Focus on Infrastructure Building Makes the Belt and Road Unique

Hussein Askary (The Belt and Road Institute in Sweden)

On April 26, Chinese President Xi Jinping, who is also the Director of the Central Commission for Financial and Economic Affairs (CCFEA), chaired the 11th meeting of the CCFEA to discuss matters on comprehensively advancing infrastructure development in China. He said in the meeting: “Infrastructure is the bedrock for economic and social development. It is essential to coordinate development and security and optimize the layout, structure, function, and development mode of infrastructure to develop a modern infrastructure system, thus laying a solid foundation for fully building a modern socialist country”.

Reporting on this meeting, Chinese daily Global Times wrote that since 2012, “China has made a series of world leading achievements in major sci-tech facilities, water conservancy projects, transportation hubs, information infrastructure and national strategic reserves, witnessing leapfrog progress in its overall infrastructure development”. However, despite the amazing and unprecedented advances China has made in infrastructure development, the meeting emphasized that “China’s infrastructure development still falls short of the needs of the national development and security”. This is not a confession of weakness but and as an indicator of the incredible level of ambition. It further reported that “advancing infrastructure development is of great significance to ensuring national security, facilitating economic flows, promoting positive interplay between domestic circulation and international circulation, expanding domestic demand and promoting high-quality development.”

Why the Belt and Road is unique?

What makes the Belt and Road Initiative (BRI), which was launched by Chinese President Xi Jinping in 2013, a very likely success story on a global scale is that it reflects the successful policy of China itself in emerging from a poor country into a leading industrial power in just three decades. This kind of process happens once in a century. The last time something like this succeeded was during the reign of U.S. President Franklin D. Roosevelt in the 1930s and 40s, who first saved the U.S. economy from the Great Depression and then helped turn large, underdeveloped areas of the U.S. such as the Tennessee Valley, into industrial powerhouses. The key to this successful process was, as in the case of China and the BRI now, is the focus on providing state-backed credit for large scale infrastructure projects and skill capacity building. The vision of Roosevelt to mirror this process of development achieved in the U.S. in Africa, Asia, and Ibero-America after WWII was unfortunately aborted by his untimely death in April 1945.

In this sense, what makes the BRI unique is that it addresses the three main “bottlenecks of development”, as President Xi expressed this in the 2015 Forum on China-Africa Cooperation (FOCAC), which are: lack of infrastructure, shortage of skilled labor, shortage of funding. To address the infrastructure bottleneck, China has put its historically unparalleled industrial and engineering capacity in the service of building infrastructure in many parts of the world such as roads, railways, dams, power plants, ports, and airports to increase the connectivity among nations, regions, and continents. As for the funding bottleneck, China created or contributed to establishing new financial institutions such as the Asian Infrastructure Investment Bank (AIIB) with a US$ 100 billion capital, the BRICS New Development Bank with US$ 100 billion, and the Silk Road Fund (exclusively Chinese capital of US$ 40 billion). This in addition to credits provided by Chinese policy banks, such as the Export-Import Bank of China, in the range of one trillion dollars. Third, China increased the educational and skill capacity building programs with developing nations. For example, in 2019, China surpassed both the U.S. and the UK in the number of African students receiving university education abroad.

Infrastructure and productivity

An important aspect of building infrastructure is not merely to connect different parts of economy on a national, regional, or trans-continental scale to enhance trade. The most important role of infrastructure is to increase the productivity of labor in a specific area by augmenting the usefulness of the human and natural resources there through bringing the “tools” of progress such as roads, electricity, and clean water. Furthermore, the connectivity of infrastructure creates a process of specialization in different areas based on those areas’ specific conditions, capabilities, and level of development. Thus, the idea of connecting an economy or several economies together through infrastructure to create “supply chains” leads to the increase in the value added to the product from raw material to semi-products a finished product. For example, the value of Swedish iron and copper ore mined in the far north of the country increases by 500 to 1000 percent as it moves through the infrastructure corridors from the north through the different industrial cities to the south and southwest where the machine and auto-industries are located.

 

 

Economic Platforms and productivity

According to the American thinker and economist Lyndon H. LaRouche, true economic value lies not in money or in natural resources, but rather in the creative, productive powers of labor, and in the effort exerted by society to increasing this power through scientific and technological advancements. All policies in society, including the issuance of money should be steered towards improving the productive powers of labor, which includes financing and building a “platform of basic economic infrastructure”. This includes transport, telecommunications, power generation, water management, healthcare, education, scientific research and development including science-driver programs such as nuclear technology and space exploration programs.

President Xi has expressed a clear understanding of this concept, and he frequently repeats it in the context of his thought on development philosophy and in defining China’s development strategy. In a speech he delivered at a 2014 seminar commemorating Deng Xiaoping, Xi said: “The chief criterion he [Deng Xiaoping] put forward for judging any action is ‘whether it promotes the growth of the productive forces in a socialist society, increases the overall strength of the socialist state, and raises living standards.’”[*1] In another speech he delivered the following year, President Xi stressed the importance of innovation in the field of science and technology as a measurement of economic growth. “We must consider innovation as the primary driving force of growth and the core in this whole undertaking, and human resources as the primary resource to support development,” he stated, adding that “We should promote innovation in theory, systems, science and technology, and culture.”[2*]

 

A closer view of the Economic Belt of the New Silk Road “development corridor” as conceptualized by Lyndon H. LaRouche.

 

The correlation between the development of advanced infrastructure and the increase in the productivity of the economy is thoroughly proven from studies conducted on the U.S. economy. There is a proven strong relationship between credit issued for projects of new infrastructure and “multi-factor productivity” or “total factor productivity”. This latter parameter attempts to measure that rate of growth of an economy due to technological advances. The highest annual rate of growth of American productivity, thus measured, occurred in the periods in which the greatest investments were made in new infrastructure that required new technologies. The most rapid growth of multi-factor productivity was the 3.30% annual rate of the 1930s, under President Roosevelt’s New Deal and massive “Four Corners” infrastructure programs, according to a 2005 report by the U.S. National Bureau of Economic Research. Another period was in the 1960s during the Apollo Space Program.

