An Approach for Building a High-Quality Kai and Ni Jianjun Belt and Road

An Approach for Building a High-Quality Belt and Road

An Approach for Building a High-Quality Belt and Road

Wang Kai and Ni Jianjun*

Abstract: The Second Belt and Road Forum for International Cooperation has ushered in a new phase featuring the joint promotion of a comprehensive, high-quality Belt and Road construction. Advancing the construction of a high-quality Belt and Road is based not only on the solid achievements of its six years of consolidation and practical cooperation, but also on the guidance of China’s initiatives and proposals, general recognition by the countries along the Belt and Road, as well as the support and recognition from international organizations like the United Nations. However, the uncertainty and instability found in the ever-changing international environment, the suspicion and strategic competition from extraterritorial major countries, and other concrete problems appearing during its construction over the past six years have also posed certain challenges that cannot be ignored. The direction of its high-quality development in this new phase involves China’s proactive selection to face the changing international environment and curtail suspicions from the outside world, as well as to resolve the difficulties and problems it encounters along the way in a timely manner, which will ensure the long-term sustainability of the Belt and Road. Achieving this goal calls for long-term system engineering, wherein China should continue to play a steering role, and the convergence of the interests of the countries along the Belt and Road so as to fuse these nations, each with their own respective resources, closely together by building a regional value chain. In such a closely-knit community, high-quality infrastructure serves

* Wang Kai is an associate professor at the Dongling School of Economic Management, University of Science and Technology , whose research focuses on international trade, international politics and economics, and regional economic integration. Ni Jianjun is the deputy director and a research professor at the Institute for World Economic Studies, CICIR, mainly focusing on economic security, international economic relations, and regional economic cooperation.

CIR November/December 2019 87 Wang Kai and Ni Jianjun

as the backbone, while diversified financing institutions and functions serve as the arteries. Meanwhile, institutional building should also be emphasized, which will ensure that the goals for building a high-quality Belt and Road are fulfilled at different levels. Keywords: the Belt and Road, high-quality construction, international economic cooperation, community with a shared future for humanity

ver the last six years since the Belt and Road Initiative (BRI) was first Oproposed, a comprehensive framework has been laid out, making it a widely-participated platform for international cooperation and generally-welcomed international public good. In August 2018, President Xi Jinping proposed to“promote the transformation of the joint Belt and Road construction to high-quality development”, emphasizing high-quality as the basic work requirement for jointly constructing the Belt and Road in the next phase.1 On April 26, 2019, President Xi Jinping made it clear at the Second Belt and Road Forum for International Cooperation that“jointly promoting the high-quality development of the Belt and Road should be made the principal line for future cooperation”,2 thus bringing the Belt and Road into a new phase of high-quality development. This paper intends to clarify the connotations attached to“high-quality Belt and Road development”, define the development goals for this new phase, and explore a feasible approach for jointly promoting its development by elaborating on favorable conditions and constraints, so as to contribute some thoughts for ensuring a steady and far-reaching high-quality development of the Belt and Road.

1“Xi Jinping chuxi‘yidaiyilu’jianshe gongzuo wuzhounian zuotanhui bing fabiao zhongyao jianghua [Xi Jinping attended the symposium on five years of work on the Belt and Road construction and delivered an important speech],”accessed September 1, 2019, http://www.xinhuanet.com/2018-08/27/c_1123335396.htm. 2“Qixin kaichuang gongjian‘yidaiyilu’meihao weilai”—Xi Jinping zai dierjie “yidaiyilu”guoji hezuo gaofeng luntan shang de zhuzhi jianghua [Working together to deliver a brighter future for Belt and Road cooperation—the keynote speech delivered by President Xi Jinping at the opening ceremony of the Second Belt and Road Forum for International Cooperation], accessed September 1, 2019, http://www.xinhuanet.com /2019-04/26/c_1124420187.htm.

CIR Vol. 29 No. 6 88 An Approach for Building a High-Quality Belt and Road

Contents and Goals

Since 2013, the construction of the Belt and Road has made major headway and great achievements, for instance: the scope of international cooperation is expanding constantly, and cooperation partners under the BRI span from Eurasia to Africa and further to the Caribbean in Latin America, and the southern Pacific, with the joint promotion of the construction of the Belt and Road becoming a common cause of the international community; the endeavor of achieving“Wutong”(policy, infrastructure, trade, financial and people-to-people connectivity) has made a great progress, and the general connectivity framework consisting of six corridors, six connectivity routes, multiple countries and multiple ports has basically taken shape; construction projects such as the China-Maldives Friendship Bridge, the Addis Ababa-Djibouti Railway, the Gwadar Port and the Karot Hydropower Station have taken roots; and practical cooperation has begun to advance into the manufacturing and service industries. The improved infrastructure has greatly boosted trade and investment, as the accumulated trade volume in goods from 2013 to 2018 reached US$6 trillion, direct investment into the countries along the Belt and Road exceeded US$90 billion, and grand- scale energy cooperation covered more than 40 countries, all of which has created 300, 000 jobs for the countries along the Belt and Road.1 In addition, the development platforms and connectivity routes built thus far have made the Belt and Road a major source of growth for the global economy, which is likely to boost world GDP by US$7.1 trillion per annum by 2040.2 In its vibrant advancement, the construction of the Belt and Road has had to confront an increasingly complicated international environment. Presently, the world is undergoing profound changes that have not been seen in a hundred years; the transformation of global governance is obviously

