Q&A: The 'intellectual father' of BRI on China's global development approach

WASHINGTON — Perhaps the most important structural change in the global development sector is China’s rise as a donor. It’s also among the most poorly understood. Much of that lack of clarity can be chalked up to the opaque nature of Chinese policy-making and government. Another reason is that Chinese aid has little interaction with aid from Organisation for Economic Co-operation and Development countries. There’s little co-financing, co-creating, or even co-convening around development issues. What is known is that Chinese aid is becoming more institutionalized and much, much larger. There’s the $1 trillion Belt and Road Initiative and the $50 billion Asian Infrastructure Investment Bank, both providing debt financing for large-scale infrastructure. And now there’s a single Chinese bilateral aid agency — the Chinese International Development Cooperation Agency — responsible for coordinating a grant aid budget thought to rival that of France or Japan. Devex has reported on all of these changes, but for the first time we sat down with the architect behind many of them, Justin Yifu Lin. Lin is perhaps the most influential thinker in China on global development, and was described by the head of one of the world’s largest international NGOs as “the intellectual father of the BRI.” Lin has a doctorate in economics from the University of Chicago, was the chief economist at the World Bank from 2008-2012, founded the influential China Center for Economic Research, and is currently the honorary dean of the National School of Development at Peking University. He is also the author of 25 books. “China is a new donor and so there are many things to learn, they have many things to improve. But fundamentally … the goal is to relay that help to recipient countries.” --— Justin Yifu Lin, author and honorary dean, National School of Development at Peking University This interview was conducted by Devex’s President & Editor-in-Chief Raj Kumar and has been edited, but not substantively changed, for clarity and brevity. I thought we could start by talking about the moment that we're in now in terms of China's overseas development policy. Obviously there's the Belt and Road Initiative which is not just an idea anymore, it's really moving forward in many countries. There is AIIB as well, and CIDCA. It feels like there is a new moment, a new era in Chinese overseas development. Is that how you see it? I do agree. China has been more active in contributing to international development. I think that there are reasons for that. One, now China is the largest trading country in the world. And China is the second largest economy in the world, measured by market exchange rate. If we measured by purchasing power parity, China is the largest economy in the world. And, currently, China is an upper-middle-income country. Last year, the per capita GDP reached about $9,800 and I think that, very soon, by maybe 2025, China's per capita GDP may reach $12,700. That means China will be a high-income country and I think that like other high-income countries, like other major economies in the world, China needs to take more responsibility for the development of other developing countries. And certainly this will be a good opportunity for other developing countries because many of the developing countries are struggling with the accomplishment of the SDGs and, more importantly, how to get out of the poverty trap. China will provide new sources of funding, new projects. Certainly that's good for developing countries. If a developing country can get rid of poverty and have sustainable green growth, it's not only good for them, it's good for the world and certainly it is also good for China. You spend a lot of time talking with people in other countries. You had a big role at the World Bank, so you're very familiar with how other people see China's global development policy. What do you think are the biggest misconceptions? What do people misunderstand about the approach China is taking to development policy? For the recipient countries, China's entering into this new [role] with international assistance. [China] is welcomed but [recipient countries] would like to see the results. They would like to see how this can really bring benefits to them to solve their problems of poverty, jobs, sustainability or those kinds of things. Chinese projects on their own seem to be contributing to all those goals, but [recipient countries] would like to see the final results. The approach China is taking is somewhat different from the developed countries, from traditional donors. This new approach brings some excitement and expectations. China is the newcomer and China's approach is somewhat different from the traditional approach. So there are some suspicions on whether China can really deliver all those promises or not. And there’s also some kind of geopolitical or political concerns. You know, whether China is going to be a competing donor, a competing power, and whether China is going to overshadow other donors or not. So you can see there is some sensitivity there. Do you think there is any justification for that suspicion? Do you think China could become a leading donor country in a way that does overshadow or in some ways compete with existing international aid systems? I think that we have common goals. As long as we can really help developing countries to achieve their aspirations, [China] should be welcomed. But as you can see, the U.S. wants countries not to accept China's projects. They think that that is going to be a burden to them. But you know, at the AU summit, the African Union president said we are only allowed to make a judgement by ourselves, we don't have to be taught what is good for us what is not good for us. From recipient countries so far, I think most of them are favorable to the coming of China as a donor. But I see most of the resistance, most of the animosity coming from the existing donors and especially the U.S. Some civil society [groups] in some of the recipient countries follow those kinds of voices, but from what I see, the majority see China's coming favorably because they do have a need to fulfill the aspirations of their people to get rid of poverty and to achieve the SDGs. Do you think it's possible that we will end up one day having one system for international development or will this really be two systems? For example, having multilateral development banks, like the World Bank, bilateral agencies, like the U.S. Agency for International Development and the U.K. Department for International Development, big U.S. and European private foundations on one side, and then China having its own approach with the BRI, AIIB, and