Sang Baek Hyun: China's BRI and Cross-Border Economic Cooperation: Status and Implications for Korea

2018-12-23 IMI

This article appeared on KIEP Opinions on November 28th, 2018. Sang Baek Hyun is an associate research fellow of China Team in Korea Institute for International Economic Policy The Belt and Road Initiative (BRI) is China's new foreign strategy proposed by President Xi Jinping in 2013, aiming at a long-term and macro goal of regional integration by building land and maritime networks with Eurasian countries. China's National Development and Reform Committee, Foreign Ministry and Commerce Ministry jointly announced the master plan for the BRI in the "Vision and Actions on Jointly Building Silk Road Economic Belt and 21st-Century Maritime Silk Road" released in March 2015. According to the master plan, China's BRI mainly aims at cooperation along the six major economic corridors, in five areas of co-operation (5 通, or "5 connectivities"). In May 2017, the Belt and Road Forum for International Cooperation was held in Beijing with 29 foreign heads of state and government participating in the Forum to explore the development of multilateral consultation. The BRI was included in the ruling Communist Party's constitution at the 19th National Congress of the Communist Party of China held in October 2017, and has since been upgraded to China's mid- to long-term foreign strategy. The Chinese government held a symposium marking the fifth anniversary of the BRI in August 2018 and announced its achievements over the past five years, such as achieving $5 trillion in commodity trade among BRI countries, $60 billion in FDI, and creating 20 million jobs. The BRI not only contributed to the expansion of China's foreign ex-changes, but also provided new development opportunities for China's midwest and northeast regions, hitherto excluded from the nation's rapid economic growth. Since the beginning of reform and opening up, the achievements of China's opening-up strategy were concentrated in the eastern coastal area, while China's border areas were recognized as border conflict areas, economic deprivation areas, and minority residential areas. But as the BRI is progressing, the strategic values and perceptions of China's inland areas, especially border areas, are changing. The BRI is leading to China's inland and border areas gaining recognition as new windows for foreign opening; new bases for economic growth in the inland area; hubs for foreign trade, transportation and logistics; cross-border infrastructure waypoints; and testbeds for financial cooperation measures, including the internationalization of RMB. Among the various projects to foster cross-border economic cooperation between China and neighboring countries, the establishment of cross-border economic cooperation zones (CBECZs) as an industrial and logistics cooperation platform, and the construction of cross-border infrastructure for transportation, logistics and energy, are being actively promoted. First, we will examine the status of CBECZs. Before the BRI, border trade and industrial cooperation were promoted mainly through China's border economic cooperation zones (BECZs). But with the BRI, CBECZs are emerging as a new platform for cooperation with neighboring countries in the Chinese border areas. CBECZs can be defined as a crossborder special economic zone that is expanded to the territory of neighboring countries from the existing BECZ and jointly established and operated by China and neighboring countries. These zones are meaningful not only in terms of expanding the size of economic zones and scope of cooperation, but also as a test bed for economic integration between the two countries. Since the initiation of China's BRI, 11 CBECZs are under construction throughout China, 5 of which are located in the north-east and 6 are located in the southwest. At present, the only CBECZ which has been officially ratified by China and neighboring countries is the China-Kazakhstan Horgos International Border Cooperation Center (Horgos Center) established in the border region between China and Kazakhstan. China and Kazakhstan started discussions under the SCO, the multilateral security council of the region, and agreed to co-establish Horgos Center in 2004-2005, after which official operation of the Center began in December 2011. The total area of the Horgos Center is 528 ha, with 343 ha in China and 185 ha in Kazakhstan. The Horgos Center provides a number of benefits to businesses, merchants and travelers. Investors are exempt from land use fees for up to 10 years and receive tax benefits. And citizens of both countries are allowed to enter without a visa for 30 days. There are currently 75 duty free shops in operation by Germany, Korea, China and Hong Kong, and Chinese nationals receive tax exemptions of up to 8,000 yuan per person and Kazakhstan citizens 1,500 euros. After the BRI was proposed in 2013, the Horgos Center has rapidly developed into a major hub for the New Eurasia Continent Economic Corridor and China-Central Asia-Western Economic Corridor. The other form of cross-border economic cooperation being actively pursued in accordance with the BRI is the construction of cross-border infrastructure between China and neighboring countries. Before the BRI, China's infrastructure construction focused mainly on meeting the domestic infrastructure demand in China. In the 1980s and 1990s, China was mainly responsible for infrastructure projects such as to construct ports, roads, railways, industrial zones, power grids and provide the energy needed to promote urbanization and exportdriven economic models in the eastern coastal area. Since 2001, due to the rapid growth and full-scale development of the Chinese economy, the Chinese government has pursued a "Western Development Strategy" to link the midwest inland region with the eastern region. China's infrastructure construction after the BRI has been actively proceeding with crossborder infrastructure linking neighboring countries with China's midwest and northeast inland areas. The Chinese government is planning to strengthen trade and investment, strengthen logistics and industry cooperation, stabilize the supply of energy and diversify energy supply routes through infrastructure linkage with neighboring countries. Major BRI infrastructure projects are being carried out in various fields such as high-speed railway and expressway transportation networks, energy transmission networks, hydroelectric dams, power networks, ports, industrial complexes and new cities along the six BRI economic corridors. Representative projects of cross-border infrastructures include China-Pakistan's oil-gas pipeline and high-speed railway, China-Myanmar's oil-gas pipeline and high-speed railway, Myanmar's Kyauk Phyu port and industrial zone, Sri Lanka's Hambanthota Port, and the China- Singapore Pan Asia High Speed Rail. Since the BRI was launched, China has been actively promoting cross-border economic cooperation with neighbors in border areas, providing some implications for Korea's future development in the era of peace and prosperity in Northeast Asia. First, in order to prepare for a new era of peace and prosperity between North and South Korea, a new understanding of border security and border areas is needed. It is necessary to change perceptions regarding the border regions, recognizing them as more than segmented boundaries at the forefront of military security, and rather as platforms of cross-border economic cooperation and a testbed for economic integration. Second, it is necessary to find ways to leverage the unified economic special zone as a test bed for regional integration in the border areas with Korea just as China's CRECZs. We must find a way to emulate China's CBECZ model to utilize the cooperation platform and regional integration testbed between South and North Korea, or the Korean Peninsula and China. Finally, we need to strengthen cross-border infrastructure linkages to lay the foundation for regional integration. The South Korean government needs to actively promote the establishment of infrastructure for the regional integration of South and North Korea by implementing the plans suggested within the New Economic Map of the Korean Peninsula for cross-border infrastructure projects in areas such as transportation, communication, energy, and logistics.

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Sang Baek Hyun: China's BRI and Cross-Border Economic Cooperation: Status and Implications for Korea

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