“One belt - one road” concept and regional financial stability in china

The “One belt – one road” concept was designed to solve the problem of the slowdown of the global GDP growth rate and eliminate the difference between rich and backward countries and their development. Being the initiator of the concept, China is aimed to move forward with these ideas through openness and collaboration. Thus, it includes participants from Asia, Europe, Middle East, North Africa as well as other countries and international organizations 1.

The concept is based on internal and external factors. It could promote foreign policy issues and strengthen the country's position in Asia-Pacific region. It also creates a new opportunity for the Chinese economy to maintain sustainable growth. So, the Chinese economy, after thirty years of dynamic growth, started to show significant signs of slowdown and needs structural reforms and a search for new growth drivers. In this regard, China pays more attention to the internal capacity of the undeveloped areas of the country – Central and Western parts - as a means of getting rid of the excessive dependence of the economy on exports, and to shift to consumer-led economy.

Collaboration within the concept includes political area, infrastructure, trade, finance and the humanitarian sphere 2. For that reason, it is urgent to analyse and estimate the implicit risks especially in financial area.

In terms of international finance, the Chinese establishment has already created the chain of regional financial institutions for development to maintain stability in the region. Today, there is a wide range of such organizations, such as the Asian Infrastructure Investment Bank, New Development Bank BRICS, and the “Silk Road” fund 3. The main purpose of their establishment is to promote foreign investment rather than encourage domestic development.

As for internal investment induction, it seems to be reasonable: first, identify attractive industries as ultimate target to finance and the degree of dependence with the instrument of the region’s specialization coefficient; secondly, whether it will provoke significant growth in financial intermediation or not.

According to the establishment's position on the “One belt-one road” concept, they draw special attention to the development of certain regions. Within that concept the State Council of the People's Republic of China determines 9 west regions (Shanxi, Gansu, Ningxia Huizu, Qinghai, Xinjiang, Chongqing, Sichuan, Guanxi, Yunnan), 5 east regions (Jiangsu, Zhejiang, Guangdong, Fujian, Hainan). So, west provinces will be supported by the development of the “One belt-one road” whereas eastern provinces could have additional support of the “21st Century maritime silk route economic belt” 4.

In terms of GRP, all the above-mentioned regions except Sichuan province produce considerably less output in comparison with the average in the economy which is around 2208 billon CNY. Especially backward provinces are: Gansu, Ningxia Huizu, Qinghai, Xinjiang where GRP is even less than 1000 billion CNY. Shanxi, Chongqing, Guangxi and Yunnan are in the middle part (Table 1).

The region’s specialization coefficient is defined as the proportion of weighted regional industry output to weighted GRP. If the coefficient is higher than 1 it means that a region specializes on a specific industry 5.

Table 1 represents the number of industries where all these regions are considered to be the most oriented in “Construction” except for the Shanxi province. “Agriculture” also drives the regions. As for “Financial intermediation” this industry is mostly concentrated in the Shanxi, Ningxia Huizu, and Qinghaiand Chongqing provinces.

Table 1: The regional specialization by industry

Calculated by the authors based on data obtained from: National Bureau of Statistics of the People`s Republic of China. [Source: ]

Thus, it has been identified that fewer than half of the regions are less dependent and inclined to do business in financial intermediation. Nevertheless, with the current trend of the openness policy and elimination of investment restriction, it has provoked a significant amount of investment growth in “Financial intermediation”. Foreign direct investment on the basis of the “One belt-one road” route amounted to approximately $6,49 billion in China with 1623,3% growth in the “Financial intermediation” industry 6.

It seems to be a relatively stable financial situation despite such huge amounts of investment. According to comparatively small dependence on the “Financial intermediation” industry as whole it won't lead to any instability in the economy, but some prospective risks to the region remain.