Market Development and Policy for One Belt One Road

By Elsevier Science

The Belt and Road initiative is marketed by the Chinese government as the “twenty-first century maritime Silk Road and the “Silk Road economic belt. The initiative encourages policy coordination, trade facilitation, financial integration, and transport connectivity. The Belt and Road initiative covers at least 65 countries across Asia, Africa, the Middle East, and Europe, involving 70% of the global population, 75% of world energy reserves and 55% of world GNP. Such an initiative is expected to bring significant impacts to the transport and logistics industry in the regions involved. The transport and logistics sector not only directly contributes to the production of transport and logistics services, but also provides essential inputs to other sectors such as tourism, trade, infrastructure investment and management. Therefore, it is important to jointly analyse the implications of the Belt and Road initiative to the transport and logistics sectors, the best strategies and operation practices that the industry can pursue, and the right government policies that should be implemented in relation to the initiative.

This volume will be the first in Elsevier’s China Transportation Series, from series editor Paul Tae-Woo Lee. If you are interested in writing or editing for the series, please contact Dr. Lee: [e-mail].

• Reviews the historical development and current status of the transport and logistics industries in the markets covered by the Belt and Road initiative and identifies the determinants of market performances and industry policies
• Models the market mechanisms and firms’ decision-making patterns so that the effects of alternative business strategies and industry policies can be evaluated, helping stakeholders to identify the business opportunities brought by the Belt and Road initiative and predict the associated implications and policy changes related to the transport and logistics industry
• Brings together studies on important issues that may have inter-related effects and influences by: analysing different modes of transport and logistics services (e.g. maritime and inland river transport, aviation, rail, and road transports); investigating both regional and international markets that are covered by the Belt and Road initiatives, with a focus on Europe, China and Northeast Asia; and studying important issues related to business strategies, government regulation, social welfare and firm performances

• Language: English
• Publisher: Elsevier Science
• Release date: Aug 23, 2022
• ISBN: 9780128162866

Book preview

Chapter 1: An introductory overview of the Belt and Road Initiative studies

Achim I. Czernya; Xiaowen Fub; Paul Tae-Woo Leec    a Department of Logistics and Maritime Studies (LMS), Faculty of Business, The Hong Kong Polytechnic University, Hong Kong, China

b Department of Industrial and Systems Engineering, The Hong Kong Polytechnic University, Hong Kong, China

c Maritime Logistics and Free Trade Islands Research Center, Ocean College, Zhejiang University, Zhoushan, Zhejiang, China

Abstract

Since the inception of the Belt & Road Initiative (BRI) in 2013, significant changes have taken place along the belt and road (B&R), in terms of infrastructure investments, connectivity, global supply chains network, and trade development. In particular, approximately 700 projects in the transport infrastructure investments in 96 countries along the B&R in the period of 2013–2020 are expected to bring long-lasting changes to the industries and markets affected in the regions, encouraging policy coordination, trade facilitation, financial integration, and transport connectivity. Although many papers and studies are now available in public and have discussed a wide range of topics and sectors, it can be said that both theoretical and empirical studies are still scanty. On top of that, they have not fully addressed the implications of the BRI to the transport and logistics sectors by country cases and by region, the best strategies and operation practices that the sectors can pursue, and government policies that should be implemented in relation to the initiative. Having recognized this research gap, this book attempts to examine the development and performance in multiple countries. Even though not every chapter in this book is dedicated to the implications of the BRI, all of them have analyzed the transport and logistics sectors in the countries along the B&R, thus facilitate further studies more directly or exclusively to the BRI.

Keywords

Belt and Road Initiative (BRI); High-speed rail (HSR); Landlocked developing countries (LLDCs); Infrastructure investment; Transport/economic corridors; Maritime Silk Road; Infrastructure development; Maritime connectivity

Since the Belt and Road Initiative (BRI) first proposed by the Chinese government in 2013, significant changes have taken place along the Asia-Middle East-Europe region. In addition to the investments directly associated with the BRI, the initiative has also triggered policy changes in the affected countries and regions, firms’ perspectives of future developments, and thus their operations and strategic planning. Unlike common foreign direct investments (FDIs), the Chinese government's support behind the BRI has led to some concerns and even potential political conflicts. These complications have introduced more challenges in assessing the initiative's consequences, future developments, and interactions with the existing market mechanisms.

