As long as the goal is to strengthen national power and improve the living conditions of the people, institutions related to FfD will closely cooperate and join forces, both with state government bodies at all levels, and with foreign governments. It is imperative that relations between organisations involved in FfD and government should not be bureaucratic, writes Chen Yuan, Chief Advisor to the Centre for Sino-Russian Strategic Interaction, CITIC Fund for the Study of Reforms and Development.
The publication of this op-ed marks the beginning of online collaboration between Valdai Club, Russia as part of its Think Tank project and the Center for Russia-China Strategic Interaction under CITIC Foundation for Reform and Development Studies, China. This is the first in a series of planned exchanges between the two organizations on bilateral and global matters.
Financing for development (FfD) is a type of financing provided for development purposes. It primarily refers to the provision of financing for a kind of practical activity. If seen through the lens of long historical processes, the idea of FfD represents only a fleeting, momentary phenomenon, but from the point of view of social relevance and the theory of knowledge of mankind, this approach is historically significant and has great potential.
In China, FfD arose out of a socialist system, due to the growing material and cultural needs of the people, and began to be used to promote the rapid development of the economy. Thus, Chinas development financing is the result of a number of favourable factors, such as considerable social demand, the governments ability to organise and coordinate, the market application of state loans, the vast savings deposits of the population and enterprises, as well as the significant active balance of foreign trade and foreign exchange reserves. These factors have become the driving force behind FfD and contributed to its growth.
FfD is carried out with the help of public finances, and is always closely connected with the development strategy, target areas and common interests of the state during various periods and at multiple stages. FfD can constantly adjust the focus of its support and is not a passive tool, but an active, viable and conscious actor in the market. The state deals with the financing of development, it is not subordinate to any economic management bodies. Only in this way can FfD have autonomy in the market, actively adjust key points of its own activities, and also maintain and support a national development strategy. FfD always strives to become the main vehicle and the main executor of the national strategy. It is a decisive factor in measuring the nature of a given strategy, checking its success, and also the most important basic feature of a national strategy.
A close relationship of cooperation and agreement has been established between FfD and the government. As long as the goal is to strengthen national power and improve the living conditions of the people, institutions related to FfD will closely cooperate and join forces, both with state government bodies at all levels, and with foreign governments. It is imperative that relations between organisations involved in FfD and government should not be bureaucratic.
Financing for Development is used to support state strategy and the development of plans for its implementation; it is an objective and social process of cognition that cannot be achieved through the efforts of one or several people; it depends on collective efforts. This is not only a top-down, but also a bottom-up, very complex and exhaustive process of relentlessly obtaining knowledge about the objective world. Such knowledge is based on national strategy, the domestic and international context, and monetary, financial and macroeconomic policies. Careful analysis has revealed what exactly financing for development can do to implement the strategic goals of the state. There is an interactive dynamic process of commercialisation and legalisation taking place between FfD and the real economy.
FfD originated in China, and is a product with Chinese characteristics. Other countries have not required such development, on such a large scale (including financing). However, the essence of FfD is unity and systematisation; like the state itself, it must be unswerving and unanimous. In other words, FfD is an important tool and weapon for enriching the people and strengthening the country, and its principles can be used to support the development of the Third World countries. The World Bank and other multilateral financial institutions can also be used to provide such financing as a tool for global financial growth, in order to pursue the development of the Third World countries.
FfD was previously carried out in accordance with the Five Direction Policy, namely, the government provides the basis, timely support, early planning, trust-building and promotion of financing. These basic principles are still applicable to the national conditions of China, but changes have taken place in the current situation. For example, the principle which holds that the government is the basis of financing has gradually transformed into the principles of peoples welfare is the basis and elimination of poverty is the basis. Government is the basis was an idea which reflected the situation of that time. This approach was gradually enriched and improved as objective conditions in various regions of the country changed. Therefore, the essence of the Five Direction Policy is still relevant. In particular, the principle of timely support, which fully embodies prudence and foresight.
In serving the national economy, FfD embodies the international obligations and diplomatic interests of the state, and is also a powerful reserve for the state to implement foreign policy and fulfil its international obligations. Regardless of when and where this happens, when using FfD, it is necessary to monitor and understand the global situation and dynamics in real time, conduct an in-depth study of state foreign policy in various situations, identify opportunities and prospects for development, and also to draw up an action plan in advance, anticipating both positive and negative outcomes. If you are fully prepared, then changes in the situation wont overwhelm you. Sources of new assets will depend on the quality of the work carried out at the early stages, pre-planned decisions, and the implementation of a global strategy. As in the military, it is often necessary to simulate a combat situation, so when financing development it is necessary to look in all directions and involve professional organisations and specialists in joint work.
Currently, China is busy with the implementation of its Belt and Road initiative. The logic of FfD is largely consistent with the features of this initiative. FfD is both a microscope and a telescope with which you can see potential high-quality assets with high value. So gradually the goals of the state, proceeding from all aspects of social development, become clear. FfD is the starting point for realising these goals; it is necessary to adhere to the principle of early planning, to find and prepare high-quality assets that have great potential for raising values, and turn them into real-quality assets that will be used for national development. In the implementation of financing for development, it is necessary to strive to study, develop and use the most advanced financial instruments to meet the needs of the state and pursue the implementation of its projects, thereby contributing to the implementation of the national development strategy. Therefore, investments, bonds, leasing and other instruments should provide powerful support for FfD.
As in the process of real development, one can always learn from the successes and failures of other countries; when pursuing FfD it is also imperative to proceed from the experiences of others, their successes and failures. In the process of establishing FfD, it is necessary to predicate decision-making real facts, seek out effective methods and actively apply them in practice, rely on the opinions of the people, experts and government bodies, contribute to the implementation of national strategies, and also open up new opportunities for development.