China is betting on a massive infrastructure and cross-border trade initiative to cushion the economy as it transitions to a period of slower, more sustainable growth, but experts warn the program could do more harm than good.
Years in the making, the 'One Belt, One Road' (OBOR) initiative is composed of two primary projects: the "Silk Road Economic Belt" and "21st Century Maritime Silk Road," a network of road, rail and port routes that will connect China to Central Asia, South Asia, the Middle East, and Europe. President Xi Jinping hopes the plan will spur more regionally balanced growth as annual gross domestic product hovers at a 24-year low.
However, OBOR is unlikely to resolve Beijing's long-term growth problem as it doesn't address domestic consumption, noted Bank of America Merrill Lynch (BoFAML) in a recent report.
"OBOR tries to export China's savings and import foreign demand, so it represents a continuation of China's old growth model (which had brought China to its current predicament in the first place)," it said.
"We suspect that many local governments may leverage off OBOR for a new round of infrastructure spending…This, while helpful in holding up short-term investment, will delay the long overdue rebalancing toward consumption in China," it added.