Belt and Road aim to boost globalization
Globalization is passing through testing times. On one hand are protectionists rallying for a retreat from free trade; on the other are mostly emerging economies striving to uphold inclusive growth. The Belt and Road Initiative belongs to the second camp and is expected to play a major role in reinvigorating the world economy.
Free trade and economic reform are essential to the fight against protectionism. And the China-proposed Silk Road Economic Belt and 21st Century Maritime Silk Road aim to exactly do that by helping improve infrastructure inter-connectivity.
The establishment of free trade areas along the Belt and Road routes pivots on established regional frameworks such as the Shanghai Cooperation Organization and the Association of Southeast Asian Nations, while a mature free trade network based on flexible bilateral and multilateral arrangements will inject the needed momentum into the initiative’s implementation. As for the economies that are not ready to join free trade areas, China could seek infrastructure and service arrangements with them first.
On the free trade exchange front, the idea of building a China-European Union free trade area is certainly worth exploring. China-EU service trade is estimated to reach €200 billion ($218 billion) to €220 billion by 2020 if China’s service trade volume increases to $1.2 trillion. And since under high-standard free trade agreements, the EU’s export to China could increase more than 110 percent by 2030, a China-EU free trade area, if set up, would be a game-changer for China’s economic transformation and Europe’s pursuit of sustainable growth.
By the end of last year, Chinese enterprises were engaged in building 77 cross-border economic cooperation zones in 36 countries, 20 of which have agreed to be part of the Belt and Road Initiative. Although that is a major achievement, more would be better.
How China proceeds with its reform and opening-up can also be changed and supplemented by the initiative. Boosting service trade, especially further opening up China’s service sector to the world, will be a priority. For that, structural reform is needed to break the administrative monopoly in the service sector and welcome private capital.
China’s 11 free trade zones, too, have a role to play. Some 80 of the 122 fields in the free trade zone negative lists, that is, areas offlimits or restricted for foreign investment, are about service trade. It would be ideal if the number is halved by 2020. On the other hand, deeper integration of South China’s Guangdong province and the special administrative regions of Hong Kong and Macao in terms of trade will not only strengthen their economic bond but also bolster the principle of “One country, Two systems”.
As far as China’s economic transition is concerned, it is important to shift the country’s trade focus from commodity to service and further open up its service sector. Ideally, service-related exchanges should account for more than 20 percent of China’s foreign trade and 10 percent of the world’s service trade by 2020. The author is president of the China Institute of Reform and Development.