China’s New Silk Road initiative was conceived as a way to soak up the country’s excess industrial capacity as it moves away from an export-based economy.
The project is a crucial part of President Xi Jinping’s international economic strategy. It’s aimed at helping countries build energy and transport links with the Middle East and Europe.
Rivals like the US and Japan will do high fives for every rut in the Road that Beijing encounters. But it seems there’s also some worry inside China that the ambitious enterprise may end up running at a loss.
Xu Shanda, a former deputy director of the State Administration of Taxation, confirmed in an online posting on Friday that the program will probably run huge financial losses. This, despite the fact that the multi-nation enterprise is a necessary outlet for excess Chinese industrial capacity.
In an online journal by the website ifeng.com, Xu wrote: “In previous years, China made large investments in the energy sector. Looking at it now, these investments were useful in ensuring energy supplies, though financial losses were large.
“If we do not go this route, external demand will shrink, which will put tremendous pressure on domestic production and exacerbate the over capacity problem. So, despite the difficulties, we need to stick to this overseas economic strategy.”
In 2009, Xu was part of the group that proposed the idea of investing in neighboring countries in order to boost demand for its goods and services. Also known as the “One Belt, One Road” program, the initiative, which was announced in 2013, is a way for China to invest in infrastructure projects all over Asia, Africa and Europe, such as railways and power grids.
The program was the main reason for the establishment of the $50 billion Asian Infrastructure Investment Bank. So far, China has dedicated $40 billion to a Silk Road Fund and the program.
Xu also said cutting excess industrial capacity was the most difficult challenge for China’s supply-side reform agenda due to an insufficient social safety net in the face of rising unemployment.
Another big obstacle that China faces, according to some analysts, is the rise of Islamic militancy along the economic corridors envisioned for the Silk Road plan. Anti-Chinese sentiment is being fanned by unrest in China’s Muslim Central Asia regions and has become a major security headache for Beijing.