Opportunities and challenges regarding trade agreements in Asia-Pacific. Full report accessible at www.marketopportunities.fi

1. TRADE IN ASIA
OPPORTUNITIES AND CHALLENGES
An Economist Intelligence Unit report developed for Tekes
August 2017

2. 2
GLOBALISATION AND BUSINESS

3. OPENING UP IN FITS AND STARTS
3
Technology and access
to emerging markets
led to a period of
hyperglobalisation
• Globalisation has been one of the resounding economic phenomena of the
modern age. Free movement of goods, labour and capital across various
geographies was augmented by agreements and policies that allowed companies
to relocate parts of their production processes and dip into cheap resources in
emerging markets.
• As such the biggest beneficiaries of this era have been emerging market
economies. These countries were able to rapidly cut down on poverty and
jumpstart development.
• Bilateral trade deals, multilateral charters and the prominence of international
organisations and financial institutions such as the World Trade Organization, the
International Monetary Fund and the World Bank, have been a resounding
consequence of this period.
• However, the world economy is entering a phase of skeptism towards
globalisation. This is largely motivated by populist politicians in advanced
economies and resentment from the middle class disgruntled over job
opportunities and stagflation.
• The withdrawal of the US from the Trans-Pacific Partnership (TPP) agreement, the
most promising multilateral trade deal in the recent decade, in November 2016,
was a major setback to the outlook for globalisation and multilateralism. While the
remaining members of the agreement are willing to resurrect it, a so-called TPP-
11 will require the remaining members to return to the drawing board and re-
negotiate a new agreement.

4. Source: The Economist Intelligence Unit.
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
4
TRADE OPENNESS HAS
SKYROCKETED FROM
20% IN 1990 TO OVER
50% IN 2017.
Global trade openess
* Trade openness is calculated as a ratio of the sum of merchandise exports and imports to GDP in 2005 US$ dollars.

5. GLOBALISATION AND ASIA
• Asia has become one of the most successful regions in the age
of hyperglobalisation. World trade increased phenomenally
after China’s accession to the World Trade Organisation (WTO)
in December 2001. According to WTO rules, China cut import
tariffs and abolished market restrictions.
• Since 2008 and the Global Financial Crisis, global trade growth
has moderated. International free-trade agreements (FTAs)
have become harder to conclude with rising protectionist
sentiment. For its part, China has become embroiled in a
number of trade complaints and disputes, though these have
not led to major conflicts.
• China’s rise as a major global economy helped develop
external sectors of many smaller Asian nations which supplied
the country with resources and technology.
• China is now the largest trading partner of most exporting
countries in Asia. In 2016, Asia along with Europe and North
America, accounted for 88% of global trade according to the
WTO. The integrated sub-region of the Association of South
East Asian Nations (ASEAN) accounted for 7% of global trade.
• Free trade agreements took off in Asia from the early 2000s.
According to WTO, 17% of total global regional trade
agreement (RTA) are in force in Asia. This is second only to
Europe which has 20% of all RTAs in force.
5
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
China
joins WTO
Global financial
crisis
Commodity price
collapse

6. 6
THE NUMBER OF FTAs
IN EFFECT IN ASIA
STANDS AT 147.
IN 2000, THE NUMBER
WAS 39.
Source: World Trade Organization.
Number of FTAs in effect in Asia
Source: Asian Development Bank.
0
50
100
150
200
250
2000 2005 2010 2015 2017

7. OUTLOOK IN ASIA • Prospects for FTA and multilateral deals are positive in Asia. With the US
turning away from trade liberalisation, China now has the opportunity
to set the rules of engagement for south-south trade.
• China said it wants to push ahead and promote an Free Trade Area of
the Asia-Pacific (FTAAP), to which the 21-member APEC aspires.
However, given much of its domestic market remains closed to foreign
competition, countries may doubt the depth of China's commitment
to trade and investment liberalisation.
• TPP and the Regional Comprehensive Economic Partnership (RCEP),
with their overlapping membership, would have provided a strong
foundation from which to build an FTAAP. The collapse of the TPP will
obliterate one pathway, leaving just the RCEP in place.
• Other signatories will be disappointed with the passing of the full TPP
agreement, but they—and other countries in the region—will move
quickly to deepen trade ties with China. After all, China remains on
course to overtake the US as the world's largest economy by the 2030s,
and in recent years it has become one of the leading trading partners
to many countries in South America.
• The RCEP will edge towards completion, although a ratification and
eventual implementation of the TPP might have expedited
negotiations. In the interim, there is likely to be a proliferation of
smaller bilateral deals. The demise of TPP is a major setback for trade
liberalisation but these moves towards deeper south-south trade
integration will continue.
7

