Peer reviewed analysis from world leading experts

China takes the lead on economic integration

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In Brief

China’s One Belt, One Road initiative is currently the most important program for deep economic integration. The program envisages the revitalisation of old trading routes with a continental Silk Road Economic Belt and 21st century Maritime Silk Road. Despite its awkward name, the initiative is a well-conceived way for China to connect its economy to the rest of the world, with an early emphasis on links towards Europe through the rest of Asia.


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The principles and objectives of the proposal have been set out in detail by the Chinese government. The initiative demonstrates China’s stated commitment to shouldering more responsibilities and obligations within its capabilities, using its strength in infrastructure construction and financial resources. Any other government can participate, adding to positive network effects.

The timing of the initiative coincides with China’s ongoing effort to rebalance its economy.  The spectacular success of three decades of an outward-looking, investment-and export-oriented development strategy has led to rapidly rising labour costs. The supply chains linking China to the rest of the world need to be re-organised rapidly to allow the relocation of labour-intensive production to others, with a growing proportion of their output likely to be sold in China. The main constraints to this reconfiguring of international commerce are weaknesses in transport and communications links. China has indicated that it is willing to lead the massive investments required both in the actual infrastructure and the human resources and institutional modernisation needed to make full use of it.

These proposed investments in infrastructure and capacity-building will yield benefits to all the economies involved. Work can start immediately to reduce supply chain barriers, which will achieve far greater gains than removing all remaining tariffs. Cooperation on capacity-building and adding vital economic infrastructure is a positive-sum game that can be played immediately without any need for formal international treaties.

By contrast, regional initiatives such as the Trans-Pacific Partnership or the Regional Comprehensive Economic Partnership need many years of negotiation to achieve modest gains in liberalisation of trade in agricultural commodities or low-technology manufactures, both of which account for a rapidly shrinking share of global commerce.

For more than a decade, business people have urged governments to stop obsessing about these kinds of traditional trade barriers. They want governments to shift their attention to the widening gaps in Asia’s transport and communications infrastructure. China’s proposal responds to these priorities.

APEC governments have attempted to deal with obstacles to international commerce for many years. The drive towards the ASEAN Economic Community also intends to improve transport, communications and energy networks. The Master Plan for ASEAN Connectivity (MPAC) sets out a strategy and timetable for investing in the skills, institutional upgrading, regulatory convergence, software and hardware that will be needed.

While the financial resources available from both ASEAN and APEC fall far short of the amounts needed to implement MPAC, China is willing to back its One Belt, One Road initiative with the necessary financial resources. Financing options include the already announced US$40 billion Silk Road Fund, the China–ASEAN Interbank Association, the Shanghai Cooperation Organisation Interbank Association and the China–Eurasia Economic Cooperation Fund.

Most importantly, China has established the Asian Infrastructure Investment Bank (AIIB), with initial capital of US$100 billion raised from 57 initial members. The capital of this new multilateral development bank will be used to leverage considerably larger amounts of finance from international capital markets at a time of sagging global demand and extremely low interest rates.

Other multilateral development banks, including the World Bank and the Asian Development Bank, have not only declared their willingness to help the AIIB succeed, but are also likely to look for ways to accelerate their own lending for essential infrastructure in order to retain their relevance. At last, there is some prospect that the US$8 trillion gap in economic infrastructure can begin to be narrowed.

The initiative provides an overarching framework for many ongoing efforts to improve connectivity and cooperation between China and other economies. India may, at last, be linked into East Asian supply chains. Implementation of  the MPAC will be accelerated. Central Asian countries are likely to be able to finance power stations, manufacturing plants and pipelines, perhaps in return for gas supply contracts with China. Many other investments — including the improved transport links between China and Pakistan and the expansion of a logistics terminal jointly built by China and Kazakhstan — will also be subsumed into the One Belt, One Road vision.

If the scope of this initiative develops as intended, it should be able to attract participation from most Asian governments and, in due course, build better global transport and communications links. Inevitable problems in expanding flows of goods, services, investment, information and people along new economic corridors will draw attention to the need for institutional connectivity. We are likely to see convergence of legal, technical and administration norms and regulations among widening groups of economies.

China and its partners will also become aware of the need for new international rules to deal with the issues that are being addressed in the drawn-out TPP negotiations. But they do not need to copy the example of the TPP, where the largest potential member, the United States, is hoping to impose its own preferred rules on very different economies. The collective economic weight of the economies along the ‘one belt, one road economic corridors will allow them to  set sound rules for 21st century issues in the WTO that reflect the interests of all economies.

There is a long way to go, but the One Belt, One Road may yet alert the G20 to the huge potential for more of its members to promote a creative new approach to global economic integration.

Andrew Elek is research associate at the Crawford School of Public Policy, Australian National University. He was the inaugural Chair of APEC Senior Officials in 1989.

2 responses to “China takes the lead on economic integration”

  1. The so called “one road ad one belt project may rival and is likely to dwarf the post war Marshall Plan of the European Recovery Program.
    Given its huge scale and scope, it seems there is a need to develop a high level conceptual framework for accelerating the implementation of the huge “one road – one belt” multinational project, along the line of operation research of linear and non-linear optimisations. One of the main objectives would be to maximise the sum of the economies with constraints including the existing institutional constraints. Some constraints may be binding and a coordinated approach in relaxing the most important constraints through institutional building will generate significant extra gains. Leading countries involved in the project should take the initiative and work together to seek maximising the gains of the project.

  2. ‘The supply chains linking China to the rest of the world need to be re-organised rapidly to allow the relocation of labour-intensive production to others, with a growing proportion of their output likely to be sold in China.’

    If this means that China will outsource the jobs, then what is the government going to do with the people who get laid off?

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