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Attempt to Pre-empt the post-dollar world

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There are many reasons that the US is pushing on China in the South China Sea. Many articles have been published in recent weeks exploring “why?” None mention an important economic reason that has, at least in part, motivated the US to go to war and is very much at stake in the growing dispute with China: the value of the dollar.

The dominance of the dollar in world trade is critical to its value and to the US economy. Once the US abandoned the gold standard, it signed firm agreements with Saudi Arabia and all of Middle East OPEC nations that bound them to sell oil in dollars. Because of this agreement the dollar is often referred to as the “petrodollar.” The value of the dollar/petrodollar rests on its being the currency of international trade, not only for oil, but for weapons and food and everything else.

Two Dollar Wars

As I discussed in a 2013 Counterpunch article, one reason Bush II invaded Iraq was because Iraq threatened the US by selling oil in Euros. If Sadam Hussein had been allowed to continue, this would have been a major challenge to the dominance of the dollar as the world’s reserve currency. Petroeuros could begin replacing petrodollars.   This would have weakened the value of the dollar and undermined the US economy. That is an underpublicized reason for the elimination of Saddam Hussein. The value of the dollar was at stake as well as the health of our economy. The second Iraq war eliminated this threat and Iraqi oil was again sold in dollars.

Ron Paul made public this rationale but it has been given scant attention. “Saddam Hussein demanded Euros for his oil. His arrogance was a threat to the dollar; his lack of any military might was never a threat…There was no public talk of removing Saddam Hussein because of his attack on the integrity of the dollar as a reserve currency by selling oil in Euros. Many believe this was the real reason for our obsession with Iraq. I doubt it was the only reason, but it may well have played a significant role in our motivation to wage war.”

Ron Paul also made public the rationale for the surprising US-led removal of Gadhafi and the destruction of his government in Libya. Again, protecting the dollar was the main reason: Gadhafi was planning on selling oil in dinars, an all-gold African currency. According to Ron Paul, the US has targeted any country that threatens the dollar by using a non-dollar currency to conduct international business.

Loss of Confidence in the Dollar

The dollar has been the dominant currency of international trade since Nixon stopped dollars being exchanged for gold. Despite the challenges from Iraq and Libya, this arrangement continued a decade into the twenty-first century.

Two things happened during and after the 2008 crash to weaken confidence in the dollar. The first is not fully appreciated even by many financially astute Americans: the damage the USA did to developing nations when the USA suffered the crash. Short on funds at home, US financial loans were no longer providing developing nations the money they needed to continue with their projects. These countries haven’t forgotten the sudden and crippling loss of funds. The ever-present possibility that this can and will happen again has become an omnipresent nagging worry. These nations realize that relying on the dollar is relying on an external condition over which they have absolutely no control but which can, did, and may again have a devastating effect on their economies. The second was Bernanke’s qualitative easing that diluted the dollar into a mere shadow of its former self (which was already a diminished dollar from the 1971 gold-based dollar). Here are the Reserve Balances with Federal Reserve banks. On September 17, 2008, the Fed banks had $47 billion. On May 27, 2015, the amount was $2,510.791 billion “Bernanke dollars,” which is but a homeopathic dilution of the pre-Bernanke dollar.

Foreign countries noticed. The most vocal were Russia and China. In 2010, China Daily reported that “China and Russia… [intend] to renounce the US dollar and resort to using their own currencies for bilateral trade.” China and Russia, with three other nations, formed BRICS (Brazil, Russia, India, China, and South Africa). Reuters reported last July that BRICS was forming a “$100 billion development bank and a currency reserve pool in their first concrete step toward reshaping the Western-dominated international financial system.”

The Plan for the BRICS Bank

Amy Goodman and Juan Gonzalez interviewed Nobel prize winning American economist Joseph Stiglitz about the planned BRICS bank. Stiglitz said BRICS was very important:

First, the need globally for more investment-in the developing countries, especially-is in the order of magnitude of trillions, couple trillion dollars a year. And the existing institutions just don’t have enough resources….[the new bank] is adding to the flow of money that will go to finance infrastructure, adaptation to climate change-all the needs that are so evident in the poorest countries.”

