The EFSD Chief Economist Evgeny Vinokurov spoke at Valdai Club – CITIC Foundation joint event on the economic cooperation of China and Russia in post-pandemic world.
He assessed the losses caused by the COVID pandemic. They are very considerable, resulting in a severe hit on the GDP, mutual trade, mutual investment, and, above all, the movement of people. The world GDP is likely to fall by 5%, while the developed countries are experienced a very deep recession. The Chinese GDP would grow at the slowest rate in several decades (to be followed by strong rebound in 2021), while the Russian economy would compensate 2020 losses only by 2022. At the same time, January-April data for China-Russia trade indicate 7% contraction, which is moderate given the circumstances. This data hints at the durability of China-Russia economic relations.
China and Russia share common interests in developing strong trans-Eurasian economic links as well as in the prosperity of Central Asian economies, hardly hit by the COVID pandemic. It can also exert a negative impact on the Belt and Road Initiative. Meanwhile, the BRI benefits are already tangible in many countries around the world. The disbursements under the BRI umbrella have exceeded $100 billion while the commitments have reached $600 billion. In the Eurasian Economic Union context, the business of trans-Eurasian container traffic is booming: from negligible 7,000 TEUs in 2011 it sprang to 400,000 TEUs in 2019. The BRI is a real deal and should be perceived as such.
Infrastructure, as a rule, is not among the most vulnerable sectors, quite the contrary. It has an inherent long-term dimension. While a cross-border component is important, most basic infrastructure is strictly national. However, the 2020 trends for the Belt and Road Initiative might not fit this general pattern. The BRI intends to build up basic infrastructure across the globe, with a particular focus on Eurasia. Under the helm of this very large-scale initiative, hundreds of billions of dollars are mobilized and disbursed. A notable percentage of BRI projects possess an explicit cross-border nature – mostly automobile corridors and railroads, but also electric power generation and distribution projects. The BRI is by its very nature a cross-border phenomenon. Thus, it is vulnerable to the coronavirus-induced economic crisis.
EFSD Chief Economist stressed the perception of the BRI as a very long-term and a truly strategic initiative. In order to build basic infrastructure in a consistent and efficient mode, one has to stick to a long-term vision that can weather multiple crises along the way. The Belt and Road has a chance to become a classic initiative of this sort. It intends to qualitatively raise the level of infrastructure around the globe and, in particular, to connect the Greater Eurasian landmass in a way it has never been connected before. This view is particularly pertinent for cross-border infrastructure. Apart from long-term financing, it entails a shared strategic vision of international economic cooperation. Such a vision is difficult to formulate and very difficult to negotiate. Once agreed upon, it should be durable long-term.
Evgeny Vinokurov has made several policy recommendations on the subject. First, China, its partner countries, and partnering institutions should pay attention to the issues of debt and fiscal sustainability. There are reasons to be concerned with the countries’ debt and fiscal sustainability, in particular as concerns low and lower-middle income economies with unstable economic growth. In fact, the current crisis will already test the limits of sovereign debt sustainability around the globe. In some BRI partner countries, including those in Central Asia, 40–45% of their external public debt is accounted for by BRI-related financing. The speaker applauded the 2019 decision, announced at the 2nd BRI Forum in Beijing, to improve debt sustainability analysis in cooperation with the multilateral financial organizations. He stressed that a number of international financial institutions – including the IMF, AIIB, and EFSD in Eurasian context – can make their valuable contributions to the issue.
Second, he pointed at the positive role of the Chinese subsidies for container-based exports and recommended to the Chinese authorities not to slash them, at least in the active phase of the current crisis.
Third, BRI partner countries would be well advised to contain the expression of negative sentiments. Facing a crisis, it is very tempting for national governments to revert to protectionist policies and to slash long-term initiatives that feature a low margin and will reveal most of their positive effects in the long-term future.
The EFSD Chief Economist ended with a plea to look beyond the immediate effects and limitations faced in the heat of the battle against the coronavirus-induced economic crisis. The BRI community should perceive and treat the BRI as a truly long-term policy. The investment and expert community should look past 2020 while assessing the impact and effectiveness of the BRI. It is too valuable to be discouraged by the coronavirus hit.