8. EU-SOUTH KOREA
FREE TRADE AGREEMENT
8

9. 9
• The EU-South Korea FTA took effect in July 2011. It was the first trade deal the EU made with an Asian
country .
• The FTA is far reaching and includes nearly all products. Since its inception, import duties have been
removed from most goods exchanged between the EU and South Korea while trade in services have
also been significantly liberalised.
• The deal includes provisions on investment in services and industrial sectors. Intellectual property
protection is also assured. Special agreements to reduce non-tariff trade barriers (NTBs) particularly in
the automotive, pharmaceutical and electronics sectors have been made.
• The FTA removes NTBs in two ways: (a) standardising quality controls and certifications for electronics
and (b) transparent pricing structures for pharmaceutical devices and goods.
• Regulation against anti-competitive practices have also been included.
• There is also a Protocol on Cultural Cooperation which includes the commitment of both parties to
promote cultural diversity in accordance with the UNESCO Convention.
Overview

10. 10
• Systematic removal of NTBs: Technical
regulations and standards conformity
assessment procedures have been significant
roadblocks for trade. The FTA commits to
removing these technical barriers and improve
transparency. No duplicate testing is required for
electronic goods as an example. A special
accelerated dispute settlement mechanism
ensures compliance with rules for the
automotive sector.
• Government procurement: Provides an
opportunity to enhance procurement to public
works concessions not covered by WTO
government procurement agreement
commitments.
Economic and business benefits
• Tariff elimination: Machinery and
appliances represent the largest sector
for duty savings, followed by chemicals
sector. Sensitive products such as
passenger cars and consumer electronics
have a more gradual reduction in duties
from time of entry. Only products
originating from either the EU or SK can
benefit from the preferential tariff.
• Agricultural product exports: The FTA
provides the biggest market liberalisation
for agricultural exports. It removes duties
for nearly all EU agricultural exports into
South Korea.

11. 0
10000
20000
30000
40000
50000
60000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Trade between South Korea and the EU (US$ billion)
EU-South Korea imports
EU-South Korea exports
• South Korea is now one of the EU’s top-ten trading
partners. The FTA has also facilitated trade with
other Asian countries and the EU has reported that
exports to Asia has increased by 55%.
• The EU has also reported that the FTA has saved
European businesses EUR2.8bn (US$3.3bn) in
customs duties. The agriculture sector in the EU
has been a particular beneficiary of this.
• The success of the FTA has meant that the
European Commission reviews terms on a regular
basis to explore possibilities for expansion. The
Commission is currently looking at the potential to
expand into the logistics sector, which was
excluded in the current agreement.
• The EU uses the FTA with South Korea as a
benchmark. It has implemented the model to
strike up deals with many Latin American and
some non-EU European countries. Deals are also
being negotiated with Canada, Singapore and
Vietnam along the lines of the EU-SK FTA.
18%
15%
8%
6%
4%
4%
3%
2%
2%
USA
China
Switzerland
Russia
Turkey
Japan
Norway
South Korea
India
0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%
EU’s trade partners in 2016 (% of total trade)
Source: EU statistics.
Trade impact

12. • One sided impact. Over the years, it has become clear
that the EU-SK FTA has had a one-sided positive effect.
EU businesses have been able to take advantage of lower
tariffs and demand for European products among
According to a 2015 survey by Korea Trade-Investment
Promotion Agency, of 360 major companies in 18 EU
member countries, 70% are taking advantage of the FTA
to promote their business opportunities.
• Global recession and EU crisis. One reason why the
impact of the FTA has been mostly one-sided is that the
period of its effect also coincided with a recession in
many European economies. This kept EU demand for
goods and services weak. Lower shipments has
particularly impacted South Korea’s shipping sector, one
of the largest industries of the country.
-20
-15
-10
-5
0
5
10
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
EU-South Korea trade balance (US$ billion)
Source: EU statistics.
Challenges

