China's 'Belt and Road' initiative and the EU's 'Juncker Plan'
- By John Ross
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E-mail China.org.cn, January 16, 2016
The overlap of the Juncker Plan's ideas with China's Belt and Road initiative is evident. China's new distinctive idea in the initiative, as with parallel ones such as the Asian Infrastructure Investment Bank (AIIB), is explicitly tying together trade and infrastructure investment initiatives.
Previous post-World War II trade initiatives up to the creation of the World Trade Organisation, all led by the U.S., focused on tariff and legal changes. Adding infrastructure investment and financing necessary to create it as a central element was China's innovation - an example of "thought leadership."
The first success illustrating the power of China's new form of economic initiative was the U.K.'s decision, followed by other major European countries including Germany, to join the AIIB despite U.S. objections. The convergence of the Juncker Plan with the Belt and Road initiative is an example of the same process involving an even greater number of European countries.
At first sight it might appear strange that the idea of closely linking trade and infrastructure investment was not put forward earlier by Western leaders. The beneficial economic effect of both trade and investment, and the correlation of the two, is well established in economics. The classic "Western" study of the advantages of "openness" in trade, by Sachs and Warner, found: "Open economies had significantly higher investment-to-GDP ratios, and that [an open economy] raised the investment ratio by an average of 5.4 percentage points." Therefore why was it China that first explicitly linked these in a coherent new international policy?
Practically China learnt from the advantages of its domestic economic structure compared to the West. The Western private sector economies are dominated by a mantra "private is good, state is bad." Therefore proposals for inevitably state led infrastructure investment by Summers, Wolf etc., encountered fierce ideological opposition - as well as few strong structures existing to implement the policy.
In China in contrast, as restated by the 3rd plenum of the 18th CPC Central Committee: "We must unswervingly… give full play to the leading role of the state-owned sector." In China's economy both a private and state sector exist and the state can therefore play a key role in initiatives such as infrastructure investment.