“Secondly, it reflects a fundamental change in global economic and political power, that one of the ideas behind this is that the BRICS countries today are richer than the advanced countries were when the World Bank and the IMF were founded. We’re in a different world…. The old institutions have not kept up.”

One big complaint was that people from other countries expected, in the 21st century, that people in the top positions of the IMF would “be chosen on the basis of merit, not just because you’re an American. And yet, the U.S. effectively reneged on that agreement.”

Gonzalez asked Stiglitz how China, which obviously has huge monetary reserves, and Brazil, which had its own development bank for several years, would work together as key players in this new BRICS bank.

China has reserves in excess of $3 trillion,” answered Stiglitz. “One of the things is that it needs to use those reserves better than just putting them into U.S. Treasury bills. You know, my colleagues in China say that’s like putting meat in a refrigerator and then pulling out the plug, because the real value of the money put in U.S. Treasury bills is declining. So they say, ‘We need better uses for those funds,’ certainly better uses than using those funds to build, say, shoddy homes in the middle of the Nevada desert. You know, there are real social needs, and those funds haven’t been used for those purposes.”

Stiglitz then talked about Brazil. “Brazil has BNDES… a huge development bank, bigger than the World Bank. People don’t realize this, but Brazil has actually shown how a single country can create a very effective development bank. So, there’s a learning going on. And this notion of how you create an effective development bank, that actually promotes real development … is going to be an important part of the contribution that Brazil is going to make.”

China and Russia Trade without Using the Dollar

In October, 2014, in an exclusive interview with CNBC, Russia’s Prime Minister Dmitry Medvedev said that the world must move away from its dependence on the U.S. dollar, arguing that the global economy would benefit from a more diversified currency system. “We have nothing against the dollar, but we believe that today’s currency system should be more balanced,” he said, calling for a greater number of major reserve currencies. In particular he said that the euro, the yuan, the pound and the dollar would be a good initial grouping. He mentioned BRICS as a group which was implementing this change. “A much more just financial system” was possible, he said.

Medvedev highlighted that when countries “really depend” on the dollar, they are beholden to the fortunes of the US. “The U.S. economy is now improving but we have no proof that it will not go down again, and then everyone will suffer,” he said. “We believe that we should move away from such dependency [on any one currency] in the world’s financial system.”

Medvedev pointed out that incorporating other currencies has allowed Russia to trade with China directly. “This is a good demonstration that if somebody leaves their place, another person occupies their place[italics mine],” he added. October’s agreements follow a high-profile gas supply deal with Gazprom, worth $400 billion, to supply China with gas over 30 years.

The 2014 China-led Asian Infrastructure Investment Development Bank

In addition to being a founding member of BRICS, the Chinese were forming a development back, the Asian Infrastructure Investment Development Bank (AIID). The US controlled the World Bank and theAsian Development Bank. Both of these institutions would face substantial competition if the Chinese development bank went forward. Combined with the BRICS bank, the new development bank would offer an international alternative to the dollar for trade.

According to the New York Times, “the United States, perhaps the most vocal of … critics… has not embraced the Chinese proposal. Instead, in quiet conversations with China’s potential partners, American officials have lobbied against the development bank with unexpected determination and engaged in a vigorous campaign to persuade important allies to shun the project, according to senior United States officials and representatives of other governments involved [italics mine].” The New York Times also reported the irrelevance of US critical arguments: “Washington’s arguments run up against undisputed needs on the ground in Asia – needs that existing institutions have been unable to meet, some development experts said. The Asian Development Bank estimated in 2009 that the region would need as much as $8 trillion in investments in physical infrastructure by 2020 – an amount that exceeds what it or the World Bank can muster, experts at the two banks said.”

Recent Developments

In April of this year the deadline fell for nations to join China’s new Asian development bank. The Chinese were astonished at the last-minute applications by countries not considered especially friendly to Beijing. Among the surprises: Taiwan and 14 of the Group of 20. Japan is the only major Asian ally still standing with the Obama administration. Even Australia and South Korea had decided to join. In Europe, Britain was among the nations that joined, much to the irritation of the US.