1 Tuijin“yidaiyilu”jianshe gongzuo lingdao xiaozu bangongshi, Gongjian“yidaiyilu” changyi: jinzhan, gongxian yu zhanwang [Office of the Leading Group for the Belt and Road Initiative, The Belt and Road Initiative: progress, contributions and prospects], accessed June 22, 2019,https: //www.yidaiyilu.gov.cn/zchj/qwfb/86697.htm. “2 Belt and Road Initiative to Boost World GDP by over $7 Trillion Per Annum by 2040,”Centre for Economics and Business Research, May 27, 2019.

CIR November/December 2019 89 Wang Kai and Ni Jianjun prolonged; and the strategic political game between China and the US is ongoing with unprecedented complexity and intensity. The pursuit of unilateralism and protectionism by the US has greatly impacted the international order, evident in the facts that the US is willfully provoking trade frictions with other countries, interfering with global industrial and supply chains, and undermining the already existing global trade regime, which has increased the risk of a worldwide economic slump. If the US were to substantially promote“decoupling”with China and force relevant countries to choose a side, a significant impact would be wrought upon China’s economic and trade cooperation with the countries along the Belt and Road, and it would have to face greater difficulties in its endeavor to strengthen and improve the Belt and Road. While more and more countries throughout the world have identified with the BRI, certain suspicions do exist, mainly related to some specific issues, such as taking the BRI as an aid program, with which China intends to establish a sphere of influence in all the relevant countries; the projects under the umbrella of the BRI lack transparency and sustainability, which may result in a debt trap for the partners; because China is exporting its pollution-producing and excessive production capacity, its projects are likely to undermine the environment in these countries; and more in-depth economic cooperation with China could lead to trade shocks from China. These negative opinions, whether they stem from biases and deliberate distortions or have been caused by misunderstandings due to inefficient communication, have impeded the advancement of the Belt and Road construction. Moreover, after investigating and researching some of China’s projects in Southeast Asia and Africa, the World Bank and the and Banking Corporation (HSBC) among others have pointed out that a lot more has to be done for China to improve its financing, environmental conservation, transparency, corporate social responsibilities, and communication with the local people.1 These problems will directly affect the progress and quality of the joint projects under the BRI, or even the effectiveness of their operation after they are completed,

1 Michele Ruta,et al.,“Belt and Road Economics: Opportunities and Risks of Transport Corridors,”The World Bank, 2019, 50-96; Janet Henry and James Pomeroy“, Belt & Road: The Global Impact,”HSBC Global Research, September 2019, 8-1.

CIR Vol. 29 No. 6 90 An Approach for Building a High-Quality Belt and Road unless they are resolved. The direction for the high-quality development of the Belt and Road in its new phase has been taken on by China as its own initiative to respond to the changing international environment as well as suspicions and misinterpretations, and timely overcome the difficulties and problems encountered in promoting this initiative, which will definitely ensure its increasing sustainability. Since the Belt and Road is a comprehensive, systematic, all-dimensional and highly effective platform for cooperation,1 an analysis of the implied connotations related to“high-quality development” of the Belt and Road should also be inclusive, holistic and comprehensive. First of all, it involves a high-quality vision of development. The vision of jointly promoting the Belt and Road has already been upgraded from the original plan of building a regional framework for economic cooperation2 to the new strategy of forging a practical platform for building a human community with a shared future.3 Therefore, although the idea of building the Belt and Road originated in China, it is intended for the world with the aim of contributing a Chinese concept of global governance and seamlessly fusing China’s interests with those of the partner countries so as to jointly face various kinds of challenges . Secondly, it involves an approach of high- quality of cooperation. High-quality development of the Belt and Road not only calls for promoting sea-land-air infrastructure connectivity, but also emphasizes achieving strategic synergy at different levels and in different fields, including synergy with the countries along the Belt and Road and also with international organizations like the UN; and not only synergy of development strategies, but also synergy between industries and enterprises,

1 Nitsche Rainer,“Gongjian‘yidaiyilu’shi quanfangwei hezuo de gaoxiao pingtai [The Belt and Road Initiative is a highly effective platform for all-dimensional cooperation],” Reminribao [People’s Daily], June 24, 2019. 2 China’s National Development and Reform Commission, Ministry of Foreign Affairs, and Ministry of Commerce, Tuidong gongjian sichouzhilu jingjidai he 21shiji haishang sichouzhilu de yuanjing yu xingdong [Vision and actions on jointly building the silk road economic belt and 21st-century maritime silk road], accessed July 22, 2018, https://www.yidaiyilu .gov.cn/yw/qwfb/604.htm. 3 Office of the Leading Group for the Belt and Road Initiative, The Belt and Road Initiative: progress, contributions and prospects,accessed June 22, 2019, https://www.yidaiyilu.gov. cn/zchji/qwfb/86697.htm.

