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Prof. Justin Lin: Infrastructure Investment Crucial for Avoiding Development Trap

Apr 24-2022   



A recent tally shows that since the inception of the Belt and Road Initiative eight years ago, China has signed over 200 cooperation documents with 148 countries and 32 international organizations. The achievement has been accompanied by smearing by some western media bent on portraying so-called China’s ‘debt traps.’ In a media interview, Prof. Justin Lin Yifu, Honorary Dean of the NSD and Dean of the Institute of South-South Cooperation and Cooperation at PKU, says that criticisms of China are based on dogmatic experiences and the biggest trap for developing countries is inability to achieve economic growth.

 

Prof. Lin points out that many developing countries sap under debt burdens cumulated over a long time, and China’s projects only add a slight proportion. For example, China has undertaken a series of infrastructure projects in Sri Lanka, which amount to 10% of the country’s total debts; in other words, 90% of its debts are linked to other countries. Sri Lanka signed a concession agreement to lease the Hambantota Port to a Chinese company, thereby obtaining financing to pay off previous debts unrelated to China. In other words, Chinese investment provides financing for it to both build infrastructure and pay off debts. “How come China is creating ‘debt traps?’” retorts Prof. Lin. The same can be applied to some African countries: 15% of their debts are due to agreements with China for infrastructure construction and 85% are owed to other countries, notably developed ones.

 

That the aid and loans from Western countries and multilateral financial institutions have failed to pull many developing countries out of poverty is largely due to mainstream economics’ neglect of structural transformation, says Prof. Lin, adding that investments in education, health, human rights, and political transparency do not suffice to drive economic growth and create jobs, unless they are combined with productive assets and human capital. Most developing countries have followed the advice of the IMF and the World Bank by reducing governmental interventions and amplifying the role of the market, only to end up with deteriorating economic performance. Another impediment, says Prof. Lin, is that strings-attached Western aid constrains aid-receiving countries to catch development opportunities. The finance minister of Burkina Faso once complained that the IMF required the country to conduct about 500 reform items in a year, or 1.5 items per day.

 

What is sorely missing, laments Prof. Lin, is that the Western countries only rely on their own experience for judgement, instead of standing in the shoes of developing countries. Well-intentioned ideas for health, education and transparency tend to fall wildly short of expectations when the developing countries cannot achieve economic growth and job creation to ensure social stability and well-functioning mechanisms. Prof. Lin believes that the developing countries should draw their competitiveness from their supply of natural resources and labor and focus on resource-intensive and labor-intensive industries.

 

The development of such industries require investment in infrastructure, a proven path taken by China itself. China advocates high-quality infrastructure projects that are effective in unblocking growth bottlenecks and compatible with the specific country’s debt-servicing capacity. Prof. Lin says that criticisms of China’s practices are based on dogmatic experiences; for developing countries, the biggest issue is ‘development trap’, or inability to achieve economic growth. He points out that to steer clear of such a trap, the countries need to build infrastructure – the most crucial bottleneck - to pull economic development. As long as China can help developing countries to build much-needed infrastructure and solve their urgent issues, facts will speak for themselves and China should continue such efforts in the face of undeserving criticisms, says Prof. Lin.

 

Prof. Justin Lin: Infrastructure Investment Crucial for Avoiding Development Trap

Apr 24-2022   



A recent tally shows that since the inception of the Belt and Road Initiative eight years ago, China has signed over 200 cooperation documents with 148 countries and 32 international organizations. The achievement has been accompanied by smearing by some western media bent on portraying so-called China’s ‘debt traps.’ In a media interview, Prof. Justin Lin Yifu, Honorary Dean of the NSD and Dean of the Institute of South-South Cooperation and Cooperation at PKU, says that criticisms of China are based on dogmatic experiences and the biggest trap for developing countries is inability to achieve economic growth.

 

Prof. Lin points out that many developing countries sap under debt burdens cumulated over a long time, and China’s projects only add a slight proportion. For example, China has undertaken a series of infrastructure projects in Sri Lanka, which amount to 10% of the country’s total debts; in other words, 90% of its debts are linked to other countries. Sri Lanka signed a concession agreement to lease the Hambantota Port to a Chinese company, thereby obtaining financing to pay off previous debts unrelated to China. In other words, Chinese investment provides financing for it to both build infrastructure and pay off debts. “How come China is creating ‘debt traps?’” retorts Prof. Lin. The same can be applied to some African countries: 15% of their debts are due to agreements with China for infrastructure construction and 85% are owed to other countries, notably developed ones.

 

That the aid and loans from Western countries and multilateral financial institutions have failed to pull many developing countries out of poverty is largely due to mainstream economics’ neglect of structural transformation, says Prof. Lin, adding that investments in education, health, human rights, and political transparency do not suffice to drive economic growth and create jobs, unless they are combined with productive assets and human capital. Most developing countries have followed the advice of the IMF and the World Bank by reducing governmental interventions and amplifying the role of the market, only to end up with deteriorating economic performance. Another impediment, says Prof. Lin, is that strings-attached Western aid constrains aid-receiving countries to catch development opportunities. The finance minister of Burkina Faso once complained that the IMF required the country to conduct about 500 reform items in a year, or 1.5 items per day.

 

What is sorely missing, laments Prof. Lin, is that the Western countries only rely on their own experience for judgement, instead of standing in the shoes of developing countries. Well-intentioned ideas for health, education and transparency tend to fall wildly short of expectations when the developing countries cannot achieve economic growth and job creation to ensure social stability and well-functioning mechanisms. Prof. Lin believes that the developing countries should draw their competitiveness from their supply of natural resources and labor and focus on resource-intensive and labor-intensive industries.

 

The development of such industries require investment in infrastructure, a proven path taken by China itself. China advocates high-quality infrastructure projects that are effective in unblocking growth bottlenecks and compatible with the specific country’s debt-servicing capacity. Prof. Lin says that criticisms of China’s practices are based on dogmatic experiences; for developing countries, the biggest issue is ‘development trap’, or inability to achieve economic growth. He points out that to steer clear of such a trap, the countries need to build infrastructure – the most crucial bottleneck - to pull economic development. As long as China can help developing countries to build much-needed infrastructure and solve their urgent issues, facts will speak for themselves and China should continue such efforts in the face of undeserving criticisms, says Prof. Lin.