A global economic power struggle has broken out between China and the US. Against this backdrop, Kai A. Konrad analyses China‘s possible motives and the expected effects of the Chinese state’s large international public investments and identifies four factors that help determine which country will assume the role of leading investor, innovator and exporter.
China - where large-scale public infrastructure investment abroad drives national wealth creation. (Picture: iStock/KI generated)
At the G20 meeting in Rio de Janeiro, China’s President Xi Jinping emphasised his role as a supporter of the Global South and announced an initiative to provide access to scientific and technological innovation to countries in the Global South. Other Chinese initiatives, such as the Regional Comprehensive Economic Partnership (RCEP), infrastructure investments such as the BRI and establishing the Asian Infrastructure Investment Bank (AIIB) also undoubtedly have geopolitical implications. What needs to be clarified, however, is whether China’s megaprojects are driven by geopolitical ambitions and their impact on national levels of prosperity.
Kai A. Konrad explores these questions in his article China’s public international investment: A strategic-trade-policy perspective. According to Konrad, the Chinese state’s investment projects, such as the BRI, the AIIB, or the RCEP, can be divided into three categories: those that harm its own country and its rivals (such as economic sanctions). Those that can benefit both countries (such as lifting trade restrictions) and those that promote their prosperity while hurting their rivals. It can be assumed that national prosperity and geopolitical objectives motivate these activities.
Konrad’s formal analysis of international trade illustrates why only one of the two major nations – China or the US – is likely to emerge as the dominant competitor. This nation invests heavily in developing new products and exports them worldwide, resulting in higher per capita incomes and significant economic disparities between the two countries. But which country will emerge as the dominant investor, innovator and exporter in the geopolitical showdown?
Konrad identifies four factors that lead to measurable advantages for competitors: (1) a national industrial policy that favours the creation of ‘national champions’, (2) government targets that give solid weight to the profits of domestic companies, (3) an initial situation in which a country has a comparatively large, existing export sector compared to the competitor country and (4) low opportunity costs for trade cost-reducing investments. Konrad points to facts that suggest China has an advantage on all counts.
Konrad’s study shows that geopolitical considerations and national prosperity goals are closely intertwined. The competitive parameters identified provide a rational explanation for China’s comparative efforts in international infrastructure investment. As a result, China is likely to assume the role of the world’s dominant major investor, innovator and exporter.
China’s public international investment: A strategic-trade-policy perspective - ScienceDirect
December 2024