The Strategic Vision of the "Belt and Road" and a New Development of China's Economic Diplomacy

By Dr. Song Guoyou Professor of American Studies， Shanghai Fudan University

The Strategic Vision of the "Belt and Road" and a New Development of China's Economic Diplomacy

By Dr. Song Guoyou Professor of American Studies， Shanghai Fudan University

The "Belt and Road" strategy is the most ambitious comprehensive regional economic cooperation strategy put forward up to date by the Chinese Government. In the process of planning， promoting and implementing this conception， the concept， practice and strategy of China's economic diplomacy witnesses a new development. This article makes some observations on the "Belt and Road" conception mainly from the perspective of economic diplomacy， with focus on the new thinking， new mechanisms， new models and new policies of China's economic diplomacy in the process of pushing forward the "Belt and Road" concept，and tries to understand its important challenges. These challenges contain new requirements on China's economic and diplomatic ability， and need to be carefully addressed in the process of promoting the "Belt and Road" strategic concept.

The "Belt and Road " strategic vision is China's most important regional cooperation initiative， and also the economic and diplomatic strategy with the biggest integrated investment of various resources. This idea is a priority in China's diplomacy， has a great strategic significance for promoting China's diplomacy，is also systems engineering to test whether China could comprehensively use both domestic and international resources and attain both the domestic and international objectives in the new period， and has a very important diplomatic impact. In the process of planning，promoting and implementing this conception，China's diplomacy particularly the concept，practice and strategy of China's economic diplomacy witnesses a new development. In combination with the "Belt and Road" initiative and economic diplomacy， this article focuses on the new thinking， new mechanisms， new models and new policies of China's economic diplomacy demonstrated in the process of pushing forward the "Belt and Road" conception， and tries to understand its outstanding challenges.

I. New Thinking： Economic-Diplomatic Mutual Inclusiveness

Economic diplomacy is the combination of economy and diplomacy， which is the most common definition of economic diplomacy. The key to this definition is how to understand the relationship between economy and diplomacy. There are two traditional views on this. The first is the economic activity to achieve the diplomatic goal conducted by state，with economy serving diplomatic purposes. Economy is a means while diplomacy is the purpose. The second is the diplomatic activities to achieve economic goals by state， with diplomacy serving economy.1Diplomacy is the means while the economy is the goal. A dispute between means and goals reflects the essence of whichever is more important，economic goal or diplomatic goal. This is not only a concept difference， but also policy difference.

The "Belt and Road" cooperation initiative contains both diplomatic goal and economic goal. From the perspective of political objective，One is to build China stable relations with neighboring countries. In accordance with the existential planning， except for the NortheastAsian countries， the "Belt and Road " basically cover all China's neighbors on land and sea. The academic consensus is that economic cooperation， even in short term， can help promote regional peace and restrict conflict between China and its surrounding areas.2Two is to promote cooperation with the United States in Asia-Pacific. The United States proposed in 2010 the Asia-Pacific rebalancing strategy， with TPP as the main economic grab.3Under the circumstances that "regional comprehensive economic partnership" （RCEP）has not made significant progress and China is excluded from the TPP， China has launched the "Belt and Road" initiative in order to search for a bigger space for Sino-U.S. cooperation in Asia-Pacific. Three is from the geopolitical perspective， to promote the gradual integration of the Eurasian Continental systems. East Asia and North America are located at both ends of the Eurasian continents， and have a very important strategic position in the global economy and world politics. However， the link between Europe and East Asia is not close. The construction of the "Belt and Road" is conducive to a more organic connection and getting through between East Asia and Europe，and to further enhance the Eurasian geopolitical status.4Four is to promote political relations with emerging economies in the peripheral areas. In China's peripheral areas， the "Belt and Road" involves global and regional emerging economies such as Russia， Indonesia，India， and Kazakhstan， can generally help upgrade bilateral relations between China and these emerging economies， and inject vitality into the various strategic partnerships with them. Five is the construction of the "Belt and Road" can better maintain and take into overall consideration China's land and sea sovereignty，ensure their parallel development and bring to full play geo-advantages of China， a country with both land and sea.

