Di­a­logue and ex­changes cru­cial to Belt and Road

China Daily European Weekly - - COVER STORY - The au­thors are an­a­lysts at The Econ­o­mist In­tel­li­gence Unit. The views do not nec­es­sar­ily re­flect those of China Daily.

In­ter­na­tional co­op­er­a­tion fo­rum in Bei­jing marked a big stride for re­gional co­he­sion— but fi­nanc­ing is only part of the pic­ture

num­ber of devel­op­ment funds to meet that need. The $40 bil­lion Silk Road Devel­op­ment Fund and ex­ist­ing sup­port of­fered by the China Devel­op­ment Bank and the Ex­port-Im­port Bank of China are well poised to meet the fi­nanc­ing needs of the re­gion.

In ad­di­tion to fi­nanc­ing, China is just as ea­ger to send its own com­pa­nies abroad to as­sist in the im­ple­men­ta­tion of these projects, pro­vid­ing nec­es­sary en­gi­neer­ing and tech­ni­cal sup­port. Im­por­tantly, this idea ties into an­other com­plex pol­icy ini­tia­tive within China it­self, as pol­i­cy­mak­ers push for sup­ply-side struc­tural re­form. In ad­di­tion to de­stock­ing the prop­erty in­ven­tory, cut­ting cor­po­rate costs, delever­ag­ing and pro­mot­ing tech­no­log­i­cal in­no­va­tion, China could open new­mar­kets to many of its own State-owned en­ter­prises, help­ing them sus­tain their op­er­a­tions as they ini­ti­ate struc­tural re­forms.

About 50 SOEs are al­ready en­gaged with roughly 1,700 over­seas projects un­der the Belt and Road frame­work. This is largely where China em­pha­sizes the “win-win” role of Belt and Road: It has the tools to fit the re­gion’s needs.

Fig­ures in­di­cate that trade in goods be­tween China and Belt and Road coun­tries from 2014 to 2016, the rough time­line of Belt and Road’s ex­is­tence, reached $3.1 tril­lion, ac­count­ing for 25.8 per­cent of China’s to­tal ex­ter­nal trade in that pe­riod. While sig­nif­i­cant, that num­ber is spread among 65 na­tions. By com­par­i­son, trade in goods with the United States — a non­par­tic­i­pant to Belt and Road — reached $1.6 tril­lion over that same pe­riod. Of course, these fig­ures are ex­pected to grow as in­vest­ments in re­gional in­fra­struc­ture set­tle and ma­ture, al­low­ing for newer (and, ideally, cost com­pet­i­tive) trade routes to spring up by land and sea.

A larger is­sue is that, de­spite push­ing re­gional in­te­gra­tion, most deals un­der the Belt and Road frame­work rely on bi­lat­eral deals be­tween China and its part­ners. This is not bad for the re­gion in the short term. But what are the lim­its of true re­gional co­he­sion, if other Belt and Road coun­tries are only deal­ing with China, and not each other? The frame­work lacks a cen­tral mul­ti­lat­eral mech­a­nism to en­cour­age this type of in­ter-stake­holder co­op­er­a­tion. Reg­u­lar meet­ings that bring all par­ties to the ta­ble can set com­mon goals, while clearer gov­er­nance could, in the­ory, bet­ter lever­age or re­de­ploy re­gional ad­van­tages into ar­eas that need cap­i­tal or in­vest­ment guid­ance the most.

China has rec­og­nized such chal­lenges. At the Belt and Road Fo­rum for In­ter­na­tional Co­op­er­a­tion, Pres­i­dent Xi no­tably an­nounced the cre­ation of a num­ber of mul­ti­lat­eral eco­nomic and fi­nan­cial re­search in­sti­tu­tions and ca­pac­ity-build­ing cen­ters to en­cour­age co­op­er­a­tion and fu­ture di­a­logue.

Greater di­a­logue and ex­change is in China’s in­ter­ests, too. Reg­u­lar en­gage­ment can es­tab­lish re­gional stan­dards for trans­parency, cred­it­wor­thi­ness and cap­i­tal man­age­ment, all of which are cru­cial fac­tors in en­sur­ing re­turns on in­vest­ment.

The AIIB is a step in the right di­rec­tion to­ward mul­ti­lat­eral gov­er­nance, and its over­tures to co­op­er­ate with in­ter­na­tional bod­ies, such as the Asian Devel­op­ment Bank and the In­ter­na­tion­alMone­tary Fund, should be lauded. But fi­nanc­ing is only part of the pic­ture. Money and in­vest­ment alone, how­ever badly they are needed, will not smooth over the com­plex his­tor­i­cal and po­lit­i­cal is­sues that di­vide the re­gion, or en­sure the safety of in­vest­ments within Belt and Road coun­tries. It will be cru­cial to see how China — and Chi­nese-backed in­sti­tu­tions — ad­dress this re­al­ity.

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