Q: What is the significance of the “One Road, One Belt” Initiative?
The “One Road, One Belt” initiative reflects the continuation of China’s plan to open up and continue the market-oriented growth and development process which was put into place and started by Deng Xiaoping in 1979. One of the key lessons that Chinese cities and villages had learnt over the past few decades is that “if you want to become rich, build the road first.” Roads, rails, ports, and airports were critical to China’s economic success. China is now looking to share this tested growth strategy with its neighboring countries along the “One Belt One Road” route, which covers countries around the old Silk Road beyond China’s western land borders and the North and South East Asian countries linked to the east coast of China through the Maritime Silk Road.
This plan will have the potential to change economic geography; it has a market-oriented growth vision for about 60 per cent of the world’s population living around the “One Road, One Belt” region. It is hoped that the resulting physical infrastructure will connect and facilitate the flow of people, goods, money, information and other resources in the region. The connectivity will not only improve economic efficiency but also create the environment to enact necessary international governance practices so that the region will see region’s inclusive, sustainable, innovative, and peaceful growth through regional multilateral institutions like Asia Infrastructure Investment Bank (AIIB).
This initiative will give countries the opportunity to improve living standards for a larger number of people at much lower cost through the expansion of markets and the realization of a comparative advantage through international trade and investment. It may also enable a massive redistribution of population centers, supply chains, and consumption centers. One result is we may see the emergence of many new great cities, but we may also see the development of ghost towns in a pattern that is similar to China’s own experience of development and urbanization.
Q: The “One Road, One Belt” initiative is expected to cut a path between China and its neighbors – do you think this scheme will be able to help reverse the outflow of resources from China’s third-tier cities, helping these cities grow in the process?
No, this plan is not about helping China’s third-tier cities. It is a much grander and bigger strategy to export China’s development blueprint to the world. The vision and action plan of “One Road, One Belt” is well-articulated by China’s National Development and Reform Commission and its goals are primarily undertaking infrastructural projects that have big social and economic returns but the market cannot do on its own.
Back in 2010, the Asian Development Bank predicted that Asia will need approximately US$ 8 trillion worth of infrastructure within a decade in order to sustain its current grow momentum. This includes US$2.5 trillion for roads and railroads, US$4.1 trillion for power generation, US$1.1 trillion for telecommunications and US$0.4 trillion for sanitation investments.
To achieve a win-win result, Asia needs a catalyst like AIIB to spear ahead the key infrastructure investment on interconnectivity so that the private sectors can join the forces to satisfy the potential market demand and benefit all stakeholders.
This initiative by President Xi Jinping shows China’s willingness and commitment to contribute to healthy global growth and development, leveraging on China’s successful experiences in the past, including the establishment of Special Economic Zones and Free-Trade Zones for transition to free trade and investment regimes.
Q: Where does the Asia Infrastructure Investment Bank (AIIB) fit into all this?
The Asia Infrastructure Investment Bank (AIIB) is meant to solve the problem of a bottleneck in the infrastructure investment.The AIIB’s voting shares are structured according to the size of the member economies. Even though China has offered the bulk of the AIIB’s US$100 billion seed capital fund, its share in AIIB will come down as more countries sign up to be founding or non-founding members; this is according to the plan put forward so far. The AIIB has also promised to enact a more transparent and fair process than the ones that we have seen either in the World Bank or the Asia Development Bank.
It is also hoped that the AIIB will serve as both a complement as well as a competitor to the World Bank and the Asia Development Bank.It is a complement since the market is big enough for more multilateral banks. It is also a competitor because organizers hope the AIIB will eventually become more efficient than the World Bank and ADB are perceived to be, and with a better governance structure that takes into account the experiences and interests of emerging economies like China and India.
A bit of competition among these multilateral institutions will be useful in reducing the bureaucracy and improving effectiveness so that these institutions can help countries and regions race to the top. The fact that 57 countries around the world have already signed up for the funding members of AIIB shows the frustrations of the world to the existing multilateral institutions as well as high hope for the creation of new ones. The key test for AIIB is whether it can get projects done more effectively than others so we see inclusive, sustainable, innovative, and peaceful regional growth and development overall.
March 30, 2015, Fung Global Institute, Have You Seen… On China’s Silk Road Economic Belt
April 14, 2015, Fung Global Institute, Have You Seen… On Asia’s Infrastructure Appetite
April 21, 2015, Wall Street Journal, China Makes Multibillion-dollar Down-payment on Silk Road Plans