PatientCapitalinthecontextofBeltandRoadInitiative(BRI)andMDBs

Dr.YanWANGCentreforNewStructuralEconomics

PekingUniversity,ChinaNov92017

wangyan@nsd.pku.edu.cnywang2005b@gmail.com

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Outline

I. China’sapproachinSouth-SouthCooperation:combiningtrade,aidandinvestment

II. Whatispatientcapital?III. MDBsandNDBscanutilizePatientCapitaltofinance

InfrastructureandPrivateSectorIV. SWF,StrategicInvestmentfunds,SilkRoadFunds

areallprovidersofPatientCapitalV. PleaseincorporateSouth-SouthCooperationand

newdevelopmentbanks/funds/BeltRoadInitiative(BRI)inthefinaldocumentsforFfD

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I.China’sApproachinSSDC:trade,aidandinvestment

• China combines trade, aid and investment in South-South Dev Cooperation (SSDC)

• China’s aid is not “altruistic”. The government never considers aid as one sided “alms”, but something mutual.

• … “Do what they know best”, following their comparative advantage in providing South-South Dev. Cooperation (SSDC)

• …”Teach fishing rather than giving fish”, following China’s own experience and building 6 Special Econ Zones in Africa. Example below

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China’sODA:small,withhugepotential

4Source: Yan Wang 2011. page 22. Updated by Aidflow using 2014 data, Oct 2015.

Southernpartnerscan use3ComparativeAdvantages

• Utilizingcomparativeadvantage(CA,atradeconcept)tohelpeachother

• First,Chinahascomparativeadvantagesinbuildinginfrastructure:e.g.hydro-power,highways,andhigh-speedrailways

• Second,Chinahascomparativeadvantage(CA)in45outof97subsectorsintradinggoods

• Third,emergingeconomieshavehighsavingsandPatientCapital,whichcouldbeacompadvantagetobeutilized

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II.UtilizingPatientCapital• Whatispatientcapital?• Patientcapital: thosecapitalstobeinvestedina

“relationship”inwhichthestakeholder/partneriswillingtotakeastakeinthehostcountry’sdevelopment,aimingforawin-win.Countrieswith“LongTermOrientation”(Hofstede,1990,2010)arewith“patientcapital”.

• Theyareequity-likeinvestorsbutwillingto“sink”moneyintherealsectororunlistedprojectsforalongtime—aslongas10yearsandabove.

• Andtheyarewillingandbetterabletotakerisks.• NetForeignAssetispositivelyandsignificantlyassociated

withLongTermOrientationindex.Ontheotherhand,countrieswithShortTermOrientationandlowsavingsrateswouldseetheirNetForeignAssetpositionsdeterioratingandtheirforeigndebtmounting.(LinandWang2017b) 6

II. Patient Capital (ultra-long term)fromChinaandotherEM

7Source:LinandWang2017b.

Patientcapital1:NetsuppliersofFDIOutflowsminusinflows

8

-150000

-100000

-50000

0

50000

100000

150000

200000

NetSuppliersofFDItotheWorld:Outflowsminusinflows,1990-2015

China China,TaiwanProvinceof

Germany Japan Korea,Republicof RussianFederation

UnitedStates Source:LinandWang2017b.CalculatedbasedonUNCTADdata.

Patientcapital2:Cross-BorderM&APurchases,Net

9

- 50 000.0

-

50000.0

100000.0

150000.0

200000.0ValueofCross-BorderM&APurchases,Net,Millionsof

dollars,2000-2015

Germany UnitedStates JapanChina Korea,Republicof Singapore

Source:LinandWang2017b,basedonUNCTADdata.

III.FutureProspectinDev Financing• ODA(officialdevelopmentaid)willdeclineinrelativeimportanceinthenextdecades;

• ButOOFandOOF-likeloanswillgrow.• MDBsaccountsforonly1%ofglobalinv oninfrastructure(Dollar2016).Theyneedtobetterutilize”patientcapital”

• SettingupmoreMultilateralInvestmentBanks/Funds• ExpandthedefinitionsofODA,OOF,OOF-likeloans(blended,likeAIIB,CDB,EXIMbank),andOOF-likeinvestments(SilkRoadFund,SIFs,andSWF,pensionfunds,othernewfunds).

• UNCTADrecognizestherolesofNationalDevelopmentBanks– anditisaheadofthecurve.WBislatehere.