The same close connection exists in the last 20 years of China’s economic growth. Extraordinary rates of investment in transport, water management, nuclear power, space exploration, and other advanced infrastructure (such as the sudden appearance in one decade of more high-speed and mag-lev rail mileage than the rest of the world combined, is one celebrated example). This has produced very high rates of multi-factor productivity growth and general economic growth and prosperity for the people.

Thus, the idea of the Eurasian Land-Bridge or New Silk Road as envisioned as early as 1992 by LaRouche is the building of trans-continental “development corridors” with transport, water, electricity, oil and gas pipelines as the backbone around which clusters of new urban, industrial, and agricultural centers are built. This also the same concept behind President Xi’s proposed Economic Belt of the New Silk Road, which is a development corridor with enhanced trade as a means but not the goal.

Why the BRI has the right method

In an interview conducted recently by this author with leading Chinese economist, Professor Justin Yifu Lin, who served as Chief Economist and Senior Vice-President of the World Bank from 2008 to 2012, he explained China’s rationale behind proposing the BRI and why it is different. He indicated that after WWII, various multilateral development institutions, including the World Bank, the International Monetary Fund were set up for the purpose of helping the economic reconstruction from the war, to eliminate poverty, and to narrow the income gap between developing and developed countries. However, he noted that since the 1960s, over US$ 4.6 trillion, measured in constant 2007 dollar, in gross Official Development Assistance has been offered to developing countries, including both bilateral and multilateral aid, and despite these generous funding supports, the results have been disappointing. The reason, according to Prof. Lin, is that “if the development assistance is not used to remove the bottlenecks of development in the developing countries, even assistance with the best intentions will be ineffective”.

Most development assistances from the multilateral and bilateral development institutions were used for humanitarian purposes, such as health and education, and improvement of governance, such as transparency, law, democracy, and business environment in the recipient countries. But those projects fall largely into the category of improving the soft infrastructure, and the hard infrastructure bottleneck remained the major obstacle for development in the developing countries. “Infrastructure bottlenecks are observable for anyone travelling in the developing countries and the benefits of infrastructure investment are particularly apparent when examining the Chinese development experience,” Professor Lin indicated. He gave examples such as that China during its transition towards a market economy between 1978 and 2020, it expanded its railroad network from 48,600 km to 146,300 km, highway network from 890,200 km to 5,198,100 km, and express way network from 100 km in 1988 to 161,000 km in 2020. This means that aggregate Chinese real income would have been 6 percent lower than it was in 2007 if the expressway network had not been built from 4,800 km in 1998 to 41,000 km in 2005.

What is required?

According to estimates of the Asian Development Bank, from 2016 to 2030, developing Asia requires infrastructure investment of US$ 26 trillion, and the estimates by the African Development Bank (AfDB) suggest that the continent’s infrastructure needs amount to $130–$170 billion a year, with a financing gap in the range $67.6–$107.5 billion a year. This is why nations in Asia, Africa, and Ibero-America have embraced the BRI and cooperation with China to build the much-needed infrastructure.

According to the Boston University Global China Project database, which focuses mostly on the loans provided by two of the largest Chinese “policy banks”, the China Development Bank (CDB) and the Export-Import Bank of China (ExIm Bank), the numbers are impressive. Taking the power generation capacity these Chinese loans have built, it states that at the end of 2018, “Chinese capital is involved in upwards of 777 power plants overseas, providing a total of 186.5 GW of power generation capacity.” Breaking down the projects financed by the CDB and Ex-Im Bank, these are:

– Hydropower: 205 projects with total capacity of 50,000 MW.

– Wind power: 200 projects;  12,200 MW

– Solar: 132 projects; 8,000 MW

– Coal: 107 projects:  74,000 MW

– Nuclear: 5 projects: 5,800 MW

– Oil, gas, biomass: 10,000 MW

One third of these power projects are in Africa. According to the Johns Hopkins School of Advanced International Studies’ China-Africa Research Initiative (SAIS-CARI), “between 2000 and 2019, SAIS-CARI estimated Chinese financiers signed 1,141 loan commitments worth US$153 billion with African governments.” In total from 2008-18 China financed and built 858 projects worth US$462 billion in Africa. Most of the projects are in the infrastructure sectors of transport (USU$ 46.6 billion), power US$ 36 B), telecommunications and information technology (US$ 12,6 B), and water (US$ 7.4 B). These numbers have obviously changed since 2018.

In the FOCAC Summit of 2018, President Xi pledged US$ 60 billion for investments mostly in infrastructure in Africa in the 2019-2023 interval.

It should be recalled that Britain and the United States, in addition to Canada and Australia, are the largest investors in Africa, but their investments are almost solely concentrated in mining and extraction sectors, with little benefit for the populations of Africa.

For the cited reasons and evidence, it is imperative on the industrial nations of Europe, North America, and on Japan to join hands with China’s BRI by either joining it or finding a working mechanism with it based on the main principle of generating credit for large scale infrastructure projects in developing countries to achieve true win-win cooperation.

Footnotes

[1*] Source: Xi Jinping, The Governance of China, Volume 2, title of speech: “A Bright Future for Socialism with Chinese Characteristics”, delivered on August 20, 2014.]

[2*] Source: Xi Jinping, The Governance of China Volume 2, “Guided Development with New Concepts”, speech delivered on October 29, 2015, at the Fifth Plenary Session of the 18th CPC Central Committee.

 

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