Meanwhile, Putin announced the launch of the $100-billion BRICS New Development Bank. It will have another $100-billion as a currency reserve pool to shield the BRICS currencies from the world economy and market volatility. The launch is in July in Ufa, Russia. “We expect to reach agreement in Ufa on the launch of practical operations of the BRICS Bank and a pool of currency reserves,” Putin said. The bank will be a rival to the IMF and World Bank and will finance infrastructure projects in developing countries. It also will challenge the dollar as the currency of international trade.

A Plausible but Underemphasized Motive for Goading China

In his excellent CounterPunch article, Jack Smith wrote that the US goading of China “is happening for one main reason. The U.S. has arrogated world rule to itself, without authority, competition, or oversight, since the implosion of the Soviet Union nearly 25 years ago. There is nothing more important to America’s ruling elite. Every possible danger to Washington’s hegemony must be neutralized. And looming in East Asia is the cause of Washington’s worst anxieties — China.”

Smith is certainly correct as far as he goes. Hegemony has been an official US policy since the Soviet Union collapsed. But there is an aspect of this hegemony that Smith does not mention: protection of the dollar’s status as the dominant currency of world trade. China and Russia are creating alternatives that threaten the dollar’s status as the sole dominant international currency. By instituting trade alternatives to the dollar, they challenge the value of the dollar and so threaten the US economy.

First published in CounterPunch under the title: ‘ An Economic Reason for the US vs. China’

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Rohingya Influx and its Economic Significance for Bangladesh

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Authors:Shuva Das & Sherajul Mustajib Sharif*

It is generally perceived that refugees are curse for host countries though the former often play positive roles for the latter. The context of Bangladesh over hosting Rohingya refugees is portrayed in such a way that demonstrates they are solely an obvious danger for the country in the areas of its economy, politics, environment, health, and security. The above argument is true but it is a one-sided view which is enough to make hospitable Bangladeshis hostile against the Rohingya. Thus, it is crucial to explore in which areas the Rohingya have made positive contributions in Bangladesh. In this article, we intend to elucidate the economic benefits offered by the displaced Rohingya for the host country.

Brief Overview of the Rohingya Crisis

The Rohingya crisis is one of the worst humanitarian disasters in the modern world. The degree of violence and persecution taken against the Rohingya by the military of Myanmar has reached in an extremely horrendous extent in which an UN fact finding team in 2018 found genocidal elements. The Rohingya are an ethno-religious Muslim minority group of Myanmar. Though they have lived in Rakhine state of the country for centuries, to the Burmese government and Buddhists they are illegal Bengali immigrants who came from the present Bangladesh to Rakhine State for works during British colonial rule. The Burmese government withdrew their citizenship status through the “1982 Citizenship Act”, rendering them stateless. Since 1978, they have experienced several brutal military crackdowns and every time they have taken shelter in Bangladesh. In particular, since 2017 when the military of Myanmar launched “clearance operation” against the Rohingya in retaliation of an insurgent attack allegedly carried out by a Rohingya rebel group known as the Arakan Rohingya Salvation Army on several police posts, a significant number of Rohingya, over 740,000, have fled to Bangladesh from Myanmar. This number with the previously remaining Rohingya refugees has exceeded the one-million mark in the host country, intensifying the level of strain on it.

Economic Advantages Offered by the Rohingya Refugees

Bangladesh is a small developing country and with a population of about 16.7 million, it is the world’s eighth most populous country. In these circumstances, over one additional million Rohingya refugees are competing with cheaper labor against many local people for jobs in the Rohingya-hosted areas in the Cox’s Bazar district of the nation, and they have put extreme pressure on its limited resources. Nonetheless, to graduate from the pool of the UN’s Least Developed Countries, with the massive refugee burden Bangladesh successfully accomplished all three required criteria in 2018 and is on track to be graduated by 2024. On an average, the real GDP growth of the country from 2017 to the running 2020 has also remained stable at around 7.70. The Rohingya influx has immense significance on the thriving economy of Bangladesh.