• IFCnewstudyon“leveraging”trillionsforGreenDev10

Projection of Global Investment 2015-2030

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0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

SHAR

ESOFGLO

BALINVE

STMEN

T,%

TRENDOFGLOBALSHARESOFINVESTMENT

shareofdevelopedcountriesshareofdevelopingcountrieswithoutChinashareofdevelopingcountrieswithChina

TheBeltandRoad:Buthowtofinanceit?

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NewcommitmentsbyChina• ChinainitiatestheAIIBin2013andisafoundingcountryforNDB• Setupasustainabledevelopmentfundof$2billion atUN• Chinahassetupa$2billionfundforSouth-SouthCooperation.• IntheFOCACmeetinginSouthAfrica,Xicommittedtosupport

Africatransformationby$60billiondollarsinthreeyears,consisting,grants,nointerestloans,concessionalandnon-concessionalloans

• Chinahassetupaindustrialcapacitycooperationfundwitha$2billiondollars

• TheBeltandRoadInitiativeisalargeplatformforco-investment(BRI),seeXiJinping’sspeechMay2017.HowtofinancetheBRI:

• WideConsultation(共商）;• JointConstruction（共建）;and• Sharedbenefits（共享）。

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“Win-Win”forall3typesofEconomies

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Source:LinandYanWang2014onKazakhstan.

“TheWCWEtrainistwiceasfastasseabornetransport,butonlyhalfasexpensiveasairfreight,”saidBoecker.

IV. Patient Capital:OutwardFDI(OFDI)fromBRICKS

15Source:UNCTADdata.China’sOFDIreached$183bn in2016surgingup44%.

#1China,183.1(WorldRank#2)

#2RussianFederation,27.3

#2Korea,Republicof,27.3

#4India,5.1#5SouthAfrica,3.4#6Brazil,-12.4

-50.0

0.0

50.0

100.0

150.0

200.0

FDI O

utflow

s (in

billio

ns U

S do

llars)

Outward Foreign Direct Investment Flows (2000-2016)Source: UNCTAD Statistics on FDI

China Russian Federation Korea, Republic of India South Africa Brazil

ChineseFirmsCreatingJobsOverseasHuajian Shoes:AQuickWininEthiopia

• FormerPMMeles Zenawi wenttoChinainMarch2011

• Huajian decidedtomaketheinvestmentinOctober2011andrecruited86localworkerstobetrainedinChina.

• In4months,exportstartedinMarch2012.Huajian becameprofitableinOctober2012.

• Huajian employed3,500workersbytheendof2013.

• SeeMcKinseyJune2017:“MillionsjobshavebeencreatedbyChinesefirmsinAfrica”

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OurNewBook

17CambridgeUniversityPress

Conclusions• MDBscancontinuetoplayimportantrolesintransformation,ifthey1)combinetrade,aid,andinvestmentlikeChinadoes;and2)UtilizePatientcapitalwithlongtermorientation,suitableforenhancingglobalconnectivityforglobalvaluechains.

• TheWBG’snewprivatesectorwindowusingIDA(managedbyIFC)isagoodwayforward.

• Chinaismovingtoanewmultilateralismwithnewbanksandfunds.Chinaislearningtobecome “aresponsiblestakeholder”inglobalaffairsbysupportingFfD viatheNewDevBankandAIIBandSRF,andmoreSIF/funds

• TheBelt&Roadinitiativeisaplatformforco-investment,willcreateopportunitiesforallcountries, Itisawin-win-winmultilateralinitiative. 18

References:• Lin， JustinYifu,NewStructuralEconomics,2010.• Lin,JustinYifu.AgainsttheConsensus:Reflectionsonthe

GreatRecession,CambridgeUniversityPress,2013.• Lin,JustinYifu andYanWang.UNU-WIDERworkingpaper

2014/046.• Lin,JustinYifu andYanWang,2015• Lin,JustinYifu andYanWang,2017.GoingBeyondAid:Dev

CooperationforStructuralTransformation,CambridgeUniversityPress.

• Lin,JustinYifu andYanWang.2017b.“NewStructuralEconomics:PatientCapitalasacomparativeadvantage”,inJournalofInfrastructure,PolicyandDevelopment,Vol.1,No.1.

• http://systems.enpress-publisher.com/index.php/jipd/article/view/2819