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The Effectiveness of the ‘Belt and Road’ Initiative in Tackling China’s Economic Slowdown and Its Financial Implications Within a Policy Trilemma Context

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Abstract

The research question is to what extent the Belt and Road initiative (BRI) plan will be effective in helping China bounce back from its economic slowdown and what its financial implications are in a policy trilemma context. The BRI was implemented in 2013 as a response to the economic slowdown in China and was intended to help the country’s transition to a slower, but structurally more balanced ‘new normal’ economic growth model. At the same time, China is facing many serious problems, such as a credit binge, a debt problem, and international trade and investment conflicts. The implementation of BRI and the accompanying financial liberalization and exchange rate and monetary adjustments will test the theory that it is impossible to combine free capital mobility, stable exchange rate management, and monetary autonomy.

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Notes

  1. 1.

    Traditionally China has a bank-based financial system whereby most businesses are funded by traditional bank loans mainly coming from the ‘Big Five’ regulated banks, namely the Agricultural Bank of China, China Construction Bank, Industrial and Commercial Bank of China, Bank of China, and the Bank of Communications.

  2. 2.

    A phenomenon from the former planned economy referred to as ‘financial dependency triangle’ between the state council, state-owned banks, and SOEs, whereby the state banks were instructed mainly to lend to SOEs (Linden 2008).

  3. 3.

    President Xi initially introduced the term ‘One Belt, One Road’ initiative in 2013, but after some criticism about the naming and when it became apparent that this transport network encompasses several land and sea routes, the term BRI was increasingly used. In this chapter, the terms OBOR and BRI are used interchangeably.

  4. 4.

    ‘Made in China 2025’ is a high-level strategic action plan rolled out by the government in 2015 with an aim to become the world’s leading manufacturer of telecommunication, railway, and electrical power equipment by 2025.

  5. 5.

    Following the inaugural Forum in May 2017, President Xi Jinping announced that the Second Belt and Road Forum for International Cooperation will be held in April 2019. The following topics will be addressed: a more concrete roadmap for Belt and Road’s development; an evaluation of Belt and Road five years on; focus on implications for business; the direction of globalization; and a direct response to criticisms around BRI (see the drawbacks of the BRI).

  6. 6.

    The origin of the figure of $8 trillion was first mentioned in reports by the Asian Development Bank in 2009 as an estimation of Asia’s infrastructure needs in the coming decade.

  7. 7.

    This model relates to the feature that borrowers do not think like investors and the commercial logic (rate of return) is secondary to political motivations.

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Authors and Affiliations

  1. Faculty of Management and Social Communication, Jagiellonian University, Kraków, Poland

    Piotr Łasak

  2. Inholland and The Hague University of Applied Sciences, The Hague, The Netherlands

    René W. H. van der Linden

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  1. Piotr Łasak
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  2. René W. H. van der Linden
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Correspondence to Piotr Łasak .

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  1. Marco Biagi Department of Economics, University of Modena and Reggio Emilia, Modena, Italy

    Elisabetta Gualandri , Valeria Venturelli  & Alex Sclip ,  & 

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Łasak, P., van der Linden, R.W.H. (2019). The Effectiveness of the ‘Belt and Road’ Initiative in Tackling China’s Economic Slowdown and Its Financial Implications Within a Policy Trilemma Context. In: Gualandri, E., Venturelli, V., Sclip, A. (eds) Frontier Topics in Banking. Palgrave Macmillan Studies in Banking and Financial Institutions. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-16295-5_12

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  • DOI: https://doi.org/10.1007/978-3-030-16295-5_12

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