BEIJING – In 2015, global headlines reflected mounting concerns about China’s slowing economy and whether the country can maintain its reform momentum and complete its shift to a new growth model based on higher domestic consumption and expanded services. Within China, however, confidence in the economy’s long-term trajectory remains undiminished. Indeed, although Chinese leaders are undoubtedly mindful of the growth slowdown, they remain focused on ensuring the realization of President Xi Jinping’s “one belt, one road” initiative. That will remain true in 2016.
Less than four decades after Deng Xiaoping initiated the strategy of “reform and opening up,” China has achieved upper middle-income status. It is now the world’s largest trading country and its second-largest economy (and the largest in terms of purchasing power parity). But, as China’s leaders know, much more needs to be done to secure what Xi has called “the great rejuvenation of the Chinese nation.” To join the ranks of the world’s high-income economies, China must use markets and resources, both at home and abroad, more efficiently. And it must assume more responsibility – and assert more influence – on the global stage.
The current international order undeniably favors the interests of the United States and its allies. That made sense after World War II, when the order was established. But the global balance of power has changed. If China is expected to be a “responsible stakeholder” in world affairs – and it is – it needs a more prominent role in international decision-making.
Translating international consensus on this point into action has proved difficult. At the 2009 G-20 summit, former Chinese President Hu Jintao reached an agreement with US President Barack Obama to increase China’s voting power in the International Monetary Fund. But the US Congress balked at the decision the following year, so it was never implemented.
In fact, despite declarations about China’s international responsibilities, the US has long seemed to be working specifically to constrain China’s influence, even within its own region. That was the main motivation behind Obama’s strategic “pivot” toward Asia. Likewise, the Trans-Pacific Partnership trade agreement, a US-led initiative that includes a dozen Pacific Rim countries, but not China, appears aimed at sustaining America’s strategic primacy and safeguarding its geopolitical and economic interests in the Asia-Pacific region.
In short, it is up to China to secure the influence it deserves and needs. That is where Xi’s “one belt, one road” initiative comes in.
The idea is relatively straightforward. Inspired by the ancient Silk Road network for trade and communication, Xi’s “Silk Road Economic Belt” and “21st-Century Maritime Silk Road” will link China to the rest of Asia, Africa, and ultimately Europe. By building much-needed infrastructure across the Silk Road routes – from roads and rail links to ports and resource pipelines – China hopes to build “a community of common interest, destiny, and responsibility.”
No country is better suited than China to lead the way on infrastructure. Because its own development has been propelled partly by massive investments in domestic infrastructure projects, China has plenty of recent experience in the field, not to mention a vast construction materials industry. Moreover, its huge volume of foreign reserves – which stand at some $3.5 trillion and are likely to continue growing – provides the wherewithal to fund the projects.
China has already devoted some of its reserves to capitalizing the recently established Asian Infrastructure Investment Bank – an initiative that China spearheaded to support its Silk Road ambitions. With the participation of 57 countries from five continents – including some of America’s closest allies, such as the United Kingdom, France, and Germany, which joined over US protests – the AIIB is the first initiative designed specifically to fulfill infrastructure needs in the developing world, and especially the Asia-Pacific region.
The return on these investments will be massive. Experience since WWII shows that developing countries capable of seizing the strategic opportunity of the international transfer of labor-intensive industries can achieve 20-30 years of rapid economic growth. That will fuel the emergence of new markets coveted by more developed countries – including China – while creating space in China for higher-value-added industries to take hold.
As rising wages erode China’s comparative advantage in labor-intensive manufacturing industries, lower-income countries – say, those linked by the Silk Road, most of which have a per capita GDP that is less than half of China’s – are becoming more attractive. With improved infrastructure, these countries will be better positioned to absorb the migration of China’s labor-intensive industries.
And there is a lot to absorb. In the 1960s, when Japan started to transfer its labor-intensive industries overseas, its manufacturing industry employed 9.7 million people. In the 1980s, when the four “Asian Tiger” economies (Hong Kong, Singapore, South Korea, and Taiwan) underwent the same process, their manufacturing industries together employed some 5.3 million. China’s manufacturing industry, by contrast, employs 125 million workers, with 85 million in low-skill jobs. That is enough to enable virtually all of the developing economies along the new Silk Roads to achieve industrialization and modernization simultaneously.
While the world frets about China’s decelerating growth and downward corrections for equity prices and the exchange rate, the country is pressing ahead with an initiative that will bring untold benefits to the entire global economy. Beyond creating unparalleled opportunities for other developing countries, the “one belt, one road” strategy will enable China to make better use of domestic and international markets and resources, thereby strengthening its capacity to remain an engine of global economic growth.