Along with the Chinese economy into the New Normal， the construction of the "Belt and Road" also has rich economic goals. One is out-bound transfer of the advantageous overcapacity to help other countries' economic development. Cement， steel products，traditional textile manufacturing industries are both China's advantageous industries and also the industrial development close to the upper limit. Especially with constraints of energy-saving and emissions reduction， these industries need to re-layout. Because of different development phases， majority countries along the "Belt and Road" need more these capacities than China. Two is the Eastern-Middle-Western regions coordinated development， creating a new open pattern. China's reform and opening up， from geographical sense， proceed from "East to Middle to West" gradient. If this pattern is still maintained， regional differences will continue to exist. Construction of the "Belt and Road" can help break the regional differences， and the Mid-Western regions to become open frontier on the new open path. Even in line with the original development gradient， the "Belt and Road" can promote economic factors better optimize their concentration in the Eastern，Middle and Western regions. Three is a free trade zone strategic push accelerates the process of regional economic integration. Accelerating conclusion of free trade agreements by major economies are becoming a new trend in the global economic development. In overall view， China's free trade agreements unmatched with its own economic strength and China's foreign trade openness， but are also relatively lagged behind compared with other major economies.5Construction of the "Belt and Road" is not only conducive to accelerating the existing FTA negotiations， but also to help brew， hatch， and spawn new bilateral or multilateral FTAs. Regional economic integration will be deepened correspondingly as China andcountries along the "Belt and Road" conclude more FTAs.6Four is to help China make better use of foreign resources and energy. China's economic development needs to consume more resources and energy. Along with progressing interconnection， one of the core contents of the “Belt and Road"， China's needed energy and resources will be more easily transported home.

These political and economic goals are largely strategic and overall， with strong policies and practical significance. Viewing from policy practice and expected goals， the "Belt and Road" has distinct economic and diplomatic properties， however， under the framework of which the economic diplomacy has the integration between economic goals with diplomatic goals， rather than the contradiction， not to mention conflict between the two. In other words， the "Belt and Road" is not the economic diplomacy to achieve either economic goals or political goals， but transcends a narrow view that economy services diplomacy or diplomacy serves economy， and tries to achieve both economic and diplomatic goals， and helps achieve national overall objectives， including economic，political and security objectives. Under the circumstances of goals inclusiveness， there is no need to deliberately highlight the confrontation between the two. Since economic and trade cooperation depends on improvement of diplomatic relations between two countries，so the improved diplomatic relations can help promote economic and trade cooperation. Fundamentally speaking， the economic and diplomatic new thinking shown by the "Belt and Road" reflects two important trends in China's diplomacy in the new era. First，multiple interests coexist in evolution of the strategic tasks， From the founding of new China up to the reform and opening up， to safeguard the national security or sovereign interests is the national priority strategic task， so the economy mainly serves diplomacy. After the reform and opening up， economic development has become the primary goal of the national strategy， so diplomacy serves economy. Today， the national primary strategic goals are to achieve greater rejuvenation of the Chinese nation， the inclusiveness between economic interests and diplomatic interests and the corresponding complexity have obviously changed compared with that in the past. Hence，it is difficult to define and distinguish between the two. Second， the active expansion of strength in the background of national development. In the past， China's economic diplomacy reflected the strength of China and the real relationship between China and the world economic system. Supported by the strength of China's peaceful rise， the "Belt and Road" initiative integrates the economic goals with diplomatic goals， and will vigorously shape economic goals and diplomatic goals.

II.A New Mechanism： Mechanism Innovation Coordinated By Central and Local Government

The construction of the "Belt and Road" naturally involves two major categories of governmental departments： One category is the economic competent authorities including the Development and Reform Commission，Ministry of Commerce， Ministry of Finance and the Central Bank. The other is the competent authority for foreign affairs， which is represented by the Ministry of Foreign Affairs.7

The "Belt and Road" mechanism innovation is not only reflected at the ministry level， but also in the central-local relations. From the perspective of the central-local interaction， the "Belt and Road" initiative produces some new breakthroughs regarding a few important issues involving the central-local relationship.

