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One Belt will benefit US economy

By Chen Xu (China Daily USA)

Updated: 2015-09-26 13:13:48


The Belt and Road Initiative is intended to change the former global trade patterns for China, shifting away from the export of low-end manufacturing goods to Western economies toward the export of capital and goods westward and southward, focusing on high-end equipment and excess production capacity. This will enhance China's opening-up reform.

The Belt and Road Initiative (a combination of the Silk Road Economic Belt and Maritime Silk Road) covers Central Asia, South Asia, West Asia, and Southeast Asia, Central and Eastern Europe and other countries and regions, totaling more than 60 countries and 94 cities. The coverage area mainly consists of emerging economies and developing countries, with a total population of about 4.4 billion (63 percent of the world's population), a total economic output of $21 trillion (29 percent of the world's output).

The area is one of the fastest-growing regions in terms of trades and cross-border investments. North America and South America are the only regions not covered in the initiative.

As a result, the impact of the Belt and Road on the US economy will be indirect, consequential and long term. Since the initiative is global, open, inclusive and not subject to geographical limitations, it is impossible to exclude the United States and other American countries. These countries must be involved in the planning through various channels. The opportunities and challenges for the US economy can be summarized as follows:

1) The Belt and Road will help both China and the US promote economic restructuring and rebalance economic relations.

Since the financial crisis, China and the US have started the economic restructuring. China seeks to reduce the proportion of investments and exports in GDP and encourage consumption, while the US is seeking to reduce the proportion of consumption and to promote investments and exports. As a result, the two countries have begun external economic rebalancing, in which China reduced the trade surplus, promoted imports and ODI, and the US reduced trade deficit, promoted exports and attracted FDI.

Internal restructuring and external rebalancing between the two countries are consistent, which provides a solid foundation for long-term win-win cooperation. The Belt and Road Initiative is consistent with this rebalancing process.

The initiative helps China rebuild a global industrial chain, supply chain and value chain. In this process, China will move along the value chain, shifting away from the low value-added end, such as manufacturing, to the high value-added end, such as design, innovation and marketing.

The US has advantages in technology, capital goods, services and innovation. Therefore, the US can play a role in exporting high-end technology and products. In the next decade, the growth rate of Chinese high-end markets is estimated to be 20-40 percent, which means that there are great cooperative opportunities between China and the US.

The businesses in the US will expand into the inland markets in China, which are being developed by the Belt and Road Initiative. The US could take its ride on the initiative.

Second, the Belt and Road Initiative allows China to export excess capacity, manufacturing capacity and capital. Although the US is not in the coverage area, the US will benefit from the increasing outgoing investments from China.

Third, the Belt and Road Initiative covers ASEAN, South Asia, West Asia, North Africa and Europe, and many countries in these areas are important trading partners of the US. The growth of economic and trading activities in these countries will promote economic growth and exports in the US.

2) Benefits to major US industries

The Belt and Road strategic plan involves a number of immense projects in areas such as infrastructure, energy, information, etc, thus generating enormous market potential and much demand. The overall market size will increase, and industry growth will be more sustainable. Nonetheless, the success of the plan depends on the joint effort from upstream and downstream industry chains. The integrated development model characterized by restructuring and upgrading will become a new trend for China's construction- and equipment-manufacturing industries.

Projects such as energy exploration, railway and port construction, and IT network buildups will all generate immense opportunities for companies' cooperation, including many US companies as well.

3) Potential impact on Bank of China and its US operations

The Belt and Road represents an expedited foreign investment process for Chinese enterprises going abroad. In the next decade, trade between China and countries along the Belt and Road strategic route will exceed $2.5 trillion.

Bank of China will play our role as the main artery to service financial needs of the Belt and Road projects, and shall deeply align with the new development vision. We already have branches and subsidiaries in 18 countries along the Belt and Road routes. In the next three years, Bank of China will strive to finance $100 billion on the Belt and Road development projects; moreover, $20 billion will be financed in 2015.

The author is Chen Xu is president and CEO at Bank of China, USA.