Driving force

Belt and Road Initiative provides opportunities to explore and create new models of economic development and international economic cooperation

Over the past four decades, the Washington Consensus has been the mainstream framework for economic policy. It stresses that free markets can effectively allocate resources, and that the globalized world is a unified market with more similarities than differences between various regions. Nevertheless, the framework pays little attention to the dual economy of developing countries, i.e., the coexistence of traditional and modern economic sectors within a single country. Nor does it pay attention to establishing a win-win mechanism between core and peripheral countries. As a result, the globalization model adopted over the past four decades has had rather limited effects on boosting developing economies. In fact, some developing countries have suffered from deteriorating imbalances and have fallen further behind developed economies, instead of catching up with them.

Meanwhile, developed economies also suffer from widening wealth gaps. Some have suggested that developed economies also show dual structures, such as the Rust Belt and the hollowing out of industries in the US. Internal economic polarization has, in turn, led to a resurgence of protectionism in trade relations. Coupled with the impacts of a changing geopolitical landscape, these trends pose severe challenges to the existing model of globalization. A number of developed countries are increasingly prioritizing their domestic goals and have adopted unilateral policies in the areas of trade, industries and the green transition. For example, there are signs that the World Trade Organization, one of the most important international organizations in global governance, is being marginalized, making it more difficult for developing countries to boost economic growth through international trade.

Against this backdrop, the Belt and Road Initiative provides opportunities to explore and create new models of economic development and international economic cooperation.

The initiative can boost the total volume of trade as it facilitates international trade and investment by enhancing connectivity and reducing transaction costs, notably the cost of transportation. According to the United Nations Comtrade data, China is the top trading partner of 35 Belt and Road countries. The US and Germany are the top trading partners of 11 and 16 Belt and Road countries. The Belt and Road Initiative has been an important driving force behind China's growing share of the global economy. The growing size of potential markets in Belt and Road countries not only enhances the demand for exports but also helps improve the efficiency of resource allocation through competition, which bodes well for the sustainability of economic development.

The Belt and Road Initiative is helping ensure balanced development. In the past, connections with maritime and waterway transportation routes were key symbols of the industrial economy. Many well-known port cities have emerged and grown into modern economic hubs. Typical examples include New York, London, Singapore, Hong Kong, Shanghai and Tokyo. These cities have benefited from globalization, which has also played an important role. A key innovation of the Belt and Road Initiative is the Silk Road Economic Belt, which strengthens interconnections between inland areas in Asia and Europe, especially economies in Eastern Europe and Central Asia. Thus, the initiative fosters the development of land ports and helps drive economic growth in inland countries and regions, including central and western China.

The Belt and Road Initiative can help participating countries better respond to climate change by exploring new areas of cooperation and capturing new opportunities for development. The green transition has focused on the demand side, aiming to boost the demand for renewable energy with green subsidies and carbon pricing, such as the introduction of carbon taxes and carbon trading markets. This has led to concerns about the rise of "climate protectionism". For example, some green subsidies require related products to be produced domestically, while some countries plan to impose carbon border taxes on imports. In contrast, the Belt and Road Initiative cooperation can pay greater attention to the supply side, as many participating countries have ample solar and wind energy resources. Low-cost renewable energy resources are valuable endowments that can support sustainable industrialization. In the future, matching China's strong manufacturing capabilities with Belt and Road countries' advantage in the supply of renewable energy resources is a new growth engine. Infrastructure investment is a key precursor to success.

The philosophy of development under the Belt and Road Initiative also deals with the relationship between finance and the real economy. Cross-border capital flows have been the primary driving force behind the hyper-globalization that has taken place since the 1980s. Financial liberalization is a key component of the Washington Consensus under the premise that free cross-border capital flows would drive innovation, trade and industrialization. This mechanism is an extension to, or a part of, the financialization of developed economies, and it attempts to boost the growth of less-developed countries through financialization. In contrast, the Belt and Road Initiative relies on infrastructure connectivity as the foundation for international economic cooperation. In other words, the primary growth driver in the Belt and Road Initiative is physical capital instead of financial capital, which reflects the view that the financial sector should serve the real economy. The financial liberalization proposed by developed economies has been of little help, even counterproductive, to the growth of developing economies.

The author is dean of the Global Institute of China International Capital Corp, chief economist and head of the Research Department of CICC. The author contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.

Contact the editor at editor@chinawatch.cn.