Effect of China’s “Belt and Road” Initiative on the International Economy

Introduction

It is appropriate to study and understand multinational corporations and international investments in emerging economies before assessing their effectiveness. International investments in emerging economies are multinational enterprises (MNE’s) operating in arising markets participating in the outbound Foreign Direct Investment (FDI) marketplace. Belt and Road Initiative (BRI) provides an opportunity for more significant and peaceful global integration with tremendous economic and social development potential (Johnston, 2019). BRI is one of the most significant and ambitious new economic and political endeavours that have the power to influence people’s futures due to its importance and ability to favourable or unfavourableeffect our present and future(Johnston, 2019).The BRI, on the other hand, is thought to be aimed at supporting China’s ongoing growth while also opening up new age development opportunities for other developing economies (Johnston, 2019).

Even under conservative expectations about the size of overall expenditure under the plan, the study shows that BRI will bring substantial benefits to the global economy in terms of jobs and trade, even while accounting for the externalities of infrastructure growth in terms of trade increased profitability and energy efficiency increase (Zhai, 2018). However, in order to successfully implement this program and reap these gains, China and other BRI countries must face a range of significant challenges. The BRI’s emphasis on infrastructure indicates not only China’s economic benefit in the market, but also the fact that poor infrastructure stifles growth (Johnston, 2019).This paper will discuss China’s “Global Economic Belt and Road Initiative” by focusing on international investments in emerging economies and foreign investment.

China’s History and Present

The Silk Road links China to African countries, making it one of the world’s oldest trading nations (Xia, 2018). China’s trade has seen both growth and decline from the emperors’ period to the present (Corley, 1994). People will see that China was a marginal country forced to participate in zero-sum rivalry with state interference and then needed to embrace unfair treaties if they think about the 1800s-1900s period using Wallerstein’s World-systems theory imperialism theories for China ’s economic study (Chan, Nachman and Mok, 2021).Duringthe 1980s and 1990s, significant economic changes occurred due to introducing new trade and financial policies to aid China’s Development. Imports of raw materials and fuels propelled the industrial revolution, resulting in massive exports (Mollan, 2018).

It was crucial to draw on acquired innovations and design skills to build China’s unique trading culture and innovation. According to the fundamental advantage theorem, nations should only produce cost-effective products; otherwise, they should import them (Zhida, 2018). Due to investment-friendly policies, cheaper labour pools, infrastructure expansion, and national enterprises’ nurturing, China had an absolute advantage over the rest of the world (Corley, 1994). According to Porter’s model of states’ strategic edge and country, the strengthening of trade producing forces and the prevention of interfering trade forces are descriptive tools of the world’s most favourable business climate-specific characteristics (Grant, 1991).The Chinese have committed to extend their accumulated wealth to fix international low inflation, trade systemic problems, and imperialism by launching the “Belt and Road” project, changing the world as we know it (Zhida, 2018).

China’s past and currentFlag
Figure 1: China’s past and currentFlag(Chan et al.,2021).

Belt and Road” Initiative

Mapping BRI
Figure 2: Mapping BRI (Fang et al., 2021).

The BRI is a Chinese development policy that emphasizes trans-continental coordination and cooperation to develop national economy (De Soyres et al., 2019). It is based on the old Silk Road and incorporates a coastal aspect to build a network of regional connectivity with the aim of growing trade and fostering industrial growth in Asia, Europe, and East Africa (De Soyres et al., 2019). The BRI will encompass a wide variety of programs and activities, namely policy management, infrastructure, foreign direct investment, monetary, and people-to-people interactions (De Soyres et al., 2019). If more countries consider joining, the numbers are growing. Unless the BRI meets its stated objectives, it will be the most notable example of sustainable integration in history.

China’s proposed BRI has contributed significantly to the fast expansion of cross-border trade in recent years (Fang et al., 2021). However, this has resulted in an unintentional transition of capital production and ecological pollution to developing nations. Surprisingly, 29 % of BRI countries shift roles in distribution networks on various scales, switching from net distributors at the BRI level to net suppliers at the world stage or vice versa (Fang et al., 2021).

