The Financial Implications of China’s Belt and Road Initiative: A Route to More Sustainable Economic Growth

199 Pages·2019·2.526 MB·English

by  Piotr Łasak, René W.H. van der Linden

The Financial Implications of
China’s Belt and Road Initiative
A Route to More Sustainable
Economic Growth
Piotr Łasak
René W. H. van der Linden
The Financial Implications of China’s Belt
and Road Initiative
Piotr Łasak · René W. H. van der Linden
The Financial
Implications
of China’s Belt
and Road Initiative
A Route to More Sustainable Economic Growth
Piotr Łasak René W. H. van der Linden
Faculty of Management and Social Faculty of Business, Finance
Communication & Marketing
Jagiellonian University The Hague University of Applied
Kraków, Poland Sciences
The Hague, The Netherlands
ISBN 978-3-030-30117-0 ISBN 978-3-030-30118-7 (eBook)
https://doi.org/10.1007/978-3-030-30118-7
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P
reface
This pivot is the outcome of two papers presented at the annual
‘European Association of University Teachers in Banking & Finance
Conference,’ also known as Wolpertinger Conference, held in Santander,
Spain, in August 30–September 2, 2017. The co-authors met each other
for the first time in Santander, and one year later at the Wolpertinger
Conference 2018 held in Modena, Italy, they mutually agreed to write
a chapter on this topic in a Palgrave Macmillan Studies in Banking and
Financial Institutions. Because of their excellent mutual cooperation and
shared interest in this subject, they have decided to subsequently make a
more extensive version of this chapter, which eventually has resulted in
the publication of this pivot.
Kraków, Poland Piotr Łasak
The Hague, The Netherlands René W. H. van der Linden
July 2019
v
a
cknowledgements
Both co-authors are aware that in the eventual creation of this booklet, the
collaboration of many other people was necessary, to whom we are sin-
cerely grateful. With the risk of forgetting some of these people, we would
like to mention the following people in particular. First of all, this project
was made possible through constructive consultations with Tula Weis,
senior editor Finance and Scholarly & Professional Palgrave Macmillan.
From the early start during our stay in Modena, she saw a possibility to
have this current topic published, but also in the following period she has
always encouraged us from her office in New York to let this project go
ahead. At a later stage in the implementation of this project, we are also
grateful to Ashwini Elango, project coordinator Palgrave Macmillan as
part of Springer Nature, for her cooperative collaboration from her office
in India to meet the deadlines taking into account possible unexpected
circumstances that may delay this project. In addition, we also thank the
organizers of the many Wolpertinger conferences that René has attended
since 1995 and Piotr since 2017. Several publications about China’s finan-
cial-economic reforms that René has been able to present at Wolpertinger
and publish in Palgrave have become an important input for this book-
let. This applies in particular to the publication of Chapter 12 in the book
Frontier Topics in Banking, published in May 2019, for which we also
thank the co-editors Elisabetta Gualandri, Valeria Venturelli, and Alex Sclip.
Finally, we are also grateful to our employers for recognizing the signifi-
cance of our research on this theme with the spin-off to education and the
financial support and time allocated to visit the Wolpertinger conferences.
vii
c
ontents
1 Introduction 1
References 10
2 China’s Four Decades of Reforms and Development 11
2.1 The Main Socio-economic Transformations
from a Planned to Socialist Market Economy 12
2.2 The Ongoing Process of Gradual Financial-Economic
Reforms 20
2.3 The Incomplete Transition to a Market Economy 27
2.4 The Major Problem Areas of the Controlled Market
Economy 40
2.5 The Inevitable Economic Slowdown as Momentum
for New Initiatives 46
References 52
