The inaugural meeting of the Silk Road International Association (SRIA) occurred at an auspicious time and location. It took place in Hangzhou in June 2017, shortly after the successful Belt and Road Forum for International Cooperation in Beijing in May, the scene of an inspiring keynote speech delivered by President Xi Jinping.
It was clear from these two events that the participating countries in the Belt and Road Initiative (BRI) had reached consensus to accelerate its construction. The objective of the International Finance Forum, the major promoter and advocate of the SRIA, is consistent with the concept of the BRI – to maintain and improve international financial order through non-official high-level dialogue and co-operation, make global finance more peaceful, inclusive and sustainable, and offer the benefits of global co-operation an even more prominent platform.
The location of the SRIA’s meeting was no less significant – the province of Zhejiang has a long history of opening up to the outside world. Its capital Hangzhou successfully hosted the Group of 20 summit in 2016, further enhancing its worldwide influence, and it is hoped that the establishment of the SRIA here can open up new channels to launch further co-operation between Zhejiang and other provinces and countries.
Significant opportunities presented by the BRI
The BRI has bred major worldwide opportunities that have injected vitality into new forms of globalisation. The spirit of this initiative – extensive consultation, joint contribution and shared benefits – has signposted a new direction. This was much-needed: in the aftermath of the international recession triggered by the US subprime mortgage crisis, all countries essentially faced one common problem – what to do about globalisation. The whole world has fallen into this predicament, which is like a headwind that forces one to either push ahead or change direction. Under such circumstances, conflicting voices and opinions will inevitably arise. It is true, for instance, that globalisation has boosted the global economy; however, many negative effects have accompanied it. So why not just simply withdraw from this global trend? In 2013, at a key historical juncture where globalisation seemed to have lost its way, President Xi proposed the BRI – a historically significant decision attempting to uphold a new type of globalisation.
The ‘five connectivities’ proposed by the BRI – of policy, infrastructure, trade, finance and people – have opened up vast opportunity for new international co-operation and development, made possible by the initiative’s capacity to stimulate huge market demand. Currently, the global economy faces the contradictions of unbalanced growth and huge demand, especially in investment and infrastructure. The BRI has energised the world economy with opportunities for major economic development and rebalancing.
The BRI has opened up new prospects of a grand Chinese entrance onto the world stage. Currently, the Chinese economy has entered the ‘new normal’, and the processes of economic structural adjustment and industrial restructuring confront new tasks. These are manifested in three major aspects.
First, the BRI has established a new pattern of relation between China and the world. The interactive development of China and the rest of the world is benign – China has consistently made positive contributions to global development and, in turn, global development will bring more opportunities for the growth of China. The BRI establishes a new pattern for positive interactions between the two.
Second, the BRI has set the new course of China’s ‘opening‑up’ to the outside world. Over the past four decades of reform and opening‑up, remarkable achievements have been made – in particular, in trade and cross-border industrial capital flows. China has achieved ‘double upgrading’ from trade in goods to trade in services. It has also gained a ‘double engine’ – importing foreign capital and making its own foreign investment. In 2016, China became the third-largest country for attracting foreign investment and the second-largest foreign investor; such achievements are closely linked to the BRI.
Third, China’s status as a developer of global governance has grown as a result of the BRI. The dilemma faced by economic globalisation is one of matching the capacity of global governance to the development degree of globalisation. The concept and spirit advocated by the BRI have greatly enhanced China’s status in global governance. As a developing country, China has changed the model of globalisation and governance traditionally dominated by developed countries to one more synergetic and rational.
Strength of Zhejiang Province in joining the BRI
The BRI has also brought new opportunities for local development. China’s reform and opening‑up over the past 40 years has been a fundamental force fuelling worldwide economic development while boosting China’s domestic reforms. Therefore, the construction of the BRI will further expand the space for development in various provinces. As an eastern Chinese province, Zhejiang is well positioned to open up to the outside world, while central and western China boast late-mover advantage in economic development, which also calls for opening‑up. Currently, all regions must confront the transformation and upgrading of their economies and industrial structures, and enhance the competitiveness of their enterprises. The BRI also provides an essential platform for local regions to transform and upgrade their enterprises’ competitiveness. Optimising the business environment serves as the basis for sustainable economic development in all areas, so we must create a business environment with an international competitive advantage to attract foreign capital and lay a solid foundation for sustainable and stable development. The BRI is capable of delivering this very important opportunity for all provinces to create an internationally competitive business environment.
Strengthening Belt and Road Initiative co-operation between the China Investment Corporation and Zhejiang province
Combining government and markets to form a long-term multilevel co-operation mechanism. Some project opportunities may be jointly boosted by the China Investment Corporation (CIC) and the government, and others by the CIC and related industries and enterprises, which requires the formation of different levels of co-operation mechanisms.
