Based on the drastically changed world situation and the characteristics of the current development phase of China’s economy, the Central Government has in the past year made an significant judgment (namely, China’s economy is entering a “new normal” state), proposed two strategic plans of opening-up (that is, jointly building the Silk Road Economic Belt and the 21st-Century Maritime Silk Road( hereinafter referred to as the “The Belt and Road Initiatives” with countries along the route) and advocated the establishment of the Asian Infrastructure Investment Bank(AIIB). China’s new leadership showed great foresight and ability to seize up the situation at both home and abroad in proposing this all-round opening-up strategy to guide China’s economic development in the new normal state.

Stepping up the creation of new engines of economic growth

Judged from both theoretical and practical perspectives and from the analysis of the changing conditions at home and abroad, China’s economy is entering (rather than having entered) a “new normal” state. The five characteristics of the “new normal” period set forth at the Central Economic Work Conference is an ideal trend rather than a realized state. This is because the transition between the “new normal” state and the old one is a slow and complicated process. Those who have benefited or got used to the “old normal” state are unwilling to accept the new one and will neither give up their benefits voluntarily. Currently China is at a critical phase of economic restructuring, transformation and upgrading. The traditional drivers of economic growth and the new ones are struggling for dominance. The situation where some local governments still blindly pursue economic growth and frequently have large-scale construction or demolishing projects cannot be changed in a short term. Now the traditional drivers of growth are much stronger and the new ones, though in line with the direction of future economic growth and growing quickly, are still quite weak. The transition between the old and new engines of growth will not be smooth and the power of the new engines is not yet stable. We therefore can well expect unstable economic growth in the coming 3-5 years.

The argument that the whole world is going through a weak post-crisis recovery except China now proves to be unbalanced. As part of the world economy, China cannot be left out of the reality and conditions of the global “new normal” featuring sluggish world economic growth, transforming international labor division and growth pattern, rising protectionism and financial competition. China’s economy stepping into a “new normal” state is an inevitable result and also an important part of the “old-to-new” transition of world economy.

China’s economy is faced with many problems and difficulties while entering the “new normal” state. On one hand, the world economy is not doing well. Economic growth continues to slow down globally and protectionism of all kinds keeps rising. Faced with an unstable global economy and shrinking international demands, China can expect stronger competition from the international market for its traditional products. On the other hand, domestically China is developing new growth areas, which are yet to become the new engines of economic growth. As external demands shrink and internal demands are yet to be stimulated, China is now faced with troubles from both sides. The “hard constraints” on economic development are getting bigger and the economic situation has been divergent. There is still mounting downward pressure on China’s economy. Under the complicated and challenging economic situations domestically and internationally, it is necessary for China to speed up developing new engines of economic growth.

Creating new engines of growth under the “Belt and Road” initiative

While China’s economy is stepping into a “new normal” state from the old one, it is advisable to expand the strategic space for the country’s future economic growth via enhanced opening-up and improved economic internationalization. The “Belt and Road” initiative is a strategic plan of great significance for China to create new engines of economic growth and accelerate economic transformation. The short-term and long-term significance and the impact of the initiative can be summarized in the following aspects:

Firstly, The “Belt and Road” initiative is in accordance with China’s factor mobility transformation and international industrial transfer. The initiative promotes policy coordination, facilities connectivity, unimpeded trade, financial integration and people-to-people bonds with the aim of exporting China’s factors of production, especially the high-quality capacities so as to share China’s progresses with the developing countries and regions along the “Belt and Road”. It not only facilitates the exportation of China’s production capacities and capital and helps China create new engines of economic growth, but also bring new momentum for the recovery and growth of Asian and even global economy.

Secondly, The “Belt and Road” initiative is in line with the transformation and adjustment of China’s opening-up pattern, and helps narrow the opening-up gap among different regions. The initiative aims at optimizing the spatial pattern of China’s economic growth and coordinating the development of different regions. “The Belt and Road”, especially “the Belt” starts and runs through Western China to West Asia and Europe. This is a major change in China’s opening-up pattern geographically. It means China will adopt a new pattern of all-round opening-up for economic development. Meanwhile the regional coordination and industrial transformation and upgrading will also pick up speed. The greatest significance, however, lies in the industrial agglomeration in Western China.

Thirdly, The “Belt and Road” initiative is the mutual-beneficial “public goods” China offers to the whole world as a responsible power. China becomes the locomotive of global economic growth in the post-crisis era. The “Belt and Road” initiative is a major innovation to transform China’s high-quality capacities, technological and financial advantages, and good experiences and patterns into market and cooperative advantages, and for the country to shift to all-round opening-up. It is the mutual-beneficial “public goods” China offers to the whole world as a responsible power. With the rising of national strength, China is both able and willing to offer more public goods to the Asian-Pacific region and the whole world, and is especially willing to propose new initiatives and ideas to deepen regional cooperation.

Developing the “Belt and Road” with the support of AIIB

Continuous and strong finance as well as a supporting international investment & finance system is needed for pushing forward the “Belt and Road” initiative. The Asian Infrastructure Investment Bank(AIIB) was established along with the initiative and has been much welcomed. Unexpectedly, altogether 57 countries have become the prospective founding members of AIIB as of 15^th, April, 2015. The significance and impact of AIIB can been summarized in the following three aspects:

Firstly, AIIB and the “Belt and Road” initiative share the priority of supporting infrastructure construction in Asia. From the perspective of financing, as the investment & finance platform for the development of the “Belt and Road”, AIIB can help address resource misallocation in the region to achieve effective allocation of deposits and investments, and raise funds or make investment around the world to support infrastructure development in Asia and other regions in the world. It will also help improve investors’ expectation of the investment environment in countries along the route. From the perspective of demands, countries and regions along the “Belt and Road” have tremendous needs of infrastructure financing. That’s exactly where AIIB comes in.