CIR November/December 2019 91 Wang Kai and Ni Jianjun synergy and mutual recognition of regulations and standards, and cooperative synergies in other professional fields. Thirdly, it involves a mode of high- quality construction. High-quality development of the Belt and Road demands focusing on the overall structural framework all the way down to such microscopic domains as enterprises, regulations and rules, talents and culture, while emphasizing concepts like innovation, coordination, green development, opening-up, co-sharing, and sustainability, as well as striving for maximizing multi-party benefits. Although the high-quality development of the Belt and Road remains development-oriented, it attaches more importance to achieving normalization through development and vice versa.1 Pursuing a vision of development inclusive of forging a human community with a shared future, the high-quality development of the Belt and Road upholds the principles of mutual consultation, joint construction and co-sharing, insists on opening-up, green development and white- handedness, and aims at achieving high-standard sustainability for the benefit of all people. For this purpose, the development of the Belt and Road in the new phase should continue to enlarge its circle of friends, as well as institutionalize and substantiate the Belt and Road Forum for International Cooperation so as to provide the partner countries with more opportunities for communication and platforms for cooperation; promote intimate cooperation among countries at different levels of economic development and with different resource endowments; bring them into a global division of labor in accordance with their comparative advantages; and improve global industrial and supply chains, as well as jointly promote global economic growth. Efforts should also be made to promote environmental, financing, fiscal, project and infrastructural sustainability, while the sustainable development of the Belt and Road itself is an important prerequisite for its promotion of sustainable economic growth throughout the world. The primary mission for the high-quality development of the Belt and Road is still about resolving the inefficiencies related to infrastructure in the developing regions. As a result, the rules should be refined, effectiveness should be

1 Wang Yiwei,“Wei gaozhiliang gongjian‘yidaiyilu’zhiming lujing [A path is pointed out for jointly promoting high-quality development of the Belt and Road],” Beijing ribao [Beijing Daily], May 6, 2019.

CIR Vol. 29 No. 6 92 An Approach for Building a High-Quality Belt and Road stepped up, and a number of projects with good comprehensive benefits should be built to boost local socio-economic development and improve the livelihood of the local people. Jointly promoting the high-quality development of the Belt and Road is a natural extension of China’s economy also rising into a new phase of high-quality development,1 which will create a favorable external environment for the country to develop its own domestic economy. Presently, the Belt and Road has already transformed China’s western regions from“guard” to“forward”in opening-up to the outside world. In August 2019, China publicized the General Planning for the New Land-Sea Connectivity Routes in China’s West, making a comprehensive layout for the construction of the new land-sea connectivity routes in this region over the next five to fifteen years in order to deepen its land-sea two-way opening-up, and to promote the greater development of China’s western region. The new land-sea connectivity routes in China’s west will join with the Silk Road Economic Belt in the north and the 21st-century Maritime Silk Road in the south, while connecting with the Yangtze economic belt, which constitutes an important measure of connecting China’s interior with the Belt and Road, promoting the high-quality development of China’s west, and ushering in a new landscape of opening-up, hence enabling it to better use global markets and resources to boost its own high-quality economic development. At the same time, China’s eastern region can step up its transformation and upgrading, which will give birth to new drivers of growth, thus leading China’s regional economic structural adjustments in a more balanced direction. Favorable Conditions and Constraints

Jointly promoting the high-quality development of the Belt and Road in the new phase is firmly based not only on a solid foundation built through six years of practical cooperation, but also on the stewardship of

1“Xinqidian xinyuanjing xinzhengcheng—Wang Yi tan dierjie‘yidaiyilu’guoji hezuo gaofeng luntan chengguo [New starting point, new vision, and new journey: Wang Yi talks about the achievements of the second Belt and Road Forum for International Cooperation],” accessed September 1, 2019,https://www.fmprc.gov.cn/web/zyxw/t1659215.shtml.