13. ASEAN
FREE TRADE AGREEMENT (AFTA)
13

14. 14
• The Association of South East Asia Nations (ASEAN) free trade agreement was ratified by the six
original members of the group (Indonesia, Malaysia, Thailand, Singapore, Philippines and Brunei). By
1999, it had extended to Vietnam, Myanmar, Cambodia and Laos.
• The AFTA has been set up to (a) reduce tariff and non-tariff barriers to trade across the ASEAN region;
(b) raise foreign direct investment and (c) increase competitiveness of ASEAN businesses
• One of the formal institutions set up under this FTA is the common effective preferential tariff (CEPT)
scheme. The CEPT covers a list of products that are tariffed in the 0-5% range across all the signatory
countries.
• According to the ASEAN Secretariat, the six original signatories are now 99% compliant with CEPT
inclusion list, while the newer members are nearly 80% compliant.
• A review of the AFTA in 2003 led the ASEAN-6 to remove tariffs completely on 60% of the goods on the
CEPT list. They are now at 64.1% according to data from the ASEAN.
• The average tariff in the region is 1.5% (in 1993, it was 12.8%).
• Non-tariff barriers , particularly ad-hoc custom surcharges and technical measures, remain a
hindrance to business and trade taking off.
Overview

15. 15
• Movement of goods and market access. AFTA has
particularly benefitted exporting countries that have
less experience in negotiating bilateral FTAs with the
international community. For example, businesses in
the Philippines, according to a 2009 survey by the
Asian Development Bank (ADB), has been the biggest
user of the AFTA preferences because years of
autocracy made its institutions otherwise ill-equipped
for bilateral agreements. The survey also found that
higher export sales in general is the reason why many
firms prefer availing the AFTA. With approximately
600m consumers in ASEAN as a whole and 5% GDP
growth average rate over the past decades, the region
is quickly becoming one of the fastest growing markets
in the world.
• Foreign direct investment into ASEAN. One of the key
hopes of the integration facilitated by AFTA was to
attract investment into ASEAN economies. The inflow
of FDI, however, was slow to take-off as many of these
countries were still very much in early stages of
development. But between 2010-15, FDI inflows have
taken off sharply. Annual average growth of intra-
ASEAN FDI was 9.2% in this period. China is one of the
largest investors in the region.
Economic and business benefits
• Market access and south-south trade. As the first of its
kind in ASEAN, AFTA was one of the building blocks for
economic and market integration in South East Asia.
Intra-regional trade has risen from US$439.5bn in
1993 to an estimated US$2.3trn in 2016 (annual
growth rate of 8.4%). Many ASEAN countries, however,
still view other Asians such as China, Japan and South
Korea as their main trading partners.
• Economies of scale. The AFTA has changed the overall
trade structures of most ASEAN countries. For
example, a study of automobile shipments of Indonesia
and Thailand shows that over the years of the AFTA,
Indonesia has become a net auto importer while
Thailand is a net exporter. This implies that
multinational enterprises have the opportunity to base
themselves in a location where they are able to gain
economies of scale while availing preferential tariffs to
supply to other growing markets in the region.
Anecdotal evidence of Japanese car manufacturers
setting up in ASEAN also confirms this trend.
• Preferential tariffs. Lower tariffs on capital goods has
also made it possible for multinationals to produce in a
cost effective location while accessing intermediate
goods from elsewhere in the region.

16. 0
50
100
150
200
250
300
2000 2016
Exports Imports
Intra-ASEAN trade
Source: ASEAN statistics.
0
20
40
60
80
100
120
140
160
2010 2011 2012 2013 2014 2015 2016
Inbound FDI in ASEAN
31%
25%10%
14%
20%
EU Intra-ASEAN China Japan Other
Intra-ASEAN trade has
doubled between 2000-16
Total FDI into the ASEAN has risen from US$28-30bn levels in the
1990s to US$100bn levels in the 2000s.
The EU is the largest source of inbound FDI in the ASEAN
Contributors of FDI into ASEAN in 2016

