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The Belt and Road and the Reshaping and Adjustment of World Economic Order video

In the wake of the financial crisis, “de-globalisation” sentiments have spread worldwide and protectionism is on the rise. Not only are import controls proliferating, but highly exclusionary and non-transparent regional trade agreements are coming up one after the other, together with rising localism and increasing trade barriers, it is not surprising that the recovery of the global economy is simply anaemic. Seven years after the crisis, world trade (in terms of global output) and cross-border fund flows have yet to recover to their pre-crisis levels. Though the lesson from the Great Depression of the 1930s has been well learnt and the world economy has avoided the pitfalls of that episode, de-globalisation sentiments have been keeping anxiety over the Great Recession alive.

Chart: World trade has yet to recover to pre-financial tsunami levels
World trade has yet to recover to pre-financial tsunami levels
Source: WTO, HKTDC
Chart: World trade has yet to recover to pre-financial tsunami levels
World trade has yet to recover to pre-financial tsunami levels
Source: WTO, HKTDC

To revitalise the world economy, we have to thwart protectionism and suppress de-globalisation. Unfortunately, international economic coordination institutions set up after the Second World War, for example, the World Trade Organization, the World Bank and the International Monetary Fund, have all been ageing to one degree or another. In particular, as the gravity of the world economy shifts eastward, and as the growth of the main developing countries accelerates, what the world economy needs is not simple stimulations. What it needs instead is the reshaping of global order and adjustments in multilateral institutions. The Belt and Road initiative is China’s response to the reshaping of world economic order.

Transcending Regional Boundaries

Superficially, as the Belt and Road initiative encompasses mainly countries on the periphery of China and along the Silk Road, it has a strong regional connotation. But, just as stressed by officials repeatedly, the initiative “is designed to uphold the global free trade regime and open the world economy in the spirit of open regional cooperation” and “covers, but is not limited to, the area of the ancient Silk Road.” [1] In other words, it is a strategy with global significance.

Undoubtedly, with its current national strength and its global status, China still lacks the capability to reshape the world economic order by itself. Moreover, with the world becoming increasingly multipolar, it is also not possible for any one country to change the global order single-handedly. The crux is to introduce new elements, principles and momentum for the reshaping of the world economic order. Once such an initiative gains widespread support, changes will follow through naturally.

Chart: Stagnant international capital flow
Stagnant international capital flow
Source: Bank for International Settlements
Chart: Stagnant international capital flow
Stagnant international capital flow
Source: Bank for International Settlements

Three Key Elements

To me, the foremost element in the Belt and Road initiative is “open and inclusive”, which is of paramount importance in suppressing the development of exclusionary regional economic organisations and in upholding the free trade regime and the open world economy. Currently, a number of regional economic organisations, which are highly exclusionary, non-transparent and massive, are in the making. Though all of them are claiming to uphold free trade, they are perhaps more likely to build up trade barriers. In fact, according to WTO data, since the financial crisis, the number of new import restrictions introduced by the G20 has been increasing and now affects over US$800 billion worth of imports each year.

For sure, insofar that the Belt and Road initiative relies on multi-tiered bilateral and multilateral agreements to prompt countries along the Silk Road in opening up markets mutually, a certain amount of regional limitation is inevitable. The key is to uphold the principle of “openness and inclusiveness” so that the contents and membership of these bilateral and multilateral agreements can be expanded continuously. For example, the recently established Asian Infrastructure Investment Bank, which has 57 founding members, is a beneficiary of the “openness and inclusiveness” principle. Of course, it still takes much effort to determine how best to implement this principle.

A second important element of the Belt and Road initiative is “mutual benefit”. The reason for the spreading of the de-globalisation sentiment worldwide is that the balance and distribution of benefits in the course of globalisation have not been handled well. As a result, what one side has gained is what the other side has lost, and the negative impacts of globalisation have eclipsed its positive contributions. The reason that restructuring the world economic order has met a lot of resistance is also because of this “zero-sum game” mentality that presumes there is a life-or-death competition between the new and old orders. To free ourselves from the curse of de-globalisation and to restructure world economic order, we have to do a better job of handling the balance of benefits between the new and the old orders, and to maximise benefits by seeking common ground and shelving differences.

To achieve “mutual benefit”, it takes not only proper planning and actions by coordinating institutions that can fairly represent the interests of all parties, but also the availability and following of a set of practical, reasonable, commonly-accepted and transparent codes. It also requires another important element for the success of the Belt and Road initiative: abiding by “market rules and international norms”. The difficulty with this is that a lot of Belt and Road cooperation projects are infrastructure investments that require policy support and the input of public funds. As many of the countries along the Belt and Road are still developing, their market economies are immature and international norms may not be widely accepted. How best to use “market rules and international norms” to achieve “mutual benefit” would therefore be critical to the success of the Belt and Road initiative.

 

This article originally appeared in Hong Kong Economic Times (27 July, 2015)


[1] 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.

Content provided by Picture: Nicholas Kwan
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