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China’s initiative, the general recognition of the partner countries, as well as the support and agreement rendered by international institutions including the United Nations. However, strategic competition from major countries within and outside the region, as well difficulties encountered in actual project construction, have posed challenges and constraints that cannot be ignored. Specifically, favorable conditions for the high-quality development of the Belt and Road include the following. First of all, China’s economic strength and development experience can provide a firm foundation for the high-quality development of the Belt and Road to go deep and steady. In recent years, China’s consumption has grown strongly. According to data from the State Statistical Bureau, conservative estimates state that China will overtake the US as the No. 1 consumer market of the world by 2020. As high-quality development depends on high-level opening-up, China has continuously lowered its trade barriers, held import expos, and promoted trade facilitation. In addition, China announced at the Second Belt and Road Forum for International Cooperation a series of multi-dimensional measures to further open up to the world, including a“further increase of goods and service imports”,1 so as to better share China’s huge consumer market with the countries along the Belt and Road. Such measures have meant that the construction of the Belt and Road is not only confined to cooperation on the level of production, but also to resolve the issue of final products consumption as well. Moreover, China’s economy is transforming from high-speed development to high-quality development, with new-type industrialization, informationization, urbanization and agricultural modernization advancing rapidly, and new economic growth points mushrooming constantly, which will inject great vitality into the high-quality development of the Belt and Road. Secondly, in addition to continuously consolidating and extending the architecture of the existing cooperation, since 2017 China has begun to formulate rules and regulations, singly or jointly with the United Nations and other multilateral development institutions, to resolve the problems that

1“Working together to deliver a brighter future for the Belt and Road cooperation” —keynote speech delivered by President Xi Jinping at the opening ceremony of the Second Belt and Road Forum for International Cooperation.

CIR Vol. 29 No. 6 94 An Approach for Building a High-Quality Belt and Road have emerged in the earlier phase of the initiative, such as environmental conservation, financing and debt service, in a bid to provide support for regulating the high-quality development of the Belt and Road. For instance, China has singly or jointly worked out the Guiding Principles for Financing the Belt and Road and the Belt and Road Green Investment Principles, both of which address the issue of financing sustainability. In March of 2019, China along with eight international institutions, including the Asian Investment Bank, the Asian Development Bank and the World Bank, signed Memorandum of Understanding on Collaboration on Matters to Establish the Multilateral Cooperation Center for Development Finance. Moreover, China has established the Belt and Road International Alliance for Green Development with the United Nations Environment Programme, and issued the Guiding Opinions on Promoting the Construction of the Green Belt and Road as well as the Belt and Road Ecological and Environmental Protection Cooperation Plan to address the issue of green development; introduced the Belt and Road Debt Sustainability Analysis Framework to address any debt issues with the partner countries under the BRI; as well as others. Furthermore, the Advisory Committee on the Belt and Road Forum for International Cooperation set up in 2018 has contributed intellectual support for the high-quality development of the Belt and Road. Lastly, recognition, support and active participation rendered by the countries along the Belt and Road as well as international institutions are major guarantees for the high-quality development of the Belt and Road. The advancement of this initiative over the past six years has benefited the partner countries, thus constantly raising their recognition of and support for the Belt and Road. As a result, the number of countries and international organizations that have signed cooperation documents with China has increased from 74 in September of 2017 to 166 in August of 2019.1 As the concerned countries have reached a broad consensus over the concept of

1 By the end of August, 2019, 136 states and 30 international organizations had signed 195 documents with China relating the joint building of the Belt and Road. Source of the information: the list of countries that have signed cooperation agreements with China relating to the joint construction of the Belt and Road, accessed September 25, 2019, https://www.yidaiyilu.gov.cn/xwzx/roll/77298.htm.

CIR November/December 2019 95 Wang Kai and Ni Jianjun cooperation, the direction of development and institutional building for jointly promoting the high-quality development of the Belt and Road, they have taken active measure to synergize their development strategies with the BRI. For example, on September 11, 2019, China and Kazakhstan signed the Memorandum of Understanding on Implementing the Cooperation Plan for Synergizing the Silk Road Economic Belt Construction with the Bright Road New Economic Initiative.1 Additionally, Japan, India, and some European economies are becoming increasingly interested in participating in the BRI through third-party market cooperation.2 More importantly, the BRI and the principle of mutual consultation, joint construction and co-sharing were accepted by the UN in 2017, which have become a major cooperation platform and concept for the UN in order to achieve the goals of its 2030 Agenda for Sustainable Development, thus enabling the mutual-enhancing and integration of these goals and the high-quality development of the Belt and Road. This is conducive to mitigating the suspicion or anxiety of some countries regarding the BRI. The high-quality development of the Belt and Road is also facing challenges. On the one hand, the US, Europe and Japan have introduced their own competitive strategies one after the other to counter-balance China’s BRI, with a particular focus on high-quality standards. For instance, the US established the US Development Finance Corporation (USDFC) in 2018, intended to provide financing assistance to the high-quality infrastructure development of low- and middle-income countries as well market-transition economies in the Indo-Pacific region. In addition to its unilateral actions, the US has also worked with Japan, ASEAN, Singapore, India and Australia under bilateral or trilateral infrastructure cooperation arrangements, and has worked together with Japan to raise the standards for high-quality

