenses, along with the time required to procure these services. In a world increasingly interconnected by trade, transaction costs play a pivotal role in shaping economic relationships. 

China’s port activities influence Global Trade Networks

Our estimates suggest that this growing constellation of Chinese port activities has had a significant impact on total trade with China over the past 20 years. Typically, we see a trend towards more exports to China as control over terminal operation increases. This means that Chinese firms are buying a greater share of their goods from these countries than ever before. Furthermore, these results are not affected by a country’s development status. Regardless of GDP per capita, the changes are significant and consistent.

All participation is not created equal. Investment projects, property acquisitions and operating agreements for port terminals by Chinese SAEs are not equivalent events. As the level of control at the port increases, total trade also increases with China. Port construction projects show a different pattern. As Chinese investment increases, so does trade with the rest of the world, at least temporarily. The statistically significant increases to total trade flows begin six years prior to completion and, on average, turn negative four years after completion. This suggests that trade increases may come from the surge in materials, equipment and project requirements to actually develop the terminal rather than a reduction in trade costs.

Unless a Chinese SAE is involved in port operations, there are no measurable long-term changes to trade flows after a port development project. This is surprising, as gains from trade are often the main motivation for large maritime infrastructure projects. However, there is evidence that the short-term increases to total trade during the time of construction do generate temporary economic benefits for host economies. 

Key findings from empirical analysis of Chinese port activities

A port contract with a Chinese firm does not predict an increase in trade between other members of the extended MSR. This implies that there is no significant reduction in costs between these trade partners and that cost savings are a result of a reduction in transaction barriers between host economies and Chinese markets. Pricing data would be needed to confirm whether host countries have shifted business away from low-cost providers, but trade flows indicate that trade is being diverted away from their former trade partners in favor of trade with Chinese firms.

  • Total trade with China is expected to increase about 21 percent after a terminal operating contract is signed and exports to China usually increase more than imports.
  • Expected increases are magnified if Chinese firms have a controlling interest in all terminals, in at least one port in the country. In these cases, over a 12-year period, exports to China would be expected to increase by 76 percent, whereas imports from China would be expected to increase by 36 percent.
  • Host countries that allow Chinese firms to operate all terminals in at least one port saw a 19 percent reduction in exports to the rest of the world (RoW) during the analysis period.
  • Chinese firms buy more goods than they sell to the host countries after operating agreements are signed and much of the cost savings go to the Chinese.
  • There is no measurable effect on overall trade between other members of the trade network, regardless of whether China is included in the estimation.
  • Completed infrastructure projects bring no significant long-term effects. Agreeing to and completing an infrastructure development project predicts a temporary increase in trade with all partners during the duration of a project, but these effects do not last.

These results indicate that hypothetically, a country could maximize the economic benefits of cooperation by allowing Chinese SAEs to operate one or two port terminals, while also negotiating regular maritime infrastructure development projects that diversify import and export partner during construction. However, this constellation omits the serious financial and geopolitical risks of unintended lock-in effects and challenges that can arise during long-term operating contracts. 

Geopolitical risks need consideration 

It would be too ambitious to claim that China is indeed giving the world a new model of international development, although it appears their maritime activities have certainly modified conditions in global markets. China’s network of SAEs acts as a quasi-supranational organization seeking to establish a global footprint. Host economies may gain from greater trade, increased commerce and cheaper goods but the price tag includes institutional lock-in and loss of diversity in trade partners.

For policymakers, the challenge is to find a balance between benefiting from economic interdependence and mitigating the hazards in a geopolitically unstable world. In the best-case scenario, any trade diversion would benefit network members by reducing total trade costs; however, in real terms, an undiversified supply chain is a national security risk. The more a country becomes economically dependent on another, the less agency it will have in making economic decisions. Caution is advisable.

MERICS China Global Competition Tracker No. 4 2023

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