To begin with, Rohingya refugees have created numerous job opportunities for many Bangladeshi people who are working as volunteers, relief specialists, researchers, health workers and so on in almost 150 national and international aid groups and non-governmental organizations currently operating in Rohingya camps. In the United Nations High Commissioner for Refugees (UNHCR), for instance, more than 200 Bangladeshis have been employed to enhance its operational efficiency on the refugee crisis. Through working in humanitarian organizations, they are earning not only handsome salaries but quality skills. Besides, a good number of local people of the Rohingya-hosted areas in Bangladesh are doing transportation jobs to convey goods in the Rohingya camps.

Another vital point is that an entrepreneurial spark is currently seen among local host population. International donor agencies provide relief goods to Rohingya refugees who sell these to local traders to bring diversity in their daily meals. Local entrepreneurs purchase the relief products from Rohingya refugees at very low rate and sell these to their fellow Bangladeshis in a profitable price. Apart from this, the UNHCR took an ambitious project in 2019, under which 250 poor women of Cox’s Bazar along with equal number of Rohingya women have been given training in cloth crafting. And it has the will to train more women. Backward female population of Bangladesh can, in this manner, be empowered to be entrepreneurs, and effectively integrated into its booming economy.

Last but not least, International Organization for Migration, and the UN Food and Agriculture Organization in 2018 provided micro gardening kits to 25,000 Rohingya and 25,000 host households. This has opened a new economic window in South Eastern Bangladesh. To feed their gardens, the Rohingya purchase compost from Bangladeshi women. In addition to eating, they sell their produce in the host community market thereby generating a number of local vegetable dealers. The combined production of the Rohingya refugee and host families by micro gardening are enormously contributing to alleviate an estimated 50,000 metric ton yearly food deficit in Cox’s Bazar.

Concluding Remarks

Rohingya refugees have brought an economic boon for Bangladesh in multidimensional aspects. Because of them, many skilled and unskilled Bangladeshi people, especially women, have found their income sources. Positive contributions of the Rohingya should not be underestimated though these are less worthy if weighed against the overall drawbacks they have caused for the host nation. Since the Rohingya crisis is a protracted one having no possible certainty to be resolved soon, the government of Bangladesh needs not only to continue their diplomatic pressure against Myanmar but to focus on how effectively they can benefit from the displaced population in economic aspects.

*Sherajul Mustajib Sharif holds his BSS and MSS degrees from the Department of International Relations, University of Chittagong, Chittagong, Bangladesh.

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WTO’s ‘Crown Jewel’ Under Existential Crisis: Problem Explained

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World Trade Organization (WTO) is an international body that acts as a watchdog keeping an eye on the rules of trade between nations. WTO came into operation in 1995 and was founded as a successor to the General Agreement on Tariffs and Trade (GATT), which was incorporated in 1948. It acts as a forum where WTO members discuss and negotiate trade issues. Moreover, it works in the form of different multilateral as well as plurilateral WTO agreements. These agreements live at the heart of WTO as they deal with different aspects of trade policy.  Agreements like General Agreement on Trades and Tariffs; General Agreement on Trade in Services; The Agreement on Trade-Related Aspects of Intellectual Property Rights etc. forms the centerpiece of WTO.  Through these agreements, one WTO member enters into obligations and formulates the relation of reciprocity with the other WTO member.

Undeniably, the Dispute Settlement System (DSS) that works under the WTO is considered to be the ‘crown jewel’. No matter how stringent the laws are, unless they couldn’t be enforced, they are of not much worth. DSS functions as an effective mechanism to settle disputes and to enforce obligations in case of violation by any WTO member.  The ration d’etre of giving birth to DSS was to ensure settlement of disputes in a timely and structured manner.  DSS is committed to impede and further mitigate trade imbalances between stronger and weaker players by having their disputes to be settled on the verge of rules and not power. Since the day it came into force in 1995, 595 disputes have been brought before the DSS and out of which 350+ disputes are settled.