1“Zhongha qianshu‘sichouzhilu jingjidai’jianshe yu‘guangmingzhilu’xinjingji zhengce duijie hezuo guihua [China and Kazakhstan signed the Cooperation Plan for Synergizing the Silk Road Economic Belt Construction with the Bright Road New Economic Initiative],”accessed September 25, 2019, http://xbkfs.ndrc.gov.cn/gzdt/201609/t20160905 _817636. 2 Wang Jingchao,“Zhongri disanfang shichang hezuo: riben de kaoliang yu zuli [The third-party market cooperation between China and Japan: Japan’s considerations and impediments],”Guoji wenti yanjiu [China International Studies], No. 3 (2019): 81-83.

CIR Vol. 29 No. 6 96 An Approach for Building a High-Quality Belt and Road infrastructure development investment, while making transparency, market- oriented financing, open infrastructure and debt sustainability as the basic principles. In June of 2019, with the joint promotion of the US and Japan, the Osaka G20 Summit passed the G20 Principles for High-quality Infrastructure Investment. The US is intending to dominate the rule-making for infrastructure investment in the Indo-Pacific in order to hedge against the head-start advantages attained by the BRI and increase the impediments to China’s promotion of the Belt and Road with other countries.1 At the same time, the EU and some European countries have taken protectionist policies toward the Belt and Road, and have tightened regulation and security reviews overseeing China’s infrastructure investment projects, hence obviously affecting the progress of China’s projects, including the Hungary-Serbia Railway, in Europe.2 While participating in the third-party market cooperation involving the Belt and Road, Japan has placed multiple restrictions on its enterprises from participating in the cooperation, and has designated projects relating to ports, railways and airports as restricted areas, in which the Japanese government proposed no cooperation with Chinese enterprises. Moreover, on the one hand, Japan jointly promotes the Asia-Africa Growth Corridor (AAGC) with India, and on the other hand boosts infrastructure project investment with the US and Australia in the Indo-Pacific. In addition, Japan signed an agreement with the EU in September of 2019 to strengthen cooperation in infrastructure construction, in hopes of advancing their own cooperation on road and port improvement in the Indo-Pacific, the Balkans and Africa,3 which is clearly intended to hedge against the influence of the Belt and Road. Infrastructure investment by the US, Europe and Japan is conducive to mitigating the shortage of funds in global

1 Liu Feitao,“Meiguo‘yintai’jichusheshi touzi jingzheng celue [The US competitive policy for infrastructure investment in the Indo-Pacific],”Guoji wenti yanjiu [China International Studies], No. 4 (2019): 2-18. 2 Liu Zuokui,“Ouzhou baohuzhuyi de xingqi jiqi dui‘yidaiyilu’jianshe de yingxiang [The rise of protectionism in Europe and its impacts on the Belt and Road construction],”Guoji wenti yanjiu [China International Studies], No. 6 (2019): 66-67. 3“Anbei yu oumeng qianshu xieyi, riou jiang jiaqiang jichusheshi jianshe hezuo [Abe signed an agreement with the EU, and Japan will strengthen cooperation with Europe in infrastructure construction],”accessed September 29, 2019, https://www .thepaper.cn/newsDetail_forward_4552965.

CIR November/December 2019 97 Wang Kai and Ni Jianjun infrastructure construction. However, if their intentions are mainly to restrain and guard against China, then their investment would give rise to cut-throat competition and the emergence of multiple belts and roads,1 hence giving rise to the“spaghetti bowl”effect in global infrastructure construction that the developing regions cannot bear. On the other hand, the construction of the actual project under the BRI is also confronted with difficulties. First, some countries have conflicting views or demands over the projects. Different countries have different considerations with regard to the types of infrastructure they urgently need, as well as the direction and layout of the projects. For instance, in the construction of the China-Mongolia-Russia Economic Corridor, Russia hopes to receive funds from China in order to address the issue of underdevelopment in its vast and sparsely-populated Far East region, where infrastructure insufficiency has made it difficult to attract funds. At the same time, although Mongolia is keen on becoming involved in the cooperation, it is worried that it might end up being just a passageway for the China-Russia cooperation. Meanwhile, Chinese scholars believe, as the Far East region of Russia and Mongolia are vast, sparsely populated and economically underdeveloped, it is not feasible in terms of economy to launch large-scale infrastructure projects there.2 Second, some regions are politically instable with intensifying geopolitical conflicts. For example, the instable security situation in the Middle East has exerted direct impacts on the construction of the China-Central Asia-West Asia Economic Corridor, as ongoing religious conflicts and ethnic disputes have increased the risks for project investment and raised construction costs, making it difficult to finance and develop. Third, a great disparity exists in construction standards, management and the ability to provide auxiliary items in various countries, hence rendering difficulties to synergy or compatibility, which is likely to

1 Zhang Yunling,“Ba‘zai disanfang hezuo’zuoshi [The third-party cooperation should be consolidated],”Shijie zhishi [World Affairs], No. 6 (2019): 72. 2 Luo Yuze,“‘yidaiyilu’jingji zoulang mianlin de xingshi yu wenti [The situation and problems facing the economic corridors under the BRI],”Zhongguo jingji shibao [China Economic Times], February 19, 2019.