First， the "Belt and Road" is the mostsuccessful foreign economic cooperation for the Central Government to attract local participation. The "Belt and Road" is a strategic initiative proposed by the Central Government， which is inseparable from the local government support. Compared with other economic diplomatic initiative， this initiative shows three distinct characteristics. Firstly， the scale of local participation. More than 20 provinces are directly related to the "Belt and Road" building， which is unprecedented. Secondly， the scope of local participation. Such initiatives in the past are typically local and regional， involving a few provinces in a region. But this initiative achieves two full coverage： geographically full coverage of China's South， East， North and West； and economically the full coverage of its developed regions and underdeveloped regions. Thirdly， enthusiasm of local participation. Since this initiative is proposed， various local governments have given it high attention， and actively carry out docking with it in combination with their respective economic and regional characteristics.8

Second， the systematic integration and docking between the central foreign economic initiative and the local and regional economic development planning. From the perspective of state， the "Belt and Road" is an economic cooperation initiative between China and countries along the two routes. But from the domestic perspective， this initiative in fact connects the different economic geographic areas， fully echoes the internal needs of foreign economic cooperation initiative， and enhance the provinces opening up to inside and outside. Among China's economic geographical regions，be it China's Northeast， North， East， South，Southwest or Northwest， have their own position in the "Belt and Road" planning，9according to the regional economic development characteristics and existing regional cooperation characteristics design. China's Northeast region is Russia- and Mongolia-oriented， Northwest is Central Asia-oriented， Southwest and South are ASEAN-oriented while North and East also go out of the country through planning of transportation and industrial parks. Therefore，in addition to opening to the outside world still wider， the "Belt and Road" also promotes the economic integration within different geographical regions and between different regions， and helps overcome the over-outbound contacts and inadequate domestic contacts of some provinces. Besides， actually the "Belt and Road" planning and the important regional economic development planning are also complementary to each other. For example， the "Belt and Road" and the Yangtze River Economic Belt Planning and coordinated development planning of Beijing， Tianjin and Hebei have a high degree of convergence.

Third， an important try for the Central Government to achieve macro diplomatic interests and local government to better play a diplomatic functional role. There is no such initiative like the "Belt and Road" carrying the country's major diplomatic interests.10The "Belt and Road" initiative cuts across four continents， involving important aspects of the relationship between big powers， peripheral diplomacy and developing countries.11Planning this magnificent economic cooperation initiative requires the Central Government to bring to full play the macro-strategic advantages， and fully estimate the international and regional economic situation， geopolitical situation， internal situation of countries concerned and the development trend of China and other major issues. The local participation enthusiasm is more from the perspective of local economic development and opening up wider to the outside world. Therefore， the Central Government should encourage the local government to acquire a certain diplomaticawareness and assume a certain diplomatic （Foreign Affairs） responsibility while achieving the local economic growth. Especially for some important border provinces， dual realization of diplomatic interests and economic growth is an important part in implementing this initiative.

III. The New Model： the Government and the Market Jointly Progress With Division of Labor

The "Belt and Road" economic cooperation initiative is proposed by President Xi Jinping during his visit to Kazakhstan in September and Indonesia in October 2013. The communiqué of the Third Plenary Session of the 18thCPCCC in 2013 proposes to accelerate the improvement of modern market system and open economic system. The key to accelerate the shift of economic development mode is to make market play a decisive role in the allocation of resources， the core issue is to handle well the relationship between government and market. In the process of promoting the "Belt and Road"， the government and the market need to bring to full play China's economic system advantages in trying to achieve coordinated progress in a vigorous，promising and orderly manner.

In order to promote the "Belt and Road" initiative， the Chinese Central Government has built a full range and three-dimensional style of work at various levels. In December 2014， the CPCCC Political Bureau economic work conference stated clearly to take promotion of the "Belt and Road" construction as a key task.12President Xi Jinping in November 2014 chaired the 8thmeeting of the central financial and economic leading group， and specially discussed the "Belt and Road" construction planning.13The State Council Executive Meeting discusses how to develop advantageous industries with Chinese characteristics and deepen industrial international cooperation in combination with the "Belt and Road" building. The relevant governmental departments in line with their respective functions and tasks actively promote the "One Belt One Road" construction through docking. Proceeding from China's national conditions， the support of local government at various levels is one of the key factors for success of economic policy initiative.

