Belt and Road: Are we heading from a Washington toward a Beijing Consensus?

By Ume Farwa
0 Comment(s)Print E-mail Shanghai Daily, January 18, 2017
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After the US failed to fully back the Washington Consensus, the world has started to look for new ideas and initiatives. China has lately emerged as a credible partner of developing countries in helping them reduce their structural bottlenecks and achieve long-term productivity. Its development cooperation model, which is different and arguable more effective than the Western development cooperation model, is attracting states with its global economic clout.

Western countries now find themselves unable to hold to social and political values at home, which they carry abroad. People’s rebellion against the forces of globalization and support for national sovereignty imperils the US-led liberal international order.

The West has closed itself off from the globalized world. At the very least, they have shown that they are reluctant to embrace the core of liberalism: free trade agreements, immigration, supra-national institutions, and humanitarian cause. They are supporting completely different ideas today. Conventional economic theories and models, especially the Washington Consensus, have failed to meet the expectations and needs of today’s multipolar, diverse world.

After the Great Recession of 2008, the world lost confidence in the Washington Consensus and a strategic shift in thinking on conventional economic theories got underway. There have been inherent tensions between capitalism and liberalism but the Cold-War era glossed over these tensions. Yet, with the end of the Cold War and after the collapse of US hegemony, these tensions were exposed.

It is inequality that has sparked a worldwide backlash despite the fact that the Washington Consensus was order of the day. In 30 years of trade with Latin America, the Washington Consensus helped grow less than one percent per year in terms of per capita income. On the other hand, epitomized by China, East-Asian countries grew 6.7 percent per annum in terms of per capita income.

The Asia Pacific is also an interesting case in point. In this region, the United States is not willing to uphold the very principles of the Washington Consensus: free trade agreement. The Trans-Pacific Partnership stands irrelevant with the Congress and American people. In South Asia, too, US economic assistance has been attached with conditionalities of promoting so-called democracy and introducing reforms in socio-political realm in the name of humanitarian causes. This helped too little to bring progress in the region.

In this chaotic picture, China has emerged as a reliable economic partner. It is adding much more in terms of development cooperation by introducing new ideas, initiatives and opportunities.

One Belt, One Road (OBOR) is one of such initiatives. It is based on five major policies: imposing no political conditions; helping developing countries to become self-sufficient; adhering to equality, common development and mutual benefit; remaining realistic; and paying attention to reforms and innovation. These polices are based on the assumption that infrastructure projects need to be built first for long-term productivity and as a countercyclical measure to overcome a financial crisis.

Reducing structural bottlenecks

Today, the International Monetary Fund recommends this practice, especially in a low-interest rate environment. This will reduce constraints on developing countries in financing and inadequate capacity. They offer developing countries the chance to reduce their structural bottlenecks and engage in development cooperation based on mutual benefits.

China has presented an altogether different pattern for development cooperation in contrast to the Western approach. It covers a wide range of grants, aids, loans and investments. China, indeed, is funding growth and development priorities located on the route of the OBOR. For example, under the China-Pakistan Economic Corridor (CPEC), OBOR is helping alleviate an energy crisis in Pakistan. The flagship project of OBOR, the CPEC uses investments, aid/grants, joint economic ventures and equity ratios as major financial mechanism of the projects.

There are many challenges, though.

First, the financial arrangements should be transparent and equally applicable to all the Belt and Road countries.

Second, less attention has been given to innovation and the technological sector. By using the model of Shanghai innovation, an education-business nexus must be developed.

Third, incapacities and inadequacies of developing countries are a challenge. Shanghai, having a service-driven economy and significant interface of OBOR, can help address these challenges. The city is at an advantageous position to facilitate financial services, trade investments, infrastructure constructions and cultural exchange.

In the coming years, Beijing can give much to the world in terms of ideas, initiatives and institutions. Yet it has to go a long way. Nonetheless, the OBOR is a step towards a Beijing Consensus.

The author is Research Fellow/sub-editor at the Institute of Strategic Studies Islamabad.

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