CIR Vol. 29 No. 6 98 An Approach for Building a High-Quality Belt and Road lead to project interruptions or delays.1 Such a problem has also genuinely affected the infrastructure connectivity after the completion of some projects. In terms of construction standards, among the construction projects undertaken by Chinese enterprises in the countries along the Belt and Road, 35 percent follow Chinese standards, 24 percent accord with the standards of the host countries, and the rest abide by the standards of the US, Britain, France and Russia.2 The Approach for Achieving the High-Quality Development of the Belt and Road

Either from building a framework for regional economic cooperation to forging a human community with a shared future, or from the overall strategic layout to meticulous implementation, advancing the high-quality development of the Belt and Road will be more arduous and complicated, which calls for long-term systematic engineering. It is imperative for China to play a leading role and seek for the convergence of interests with the countries along the Belt and Road so as to fuse these countries, each endowed with their own different resources, closely together through building a regional value chain. In such a close-knit community, high-quality infrastructure serves as the backbone, while diversified financing functions as the artery. Meanwhile, institution building should also be emphasized, which will ensure the goals of a high-quality Belt and Road to be fulfilled at different levels. A. To advance high-quality infrastructure construction. High-quality infrastructure construction is a major prerequisite for the high-quality development of the Belt and Road, which is also an indispensable condition for the layout of other industries. First, high-quality does not necessarily mean taking the highest standard, but rather seeking a balance between raising the standards and controlling the costs, and between meeting the urgent needs and expanding the space

1 Ibid. 2 Qin Ying, Peng Fei, and Dong Jun,“Woguo gongcheng jianshe biaozhun zai ‘yidaiyilu’yanxian guojia de yingyong [The application of China’s construction standards in the countries along the Belt and Road],”Jianzhu jingji [Construction Economics], No. 4 (2019): 12.

CIR November/December 2019 99 Wang Kai and Ni Jianjun for long-term development, based on the national conditions as well as the domestic laws and policies of the developing countries along the Belt and Road. At the same time, considerations should be made with regard to such details as market capacity, operational capability and the ability of the host countries to provide auxiliary items, so as to avoid long-term idling or under-performance of the projects after their completion. Second, in terms of construction standards, a consensus should be reached among the countries along the Belt and Road or with other third parties, as compatible synergy of the standards is the key to elevating efficiency of infrastructure connectivity. Given the fact that international standards do not necessarily conform to the reality of the host country, as well as the difficulties for partner countries jointly promoting the Belt and Road with China to work out well-accepted standards, it is necessary to establish regional or sub-regional standards through consultation, such as the ASEAN standard and the Central Asia standard.1 In addition, China should earnestly promote its own standards, while trying to strengthen its synergy with international standards. China may set up some model projects with its own standards in the fields where it enjoys certain advantages, such as high-speed rails, nuclear and wind electricity, so as to correct misconceptions or biases on the part of China’s cooperation partners that“China’s standards are old-fashioned”while elevating the influence of China’s standards. Lastly, as the finance and construction party, Chinese enterprises should actively fulfill their corporate social responsibilities. In addition to communicating with the local governments, they should also be well aware of the appeals or demands of the local indigenous civil groups, community residents and other stakeholders; raise the level of project localization, if conditions permit; strengthen the training of local employees; and create more jobs. Moreover, efforts should be made to enhance transparency in project bidding, procurement, construction and operation, while reducing information asymmetry and boosting public trust. Such measures will not only increase the positive spillover effects of these projects on the local

