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Belt and Road Initiative
Opinion

China must reform at home to ensure its belt and road plan succeeds abroad

Andy Xie says to realise its vision of a new economic order, China must have a domestic economy big – and open – enough to anchor the region. Otherwise, the infrastructure projects will become mere islands of modernity amid a sea of backwardness, and fail to generate sustainable growth

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Andy Xie says to realise its vision of a new economic order, China must have a domestic economy big – and open – enough to anchor the region. Otherwise, the infrastructure projects will become mere islands of modernity amid a sea of backwardness, and fail to generate sustainable growth
Andy Xie
Without economic reforms, China would not be in a position to talk about the belt and road today. The clear lesson is that such influence can only come from domestic efficiency. Illustration: Craig Stephens
Without economic reforms, China would not be in a position to talk about the belt and road today. The clear lesson is that such influence can only come from domestic efficiency. Illustration: Craig Stephens
The just-completed summit in Beijing kicked into high gear China’s Belt and Road Initiative. While the heart of the plan is physical infrastructure, especially of the cross-border kind, its success will ultimately depend on whether China generates enough demand-pull to catalyse economic activities in the belt and road countries that would also make the projects financially viable.

China is promising a huge amount of financial resources for the initiative, dwarfing what the existing international financial institutions could deliver. This huge amount, however, is still small, relative to the overall infrastructure needs of these countries. If the China-financed projects become mere islands of modernity amid a sea of backwardness and poverty, they will fail to generate sustainable trade growth – the primary objective of the belt and road.

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The belt and road has sometimes been compared to the Marshall Plan, which the US initiated to help Europe rebuild after the second world war. That worked well because the US was a huge market. Europe and Japan, which also received aid, were too poor to justify the early investment on domestic demand. Export to the US market anchored their investment-led development.

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Also, Europe and Japan were advanced economies before they were bombed out. The recovery was about capital only, not culture, labour quality or government institutions.

People take pictures as a train carrying containers from London arrives in Yiwu, Zhejiang province, on April 29. The sign at the front of the train reads: “First Sino-Euro Freight Train (London-Yiwu)”. Photo: Reuters
People take pictures as a train carrying containers from London arrives in Yiwu, Zhejiang province, on April 29. The sign at the front of the train reads: “First Sino-Euro Freight Train (London-Yiwu)”. Photo: Reuters

Multimedia: The five main projects of the Belt and Road Initiative

The belt and road countries are much poorer and less developed than Europe and Japan were. Labour quality and government institutions are works in progress. Their productivity will increase gradually under the best circumstances. Their investment will need an external anchor for demand. But, to where could they export their products? If the investment is only for domestic demand, the development strategy would work too slowly.

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