Besides infrastructure

Belt and Road projects are driving local economic growth, boosting trade and helping China and other countries realize development

This year is the 10th anniversary of the Belt and Road Initiative. Since 2013, China has signed more than 200 cooperation documents covering investment, trade, science, technology and culture with 151 countries and 32 international organizations. The Belt and Road collaborations account for about two-thirds of the world's population and about 40 percent of global GDP.

Over the past decade, the initiative has led to nearly $1 trillion of investment in more than 3,000 cooperation projects, created more than 420,000 jobs among Belt and Road partners and helped lift almost 40 million people out of poverty. These are remarkable accomplishments, fostering connectivity, cooperation and development in the process of becoming a global platform for public good and cooperation.

There have been profound changes in the global environment over the past decade. The post-pandemic economic recovery has been unbalanced and long-term effects are emerging. New constraints and changes, such as geopolitics, industry chain adjustments and the green transition, have had far-reaching impacts on economic fundamentals and global governance. In these circumstances, the Belt and Road Initiative and other mechanisms for international cooperation are confronted with new challenges and problems that require proper handling and practical solutions.

The initiative has two elements: the Silk Road Economic Belt and the 21st Century Maritime Silk Road. The "Belt" represents the inland economic routes that start in China, connecting Asia, Europe and Africa through railway and road transportation along the ancient Silk Road. The "Road "refers to the maritime trade network connecting China with Southeast Asia, South Asia and Africa.

The initiative covers a range of areas, such as trade, investment, finance, education and culture and tourism, among which infrastructure development has been the most influential, attracting the greatest attention. Infrastructure development started in inland Asian and European Belt and Road countries and has expanded to Southeast Asia, Africa, South America and the Pacific Island nations, serving as a key platform for development and cooperation.

Infrastructure development under the framework of the Belt and Road Initiative is driving economic development through industrialization and urbanization, since it covers not only traditional sectors such as transportation, energy and telecommunications, but also public services and new infrastructure such as schools, hospitals, green facilities and cultural services.

In the sector of transportation, the initiative has facilitated the construction and operation of major transport corridors, including the China-Europe Railway Express and sea-rail intermodal services. In the energy sector, the construction of power plants and oil and gas projects has helped meet growing energy demand. Meanwhile, the development of satellite communications and fiber optic projects facilitates information exchange and connectivity among Belt and Road partners. Numerous hydro projects, such as the Nam Ou River Cascade Hydropower Project in Laos, have helped improve the development and utilization of hydroelectric resources.

Infrastructure development requires investment. That developed countries typically have high-quality infrastructure raises the question if there is a causal link between economic growth and infrastructure development. We think the correlation works in both directions: Infrastructure development drives economic growth and economic growth, in turn, drives infrastructure development. Regardless, infrastructure is a public good, which means public policies can help boost its development.

Infrastructure has the characteristics of a public good and some of the benefits are enjoyed by society as a whole.

Infrastructure's attribute as being a public good is visible in its spillover effects. For example, the development of roadways and their related infrastructure can help boost automobile production and sales. This nature of being a public good and potential financial returns are likely to result in insufficient enthusiasm from private sector investors, and so requires public investment and policy guidance. Many Belt and Road partners lack sufficient infrastructure investment, which has been a major impediment to economic development.

Public goods are often associated with economies of scale, as increasing the number of users reduces their unit cost. China has invested heavily in infrastructure development over the past few decades, leveraging its enormous markets, immense population, abundant funding based on high savings rates, as well as government spending and guidance. As a result, China has accumulated extensive experience in, and achieved constant technological progress in infrastructure development. For example, China has some of the world's most advanced technologies for the construction of bridges, tunnels, expressways, high-speed railways and urban rail transit systems. China has developed capabilities in engineering and independent innovation. China's competitive advantages in these fields provide a foundation for deeper cooperation with Belt and Road partners.

Demand for infrastructure matches China's ability to supply or build infrastructure, a likely cooperation that should bring mutual benefits. However, infrastructure's characteristic as a public good can pose obstacles to international cooperation, since commercial returns from individual infrastructure projects are lower than their total contribution to the whole economy. Within a single country, such externalities can be corrected with fiscal measures or stimulation by public policy. In other words, governments can act in the interest of the public to enhance investment in infrastructure development while dealing with any potential externalities. However, this sort of fiscal adjustment mechanism does not exist between countries. This has led to questions about the feasibility and sustainability of transnational infrastructure investment.

Apart from the Belt and Road Initiative, a few developed countries have also proposed cooperation schemes with developing economies in recent years. For example, the United States launched the Partnership for Global Infrastructure and Investment in 2021. The same year, the EU announced its Global Gateway, an infrastructure cooperation initiative similar to the Belt and Road Initiative. These programs are usually viewed as Belt and Road rivals. However, the amount of investment proposed for the US and European programs is low and, as such, their assistance to developing economies is limited. Finding a way to internalize externalities of transnational infrastructure investment remains a difficult task, and developed economies have yet to find a proper solution.

Among Belt and Road partners, the number of infrastructure development projects has declined from the highs recorded in the first few years of the initiative. This is attributable to the impacts of the COVID-19 pandemic and the changing geopolitical situation. Another reason lies in the progress of investment projects; many are complete and already in operation.

Overall, we should view the infrastructure projects under the framework of the Belt and Road Initiative as an investment portfolio, and thus understand that it is normal for a small number of them to miss expectations on returns or benefits. In fact, most of these projects have played positive roles in driving local economic growth and boosting trade between China and the Belt and Road countries, thus helping them achieve common development. As Belt and Road cooperation is an innovative model of development, the analysis of internalization of externalities should take into account many other factors besides infrastructure.

The author is the dean of the Global Institute at the China International Capital Corp, and chief economist and head of the Research Department at the CICC. The author contributed this article to China Watch, a think tank powered by China Daily.

Contact the editor at editor@chinawatch.cn.