Belt and Road Initiative: Strategies to Deliver in the Next Phase
By Christine Lagarde, IMF Managing Director
IMF-PBC Conference — Beijing
April 12, 2018
Governor Yi, Excellencies, distinguished guests, ladies and gentlemen — good morning! Zao Shang Hao!
Thank you for the kind introduction.
One year ago, here in Beijing, I spoke about the promise of the Belt and Road Initiative.
It is quite appropriate that we are gathered again at the beginning of the spring season, just when flowers start to bloom, to see how the Belt and Road Initiative (BRI) is developing.
This is what I would like to discuss with you today: first, the early indications of progress under the Belt and Road Initiative — the blossoms — and then, equally important, how to make sure this endeavor can fully deliver in bearing fruit.
2. Belt and Road Potential
In 2013, when President Xi announced the Belt and Road Initiative, he described it as a platform for international cooperation. From promoting trade, to fostering financial inclusion, to facilitating people-to-people exchanges, this initiative seeks to bring the world closer together.
One of the examples of how the Belt and Road can connect communities is through infrastructure investment.
We know that good infrastructure can help achieve more inclusive growth, attract more foreign direct investment, and create more jobs.
A major project can transform the economic fortunes of a city or even an entire region.
The Thailand-China high-speed railway is one example of infrastructure’s transformative impact. When completed, the new line will be the first of its kind in Thailand and could enhance the economy’s integration into regional supply chains.
Another example is in Kazakhstan, where a recently constructed manufacturing development zone is already stimulating trade and linking previously isolated areas.
Given the more than 70 BRI particpating countries, it is difficult to estimate precisely the overall investment needs. But they will be in the hundreds of billions of dollars annually.
Clearly there is a pressing need for infrastructure and already there are signs of progress. In other words, blooms are starting to appear.
But there is a concern that some investments — if not properly tended — could wither on the vine.
So allow me to highlight two challenges facing the Belt and Road Initiative.
3. Addressing Challenges in the Next Phase of Belt and Road
The first challenge is ensuring that Belt and Road only travels where it is needed.
With any large-scale spending there is sometimes the temptation to take advantage of the project selection and bidding process.
Experiences from across the globe show that there is always a risk of potentially failed projects and the misuse of funds.
Even when the right project is picked, difficulties often arise duringimplementation.
If Chinese and other companies assist with construction overseas, they may face new political, legal, and environmental obstacles.
Preparing for these situations, selecting projects that fill true infrastructure gaps, and implementing them in the most efficient way should be top priorities moving forward.
This is related to the second challenge — focusing on sound fiscal policies.
The Belt and Road Initiative can provide much-needed infrastructure financing to partner countries.
However, these ventures can also lead to a problematic increase in debt, potentially limiting other spending as debt service rises, and creating balance of payment challenges.
In countries where public debt is already high, careful management of financing terms is critical. This will protect both China and partner governments from entering into agreements that will cause financial difficulties in the future.
Fortunately, we know that China’s leadership is aware of these potential risks — as well as the proven strategies that can help address the challenges.
A good starting point is ensuringtransparent decision-making. An overarching framework between the various agencies involved in the Belt and Road Initiative would help provide clarity to all stakeholders.
A “one-stop shop” for the BRI could provide such a framework. The recently established International Development Cooperation Agency, which will be in charge of China’s foreign aid as well as the BRI, could potentially play this role.
Digital tools can help as well.
In Kenya, for example, the government recently launched an e-procurement system that made the review process more efficient and accessible.
Innovations like these can also help foster an open process and level playing field for project selection, which is essential for strong private sector participation.
For projects that have already been approved, dispute resolution systems can prevent small problems from turning into major complications.
As projects are designed and implemented,meeting environmental standards can build trust within the community and allow investments to become sustainable building blocks for growth.
These policies can enable success under the Belt and Road Initiative.
The IMF remains well-positioned to provide guidance in these areas, particularly by helping countries improve their overall public financial management.
Through regular reviews of all IMF member economies – “surveillance” in IMF parlance – we offer policy advice to help countries maintain macroeconomic stability and debt sustainability, including for scenarios such as stepped-up investment.
Through our capacity development, we assist our members, including China, in modernizing economic institutions, building human capital, and maintaining sound macroeconomic policies.
While much of our focus is on the Belt and Road Initiative today, I am also pleased to announce the launch of the new China-IMF Capacity Development Center (CICDC). This center will soon begin offering a series of activities, including macro-financial training courses, to officials from many of our member countries, including China.
Let me conclude by looking to the promise of the season.
The steps taken today can help secure the expected gains from the Belt and Road Initiative and allow the buds we see to reach full bloom.
Working together, we can ensure there is a good harvest for many years to come.
Thank you, and I wish you a successful conference.