Linking an extensive network of overseas partners of the CIC with Zhejiang’s favourable investment environment to allow the province to introduce and utilise foreign capital. As China’s economy continues to grow, more overseas enterprises will hope to increase their understanding of China and seek investment opportunities there. With its extensive contacts, the CIC can act as a channel effectively connecting internal and external factors. Zhejiang also boasts an excellent investment environment. By organically integrating both the CIC and the province, and introducing foreign capital, Zhejiang can begin a programme of economic restructuring and upgrading and see its enterprises boom through the introduction of foreign capital.
Connecting overseas investment with the ‘Going Out’ of Zhejiang enterprises, jointly exploring and sharing investment project resources to promote investment co-operation. Businesses in Zhejiang are now taking big strides in Going Out, and the CIC is now focusing on overseas investment. If the two sides can co-operate in project and information sharing, it will inevitably contribute to mutually beneficial results.
Integrating the financial services resources within the CIC system with Zhejiang’s real economy. Central Huijin Investment, a wholly owned subsidiary of the CIC, is the equity management unit of many major state-owned financial institutions. Those with CIC shares and holdings are capable operators in financial services with a strong appeal. If the CIC can extract the greatest benefits of the financial institutions within its systems to help develop Zhejiang enterprises, a new way of promoting the combination of industry and finance and driving the country’s economic development is sure to follow.
A provincial power moving to national level
At a provincial level, Zhejiang plays a decisive role in national economic development and opening‑up that makes its participation in the BRI essential.
First, Zhejiang is fully aware of the strategic opportunities of BRI participation and is eager to enjoy the enormous benefits. Since 2013, the province has been formulating its strategy and has taken solid steps towards participation. The history of reform and opening‑up reveals that Zhejiang is a leader in its strategic awareness and capacity for implementation – by joining the BRI, that capacity can be fully manifested.
Second, Zhejiang has a strong and open economy, which is able to support trade and investment in the BRI and enhance its own resource allocation and competitiveness in the global market. Yiwu, a city in Zhejiang, for example, not only occupies an important position in China’s foreign trade, but also exerts a huge global impact. Trade and investment are two core areas of the BRI, and if Zhejiang can take full advantage of the opportunities brought about by the BRI, it will surely enhance the capacity of global resources allocation.
Third, the strengths of Zhejiang’s geography and its internet industry complement each other, forming two pillars for its BRI participation. To the north of Zhejiang is the Silk Road Economic Belt, to the south the Maritime Silk Road. With such a geographic advantage, Zhejiang can better exert its resource allocation ability in human flow, logistics and capital flow. In addition, Zhejiang performs well in the internet industry, which can create an even broader space than its well-placed geographical superiority can. The geographical BRI combined with an online BRI will be able to fully unlock the potential of Zhejiang.
Fourth, the deep-seated Zhejiang business culture and the spirit of the BRI will converge in a reflection of the integration of Chinese culture and world civilisation.
Zhejiang’s landscape can be roughly divided into 70% mountains, 10% water and 20% land. Behind this landscape are profound cultural accumulation, time-honoured history and vigorous business development. The kernel of Zhejiang business culture is to be hardworking, pioneering, proactive, innovative and to forge ahead. If this spirit can be integrated into the BRI spirit of openness, inclusiveness and innovation to support the spread of world civilisations and spirit of humanity, then Zhejiang can contribute significant soft power to the construction of the BRI.
Six dimensions the China Investment Corporation must operate in when constructing the BRI
1.The China Investment Corporation (CIC) must unearth good investment projects. It is not making policy-based investments but commercial and market-based ones, so good investment projects are key. A multitude of investment opportunities have been thrown up by the BRI; the CIC, however, will position itself and await suitable commercial and market-based projects.
2. It must give full rein to its strengths. Success – be it in enterprises or investment institutions – will be achieved through exploiting strengths and avoiding weaknesses. Fully tapping into one’s own capabilities will allow the capture of investment opportunities and benefits.
3. It must make the most of Chinese elements. An important objective in the CIC’s overseas investment is to help key industries and enterprises ‘Go Out’. Chinese elements are essential if projects are to converge with the Chinese market and its industrial upgrading. Despite increasing overseas investment by the CIC, the Chinese market must dovetail with Chinese elements; China is the largest of the developing countries, with the biggest market and relatively advanced industries. The CIC can bring more foreign capital to China through overseas investment, which is equivalent to making good use of Chinese factors and crucial to China’s participation in the BRI.
4. It must develop good partnerships. The CIC already has a wide range of co-operation networks and partners overseas and has also established good relations with domestic investors in different fields and industries. China hopes to further expand and deepen this co-operation.
5. It must monitor post-investment management. The CIC is not making strategic investment, but co-investment; therefore, it attaches great importance to whether enterprises have established good corporate structure. The CIC, in this regard, is willing to make positive contributions to enhance the value of investment projects and enterprises.
6. It must achieve its investment objectives. These rely not only on investment returns, but also on whether the investment can bring positive benefits to economic development and employment in its own country or region.
This article is part of The IFF China Report 2018, which draws mainly on content provided by China-headquartered think tank, the International Finance Forum, and is published in association with Central Banking.
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