Slowing economic growth in China is spurring its top leadership to expand the country’s influence beyond its shores — a development that was most recently on display at an annual forum of the Association of Southeast Asian Nations.
Over the weekend meeting, foreign ministers grappled with how to refer to differences in the South China Sea, highlighting divisions within the trade bloc under the shadow of the neighboring economic powerhouse.
Aside from its stunning economic ascent, China’s growing clout overseas is also about bolstering confidence at home.
“In recent years, the government wants to show the country is becoming stronger and stronger, so to make people feel better about country. That’s the main driving force of the shift to a foreign policy agenda like South China Sea and ‘One Belt, One Road’ and a lot of things,” said independent economist Andy Xie.
“It has a lot to do with the domestic economy,” he told CNBC recently.
“One Belt, One Road” — also called “Belt and Road” — is China’s globe-spanning investment program to connect countries along a new high-tech and transport Silk Road. That’s being unfurled as the Chinese economy shifts from a manufacturing focus to services and consumption.
The transition comes with growing pains, with efforts to reform state-owned enterprises (SOEs) and slash excess capacity spurring layoffs and widespread resistance.
To maintain a certain degree of economic growth — targeted around 6.5 percent in 2017 — China needs to find new markets, and help keep massive state-owned enterprises afloat, Nadege Rolland, senior project director of political and security affairs at the National Bureau of Asian Research, said at a recent forum hosted by the Center for Strategic and International Studies.
The SOEs, many of which are involved in the industrial sector, are burdened with over-capacity and debt after years of turbo-charged growth in China that is now decelerating. “One Belt, One Road,” observers say, will help to mitigate the impact of the economic shift.
Kunal Ghosh, emerging market portfolio manager at Allianz Global Investors told CNBC that the initiative is a “fantastic way of getting someone to pay for your debt and use your surplus capacity.”
The initiative is not necessarily a universal win-win, though: “The Belt and Road is a great plan, but you must also look at its consequences,” said ASEAN Business Club President Munir Majid.