What’s wrong with the new Chinese economic stimulus plan, “One Belt, One Road”?

William Hongsong Wang

In the end of March, Chinese central government officially published a document for the establishment of “One Belt, One Road” (OBOR) project, which meant a new “Silk Road” will being built crossing the entire Central Asia, Western Asia, Southeast Asia and Southern Asia in the next recent years.

In the governmental project of OBOR, we can see all the countries related to the program will strengthen infrastructure construction, eliminate trade barriers, cooperate among financing, tourism, overseas study industry, IT industry, NGO and etc. What a dizzying project! And how can we analyze what policies belonging to the project are reasonable or not in the perspective on economics?

First of all, let’s see the policy of strengthening infrastructure construction mainly guided by the governments. As we know, every coin of tax using by government comes from taxpayers’ funds. The more government spends every coin from taxation, the fewer taxpayers could dominate in his daily life. And now, Chinese government may levy a higher tax for OBOR. As it’s very hard for us to follow how much government will spend on infrastructure construction of that project, how will we know whether Chinese government will waste the taxation or use new technology to cut the cost of infrastructure construction as what the innovation process can be done in free market? (Remember taxation belongs to taxpayers, not government, so we can strongly doubt that whether government has the incentive to save money and do innovation or not.)

Our worry is not unnecessary. Just in 2008, China issued ￥4 trillion ($586 billion) to stimulus economy, and many of them were spent on infrastructure construction which was proved later to be a huge waste: For example, many high ways and railways became useless projects later, and many empty cities appeared by real estate bubble. The economic stimulus package not only resulted in a big lavishness, but also an enormous inflation and redistribution of wealth in Chinese economy. Because of these consequences, this Chinese cabinet had to start the “Streamline Administration and Delegate more Power to Lower-level Governments” process.

According to the past facts, the worries about the abuse of power in “One Belt, One Road” are reasonable. On one hand, Chinese government is doing market reform and deregulation, on another hand, “One Belt, One Road” project will cause increasing issue in paper money, government’s power and inflation which will lead to a new-term of economic bubble and redistribution of wealth and give negative impact on market reform.

Now we can say that governmental actions mentioned in “One Belt, One Road” project may not only wreck economic prosperity, but also lead to many further serious consequences.

But this does not mean OBOR project is totally wrong. What we can do is to bring the project back to economic laws and market reform.

We’ve seen that OBOR tries to eliminate trade barrier, encourage tourism, open overseas study and free flow of personnel which we believe are all good policies. In fact, if Chinese and other governments included in the project do more deregulation, common people, entrepreneurs and investors in these countries could find more opportunities whether in life goal or business by OBOR project. What governments should do is to give up their power in economic regulation, then communication among the people in these countries would become more frequent. If we ask what could be done in the infrastructure construction, I would say that governments could cancel more administrative examinations and approvals and encourage private investors playing more important rules in OBOR project.

Now we can make a conclusion: the wrong part in OBOR project is to increase the power of government (e.g. collecting more tax and expanding government agencies for the project), the correct part should be the policies of eliminating barriers for commercial and free flow of personnel in these countries, which must be the main perspective on “One Belt, One Road” project.

–

William Hongsong Wang is a researcher from the Shalom Institute and has graduated with a masters degree of Austrian Economics from the Universidad Rey Juan Carlos in Spain (King Juan Carlos University).

If you like this article, please scan the QR code below on Alipay for sponsoring the author: