Panelists discuss the opportunities and challenges of the Belt and Road Initiative on the sidelines of the Belt and Road Cooperation and Development forum held in Beijing on December 7-8 (COURTESY OF CHINA INTERNATIONAL COUNCIL FOR THE PROMOTION OF MULTINATIONAL CORPORATIONS)

As the United States and other developed countries grapple with rising trade protectionism and nationalism, can China assume the mantle of leadership in terms of globalization?

The Silk Road Economic Belt and the 21st-Century Maritime Silk Road (the Belt and Road Initiative), a strategy conceived by Chinese President Xi Jinping in 2013 to boost infrastructure construction, trade and investment between Asia and Eurasia, links more than 70 countries in Asia, Africa, the Middle East and Europe to revive the ancient Silk Road. China's trade with the countries that have joined the initiative had already surpassed $1 trillion in 2015, according to the Ministry of Commerce.

But unlike the original Silk Road, this new project promotes globalization with Chinese features by reorganizing value chains and the rules governing the global economy.

According to the white paper Vision and Actions on Jointly Building Silk Road Economic Belt and 21st-Century Maritime Silk Road released in 2015, the initiative follows the concepts of a multipolar world, economic globalization, and cultural diversity. "It is aimed at promoting orderly and free flow of economic factors, highly efficient allocation of resources and deep integration of markets... and jointly creating an open, inclusive and balanced regional economic cooperation architecture that benefits all," the document states.

Roadblocks in sight

Analysts have spotted a number of obstacles along the road.

"One thing that shocked me when I went back to the UK is that most people don't know what the initiative is," said Clare Pearson, Chair of the British Chamber of Commerce in China.

In an interview with Beijing Review on the sidelines of the One Belt and One Road Cooperation and Development forum held in Beijing on December 7-8, Pearson said the initiative hasn't quite globalized yet.

"I think what's happening is that the world is splitting into two halves. China is still growing at a 6.7 percent GDP, so it is incredibly optimistic." But global skepticism and trade protectionism may be impediments to the initiative's expansion as China's motives for the expansion are questioned.

Although developed countries may have globalized, since the global financial crisis in 2008, a large section of the population has become disaffected through the loss of traditional jobs, downward social mobility and stagnant wages. These factors and more have culminated in Britain's exit from the European Union and the election of Donald Trump as the United States' next president.

"This is when you get the 'let's build a wall' mentality, not the 'let's build a railway' mentality," said Pearson, explaining why developed countries might be bearish on the Belt and Road Initiative.

China may face hurdles in developing countries too, according to Liang Haiming, Chief Economist at the China Silk Road iValley Research Institute.

Liang told Beijing Review that many countries participating in the initiative are underdeveloped and are therefore eager to accelerate their economic growth. While this may sound like an ideal scenario, some of these countries often demand Chinese investors start a project before environmental and technological evaluations are finished. A number of those governments may also demand that Chinese investors provide advanced technology, products and projects, regardless of their own development stages and practicability.

"Many Chinese companies would compromise with the governments of countries along the belt and road to obtain a project. Such a practice would affect Chinese companies' reputation, leading to people from these countries questioning Chinese companies' motivation behind their investment," Liang said.

China's shrinking foreign exchange reserves and the falling value of its currency may also affect the initiative. China's foreign exchange reserves, the world's largest, fell by $69.1 billion to $3.05 trillion in November 2016, marking the lowest level since March 2011.

In a Xinhua report, Chinese investment bank CICC pinned the decline to a strong U.S. dollar, in addition to expectations of further interest rate hikes by the U.S. Federal Reserve, resulting in downward pressure on the yuan. The yuan fell 1.69 percent against the dollar in November, but has been relatively stable against a basket of other currencies.

Professor Huang Weiping at the School of Economics at Renmin University of China told Beijing Review that the Chinese currency is in an odd situation. "It depreciated domestically, appreciated internationally [in the past few years]—this is not normal, and will push capital flow out of China." Huang said that while capital outflow has nothing to do with the Belt and Road Initiative, China should balance the value of the renminbi against domestic and international rates to stop the forex reserves from shrinking.

Despite Huang's statement, Liang said investments in foreign financial markets under the Belt and Road Initiative explained China's capital outflow. "As long as the capital outflow is legal and well-regulated, the government will not intervene. Meanwhile, the yuan exchange rate is likely to stabilize in 2017 following the Federal Reserve's increase in their interest rates. I believe capital outflow will shrink rather than expand by then."

Containers with goods wait to be delivered to overseas markets at a railway station at Alataw Pass in Xinjiang Uygur Autonomous Region on July 29 (XINHUA)

The Trump factor

A key area of interest will be how the Trump administration will interact with the China-proposed initiative, especially since the president-elect has vowed to quit the Trans-Pacific Partnership (TPP) agreement. This could potentially give China more headroom to expand the scope of the Initiative and the Asian Infrastructure Investment Bank (AIIB), which is headquartered in Beijing.

"After the United States walks away from the TPP, there will be a gap in the world to be filled. In more and more cases, countries around the world will see the initiative as a must-have for the sake of their own economic growth. The initiative will evolve from being a Chinese proposal to a global public product recognized, supported and pushed forward by UN members," Liang said.

He said in addition to more economic cooperation among countries, the initiative should strengthen connectivity in the financial sector. This will help boost enthusiasm and interest in the Belt and Road Initiative from nations including the United States.

Still, some businesses have expressed concern over the future of Sino-U.S. economic and trade relations following Trump's victory.

During his presidential campaign and as president-elect, Trump has outlined his strong intent to promote the rejuvenation of the country's manufacturing industry and lift the U.S. job market.

Zhao Bin, Senior Vice President of telecommunication equipment company Qualcomm, told the forum that he was paying close attention to possible policies of the next U.S. administration.

"We hope these won't become obstacles for U.S. companies aiming to continue development in China," Zhao said. He suggested that the Chinese Government should offer a more stable and predictable policy and business environment for multinationals looking for a chance to pursue business in China.

"In particular, it should have a cautious yet progressive attitude in considering and assessing a market entrance threshold for multinationals, a level playing field and taxation models. This could prevent multinationals from potential negative impacts incurred from a possible re-adjustment of bilateral trade relations."

Sino-U.S. investment may also improve should the Trump administration decide to join the AIIB, an invitation to which President Barack Obama had spurned. China launched the bank with 57 founding members to provide a financial backbone to parts of the initiative. In an interview with China Daily, AIIB President Jin Liqun was bullish on the prospect of the United States joining his bank.

"I was told that many in [Trump's] team have an opinion that Obama was not right not to join the AIIB, especially after Canada joined, which was a very loud endorsement of the bank. So we can't rule out the new government in the United States endorsing the AIIB or indicating interest to join as a member."

Pearson was also optimistic, saying Trump is very likely to join the AIIB. "I think ultimately Trump is a pragmatist," she said.

Copyedited by Sudeshna Sarkar

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