The Central Government vigorously promotes the "Belt and Road" construction，which is also embodied by promoting its idea and policy to expand its international impact and get the participation and support of the countries concerned on important international occasions and foreign visits by Chinese leadership. President Xi Jinping at the Boao Forum in Asia in 2015 in his address focused on the basic planning of "Belt and Road" strategy. And he also touched on the "Belt and Road" initiative at the informal meeting of APEC leaders， the G20 conference and Pacific Island Leaders Group Meeting in November，and during his visit to 4 South Asian countries in September， attending the 6thMinisterial Meeting of China-Arab Cooperation Forum in June， 2014. Premier Li Keqiang also takes the "Belt and Road" building as an important new content during attending the Davos Forum in January 2015， the SCO Summit， the 3rdChina-Central and Eastern European leaders meeting， the 5thleaders meeting of the Greater Mekong Sub-regional Economic Cooperation in December 2014， and Eurasian Summit in October 2014. Other central and local leaders also vigorously promote the "Belt and Road “initiative from different perspectives.

From the main types of market components， various main components such as the central enterprises， local state-owned enterprises， private-funded enterprises and foreign-funded enterprises， etc. all attach great importance to this initiative. At this stage， the central enterprises is the important market component for the "Belt and Road" building.That is mainly because the initial stage of the "Belt and Road" building will be led by infrastructure construction. In this case， the central enterprises in areas of railway， highway，power， building materials and construction contractors， etc. have a prominent position. Because of the indispensible investment and financing in the building process， the central enterprises in the financial sector may play a more important role.14Local state-owned enterprises are also actively involved in the construction process. One is those state-owned enterprises with relative strength， such as those in Shanghai， Shandong， Jiangsu， etc. Two is the state-owned enterprises along the "Belt and Road" such as those in Xinjiang， Heilongjiang，Guangdong and Chongqing， etc. Private enterprises also seize the opportunity to conduct trade and investment in the field of expertise. The "Belt and Road" initiative has already provided foreign-funded enterprises in China new business opportunities， making them better able to engage in trade and investment following the Chinese Government's planning. In the long run， with the "Belt and Road" layout getting matured and improved， all kinds of enterprises can find their right places in the process.

In the process of promoting the "Belt and Road"， the division of labor between government and enterprises is not the simple model that the government is responsible for planning while the market for operation. They have a basic division of labor， but also should have a close cooperation. However， the "Belt and Road" building in the final analysis is a market action， and the market components are the ultimate operator and the specific performer for its building. Enterprises in this specific operation process can find problems and timely feedback them to the government， which can supplement and improve the planning based on common problems. The government plays the role of macro-guidance and -regulation， the main market components make investment，take risk and enjoy benefit independently. Both government and market can play a major role in economic diplomacy， and both the state-owned capital and private capital are the important composition of the Chinese capital，which is a unique economic advantage for China to promote the "Belt and Road" building and should be made good use. In turn， the "Belt and Road" initiative can help promote interaction， mutual learning and mutual assistance between government and market in a wider range and more areas .

IV. New Policy： The New Development of Economic Policy Application

The "Belt and Road" initiative is in the end an economic cooperation initiative. Economy is the area， the platform， the content，the means and also the goal. From a policy perspective， this initiative shows a major development on applying economic policy to foreign countries， fully reflects the strategic consciousness and coordinates capability for the Chinese Government to give overall consideration to the use of various economic policies

First， apply economic policies. Compared with previous economic cooperation initiatives，the "Belt and Road" initiative is the initiative containing and using ever more variety of economic policies. The "Belt and Road" initiative has future goals including not only FTAs， which is obviously different with the RCEP and the upgraded China-ASEAN FTA. The "Belt and Road" initiative includes not only financial cooperation， which is significantly different from the East Asian financial cooperation agreement with Chiang Mai Initiative as the core； is not based on the wish to expand the total trade or trade balance，which is different to trade cooperation initiatives between any two countries； is not only a pure energy cooperation， which isdifferent from China's energy cooperation agreement with Russia， Kazakhstan or Turkmenistan. The "Belt and Road" initiative puts the above-mentioned economic policies into an overall policy basket， and has them integrated and rearranged. In fact， all traditional foreign economic policies can be found in the basket including trade， investment， production，energy， aid， infrastructure and services， etc.，and participation of various economic policy-making authorities.

