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Effects Of India’s Move To Increase Tariffs Of Palm Oil From Malaysia

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On 28th September 2019, in a speech in United Nations General Assembly speech, Malaysian Prime Minister Mahathir Muhammad said that India had “invaded and occupied” Kashmir by scrapping off Article 370 of Indian Constitution.[1] In retaliation, Indian Govt. threatened to ban, or impose high tariffs on, palm oil trade with Malaysia.[2]

Through this paper, the researcher attempts to show how a single political statement can influence the trade relations between countries and in turn their economies.

The researcher has undertaken the research on the assumption that Indian Govt. will highly increase the import tariffs on import of palmoil from Malaysia. In this paper, researcher analyses the impact on Indian and Malaysian economy under two conditions –

-Indian traders continue to purchase from Malaysia despite an increase in palm oil tariffs.

-Indian traders shift to other countries for purchasing palm oil.

It is important to know that for the fiscal year ending 31st March 2019, Malaysia’s imported from India goods worth $6.4 billion, while exported to India goods worth $10.8 billion.[3] Thus, Malaysia is in trade surplus with India of $4.4 billion. This is because India imports high-priced goods such as petroleum and palm oil at a large scale while India exports commodities such as sugar, wheat, rice, meat, etc.[4]In 2018, India imported palm oil worth $5.5 billion of which $1.3 billion was imported from Malaysia. This trade between the two countries constitutes 0.05% of India’s GDP and 0.41% of Malaysia’s GDP (GDP of Malaysia is $314bn while that of India is $2.5tn.).

A major limitation of the paper is the paucity of scholarly articles on the subject since the incident in question happened in October 2019.Therefore, the researcher has primarily relied upon newspaper articles to substantiate his arguments.

India Continues To Purchase From Malaysia Despite Increase In Tariffs

Indonesia and Malaysia constitute 85% of the total palm oil production, therefore the first response of Indian buyers is to buy palm oil from Indonesia but that may be improbable.[5] The reason being CPOPC (Council of palmoil Producing Countries) which is an organisation and both Malaysia and Indonesia are a part of this and their goal is to fight together against nations that increases tariffs on import of palm oil.[6] This opens a possibility that Indonesia may not sell to India and Indian buyers have to buy from Malaysia for want of alternatives. In this chapter, the researcher will analyse the impact on both the countries when Indonesia refuses to sell to India, whereas in the next chapter, the researcher will look into the impact when Indonesia agrees to sell to India.

Impact On Indian Economy

Due to an increase in import tariffs, it would now be expensive for Indian buyers to buy from Malaysia.This tax would not be borne only by the buyers of palm oil from Malaysia but also by its final consumers in India. The burden of tax increase will almost be equally borne by both consumers and sellers because of in inelastic supply as well as an inelastic demand.

Inelastic supply means that the supply of palm oil is not dependant on price in short run while inelastic demand means the demand of palm oil is not determined by the prices of palm oil in the short run. The elasticity of demand and supply play a major role in determining the prices of the goods and services. For Example- The demand for medicine is inelastic the price doesn’t come in the way of purchasing medicines. Also, the supply of water is inelastic as its availability doesn’t change with the change in prices. It is the elasticity of both demand and supply that determines the price.

The supply is inelastic as the palm oil trees bear fruits after 30 months of planting and continue to do so for next 20-30 years.[7] Therefore, it is not possible to see a change in supply when tariffs are imposed on the import of palmoil. The demand is also inelastic because of no alternate nation to get supplies from and there is lack of availability of economically viable substitutes. On one hectare of land, there is a yield of 3.7 tonnes of palmoil as against just 0.38 tonnes and 0.48 tonnes of soybean and sunflower oil respectively.[8]Though some consider soybean oil to be a substitute, data shows otherwise.

Palm oil and soybean oil are cross-price inelastic.[9]Their cross price elasticity at 0.103 shows that for 1% decrease in demand forpalm oil, there need to be approx. 10% reduction in the price of Soybean oil, thus Soybean oil is not a good substitute in lieu of palmoil.

The extent of the taxes borne by the sellers will reduce the profits and revenue of the businesses. The increase in cost of production will affect most of the FMCG companies, whether big or small, as they use palm oil as a raw material. This can also lead businesses to reduce the no. of workers they employ. As of now, the FMCG sector is 4th largest in our economy and provides jobs to 3 million people and 5% of the total factory employment in the country. Recent government reports have shown that unemployment rate in India is at its four-decade high. It can get aggravated by purchasing palm oil at increased tariffs.[10]

The extent of the taxes borne by the buyers will make the goods costly for them. Palmoil is used in products like soaps, shampoo, ice-cream, detergents, lip-stick, etc and increase in price of these daily-use products will adversely affect the expenditure budget of the households. Therefore household savings will reduce. Also such an increase in price of a bundle of goods may also lead to inflation.

