April 18, 2018

The Brookings Institution “The new agenda in China’s economic development and the Belt and Road Initiative”

Key Topics & Takeaways

  • Challenges for Belt and Road Initiative: The International Monetary Fund’s (IMF’s) Markus Rodlauer, Deputy Director for the Asia and Pacific Department, called for Belt and Road Initiative (BRI) project participants to have transparent fiscal roles and responsibilities. He also cautioned that the project selection process, financing structures, and management of credit exposures are the three greatest challenges for the BRI.
  • Rising Trade Tension: Noting rising tensions between the U.S. and China on market access barriers, investment restrictions, and technology transfer practices, Liu Yong, Chief Economist, China Development Bank argued that China has lowered market access barriers and is working to improve intellectual property rights protection.  He added that the U.S. trade deficit with China is a long-term, structural issue, and pointed to the U.S. national security report, which he said portends a strategic competition between the U.S. and China for global leadership.

Speakers

  • Chanyong Rhee, Director, Asia and Pacific Department, International Monetary Fund
  • Zhou Yanli, Vice Chairman, International Finance Forum
  • Christopher Jeffery, Editor in Chief, Central Banking Publications
  • Zheng Zhijie, President, China Development Bank
  • David Dollar, Senior Fellow, John L. Thornton China Center, The Brookings Institution
  • Maggie Chen, Professor of Economics and International Affairs, The George Washington University
  • Wang Yang, Deputy Director, IFF Institute
  • Markus Rodlauer, Deputy Director, Asia and Pacific Department, International Monetary Fund
  • Liu Yong, Chief Economist, China Development Bank
  • Zhu Xian, Vice President, New Development Bank
  • Ling Chen, Assistant Professor, Johns Hopkins School of Advanced International Studies

Welcome Remarks

Zhou Yanli, Vice Chairman, International Finance Forum

Zhou highlighted the prominence of the Belt and Road Initiative (BRI) in Chinese President Xi Jinping’s recent speech at the Boao Forum as a sign of the Chinese government’s focus on the initiative.  He stated that the BRI would serve as an example of transformative economic growth for other developing countries to model. Zhou explained that the ultimate objective of the BRI is to improve economic prosperity to engender a world free of poverty, and in doing so, further develop China-led international development finance institutions (including the Asia Infrastructure Investment Bank, or AIIB).

Chanyong Rhee, Director, Asia and Pacific Department, International Monetary Fund

Rhee highlighted the International Finance Forum’s (IFF’s) launch of its 2018 China report, which examines the progress made in the last 40 years since the inception of China’s reforms and opening up.

Rhee noted that Asia accounts for two-thirds of global economic growth, more than half of which is fueled by China.  He argued that such economic progress is proof that market liberalization, international trade, and infrastructure investment makes a huge contribution to China and the world. He posited that much of the IMF/World Bank meetings this week would be dominated by rising trade tensions, but highlighted the importance of international cooperation to improve global economic growth.

IIF’s “China Report 2018” and the “Belt and Road Initiative Survey”

Christopher Jeffery, Editor in Chief, Central Banking Publications

Jeffery highlighted several findings from a recent survey of BRI countries’ central banks. He noted that most respondents did not think the BRI would catalyze greater Chinese investment in their local economies than what was otherwise planned, but that 92 percent of participating central banks believe it will boost their domestic economic growth.  He also highlighted the “overwhelming support” amongst participants for ethical standards and transparency in the BRI and cautioned that legal frameworks and political risk would be the two greatest obstacles to its success.

Panel 1: Belt and Road Initiative

The International Monetary Fund’s (IMF’s) Markus Rodlauer, Deputy Director for the Asia and Pacific Department, called for BRI project participants to have transparent fiscal roles and responsibilities, which is an area in which he said the IMF can add value. Rodlauer cautioned that the project selection process, financing structures, and management of credit exposures are the three greatest challenges for the BRI.  In particular, he recommended: a) the project selection process to be based on transparent cost-benefit analysis; b) financing structures to include equity-type structures in countries with high local debt ratios; and c) improved capacity building to handle debt resolution issues with other lenders. Maggie Chen, Professor of Economics and International Affairs at the George Washington University, encouraged policymakers to involve local labor markets into BRI-funded projects to develop corridors between international investors and domestic sectors. She also noted that there is currently no agreed definition of what constitutes a “BRI project,” which creates tracking difficulties. Wang Yang, Deputy Director of the IFF Institute, explained that the BRI is founded on four pillars: a) economic cooperation, b) cultural (and people-to-people) exchanges; c) financial cooperation; and d) government financial and monetary policy exchanges.

Panel 2: China’s Economic Outlook

Liu Yong, Chief Economist of the China Development Bank, stated that the U.S. gross domestic product (GDP) is about seven times that of China, which he said illustrates that China is still a developing country. To further develop the economy, Liu explained that Chinese leaders aim to continue with reforms and opening up, and also endeavor to address risks in the economy and financial system and alleviate poverty.  He posited that China’s future growth model will require undertaking supply side economic reforms, and reforming national institutions to improve governance.  Ling Chen, Assistant Professor of Johns Hopkins School of Advanced International Studies, noted that the China 2025 plan has been trying to upgrade China’s industrial capacity and promote innovation.  She noted that the fundamental challenge before Chinese policymakers is to create a friendly environment for business and entrepreneurs, and she argued that Li Keqiang’s economic reform initiatives have contributed the largest share of value-added exports and should continue. Ling acknowledged that it is increasingly difficult for policymakers to implement industrial policies without making foreign firms feel “uncomfortable,” but she recommended using certain policy tools to stimulate domestic innovation (such as launching joint research and development centers between the private sector and government) instead of using subsidies and other controversial policy tools. Zhu Xian, Vice President, New Development Bank, stated that China has a competitive advantage in patient capital, due to its Confucius tradition and culture.  She added that the development of a Bay Area development bank could provide a vehicle for public-private partnerships to make investments necessary to fulfill sustainability goals.

Noting rising tensions between the U.S. and China on market access barriers, investment restrictions, and technology transfer practices, Liu argued that China has lowered market access barriers and is working to improve intellectual property rights protection.  He added that the U.S. trade deficit with China is a long-term, structural issue, since it is driven by the low household savings rate in America and its consumption-led growth model.  He also pointed to the U.S. national security report, which he said portends a strategic competition between the U.S. and China for global leadership. Liu stated that trade practices and frictions should be resolved under World Trade Organization (WTO) rules, in a way that promotes harmony between the U.S. and China.

Additional information about this event can be accessed here.