Second， the upgrading use of economic policies. China is deepening economic restructuring， a large amount of high quality surplus production capacity and advanced equipment & technology can be transferred to countries along the "Belt and Road"， which is neiher a simple transfer， nor a pure service to China's domestic economic development， but to attain win-win results with them on the basis of joint construction. This requires a conscious escalation of economic policies， their facilitating economic and trade cooperation with China. It specifically includes： One， trade policy upgrading， i.e. upgrading simple industrial transfer from China to countries concerned to industrial capacity transfer，technical transfer and capital transfer in line with the strategic concept and the new development of China's economic diplomacy. Two， cooperation area upgrading， i.e. upgrading the traditional projects contracting as main cooperation gradually to the investment and financial cooperation. Three， financing model upgrading， i.e. upgrading China's one side preferential loans to joint financing，financing by both state capital and private capital and multilateral financing. Four，currencies usage upgrading， i.e. upgrading from the main usage of the traditional currencies to increasing transnational usage of CNY.15

Third， innovative use of economic policy. The "Belt and Road" itself is a major innovation in economic cooperation policy， in which innovation of other economic policies and tools are also bred， especially in the financial sector. The first of all is the establishment of the Asian Infrastructure Investment Bank， which is led by China， does not directly serve the "Belt and Road"， but is conducive to its construction and can become a part of financial supply side for its construction in the Asian region. The establishment of the Bank can share with Chinese Government's pressure on providing funds for the "Belt and Road" construction. Then， this Bank is a regional multilateral financial institution， and cannot be used by China alone. In view of this，China also set up a $40 billion Silk Road Fund，16which is independently created by Chinese foreign reserves， whose capital can be supplemented by issuing bonds in its future operation for the "Belt and Road" construction.

Fourth， the custom-made use of economic policy. The "Belt and Road" policy is initiated by the Central Government and shows a universal feature， but the political and economic situations of the countries concerned are rather different， so a single standardized model is inappropriate. According to the characteristics of their economic development along the "Belt and Road"， the Chinese Government has arrangements and designs in line with different economic characteristics. For example， the Arab countries' participation in the "Belt and Road" construction will mainly take energy cooperation as the main axis，infrastructure construction & trade and investment facilitation as two wings， with high-tech areas of nuclear energy， space and satellite， and new energy as new breakthroughs. In order to encourage Eastern European countries to participate in the construction，China has established a special loan of US$10 billion and specifically set up a investment fund of US$3 billion， and launched the second phase investment cooperation fund US$1 billion tosupport joint venture projects by China and Eastern European investors in areas of road and rail infrastructure， telecommunications and energy， etc. China and Belarus establish a China-Belarus industrial park to carry out cooperation， which is one of the core links in the Silk Road Economic Belt， also the largest development area， the highest level of cooperation and the most preferential policies for China's current outbound economic and trade cooperation zone. Chinese Government and Iran Government also intend to build an industrial city in port Jask. In order to ease the huge deficit of India's trade with China， China and India have decided to set up a China Industrial Park in India， alternatively producing those manufactured products that were originally imported from China.

The "Belt and Road" initiative is the latest attempt of using various economic policies by the Chinese Government at the state level on a wide range of terms， and also involves in numerous economic diplomacy practices.17The Chinese Government and enterprises can explore better bilateral economic and trade cooperation forms， expand market， increase investment， and achieve win-win results.

V. New Challenges of the "Belt and Road" to China's Economic Diplomacy

The "Belt and Road" marks a new stage in China's economic diplomacy. This stage has new ideas， new mechanisms， new models， new policies and new progress， and also new challenges. These new challenges pose new requirements for the economic ability and diplomatic ability of China.

First， how the "Belt and Road" can better help China find a new development model from a edge country to a core country， and better assist China's economic rise？ In the process of the "Belt and Road" construction， the key is China needs to strike two balances. First balance is between China's economic development and ability to withstand and between the market capacity and political acceptance by the countries concerned. Second balance is between China's continuous attraction of technology and capital from developed countries and China's transfer of technology and funds to countries concerned.

