Is China at work on its own version of the Marshall Plan? This question is getting plenty of attention from pundits inside and outside of China thanks to the country’s ambitious plans to finance development at home and throughout the developing world.
Many expect clarity on such plans soon now that the Asia-Pacific Economic Cooperation summit is underway in Beijing. Indeed, recent media reports suggest that details on China’s tentative “One Belt, One Road” strategy, a massive trade, infrastructure and investment program intended to deepen connections between China and its trading partners, could soon be forthcoming. The campaign itself refers to two separate plans – the Silk Road Economic Belt and the Maritime Silk Road – first tipped by top authorities last year. Although details remain scare, recent Bloomberg reports say the Chinese government will set aside $16.3 billion to fund marine and overland projects intended to “revive the centuries old Silk Road trading route.”
Prior to this, China joined Russia, Brazil, India and South Africa in July to establish the Shanghai-based BRICS Development Bank with $100 billion in start-up capital. Just last month, China united with 20 of its Asian neighbors to establish the Asian Infrastructure Investment Bank.
It seems China is at the forefront of efforts to deepen ties within the Asia-Pacific region through investments in infrastructure and trade promotion. As such efforts gather steam, many see the country’s involvement in regional development as akin to US efforts to rebuild war-torn Europe following World War II.
In the case of the US, Secretary of State George Marshall’s campaign to aid Europe in 1947 proved to be a win for both sides. Europe saved on the expense of redeveloping its economy; while the US deepened its strategic bonds in the region, found new markets for its industrial goods and positioned the greenback as a key currency in global trade. In the process, the US’s place as a world superpower was firmly cemented.
If China can carry out a similar program in the developing world, it stands to accomplish many of the same achievements the US did decades ago. It can unload oversupplies from industries grappling with overcapacity, promote the yuan’s use as an international currency and cultivate positive relationships with other countries.
China certainly has good reason to pursue the above-mentioned goals. For starters, its manufacturing sector is weighed down by overcapacity. This is true for pillar industries like steel, cement and chemical production as well as emerging fields like photovoltaic and wind power equipment. With domestic demand wavering, enterprises are looking to export markets for relief.
For their part, many of the world’s emerging-market nations could greatly benefit from increased access to Chinese goods and capital. The Asian Development Bank, for instance, has estimated that it will need $8.2 trillion to meet the infrastructure development targets of its 32 member states by 2020. As of now though, the institution is looking at financing shortfalls of $60 billion per year until decade-end. China can help fill this and other financial gaps by drawing from its $3.95 trillion foreign exchange reserve, which is now the largest in the world. Equipment and technology from China can also accelerate development and industrial upgrading across emerging markets.
Of course, realizing China’s overseas investment agenda will require more than just money alone. Authorities should carefully consider the costs of the projects they fund as well as the capabilities of local governments to fulfill their obligations. Just last month, for instance, Venezuela refused to repay a loan to China. This case should highlight the potential risks Chinese parties face when investing overseas.
Economic diplomacy is becoming a key piece in China’s foreign policy. The country certainly has the foreign reserves and the industrial capacity to expand its profile in global economic and political affairs. For all sides though, let’s hope the country’s ambitions are tempered with careful planning and foresight.
Fuente: Global Times