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A Critical Look At China's One Belt, One Road Initiative

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‘One Belt, One Road’ will be implemented bilaterally between China and different partners, it may seem that there is more potential for China to use this initiative to vent some of its surplus. Moreover what corroborates to the statement that the development strategy is also just in time when China is changing is growth trends. Until recently, this model was being pegged as the “factory of the world.” This model had worked well for the past two decades and helped them develop their infrastructure, but it was a model which was never going to be sustainable for a very long time as till date it experiences high poverty levels, health care problems and mounting debt crisis. This model growth and liberalization wave which includes the cashless economy trend in China has left no option for Beijing but to participate in dialogues of diplomacy to ensure further growth and investment. The growing need for acceptance Beijing is partly because of the export surplus crisis along with several other factors.

Li Keiqang the Prime Minister of PRC also explained further by saying,”We have a lot of surplus equipment for making steel, cement and pleat glass for the Chinese market. This equipment is of good quality. We want companies to move this excess production capacity through direct foreign investment to ASEAN countries who need to build their infrastructure. These goods should be produced locally where they are needed”. The gravity of the situation in China underlines the need to devise a plan like OBOR that would also help them build up on the inconsistent development throughout the country. One observer described the initiative as “a domestic policy with geostrategic consequences rather than a foreign policy.”

One of the reasons, economists speculate is China’s mounting debt crisis. China heavily borrowed after being affected by 2008 economic crisis. State Owned Enterprises in China continually kept borrowing to bolster its infrastructure and build cities. Moody’s, the global firm cut the communist state’s rating due to its unsustainable growth models. Several have even predicted that PRC will lead to the commencement of the next economic slump. However, it’s debt lead up to 176 percent of its GDP.

The Guiding Opinion mentioned five industries with severe excess capacity in 2012, including steel, cement, aluminum, flat glass, and shipbuilding. Beyond those, more than a dozen industries in the manufacturing sector face sustained excess capacity. In order to address the problem, the Chinese government has set up an administrative program to directly phase out excess capacities in those overinvested industries.

With the ongoing trade war it is imperative to consider how it would affect the investments in OBOR. The US imposed a 25% percent duty on China on July 6. The trade war has been imposed on a list of items. This trade war may not have first-hand effects but it is likely to have back hand consequences on other economies for instances via hike in oil prices which as we know, is it most likely to hit the export -import industry first.

Incidentally or not so incidentally, all these problems may be tackled by OBOR.

With respect to trade wars, the deficit in the trade balance would be made up at least by some portion if not entirely by OBOR/BRI as they might be able to export some of their excess capacity. Apart from that it would generate higher returns on China’s vast foreign exchange reserves amounting more than $3.1 trillion at December 31.

It would help China’s SOEs in construction and engineering to deploy abroad in search of more work and higher returns. China’s excess industrial capacity problem would be exported to regional markets—either directly, through them soaking up production by virtue of growing their economies, or indirectly by importing China’s spare factories hence helping China to solve their problem.

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