Searching for the Next Stage in China’s growth
At a time of slowing growth, China has been devising ways to breathe new life into its economic momentum. The plans include a major new national strategy, known as the 21st Century Maritime Silk Road and the One Belt, One Road initiatives. Roads, railways and ports will connect China, to Central and South Asia, in a reinvention of the old Silk Road, which once linked these disparate regions through trade and culture. These initiatives will draw on two new funds, the Silk Road Fund and the multilateral Asian Infrastructure Investment Bank, with a first round of $90 billion in combined capital.
The relationship between these Chinese-led initiatives and the Association of Southeast Asian Nations (ASEAN) will be crucial to their success. The 10-member ASEAN is itself going through a large-scale transition. By the end of 2015, the region will transform into a single bloc, linking free trade in goods, services and people. With ASEAN China’s third largest trading partner (after the European Union and the United States), navigating trade between the two is a chief concern of decision-makers.
“In the next five to 10 years we are going to see the emergence of a real Silk Road and a virtual Silk Road,” Vivek Pathak, Asia-Pacific Director for IFC, told a China Daily-sponsored panel at the Asian Financial Forum in Hong Kong in January.
An informal concept at this stage, the virtual Silk Road consists of financial and digital linkages connecting China and ASEAN. Pathak asserted that this virtual silk road will be equally, if not more important, than the hard Silk Road in the years to come.
Decision-makers will need to put in place the appropriate financial architecture to maximize trade. “Capital outflow from China will be the key phenomenon of the next decade,” Pathak said.
“ASEAN is the most logical market for Chinese mainland manufacturers, given its size and growth,” he added. Two-way trade between China and ASEAN hit $480 billion in 2014. ASEAN is the world’s seventh largest economy and global consulting firm McKinsey predicts that the region could grow to the world’s 4th largest by 2050. If ASEAN continues on the right development path, around 80 million households will join the consumer class by 2030. Fellow panelist, Xu Ningning, Executive President of the Chinese-ASEAN Business Council, said, “The new Silk Road will help enhance business cooperation and make ASEAN the first stop for Chinese outbound investment.”
The pressure on China to deliver quality and sustainable growth comes from a dynamic of rising wages, a volatile property market and a challenging global environment. China’s climb to the top of the world’s economic ladder is no longer a given, particularly with the US restoring its place as the lead engine for global growth.
On the same day as the panel, China announced its lowest growth figures since 1990, the first time the country missed its growth target. Growth in 2014 had slipped to 7.4 percent, a nudge under the 7.5 percent official projection.
