[Highlights of JD Capital · Future Forum] The Belt and Road Initiative & Globalization


This is a speech transcript delivered at JD Capital · Future Forum on May 25, 2017 by He Yafei, China’s former deputy foreign minister with post revisions.Cdi九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Today, I’m going to talk about “the Belt and the Road” initiative and globalization. B&R is closely related with the Future Forum we are having here today. At this Forum, we exchange our views on what the world will be like in the future. And to know about the B&R, we need to first know well about the world today. Cdi九鼎投资(600053.SH)_上交所私募股权投资领域上市公司


Challenges to GlobalizationCdi九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

I’d like to talk about the challenges to globalization from two aspects: globalization and Sino-US relations. The relation between China and the US is the relation between the world’s two most important countries. The US has witnessed unprecedented changes to its social and political ecology. Where do these changes come from? In my point of view, mainly two aspects. Cdi九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

First, globalization. The new round of globalization started in 1950s, with the US as the main booster and also the main gainer. Since the whole system is designed by the US, as Americans see it, globalization is actually Americanization. As globalization evolves to where it is today, the participation of many emerging economies, especially such a large one as China, is changing its direction to some extent. Nevertheless, globalization in itself implies free flow of resources around the globe. The transfer of production chain and value chain will certainly result in the transfer of some industries, particularly mid and low-end manufacturing, to countries with low costs. This is a problem faced by the US and European countries. Cdi九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Though the problem should be solved, the trend of globalization must not be reversed. Recently, President Donald Trump signed an executive order, calling for the rejuvenation of the US’s manufacturing industry. With several miners standing by his side, he vowed to help them regain their jobs. But it can hardly come true, as it is against the trend of globalization. There is no denying that the problem of social inequality does surface during this process. However, efficiency and equality are contradictory. While the market mechanism enhances efficiency, the governments should take measures to ensure equality. Yet the White House does it less satisfactorily.  Cdi九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

The Europe has made some efforts to tackle inequality. However, due to multiple reasons, the governments cannot afford to carry on. In the US where a great wealth is concentrated in the hands of a few, there arises a huge gap between the rich and the poor, and some social contradictions especially between capital and labor. Those holding capitals always gain more than workers selling their labor. Things are a little different for those with technical backgrounds. But still, if you only know about how to make steel and iron, it still is a tough problem. The governments should be responsible for social wealth reallocation so as to ensure that the people have access to basic daily necessities. In fact, China has been doing this all along. We’ve made remarkable achievements in lifting people out of poverty and balancing the development conditions of different regions. As the problems of efficiency, social justice and equality have not been solved well, the symptoms of anti-globalization surface. Whether the governments manage to strike a balance between efficiency and equality not only influences economy, but also changes the political ecology of western developed countries, or even jeopardizing their political systems and mechanisms. It is not exaggerated to say that the western world is undergoing a mechanic crisis. Cdi九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Recently, Foreign Affairs published a series of articles on the US-led global governance order. All along, the country has been working to promote the global liberal order, or a western-style system of liberal democracy. Now, the order is under double-pronged attack. In one aspect, such emerging powers as China start to have their own ideas about the international system and thus is described as “revisionist” of the existing international order in the eye of some western scholars. In the other, risks come from inside, especially national leaders such as Donald Trump. Trump’s remarks, including his twitter written in late hours, go somewhat against the basic philosophies championed by the US. Therefore, the Americans worry that the system of liberal democracy they created might collapse and resign to a Chinese one.Cdi九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Such Black Swan events as the election of Trump not only happen in the US, but also in Europe. Days before, we were all concerned about the general election in France. Fortunately Emmanuel Macron outperformed the other candidates, which was a good news to both France and the EU. Provided that Marine Le Pen got elected, France might leave the EU as this was the very first political statement she made. If France were to exit EU, the process of globalization would be halted at least in a short period. The political ecology in the western world might change and the international situation would naturally be impacted. Cdi九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

The guiding ideologies of global economic management and governance provided by western countries are now in question. We have many economic experts here today. We know about Keynesianism. And we also know that ever since the era of Reagan and Thatcher, western countries have been following the governance model of “large market and small government”, leaving the market forces to take care of almost everything, or even neo-liberalism, with all things freely determined by the market. Washington Consensus, firstly proposed for Latin countries, advocates complete privatization and free flow of capitals. Under the guidance of “less-intervention”, the world economy, after years of development, is now faced with loads of problems. Two of them are the most serious. Firstly, capital is moving away from real economy to virtual economy, hence the imbalance aroused. I’m not saying that virtual economy is evil. Instead, it is necessary, but it has to be of help to the real economy. The imbalance once went too serious in the US, and caused the financial crisis in 2008. Secondly, in times of economic hardships, developing countries cannot simply adopt the westerners’ solutions. For once they do, the currency would depreciate and the capital market would be opened, along with complete resource privatization. This would not only result in economic crash, but dramatic fluctuation of asset prices and vanish of social wealth, as is with the case of Asian financial crisis.Cdi九鼎投资(600053.SH)_上交所私募股权投资领域上市公司


