A centuries-old template for China’s economic influence may be the best idea the nation’s current-day leaders have for addressing a shortfall in growth.

China reported on Wednesday that the economy expanded the least since the 2009 global recession last quarter, at a 7 percent pace. Last time round, policy makers unleashed a record credit expansion that’s left a legacy of unused properties and rising bad debts.

Now, President Xi Jinping and his colleagues are focused instead on restructuring initiatives, including steps to bolster the role of private enterprise. With overseas demand for Chinese products waning, Xi’s grand plan is to deepen ties with Asian countries along the Silk Road commerce and migration routes of the Middle Ages.

Through initiatives including a $40 billion Silk Road Fund, and the $100 billion Asian Infrastructure Investment Bank now taking shape, Xi aims to fund projects that will aid development in what’s already some of the world’s fastest-growing areas. The vision could produce benefits that match China’s integration with the global economy when it joined the World Trade Organization in 2001, according to Australia & New Zealand Banking Group.

“China’s scale means the country has the capacity to change the economic fortunes of the Silk Road region,” said Ben Simpfendorfer, founder of research firm Silk Road Associates in Hong Kong, which advises multinational companies on expansion strategies in Asia and the Middle East. “We are watching the rebirth of the world’s center of economic gravity.”

Belt, road

China calls the plan “One Belt, One Road,” the “road” actually referring to the Maritime Silk Road linking China’s east coast to Europe via the South China Sea and Indian Ocean. The “belt” refers to the land mass of China, Central Asia, Russia and Europe.

For Chinese manufacturers, fresh opportunities in countries from Indonesia to Kazakhstan would help counter the impact of a domestic property-market slump and sluggish demand for exports in Europe. Government data Wednesday showed that industrial output rose 5.6 percent in March from a year before — weaker than all 40 forecasts in a Bloomberg News survey.

Boosting infrastructure investment overseas will also help China’s industries with excess capacity including in steel, cement and construction to sell abroad, said Alicia Garcia- Herrero, chief economist for emerging markets at Banco Bilbao Vizcaya Argentaria in Hong Kong.

Past hiccups

China’s previous overseas investment forays have hit obstacles. Sri Lanka’s Prime Minister Maithripala Sirisena has suspended a $1.4 billion Chinese-funded plan to build a city on reclaimed land near Colombo’s port, pending a review into whether the project was being implemented with relevant approvals.

In Kazakhstan, through which Xi envisages pipelines, roads and railways, China has struggled to gain influence. It has failed to reach a free-trade agreement mooted more than 20 years ago and in 2009, the Kazakh president rejected a plan to lease farmland to China after protests from a public wary of their neighbor’s growing power.

China’s direct investments overseas have thus far left “a catalog of mis-allocation, waste, poor administration and weak commercial standards and returns,” said George Magnus, a senior independent economic adviser to UBS Group in London.

Using multilateral institutions such as the AIIB could soothe concerns over China’s political influence. The number of countries with the intention to join AIIB as founding members has climbed to 57, the Finance Ministry said in a statement.

Silk Road

The expertise gained at the AIIB may also help develop standards that could apply to loans and other assistance for infrastructure development from the Silk Road Fund. The US and Japan have declined so far to sign on to the AIIB because of question marks over governance.

The undertaking has the potential to boost a region that will contribute 80 percent of global economic growth and vault 3 billion more people into the middle class by 2050, according to advisory firm McKinsey & Company.

Deepening economic cooperation with dozens of countries along the routes may help China leap to the next level of globalization, wrote ANZ Bank analysts led by Chief China economist Liu Li-Gang in Hong Kong in a March 30 note.

“The initiative will boost infrastructure investment especially railway, highway, shipping, port development and the resources sector,” they wrote.

Maritime road

The plan will drive domestic demand for construction machinery used for infrastructure by an annual average of 11.9 percent and boost providers of railway and nuclear power equipment, China International Capital Corporation’s analysts Wu Huimin and Kong Lingxin wrote in a March 31 note.

The maritime “road” will be more successful than the land route across Central Asia “simply because there is vastly more economic activity” there, said David Dollar, a senior fellow at the Brookings Institution in Washington, who previously worked for the US Treasury in Beijing.

“Think of coastal China, the Philippines, Vietnam, Indonesia, continuing on to Bangladesh and India — there is a huge amount of economic activity already and an insufficient degree of integration,” said Dollar, a former head of the World Bank in China.  “Plus sea transport is less expensive than land transport.”

Bloomberg

The post China Follows Silk Road in Search for Land of Fast Growth appeared first on The Jakarta Globe.

Source: The Jakarta Globe