17. 17
Challenges
• Regulatory complications. The AFTA is part of the ‘noodle
bowl’ of FTAs in East and South East Asia. The ‘noodle bowl’
theory suggests that different tariffs and rules of origin
(ROOs) in multiple FTA deals has resulted in burdensome
bureaucratic procedures for businesses. Apart from the
AFTA, there are 6 other FTAs ASEAN is involved in. Evidence
from ADB suggests that while AFTA itself has the simplest
ROOs, use case has been higher for other FTAs such as the
ASEAN-PRC FTA. According to an ADB survey in 2009, 37.5%
of firms in Singapore, 27.7% in the Philippines and 26.2% in
Thailand reported that multiple ROOs pose high levels of
costs to the business.
• Insufficient information. Related to regulatory complications
is the level of support systems offered by the FTA and
individual governments involved. Interestingly, firms in the
Philippines have declared the lack of information on AFTA to
be the toughest challenge in terms of use. Indeed, firms
across ASEAN have highlighted the information deficit on
AFTA. This has greatest impact on firms dealing in food
products. Firms have highlighted that not enough
information is available regarding how products benefit from
AFTA preferences.
• Nontariff trade barriers. These are wide ranging and pose
another major challenge to the appropriate implementation
of the AFTA. These usually refer to ad-hoc customs duties
imposed by the host country or other technical measures
that tend to be driven by policy thrust. For instance,
nationalistic policies such as achieving food self sufficiency in
countries like Indonesia has led caps on imported food stuff
such as beef and rice in the hope of encouraging more
domestic production.
• Narrow margins. A rigid list of exclusions means that firms
find little difference between the AFTA tariff benefits and the
Most Favoured Nation (MFN) benefits offered by the WTO.
This has been true for electronic exporters who enjoy almost
no tariffs under the MFN scheme while some specific parts
can tend to fall under AFTA’s sensitive list. Food exporters
have highlighted relatively low marginal value from using the
AFTA scheme. In contrast, firms dealing in transportation
goods, have reported the most marginal advantage in using
the FTA preferences over the MFNs.
• Delays and administrative costs. Firms across ASEAN have
also highlighted that process delays tend to put them off
using AFTA. For example, procuring a certificate of origin
(CO) can be challenging and subject to delays.

18. 18
THE AFTA HAS BEEN
THE SECOND MOST
PREFERRED FTA IN
ASIA*
Source: Asian Development Bank.
Number of businesses that use the AFTA compared to other FTAs in the region*
* Surveyed by the ADB in 2013. Use has been defined as export value covered by preferences.

19. • Despite regulatory issues, prospects for further liberalisation within the AFTA region remains positive. In the short
term, global demand will be buffeted by a slowdown in China’s economy and a technical recession in the US. Though
this will also mean lower trade in ASEAN, healthy domestic markets will mean that recovery will be quick.
• In November 2015, ASEAN formally declared the opening of the ASEAN community consisting of three pillars:
economic, social and security. The ASEAN Economic Community (AEC) has officially opened and involves a more
complete integration process than the AFTA. As ASEAN improves regulatory and policy coordination in line with the
AEC requirements, prospects for AFTA and increasing use will also improve. AEC will particularly benefit the movement
of services, capital and labour.
-0.15
-0.1
-0.05
0
0.05
0.1
0.15
3.8
4
4.2
4.4
4.6
4.8
5
5.2
2013 2014 2015 2016 2017 2018 2019 2020 2021
Percentchange,yearonyear
Trade and economic growth in the ASEAN
Real GDP growth
ASEAN trade
Future outlook

20. 20
MEGAREGIONAL TRADE DEALS IN
ASIA

21. 21
• ASEAN integration and FTAs from the region have been important building
blocks for mega-regional trade deals in East Asia. In 2002, ASEAN and China
agreed on the legal framework for the ASEAN-China FTA (ACFTA). The
ACFTA, in terms of economic size, is only second to the North America FTA
(NAFTA) and European Union (EU).
• The agreement reduced average tariffs on ASEAN-origin exports to the
Mainland from 9.8% to 0.1% by 2010. Tariffs on China-origin exports to the
ASEAN reduced from 12.8% to 0.6% in the same period.
• Between 2010 and 2014, trade between the ASEAN and China grew by 16%
in value terms. Trade suffered in 2015 and 2016 because of global
commodity prices and a gradual slowdown in China’s economy. Looking
ahead, a sharper slowdown in China’s economy will lead to further flux in
trade. However, the world’s second largest economy will continue driving
global demand, particularly for consumer goods.
• The ACFTA paved the way for the launching of the negotiations of the
Regional Comprehensive Economic Partnership (RCEP).
• The RCEP is a megaregional deal between the ASEAN and the six states with
which ASEAN already has existing free trade agreements (Australia, China,
India, Japan, South Korea and New Zealand).
Overview
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
2008 2009 2010 2011 2012 2013 2014 2015 2016
Percentchange,yearonyear
ASEAN-China trade
0
1
2
3
4
5
6
7
8
9
10
2012 2013 2014 2015 2016
US$billion
FDI into ASEAN from China
Source: ASEAN statistics.

