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The Imperative for the Trend of Asian Infrastructure Connectivity

Time:2013-09-29 10:19:04    Views:993442    Origin:Boao Forum for Asia

By ZENG Peiyan

Vice Chairman, Boao Forum for Asia

former Vice Premier, People’s Republic of China  

To move forward with the “Asia Infrastructure Cooperation Initiative”, exchange and cooperation in planning for the development of infrastructure between Asia’s individual economies should be strengthened, and a specialized multi-lateral financial institution or fund should be established to act as a financing platform for Asian regional infrastructure construction. 

 

The world economy is now showing a steady upward trend, and the momentum for growth is strengthening. What is notable, however, are the positive changes which have emerged in terms of economic operations, the phase effects of the range of crisis-countering stimulus measures which national governments have in recent years implemented, and the structural issues which caused the crisis but which are still far from resolved. Palliative approaches of this kind have cast a shadow of instability and uncertainty over the global economic recovery. 

Asia’s emerging economies have increasingly become major drivers of global economic growth. According to statistics, Asia now contributes approximately half of the world’s economic growth. Nevertheless, the nations of Asia all face the dilemma of maintaining growth while undergoing structural adjustment. On the one hand, Asia must accelerate the implementation of economic structural adjustments; otherwise economic recovery and growth will be unsustainable. On the other hand, if the foundations of sound economic growth are gone, structural reforms will be hard to achieve. Faced with this dilemma, Asia’s developing economies are increasingly keen to seek a juncture between maintaining growth and structural adjustment. 

What exactly is this juncture? The answer is to expand investment and accelerate infrastructure construction. Take Thailand for an example. The Thai government plans to strengthen its infrastructure through port, railway system and road network construction, thus remedying the current situation in its logistics infrastructure. The Indonesian government is planning to increase the proportion of public spending to 15% of GDP in 2013. In the Philippines, the government is planning to increase investment in infrastructure to 19% in 2013. During the 44th Meeting of ASEAN Economic Ministers, held in Cambodia in August 2012, the ASEAN nations called on China to increase its contribution to Asian economic connectivity in 2013, and expressed the hope that greater numbers of Chinese companies are welcome to participate in ASEAN-China connectivity construction. During his speech, Indonesian president Susilo Bambang Yudhoyono said that Indonesia had already made infrastructure construction a priority task. 

In the post-financial crisis era, there has been a slowdown in market demand globally, which is set to continue for some time, meaning that Asian economic growth cannot look to impetus from the external economy as it has in the past, but must now primarily rely on domestic forces to achieve growthby increasing investment in infrastructure construction, expanding domestic demand and creating new economic growth points, while also remedying the shortcomings in past rapid development. Infrastructural improvements will promote structural adjustment, and drive forward the rapid development of certain emerging industries. In this context, economic structural adjustment, stable economic growth and employment protection will all be more effectively addressed. This is the choice that Asia’s economies must make. 

As one economic study indicates, infrastructure investment will have a “multiplier effect”, such that infrastructure investment of US $1 will attract an investment demand of $3-$4 from other industries. In the same way, if Asia invests US $1 billion in the infrastructure sector, the Asian region will be able to create 18,000 employment opportunities. Over the last few decades, Asia’s economies have mainly relied on rapid economic growth that is export-driven, and these outward-looking economies have forced the region’s weak infrastructure to bear an excessively burdensome load, concealing a number of potential dangers. Rapid economic growth has formed a variety of economic and social structures, with the infrastructure being overwhelmed. The Asian Development Bank (ADB) estimates that, in the decade from 2010 to 2020, Asia must invest 8 trillion US dollars in infrastructure construction if it is to maintain its current level of economic growth. It is thus clear that Asia’s infrastructure has massive financing needs. Many of Asia’s emerging economies are in favorable financial circumstances, with abundant foreign exchange reserves, high household savings rates, and these have the capacity to invest in infrastructure. There are, however, some developing countries in Asia which lack either the will or the ability to expand investment in infrastructure, and can only hope to be sustained by the dynamism of the surrounding region. 

