Trade Compliance

GHY discusses changes to international trade regulations and explores cutting-edge compliance strategies.

Flying Geese and the New Silk Road

Posted May 14, 2015


As debate rages in the U.S. Congress over granting President Obama Trade Promotion authority to push ahead with two mulitlateral trade deals and the chattering classes furiously argue about whether the “secret” Trans-Pacific Partnership (TPP) will “juice the economy” or be a “disaster for working families,” China is quietly but steadily making progress implementing its own ambitious global trade and economic development strategy.

First unveiled by Chinese leader Xi Jinping in 2013, China’s “Belt and Road” initiative – also known as “One Belt, One Road” – is an economic development strategy comprising the Silk Road Economic Belt, a northern road corridor which will link China with Europe through Central and Western Asia, and the 21st Century Maritime Silk Road, a southern maritime corridor to connect China with Southeast Asia, Africa, and Europe.

Historically, the Silk Road or “Seidenstraße” was a network of trade routes, formally established during the Han Dynasty of China (almost contemporary with the Roman Empire), which linked the regions of the ancient world in commerce. The term was first coined in the 19th century by the German geographer, scientist and traveler, Ferdinand von Richthofen. And yes, in case you were wondering, he was an uncle of the World War I flying ace Manfred von Richthofen, best known as the “Red Baron.” The Silk Road narrative has been used for the past two decades by Chinese leaders to increase China’s – mainly economic – cooperation with other countries in Central Asia, South Asia and the Middle East, Africa – and in Europe.

The Belt and Road aims to eventually become the world’s third-largest trade axis after the Atlantic and the Pacific, encompassing a region of 4.6 billion people, or more than 60% of the world population, with a total gross domestic product (GDP) of US$20 trillion, about a third of the global total. The initiative serves more as a roadmap for China’s further integration with the world economy, bringing “new opportunities and a new future to China and every country along the road that is seeking to develop,” Shao Binhong, secretary-general of China Society of World Economics told a conference this week organized by the University of Lisbon.

According to Zhang Monan, a researcher at the China Center for International Economic Exchanges, the Belt and Road Initiative will “create a new flying geese paradigm,” referring to the Japanese theory of economic development based on a graduated transfer of industrial value down the chain among nations. During the 1980s Japan led the Asian “flying geese,” its advanced industrial structure situating it at the front of the flying V, with then newly industrializing economies of China and ASEAN countries following behind in secondary slots making up the rear. As China’s industry upgraded and Japan’s economy stagnated, the old mode of industrial division and transfer in Asia led by Japan has been broken, says Monan.

Transferring its advantages in labour costs and natural resources, China expects to shift more of its labour- and capital-intensive industries to some countries along the Belt and Road over the next five years, upgrading their industrial structure and improving their level of industrialization along the way. As a result, a new flying geese paradigm will be formed, but this time with China in the lead at the front of the V.  Monan sees China fully exploiting “economic complementarities” of countries along the Belt and Road in the process as it establishes supply, industrial and value chains that promote trans-Asia and Asia-Europe economic integration.

Meanwhile, back in Washington, the procedural setback in the Senate earlier this week was just the first of many obstacles facing President Obama’s trade agenda, which also must overcome stumbling blocks on human trafficking, currency manipulation, worker retraining and investors’ legal rights.