Impacts of the belt and road initiative on China’s bilateral trade

Abstract

This study contributes to the existing literature by empirically analyzing the impacts of the Belt and Road Initiative (BRI) on China’s bilateral trade. Applying an augmented gravity model to trade flows between China and its 190 trading partners, of which 140 countries have signed the BRI agreements sequentially, during the period 2012–2020, we find that: (1) The BRI can significantly increase the extensive and intensive margins of China’s exports and imports, while reducing China’s trade surplus. (2) The BRI stimulates trade quantities, while lowering unit values of traded products. (3) These effects vary by income level and product category. In short, the BRI has been quite effective in strengthening China’s global trade position and it is also beneficial to both trading parities. Policy implications are proposed accordingly.

Keywords:

• Belt and Road Initiative
• extensive margin
• intensive margin
• gravity model
• bilateral trade
• China

JEL CODES:

• *F1
• F13
• F14

Acknowledgements

This research was funded by Chongqing Social Science Planning Project (CN) (Project No. 2020P Y39); the National Natural Science Foundation of China (Project No. 71973067 and 71934005); and Project of Priority Academic Program Development of Jiangsu Higher Education Institutions (PAPD).

We thank the editors, the anonymous reviewers, and the discussants for their valuable comments and recommendations. All faults, if any, belong to the authors.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 China’s exports constantly exceeded its imports between 2012 and 2020 and maintained a sizeable surplus even during the downturn (Figure 1). In 2020, China’s trade surplus reached USD515 billion. This not only puts great appreciation pressure on Chinese yuan (CNY or RMB), but also exacerbates trade frictions between China and its trading partners such as the United States.

2 In 2012, the top four trading partners, i.e., the European Union, the United States, the ASEAN, and Japan, accounted for 43.7% of China’s foreign trade. In other words, China’s foreign trade and economy are largely influenced by these economies.

3 Electro-mechanical products accounted for 57.3% of China’s export in 2012, followed by labor-intensive products (19%) and agricultural products (3.2%). Excessive dependence on any product will make China subject to fluctuations in the international market for that product. Moreover, the energy consumption resulted from electro-mechanical production burdens China’s natural resources and ecological environment.

4 In 2013, Chinese President Xi Jinping proposed to jointly build the “Silk Road Economic Belt” and the “21st Century Maritime Silk Road,” earlier referred to as the One Belt, One Road (OBOR) initiative, and then known as the Belt and Road Initiative (BRI), during his visits in Kazakhstan and Indonesia.

5 We classify six-digit trading products according to the HS2012 code.

6 The unit value of a trading product is calculated by dividing its overall trading value by its trading volume.

7 BRI trading partners refer to countries that have signed BRI agreements with China, otherwise they are non-BRI trading partners.

8 Results of robustness checks are available upon request.

Additional information

Notes on contributors

Jing Wang

Jing Wang, granted PhD degree in Economics by Oklahoma State University in the United States, currently works as an assistant professor in the School of Economics of Chongqing Technology and Business University. The current research interests cover international economics and trade, regional and urban economics, energy economics, environment, etc.

Xi Tian

Xi Tian is a professor of economics at Nanjing Agricultural University. His research interests span international economics, development economics, and corporate finance.