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Establishing a Policy Support System for the Belt and Road Initiative

2015-08-14

By Luo Yuze, Research Department of Industrial Economy of DRC

Research Report Vol.17 No.3, 2015

With great significance for China to build a new type of open economy system, the Belt and Road Initiative is called Version 2.0 of China’s opening-up strategy. Since 1978, with the inflow of foreign capital, equipment, technology, talents and management experience via opening-up to the outside world, China has made remarkable achievements in economic development, growing into a global trade power from a country with small trade volume. However, influenced by such factors as regional conditions, resource endowment and development stages, China’s opening-up is characterized by disharmony and imbalance of “high speed in the east but low in the west”, and “strong momentum in the coastal areas but weak in the inland areas”. Aiming at constructing a new type of opening-up and cooperation pattern featuring east-west interaction, north-south connectivity, coordinated development of the coastal and inland areas, and integration of domestic and overseas development, the Belt and Road Initiative provides a comprehensive strategic foundation for China to optimize the spatial allocation of economic activities, connect domestic and foreign markets and make use of resources both at home and abroad. Due to its large coverage area, many factors involved, geopolitical complication, imbalanced economic development and cultural diversity, the Belt and Road Initiative calls for a complete policy support system from the government so as to facilitate enterprises’ international cooperation via “Go Global” strategy.

I. Problems and Challenges for the Belt and Road Initiative

Since it was put forward, the Belt and Road Initiative has received active responses from more than 60 countries and regions, becoming the major consensus of the countries along the Belt and Road to strengthen their economic cooperation. But in the actual construction process, there are inevitable problems and challenges, which can be summarized in the following four aspects.

1. High Geopolitical Risks

Many countries along the Belt and Road are undergoing their political and social transformation, with considerable security and stability issues. With religious, cultural and social conflicts intertwined with one another, their own political risks are high. Besides, interests of some large countries are located here. The Middle East is a key strategic area for the US for a long time. Central Asia is traditionally the area of Russian influence. South Asia is where India has exerted its influence for some time. The Maritime Silk Road is faced with the military allies of the US. The competitions of major world powers in this region make the regional situation more complicated. Among them, the Middle East, Central Asia and South Asia are called Strategic Arc of Instability, with frequent coups and local conflicts. In recent years, China has actively promoted boundary delimitation in a peaceful way and has made significant progress. Nevertheless, with some territory disputes unsettled, there are still prominent problems and conflicts, with the hidden problems of clashes. With China’s international status further improved, the relationship between China and the US becomes subtle. Therefore, the development of the relationship between the two major countries will have growing impacts on this region’s situation.

2. Severe Shortage of Funding for the Infrastructure Construction

Infrastructure is the main bottleneck that constrains the economic development and cooperation of countries along the Belt and Road. Based on the estimate of the World Economic Forum, of the 54 countries with data for competitiveness, only 4 (Singapore, the United Arab Emirates, Croatia and Slovenia) have a higher infrastructure competitiveness index than comprehensive basic competitiveness index. There is a huge demand for investment in boosting infrastructure competence. According to the estimate of the Asian Development Bank (ADB), that between 2010 and 2020, Asia’s infrastructure investment demand is $800 billion, of which only about $20 billion can be provided as loans from ADB, including private investments it can leverage.

3. Many Difficulties in Coordinating and Integrating the Plans of the Belt and Road Countries

Due to the differences in economic development level, allocation of economic activities and population density in geographical areas, all countries may have different priorities in development. Take the infrastructure construction for land transportation for example. China has large volume and long distance of cargo transportation. So railway transportation makes economic and technological sense. While road and air transportation are more suitable for the present need of the countries in Central Asia with sparsely populated areas, weak manufacturing and scattered transportation volume. In the absence of sharing and compensation mechanism, it is mostly likely that the best choice for the region may not be the best one for a particular country, which makes it hard for an international project to be implemented. In addition, the international infrastructure construction involves conflict of interests, policy integration and system coordination between different countries. As a result, in many cases, it is hard to push forward a project even if it will produce win-win results. That is, there is a risk of government failure as well as that of market failure.

4. Mechanism Construction for Policy Communication and Economic and Trade Cooperation Lagging Behind

Severe obstacles are found in trade liberalization and investment facilitation in many countries due to unsound and unstable laws, low construction level of free trade zone, many trade and investment barriers, such as stricter license system, non-unified customs procedures and documents, inconsistent standards and regulations for infrastructure construction, and different systems of transportation and logistics signals. The present cooperation mechanism, either lacks major countries’ leadership and strong push, or fails to cover all areas or involves low level cooperation, resulting in slow progress in policy coordination and system building.

II. Necessity of and Thoughts on establishing a Policy Support System

As a good start for the construction of the Belt and Road, the Silk Road Fund has been established. Besides, “Vision and Actions on Jointly Building Silk Road Economic Belt and 21st Century Maritime Silk Road” has been published, becoming the guiding document for this area’s cooperation and connectivity of plans. In spite of this, influence brought about by the above-mentioned difficulties cannot be underestimated. In Asian region, grand plans for regional cooperation were put forward before, such as the Infrastructure Development Plan for Asian Land Transport proposed by the United Nations’ Economic and Social Commission for Asia and the Pacific in 1992 and the plan to build a pan-Asia infrastructure network proposed by the Asian Development Bank in 2009. Slow progress was made for both plans due to various reasons. Even the implementation of the Master Plan on ASEAN Connectivity① proposed in October, 2010 by ASEAN, well-known for its enforcement, still encountered difficulties in implementing the plan. In order to break through the inefficiency predicament in implementing multilateral cooperation, apart from a leadership player, it is also a must to have a good top-level design, do an overall planning, set up corresponding mechanism, pool all kinds of resources and mobilize enthusiasm and initiative of all parties.

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①Including connectivity of infrastructure and connectivity of mechanisms (namely “policy communication” in our words), and people-to-people communication (namel“people-to-people bond” in our words).