The reality is that massive market demand has already emerged, and Asia has also, along with various factors and conditions, shown its potential for developmentthe key is how to proceed with this task of cooperative development. 

China’s development experience has shown that infrastructure must come first, and that this prioritized infrastructure must ensure network integration, so as to ensure the optimization of effective capacity. The construction and roll-out of the road and power networks in China’s provinces has been interconnected, being of immense value to the economic development of China’s provinces. The same applies to the Asian regionregardless of the improvements to the internal investment environment of individual economies, connectivity between the nations and regions of Asia remains unsatisfactory. This requires a sharper focus on infrastructure in order to further unleash the internal potential of Asia’s economies, and this is of particular importance during this key phase of economic transition. This is by no means a new experiment, as demonstrated by the successful experience of other countries and regions. 

Experience in China and other Asian emerging economies shows that infrastructure investment and construction must take advantage of the driving force of government to involve the whole society, including motivating financially-strong companies and individuals regardless of nationality. All investment behavior must accord with market-oriented principles, while taking into consideration the innate public service function of infrastructure. This operational approach is practical and feasible, being a possible direction for the infrastructure development of all of Asia’s individual economies. For this reason, I tentatively proposed an “Asia Infrastructure Cooperation Initiative” at this year’s annual conference of the Boao Forum for Asia. Moving forward with this initiative requires work in the following two respects: 

Firstly, exchange and cooperation in planning for the development of infrastructure between Asia’s individual economies should be strengthened, so that individual infrastructure development plans and regional infrastructure connectivity promotion targets are closely coordinated. We should proactively take our individual infrastructure development construction initiatives into overall consideration, and hold necessary discussions and exchanges about shared visions with regard to cross-border, cross-regional and inter-basin infrastructure networking, such that a consensus or plan can be achieved in accordance with different areas of specialization, and medium- and long-term planning and arrangements can be set out accordingly for the respective economies, so as to promote free flows in the Asian region in the economic, cultural, and human spheres, by means of more open, more effective infrastructure networks. It will be easier to reach consensus in power, rail, road, communications, water conservancy and other areas. 

Secondly, a specialized multi-lateral financial institution or fund should be established to act as a financing platform for Asian regional infrastructure construction, and resolve the issue of lack of financing. The ADB has for many years now provided effective financial support for the region’s infrastructure construction, but the Bank is by no means a financial institution specializing in infrastructure investment funding servicesit has wider development objectives and duties, particularly in the field of regional poverty reduction, where the ADB plays a major if not irreplaceable role. The coming years will mark the best time and best choice for the expansion of infrastructure construction, the promotion of structural adjustment and the implementation of economic growth in the Asian region. A multi-lateral financial institution specializing in serving the region’s infrastructure financing need must be established. 

The multi-lateral financial institution must be a completely open platform. While the governments of the individual countries of the Asian region are to be involved in its establishment, its doors will also be open to private capital, both from within and outside of the region. As a specialized financing platform, it will need to operate on a commercial basis, but it will also need to ensure public welfare in the pursuit of profitable investment projects. At the same time, the institution will be managed by independent specialists, working on Asian regional infrastructure projects which most significantly benefit the livelihoods of the region’s population, using financial means and investment and financing services to provide highly-effective, reliable medium- and long-term financial support for local economic and social development, thus promoting transport, power, telecommunications, municipal construction, environmental protection, water conservancy and other projects across the nations of Asia. 

During the meeting on Asian financial cooperation organized by the Boao Forum for Asia in India last year, participants already reached a certain consensus over issues relating to multi-lateral and bilateral financial cooperation to strengthen infrastructure development, and also put forward a good many constructive views and suggestions. It is hoped that an “Asia infrastructure cooperation initiative” will gain greater, wider recognition, and as soon as possible convert individual nations’ sincere desires for cooperation into practical action, and move forward this extremely complex but vitally necessary work, and bring it to fruition as a contribution to a brighter future for Asian economic development. 

From Boao Review