This book is second volume on “The Belt and Road Initiative and the Global Economy” and will analyse the possible implications. This volume begins with a succinct overview of such implications in this chapter. A detailed analysis is then provided of the changing international financial system in Chapter 2. This will be followed up with a detailed analysis in Chapter 3 on international economic growth and the effects on the environment. Chapter 4 will address the effects of the BRI on China’s domestic economy , followed in Chapter 5 with an analysis on the effects on the domestic economies of the participating countries of the BRI. Chapter 6 will analyse the impact that the BRI will have on the global economy. The shift in global power has an impact on international relations, which will be discussed in Chapter 7. Consequently, this will lead us into a discussion of the rise and fall of nations in Chapter 8. A postscript is provided at the end of the book which highlights the shift in global power and its ramifications.
Hence, an interdisciplinary approach is taken to explain the impact of the BRI on the global economy. Particular emphasis will be given on the domestic economies of the participating countries as different countries have different requirements in terms of economic development. The implications of economic development and the reciprocal trade relationships between the different countries will affect the participating countries of the BRI to different degrees so that the appropriate policies for economic development may also differ between the participating countries. The consequences of economic growth on the environment will also be addressed before the effects of the BRI on China’s domestic economy , on the economies of the participating countries and on the global economy, especially in regard to international trade and economic development. Finally the changing global economy and the impact on international relations will also be addressed.
The importance of the complementariness in production between different nations has also been addressed. China’s economic growth requires a large quantity of natural resources, most of it has to be imported, so that China’s economy is complementary to resource-rich nations. China has diversified its supply of resources, largely because of security reasons. As China also has become in 2009 the largest exporter it has a considerable impact on international trade and many national economies, so that China’s effect on the global economy is discussed at great length.
The aim of the construction of multiple projects is to enable companies to engage in a “going out” strategy which may involve structural transformation in multiple economies on the way of the BRI. China’s “going out” policy has been extensively discussed in the second chapter of the first volume; this volume will largely discuss the changing international trade relations. China’s “going out” policies will be discussed together with China’s investment policies in multiple countries which are part of the BRI. The level effects and the relative effects which are caused by China’s increase in trade with other countries are described. The level effect shows how much countries may benefit or lose from the expansion of China’s trade; whereas the relative effect shows which countries are most affected. Various possible scenarios in the major countries to promote economic development will be described.
Chinese investments and projects in countries which are often not regarded as being part of the BRI, such as South American countries, will also be discussed; rather than confining the analysis just to areas pertaining to the Ancient Silk Road, as the present BRI goes far beyond it. The aim of the BRI is to construct infrastructures across numerous borders to enable an increase in the required interconnectivity to promote economic growth and development. As the participating countries of the BRI are at different stages of economic development, different policies may apply; that is, as countries move through different stages of economic development, priorities will change. Policies may be adapted to the specific requirements of participating countries and the appropriate policies will have to be coordinated between the participating countries.
However, policies may go beyond the actual projects, but may also consider the social conditions and the conditions of employment. It will be argued that the implementation of the projects has to go beyond the aim to achieve economic growth, but instead could promote inclusive economic development so that the benefits are more equally spread out. The economic development between various hubs for transportation or between trading centres, rather than just the development of transport hubs, will be emphasized. Hence, the BRI can aid the development of countries involved rather than merely using them as a thoroughfare for transportation between different countries.
The major participating countries will be analysed for the benefits that they may gain and the contribution that they may make towards the BRI. Various obstacles which may be faced by different countries and their possible solutions have been described; for example, investment must have a fertile ground before it can be productive. The various obstacles faced by the existence of dual economies have also been analysed together with possible remedies. The BRI will be able to increase the demand for labour so that many workers may be drawn from the unemployed and underemployed labour force. The BRI and the creation of infrastructure may bring out impoverished people out of poverty.
The possible resulting virtuous as well as vicious cycles in which specific countries may find themselves will also be discussed. Various free trade agreements are explained together with the benefits they may bring for the participating countries. The different effects of exports and imports in various African countries have also been described, together with the displacement effect on African intra-regional trade by Chinese exports in some African nations. The danger of an impending resource curse as a consequence of just specializing in exporting raw material is also explained.
Strong linkages between the resource sector and other sectors of the economy should be created; it will be argued that weak linkages retards economic development and also prevents a sustained economic development. FDI in the resource sector may crowd out other sectors, such as the manufacturing sector which are essential for a sustained economic development and so may create a resource curse; hence it may be essential to diversify a country’s economy rather than just relying on the exports of raw materials. Many countries can learn from China’s experience, especially in regard to diversifying their industries. Economies should be diversified whenever possible.
Various policies of economic development which may lead towards a virtuous or a vicious circle together with the spillover effects will be discussed in details. The countries and regions which are part of the BRI are often unevenly developed, so that different policies may be required. The possibility of absolute or conditional convergence within particular regions will also be explained.
Gaps in development have to be narrowed before deeper economic integration can occur; on the other hand, a widening gap in development between countries and regions will present considerable obstacles to the successful implementation of the BRI. The discrepancies between various ASEAN countries are described to highlight such obstacles. The intention is that the BRI will lead towards a win-win globalization which may lead towards economic development.
However, international economic growth also causes environmental degradation if it is not well managed. As China is the largest energy consumer in the world, energy cooperation has to be a vital part of BRI. Pollution worldwide causes an estimated 9 million premature deaths globally per annum, but it is largely underreported. Pollution saves money for polluting enterprises at present, but it leads towards higher expenditures in the future paid by those who are less to blame. Most countries which are part of the BRI are low and middle income countries. Hence, the appropriate regulations have to be introduced to reduce the level of pollution and environmental degradation. Governments feel that they are not free but instead are largely controlled by corporations which try to maximize their profits.
As economic development spreads across borders, coordination between different governments is essential if the BRI is to succeed which is likely to affect international relations. The BRI is likely to induce profound transformation on a global scale, and so will cause a shift from a unipolar towards a multipolar world order , depending on the types and success of the implemented reforms.
A brief outline of each chapter now follows. This chapter provides an introduction and a summary of the main points of each chapter of Volume II.
Chapter 2 will discuss the current operations and functions of the international monetary system. It begins with an explanation of the functions of the international reserve currencies and exchange rates. This chapter also explains the mechanism of the regional currency basket. The changes in the international financial system were largely precipitated by the financial crisis of 2008–2009 ; although the weaknesses of the financial system were apparent before the crisis arose. This leads into an analysis of the internationalization of the RMB. Subsequently, the global shift of economic and financial power will be analysed.
This analysis is followed up with a discussion of the decline of the US dollar. Finally, the global shift in economic and financial power is described. This chapter explains the changes which are occurring at the moment in the international financial system, and it explains the movement away from the advanced economies towards East Asia to establish a multipolar financial system. The chapter concludes with a succinct summary and emphasizes the main arguments.
It is argued that once the RMB has become a major reserve currency it also entails a major shift in the management of international finance. The different effects of the RMB being used as a funding or as an investing currency and their implications of different exchange rate policies are discussed. How the RMB as an international reserve currency may be used as a store of value , as a medium of exchange , and as a unit of account is also explained. The possible emergence of a RMB currency bloc together with the costs and benefits to China, and its effects on the petrodollar and the US dollar are also analysed. How China will be using the RMB to create stronger ec...