22. • Alternative to TPP. When TPP negotiations were still alive,
RCEP took a backseat because TPP was a larger deal:
RCEP represents around 28% of global GDP and TPP
would have accounted for close to 40%. However, since
US pulled out of the TPP, there are more positive
prospects of RCEP implementation. Initial talks are
expected to be concluded by end 2017
• Difficult countries to open. On one hand, most countries
involved in the RCEP are open to trade. However,
countries such as India, Laos, Cambodia and Myanmar
have shown little enthusiasm to reducing tariffs and non-
tariff barriers which implies that negotiations will yield
little liberalisation beyond the current status of openness
in Asia.
• Harmonising rules of integration. The purpose of mega-
regional deals is to unify smaller overlapping FTAs.
However, negotiations face complex challenges. The TPP
took nearly eight years to get to a stage of ratification by
member countries. The RCEP could take longer because
many member states are still in an early stage of
institutional development (eg Myanmar).
22
RCEP: Prospects and challenges

23. 23
TPP RCEP FTAAP
• US withdrew in January
2017
• Remaining 11 signatories
want to move ahead with
ratification
• TPP 11 to debate trade
deal in November 2017
and aim to ratify and
implement by 2021
• This is an ASEAN initiative
and is not being driven by
China
• FTA covering trade in
goods, services, IP
investment, competition,
dispute settlement
• 18th round of talks was held
in May 2017
• Group hopes to conclude
talks by end-2017
• Free trade area of the
Asia Pacific with 21
members of APEC
• Process was launched in
2014
• If it comes to pass, it will
be the most ambitious
FTA in terms of the size
of membership
• Implementation of TPP
and RCEP would have
expedited the process
Future multilateral trade deals

24. • Consumer protection. Varying rules on quality
assurance and safety can create non-tariff barriers
to trade. This has been particularly evident in the
movement of food items. Products considered legal
and safe for consumption in one country may be
different in the trading country. This has made
negotiations around agricultural products
particularly difficult.
• Environmental & social responsibility. Similar to
consumer protection laws, there is a gap between
standards of developed and developing countries
on factors such as labour standards and
environmental protection. The challenge, when
pursuing free trade, is deciding whose standards
should be used when goods are being produced for
export.
• Increased job outsourcing. A movement of
production processes from expensive to cheaper
locations leads to job losses in the former. Economic
theory suggests that labour in these wealthier
markets would be employed in higher skilled jobs
and the impact of outsourcing would be temporary.
This, however, has not always happened.
• Intellectual property theft. Regulation around
intellectual property sharing needs to be well laid
out and strictly enforced in host and trading country.
However, in reality institutional structures and global
best practices often do not match. As such,
businesses are at risk of falling prey to intellectual
property theft.
• Crowding out local business. In emerging markets,
small and medium sized enterprises are the
backbone of the business community. However, with
globalisation paving way to larger enterprises that
can avail of economies of scale, these smaller
businesses tend to get priced out of the market.
• Exploitation of natural resources. Poor enforcement
of environment protection laws in emerging market
leads to severe exploitation of natural resources
when countries decide to open up to foreign
investment. Practices such as mass deforestation,
and open mining eventually lead to environmental
disasters.
24
While FTAs and mega-regional trade deals can support trade, profitability and wealth among benefitting
nations, there is evidence that one-sided implementation and uneven development can lead to distortions and
imbalances that eventually effect livelihoods and cause a popular backlash.
Conclusion

