- The Writer holds an MSc in Eurasian Political Economy & Energy from King’s College London and also an MA in European Studies from Sabancı University.
China’s transition to a ‘new normal’ – the plan to a shift to a slower but higher economic growth model, is promising as well as challenging given the geopolitical dynamics surrounding China particularly with rising economic interdependence and growing geopolitical rivalry in East Asia.
Among various economic policy options China could pursue, cooperative leadership – through strategic thinking in viable future plans and facilitating stronger cooperation within the government – presents the most decisive choice that could elevate its leadership while supporting its policies for environmentally sensitive resource governance.
On the other hand, if China chooses a more passive economic policy, it could lead to a loss of confidence in the country’s global role as an economic powerhouse since its policy implication would not only be felt domestically but globally. To ensure a win-win outcome, China needs to put different economic policy options on the table in consideration of costs, risks and benefits and choose an option with due tact and consideration.
Falls in commodity prices in recent years presents a window of opportunity for China to overcome the formidable obstacles driven particularly by extra pressure put on services and infrastructure. Acceleration in price reform, removal of heavy subsidies as well as the levying of taxes on heavy industries for their externalities will be much easier for China to implement particularly in times of lower commodity prices while creating a more favorable political environment.
In 2015, China introduced an initiative - the One Belt One Road or alternatively known as The Silk Road Economic Belt, with the intention of expanding trade and integrating infrastructure within the regions of Europe, Asia, Africa and the Middle East. The One Belt One Road initiative not only includes maritime infrastructure, ports, roads and rail lines but also involves various energy pipelines and power station projects.
The ambitious initiative is a high stake test case for China in which its leadership will be tested. Only through building trust and signaling China’s clear intentions will the success of the initiative be assured. Therefore, this initiative could provide China with an opportunity to adopt and benefit from best practices that have already been applied and tested worldwide.
Through this initiative, China has an opportunity to increase its finances, improve its investment practices as well as allocate funds for the development of green technology, which is needed to meet China’s climate change goal in its intended nationally determined contribution agreed in Paris. China is well aware that protecting its environment and improving its air quality will only be possible through high-quality investments.
The Silk Road Economic Belt could serve well in defusing territorial disputes in the region, such as in the South China Sea or Sino-India border disputes, and through this initiative, countries involved in the Silk Road would benefit not only from investment in infrastructure but also from greater cooperation.
Although it only covers a tiny part of the initiative, the Maritime Silk Road plans to reinforce China’s energy security by strengthening pinch points and improving infrastructure to secure oil transportation from the Middle East. Additionally, with the Maritime Silk Road, constructing alternative routes will also be on the agenda to bypass zones that are seemingly risky for secure energy.
The initiative has been funded through various domestic funding mechanisms, including the Silk Road Fund with an allocation of $40 billion and the Energy Development fund worth $20 billion. This funding mechanism is set to facilitate project financing for infrastructure, strengthen economies in the region as well as fortify financial credibility of projects run under the initiative.
Given that many developing countries surrounding China import the majority of their fossil fuels and are therefore exposed to price shocks and frequent price hikes, China’s effective global resource governance should benefit these countries, and thus strengthen China’s cooperative leadership.
Considering that billions of dollars of investment are needed around the world to improve the overall quality of infrastructure, China’s neighbors could possibly back any large-scale investment project like the One Belt One Road initiative. However, so far India has not clearly indicated its position in backing this initiative while Indonesia is another country approaching the project cautiously.
Although Russia is concerned about China’s expanding interests in the region where Russia used to have influence; Russia appears to be cozying up to China by forming closer partnerships in strategic projects thereby endorsing the initiative. Since the initiative covers a wide area of the world, any construction or infrastructure project planned and run under this initiative would be very risky. Therefore the political, financial and economic implications of the initiative need to be assessed carefully before any irreparable or undesired conditions arise.
With the introduction of China’s new initiative, its rapidly increasing economic influence in various parts of the world, as well as the policies pursued in these regions have raised concerns. China has been accused of locking up resources and paying excessive prices for certain commodities through acquiring artificially cheap loans backed by state banks. Such action has raised concerns over China’s increasing role in the global economy and in resource governance.
Allegations of environmental rights as well as labor rights offenses, particularly in Africa, have called Chinese companies’ action into question. The perception that China could possibly use its control over resources as a political leverage will only diminish if China becomes a responsible stakeholder addressing these issues. Therefore, it appears that the success of the initiative hinges not only on China’s actions through building trust but in the reactions of other powers and neighboring countries.
As China enters into a new economic growth model imagined under the ‘new normal’ conditions of slower but higher quality economic growth, the One Belt and One Road initiative will allow China to reinvigorate its economy by boosting exports to the wider globe as well as focusing more on its domestic market by transitioning from a manufacturer of quantity to a manufacturer of quality. In the context of the new normal, policymakers in China need to be aware that not only will China’s effort be important, but the reaction of its neighbors need to be factored in before any major projects are put in place.
- Opinions expressed in this piece are the author’s own and do not necessarily reflect Anadolu Agency's editorial policy.