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Belt and Road stimulates upgrading of global value chain

Author  :  ZHANG HUI     Source  :    Chinese Social Sciences Today     2019-07-30

With the development of economic globalization, the system of production has been subdivided into different processes and modules, which has reshaped the world economic pattern and mode of operation. In this process, the Belt and Road (B&R) initiative has enriched the concept of international economic cooperation and the meaning of multilateralism, and it has provided an important way to promote world economic growth and achieve the common development of all countries. In the past six years, the further development of B&R construction has promoted the sustainable development of participating economies and provided a strong impetus for the overall upgrading of the global value chain. 

Economic globalization continuously subdivides production processes. Due to national differences in capacity and supply factors, enterprises and organizations of different countries and sizes are being integrated into a transnational production system, lowering the threshold for countries to join the global division of labor and form a global value chain. In this process, developed economies, generally possessing core technologies and competitiveness and occupying the high-end links of the value chain, push low-end links onto developing countries with low labor costs and abundant resources by carrying out foreign direct investment, so as to improve the efficiency of product manufacturing and obtain profits. Developing countries, on the other hand, accelerate the process of industrialization and urbanization and achieve economic development through OEM and technological imitation. As a result, a mechanism for the self-regulation of industrial structure is gradually formed between developed and developing economies as major consumers and major producers respectively.

The rapid rise of emerging economies and developing countries and the deepening of regional cooperation have optimized market development potential and expanded the scale of local demand. In response to this new change, developed economies tend to replace internationalization with localization, and they take measures to promote the return of manufacturing to their own countries. Meanwhile, new technologies represented by artificial intelligence, big data and the internet of things are also gradually promoting the decentralization and fragmentation of the global value chain, which has contributed to anti-globalization and the restructuring of the global value chain. 

Against this backdrop, the B&R proposes to meet the needs of economies interested in integrating into the global value chain and to create an open, interconnected and shared global trading system, so as to provide a strong impetus for the overall upgrading of the global value chain.

The co-construction of the B&R will help promote the free and orderly flow of resources, the efficient allocation of factors of production, the in-depth integration of demand, and it will help strengthen policy coordination among relevant economies and lift the global division of labor to a broader and higher level, which coincides with the vision of developing countries to strengthen their international competitiveness, better integrate themselves into the global value chain and achieve their own development.

First, the B&R guarantees the coordinated development of related investment and trade through institutional arrangements, reduces the transaction costs caused by uncertainty and ignorance in multilateral and bilateral cooperation, guides the transformation of inter-industry trade to intra-industry trade, and promotes the construction of a production cooperation mechanism. 

Second, focusing on the infrastructure construction of the global value chain, the B&R will reduce the cost of cross-border logistics, consolidate the foundation of economic growth, and attract more industry transfer and investment by constantly optimizing transportation and communication networks.

Third, the B&R will focus on establishing a new model for the global value chain. Through free trade zones and economic and trade cooperation zones, the capacity for international cooperation can be strengthened. In addition, the internet plus platform will be built to effectively reduce trade and investment barriers between participating economies through cross-border e-commerce, continuously lowering the threshold for participating economies to integrate into the global value chain, thus expanding room for growth. 

Moreover, the B&R will also connect developing countries along the route to create a huge consumer market and provide opportunities for economic growth, social welfare and balanced development.

Being based on global industrial cooperation and relying on foreign trade and capital flow, global value chain governance under the framework of B&R cooperation not only supports the cluster development and chain transfer of enterprises, but also facilitates the pattern for the division of labor in the global value chain in which production is integrated and closely connected. 

Theoretically, the B&R conforms to changing trends in the comparative and competitive advantages of different economies by focusing on differentiated industrial cooperation, encouraging all participating countries to fully explore complementary characteristics, to clearly locate cooperation areas, and to create a stepwise industrial upgrading network, so as to constantly stimulate the vitality of the value chain.

The B&R proposes to speed up the construction of industrial parks, attracting enterprises from all countries to invest. Furthermore, the B&R will strengthen open cooperation in technological innovation, build regional innovation networks and international industrial and technological alliances, encourage exchanges and cooperation in human resources, and make their respective advantages complementary so as to share innovation resources among relevant countries and enhance the horizontal and vertical capacity of the global value chain. 

 

This article was edited and translated from Economic Daily. Zhang Hui is vice dean of the School of Economics at Peking University.

 

(Edited by CHEN ALONG)

Editor: Yu Hui

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