AIIB and other regional initiatives underline China's new vision for growth that benefits all

Michael Spence says its recent engagements in multilateral platforms stem from a new vision of development that also benefits its neighbours

PUBLISHED : Friday, 19 June, 2015, 1:44pm
UPDATED : Friday, 19 June, 2015, 1:44pm

For most of the past 35 years, China's policymakers have set their focus on the domestic economy, with reforms designed to allow the market to provide efficiency and accurate price signals. Though they had to be increasingly aware of their country's growing impact on the global economy, they had no strategy to ensure neighbours gained from the economic transformation.

But now China does have such a strategy, or at least is rapidly developing one. Moreover, it extends well beyond Asia, embracing Eastern Europe and the east coast of Africa. A key element is the recently established Asian Infrastructure Investment Bank (AIIB), and to some extent the BRICS' New Development Bank. Also vital are the prospective modern-day Silk Roads: an overland route through Central Asia to the Black Sea and a "Maritime Silk Road".

Economists sometimes portray the global economy as a huge bazaar. But it is not. It is a network, in which the links are built by expanding the flows of goods, services, people, capital and information. China's goal is to create these links, and it has plenty of assets that will allow it to act as a catalyst of global growth.

The most obvious asset is China's large and growing domestic market, to which other economies can gain access via trade and investment. China will thus be joining the ranks of the advanced countries in providing an export market (and jobs) for countries at earlier stages of economic development. In addition, it will seek opportunities abroad, both public and private.

With the involvement of the AIIB and the New Development Bank, China has developed what amounts to a multinational development strategy.

Meanwhile, by virtue of more than 30 swap arrangements with other central banks, China is using its foreign-exchange reserves to help its neighbours and others defend themselves against volatile international capital flows. This is in tandem with the authorities' efforts to promote the internationalisation of the renminbi.

China's policymakers have long time horizons. Their strategy will doubtless face obstacles. The question is whether the strategy is worth pursuing now. The answer almost certainly is yes.

China's leaders surely want international recognition of their country's global stature. But they also want China's rise to high-income status to occur in a way that is - and that is perceived to be - beneficial to its neighbours and the world. The new external focus of China's growth and development strategy seems to be intended to make that vision a reality.

Michael Spence, a Nobel laureate in economics, is professor of economics at New York University's Stern School of Business. Copyright: Project Syndicate