25. 25
CHINA’S ROLE IN ECONOMIC
INTEGRATION

26. 26
• As the largest economy in Asia (and second largest in the
world), China plays a key role in the region’s economic
integration. President Xi Jinping’s Belt and Road Initiative
(BRI) aims to integrate and develop countries
economically along ancient trading routes, linking China
with the rest of world mainly through physical
infrastructure. This includes 60 countries comprising of
(a) an overland "Silk Road Economic Belt" linking China to
Europe via Central Asia and the Middle East and (b) a
"21st Century Maritime Silk Road" connecting China to
Europe through South-east Asia, South Asia and East
Africa
• The initial framework is based on unilateral loan giving
through the China-based Silk Road Fund that was set up in
2014 with capital of US$40bn.
• China's bilateral FTAs fit into the BRI because it aims to
facilitate free movement of goods and capital with the
beneficiary countries.
Belt and Road Initiative (BRI)

27. • Since BRI was announced in 2013, there has been no dramatic
shift in the make-up of China's global trade relations.
• Two-way flows between China and 60 countries remained fairly
constant. In 2016, two-way trade reached US$962.6bn,
accounting for 25.8% of China's external trade. In 2013, it was
approximately 25%.
• China's exports to BRI countries have performed better than
imports. The BRI countries' share of the value of Chinese exports
stood at 27.9% in 2016, compared with 25.8% in 2013. This grew
by only 1.8% annually between 2014 and 2016. Imports from
BRI countries comprised 23% of China's inbound shipments in
2016, a decline from 24.1% in 2013. Between 2014 and 2016,
imports declined by an annual average of 7.5% in 2014–16.
• The slip reflects softer Chinese demand for commodities and
lower global prices for such items. Exports from BRI countries,
which are mainly developing economies, are dominated by
natural resources, but growth in Chinese domestic investment is
slowing steadily. Future Chinese demand will be driven by needs
of households and advanced manufacturing. But consumer
goods and capital equipment will generally be exported by
developed economies not within BRI.
27
Trade impact of BRI
• The rising share of Chinese exports to BRI countries may
confirm suspicions that the initiative is designed to help
export China's industrial overcapacity.
• There is a risk that the already-large goods trade surplus
China with the BRI region could rise significantly. In 2016,
China accumulated trade surplus of US$231.8bn with BRI
countries (China's surplus with US was US$250.7bn). Failing
to lower trade surplus could eventually compromise the
viability of the BRI because of political and economic
concerns. China is sensitive to the issue and pledged to
host an "import trade expo" for BRI countries looking to
export to the country in 2018.

28. • China's total overseas direct investment (ODI) in BRI countries accelerated to US$21.4bn in 2015,
up strongly from US$13.6bn in 2014 and US$12.6bn in 2013. However, partial data on ODI from
2016 show a 2% decline in non-financial ODI across the BRI.
• Over 60% of Chinese ODI flows to BRI countries in 2013–15 were directed to Association of South-
East Asian Nations (ASEAN) countries, with Singapore attracting the largest share. The investment
is unlikely related to the core infrastructure-development purpose of the BRI and more about
attractiveness of Singapore’s business environment.
• The share of overall Chinese ODI flows to the BRI region has fallen in recent years. Economist
Intelligence Unit estimates these flows amounted to 10.2% of China's total ODI in 2016, compared
with 14.7% in 2015 and 11% in 2014. There have been stronger increases in Chinese investment
in North America and Europe, with Chinese firms acquiring brands and technology to raise their
competitiveness and invest in perceived safe assets such as property.
28
Investment impact of BRI

29. • At the Belt and Road Forum, Mr Xi outlined additional loans and grants of around Rmb540bn for
the BRI, suggesting more forthcoming investment. In Pakistan alone, approximately US$57bn has
been promised in the China-Pakistan Economic Corridor.
• There will be more financing available for the BRI region, which will underpin higher trade volumes
between China and the region.
• Besides greater trade, the establishment of a more integrated infrastructure will help to stimulate
crossborder flows by lowering costs and opening up new markets. In turn, stronger trade flows will
underpin GDP growth and fiscal revenue creation.
• The BRI is a promising initiative. However, The Economist Intelligence Unit expects that the BRI will
short fall short of its grand—although admittedly vague—aspirations. Issues relating to the trade
deficit, credit risk and political tensions will complicate implementation.
29
Outlook