1 Zhang Yunling,“Ba‘zai disanfang hezuo’zuoshi.”

CIR Vol. 29 No. 6 100 An Approach for Building a High-Quality Belt and Road communities and benefit the local people, but may also reduce the risks that Chinese enterprises may encounter in investment, construction and operation. Besides, China should also endeavor to lead the governments and populace of the partner countries to have reasonable and moderate expectations of the infrastructure invested and constructed by China while also reducing misunderstandings on their part due to insufficient communication. B. To promote the building of a diversified financing system. The primary goal of the high-quality development of the Belt and Road is to ensure the sustainability of its construction funds. Therefore, it is highly necessary to promote the diversity of participation subjects, financing modes and sources. First, getting more private enterprises involved in the construction of the Belt and Road. In the early stages of the BRI, Chinese government and state enterprises played a major role. However, in its new high-quality development phase, the construction of the Belt and Road should gradually transform into a market-oriented approach in order to help the partner countries achieve the goal of sustainable economic development. Therefore, Chinese government should get more private enterprises broadly involved in the BRI so as to diversify the construction projects. To achieve this purpose, the government is expected to do the following: actively promote the Public-Private-Partnership (PPP) to combine government funds with private funds; conduct location-advantage assessments of the partner countries, and provide“risk identification products”featuring public goods, and then lead private enterprises to the selected regions with long-term development and strategic values; and create platforms to attract private capital by continuing to invest in and build industrial parks to integrate fragmented capital into industrial clusters, as well as helping enterprises in these parks attain large-scale external economic benefits and raise their capacity for resisting risks. Second, promoting third-party market cooperation between Chinese enterprises and foreign companies. Participation from the developed countries in the construction of the Belt and Road is conducive to further diversifying the construction projects and the financing sources. In fact, many foreign

CIR November/December 2019 101 Wang Kai and Ni Jianjun companies, including General Electric, are actively participating in the BRI and are gaining considerable benefits from joining in the cooperation.1A major difficulty faced by China is to cooperate with the developed countries that are suspicious of Chinese intention or seek to prevent the BRI. Therefore, it is imperative for Chinese government to promote third-party market cooperation between Chinese enterprises and foreign companies, so as to gradually relieve negative suspicions from their governments by playing into the interests and appeals of their companies, while improving international public opinion towards the BRI. Lastly, forging diversified financing sources and channels to address the current practice of financing that mainly relies on loans, which come from multilateral development institutions led by China as well as its policy banks and state-owned commercial banks. Financing sources that are mainly funded by public sectors conforms to the notion of infrastructure as a public good. Given the fact that the Belt and Road demands a huge amount of financing, it is necessary to give full play to the market resources and engage in high-quality financing to diversify the financing sources and channels, making full use of sovereign funds, state-owned capital, private capital and foreign capital, as well as loans from international financial institutions, investment funds, sovereign bonds and special bonds. For this purpose, efforts have to be made to create more refined cooperation models and mechanisms and improve efficiency of the pilot work, while making strict, comprehensive and transparent assessments of the project risks and earnings involving the BRI,2 so that the participating parties can have stable expectations and strengthen their confidence in investing. C. To lead the construction of the Belt and Road as a regional value

1 Zhao Minghao,“Daguo jingzheng beijingxia meiguo dui‘yidaiyilu’de zhiheng taishi lunxi [An analysis of the counterbalance pursued by the US against the Belt and Road from the perspective of major power competition],”Shijie jingji yu zhengzhi [World Economics and Politics], No. 12 (2018): 31. 2 Shen Minghui,“‘yidaiyilu’, maoyi chengben yu xinxing guoji fazhan hezuo —goujian quyu jingji fazhan tiaojian de shijia [The Belt and Road, trade costs and the new-type international development cooperation—from a perspective of creating conditions for regional economic development],”Waijiao pinglun [Foreign Affairs Review], No. 2 (2019): 25-26.

CIR Vol. 29 No. 6 102 An Approach for Building a High-Quality Belt and Road chain. Building a regional value chain involves bringing states or areas with strong industry complementarities together and realizing the value of doing business and providing services by connecting Research and Development with such activities as production, sales and recycle processing through establishing regional transnational networks of enterprises. As major differences exist in resource endowment and level of industrialization, China presents more complementary than competition among industries or within a certain industry to the countries along the Belt and Road. As a result, there exists a prerequisite for building a regional value chain.1 Over the past six years, the economic regional public goods provided by China in the form of economic corridors and connectivity routes, infrastructure, trade and investment liberalization and facilitation, and financing mechanisms have contributed to the reduction of logistical and transaction costs, more effective resource allocation, and a deepening cooperation capacity, thus laying a solid foundation for forging a regional value chain along the Belt and Road. China’s mammoth economic size and weight, broad consumer market with great development potential, and technological and capital advantages gained by participating in the international division of labor over the past years will make it the regional center, which will play the role of an internal and external connection pivot in the Belt and Road regional value chain.2 Externally, China will continue to accept new technologies and products transferred from the developed regions; while internally, China will extend the value chain deep into the countries along the Belt and Road through engaging in direct investment and capacity cooperation, as well as manufacturing cooperation among different enterprises of various sizes and technical levels in accordance with their advantages in resource endowment so as to bring more countries into the global value chain. On the one hand, the building of this regional value chain is conducive to

1 Wei Long and Wang Lei,“Cong qianru quanqiu jiazhilian dao zhudao quyu jiazhilian —‘yidaiyilu’zhanlue de jingji kexingxing fenxi [From getting into the global value chain to leading the regional value chain—an economic feasibility analysis of the Belt and Road strategy],”Guoji maoyi wenti [Journal of International Trade], No. 5 (2016): 105-114. 2 Lyu Yue and Wei Yaning,“Pojie quanqiu jiazhilian xia‘diduan suoding’kunju [Breaking the dilemma of“elementary locking”under the global value chain],”Zhongguo shehui kexubao [China Social Science News], September 18, 2019.