Second， it is estimated that China may invest over 100 -1000 billion RMB yuan in the "Belt and Road" construction， which involves countries and regions with various situations. It is a big challenge to ensure the economic and political security of the investment.

Third， the issues of "addition and subtraction" in the "Belt and Road" construction. In the process of its construction，it is generally believed doing additions， but if things are not well done， subtraction may be the replacement. So in the whole process，importance should be attached to overall balance， and preventing progress attained in one area or one country or even one region at the cost of others.

Footnotes：

1.In order to better compare with the economic target， the diplomacy here takes its narrow concept， and refers to the national diplomatic actions serving the high politics such as politics， security.

2.See Katherine Barbieri， "Liberal Illusion： Does Trade Promote Peace"， University Michigan Press， 2002.

3.Kurt Campbell， Ely Ratner， "Far Eastern Promises， Why Washington Should Focus on Asia"， Foreign Affairs，May/June， 2011， pp.106-116.

4.On the Eurasian geopolitical significance， see ［America］ Zbignew Brzezinski， "The Grand Chessboard：American Primacy and Its Geopolitical Imperatives"， translated by Chinese Institute of International Studies，Shanghai： Shanghai People's Press， 2007.

5，Song Guoyou： "Global Trade Agreements and China's Strategic Choice"， Contemporary International Relations， No 5， 2013， pp.30-35.

6.As far as China is concerned， the Chinese Government has significantly accelerated the progress of the FTA negotiations with countries concerned after the "Belt and Road" initiative.

7.Song Guoyou， "China's Peripheral Economic Diplomacy： Mechanism Coordination and Strategic Choice"，International Studies"， No.2， 2014，pp. 41-42.

8.Even the Taiwan region， Hong Kong and Macao Special Administrative Regions are highly concerned about the Initiative， and hope for active participation.

9. See "The Vision And Action to Promote the Construction of Silk Road Economic Belt and the Maritime Silk Road in 21stCentury"， People's Daily， March 29， 2015， P.4.

10.A new type of big countries relations between China and the United States is for defining Sino-U.S. relations，is not the economic cooperation initiative， and the BRICS countries cooperation mainly involves five BRICS countries.

11.In line with the documentation in the People's Daily on March 29， 2015， the "Belt and Road" involves four continents of Asia， Africa， Europe and Oceania. With the further progress in greater space， North America may also be included in the scope.

12."Central Economic Work Conference Held in Beijing"， People's Daily， December 12， 2014.

13.Xinhua News Agency， Beijing， November 6， 2014 6.

14. For example， the Bank of China will， through improvement of the relevant country's institutional rearrangements and keeping focus on major projects， promote development of structured financing business and strengthen domestic and foreign interaction and multilateral cooperation， and provide relevant credit support not less than US$ 20 billion in 2015， and reach US$100 billion in 3 years to come

15.http：//www.fmprc.gov.cn/mfa_chn/zyxw_602251/t1229097.shtml

16. http：//www . pbc.gov.cn/publishing/goutongjiaoliu/524/2015/20150216122129516645149/

20150216122129516645149_html.

17.On the use of economic policies in China's peripheral diplomacy， See Song Guoyou： " Economic Relations and Policy Choice between China and Neighbors"， International Studies， No.3， 2013， pp.33-42.

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（C） Seize the key link to promote China's Standard and Specification. Promoting China's technical standards in Africa can play a key role in expansion of China's technology transfer to Africa as well as enhancement of competitiveness of the Chinese- funded enterprises in the construction contract market in Africa. To this end， it is proposed that the Chinese government and enterprises try to attach the terms of the Chinese standard to the aid projects in the agreements to promote dissemination of China's technical standards in Africa. In Africa， setting up high-speed train，civil aviation， new energy joint research institutions to support China's related industries to enter Africa and promote Chinese enterprises technology transfer to high-end development. （D） Making joint efforts to improve the investment environment in Africa. Improving the investment environment in African countries rely on the joint efforts of both African countries themselves and the outside countries. Therefore， a message should be directly sent to African countries， urging those who urgently need direct investment and technology transfer to improve their foreign investment law， policy environment and domestic security situation. Meanwhile， China should welcome a third party cooperation in its efforts to aid Africa， thus， it is expected to see a climax of China's direct investment and technology transfer to African countries.