CHINA BUSINESS: ‘One Belt, One Road’ and One China-led Bank

As the ‘One Belt, One Road’ initiative takes shape, veteran China watcher and scholar Dr. Geng Xiao weighs in on the complex dynamics driving the initiative and the future direction of the Asian superpower

By Nan-Hie In


Since Chinese President Xi Jinping announced his mega-geopolitical dream in 2013 to revive the Silk Road routes through the ‘One Belt, One Road’ plan, many wondered how the nation will turn this vision into reality as the enormity of the project will require a series of colossal undertakings.

Xi retraces the ancient trade routes into a far more expansive sea and land network known as the New Silk Road Economic Belt and the 21st Century Maritime Silk Road, which will connect China to Central Asia, Europe, Africa and beyond. Collectively termed ‘One Belt, One Road’ (OBOR), it aims to fulfill multiple objectives including closer ties, trade and transport links with more than 60 countries.

One by one those major undertakings are being overcome. The latest breakthrough: the successful creation of the Asian Infrastructure Investment Bank (AIIB), the 57-nations-backed financial muscle led by China which will fund infrastructure projects for the OBOR. Greater importance now shines on this initiative.

Dr. Geng Xiao, a professor of Practice in Finance and Public Policy at the University of Hong Kong among other titles, gauged detailed observations about these developments as a prism into the nation’s strategies.

“At the beginning of China’s reform [over the last three decades], China was a highly centralized system and that system has several thousand years of history,” he said during a speech at AmCham recently. “What we’re observing is that system trying to move towards a market [orientated] system which is, in a way, a democratic system.” The academic offers his perspective on the complicated currents underpinning OBOR and its implications.

The Experimental Process

The strategies behind China’s policies are usually rooted in deep history. More specifically, in the last three decades of market-led reforms, one key process helped transform this formerly poor agricultural nation into an economic miracle.

“From Deng Xiao Ping to Xi Jinping a lot of things have changed but one single thing that has not changed is the approach of trial and error,” Dr. Xiao says.

However, the error part of this process has had serious repercussions to the country. “China is full of those old mistakes – pollution, corruption, local debt problems and stock market problems – and if you look at these issues they are all a result of the trial-before-policy [approach],” the professor points out.

The fallout of this process also exacerbates existing mechanisms that have not yet been fully developed, as seen from the recent crash of the Shanghai and Shenzhen stock exchanges. The government’s response shows that it did not foresee the bubble that led to the crash and the emergency rescue measures, says Dr. Xiao.

From the police crackdown on securities companies to the trading halts of countless small cap shares listed on these indices, he cites Beijing’s heavy-handed response in recent weeks as examples of moves that have eroded investors’ faith in the market. But these measures are rooted in Beijing’s ideology. “The Chinese government has 5,000 years of central control and bureaucracy experience so instantly they went in the markets with a stop and control [impulse] and that control aspect was overwhelming,” he says.

Dr. Geng XiaoOn the other end of the spectrum, this experimental approach led to enduring success for China. Dr. Xiao claims that despite centuries of central governmental control, Beijing embarked on a liberalization experiment of market-led reforms in the last 30 years, an opening up period that led to the nation’s rise as the world’s number two economy.

“We benefited largely because the S set the stage and rules for the market and [for China to] open the market,” he says. The scholar perceives OBOR as China’s efforts in doing the same for other regions located along its periphery.

Approach to Advance China

The OBOR is also part of President Xi’s approach to advance the country through what Dr. Xiao posits as the leader’s three-pronged strategy, three aspects China is learning that have all been developed by the West.

First, there is the competition, an extremely important factor on an individual, corporate, city and national level. “Competition has intensified in many areas in China and it is a form of decentralization at a local level – through companies, the shareholders system and other key institutions,” Dr. Xiao says.

Second, accountability is a hallmark feature driving Xi’s policies including the nationwide anti-corruption campaign. “The accountability that we understand is largely about democracy but China has not yet achieved this level yet so instead it is reflected in the free flow of people, money, companies and other aspects such as information, which is not entirely free but this is happening,” he says.

And third, there is the provision of public goods. It goes hand in hand with infrastructure, which China has been developing throughout the nation to facilitate trade and development. The scholar views infrastructure as the secret behind China’s economic miracle story. The OBRO falls under this dimension.

The initiative is trying to achieve growth by strengthening integration with the associated countries through infrastructure.

“Building connectivity is going to change the geography and that is going to help the allocation of resources in a way which will benefit most [to participating countries],” says Dr. Xiao. “If China’s growth can be learnt by India, Africa and all the other developing countries around China, then that will create a global long-term growth engine; this will provide real support, peace and prosperity of China.”

Economic and Geopolitical Elements

Like many China watchers, Dr. Xiao perceives the arrival of the AIIB as a shift in international economic governance, to China’s advancement. “The AIIB is to show that China wants to contribute many things including global governance,”he explains. “When the US and Japan try to criticize Beijing for [lacking institutions with good standards], that is wrong because China wants to create a good standard that fits with reality.”

He emphasizes the core differences between AIIB and institutions such as the IMF or the World Bank on their strategies to maintain the global economy and alleviate poverty. “The AIIB is not an aid organization but a commercial organization… it is trying to become a catalyst [for growth and development],”he says.

China has contributed US$50 billion to the new bank and more capital to associated financial vehicles including US$40 billion to the Silk Road Fund. The AIIB will authorize and fund infrastructure projects which will help the market make decisions that would spur development in the associated areas.

According to Dr. Xiao, this approach was based on the nation’s experience of developing rural villages into factory centers to industrialized cities, a process spurred by successful projects funded by China Development Bank and other major banks.

“In a market economy it is not local officials but individuals and companies that decide where to live and where to base [their company and talent] so that is why we are seeing a do-economy in China,”Dr. Xiao explains.

But this marketization process has contributed to tremendous constraints and pressures on the administration. He points out while the market in China continues to expand over the last two decades, the government also continues to centralize with no regulations, regulators and controls.

However, he believes that both local and foreign competition pressures to China can have an effect and eventually the Communist Party is going to have to evolve.

Overall, the OBOR is part of the nation’s greater strategy towards a market-led economy and continue the nation’s opening up period.

Asked whether the AIIB can conduct business with accountability and transparency, aspects the administration has not exhibited well in the past, Dr. Xiao reverts back to the nation’s trial and error approach. “The OBOR is wishful thinking but it is an initiative where Xi Jinping said ‘I have a dream so let’s try’,” he says.

Although the professor thinks it will be a long road ahead for these practice s to be adopted in China’s system, he is optimistic in light by the country’s success over the last three decades.

“China’s progress exceeded my expectations and credit goes to the United States and the international community because China has grown from the platform laid by the West; Chinese leaders understand this very well.”


Nan-Hie In is a freelance journalist based in Hong Kong covering current affairs, lifestyle and entertainment in Asia. A regular contributor to local and international media outlets, she has written for the South China Morning Post, CNN (Business Traveller), the China Daily, HongKong.Coconuts.co, Prestige and more.

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