PRESS RELEASE
Chinese Economist Makes the ‘Economic Case for China’s Belt and Road’
Oct. 13, 2017 (EIRNS)—Chinese economist Wei Shang-jin, the former chief economist at the Asian Development Bank, issued a strong "Economic Case for China’s Belt and Road" in the Project Syndicate website today. Wei notes that some in the West claim that China has a financial bubble which is about to burst and could bring down the world financial system. Hogwash, he argues.
Wei writes:
"Critics worry that China may be so focused on expanding its geopolitical influence, in order to compete with the likes of the United States and Japan, that it may pursue projects that make little economic sense. But, if a few conditions are met, the economic case for the initiative is strong."
When large-scale infrastructure investment like China’s BRI build ports, roads, schools, hospitals, and power plants and grids, Wei writes,
"the initiative could function much like America’s post-1945 Marshall Plan, which is universally lauded for its contribution to the reconstruction and economic recovery of war-ravaged Europe."
He notes that China had $4 trillion in foreign-exchange reserves in 2013,
"which were earning a very low dollar return (less than 1% a year). In terms of China’s own currency, the returns were negative, given the expected appreciation of the renminbi against the U.S. dollar at the time."
Therefore,
"Belt and Road investments are not particularly costly for China, particularly when their far-reaching potential benefits are taken into account.... In particular, because efficiency is not the primary consideration, Chinese state-owned enterprises (SOEs) might pursue low-return projects. Nonetheless, while the Belt and Road initiative is clearly driven partly by strategic objectives, a cost-benefit analysis shows that the economic case is also very strong."
He notes that such win-win policies are of great benefit to the real economies of China, the U.S. and others (as the Caterpillar company executives recently said regarding their burst in sales of construction equipment along the Belt and Road). "A decade after the global financial crisis erupted," Wei writes,
"recovery remains weak and tentative in much of the world. Bold, large-scale infrastructure investments can provide much-needed short-run stimulus to global aggregate demand.... In the longer term, the new infrastructure will ease logistical bottlenecks, reducing the costs of production inputs. The result will be higher productivity and faster global growth."
He concludes:
"In an era when some of the world’s most influential countries are turning inward, talking about erecting trade barriers and constructing border walls, the world needs initiatives focused on building bridges and roads, both literal and figurative initiatives like the Belt and Road strategy."
