Living Smart

IV PUBLIC POLICY & SOCIAL SCIENCE 130 131 companies account for the majority of Belt and Road Initiative procurement.” Most of these Chinese construction giants are state-owned and benefit from generous subsidies from Beijing. By the end of 2016, 89 percent of project loans have come either from two Chinese policy banks or the four big state- owned commercial banks. In recent years, China has seen a decline of domestic investments, weak growth of consumer demand, and uncertainty of export growth. These have exerted significant downward pressures on China’ s growth. As its growth model evolves from one focused on attracting foreign direct investment to one that exports industrial and infrastructure know-how, China should reduce its reliance on state-owned enterprises (SOEs) and welcome international partners – possibly through joint ventures between its SOEs and firms from host countries that possess much greater local operating experience. Technology transfers from the SOEs to local partners would also increase Belt and Road acceptance by host populations. Third, China should build a more market-oriented financial system for the initiative. Already facing financing pressures domestically, China should expect a large investment gap for future projects. Increasing access to financial markets by private and overseas investors will help to ease the financing burden. China should also involve financing institutions like the Asian Infrastructure Investment Bank, private enterprises, insurers and multinational banks. With a slowing economy and rising trade uncertainty, leveraging Belt and Road to boost growth makes eminent sense. But this should be done in a way that achieves China’ s goal of allowing the market to play a decisive role in resource allocation. Published on May 29, 2019