China’s Belt and Road Initiative is a repackaging and acceleration of a policy that has been in place for some time. Officially announced in 2013, it simply gave a name to a pattern of development that had been evident since the turn of the century.1 But this repackaging comes as other parts of the world are turning in on themselves—the United States is going down a protectionist route; Europe is splitting apart as the lack of a real fiscal union exacerbates the divisions between rich and poor parts of the European Union. China, with its economic outreach across central Europe and its embrace of international trade and economic cooperation, increasingly is the standard bearer of globalization.
I remember being at a conference where the speaker before me gave a view on the global political economy. Never once was China mentioned during the hourlong presentation, until the last sentence—and then, only to pour cold water on the idea that China was serious about globalization. I had to follow with my own presentation on China and globalization. I would like to share why the Belt and Road Initiative is key to China’s development and why China is serious about global economic cooperation.
Let me first point out what the initiative is not. It is not an attempt to become a global policeman. China has neither the resources nor the will to take on such a role. It is not about British-style imperialism of the 19th century. China has suffered at the hands of such an aggressive approach and is sensitive to the backlash it can cause. Nor is China embracing the tenets of democratic liberalism—and I think it is this part of the ethos of globalization that the intellectual West finds hard to stomach. They fear that China is not serious about the West’s notions of democracy—and they are surely correct. But their fear that China seeks to spread dictatorship is wrongheaded and a misunderstanding of what China really seeks. What China seeks is secure borders and friendly neighbors. It seeks to offset an aging population by investing in young labor. It seeks to pursue a knowledge and services-based growth and to find a cheaper way to manufacture goods. It seeks to increase wages and demand outside its borders as a way to increase the wealth and prosperity of all, including its own citizens. China is following a well-trodden path to prosperity: build the infrastructure, open the markets, learn how to mechanize, create a manufacturing base and watch productivity grow. These are the building blocks of China’s own growth and the platform upon which it stands ready to create a modern, services-led domestic economy.
The Economics – Youth, Manufacturing and Ascending the Value Chain
China’s population has an average age of 37.4 years. That of Vietnam 30.5; Indonesia 30.2; Malaysia 28.5; Pakistan 23.8.2
ASIA’S GROWTH STILL HAS A LONG WAY TO GO
Asia per capita GDP in historical context to the U.S.
These younger countries also have economic living standards that vary from the equivalent of 19th century U.S. to perhaps the 1950s. Many of these economies suffer from a low ratio of manufacturing to GDP. With a global average of 15.6 % of GDP in manufacturing, China stands at 29%, a manufacturing powerhouse. Vietnam is at 16%, Indonesia at 20%, Malaysia at 22% and Pakistan at 12%.3 So, China, by allowing its companies to move their labor-intensive operations into these regions of Southeast Asia and Central Asia and the subcontinent, can at one fell swoop mitigate the effects on productivity of an aging workforce, allow its own workers to move up the value-added chain into knowledge-intensive industries, and create increases in productivity and real wages in neighboring countries that will increase both the demand for Chinese goods and services and the supply of goods to China itself.
China is well-placed to partner with these countries in their development. Not just because of its geographic proximity but also because of the Chinese advantage of economies of scale. Building infrastructure at low cost and selling high-quality capital goods at low cost offers the capital stock these countries need to develop at the price points they can afford. It is what economic cooperation should deliver—prosperity for all based on the relative advantages and weakness of each country’s inhabitants.
Politics, the Stabilizing Influence of Global Trade
China’s domestic growth story is one of the greatest humanitarian achievements in history. In 1981, 835 million people lived in poverty in China, out of a total population of 1 billion people.4 Today, 30 million Chinese live in poverty, out of a population of 1.4 billion. This stunning reversal has taken China from developing-nation status to a middle-class nation in one generation. Among the regions around the world that can be pulled upward to join this global middle-class normality, Southeast Asia, Central Europe and the east coast of Africa are precisely those areas targeted by the Belt and Road Initiative. The potential humanitarian implications are huge as the areas within the embrace of the Belt and Road infrastructure initiative account for perhaps two-thirds of the world’s population.
CHINA VS. WORLD BY NOMINAL GDP PER CAPITA IN 2019
The map above shows the arm of relative poverty reaching out westward from China’s borders toward Europe. Chinese investment, not European or American, is forging a bridge between the global rich and poor. And the Chinese investment is now reaching into Europe itself. In March of this year, Italy signed a memorandum of understanding that will give China the ability to develop the ports of Genoa and Trieste, more closely linking Europe to Central Europe. Greece, too, has signed onto the initiative as China has transformed Piraeus, a defunct port outside Athens, into Europe’s six-largest container port.5
The Complaints
There has been a lot of pushback to China’s Belt and Road Initiative. Much of it is from Western governments and the media. I suspect they fear that China is trying to use infrastructure development to influence countries politically. Perhaps Western fears go even further—that China will not seek to spread the values of Western liberalism as part of its massive globalization initiative. Here, the concerns are surely right. We are seeing the globalization of the so-called Washington Consensus6 being replaced with a globalization that seems much more pragmatic, or non-prescriptive, and non-interventionist.
Non-interventionism has a cost, though. With so much public spending, the risk of corruption is high. Many of the participating countries are lower-income countries with weak institutions and governments with little incentive to investigate or expose their own elites to transparency. China’s disinclination to hold local elites accountable risks higher-than-usual rates of corruption. These practices could detract from the overall mission and efficacy of China’s efforts.
Governments have also pushed back against some of the Belt and Road projects. They have legitimate concerns about the amount and terms of the debt accrued to make the investments. In this case, however, the Chinese have time and again renegotiated. Also, a sense of China’s own history prevents it from seeking punitive lending. It aims to build relationships over the long term, not to destroy them.
The Investment Case
In many senses, the investment case for the Belt and Road Initiative is very strong. If you think of all that the Chinese government can achieve through these investments, in terms of economic diplomacy, secure borders, maintenance of high living standards at home and the continuing development of modern lifestyles, then the initiative has high returns indeed. But these are not the kind of returns that interest private investors. This does not speak of a return on invested capital measured in dollars. No, the opportunities to profit from the infrastructure development are not likely to lie in direct participation in the project itself. For here, one is likely serving the interests of one government or another. Returns are measured in political stability and national pride.
As the Belt and Road Initiative continues, however, it will cut shipment times and potentially lower transport costs. Taking the railway from East China to Europe is much faster than using the container shipping routes.7 This will draw many more people into global markets, increasing efficiencies and driving up productivity and wages. Investors might profit by owning shares of private businesses, in China and other countries, that make use of these productivity improvements to lower costs. Investors might also look at companies that sell directly to local consumers across the various Asian parts of the Belt and Road Initiative. As wages rise, demand for their products and services will rise, too. Private businesses that use the new infrastructure to transport and market goods may also profit. All sorts of businesses may arise that meet the desires of newly globalized populations for a better life. The investment case and the humanitarian case are intertwined at this degree—a degree once removed from the initial investments. But the opportunities for profit and human advancement both are real; they just require a little patience.
China as a Standard Bearer of Globalization
China is no paragon of virtue. But China’s rejection of liberal democratic principles and some of the West’s political institutions perhaps blinds us to the great potential for humanitarian good and economic advancement that the Belt and Road Initiative offers. No, it is not perfect. However, China, in the eyes of the participating countries at least, which have voted with their labor and their capital, today represents one of the best hopes for economic advancement through global collaboration.
- The World Bank
- World Population Review
- The World Bank
- Gapminder
- PortEconomics, data as of 2018
- Wikipedia
- BBC
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