Belt and Road: The Economic Rationale

Author: Fan Gang, President, CDI

Editor’s Note: At the Belt and Road: Seize the Next Wave of Growth in Eurasia forum on November 23 in Venice jointly held by China Development Institute and The European House – Ambrosetti, Professor Fan talked on the economic rationale of Belt and Road. Here are excerpts from his speech:

There are lots of questions about how China will benefit from the Belt and Road Initiative (BRI). The usual analysis is from international diplomacy and geopolitics point of view, which states that by improving infrastructures and connectivity, China gains a bigger market, resulting in more investment in neighboring countries and the world. This is undeniable.

But as an economist, I would like to stress the importance of the economic rationale of BRI. People may wonder why China has the money to finance BRI since China is still poor – GDP per capita is quite low comparing with developed countries. But after 20 years of high savings, China accumulated wealth. The question lays in how to use this saving. If invested in domestic economy, over capacity is inevitable. Currently the surplus goes to foreign exchange reserves, which goes to US treasury bonds. But why not invest in concrete projects that can facilitate other countries’ development, strengthen connectivity with China, and also build our community for future prosperity? Therefore, economically speaking, BRI is a better way for China to utilize its national saving.

However, BRI can only be fulfilled by a joint effort by China and other countries. Although the main focus is infrastructure investment, we should not only calculate cost and benefit in terms of direct return or short-term returns, but also the future, the return to public good, and the economic prosperity of the region.

Nonetheless, it is still investment which requires us to consider carefully about financing and selecting the projects, compatibility with local country’s economic development strategy, effectiveness and efficiency of the projects, which essentially amounts to how to succeed and benefit the people in the future. These are the questions we bear for the Belt and Road: Seize the Next Wave of Growth in Eurasia which is also why I think holding this forum is important.