💾 Archived View for gmi.noulin.net › mobileNews › 6533.gmi captured on 2021-12-05 at 23:47:19. Gemini links have been rewritten to link to archived content

View Raw

More Information

⬅️ Previous capture (2021-12-03)

➡️ Next capture (2023-01-29)

-=-=-=-=-=-=-

Free exchange: Xi v Marshall - Will China s Belt and Road Initiative outdo the

rlp

How China s infrastructure projects around the world stack up against America s

plan to rebuild post-war Europe

SEVENTY years ago America passed the Economic Co-operation Act, better known as

the Marshall Plan. Drawing inspiration from a speech at Harvard University by

George Marshall, America s secretary of state, it aimed to revive Europe s

war-ravaged economies. Almost five years ago, at a more obscure institution of

higher learning, Nazarbayev University in Kazakhstan, China s president, Xi

Jinping, outlined his own vision of economic beneficence. The Belt and Road

Initiative (BRI), as it has become known, aims to sprinkle infrastructure,

trade and fellow-feeling on more than 70 countries, from the Baltic to the

Pacific.

Mr Xi s initiative, which also has geopolitical goals (see Banyan), has invited

comparison with America s mid-century development endeavour. Some even suggest

it will be far bigger. But is that credible? The Marshall Plan, after all, is

synonymous with statesmanlike vision and vigour. According to Marshall s

successor, Dean Acheson, America s provision of food, raw materials and

equipment was described by Winston Churchill as the most unsordid act in

history . At the time of the Harvard speech Europe was on the brink of economic

chaos. By the time the plan was completed, the continent was on the verge of an

economic miracle. Surely China could not match such a feat?

But in fact, as opposed to folklore, the Marshall Plan was surprisingly modest,

as economic historians such as Alan Milward, Brad DeLong and Barry Eichengreen

have pointed out. It amounted to about $13bn between April 1948 and the summer

of 1951. That is equivalent to $130bn today, based on American consumer-price

inflation, or less than $110bn, based on a broader measure of rising prices.

Divided between 16 countries, it averaged less than 2.5% of the recipients

GDP.

By permitting higher investment and imports, the money certainly helped Europe

s recovery. But not by much. Mr Eichengreen calculates the direct impact as an

increase in growth of only 0.3 percentage points over the plan s life. Nor was

it actually the most unsordid act of its time. Churchill in fact bestowed

that praise not on the Marshall Plan but on America s earlier lend-lease

policy, which aided the Allies from 1941 to 1945.

How does the demystified plan stack up against China s? Comparisons are tricky,

because no one knows how big the BRI will be. According to official figures,

China s direct investment in BRI countries (excluding in the financial sector)

amounted to just $56bn from 2014 to 2017. A tot-up of announced investments by

Derek Scissors of the American Enterprise Institute reaches $118bn. But neither

number includes loans from China s banks, including state-directed policy

banks such as China Development Bank (which claims to have lent $180bn by the

end of 2017) and Export-Import Bank of China ($110bn by the end of 2016).

These past commitments already surpass Marshall s billions. And the BRI is just

getting started. A government-sponsored forum in May 2017 estimated that China

would invest up to $150bn over the next five years. The total over the life of

the initiative is anyone s guess, although Chinese officials seem comfortable

with a number in excess of $1trn. (The origin of the figure of $8trn that pops

up in some reports is untraceable, but may owe something to the Asian

Development Bank s estimate in 2009 of Asia s infrastructure needs in the

coming decade.)

Such an amount would dwarf the Marshall Plan in size, but not necessarily in

generosity. Over 90% of the Marshall money was a handout, not a loan. And the

money all came from America s government. BRI investments, on the other hand,

are from a variety of sources, including private entities, and are supposed to

earn a return for their financial backers. The most attractive projects might

have been financed even without Mr Xi s vision.

A better measure of China s munificence is the gap between the return it earns

on BRI projects and the higher rate the market would demand. Some of this

reflects a genuine financial sacrifice on China s part. But some reflects a

lower default risk, because for many borrowers defaulting on loans from

state-backed Chinese entities is a scarier prospect than bilking a commercial

lender.

The most unsordid structural-adjustment programme

Just as raw dollar figures overstate the BRI s contribution, they also

understate the Marshall Plan s impact. According to Mr DeLong and Mr

Eichengreen, the American plan s true significance lay not in the cash it

provided but in the market-friendly policies it encouraged. To receive aid,

European governments had to commit to restore financial stability and to remove

trade barriers. They also had to match the Marshall dollars with money of their

own, which could be spent only with America s approval.

The Americans did not always get their way. But the Marshall aid nonetheless

encouraged the Europeans to quash inflation and to narrow their deficits while

eventually dismantling price controls and import barriers. These reforms had

enormous benefits. Before 1948 fear of inflation and taxation prompted German

farmers to feed their harvests to their cattle, rather than sell it to the

cities for money that might be diluted by inflation or seized by the

government. According to Henry Wallich, an economist, factories paid workers in

kind, with light bulbs or shoes from their assembly lines, or coal intended for

their furnaces. Once faith in the currency was restored, farmers and

factory-hands could once again work for money, reviving production and

exchange.

The BRI will have no comparable influence. China is still wary of meddling in

the internal economic affairs of other countries (unless its core interests are

threatened). And most of the BRI economies already enjoy more economic freedom

than China. The Marshall Plan worked by giving markets a decisive role in

allocating resources. The BRI will not even try to export that principle

abroad. After all, its sponsor has yet to adopt it at home.