DSS is governed by the Dispute Settlement Body (DSB) through the rules incorporated in Disputes Settlement Understanding (DSU).  The DSS works as a two-tier redressal forum and is the most important and busiest international tribunal having a binding authority on the parties to the dispute once they adopt the report of findings. On the first level comes the Consultation as per Article 4 of the DSU rules. Article 4 states that “each WTO member undertakes to accord sympathetic consideration to and afford adequate opportunity for consultation regarding any representations made by another Member concerning measures affecting the operation of any covered agreement taken within the territory of the former.” Therefore, Consultation is mandatory before any dispute is addressed to DSB. Once the consultation is failed, the complaining party can request the DSB under Article 6 for the establishment of a panel body that shall aim to settle the disputes between the parties.

On the top of the hierarchy comes the appellate body which shall hear the appeal from panel cases. Any party to the dispute can formally notify DSB of its decision to appeal. Under Article 17 of the DSU rules, DSB shall establish a standing appellate body. Unlike the Panel body, the appellate body is a permanent body composed of seven persons out of which three shall serve on any one case. These members are appointed for a term of four years. It is the duty of DSB to ensure that the vacancies shall be filled as they arise so as to confirm the smooth and timely functioning of the hierarchical mechanism of dispute redressal. Principally, the decision under DSB is taken through consensus methodology. Article 2.4 of DSU explains this method stating that “the consensus is said to be achieved when no WTO member, present at the meeting, formally opposes to the proposed decision”.

The genesis of the crisis is attributable to the U.S. who through its non-consensus has blocked the selection procedure to fill the vacancies alarming in the Appellate Body. The minimum requirement for Appellate Body to function is at least three persons out of total strength of seven. However, on 11th December 2019, the term of two of the remaining three members came to an end. At present, the Appellate Body has only one member and thus, it is dysfunctional and the resolution mechanism has brought to a grinding halt. The political façade started long back in 2017 when the U.S. cleared its intention of not allowing the selection procedure to taken place in order to fill the vacancies in the Appellate Body. Nonetheless, the Appellate Body continued its function as the compositional requirement was manageable due to the tenure of three of its members remaining but ultimately the crisis knocked the doors of WTO in the last month of 2019.

Although, at present, the composition of the Panel Body has not been interjected and the process of addressing disputes through Panel Body is still in continuance. However, the problem is as per the trends, in 67 percent of the cases, one of the parties to the dispute appeals the finding of the panel body and thus; when the Appellate Body is itself dysfunctional, the order remains non-binding and the whole mechanism of the dispute resolution is disrupted severing the gravity of the political disaster. The reasons for the U.S. to block the normal functioning of the Appellate Body have been shared with other countries as well. Fortunately, no other country has repelled in the way the U.S. is exclaiming to address the loopholes. The dissatisfaction of the U.S. administration with the WTO is not a secret anymore when Mr. Donald Trump labeled the WTO as ‘disaster’ for their nation.

The reason for the U.S. to express dissatisfaction is because of the overreaching power that Appellate Body enjoys. To combat that, on a lighter note, the U.S. has shown a preference of going back to the non-binding dispute settlement system that was prevalent at the time of GATT, 1948. Ironically, it was the U.S. who during the Uruguay round of negotiations (1986-1994) pressured and voted for creating a dispute redressal system that is binding and enforceable, however as the tables have turned now and the Appellate Body has become an irksome affair for the U.S.

The central issue of the U.S. to cordon the appointment revolves around the problem ofjudicial overreach.  To elaborate the claim, the U.S. believes that the dispute settlement system interprets the WTO rules in such a way that instead of simplifying, it rather creates new obligations for the WTO members. What the U.S. believes is that the Appellate Body drifts away from its original mandate due to its practice of issuing decisions that either burden the WTO members with new obligations or diminishes the right they enjoyed earlier.

Further, the U.S. has raised the objections against the procedural irregularities by the Appellate Body. Entangling the issues of the procedure, firstly, the U.S.has pointed out the contradiction of the DSU rules adopted by the WTO members and the Appellate Body Working procedure which are drawn up by the Appellate Body itself. As per the Rule 15 of the latter, it allows the Appellate Body members to remain on board and to continue to serve on appeals which are pending during their terms; however, as per Article 17.9 of the former, a member enjoys the position for a fixed four-year term. Thus, the Appellate Body working procedures violate the provisional requirement as laid down in DSU rules.