China’s Role in Global GovernanceCdi九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Facing the new international situation, developing and developed countries both are wondering what the problem is. Does the guiding ideology still work? The answer really matters. Let’s first take a look at the other issue: the shift of global economic power. Many emerging economies have risen to power. In this course, China took a different development path from the ones of economic neo-liberalism. As I see it, the development of China in the last ten years is especially worth studying. Cdi九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Speaking of the dramatic changes of China’s relationship with the world, President Xi Jinping once made three impressive remarks. The first is that “China is already standing at the center of the world stage”; the second is that “China is standing at a new historical starting point”; the third is about the Chinese Dream – “The Chinese nation has never been so close to the realization of the great rejuvenation as it is now.” The three lines fully manifest that China’s standing in the world has changed, and even more so in terms of its relationship with the world. Cdi九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Let me raise a few examples. As China performed excellently in the Beijing Olympic Games and global financial crisis, the year 2008 marked a turning point in global governance.Cdi九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

In the past, no matter whether the problem was about foreign exchange, global funds, or economic fluctuation, it was the seven western countries headed by the US that discussed relevant issues and offered solutions, leaving no rooms for developing countries to participate. Until the outbreak of the global financial crisis in 2008, those countries, the US included, started to question the G7 system, and demanded for a new “steering committee” for global governance, especially economic governance. Here comes G20. G20 is the first annual forum of finance ministers and central bankers established after the crisis in 1999. Cdi九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Why choose G20 as the steering committee of global economy? This is because the members of G20 contain both developed and developing economies, each accounting for half of the number. This reflects the shift of world power. I still remember when the first G20 Summit was held in Washington on November 15. Seeing the table card of India placed on the roundtable in the conference hall, Singh, then the Indian Prime Minister, said movingly that “India finally has a place on the main table!” All of us were so touched. It meant so much to be on the main table, truly a noteworthy change. Cdi九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

The next year financial crisis was not mitigated. The market was still in rattle, and some countries, such as Greece, were even confronted with sovereign insolvency. As a result, G20 Summits were held frequently. If a country has its own central bank, the fiscal problem can easily be solved by issuing banknotes; however, if the country cannot make remedies by itself and calls for international assistance, the International Monetary Fund (IMF) will be the final lender. This is the way the international financial system works. Cdi九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

The G20 London Summit was hosted by the UK in 2009. The main aim of the Summit was to raise a fund of 500 billion dollars, and thus enable IMF to rescue more countries. In English, there is a phrase “have a deep pocket”, meaning having lots of money; it was widely regarded that China was the one having a deep pocket and everyone hoped that China would take the lead in the funding. China knew well that, as a participator of globalization, a partner of other economies, and a component of the global financial system, it would be the one suffering the most should the financial system and trading system collapse. In the final say, to save others was to save itself, this is another manifestation of globalization. Based on this, China decided on a contribution of no more than 10% of the total figure. Cdi九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

That was good news. The stock market bounced back and the market regained confidence. In the end, a total of 1.1 trillion dollars was raised. Actually, the money was merely a commitment. The market was operated based on expectations. Real money does not have to be in place, but the market need to be assured that the IMF was capable of rescuing whenever necessary. In this case, when countries like Greece issued new bonds, the interest rate would go down; hence it had capability of issuing more, and then they would have stronger confidence in the market. I believe that China took the lead in 2009. Nowadays, we often talked about the leadership of China. As I see it, since 2008 and 2009, China has been taking a leading role. Cdi九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Then another summit was held in Pittsburgh in 2009. On the Summit, China proposed a reform program and suggested an adjustment of vote shares of IMF and the World Bank. At that time, China held a share of around 3.9%, whereas the US, the rule setter, took the biggest share of over 17%. In terms of the two international organizations, when decisions were made, the “one member one vote” principle did not apply; instead, it was decided by weighted voting and there should be of no less than 85% for a vital decision to be made. That is to say, the US had absolute vote power. What I’m trying to say here is that, China’s importance in global governance was shown when sudden events took place; of course, it had accumulated enough strength before that. After the G20 Summit was held in Hangzhou last year, the new session was convened in Davos this January, on which President Xi called for the building of a community of shared future for mankind. We can see that, China is proactively contributing its ideas to global governance. Cdi九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

