DAI TENGHUI: ‘One Belt, One Road’ planning must tackle issues of excess capacity

BY | 06-17-2015
(Chinese Social Sciences Today)

As a strategy to be implemented under China’s “new-normal” economic model, “One Belt, One Road” can help absorb domestic excess capacity. It can also help less developed countries promote infrastructure construction, creating mutual benefit. However, a new risk of excess capacity may arise amid further implementation of “One Belt, One Road.” The key to resolving this problem is to balance market requirements and supply.


 Involving more than 60 countries, the “One Belt, One Road” initiative is supported by most Asian countries. Most provinces and regions have also proposed projects for forging new industries based on their own advantages.


Due to pressure from China’s economic slowdown, “One Belt, One Road” is urgently needed to grow China’s economy. The initiative will also ease unbalanced development in China’s eastern, central and western areas.
 

 However, overseas cooperation on the initiative hasn’t always been smooth. Some countries have doubts about “One Belt, One Road,” with India adopting a cautious attitude towards the initiative. Some countries in Asia, Africa and Europe worry that great investment risks may emerge from deep interaction due to differences in their political and economic systems.


Additionally, the fact that “One Belt, One Road” has regional crossovers with the Trans-Pacific Partnership Agreement (TPP) stands to intensify international market competition. Consequently, this has dampened some countries’ enthusiasm toward “One Belt, One Road.”
 

China is leading implementation of “One Belt, One Road” in the international community. It is therefore a great challenge for the country to expand its overseas markets through the initiative and effectively resolve excess capacity problems.
 

First, a system of project evaluation should be established. Application projects concerning “One Belt, One Road” should be approved through the evaluation system. The developmental sequence of projects should be established in accordance with market demand and the project construction cycle to minimize excess supply risks.
 

Second, a foundation for product innovation should be established to promote market competition. Market competition exists between “One Belt, One Road” and the TPP. China’s products lack originality compared with those from the US and Japan.
 

A foundation for product innovation can provide research and development (R&D) funds for enterprises to reduce their R&D costs and encourage them to independently develop original products. Sufficient overseas demand can therefore be obtained in this way.
 

Third, e-commerce platforms should dynamically monitor demand. Asymmetric information between enterprises and consumers is a key trigger of excess supply. Enterprises may use e-commerce platforms to monitor demand for products at home and abroad, adjusting production in a timely manner.
 

Fourth, emerging industries should be appropriately supported to avoid excessive accumulation. In recent years, some emerging industries have become new growth points for China’s economic growth. China is also gradually intensifying its support for emerging industries. However, excessive support risks fostering industry dependency and eroding the impetus for innovation, resulting in technological stagnation.


Fifth, legislation should be strengthened. International legislative cooperation can ensure healthy market operation. By perfecting the legal system, the violation of market principles can be avoided to some extent. It can also reduce international suspicion, ensuring fair competition.

 

Dai Tenghui is from the School of Economics at Renmin University of China.