The Belt and Road Initiative (BRI) is a large-scale international development strategy that has facilitated infrastructure expansion and trade connectivity across many countries. The BRI projects have brought numerous benefits to beneficiary countries, spurring economic activity and boosting trade. However, as with other trade-facilitating innovations, there is a risk that the improved infrastructure, if not accompanied by appropriate monitoring and enforcement measures, will increase the potential for misuse by criminal actors engaged in counterfeit or other types of illicit trade. It is this risk of abuse that is the main focus of this report.
Examining Illicit Trade Challenges in the Belt and Road Initiative
Vulnerabilities and Potential Risks
Illicit Trade
Abstract
Executive Summary
The Belt and Road Initiative (BRI) is a global development strategy launched by the People’s Republic of China (hereafter “China”) in 2013. It aims to enhance trade, investment, and infrastructure connectivity across Asia, Europe, and Africa. By developing extensive transportation networks, energy projects, and financial partnerships, it seeks to foster economic integration and regional co-operation.
The BRI's goals initially focused on developing land and sea infrastructure projects to support trade with Europe. However, they have become more global, with goals now to enhance China’s food and raw materials security and strengthen cultural and scientific ties.
The BRI has evolved over time and now involves 151 economies, including 17 OECD countries and 17 countries in the European Union; moreover, more than 30 international organisations have signed co-operation agreements with China. Thousands of projects have been pursued, mobilising hundreds of billions of USD in investment in railroads, highways, power plants, ports and other infrastructure projects; this, in turn, has supported additional investment in manufacturing and the like.
The BRI has successfully provided investment to countries to improve transport and energy infrastructure, often in cases where no financing options were available. For instance, constructing the China-Pakistan Economic Corridor has significantly improved Pakistan's connectivity and economic prospects. Despite some concerns regarding the economic viability of several projects and the level of debt that has been incurred, the impact on economies has been positive in many respects. From a Chinese perspective, the BRI has succeeded in increasing the presence and influence of the Chinese companies receiving assistance while helping to boost two-way trade with a broader range of countries.
While most BRI projects globally have been implemented smoothly, some have faced significant challenges. A study of projects from 2013 to 2021 found that 12.8% of 949 projects encountered implementation obstacles, representing 34.9% of the total projects’ value (Malik et al., 2021[2]). One of the significant risks associated with connectivity initiatives such as the BRI is the elevated risk of illicit trade. The initiative’s expansion of global connectivity and supply chains, while reducing trade transaction costs, is not only conducive to formal trade ties, but also increases the potential for smuggling and illicit activities.
The analysis presented in this report shows that the BRI investment in transport and logistics brought economic benefits by increasing trade between China and the rest of the world. At the same time, however, trade in counterfeit goods increased, reflecting a positive correlation with BRI investment. Efforts to monitor these developments must be undertaken to help mitigate these risks and safeguard against the misuse of enhanced connectivity. Moving forward, stakeholders must integrate comprehensive transparency measures and risk mitigation strategies to ensure that the BRI's economic benefits are realised without inadvertently bolstering illicit trade networks.