From the above we can see the changes of international situation, the obstacles frustrating western countries and the growing influence of China, which form a stark contrast. It is under this background that the Belt and the Road initiative was proposed. The B&R initiative is a national development strategy in the first place. Together with the construction of Yangtze River Economic Belt, the establishment of Shanghai and Tianjin Free Trade Zones, and the promotion of coordinated development of Beijing, Tianjin and Hebei, and revitalization of the heavy industrial bases in northeastern China, it constitutes a part of China’s new development strategy featuring innovation, industrial revolution and supply-side reform. The B&R initiative, with the new international cooperation model championing mutual growth, brings new vitality into global governance. Cdi九鼎投资(600053.SH)_上交所私募股权投资领域上市公司


B&R Advocates New Model of Global DevelopmentCdi九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Let’s look at the “Five Connections of the Silk Road”: policy coordination, facilities connectivity, unimpeded trade, financial integration and people-to-people bonds. Among the five aspects, policy coordination is of great importance. President Xi noted on the Belt and Road Forum for International Cooperation Press Conference that on the BRF, through policy coordination, as many as 68 countries and international organizations have entered into co-construction agreements with China. The core of policy coordination is to find common interests in different countries’ development strategies, which has never been done in the western world. Those capital-exporting countries do not care about other countries’ development strategies, sustainable growth and deep concerns. They lend, and they rule. However, China is trying to work for common interests. To make investments, our entrepreneurs need to study the development strategies of the investment country, and to identify commonalities with the strategies of China. Only in this way can the investment generate satisfactory returns. Cdi九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

People-to-people bond is also of great value. I think President Xi was not only talking about folk communications, but also the integration of social culture, civilization and religion. For instance, to open China’s financial market to the outside world, we have to consider Southeast Asia’s financial system dominated by dollar, as well as the Islamic financing system. How to connect China’s financial system with the Islamic? I’m not a person of finance, but I see the importance of this question. Of course, social benefits and people’s livelihood are also important. Why do enterprises suspend some large projects? Though there is something to do with geopolitics, to a large extent, this is because these enterprises had not taken into consideration the factor of people-to-people exchanges. So, I believe that, in advancing the B&R initiative, opening China’s economy to the outside world through the initiative, expanding economic exchanges, and establishing international partnerships, sufficient analysis is a must. We must take into full consideration the geopolitics, economic cooperation, and development conditions, people’s livelihood, religions, and environments of target countries. Cdi九鼎投资(600053.SH)_上交所私募股权投资领域上市公司


Sino-US Relations after Trump Came to PowerCdi九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

After Trump took office, the development trend of Sino-US relations has become a concern for all. Cdi九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Over the past four months, the two countries have been communicating smoothly. In the meeting of the two presidents, they exchanged views for over seven hours and talked over phone for several times. Based on these communications, four dialogue mechanisms were established, including one for comprehensive economic dialogue. Besides, after the 100-day trading negotiation, the two sides compromised to each other and reached consensus on ten cooperation areas including finance, agriculture and energy resources. The potential for economic conflicts and trade wars vanished thanks to the consensus. So, reaching basic consensus is the most critical issue. As President Xi put it, cooperation is the only choice for China and the US. For more than a decade, disputes have happened now and then; the Sino-US relations also get tense sometimes. At the core of this mutual relationship, it is essential that we reach a balance. Over the past two to three decades, the US has been following a basic diplomatic ideology of neo-conservatism, or aggressive neo-conservatism, believing that the emerging economies could never rise to power peacefully, and that they would seek for regional hegemony once strong enough. This potential scenario comes into conflict with the US’s supremacy. However, this kind of idea about China, in fact, is wrong.Cdi九鼎投资(600053.SH)_上交所私募股权投资领域上市公司


China’s New Outlook on Today’s WorldCdi九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

At last, let’s take a look at China’s new outlook on the world today from President Xi’s new ideologies of global governance. After the 18th CPC National Congress, in 2013, President Xi proposed the B&R initiative as a long-term, comprehensive and cross-cutting project. As a strong supporter of multilateral system with the UN at the core, China attends the General Assembly of the UN, and assists it in peace-keeping operations, poverty alleviation and gender equality. Besides, President Xi put forward the establishment of a global partnership network “of dialogue with no confrontation and of friendship rather than alliance,” in replace of the one supported by the US’s military alliance. It features mutual benefit, peace and cooperation. So, as for now, how many countries and international organizations have joined this network? Over 90, according to last year’s statistics. Then, in 2016, China hosted the G20 Hangzhou Summit; and in 2017, President Xi called for the building of a community of shared future for mankind. All of these endeavors shed light on China’s new outlook on the world, that is, the ideas about global governance. There is no denying that the ideas practiced by China are yet to be accepted by the international community. In the process, lots of works need to be done. Nevertheless, it is through this process that China can grow from a large country into a strong country, and develop both its economic and cultural strength. Cdi九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Thank you!Cdi九鼎投资(600053.SH)_上交所私募股权投资领域上市公司