21 July 2015
The Belt and Road Initiative and the Opening Up and Sustained Development of the Chinese Economy
If the “reform and opening up” in the past 30-plus years have transformed China from a semi-industrialised, closed and centrally planned economy to the world’s top trading country and processing factory, the role of the Belt and Road initiative is perhaps to further elevate this “world processing factory” into a “world economic nexus” of the 21st century.
If the “reform and opening up” of the past 30-plus years have been China’s uni-directional opening up focusing on its coastal regions, then the Belt and Road initiative is a new phase of comprehensive opening up and development of the Chinese economy that gives equal emphasis to the coastal and inland regions.
If the “reform and opening up” of the past 30-plus years have been a development course of China relying on the capital, technology and markets of advanced economies, then the Belt and Road initiative can be considered a new Chinese development strategy making use of the resources and markets of both the industrial and developing world.
The Belt and Road initiative not only could lead to a change in China’s economic position in the world, it is also instrumental to the transformation and upgrading of China’s own economy, especially in its escape from the “middle-income trap” and its sustainable development.
Silk Roads Past and Present
Ever since Zhang Qian, an official in the Han Dynasty (202 BCE-220 CE), led an envoy to explore the western regions of China (Central Asia) in the second century BCE, for over a thousand years the “Silk Road” was China’s thoroughfare for opening to the outside world as well as the main artery for economic and cultural exchanges between the East and the West. From the Song Dynasty (960-1279 CE) onwards, the Maritime Silk Road has offered a major channel for opening up to the outside world. Due to the limitations set by an agrarian society and by technology, impacts of both the land and maritime silk roads on China’s economy had been limited. It was not until the “reform and opening up” started more than 30 years ago that fundamental changes were brought about to the Chinese economy.
But then time and situations have changed. In particular, after the financial crisis, protectionism has been rising, recovery of European and American economies has been anaemic and emerging markets are on the rise, so China’s development strategy of relying on exports to the industrial economies is now under constraints. No matter in the search for markets, access to resources or technologies, there is a need for new and more comprehensive breakthroughs in China’s “opening up” strategy.
Geographically, the gateways in China created by the Belt and Road initiative constitute an “all-round” pattern of opening up: extending from the coastal regions to the inland; expanding from the east to the west and the south; and evolving from using predominantly sea routes to using both sea and land channels. It also involves the connection of domestic and overseas resources to various markets and a more balanced development of the economies in China’s eastern and western regions.
From a development perspective, the Belt and Road initiative broadens the targets of China’s opening up from developed countries in Europe and America to developing countries in its neighbourhood and along the silk roads. This fittingly reflects the shift of China’s economy from one of being export oriented to catering to domestic and overseas demands and to imports as well as exports; from focusing on processing and manufacturing to paying equal attention to downstream as well as upstream industries, and to a more balanced development of manufacturing and services sectors. This is related to whether or not China’s economy can break up regional, industrial, hierarchical and urban-rural boundaries so that it can raise productivity more comprehensively, escape from the “middle-income trap” and develop in a sustainable manner.
Limitations and Challenges
Nevertheless, the Belt and Road initiative is not without its limitations and challenges. Foremost is that geographic misunderstandings may arise. The land and maritime silk roads were routes for East-West dealings in ancient times and are very different to the extent of coverage of the main transportation and communication networks of today. Furthermore, the centre of world economic gravity in the pre-industrial revolution days is very different to the world economic landscape in the Internet era of today. If we limit China’s opening up to territories along the ancient land and maritime silk roads, we would overlook a lot of vital regions such as North and South America and the African continent.
For sure, in the official elaboration of the Belt and Road concept, it has also been mentioned that the initiative “covers, but is not limited to, the area of the ancient Silk Road. It is open to all countries, and international and regional organisations for engagement...”  But objectively misunderstandings can occur regarding the regions covered by the Belt and Road, particularly when shown and mentioned in highly generalised maps and briefings (for example, in the media, we often come across the mentioning of how many countries and how many people are covered by the Belt and Road, as well as other such details). Admittedly the Belt and Road initiative will mainly start with countries on the periphery of China and along the ancient silk roads, but as long as this initiative cannot surpass the scope of the ancient silk roads, it will not be able to achieve its task of guiding the comprehensive opening up of China.
Another Belt and Road challenge is how to draw the line between the roles of governments and markets. Though the Chinese government stresses that the initiative has to “follow market operations” and that “it will abide by market rules and international norms, give play to the decisive role of the market in resource allocation and the primary role of enterprises”, in actual practice it is not easy. This is mainly because many of the countries along the silk roads are still developing and their market economies are relatively under-developed. Considering also that they have insufficient infrastructure and their land transportation connections with China are poor, there is a need for massive long-term developmental investments which are not easily undertaken by ordinary private enterprises. This is also the reason why the initiative emphasises policy coordination and promotes intergovernmental cooperation and mutual political trust.
Though the Chinese government and state enterprises have accumulated a lot of experience, and have developed capabilities in domestic infrastructure construction during the past few decades, they are still relatively inexperienced in the area of cross-border investments. It will therefore be a big challenge to strike a good balance between the roles of governments and markets, while abiding by market rules and international norms in places where markets are not well developed and rules are not internationally applicable.
This article originally appeared in Hong Kong Economic Times (20 July, 2015)
 Vision and Actions on Jointly Building Silk Road Economic Belt and 21st-Century Maritime Silk Road, jointly issued by the National Development and Reform Commission, the Ministry of Foreign Affairs and the Ministry of Commerce, March 2015.