BRI requires significant economic investment, including constructing a vast network of highways, roads, ports, power, and services (Corley, 1994). The participating countries’ social, human, ecological, and economic outputs differ, and the BRI promotes a positive exchange of ideas among them and their desire for resources for positive outcomes, competitive benefits theory, and the concept of total profit (Fang et al., 2021). BRI will help countries expand by delivering excellent access to various development drivers, eliminating technical trade barriers, and growing a nation’s spirit of cooperation in the context of proper international expansion.

Belt and Road” Initiative Impact on Emerging Markets Multinationals and International Investments

Better Infrastructure for Better Growth

BRI’s effect on infrastructure and transportation development projects in involved nations will significantly impact achieving the organisation’s stated connectivity goals. Short-term growth begins with infrastructure investments, which result in a massive mobilisation of capital, skills, technology, and labour (Tang, 2018).Long-term investment will be facilitated by BRI’s long-term business opportunities, revitalising industries, promoting prosperity, and resolving social issues (Sørensen, 2018).For instance, opportunities to fix Pakistani manufacturing industries’ frequent power outages and insufficient transportation infrastructure would result in more jobs, lower consumer prices, and increased interest in foreign investments (Benard, 2020).

It Reduces the Amount of Time and Money Spent

Through global cooperative agreements and information-sharing networks, BRI Emerging Markets Multinationals (EMNEs) and the rest of the world can enable better and faster shipping by creating global trade routes and eliminating customs bottleneck problems and overcoming barriers that increase trade times and costs by harmonising country standards. For partner nations, the BRI would minimize transfer time and expenses by 3.2 percent and 2.8 percent, respectively and by 2.5% and 2.2% internationally (De Soyres et al., 2019, p.21). According to the World Bank website, expectation that shipping time decrease by 1.2% globally (De Soyres et al., 2019, p.3).

Enhanced Trade

Increased global trade is expected
Figure 3: Increased global trade is expected (Konings, 2018).

EMNEs that unable to expand their operations outside their domestic markets due to high international travel expenses and technical barriers will now be able to do so thanks to the BRI, which will create an affordable global opportunity to exploit by connecting countries with a broad range of services (Kotabe and Kothari, 2016). Due to various fewer defects, EMNEs would have significant competitive or absolute benefits over advanced country rivals, proximity to environmental resources, creative and flexible tactical profiles, and innovative and flexible strategic characteristics(Cairns and Sliwa, 2017).New companies will emerge due to favourable dynamics, global scope, and potentially market mechanisms (Kotabe and Kothari, 2016). As a result of eliminating trade restrictions, lower trade prices, and faster economic development was expected 4-12% in the global economy (Konings, 2018).

Increased Investments

EMNEs with lower transportation costs will become regional as they expand and prosper through lateral and vertical FDI outflows in a retro foreign direct investment framework to find or enter new companies by leveraging capital markets(Hernandez &Guillén, 2018). When capital investment is paired with a more favorable business environment, the benefits are compounded (Lin, 2018). Due to the extreme network spillover impact, the BRI communication network will assist non-BRI countries in the same region to expand (Benard, 2020 ).

Gross Domestic Product (GDP) Growth

Economic expansion, increased foreign investment, and global enhanced stability and logistics would boost the economy’s size, purchases, and growth, leading to a global GDP increase. Global GDP will rise by 1.3%by 2030 (Zhai, 2018).Central Asia would directly benefit from 1.4% of GDP (Bird, Lebrand and Venables, 2019). About a quarter of the world’s population now lives in the BRI’s contributing nations, which account for more than a third of the world GDP(Zhai, 2018).

Friendly and Long-Term Development

Policy coordination, facility accessibility, unrestricted exchange, economic flows, and people-to-people interaction are the five focus areas of the BRI (Yin, 2019). This initiative aims to close the “infrastructure gap,” facilitate the mobilization and efficient distribution of economic capital, deepen multilateral cooperation, and enable countries along the BRI to integrate their economic policies and deepen international integration in order to create an open, integrated, and balanced territorial social and monetary participation system that profits all (Yin, 2019). The BRI’s key goal and focus areas are to support infrastructure growth by offering funding in the form of mortgages or spending on infrastructure (Yin, 2019).