Although there are many different views concerning the BRI, either positive or negative, it is generally agreed that such an extremely large project is expected to bring long-lasting changes to the industries and markets affected. The initiative encourages policy coordination, trade facilitation, financial integration, and transport connectivity. It covers countries across Asia, Africa, the Middle East, and Europe, involving at least 70% of the global population, 75% of world energy reserves, and 55% of world gross national product. There is a need for policy makers, industry players, and academic researchers to obtain a good understanding of the BRI in a timely manner. Although many papers and studies are now available publicly, they have discussed a wide range of topics and sectors. Among these, the transport and logistics sector is of particular importance to the initiative: it not only directly contributes to the production of transport and logistics services but also provides essential inputs to other sectors such as tourism, trade, infrastructure investment, and management, which are the core targets of the initiative. Therefore, it is important to more carefully examine the implications of the BRI to the transport and logistics sectors in the region, the best strategies and operation practices that the industry can pursue, and the right government policies that should be implemented in relation to the initiative.

To facilitate timely studies of the transport and logistics sectors along the BRI regions, this book engaged researchers to examine the development and performance in multiple countries. Even though not every chapter is dedicated to the implications of the BRI, all of them have analyzed the transport and logistics sectors along the BRI region and thus facilitate further studies more directly or exclusively to BRI. Both theoretical and empirical studies have been included as we believe that in-depth analysis of this important issue needs advancements in both areas in the long term. These chapters’ main contributions and conclusions are summarized as below.

In Chapter 2, Tsz Leung Yip, Eve Man Hin Chan, and Danny Chi Kuen Ho conducted an analysis of the BRI's influences by examining the causal relationship between maritime connectivity and global trade. A number of studies have investigated the effects of improved transport connectivity in promoting international trade. This chapter contributes by considering trade beyond the BRI region. The authors develop an extended gravity model to study textile exports of 16 Asian countries or regions in BRI to United States, with the incorporation of the Liner Shipping Bilateral Connectivity Index (LSBCI) and Logistics Performance Index (LPI). Their analysis suggests that LSBCI and LPI play important roles in textile trade, which demonstrates the changing sectoral trade patterns between BRI and non-BRI economies. Their analysis provides insights into the importance of enhancing both international maritime connectivity and domestic logistics performance for trade facilitation.

The recommendation of improving domestic logistics performance to promote international trade is echoed in the analysis in Chapter 3, where Kun Wang, Wenyi Xia, and Anming Zhang discuss China's recent railway developments and policy reforms. The authors first review China's recent developments and policy reforms in its rail sector and then further discuss the implications of BRI. The policy discussions in the context of market performance and outcome allow the authors to draw a number of important conclusions. The authors concluded that China has been promoting deregulation in its rail sector, which introduces more changes facilitating the emergence of a more market-oriented rail industry. These changes brought various benefits and significant changes in terms of operational efficiency and network structure. The deregulation and changing pricing decisions of the rail sector will further facilitate China's trade by rail with BRI countries. These findings are apparently consistent with the key conclusions in Chapter 2 on the maritime sector. The authors further used the China-Euro Railway Express as an example for promoting transport connectivity and trade linking China, BRI countries in Central Asia, and Europe. Further discussions on China's domestic operations of high-speed rail (HSR) are also provided. Although HSR has mostly affected the passenger transport market, it has long-lasting effects on the rail industry's service provision, involvements of private capital, and positive effects on regional developments.

Indeed, passenger operation and service are important to the transport's growth per se, in addition to their roles in facilitating trades, tourism, and regional development. In Chapter 4, Yui-yip Lau, Meihua Xu, Xiaodong Sun, and Adolf Ng examined the effects of the BRI on the cruise industry. Currently, the cruise industry is still at its early stage of market penetration in most of the BRI countries, and most previous studies have examined the cruise market in North America and Europe, which are much larger cruise markets. However, with its huge population and fast-expanding economy, many scholars believe the cruise market in the Asia-Pacific region will have a bright future in the coming decades, with more emerging destinations added and fast-growing passenger volumes. There are however many issues to be solved before the industry can achieve sustained growth. For example, the availability and smooth operations of cruise terminals need to be solved. The industry also needs to better understand the opportunities and challenges of developing the cruise market along the BRI region. To fill these gaps in research, the authors first provide a review of the related policy and industry development in the context of the BRI market. They further examine the promising cruise itinerary in the region and how they could lead and facilitate sector growth in the region.

No transport sector can perform well without sufficient and efficient infrastructure invested. In the case of cruise operations, cruise terminal can be essential for high customer satisfaction. For terminal and port operations in general, sufficient investments in infrastructure are of critical importance for the efficient operations of the whole supply chain. Because port investments are often lumpy and significant, efficient port operation is itself an important research topic. In Chapter 5, Dong Yang examined overseas investment efficiency using three port case studies. Such a study aims to identify the factors influencing Chinese enterprises’ investment effectiveness in ports along the BRI region. Specifically, in the case of the Port of Piraeus, the effects of the Greece debt crisis in 2009 and COSCO Shipping's efforts in exploiting its supply chain integration power are examined. Political stability and existing investments are studied for the case of Hambantota Port, together with the operation experience of port operators. For the case of Gwadar port, the favorable geopolitical opportunity is also discussed.

