SEI 2015 blogs China Silk Road

In 2009, former deputy director of China’s State Administration of Taxation Xu Shanda submitted to the Ministry of Commerce a proposal titled the “Chinese Marshall Plan.” In the wake of the global financial crisis, slumping exports, and extensive internal discussions on how to “create demand,” Xu’s strategy concept suggested utilizing China’s vast foreign reserves to offer loans to developing countries, which would then contract Chinese enterprises for major projects of infrastructure and construction. In short, this so-called Marshall Plan would be a roundabout subsidy, keeping Chinese industry and production robust, employment in place, and GDP growth high. Such projects would literally and figuratively pave the roads for Chinese goods and services to enter new markets, as one of the explicit goals of Xu’s strategy was also to find outlets for China’s excess production capacity.

This vision, or an iteration of it, has largely been borne out under the Xi Jinping administration. Since it was first announced in 2013, China has pulled out all stops to bring its massive One Road One Belt initiative to fruition, committing money not only into the new Asian Infrastructure Investment Bank (AIIB), but also the New Silk Road Fund (NSRF) and the Shanghai Cooperation Organization (SCO), as well as bilateral arrangements with countries. These investments, loans, and grants will be dispersed to create a network of infrastructure — including roads and rail lines, energy pipelines, power stations, and coastal ports — that is envisioned to extend west to Europe via the Silk Road Economic Belt, and downwards into Southeast Asia via the 21st Century Maritime Silk Road.

This large-scale outpouring of capital, enterprises, and projects to foreign lands has been hailed as China’s great coming-out: a historical tipping point in the geopolitical balance, as China finally turns its relatively muted economic clout into more grandiose global power and leadership. But while there are a multitude of factors driving China towards this path, at core a major issue remains the need to “create demand” to address overcapacity and structural weaknesses in the Chinese economy.

Source: The Diplomat, Japan