CIDCA? Might we end up with two separate systems that compete? It depends on how we define one system. To me, it's one system because we have common goals, even though to achieve the goals there are so many approaches. “We are in the same boat, and we help recipients to cross this wide ocean from the poverty continent to the prosperity continent.” --— Just like you have a university, and it has so many different schools and how they teach may be different. Maybe you go to medical school, business school or school of humanities or school of religions. They're all in the same university. Do you go call that a university or several different universities? Do you call that a system or several different systems? What they teach may be different, but they all contribute to their common goals for good education, to unite the people and to enhance their capability to handle the challenges of life in their societies. It would be wrong to not really make development happen. And currently, high-income countries emphasize humanitarian aid, education, and health. They emphasize transparency, they emphasize governance. All those are desirable. But all those programs have been implemented over 30 years, but we see poverty is still there. We see the gap between high-income countries and developing countries is still widening. And we see the aspirations of the recipient countries are not fulfilled, and we know that if we look into a few successful catching up economies, they do other things. They improved their infrastructure, they created jobs through structural transformations, they promote investment. Those kinds of things can really provide the means to poor people to increase their income and to have funds so they can help themselves with good nutrition and good health. With education, their income increases, and gradually they become middle-income and their voice in society also increases. What China contributes may be different, but we share the same goals. And we know that to have this goal be realized, what the high-income countries did in the past was not sufficient. The final judge is not, “my program is the only right program,” or “your program is the best program,” only because your programs are not the same as our programs. I know, as long as we contribute to the same goals, we're in the same system, we're in the same boat, because fundamentally we want to help recipient countries to cross from poverty to prosperity. We are in the same boat, and we help recipients to cross this wide ocean from the poverty continent to the prosperity continent. We are in the same boat. Traditional donors agree with you about the difference in philosophy and approach. They tend to emphasize humanitarian aid, education, health, transparency, governance, and the Chinese model is more about infrastructure that can create more opportunities for trade, investment, structural transformation, and jobs. But the worry that I hear from some of them is that these approaches are not compatible. That the Chinese approach might undermine the traditional approach by creating a heavy debt burden around infrastructure projects that reduces investment in health and education, and other social sectors. Or deal-making around projects could lead to worsening governance, maybe even corruption. How would you address that concern? Well, you know, it's just a suspicion without any evidence for that. Certainly it's a possibility. If you make infrastructure [that doesn’t] contribute to the improvement of productivity, you will not facilitate the development of industries [and] you will not facilitate exports. Agreed. Then you will become a burden and it will become a trap, a debt trap. But in recipient countries currently, the main bottleneck for job creation, exports, and sustainable growth is infrastructure. In this kind of situation, we cannot say we would not do infrastructure and as long as you do infrastructure you're going to hurt them. That kind of argument is just not sustainable, not supported by any evidence. I think the final judgement is whether this kind of project is going to really contribute to our goal or not. You can have good intentions but if they do not contribute to goals then you cannot consider this a good project only because you have good intentions. For example, health and education are important, but what if your people have health and education, and you don’t have jobs for them? That already happened in North Africa. In terms of health, it improved a lot, in terms of education, it improved a lot, and in terms of governance it at least improved somewhat. But no jobs. They do not have jobs, they cannot develop their industries. They cannot, you know, develop their industries that can reach global markets which can create a lot of jobs. As a result, people will just have other disillusions and some of them may be lucky to become migrants legally or illegally to Europe or to the U.S. But a lot of them, they cannot go. And they’re educated, they’re healthy, but they don't have a job. So what will be the consequence? Maybe social and political instability. So even when you have good intentions, you're not necessarily able to give what you promise. We know without infrastructure, all those kinds of job creation and income-earning types of industry cannot be developed. And so, not only China, but maybe also other BRIC countries will. I think there are more reasons other BRIC countries will do that because that's their experience, how they transformed from poor, agrarian countries to be prosperous growing countries. One related concern I hear from traditional donors is around transparency in China's aid system. That basically China does not publish much information on what it's doing, including for the Belt and Road Initiative, and that breeds suspicion on what kind of approach China is taking. Do you think that in the future, as China develops its approach, there will be more transparency, more data, more project information in the way you may have seen when you were working at the World Bank? For that I would agree. Yes, China can improve on [making] data and project information available so people can make a judgment and better understand. This certainly is welcomed, and I think China will embrace that. That's also the reason why China set up AIIB, because then they will adopt the commonly accepted international criteria and from that China can learn. As I said, China is a new donor and so there are many things to learn, they have many things to improve. But fundamentally, you know, the goal is to relay that help to recipient countries. What do you think about this year’s process to select the World Bank president? Well, I think that's another discussion because it's a legacy of the past