Power structure

The BRI has a lot of promise in terms of economics, politics, culture, and strategy, but it also has a lot of unknowns and potential concerns. It has clearly identified itself as a major military and foreign policy pillar of the Xi Jinping administration, with widespread support from Chinese analysts(Swaine, 2015). China will support this initiative on the basis of large consultation, mutual contribution, and mutual benefits. The development programs would be transparent and inclusive, rather than exclusive (Swaine, 2015). Furthermore, both credible and quasi-authoritative Chinese sources emphasize the value of the BRI by emphasizing five sustainable coexistence precepts: respect for each other’s rights and national integrity, mutualinattention, shared dinterestin each other’s domestic affairs, justice and equitable advantage, and long-term peace (Swaine, 2015).

The Belt and Road Initiative Paradox

Emerging economies are becoming increasingly important in global economics, diplomacy, and soft power, explaining changes in financial world superpower and competition with the World Economic Forum, regulated by the Group of Seven countries (Lin, 2018).BRI has a number of goals for China, including promoting economic growth in the west and connecting the nation to Europe by land and sea (Ozhigina, 2020, para.3). China and Europe, on the other hand, should collaborate to prevent conflict, maintain cohesion, and increase the effect of three alternative implementation projects (Ozhigina, 2020, para.3). The BRI initiative led by China would better serve China’s growing power and aspirations for future develpoment.

Debt Traps in China and Challenges to Asian Sovereignty

While the BRI’s goal is noble, its implementation strategy is dubious, considering the massive debt burden it would inevitably place on poor countries (Ameyaw-Brobbey, 2018). There is already a number of countries that are suspicious of China’s foreign aims, and the security consequences of the BRI will further complicate matters and jeopardize China’s reputation(Ameyaw-Brobbey, 2018). Other countries heavily depend on China for One Belt, One Road (OBOR) infrastructure development loans, placing them at risk of losing sovereignty (Yuan, 2018).

China’s Neo-royal and Neo-mercantile Development in Africa

China’s imperial and neo-colonial expansions have had a significant impact on African countries. Neoliberalism originated as the worldwide financial orthodoxy at the turn of the century, with free-trade agreements introduced to handle Euro-American and Chinese mercantilism across the world, unleashing epistemological philosophies that participated in a decrease in urban competitiveness in the African space sector (Okeke, Cilliers, & Schoeman, 2018). China’s presence in Africa and how it promotes fraud to gain access to cheap African assets in return for Chinese goods, either explicitly or implicitly (Yuan, 2018). China achieves these goals by focusing on countries undergoing challenging political transformations, such as Zimbabwe, by claiming to support democratic transitions, or mineral-rich nations, such as Angola, by claiming to support socio-economic growth, or post-conflict states, such as Liberia, by claiming to support peace operations claims in prolonged violent conflicts (Tull, 2006).

Belt and Road Initiative is Neither Economically Advantageous nor Environmentally Friendly

The rapid economic development of China, as well as the manufacturing shift from its east to western areas, has had potential adverse environmental consequences (Ahmad et al., 2018). Taking away local employees’ legal rights, contractors, and suppliers to benefit from such unique wealth resources are akin to denying society at large promised development. These behaviors infuriated Laotians and could cause instability in other countries. China has been opening up in exchange rates, development, and foreign ties as a result of policy reforms (Ahmad et al., 2018). Furthermore, it has drawn millions of visitors from all over the globe. China is among the most famous countries in the world, ranking fourth behind France, Spain, and the United States of America (USA), with annual sales growth of billions of dollars. Domestic and international tourist trips have risen dramatically, according to the Chinese Cultural and Tourism Ministry’s most recent figures (Ahmad et al., 2018). Most electricity and transport agreements are not aligned with existing low-carbon goals and still struggle to meet them (Zhida, 2018).

