Ex­port­ing the Chi­nese model

Financial Mirror (Cyprus) - - FRONT PAGE -

As 2016 be­gins, an his­toric con­test is un­der­way over com­pet­ing de­vel­op­ment mod­els – that is, strate­gies to pro­mote eco­nomic growth – be­tween China, on the one hand, and the US and other Western coun­tries on the other. Al­though this con­test has been largely hid­den from pub­lic view, the out­come will de­ter­mine the fate of much of Eurasia for decades to come.

Most West­ern­ers are aware that growth has slowed sub­stan­tially in China, from over 10% per year in re­cent decades to be­low 7% to­day (and pos­si­bly lower). The coun­try’s lead­ers have not been sit­ting still in re­sponse, seek­ing to ac­cel­er­ate the shift from an ex­port-ori­ented, en­vi­ron­men­tally dam­ag­ing growth model based on heavy man­u­fac­tur­ing to one based on do­mes­tic consumption and ser­vices.

But there is a large ex­ter­nal di­men­sion to China’s plans as well. In 2013, Pres­i­dent Xi Jin­ping an­nounced a mas­sive ini­tia­tive called “One Belt, One Road,” which would trans­form the eco­nomic core of Eurasia. The One Belt com­po­nent con­sists of rail links from western China through Cen­tral Asia and thence to Europe, the Mid­dle East, and South Asia. The strangely named One Road com­po­nent con­sists of ports and fa­cil­i­ties to in­crease se­aborne traf­fic from East Asia and con­nect th­ese coun­tries to the One Belt, giv­ing them a way to move their goods over­land, rather than across two oceans, as they cur­rently do.

The China-led Asian In­fra­struc­ture In­vest­ment Bank (AIIB), which the US ear­lier this year re­fused to join, is de­signed, in part, to fi­nance One Belt, One Road. But the project’s in­vest­ment re­quire­ments will dwarf the re­sources of the pro­posed new institution.

In­deed, One Belt, One Road rep­re­sents a strik­ing de­par­ture in Chi­nese pol­icy. For the first time, China is seek­ing to ex­port its de­vel­op­ment model to other coun­tries. Chi­nese com­pa­nies, of course, have been hugely ac­tive through­out Latin Amer­ica and Sub-Sa­ha­ran Africa in the past decade, in­vest­ing in com­modi­ties and ex­trac­tive in­dus­tries and the in­fra­struc­ture needed to move them to China. But One Belt, One Road is dif­fer­ent: its pur­pose is to de­velop in­dus­trial ca­pac­ity and con­sumer de­mand in coun­tries out­side of China. Rather than ex­tract­ing raw ma­te­ri­als, China is seek­ing to shift its heavy in­dus­try to less de­vel­oped coun­tries, making them richer and en­cour­ag­ing de­mand for Chi­nese prod­ucts.

China’s de­vel­op­ment model is dif­fer­ent from the one cur­rently fash­ion­able in the West. It is based on mas­sive state-led in­vest­ments in in­fra­struc­ture – roads, ports, elec­tric­ity, rail­ways, and air­ports – that fa­cil­i­tate in­dus­trial de­vel­op­ment. Amer­i­can econ­o­mists ab­jure this build-it-andthey-will-come path, owing to con­cerns about cor­rup­tion and self-deal­ing when the state is so heav­ily in­volved. In re­cent years, by con­trast, US and Euro­pean de­vel­op­ment strat­egy has fo­cused on large in­vest­ments in pub­lic health, women’s em­pow­er­ment, sup­port for global civil so­ci­ety, and anti-cor­rup­tion mea­sures.

Laud­able as th­ese Western goals are, no coun­try has ever got­ten rich by in­vest­ing in them alone. Pub­lic health is an im­por­tant back­ground con­di­tion for sus­tained growth; but if a clinic lacks re­li­able elec­tric­ity and clean wa­ter, or there are no good roads lead­ing to it, it won’t do much good. China’s in­fra­struc­ture-based strat­egy has worked re­mark­ably well in China it­self, and was an im­por­tant com­po­nent of the strate­gies pur­sued by other East Asian coun­tries, from Ja­pan to South Korea to Sin­ga­pore.

The big ques­tion for the fu­ture of global pol­i­tics is straight­for­ward: Whose model will pre­vail? If One Belt, One Road meets Chi­nese plan­ners’ expectations, the whole of Eurasia, from In­done­sia to Poland will be trans­formed in the com­ing gen­er­a­tion. China’s model will blos­som out­side of China, rais­ing in­comes and thus de­mand for Chi­nese prod­ucts to re­place stag­nat­ing mar­kets in other parts of the world. Pol­lut­ing in­dus­tries, too, will be off­loaded to other parts of the world. Rather than be­ing at the pe­riph­ery of the global econ­omy, Cen­tral Asia will be at its core. And China’s form of au­thor­i­tar­ian gov­ern­ment will gain i mmense pres­tige, im­ply­ing a large neg­a­tive ef­fect on democ­racy world­wide.

But there are im­por­tant rea­sons to ques­tion whether One Belt, One Road will suc­ceed. In­fra­struc­ture-led growth has worked well in China up to now be­cause the Chi­nese gov­ern­ment could con­trol the po­lit­i­cal en­vi­ron­ment. This will not be the case abroad, where in­sta­bil­ity, con­flict, and cor­rup­tion will in­ter­fere with Chi­nese plans.

In­deed, China has al­ready found it­self con­fronting an­gry stake­hold­ers, na­tion­al­is­tic leg­is­la­tors, and fickle friends in places like Ecuador and Venezuela, where it al­ready has mas­sive in­vest­ments. China has dealt with restive Mus­lims in its own Xin­jiang prov­ince largely through de­nial and re­pres­sion; sim­i­lar tac­tics won’t work in Pak­istan or Kaza­khstan.

This does not mean, how­ever, that the US and other Western gov­ern­ments should sit by com­pla­cently and wait for China to fail. The strat­egy of mas­sive in­fra­struc­ture de­vel­op­ment may have reached a limit in­side China, and it may not work in for­eign coun­tries, but it is still crit­i­cal to global growth.

The US should have be­come a found­ing mem­ber of the AIIB; it could yet join and move China to­ward greater com­pli­ance with in­ter­na­tional en­vi­ron­men­tal, safety, and la­bor stan­dards. At the same time, the US and other Western coun­tries need to ask them­selves why in­fra­struc­ture has be­come so dif­fi­cult to build, not just in de­vel­op­ing coun­tries but at home as well. Un­less we do, we risk ced­ing the fu­ture of Eurasia and other im­por­tant parts of the world to China and its de­vel­op­ment model.

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