Among a number of economic and financial trends in Europe, the growing enthusiasm for China and its development policies warrants careful examination. Over the past decade, the Middle Kingdom has steadily increased in competitiveness, and it now appears poised to displace the US-led West as the leader of the global economy. The recent East Berlin forum provided an opportunity to examine the implications of China’s latest moves. Debate at this year’s forum centered on economies in transition, with particular focus on China and its ambitious infrastructure project named the “New Silk Road.” We spoke with Dr. Andrea Mennillo, an attentive observer of Asian economies, about the impacts and consequences of China’s emergence on the world stage.
1. Dr. Mennillo, will the Asian Infrastructure Investment Bank (AIIB) create a new international financial equilibrium? The initiative has been conceived by China but involves many countries in the US sphere of influence, so there is a belief that it could radically change relations between East and West.
Ever since the AIIB was announced, there have been certain expectations about its role. In expanding the family of multilateral financial institutions dedicated to economic and social development in Asia, in will make huge investments in infrastructure. This will lead to more rapid development, improve the quality of life and per capita income of Asia’s citizens and also have positive effects in other parts of the world. The answers are clear. The role and the importance of Asia in the international arena has increased, but the region still has to cope with serious infrastructural deficiencies and other problematic issues. The infrastructure needs in Asia have grown exponentially and the AIIB will increase the resources available to invest in them. But let’s not forget another fundamental aspect of the AIIB: from the beginning, it was defined as the Chinese response to America’s control over all large international financial institutions. The AIIB is considered a counterweight to the World Bank, the International Monetary Fund (IMF) and the Asian Development Bank (ADB). It is clear that with this action, China also aims to create an alternative financial system to the one created by the US after World War II. The fact that many Western countries (US allies, including the UK and Italy) decided to join the AIIB can be interpreted two ways: either the global economy is now so intertwined that it goes beyond the historical US dominance, or China is gaining important influence in the Western world that challenges weight of the US among allies. Probably both scenarios make sense. The second interpretation has been speculated about in press reports that spoke of the AIIB’s creation as a “defeat for the Obama administration.” But I do not think it is a development bank created to collapse the consolidated system of alliances and cooperative relations between Western states. I think the creation of the AIIB is another sign of how much the world has changed — and how equilibriums are always changing, especially now that Europe truly needs to shake up its own economy, which has been stagnant for too long.
2. And the AIIB is backing a major infrastructure project promoted by China, “The New Silk Road” (or “One Belt One Road,” OBOR), which aims to facilitate trade between Asia and Europe. Dr. Mennillo, what do you think about it?
The AIIB is among the institutions funding this immense $900 billion project, which is expected to affect 60 countries and more than 4 billion people. A new Asian multilateral institution backing infrastructure to connect with Europe will obviously generate a lot of interest. Italy, together with France, Germany and the UK, was among the first EU countries to announce its membership to the AIIB. The United States is more skeptical about this Chinese endeavor. Washington has certainly not spared its criticism, pointing out that the financing of infrastructure in Asia is already happening through the ADB (which is led by Japan and the US) as well as the World Bank and the IMF. The launch of the AIIB is just one of many investment projects in China’s pipeline. As usual, the debate between those for and those against China’s actions continues, but I can immediately see major benefits to Beijing. First of all, there is the possibility to use its huge liquidity for a concrete project, rather than accumulating US debt securities. Next, it is a strong response to Asia’s large infrastructure needs of Asia — the infrastructure gap in the regions involved in the OBOR is estimated to be about $8 trillion — since the project includes terrestrial and maritime infrastructure. Finally, it responds to China’s strategic and economic need to create stronger links between the center of the country and its peripheral areas, along with better ties to the countries of Central and Southeast Asia. Through trade agreements with these countries, China is strengthening its sphere of influence, as well as its image. Ultimately, the AIIB can help spur trade and bring China the benefits of greater interconnection throughout the region.
3. This project also goes in hand within China’s continuous economic expansion towards the West. Reading the overall geopolitical situation, do you see this trend as a threat to the West?
On May 21, 2014, President Xi Jinping said China’s intention is to develop friendly and cooperative relations with other countries, based on the principles of peaceful coexistence. I think it is within this framework that we should read this project, which incorporates the historic route of the Silk Road. Many, however, define this expansion a “turn to the West” by China; they see it as a sort of rebalancing in a response to the growing US presence in the Far East. To me, this seems simplistic as an only possible reason. Beijing has more than one reason to look to the West. In addition to the economic and strategic reasons we have already discussed, I believe that China has a great need to get closer to the Western world and to build closer relationships with Western institutions, including the financial ones. Moreover, the OBOR project represents a physical connection with the West. Let’s not forget that it will help further the international expansion of Chinese enterprises by using production capacity beyond the infrastructure sector. For those reasons, I consider Chinese investment, especially in Europe, something that will bring greater integration with the Western world — particularly this great infrastructure project.
4. Meanwhile the US has very actively promoted trade agreements, in particular TTIP with Europe and TPP with the countries on both sides of the Pacific. Do you think this is a way to stem China’s influence?
The TTIP is actually seen as an economic lever to help NATO contain Russia; the TPP, on the other hand, may be an attempt to contain China, and to create an antagonist economic bloc in Asia. Let’s also not forget the BRICS, and their efforts to set up an alternative economic bloc to the West. But while the United States and the European Union discuss the controversial TTIP, the “New Silk Road” is taking a clearer shape. The project will rely on countries where US influence is weak or has not yet been consolidated with formal alliances. One example is Afghanistan, where the withdrawal of US commitment leaves strategic room for China to conclude new agreements. China, for its part, emphasizes its desire to bring “democracy” to global finance institutions; its initiatives like the AIIB and OBOR are giving a stronger voice to many developing countries and providing them with more equitable guarantees than what institutions like the IMF offer today. However, I think a bipolar US-China world order will not truly benefit anyone. Instead of opposition, the US should seize on China’s open efforts and seek greater dialogue to begin an era of cooperation. The promotion of trade and greater cooperation through infrastructure projects that involve broad multilateral coordination is an opportunity to build a better global standard for highly integrated economic areas.
5. Which opportunities do you see for Europe and for Italy from a project like OBOR?
OBOR, which would make Europe a destination in a huge trade corridor, could give a boost to an economy that has had problems for a long time. Much will depend on whether the EU attempts to bring the real benefits of this trade to the economies of its member countries. There are many possible opportunities for Italy, whose decision to join AIIB is certainly not independent from the growing Chinese economic interests in Italy. When the Ministry of Economy and Finance announced the Italy would join, its press release declared the country intends “to work with the founders of AIIB to build an institution based on best principles and best practices in terms of corporate governance and safeguard policies, debt sustainability and procurement.” It is time to face Chinese investments and projects in an objective way, and put aside fears and singular positions. Instead, Italy must face the fact that these investments and project can be connected to a wider system that provides a positive impact for the country. Regarding OBOR, it will be crucial for Italy to be able to strategically integrate with new networks to give companies access to new trade routes and markets within the same strategy. Do not forget that Chinese investors already own shares in our major banks and in many large industrial groups in the country. I do not think they will be selling off soon.