3 China’s New Style of Globalization as a Route
to a More Sustainable Growth Path 57
3.1 China’s Role in the Global Trading System 58
3.2 China’s Development of Inward and Outward Investments 65
3.3 China’s Challenge of the Impossible Trinity 78
3.4 China’s Next ‘New Normal’ Growth Model 81
References 83
ix
x CONTENTS
4 The Rationale for the ‘Belt and Road’ Initiative 87
4.1 The Aims and Logic Behind China’s Alternative
‘Marshall Plan’ 88
4.2 The Financial Means and Options for the ‘Belt
and Road’ Project 95
4.3 ‘Belt and Road’ Infrastructure Projects as Tools
in a New Development Stage 99
4.4 The Drawbacks of the ‘Belt and Road’ Initiative
and Its Impact on Recipient Countries 103
4.5 Conditioning of ‘Win-Win’ Cooperation Under the ‘Belt
and Road’ Initiative 109
References 120
5 China’s Financial Deepening and Its ‘Belt and Road’
Funding Dilemma in a Global Context 125
5.1 The Impact of the Chinese Financial Market’s
Liberalization on the Policy Trilemma 126
5.2 China’s Shadow Banking and the ‘Belt and Road’
Initiative 131
5.3 The Financial Pitfalls of the ‘Belt and Road’ Initiative 136
5.4 Possible Policy Options to Cope with China’s Policy
Trilemma in a ‘New Normal’ Economy 142
5.5 China’s Revised Regulatory Framework
of the Financial Sector 150
References 159
6 Concluding Remarks and Recommendations 163
Bibliography 171
Index 185
a a
bout the uthors
Piotr Łasak, Ph.D. graduated from the University of Economics in
Krakow (M.A. in Economics, 2003) and the Jagiellonian University
(Ph.D. in Finances, 2008). He is currently a professor in the Institute of
Economics, Finance and Management at the Jagiellonian University. His
research interests focus on topics related to international financial mar-
kets development. Among the most important topics are financial mar-
kets regulation and supervision, mechanisms of financial and currency
crises, and shadow banking systems development (especially in China).
He is an author of several dozen articles related to these abovementioned
topics.
René W. H. van der Linden, M.Sc. graduated from the economic fac-
ulty at the University of Amsterdam (in 1987) and is currently a senior
lecturer economics and finance in the International Business program
at The Hague University of Applied Sciences in the Netherlands. His
research interests with a practical application on education focus on top-
ics in the field of international financial markets, transition economies
and emerging markets, banking and finance, international trade eco-
nomics, and doing business in Asia and the EU. He has published several
papers on the Chinese economy and financial system and is co-author of
the textbook European Business Environment.
xi
l f
ist of igures
Fig. 1.1 China’s slowing economy—real GDP growth at market
prices in percentages (forecast for the period 2019–2021)
(Source Adapted from IMF and World Bank) 3
Fig. 1.2 The six economic corridors of the Belt and Road Initiative
(Source http://china-trade-research.hktdc.com) 6
Fig. 2.1 Non-performing loans in China in the period of 2005–2018
(RMB bn) (Source Own elaboration based on CEIC database
[accessed: 10.03.2019]) 25
Fig. 2.2 China average yearly wages 2009–2019 (RMB) (Source Own
elaboration based on Tradingeconomics.com [accessed:
26.05.2019]) 32
Fig. 2.3 China’s emerging middle class (EMC) in 2012 and 2020
(Source China Daily Asia, July 21, 2019) 36
Fig. 2.4 China’s national savings rate in percent of GDP in comparison
with other major Western and Asian countries (Source Own
elaboration based on Taylor [2019]) 38
Fig. 2.5 Debt-to-GDP in China in the period of 2006–2017
(Source ChinaPower.csis.org [accessed: 27.02.2019]) 44
Fig. 2.6 Estimated operational stock of industrial robots at year-end
in China (thousand of units) (Source Adapted from IFR
International Federation of Robotics 2017) 50
Fig. 3.1 Percentage of Chinese export and import of total world export
and import (Source Own calculations based on UNCTAD
statistics [accessed: 25.05.2019]) 60
xiii