Illustration: Peter C. Espina/GT

Since 2014, China has made positive progress in the "One Belt and One Road" initiative and cooperation on international production capacity. According to data provided by the Ministry of Commerce, Chinese companies had invested in 69 overseas economic and trade cooperation zones in 33 foreign countries and regions by the end of last year, and 1,088 Chinese companies have established a presence in these zones. Among these economic and trade cooperation zones, 48 were built along the "Belt and Road" route. These industrial cooperation parks provide effective platforms and play active roles in promoting economic and technological cooperation as well as cooperation on international production capacity.

What should be noted is that there are differences between China's effort to promote cooperation on international capacity and dumping of excess production capacity in developing countries by developed industrial countries in the 1970s. As a means to conduct structural reform and industrial upgrading, developed industrial countries transferred a great amount of labor-intensive low-end manufacturing industries such as textiles, shoemaking and toy-making to developing countries back then. Some of them also transferred processing and manufacturing segments with high energy consumption and environmental pollution to developing countries, while keeping to themselves the higher levels of research and development and advanced manufacturing secrets. Developed countries were able to earn huge revenues from this approach. Developing countries built up their low value added production activities but also found themselves locked into the lower segments of the value chain.

No wonder when China proposed enhancing international capacity cooperation, Western media interpreted it as China attempting to export excess production capacity.

But given current global economic trends, the international capacity cooperation that China has been promoting is fundamentally different from the transfer of excess capacity practiced in the past by developed countries. 

First, the international production capacity cooperation that China is advocating is based on the foundation of equality and mutual benefit, and is meant to cater to the domestic development needs of the investment recipients.

Second, China's international capacity cooperation does not involve any backward production capacity, but instead focuses on areas of manufacturing in which China has a clear comparative advantage.

There are several channels through which China is currently participating in industrial capacity cooperation. One is cooperating with developed countries in advanced manufacturing. A prominent example is the nuclear power station project that China and the UK are collaborating on. The project will use China's self-developed third-generation nuclear power technology, and it is also the first time that Chinese companies will take leading roles in developing and constructing a nuclear power project in a developed country. On top of that, the Karachi Nuclear Power Plant II (Kanupp II) project in Pakistan and the nuclear power project in Argentina are two other examples of industrial capacity cooperation that China is working on.

China can also offer advanced manufacturing in railroads, electricity, telecommunications and equipment manufacturing, including construction of high-speed railway lines and production of locomotives and vehicles. The last but not the least important is co-investment and collaboration in high-standard traditional industries that China currently possesses, including projects in the areas of thermal power, hydro power, steel, and cement. These are all industrial projects that abide by environmental protection standards and have international competitive advantages. A notable example is the Malaysia-China Kuantan Industrial Park (MCKIP). The steel mill project that China led has made positive contributions to the local economy.

A look at the global economy shows that China's approach to cooperation on international production capacity is in tune with current global economic development.

Most of the countries along the "Belt and Road" route are grappling with heavy debts in infrastructure construction, and the urbanization rate is relatively low. China not only has successful experience in infrastructure construction and urban development, but also has formed a mature and competitive industrial value chain coupled with supporting industries. Industrial capacity cooperation is an efficient means through which Chinese companies can participate in economic globalization and global value chain competition. The process is also conducive to Chinese enterprises' "go global" strategies, and is a good way to develop a new trade model.

Through cooperation on international production capacity, Chinese enterprises can not only enhance their capabilities and standards for participating in international competition, but can also develop new competitive advantages. This process will also serve China's goal to build a more open economic system.

The author is a senior researcher at the Chinese Academy of International Trade and Economic Cooperation under the Ministry of Commerce. bizopinion@globaltimes.com.cn