Expert: BRI lowers currency risks, boosts trade

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03:06

So far, 92 countries have joined China in the Belt and Road initiative (BRI), nearly half of them from Asia. Sixteen from Southeast Asia, East Asia and Oceania are in the program, including all 10 ASEAN members, generating almost 60 percent of all Belt and Road trade in 2017.

There are eight countries in South Asia with a combined population of over 1.7 billion. Those countries make up more than half the total population of all Belt and Road partners.

In Central Asia, five countries in the region are witnessing the fastest growth rate with China overall.

West Asia accounts for 18 countries participating nations, including Saudi Arabia, China's biggest trading partner in the region, which contributes nearly 20 percent of total trade.

The BRI aims to increase the ease of cross-border, multi-currency transactions, and further internationalize the use of the RMB.

"We are seeing more and more transactions, especially loans, made to participating Belt and Road countries to use RMB-denominated loans. I think it's an effort from China's perspective to mitigate the currency risk, as well as mitigating the risk associated with these host countries," says Professor John Gong from the University of International Business and Economics.

"Because some of these countries tend to have trade deficit problems, there is the risk that their currency is going to depreciate over the long run. It's an effort to stay away from the dollar, as these countries have exported to China. That kind of risk can be mitigated."

Gong said it's also China's effort to gradually internationalize its currency, as more and more countries are trying to establish a system where trade is going to be transacted using currencies other than the US dollar.

China's trade volume with Belt and Road countries has grown rapidly in recent years. Countries like Qatar, Mongolia, and Kazakhstan saw an average increase of over 35 percent in 2017. China's biggest export markets include South Korea, Vietnam, India, and Singapore.

"Kazakhstan, for example, trade between both sides is booming. Agricultural products, energy products from these countries are very complimentary towards China's flow of manufactured goods to these countries. So at the fundamental level, there is the prospect of increasing trade. There is a promising future for both countries," says Professor Gong.