The last empirical study was carried out by Kan Tsui Wai Hong and Hanjun Wu in Chapter 6, which focused on the effects of air transport subsidies on landlocked developing countries’ (LLDCs) connectivity under the BRI. Because LLDCs lack maritime connectivity, which is often one of the most important trade facilitators, there is more pressing need for them to improve air connectivity. However, the relatively high cost of air transport can be one major challenge to developing countries with a relatively low income. As a result, many countries have resorted to aviation subsidy. The authors examine the effects of air connectivity to landlocked developing countries in terms of trade and economic development, flows of goods and people, and tourism, in the context of the BRI. They argued that the lack of funding is a major obstacle for the growth of air transport. Although subsidy can be an efficient policy, a clear set of subsidy policies should be secured for LLDCs first. Such an effort can help identify the rationale and justifications for air subsidies to LLDCs too. To achieve this objective, the authors tried to draw lessons from the provision of essential air services to small and remote communities, a practice commonly used in many countries. Based on their analysis, the authors argued that improved air connectivity is expected to bring a win-win outcome for both LLDCs and partner countries, facilitating economic development and trade in goods and services and people movements between LLDCs and global markets.

Both empirical and modeling works have their distinctive advantages and limitations. Chapter 7 combines both approaches. The study, carried out by Gang Dong, Jin Li, and Paul Tae-Woo Lee, offers a case study of collusive pricing detection in ocean container transport along the Maritime Silk Road (MSR). The authors first develop a non-cooperative game theoretic model to detect the collusive pricing solutions between liner shipping companies and the corresponding container terminals. According to the game equilibrium results, a direct and applicable indicator is proposed, that is, the ratio of freight rates between the liner shipping companies, by testing 24 liner routes from the Far East to the Mediterranean region along the MSR. The collusive pricing solution is independent of designed capacity under one pair of colludes, whereas there is positive correlation with designed capacity in double collusion. The finding reveals that the collusive pricing solution would be most likely to occur between the liner shipping company, under the scenarios of low- or medium-level competition, and the corresponding container terminal with lower designed capacity.

The remaining chapters are all analytical in nature. In Chapter 8, Achim I. Czerny and Se-il Mun developed an analytical economic model to explain why the BRI can represent an equilibrium outcome. Specifically, the authors modeled the scenario in which trade costs are determined by trade volume, such as the international trade between China and Europe. This feature aims to depict the fact that unit transport costs are influenced by delays, which in turn are jointly determined by the transport volume and the capacity of transport infrastructures. This is an important issue because transport infrastructure shortage is common in many countries, notably developing countries in Africa or Central Asia. The authors first consider markets as perfectly competitive, and the two trading regions unilaterally decide to invest in the transit countries’ transport capacities. The unit capacity costs are considered to be different, which captures China's low cost of building transport infrastructure. The analysis results show that unilateral actions such as the BRI in which only the region with the lower unit capacity costs invests in transit countries’ transport capacities can represent an equilibrium outcome. However, equilibrium investments are too low to reach the first-best outcome which maximizes the welfare across all involved regions. That is, BRI's benefits to participating countries may be further enlarged by attracting investments beyond China. The authors then consider oligopolies in international trade. This part shows that local firms can benefit from import taxes in two ways. First, they increase the local profit by increasing the full price of consuming the non-local product. The second is by discouraging infrastructure development in transit countries, which softens the competition between local and non-local producers. Although the import tax and low-investment scenario effectively protect local firms, they can still produce negative welfare effects for both trading partners, highlighting the ambiguous effects import taxes can have on the local economy.

In addition to the general modeling work above, in Chapter 9, Alessandro Avenali, Tiziana D’Alfonso, Alberto Nastasi, and Pierfrancesco Reverberi focused on the interactions between high-speed rail and air transport integration in hub-and-spoke networks. The authors pointed out that air transport and HSR are not simple competitors. Indeed, air and HSR services can be complements on long-haul routes served by connecting flights through a hub airport. This complementarity creates room for cooperation between airlines and HSR operators, particularly relating to international connecting passengers. Airport managers are also interested in such agreements because they affect, among others, air traffic volumes and the demand for slots on the part of the airlines. The authors thus analytically developed a theoretical model to study transport operators’ incentives to cooperate and the strategic role of airports in facilitating or dampening airline-HSR cooperation via the airport per passenger fee. In the analysis, transport operators cooperate to offer a bundle of domestic HSR and international air services via a multimodal hub airport. The authors show that the scope for cooperation depends on two main factors, that is, the related sunk costs and mode substitution between air and HSR