Secondly, AIIB will not only enhance infrastructure construction to further drive economic growth, but also improve the level of capital utilization in Asia and help Asian countries to make a bigger contribution to the development of regional and even global economy. Asian countries have for a long time fallen way behind the West in terms of capital utilization and financial activeness, and thus have had a low voice and little power in world financial activities. The establishment of AIIB has not only attracted some developed countries to become its founding members, but will also help attract more international funds and financiers to invest in Asia. This will in turn stimulate the Asian financial market and help the region gain a louder voice and bigger power in the international financial system.
Thirdly, AIIB is a necessary supplement to the existing international financial order and facilitates the reform of the international monetary system. Given the different missions and business priorities, AIIB will be complementary to, rather than in a non-zero sum competition with the existing multilateral development banks. The establishment of AIIB may fill the infrastructure financing gap in Asia that the current world financial system has failed to meet. AIIB has great potentials for development. On one hand, it can help push forward the further reform of IMF and WB. One the other hand, it will effectively complement the efforts of WB and ADB in investment & finance and international assistance.

Shanghai finding it necessary to integrate the “Belt and Road” strategy

The “Belt and Road” action plan is not a short-term initiative and can neither be achieved in a short time. Instead it will run through the entire “new normal” period. This long-term national strategic pattern of opening-up offers Shanghai both unprecedented opportunities for development and tough challenges. With its location advantages and functional as well as agglomerative advantages as an international hub, Shanghai should integrate the national strategy to seek for new development of the city while making contributions to the development of the “Belt and Road”. Specifically, Shanghai shall work on the following aspects:

Firstly, the requirement for financial innovation of the “Belt and Road” and “Yangtze River Economic Belt” initiatives means both opportunities and challenges for Shanghai to deepen financial innovation in China (Shanghai) Pilot Free Trade Zone (PFTZ) and to continue building itself into an international financial center. Therefore Shanghai should integrate the “Belt and Road” strategy into its financial innovation efforts in PFTZ and its efforts in transforming the city into an international financial center. The implementation of the “Belt and Road” initiative requires tremendous capital support, which can only be realized through financial innovation. It is thus a serious challenge for Shanghai’s decision makers, managements and financiers to work hard on financial innovation and on building an international financial center that meet the demands of the “Belt and Road” and “Yangtze River Economic Belt” initiatives.

Secondly, the requirement for industrial and technological innovation of the “Belt and Road” and “Yangtze River Economic Belt” initiatives means both opportunities and challenges for Shanghai. Shanghai should integrate the “Belt and Road” strategy into the efforts in building itself into a technological hub. Industrial innovation involves benefits gained from industrial transformation, upgrading and transfer. It is also a big challenge for Shanghai’s decision makers, managements, innovators and entrepreneurs to achieve effective industrial transfer and restructuring, to build the city into a technological hub, to make the city a leading example in institutional, industrial and technological innovation, and to offer the “Belt and Road” and “Yangtze River Economic Belt” initiatives sufficient industrial, technological, institutional and management innovation support so as to make bigger contribution to the implementation of the national strategy and at the same time enhance the competitiveness of the city itself. Besides, it is also testing the wisdoms of decision-makers, managers, innovators and entrepreneurs.

Thirdly, the “Belt and Road” and “Yangtze River Economic Belt” initiatives mean both opportunities and challenges for Shanghai to build itself into an international transportation, logistic and trade hub. Shanghai should integrate the “Belt and Road” strategy into its infrastructure construction and the efforts in building itself into an international trade center. The trade volume between Shanghai and over 60 countries and regions in the “Belt and Road” zone only account for about 20 percent of the city’s total volume of foreign trade. And there are still many “Belt and Road” countries and regions having had no trade contact with Shanghai, which means huge space for development for both. The implementation of the “Belt and Road” strategy is also a great opportunity for Shanghai to deepen reform and further open up to the outside world so as to achieve faster development and stronger overall competitiveness.

Lastly, the “Belt and Road” and “Yangtze River Economic Belt” initiatives mean both opportunities and challenges for Shanghai to carry out regional opening-up and coordination. Shanghai should integrate the “Belt and Road” strategy into its efforts in creating new engines of economic growth and conducting a new round of opening-up. The city shall connect the “Belt and Road” countries and other provinces, regions and cities in China when making its overall plan of a new round of economic development. Besides Shanghai should try to seek the “biggest common denominator” for regional cooperation and better coordination of regional plans through implementing one-on-one assistance and coordinating the development of the “Yangtze River Economic Belt”. The city shall give full play to its advantages in the building of transportation system, industrial layout supporting capacity, environment protection, culture exchanges and information sharing, and establish a win-win cooperation mechanism with regions along the “Belt and Road” route through capital, technologies and management exportation.

(Mr. Shi Jianxun, President of the Economic and Finance Research Institute of Tongji University, professor of the Finance Department of the School of Economics & Management of Tongji University, leading expert of the consulting institute of National Social Science Fund)

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