Illustration: Peter C. Espina/GT

Since President Xi Jinping first mentioned the "One Belt, One Road" strategy to revive ancient trade routes from east to west in 2013, it has quickly taken shape.

As its name suggests, the "Belt and Road" plan has two components. The "Belt" is an overland route stretching from China's inland provinces across central Asia, through the Middle East before ending in the heart of Europe. The "Road" is a "21st Century Maritime Silk Road" stretching from East China's Fujian Province, through the Malacca Straits, around the horn of Africa and up through the Red Sea into the Mediterranean, ending in Venice.

This ambitious project is designed to be a catalyst for trade by upgrading infrastructure in many of the less developed regions and countries it passes through. New institutions such as the Asian Infrastructure Investment Bank (AIIB) and the $40 billion Silk Road Fund have also been established.

The scale of the "Belt and Road" plan and its implications for international trade, investment and infrastructure development mean that it commands attention. To put this in perspective, the overall area covers about 50 percent of global GDP, some 4 billion people and over 60 countries and regions. One way of viewing China's extraordinary trade partnership push is that it is a development typical of emerging post-industrialization economic powerhouses, similar to what happened in the UK or the US before.

The project fulfills a number of economic and strategic objectives for China. Domestically, it should provide a new growth driver by opening up trade roads west for the country's less developed inland provinces. This should help smooth China's ongoing economic adjustment as it transitions from investment-led growth to consumption-led growth by offering a new method of absorbing some of the excess capacity in various heavy industries.

Outwardly the project seeks to extend Chinese diplomatic and economic ties through commerce and development. Beyond building infrastructure, the "Belt and Road" plan has the potential to stimulate demand in a range of related industries including aviation, rail, telecommunications and electricity generation.

Currency internationalization is another strategic imperative. It is expected some of the financing will be denominated in yuan, which is expected to broaden and deepen the ongoing process of liberalizing China's capital account. This should also boost the yuan's reserve currency status, which remains a strategic priority for Beijing.

Funding for the AIIB is reported to be $100 million and in addition Chinese policy banks are also expected to support the project as Chinese State-owned enterprises (SOEs) will be heavily involved.

While funding remains somewhat vague at this stage, Beijing has already promised to help countries and companies issue yuan bonds to raise capital.

Our intelligence says the "Belt and Road" plan has already moved off the drawing board with national and provincial-level planners keen to redress substantial overcapacity in steel, cement and construction materials. Some analysts are already predicting that the initiative could lead to greater global steel demand and a rise in Chinese steel exports. Further out, there is also an expectation that China may build more steel capacity overseas, integrated with iron-ore mines.

There is also the possibility that trade will grow with new linkages. The "Belt and Road" plan could boost shipping and cargo demand as planned infrastructure investments improve ports that dot the silk route and open new markets to commerce. Investments in port, rail and road infrastructure typically boost cargo volumes as shippers have more options for carrying freight.

China already imports over 50 percent of its oil from the Middle East. By expanding strategic influence in this region, it is likely to enhance oil security. This could also lead to increased oil exports from the Middle East.

At this early stage there are understandably more questions to be answered over how projects will be funded. Risk is also unavoidable because the "Belt and Road" plan involves not just remote countries but also ones with politically unstable governments. China will need to tread carefully and manage the sometimes-delicate domestic politics of foreign investment.

What we can say with more certainty is that as the next stage of China's growth moves outwards, this will also be accompanied by the provision of increased overseas investment and finance.

As this is happening in tandem with efforts to liberalize its capital account and enhance the status of the yuan, the "Belt and Road" plan is a development that could have a far-reaching impact on financial markets and how commodities are traded.

The author is managing director and head of the Asia-Pacific region at CME Group. bizopinion@globaltimes.com.cn