(Yicai Global) March 27 -- The "One Belt, One Road" strategy has unleashed huge opportunities for the countries along the route. The "One Belt, One Road" international cooperation summit to be held in Beijing in May will bring together state leaders from the involved countries, and discussions will be held on further deepening the initiative and launching new projects, said Lin Yifu, former chief economist of the World Bank and honorary dean of the National Development Institute, the Beijing University, yesterday.
Answering questions from the media at the Boao Forum for Asia 2017, Lin said, "The per capita GDP in most countries along the 'One Belt, One Road' is less than half of China's, and they need to meet two pre-conditions if they want to achieve economic growth and increase people's income. First, relevant industry technologies must be continuously improved to boost productivity. Second, infrastructure facilities must be continuously developed amid technology advances, so as to reduce trading costs. The 'One Belt, One Road' strategy is exactly what they need in order to achieve these goals."
US President Donald Trump places infrastructure spending high on his policy agenda as an important economic growth driver, which confirms China's call to boost economic development through infrastructure construction under the 'One Belt, One Road' framework, Lin stressed. The Chinese and American economies boast complementary strengths, and the two countries should work together to achieve mutually beneficial and win-win results. It will bring more opportunities to the Chinese and US investors, as well as benefitting developing nations with underdeveloped infrastructure.
China and the US supplement and rely on each other over a broad range of businesses, and both will suffer if they do not collaborate, the World Bank's former chief economist advised at a parallel session of the Boao Forum. If the US slides into protectionism, it will harm the economies of both countries.
The pair has plenty of room to cooperate on infrastructure projects, he suggested, noting that more jobs will be created over the short term, and productivity will be enhanced from a long-term perspective, both of which are particularly important at times of economic downturn. Cooperation between China and the US can start with 'low-hanging fruits' – climate change, for example, he said.
Asked about rate hikes by the US Federal Reserve, he stated that people anticipated the rate hikes and a return of capital to the United States. They led to a rally of the US stock market, but also brought problems to other economies, especially developing countries, he pointed out.
"Fed's rate hikes will also help the US create more jobs, but they may push the US economy into a state of isolated existence," Lin warned.
The anti-globalization policy adopted by the Trump administration will not help the US fight off the global economic crisis, he asserted. On the face of it, trade protectionism gives the US more leverage to retain more jobs. In reality, however, it will push up costs of trade between China and the largest economy in the world, and therefore place greater burden on American consumers, and the reduced spending power will in turn lead to an adverse impact on market demand and employment in the US, he said.
When asked whether China would become the world leader given the fact that China received popular support when it declared its commitment to promoting free trade all around the world after President Trump decided to renegotiate the North American Free Trade Agreement, Lin answered that China is an emerging economy and the second largest economy in the world, and has benefitted from globalization. We hope that globalization and free trade can be recognized, in China and in other parts of the world, as the 'best principle' for dealing with international affairs. China has supported this idea in the past, but so far it has not become the world leader in this area. China is an advocate of global trade policies and free trade policies, but not the leader, he said.
A Proactive Fiscal Policy Is More Effective
As for the performance of the economy Lin advised that a proactive fiscal policy is more effective than quantitative easing to curb economic downturn at times of depression. While developing macro-economic policies, the government needs to ensure employment for the disadvantaged, and more importantly, effective efforts should be made to tap into surplus labor supply and thereby laying a solid foundation for long-term economic growth.
It is advisable to reasonably increase infrastructure investment through the introduction of a pro-active fiscal policy, he stressed. Through this way, a substantial number of jobs can be created, and inherent weaknesses in the economy can be remedied, removing the bottleneck constraining economic development and improving future productivity.
Similarly, Huang Yiping, a member of the PBOC monetary policy committee, suggested that the challenge facing the Chinese economy was how to strike a balance between new industries and old ones. In this respect, better results can be achieved through the fiscal policy, rather than the monetary policy.
"Because it's very difficult to drive economic restructuring with monetary policies. Moreover, the room for monetary policy manipulation has become very limited. First, interest rates are already low. Second, the yuan is under considerable downside pressure," Huang stated, adding that there is relatively more room for fiscal policy manipulations as China's public debts only make up less than 20 percent of the national GDP, which is the lowest in the world.
PBOC governor Zhou Xiaochuan also agrees that improving the fiscal policy will be very helpful to push forward structural reforms, stressing that the room for policy manipulation is different from country to country, so every country needs to make its own decision based on the actual situation. In the case of China, since debts owed by the central government is not very high, but local governments require an enormous amount of funding for infrastructure investment, urbanization and service industry development, the relationship between the central government and local governments need to be adjusted in terms of the arrangements of financial and administrative powers, including the applicability of fiscal policies set out by local governments.