Capacity cooperation involves capital flows

Xu Weihong, a member of the academic committee of Pangoal Institution, and chief economist with AVIC Securities / CHINA DAILY

Cross-border capacity cooperation has always been about optimizing the allocation of the global factors of production through the market. On the one hand, "Made in China" products remain competitive in the global market, allowing the country to have surpluses against my trading partners. On the other hand, Chinese investors have shown unprecedented keenness for overseas markets, laying the foundation for China's capacity cooperation with the economies along the Belt and Road routes.

Capacity cooperation will inevitably involve two-way capital flows, thus highlighting the need for modern financial services. The inter-connectivity of capital is supposed to include Chinese enterprises' procurement of overseas mineral resources and/or establishment of branches and seeking of mergers abroad. Procuring overseas mineral resources marks the expansion of industrial chains driven by the rising labor cost and scarcity of certain resources in China, while establishing branches and seeking mergers abroad often enjoy policy support but can be susceptible to geopolitical risks.

As the overseas promotion of the Belt and Road Initiative begins to bear fruit, it is vital to reduce unnecessary financing support to Chinese enterprises, be they State-owned or private. Unreasonably low financing costs will disrupt global market pricing, which may create trouble for Chinese investors aspiring to become global competitors.

At the heart of the Belt and Road capacity cooperation is the upgrade of Chinese enterprises' "go global" practice, as well as expanded allocation of the factors of production.