The second procedural issue raised by the U.S. deals with the violation of completing the report by Appellate Body within the time frame of 90 days as prescribed by the DSU rules. The US has pointed out that the extraordinary delay violates the mandate of a speedy trial and further it negates the right of the complaining party as well as the party brought to dispute due to the hauling of their economies to a hiatus. It is the belief of the U.S. that the prospective incapacitation of the Appellate Body is undoubtedly a menace for the WTO and its members because once the report of panel body is appealed, it cannot be made enforceable unless the appellate body decides and thus, it holds the country for the indefinite timeframe not authorizing the party to retaliate on whose favour the panel body decided the dispute.

It is indisputable that the DSS need to undergo a series of reform in order to gain the lost confidence. Unfortunately, the step taken by the U.S. has been termed as harsh and politically motivated. One move of the U.S. has paralyzed the ability of the ‘crown jewel’ to resolve international trade disputes. Even going against the decision of the U.S. and outcasting the consensus power it holds won’t serve the purpose as the U.S. is an important player of WTO and if the U.S. is not a party to it; the WTO would be synonymous to a toothless tiger. 

Nevertheless, arbitration under Article 25 of the DSU rules can act as an alternative to the hierarchal redressal system, as well as, solving disputes through bilateral agreements can be another alternative during the time of this existential crisis. The proposed idea of forming a Multi-party Interim Appellate arrangement will not succumb for long because the U.S. will not be its part and as it is certain, U.S. forms a considerable part of international trade, thus, there will again be a situation of deadlock. Moreover, choosing such interim mechanisms for the long run can raise a threat to the uniformity of rulings that WTO embraces. All in all, WTO is currently under jeopardy and it can be the beginning of the end if a solution to the crisis is not found in a timely manner. As of now, the Supreme Court of the international Trade ceases to exist and is in a life or death moment.

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How Local Governments in China can Utilize New Infrastructure Policy to Promote Development

Chan Kung

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Authors: Chan Kung and Wei Hongxu*

In an effort to promote economic recovery, the central government, local governments, and enterprises have placed high expectations on the investment of new infrastructure, hoping it would promote the development of the digital economy, so as to enhance the internal driving force of economic development. Especially when the scale of local special bonds is expected to be increased and again issued ahead of schedule, many local governments hope to seize the opportunity of digital economy development and increase investment in new infrastructure areas to drive regional economic development. Unlike the conventional economy and conventional infrastructure investment, the new infrastructure is not a simple way to boost investment, but rather to help the conventional industries realize digital and intelligent transformation as soon as possible, and to create new consumption, new manufacturing, and new services. While the new infrastructure investment brings a new economic model, it is different from the past in terms of content, mode, and financing channels. It requires local governments to make corresponding changes with market-oriented thinking.

New infrastructure investment is not only the demand side of local users, but also the supply side of technology investment. From the perspective of the scope of new infrastructure, new infrastructure projects include 5G base stations, ultra-high voltage (UHV) electricity, industrial Internet, intercity high-speed railway, intercity rail transit, new energy vehicle charging piles, artificial intelligence, and Big Data centers. At present, rail transit and new energy infrastructure are not much different from conventional infrastructure investment. The degree of local participation of UHV electricity is limited, while the investment in other aspects, such as 5G base stations and Big Data centers, is relatively mature in technology and has good market supply capacity. In other aspects, it is more necessary to start from the aspects of technology research and industrial cultivation, and to invest in projects that encourage innovation and industrial park construction. Therefore, this requires not only clear investment objectives on the demand side, but also needs to expand the supply side such as technology research and application at the same time, which undoubtedly increases the complexity of new infrastructure investment.

At the same time, the sources and financing channels of new infrastructure investment still need to be explored. Recently, local governments in China have begun planning to finance new infrastructure projects through issuing special bonds, and many local governments have put new infrastructure projects on their agenda. Some market analysts believe that at present, 5G is still mainly invested in base stations. Generally, telecommunications companies such as China Unicom and Mobile Communications can invest on their own without issuing special bonds, thereby the special bonds can be invested in projects related to data centers. However, such projects are only available in first-tier cities, and there are not many such projects in second-tier, third-tier, fourth-tier, and fifth-tier cities. New infrastructure projects should be more market-driven and local governments should avoid excessive involvement via direct investment in industrial projects. Local governments also need to promote the public-private partnership (PPP) model and introduce more social capital to improve efficiency and broaden financing sources.

