1. Background

# **1. Background**

The Belt and Road Initiative (BRI), first proposed by President Xi Jinping of China in 2013, is an ambitious effort to improve regional cooperation and connectivity on a trans-continental scale. The initiative aims to strengthen infrastructure, trade, and investment links among countries along the Belt and Road. The “Belt” (Silk Road Economic Belt) links China to Central and South Asia and onward to Europe, while the “Road” (New Maritime Silk Road) links China to the nations of South East Asia, the Gulf Countries, North Africa, and on to Europe. Six economic corridors have been identified: The ChinaMongolia-Russia Economic Corridor; the New Eurasian Land Bridge; the China–Central Asia–West Asia Economic Corridor; the China–Indochina Peninsula Economic Corridor; the China-Pakistan Economic Corridor; and the Bangladesh-China-India-Myanmar Economic Corridor.

The overarching objective of the BRI as stated by the Government of China (GOC)<sup>1</sup> is “win-win cooperation that promotes shared development and prosperity”. It is a comprehensive package of five priorities, including but not limited to infrastructure connectivity. The other four are: coordination of development strategies and policies; trade facilitation to ensure “unimpeded trade”, financial integration, and people-to-people exchange.

Given the stated intention to promote trade flows among economies involved in the BRI, it is important to understand the existing trade linkages between economies along the Belt and Road (the “B&R Economies” from now on). The objective of this paper is to describe the existing trade linkages between B&R Economies in terms of gross trade as well as trade in value-added, which is a reflection of international shared production linkages. The intention is to lay a foundation for further study on potential impact of the BRI on trade and growth, as well as policies and institutions needed to maximize the benefit of BRI.

Since the BRI is presented as an open arrangement in which all countries are welcome to participate, there is not an official list of “BRI countries”. Different versions of unofficial lists of countries along the Belt and the Road exist, none of which received confirmation from the GOC. While some other longer lists include countries such as New Zealand and South Africa<sup>2</sup> , in this paper, we use one that has 66 countries and 68 economies as found in Table 1 of Appendix A1, where China; Taiwan, China; Hong Kong SAR, China are treated as three economies in order to be aligned with trade data. However, data are not available for every B&R Economy. The analysis in the paper revolves around two databases: the UN Comtrade and the OECD-WTO Trade in Value-Added (TiVA). The UN Comtrade database covers 60 of the 68 B&R Economies, while only 28 B&R Economies appear in the TiVA database (see Table 1 of Appendix A1 for details).

The first step of the analysis focuses on gross trade flows of intermediate and final goods. With the help of the UN Comtrade database we quantify the weight of the 60 B&R Economies in global trade. The trade data show that B&R Economies account in 2015 for 37 % of world trade. In addition, we notice that they are key players in the manufacturing of intermediate goods. However, there are strong regional discrepancies. Using the World Bank regional classification, we find that Europe and Central Asia (ECA) and East-Asia and Pacific (EAP) accounted, in 2015, for about 80 % of total exports from B&R economies. Thus, part of the spectacular growth in exports is driven by dynamic economies present in these two regions. Nonetheless, intra-regional trade has been on the rise and mostly because of high demand and supply of EAP economies for intermediate goods. The most important sector for B&R exports is the computer and electronics one.

We notice that there are strong sectoral disparities in the composition of B&R exports. The importance of the computer and electronics sector derives from the weight of EAP economies. Mining and quarrying

> 1 Vision and Actions on Jointly Building Silk Road Economic Belt and 21st-Century Maritime Silk Road. 2015/03/28.

> 2 For example, the list put together by Hong Kong Trade Development Council includes New Zealand and South Africa. See http://china-traderesearch.hktdc.com/business-news/article/The-Belt-and-Road-Initiative/The-Belt-and-Road-Initiative-CountryProfiles/obor/en/1/1X000000/1X0A36I0.htm.

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