In discussing China’s ambitious One Belt, One Road infrastructure project last week, we argued that the rest of the world must see it for what it is: not simply an investment plan to be assessed on conventional economic grounds but an attempt at shaping the geostrategic structure of the global economy in future decades.
To better understand why, it is important to have a sense of how the economic relationship created by a successful Belt and Road initiative would add up to much more than the sum of their its parts. (Whether it could be successful is an important question, too. Christopher Balding argues that even for China, the price tag of $1tn, give or take, may be too much of a stretch. The think-tank Bruegel agrees.)
Paul Krugman dips into his earlier research programme on economic geography and provides a clear and succinct illustration of how infrastructure links such as those One Belt, One Road contemplates, matter. If economic activity is more profitable when done at greater scale, then (even small) transport upgrades that make one location better connected to many others can create a pole of attraction for investment and economic growth there, built on its cost-efficiency (even if small) in supplying those other markets. As a result, “you can definitely see Belts and Roads as a bit of a strategic trade policy as well as being a strategic, well, strategic policy”.