comte
JF-Expert Member
- Dec 11, 2011
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MOTIVATION FOR THE INITIATIVE (CHINA BELT AND ROAD INITIATIVE)
China has several reasons to promote its new Silk Road plan. As the world’s biggest trading nation, China’s main interest is to reduce the costs of transporting goods. Projects that are already funded under the initiative all report statistics on how much travel time and cost will be reduced as a result of their completion. Because such improvements will affect all cargo using these transport routes, they will benefit world trade. The success of the Belt and Road Initiative is thus of interest to countries beyond the designated Silk Road routes, as their exporters will also use the upgraded infrastructure.
Besides reducing trade costs, there are four other goals for the initiative. First, China is attempting to decrease the economy’s dependence on domestic infrastructure investment and the associated growth that comes with such investment. This means that Chinese construction companies, equipment makers, and other businesses that have thrived on the country’s building boom have to look elsewhere for opportunities. A key motivation for the Belt and Road Initiative is to find outlets for these companies overseas. China expects that its own companies will plan, construct, and supply the projects it funds, and this expectation is borne out in the analysis of existing projects. A study of loan practices by the China Development Bank and the Export Import Bank of China in 2013–15 showed that 70 percent of overseas credit was made on the condition that at least part of the funds be used to purchase Chinese equipment and involve Chinese labor.
Second, the infrastructure focus helps China in its quest for greater international stature for the renminbi, to achieve the status of a global reserve currency. In this effort China has the backing of Russia and other emerging markets, as the volatility of their currencies has troubled politicians. With the aim of financing projects where the Chinese currency is used in loans, China in 2015 joined the European Bank for Reconstruction and Development and founded the Asian Infrastructure Investment Bank. These steps yielded success and the International Monetary Fund added the renminbi to the basket of global currencies.
The third motivation for the Belt and Road Initiative is to secure China’s energy supply through new pipelines in Central Asia, Russia, and Southeast Asia’s deepwater ports. Energy sufficiency has been a consistent worry for Chinese enterprises, and for good reason. The number of privately owned vehicles in the country shot up from 8 million in 1990 to about 115 million in 2015. And with the growth of the economy, China’s energy demand has increased more than 500 percent since 1980. The country is now the world’s largest energy consumer and, as of 2014, largest net importer of oil. Its reliance on coal for about 40 percent of its heating and electricity has contributed to pollution in its cities. The Chinese government has set ambitious goals for dealing with the pollution problem, including switching from coal to cleaner—but so far mostly imported— energy sources.
Fourth, infrastructure development in countries along the Belt and Road routes may increase growth in their economies and thus contribute to a growing demand for China’s goods and services. In March 2015, China’s president Xi Jinping stated that annual trade with the countries along the Belt and Road Initiative would surpass $2.5 trillion by 2025. In smaller countries such as Georgia, projects funded by the initiative may increase annual economic growth by 1.5 percent for the next decade, a considerable boost. Data are not yet sufficient to suggest the extent of this growth effect in other countries, but the initiative clearly represents an interest in finding work for Chinese construction and equipment companies and their engineers.
The Belt and Road Initiative does not so much set out new goals as unite China’s economic priorities abroad under a single project. Its precedent, China’s 1999 “Going Out” policy, sought to increase outbound foreign direct investment and expansion beyond the country’s borders—and led to a dramatic increase of 600 percent in China’s trade with the resource-rich countries of Southeast Asia, Latin America, and Africa between Chinese investors were newly welcomed for the implicit hope of exporting some of the success of “the Chinese growth model” to other countries, and China Development Bank funded hundreds of projects in developing countries for over a decade
SOURCE: https://piie.com/system/files/documents/piieb16-2_1.pdf
China has several reasons to promote its new Silk Road plan. As the world’s biggest trading nation, China’s main interest is to reduce the costs of transporting goods. Projects that are already funded under the initiative all report statistics on how much travel time and cost will be reduced as a result of their completion. Because such improvements will affect all cargo using these transport routes, they will benefit world trade. The success of the Belt and Road Initiative is thus of interest to countries beyond the designated Silk Road routes, as their exporters will also use the upgraded infrastructure.
Besides reducing trade costs, there are four other goals for the initiative. First, China is attempting to decrease the economy’s dependence on domestic infrastructure investment and the associated growth that comes with such investment. This means that Chinese construction companies, equipment makers, and other businesses that have thrived on the country’s building boom have to look elsewhere for opportunities. A key motivation for the Belt and Road Initiative is to find outlets for these companies overseas. China expects that its own companies will plan, construct, and supply the projects it funds, and this expectation is borne out in the analysis of existing projects. A study of loan practices by the China Development Bank and the Export Import Bank of China in 2013–15 showed that 70 percent of overseas credit was made on the condition that at least part of the funds be used to purchase Chinese equipment and involve Chinese labor.
Second, the infrastructure focus helps China in its quest for greater international stature for the renminbi, to achieve the status of a global reserve currency. In this effort China has the backing of Russia and other emerging markets, as the volatility of their currencies has troubled politicians. With the aim of financing projects where the Chinese currency is used in loans, China in 2015 joined the European Bank for Reconstruction and Development and founded the Asian Infrastructure Investment Bank. These steps yielded success and the International Monetary Fund added the renminbi to the basket of global currencies.
The third motivation for the Belt and Road Initiative is to secure China’s energy supply through new pipelines in Central Asia, Russia, and Southeast Asia’s deepwater ports. Energy sufficiency has been a consistent worry for Chinese enterprises, and for good reason. The number of privately owned vehicles in the country shot up from 8 million in 1990 to about 115 million in 2015. And with the growth of the economy, China’s energy demand has increased more than 500 percent since 1980. The country is now the world’s largest energy consumer and, as of 2014, largest net importer of oil. Its reliance on coal for about 40 percent of its heating and electricity has contributed to pollution in its cities. The Chinese government has set ambitious goals for dealing with the pollution problem, including switching from coal to cleaner—but so far mostly imported— energy sources.
Fourth, infrastructure development in countries along the Belt and Road routes may increase growth in their economies and thus contribute to a growing demand for China’s goods and services. In March 2015, China’s president Xi Jinping stated that annual trade with the countries along the Belt and Road Initiative would surpass $2.5 trillion by 2025. In smaller countries such as Georgia, projects funded by the initiative may increase annual economic growth by 1.5 percent for the next decade, a considerable boost. Data are not yet sufficient to suggest the extent of this growth effect in other countries, but the initiative clearly represents an interest in finding work for Chinese construction and equipment companies and their engineers.
The Belt and Road Initiative does not so much set out new goals as unite China’s economic priorities abroad under a single project. Its precedent, China’s 1999 “Going Out” policy, sought to increase outbound foreign direct investment and expansion beyond the country’s borders—and led to a dramatic increase of 600 percent in China’s trade with the resource-rich countries of Southeast Asia, Latin America, and Africa between Chinese investors were newly welcomed for the implicit hope of exporting some of the success of “the Chinese growth model” to other countries, and China Development Bank funded hundreds of projects in developing countries for over a decade
SOURCE: https://piie.com/system/files/documents/piieb16-2_1.pdf
