Ini­tia­tive has made sig­nif­i­cant head­way

China Daily (USA) - - VIEWS -

Since the launch of Belt and Road Ini­tia­tive (the Silk Road Eco­nomic Belt and 21st Cen­tu­ryMar­itime Silk Road), China has reached co­op­er­a­tion agree­ments with more than 30 coun­tries along the Belt and Road.

In­fra­struc­ture is a key pri­or­ity of the Belt and Road Ini­tia­tive to pro­mote trans­port con­nec­tiv­ity be­tween re­gions. Work on many cross-bor­der projects, in­clud­ing rail­way net­works, high­ways and ports, has al­ready started, while other projects are in the pipe­line. The Belt and Road projects could po­ten­tially chan­nel China’s sav­ings, pro­duc­tion ca­pac­ity and con­struc­tion ex­per­tise to other coun­tries to help re­duce their in­fra­struc­ture bot­tle­necks and pro­mote re­gional de­vel­op­ment.

The ini­tia­tive has boosted trade and in­vest­ment growth. Trade be­tween China and coun­tries along the Belt and Road ex­ceeded $1 tril­lion in 2015, a quar­ter of China’s to­tal trade value. The ini­tia­tive also ac­cel­er­ated China’s shift from the world’s big­gest goods ex­porter to a ma­jor cap­i­tal ex­porter. China’s out­bound di­rect in­vest­ment to economies along the Belt and Road grew 23.8 per­cent year-on-year in 2015 and nearly 60 per­cent in the first half of 2016.

China has also made ef­forts to re­duce trade bar­ri­ers, by de­vel­op­ing more than 50 over­seas eco­nomic and trade co­op­er­a­tion zones with coun­tries along the Belt and Road and ex­panded its free trade zones’ trial to seven more prov­inces, in or­der to strengthen in­dus­trial co­op­er­a­tion and en­hance lib­er­al­iza­tion with other coun­tries.

The im­ple­men­ta­tion of the Belt and Road Ini­tia­tive has also fa­cil­i­tated the ren­minbi’s in­ter­na­tion­al­iza­tion and fi­nan­cial co­op­er­a­tion. China has ex­panded its bi­lat­eral lo­cal-cur­rency swap pro­gram to 21 coun­tries along the Belt and Road, granted ren­minbi Qual­i­fied For­eign In­sti­tu­tional In­vestor quo­tas to seven coun­tries and set up ren­minbi set­tle­ment banks in eight coun­tries along the Belt and Road.

Key mul­ti­lat­eral or­ga­ni­za­tions have be­gun op­er­a­tions and new fi­nanc­ing mech­a­nisms are be­ing set up. The Asian In­fra­struc­ture In­vest­ment Bank, BRICSNew De­vel­op­ment Bank and the Silk Road Fund, to­gether with China’s pol­icy banks, have taken the lead and started par­tic­i­pat­ing in cross­bor­der in­vest­ment projects.

But de­spite the progress made in the past three years, the Belt and Road Ini­tia­tive face risks and chal­lenges at both the coun­try and cor­po­rate lev­els, with strat­egy align­ment and cost-shar­ing be­tween par­tic­i­pat­ing coun­tries

be­ing the main chal­lenges. Some projects in for­eign coun­tries have been sus­pended or de­ferred high­light­ing the ob­sta­cles China faces in im­ple­ment­ing the ini­tia­tive. To re­move these ob­sta­cles, China needs to align its strat­egy with those of other Belt and Road coun­tries, and ef­fec­tively ad­dress these coun­tries’ doubts and con­cerns.

We think proper strat­egy align­ment and dis­pute set­tle­ment pro­ce­dures will re­duce the prob­a­bil­ity of project sus­pen­sion even in case gov­ern­ments change. China needs to en­sure mu­tual ben­e­fits from the ini­tia­tive, as it is a com­mer­cially ori­ented project, not a for­eign aid pro­gram. And it re­quires par­tic­i­pat­ing coun­tries to make long-term com­mit­ments and in­vest to gain mu­tual ben­e­fits and joint de­vel­op­ment.

To be suc­cess­ful, China must make other coun­tries fully aware of the eco­nomic logic and mu­tual ben­e­fits of the ini­tia­tive, and demon­strate through ex­ist­ing projects that it will cre­ate jobs, im­prove lo­cal ar­eas’ con­nec­tiv­ity with the rest of the world, and en­hance their wel­fare.

Chi­nese com­pa­nies in­vest­ing in Belt and Road projects are also fac­ing risks, in­clud­ing gen­eral debt risks, for­eign cur­rency risks, lo­cal pol­icy risks and geopo­lit­i­cal risks, be­cause of the lack of ex­pe­ri­ence and knowl­edge in op­er­at­ing and in­vest­ing in other coun­tries. To mit­i­gate these risks, they need to con­duct pro­fes­sional project as­sess­ments and de­vise risk man­age­ment sys­tems be­fore ven­tur­ing into those coun­tries, while ef­fec­tively us­ing credit in­sur­ance and over­seas in­vest­ment ser­vice plat­forms to im­prove the man­age­ment of their for­eign projects.

Fur­ther­more, the govern­ment should en­cour­age par­tic­i­pa­tion from mul­ti­lat­eral in­sti­tu­tions and con­tinue to pro­mote the ren­minbi’s in­ter­na­tion­al­iza­tion to help pri­vate com­pa­nies bet­ter con­trol their risks. Deal­ing with these chal­lenges should pro­vide use­ful lessons for the de­vel­op­ment of the Belt and Road Ini­tia­tive. The au­thor is an econ­o­mist at Stan­dard Char­tered China.


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