China's Belt and Road Initiative: Can Europe Expect Trade Gains?

HKUST IEMS Working Papers No. 2016-38


Alicia Garcia-Herrero, Jianwei Xu

The Belt and Road Initiative, recently embarked on by China, aims to improve cross-border infrastructure in order to reduce transportation costs across a massive geographical area between China and Europe. We estimate how much trade might be created among Belt and Road countries as a consequence of the reduction in transportation costs (both railway and maritime) and find that European Union countries, especially landlocked countries, should benefit considerably. This is also true for Eastern Europe and Central Asia and, to a lesser extent, South-East Asia. In contrast, if China were to seek to establish a free trade area within the Belt and Road region, EU member states would benefit less, while Asia would benefit more. Xi Jinping’s current vision for the Belt and Road, centred on improving transport infrastructure, is very good news for Europe as far as trade creation is concerned.

This Working Paper is originally part of Bruegel Working Paper series, Issue 5, 2016