International Cooperation Eases China’s Integration into Global Economy

THE Chinese government issued a guideline last year aimed at promoting international cooperation in production capacity and equipment manufacturing, and deepening China’s integration into the world economy. It stipulates that steel manufacturing, non-ferrous metal manufacturing, building materials, railways, electricity, chemical engineering, textile industry, automobile manufacturing, communication industry, engineering machinery, aerospace and aviation, shipping industry, and ocean engineering should now become focus areas for promoting international cooperation in production capacity and equipment manufacturing. China’s 13th Five-Year Plan also proposed the promotion of international production capacity cooperation in the coming five years.

By focusing on the above-mentioned 12 areas, the government will propel the country’s equipment manufacturing, technology, and service towards “going global” through investing overseas, project contracting, technological cooperation, and equipment exports. Since 2015, when the proposal was first raised, China has made significant headway in its industrial capacity cooperation, both with developing countries in Asia, Africa, and Latin America, and developed countries on the European continent. International production capacity cooperation is another proposal that China has raised since its Belt and Road Initiative with regard to international economic cooperation, one that will undoubtedly have profound influence on both China’s and the global economy.

New Dynamism for Global Economic Growth

The world economy is in a period of self-adjustment amid its slow recovery from the international financial crisis. From 2012 to 2014, the global economy grew at an average 3.4 percent annually, appreciably slower than the pre-crisis figure of more than five percent. The IMF projects global growth of less than four percent by 2020. The crisis and subsequent ponderous pace of economic growth has induced certain countries to adopt quantitative easing to expand investment and consumption in hopes of stimulating economic growth. In practice, however, the effect of policies that focus solely on the demand side is limited.

To achieve sustainable development of the real economy, countries need to adjust their economies from the supply side. The radical solution should be structural reform, with honed competitiveness and heightened efficiency at the core. The international production capacity cooperation that the Chinese government proposes will promote balanced and sustained growth of the world economy from the supply side. It is therefore an effective way of dealing with the global economic downturn.

The reasons for this are: First, international capacity cooperation helps developing countries foster industrial clusters that adapt to local conditions and promote industrialization, thus creating new economic growth engines. A typical example is the steel mill in the Malaysia-China Kuantan Industrial Park. With an investment of around US $1.4 billion, it can produce high-tech steel products like H-shape steel and generate an annual output of 3.5 million tons. The mill will be the biggest steel plant in Malaysia and the first in ASEAN capable of producing H-shape steel. This cooperation will boost development of Malaysia’s steel industry and also create 4,000 jobs. In the first phase of construction the Malaysian side plans to make the park a steel industrial base, its ultimate aim to build a local steel industrial cluster.

Key Projects in China's International Production Capacity Cooperation

                                                                                                                                                                                                 Source: The author.

Second, international production capacity cooperation is conducive to infrastructure construction in participant countries. It will thus improve connectivity in the region, so overcoming the development “bottlenecks” in transportation, energy supply, and telecommunications. An example is the China-Thailand railway. Upon starting operations, the round-trip fare on the line from China’s Kunming to Thailand’s Bangkok will be around RMB 700 – one-third  to a half of the airfare, while freight costs are equivalent to one ninth of that by air. The railway is expected to bring around two million more Chinese tourists to Thailand each year, and facilitate transportation of agricultural products from Thailand to China. The railway will also, according to the plan, connect with the China-Laos railway, currently under construction. This will promote connectivity between Thailand and other ASEAN countries, so rendering Thailand a transportation hub.

Third, international production capacity cooperation will accelerate development of industries on the upper, middle and lower reaches of the global industrial chain. It will moreover promote South-South cooperation and North-South cooperation, thus propelling inclusive growth of the world economy. Chinese Premier Li Keqiang vividly expounded on cooperation in the global industrial chain when he visited France in June 2015: “China enjoys a large number of middle-end products, production lines and equipment capacities with high price-performance ratio, which meet the needs of the developing countries. The developed countries possess high-end technologies and equipment. Promoting international production capacity cooperation is to combine the advantages of China and the developed countries to produce equipment with key technologies at a lower price and higher quality, so as to meet the needs of developing countries, and promote the industrial upgrading of China and expand the export of the developed countries.”

Eliminate Misunderstandings and Prejudices

International production capacity cooperation is a brand new model that China has proposed for international economic cooperation. But some countries may harbor misunderstandings and prejudices about the proposal, possibly due to worries that China might dump excess and pollutant production capacity on other countries. However, excess capacity does not equate outdated industrial capacity. The international capacity cooperation China advocates is intended to cater to the domestic development needs of investment recipient countries, and will not cause economic and/or environmental problems.

At the start of the 1980s, China introduced a large volume of “excess capacity” from developed countries such as Japan, the U.S. and Germany. It was a move in line with the country’s needs at that time for its economic development and industrialization. Decades of development later, China has accumulated large amounts of quality but excess capacity that meets the industrialization needs of developing and mid-income countries. It can also provide developed countries with support necessary to implement reindustrialization.

The present misunderstandings and prejudice of certain countries with regard to China’s newly-launched international capacity cooperation is understandable. However, after implementation of certain projects, international society will gradually perceive the economic and social value of China’s initiative. Actions, as they say, speak louder than words. China is exporting capacity that has comparative advantages and features green technology. The country’s efforts will thus benefit the rest of the world – both through economic development and environmental protection.