Even for new infrastructure projects funded by special bonds, attention should be paid to the financing capacity of the projects to avoid adding to the financial burden. There are two main ideas for the new infrastructure special bond declaration projects in many provinces. One is to build a digital information application platform at the county and district level based on the resources of the provincial and municipal cloud platforms. The second is to promote the optimization and upgrading of conventional infrastructure projects with the theme of digital and wisdom. Some local finance people worry that many of these projects are packaged around the concept of “new infrastructure” and are mostly non-yielding or low-yielding projects that may require the government to cover future bond payments. Therefore, the special bond for new infrastructure construction should be invested in public welfare projects that can generate income, rather than public welfare projects that do not.

At the same time, there are new requirements for investment entities in new infrastructure investment. Some financial institutions said that after the issuance of new infrastructure special bonds, most of them will eventually be invested in local urban projects. However, local urban projects were good at conventional infrastructure construction, unfamiliar with new infrastructure construction, and lacks experience in new infrastructure project operation. If we speed up the construction of new infrastructure projects without considering the actual situation, it will easily lead to the mismatch between the capacity and the project requirements, and drag on the development of local governments and enterprises. In particular, unlike conventional investment in forming fixed assets, a considerable part of new infrastructure investment in research, personnel training, and other forms of intangible assets will be formed. The conventional urban investment model does not have the ability to use and dispose of these assets. At the same time, the large amount of hardware equipment invested in the new infrastructure is different from the conventional “iron and steel foundation”. Its wear and tear, operation, and upgrading all require continuous follow-up investment, which cannot be “invested all at once.” These are also not available in some conventional urban investment enterprises. If the local government cultivates and supports relevant enterprises by means of industrial investment, it needs more consideration in terms of income distribution and asset management. Such investment cannot be simply measured by the unit of land and capital, but more in the form of equity investment such as industrial funds and venture capital. In this respect, the local government needs to have the investment entities and relevant personnel with the ability to invest in relevant industries.

Different from the past, local governments need to play their roles in market construction and maintenance, investment entities, and end-users in promoting new infrastructure investment and the development of the digital economy. In the cultivation of the digital market, market demand, and the maintenance of the market order, local governments should play the role as a supervisor, take the development of the market as the guide, and develop the local digital market. In terms of investment, it is necessary to start with basic research and development and personnel training, promote market-oriented investment and technological innovation to enhance the competitiveness of the digital industry. In terms of end-users, it is necessary to integrate their own digital resources, establish a public digital space, and expand digital demand with the digital transformation of public services and government affairs as the direction. These three new roles are the basic problems to be solved in the process of promoting new infrastructure.

While much attention has been paid to new infrastructure, the reality is that, in terms of overall size, it needs to be recognized that infrastructure investment is still dominated by conventional infrastructure projects, with new infrastructure as defined by the market accounting for less than 15%. ANBOUND is not a proponent of separating infrastructure from the old and the new, so one cannot fully “bet” on new infrastructure to revive the post-pandemic economy. From the perspective of economic development trends and current reality, the role of new infrastructure is to promote the coordinated and integrated development of digital technology to industry and regional economy. Therefore, local governments need to make good use of fiscal expansion policies and financing tools to build new infrastructure, rather than investing for investment’s sake, they need to pay attention to the trend of economic digitization and promote the market efficiency and the expansion of market space.

Final analysis conclusion:

Promoting economic recovery and the development of the digital economy with new infrastructure are the keys to current macro policies. In this regard, local governments need to pay attention to the differences between the new infrastructure and the conventional infrastructure model, and they need to make corresponding adjustments in the investment model and development thinking so as to give full play to the efficiency of the digital economy.

*Wei Hongxu, graduated from the School of Mathematics of Peking University with a Ph.D. in Economics from the University of Birmingham, UK in 2010 and is a researcher at Anbound Consulting, an independent think tank with headquarters in Beijing. Established in 1993, Anbound

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