Collaboration can increase understanding of B&R

By Feng Da Hsuan and Liang Haiming Source:Global Times Published: 2018/7/30 22:43:39

Illustration: Xia Qing/GT

The Belt and Road (B&R) initiative was proposed by China almost five years ago. After some cultural and economic conflicts, some foreign media and the public have begun to raise concerns, some of which may be misinterpretations.

These concerns and misinterpretations have three causes. The first  involves Sino-US trade friction and whether it will affect China's economy and thus the B&R initiative.

The second is whether China has political or ideological agendas behind the B&R initiative. Some people argue that the B&R is meant as a means of competing with the US' dominance. They compare the initiative to the US-backed Marshall Plan - a means of leverage to gain political control via economic aid.

The third is the so-called "China threat." Recently, a number of China's neighboring countries are embroiled in maritime territorial disputes with China. The inflow of Chinese money and companies into such countries are often interpreted as threats to the local economy and local companies. Due to these concerns, some B&R projects are reportedly being pushed back because of poor management and lack of transparency.

But these concerns and misunderstandings arise partly because some observers do not grasp the principles of international development economics, international finance, industrial transfers and the principles of overseas investment.

First, it should be noted that not all Chinese-funded enterprises investing in overseas projects are involved with B&R projects.

The Chinese government has not publicly released a precise list of B&R projects. Based on information from China's State Council, the cabinet, as well as various ministries, it is obvious that not all overseas investment projects fall into this category. Overseas projects involving real estate, hotels, movie theaters, recreation and soccer clubs are not part of the B&R projects.

Further, projects utilizing equipment that does not meet foreign countries' technical standards or standards for environmental protection, energy use and safety, even in markets along the B&R route, are not considered.

Second, it is well understood that not all B&R projects can be successful. Some people may think projects are guaranteed to be successful as long as they are backed by the B&R initiative. But branding projects as B&R projects cannot alter the rule of international investments.

The success rate of foreign investment is not very high in general. From 2014 to 2017, China's State-owned enterprises invested in some 1,700 collaborative projects with their counterparts in nations along the B&R route. There were both successes and failures. This is simply normal.

In addition, success or failure of the projects can't be evaluated simply by profits. One must also take into account economic growth, social progress and employment.

Third, from the very start, a number of Western multinational corporations have successfully participated in B&R projects. The B&R initiative was always intended to involve a range of countries. As far as projects using B&R finance are concerned, China initiated an effort known as "Third-party Market Cooperation," meaning that China will collaborate with Western multinational corporations in joint bidding, joint production and joint investment of projects in third-party markets.

By collaborating with Western nations, China can greatly reduce possible pushback and share the risks. For Western multinationals, the experience can add value to their competitive edge.

Even though Chinese-funded corporations are the main contractors, many of the sub-projects are awarded to companies with decades of experience in cross-border technology integration, which are Western multinational corporations. Many Western multinationals are deeply involved in the B&R initiative.

Fourth, the B&R initiative is not a panacea - it is another transformation of international capital and industries. As the growth of Chinese industries reached a certain level, China became a global economic center. But due to the diminishing marginal return of many factors of production, scaling up became more costly. Thus, China needs to shift industries and factors of production to less advanced neighboring regions and nations. This process can on the one hand lift the economic development of those regions and nations, and on the other it can enhance China's economy.

Finally, with regard to misunderstanding of the B&R initiative, creating opportunity via economic collaboration, investment and commercial interactions is likely to enhance China's credibility. Such an effort can reduce the concerns of nations and regions along the B&R route, and give people in those nations a deeper understanding of the B&R initiative. 

Feng Da Hsuan is chief adviser of the China Silk Road iValley Research Institute and former vice president for research at the University of Texas at Dallas. Liang Haiming is chairman and chief economist of the China Silk Road iValley Research Institute.

Posted in: INSIDER'S EYE

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