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China’s structural upgrading of its industries as well as consolidating and elevating its position in the global value chain, and on the other hand, the countries along the Belt and Road will be able to become involved in the production chain to share in the growth and rewards brought about by industrial cooperation, accelerate their process of industrialization and urbanization, and improve the livelihood of their broad masses. During the phase of high-quality development of the Belt and Road, China should lead with the following. First, efforts should be made to continue to optimize and conform infrastructure and industrial parks, unify construction standards, and improve the transparency of procurement and clearance policies to make the BRI healthier and more coordinated, in order to promote the flow of goods, capital, technology and people more efficiently. Second, since huge market demands serve as an important basis for the establishment and operation of a regional value chain, China should continue to foster and expand its domestic market so as to provide its consumer market as a public good for the finished products produced by the partner countries, so that the production-consumption cycle begins and ends with the countries along the BRI, which will reduce their dependency on the terminal markets of the developed nations outside the region. The profits gained by these countries from the regional value chain will boost the purchasing power of their people, which will lead to a virtuous cycle between the governance of the regional value chain and the expansion of the regional market. Third, meticulous investigation and research should be carried out regarding the resource endowment of the various states, sub-regions or even cities relating to the BRI to implement rational layout, mobilize their enthusiasm toward cooperation, as well as to prevent and mitigate potential risks. Fourth, as the leader of the regional value chain, China should raise its capability of innovation. Independent innovation not only supports China’s ability to transfer technology to the countries along the BRI, but also continuously boots China toward the high-end of the global value chain. The higher the position China holds in the global value chain, the farther China can extend the regional value chain to the countries along the BRI, and the more these countries can benefit from

CIR Vol. 29 No. 6 104 An Approach for Building a High-Quality Belt and Road it. At the same time, China can also achieve high-quality economic development driven by innovation.1 D. To promote the formation of pragmatic and compatible institutions. Institutionalization is conducive not only for normalizing the conduct of various parties, but also for clarifying their rights and obligations, hence constituting an important guarantee for lowering institutional transaction costs, and promoting effective and sustainable cooperation among countries. Institutionalization should be the direction for the high-quality development of the Belt and Road, which will gradually transform from project-oriented to institution-oriented. Over the past six years since the BRI was proposed, many innovative cooperation mechanisms have taken shape, centering on connectivity, accounting standards, intellectual property rights, border custom systems, and tax administration. In the new phase, institutionalization should continue to adhere to the problem- and practice-oriented path, promoting its development by solving the problems it encounters in practice. In infrastructure building and capacity cooperation, efforts should be made to perfect the mechanisms for project review, selection and operation in accordance with the laws and regulations, and improve the financing mechanisms featuring risk and benefit sharing; and in trade and investment, efforts should also be made to conclude more multilateral and bilateral free- trade and investment agreements, and set up coordination mechanisms for facility connectivity, so as to provide institutional guarantees that facilitate trade and investment. Moreover, institution building to prevent security risks should also be strengthened, and monitoring and early warning mechanisms should be perfected, safeguarding not only against investment, construction and operation risks, but also political risks as well. Under the current circumstances, the Belt and Road should not seek an integrated and across-board institutionalization, but rather should abide by the principles of pragmatism, compatibility and diversity. First, some economic integration mechanisms on bilateral, sub-regional and multilateral levels already exist in the partner countries, which are also pursuing their

1 Fu Mengzi,“Yidaiyilu”jianshe de chixuxing [Sustainability of the Belt and Road construction] (Shishi chubanshe [Current Affairs Publishing House], 2019), 79.

CIR November/December 2019 105 Wang Kai and Ni Jianjun own varied development strategies. Furthermore, additional various regional cooperation visions proposed by the US, Europe and Japan in response to the BRI also exist in these countries. As a result, the institutionalization of the Belt and Road should be compatible to these various institutions or mechanisms, which reveals that the BRI is inevitably a progressive process. Second, these countries are at different economic development levels, with different abilities to participate in institution building, and with varied aspirations and appeals for the BRI. Therefore, the institutionalization of the Belt and Road should be diversified and flexible in the areas involved, the regions it covers, and the rules that bind it. Meanwhile, attention should be carefully paid to resolving the issue of interest distribution under institutional arrangements. Only by doing so, can the institutionalization be feasible and the system be effective.

(edited by Zhao Jinfu)

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