that the president of the World Bank will be an American citizen, but now there are more and more people who think that we should have a merit-based selection process. We should not have a monopoly in the position, right? So, I will say competition will be good, and we should bring the best people to this important position because the World Bank is still one of the most important international development institutions. World Bank President David Malpass is known as a kind of a China hawk as they say here. Do you have any view about someone like that in this role or even in particular? I don't have any particular view of any particular person. But I think that you know to have a fair process, transparency, to have open competition and to allow the best person to serve this important position will be an important thing to help this important institution. When I talk to people who work in big NGOs or big contracting companies that do the work of development, that implement projects, they see the Chinese system as still very separate. Do you think there will be an effort at some point to make a more open competitive system in terms of project implementation itself? Do you imagine Chinese aid going to French companies to build infrastructure? Is that kind of thing possible? I think that projects are [bid] on a competitive basis. They do have open public competition for projects, but you expect China to get more of those kinds of projects because infrastructure is a competitive advantage in the Chinese economy at this stage of development. Just like in the 1930s, 1940s, 1950s, the U.S. construction companies were very competitive, because at that time the U.S. had a lot of construction projects domestically. “If you really care about the recipient country, we should not care about who does the project.” --— But, high-income countries have already completed their infrastructure — mostly. And also, now they move up the industrial ladder. Construction materials like steel, cement, and aluminum are not the comparative advantages of an advanced country anymore. So because those kinds of industries are not the countries’ advantage in this open competition system, you're not going to get as many projects. I can see a lot of projects in African countries are either Chinese or you know, Turkish, and some are Indian, and you are going to see fewer projects [implemented by companies] from high-income countries like Germany or France or Spain. It is because of the nature of the state of development. You see a lot more Chinese contractors, only because they can offer the same quality or even better quality at a much lower cost. If you really care about the recipient country, we should not care about who does the project. Probably we should care whether they offer the project with the quality specified and they deliver the project at much more competitive prices. That should be the only concern. Earlier you mentioned the Sustainable Development Goals, which I think have really become a common set of goals. I heard it from you, but I don't hear much talk of the SDGs as part of the Chinese approach to development. Are the SDGs the main objective of China's approach? Sometimes you can talk a lot, but you are not going to deliver. Sometimes you don't talk so much, but you are going to deliver. For example, the SDGs have 17 goals. The first one, no poverty, the second one, no hunger, the third one, good health. They are all desirable. Now, one way is for the donor community to give income support. Some donors provide food, some donors provide medical care, and they may be able to achieve the goal. You can talk a lot about that, but I think another way is that we create jobs. If you create jobs, and especially jobs which pay reasonably high wages, then you are not poor anymore. You do not receive donations but you earn income. Once you have income, you will buy food so you will not be hungry. Once you have the income, then you can take care of yourself so you can have better health. “The Chinese way is we help you create jobs by improving your infrastructure, and also bringing foreign direct investment to create jobs.” --— But how can you have a good job? You know that actually poor people, they all have jobs, but they are poor only because they work in low productivity traditional agriculture or low productivity services. And now we know that the way to raise their income is to industrialize. 200-300 years ago, we were all poor and we all worked in agriculture. If we want to move out of poverty, you need to have a structured transformation from traditional agriculture. You need to give technology to the agriculture sector. But more importantly, you need to help industrialization. To have industrialization, you need to have infrastructure, power, roads, ports. The Chinese approach is the saying: “Give a poor person a fish, or teach the poor person how to fish.” Those people who give fish waste a lot. The Chinese way is we help you create jobs by improving your infrastructure, and also bringing foreign direct investment to create jobs and work to utilize your comparative advantages in labor intensive industries or to utilize your comparative advantages in natural resources or agricultural resources to make exports and make development sustainable. We may not talk the way traditional donors talk. They give money to reduce poverty, but poverty is still there. They give food to reduce hunger, but hunger is still there. They give medical care to reduce disease, but the disease is still there. The Chinese way, we do not talk about that, we help you to increase your income. To have jobs to raise your income, and you will take care of yourself. The Overseas Private Investment Corporation has been expanded by the Trump administration to become a new development finance corporation with very much the same idea you just described: making investments and creating jobs in developing countries. What do you think about that? They positioned it here in the U.S. as a competitor to the Belt and Road Initiative, or as the U.S. response to it. We always say the Pacific Ocean is so large, so we don't have to compete. We can all swim in the same pool, because fundamentally it is not to dominate or to compete. The recipient country need is so large. If we really want to improve the infrastructure in developing countries in Asia you need to have about $1 trillion per year in Asia alone. If you want to improve the infrastructure in Africa you at least need to have $1 trillion a year. I don't know how much the U.S. can contribute as well as I know how much China can only contribute, and it’s only very little of that. So we don't have to compete, because fundamentally the need is much larger than what we can [each] offer.