Chinese Military Growth

China is growing its military presence in strategic locations, such as establishing a Chinese military fleet in Djibouti in 2018, which is strategically positioned for trade and provides China with a foothold against India and the US and the never-ending war actions for Sri Lanka’s Hambantota port (Carrai, 2018).In the near future, China’s naval expansion would not make it a serious competitor to American naval dominance, and there are few signs that China has risen dramatically against the US or other nations(Wong, 2010). China, which is now the biggest exporter and a major buyer of oil and other natural resources, is no longer content to leave coastal waters open to the American people, and its concept of fundamental values has grown in lockstep with its economic power (Wong, 2010).According to the official, the Chinese Navy’s latest plan also includes expanding its operational scope far beyond the South China Sea and the Philippines to the Pacific’s “second island chain” of reefs and atolls, according to the official (Wong, 2010). That region greatly intersects the field of the dominance of the US Navy.

Effect of Coronavirus disease 2019 (COVID-19) on Belt and Road Initiative

China is likely to scale back big-ticket infrastructure improvements due to domestic economic difficulties brought on by COVID-19. On the other hand, Beijing would not hesitate to fund virus-affected countries to achieve diplomatic advantage (CDC, 2019). The coronavirus catastrophe, which began in China and has sickened millions of people around the globe, is attempting to derail one of China’s most ambitious projects to date, the Belt and Road Initiative (BRI), dealing a major blow to Beijing’s aspirations to become a global power (CDC, 2019). The recession has wiped trillions of dollars from global capital markets, jeopardizing millions of small companies’ fortunes and the well-being of thousands of income earners. Due to lockdowns and other broad steps to combat the virus, staff and materials are unable to access building sites, causing delays and disturbances at BRI projects that depend exclusively on Chinese labor and resources.

Beijing’s global ambitions may be harmed even further by the pandemic’s domestic economic woes, which are likely to limit Chinese financial firms’ ability to invest in overseas ventures as they balance spending on internal safety and increased recovery against lending money abroad (CDC, 2019). Even before the outbreak, China’s economic growth has slowed exciting plans, as well as criticism from developing countries over high project costs and lender allegations.

Conclusion

The first drawback is that the BRI is a unilateral Chinese definition with unclear implementation. Another drawback is that the BRI seems to be primarily driven by broad geostrategic and geopolitical objectives. The BRI still has some flaws, including a lack of market competition, reduced overall freight capacity, lower freight demand, fragmented originating shipment center facilities, and higher overall transportation costs (Li et al., 2019).

The other major challenge stems from the Belt and Road projects’ long-term viability, especially green expenditure and long-term growth(Yin, 2019). To begin with, the BRI includes a region that suffers from some of the world’s most significant environmental issues. Environmental security is a major concern for developing countries along the BRI, and their ability to address these issues is limited (Yin, 2019). China is being put to the test to see whether it can create resource-efficient and environmentally sustainable facilities, as well as global collaboration, to prevent countries along the BRI from emulating the high-pollution, elevated, and high-energy-consumption growth model (Yin, 2019).

The BRI system only needs to be managed, maintained, and updated to provide perspective results. Opening ceremonies, ribbon cuttings, and public appearances are all enticing options for legislators. Chinese agencies plan to create a searchable BRI interactive map in English, giving key communities, international companies, and potential lenders access to the data. The use of e-contracting will help ensure that contracts are granted on the criteria of best value and efficiency. Countries participating in the BRI should develop policies that encourage environmentally-friendly sectors by providing more opportunities to non-polluting industries and levying a tax on polluters.

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NerdyRoo. "Effect of China’s “Belt and Road” Initiative on the International Economy." August 17, 2022. https://nerdyroo.com/effect-of-chinas-belt-and-road-initiative-on-the-international-economy/.

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NerdyRoo. 2022. "Effect of China’s “Belt and Road” Initiative on the International Economy." August 17, 2022. https://nerdyroo.com/effect-of-chinas-belt-and-road-initiative-on-the-international-economy/.

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