During FY 12 and FY 17, India’s saving rate (the percentage of GDP saved) has been constantly declining and the main reason is the reduction in household savings. During the same time, the share of the households in total investment also dropped. There is a direct correlation between the household savings rate and household investment rate.[11]Thus, a further decrease in household savings due to increase in prices of those products manufactured using palmoil will leave people with less money to save and invest in banks, stock market, mutual funds, etc. it will decrease the investment in India to some extent which in turn leads to less infrastructural development.[12] This will hinder the growth of small and new businesses and will lead to reduced economic growth in India.

In the current scenario, when the Indian economy is badly hit and growth rate is very low, doing something that will increase the cost of production of almost entire FMCG sector which is 4th largest sector in India’s economy will be detrimental to Indian economy.
Indian Traders Shift To Indonesia To Purchase Palm Oil

When Indian govt. increases tariffs on the import of palmoil from Malaysia, it makes such a trade with Malaysia less attractive for the buyers in India. They would thus import from Indonesia as it is the only viable option after Malaysia as both of them together produce 85% of the palmoil production. As regards the CPOPC, there is no formal agreement and there are high chances that Indonesia will sell the oil to India. In this chapter, researcher shall analyse the impact of the same.

Reduced Foreign Exchange Reserves

The impact on the Malaysian economy will be very detrimental as India buys palmoil worth $1.3 billion annually and total exports of Malaysia are only $240 billion. When this trade shifts to Indonesia, it will lead to a reduction in exports and foreign exchange reserves in Malaysia by $1.3 billion.

As of 15th Nov 2019, Foreign Exchange Reserves of Malaysia stands at $103.2 billion.[13] And losing 1.25% of their Foreign Exchange reserves can have serious impacts on the economy in long run. These reserves are used for making payment outside the country and thus is important for payment of imports. Having sufficient reserves also help in preventing a country from external crisis. If Malaysian foreign exchange reserves were to fall, it would reduce its ability to pay for making payment for imports without incurring debt. Also, it would minimize the capacity to mitigate external shocks such as fluctuations in currency rate as selling or buying foreign exchange reserves can change their currency’s value.[14] Foreign Exchange reserves help to maintain international confidence which may take a hit if the reserves level reduces in Malaysia.

Reduced Trade Surplus

With a reduction in exports by $1.3 billion due to India not purchasing palmoil from Malaysia, the Balance of Trade surplus will fall by 5.7% of the 2017 level. The graph in annexure 5 shows the imports and exports of Malaysia from the period between 2007 and 2017.[15]The graphin annexure 6 shows the Balance of Trade in Malaysia.[16] Malaysia is one of a few countries whose balance of trade runs in surplus i.e. exports exceed imports.

A trade surplus is beneficial for an economy as it provides the nation with competitive advantages. Since the country is running in ‘profits’, they produce more which leads to more employment, a reduction in unemployment and generation of more income. This increases the standard of living of the people residing in the country. Also, the country has the capacity to import more. The 5.7% reduction will not be detrimental to the Malaysian economy as it already is enjoying trade surplus but can reduce these perks of being in trade surplus.[17]

Conclusion

The analysis by the researcher shows how a political statement can influence the trade relations among countries and also their economies. In the given case when India threatened Malaysia, it is analysed that the Indian economy will suffer if India purchases from Malaysia due to increase in cost of production and decrease in household savings but if India purchases  from Indonesia, it will prove to be detrimental to Malaysian economy due to reduction in foreign exchange reserves and trade surplus.

This is not the first time there has been international trade affected by politics. The government’s intervention in trade is not uncommon despite the growing trends of globalisation. In fact, political factors have a huge impact on such trades. After Pulwama attacks took place, India imposed 200% custom duty on all imports and took off the status of Most Favoured Nation (MFN) from Pakistan. Ideally, India should not have taken that step considering the stance it took in 1991 to open up the economy to the world and imposing such harsh import conditions on one nation is a blatant violation of the same. But considering the history of Indo- Pakistan relationship and to improve your political standing as a daring country, India took that step. It shows us how much international trade is intertwined by politics that is seems almost impossible to be able to separate them.

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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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Economy

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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