Productivity the 'key word' in infrastructure building

Lin Wenjie

The Belt and Road Initiative is not only about investment in infrastructures, but also about the increase in productivity effect through infrastructure building, as well as the coordination and harmonization impact of all the countries along the Belt and Road, market gurus told the 2018 Asia-Pacific Business Forum on Wednesday.

“Infrastructure building is basically capital building. It contributes to productivity gains through its externalities, for instance, the network effect. If we lay out a digital network to cover the Belt and Road region, the larger the network is, the more users there will be of the network, and the network also becomes more and more important, so that productivity gains could be realized,” said Margit Molnar, chief China economist at the Organization for Economic Cooperation and Development.

More importantly, she added, productivity gains could also be realized through the coordination and harmonization impact of different countries in the region. If there’s large-scale harmonization of different legislation and regulations, there will be a greater productivity effect.

“One of the examples I’d like to mention is the harmonization of intellectual property right-related regulations. If the patent process harmonized along the Belt and Road, it will be much easier for an inventor from a small country to commercialize his inventions in another country, and that brings about productivity impacts through reducing the transaction cost.”

“If there’s no harmonization of legislation, the inventor will need to go through different processes in different countries, which would be prohibitively costly for individuals or small firms. In that sense, the gains from harmonization of legislation could potentially be even larger than the gains from infrastructure,” Molnar pointed out.

Currently, countries and regions along the Belt and Road have different intellectual property right systems, and even the definition of patent is different for different countries.

“Thus, it’s a challenge for the regulatory work to be harmonized, and it can take years, and it is something whose benefits will be shown in the longer term. But, that’s important for China because the population on the mainland is aging, so there’s a need for new sources of growth, and harmonization, and coordination and integration could be a new source of productivity gains,” she said.

Molnar said the huge investment in digital infrastructures and the lack of computer programming talents could also pose challenges for the digitization of the Belt and Road countries.

“The investment in digital infrastructure brings about not only private benefits, but also social benefits, so the return should not be only captured by the profits. And, I think the government is aware of the lack of programming talents, and is trying to popularize university and vocational college programs that specialized in computer programming and make those programmed application oriented,” she said.

Meanwhile, Hong Kong’s integration with the mainland is very strong, so new opportunities will also arise for Hong Kong.

In a word, the Belt and Road Initiative is an opportunity to bring greater economy and benefits if it’s explored in the right way, Molnar said.