BeijingReview:HowdoyouthinkChinahasshareddevelopmentopportunitieswithcountriesalongtheBeltandRoadroutesundertheBeltandRoadInitiative?
HenryTillman:ThefirstfiveyearsoftheBeltandRoadInitiativeneedtobeviewedastheinitialstepsofalong-termproject,centeredaroundeconomicandtradedevelopmentandaugmentedviaeducationalongtheBeltandRoadroutesandinindividualcountriesandregions.
Theattachedgraphshowsthatinordertodevelopmoreadvancedandprofitableindustriessuchasmanufacturing,tourismandecommerce,acountryneedstohaveadequateenergyandinfrastructure,whichincludestechnology,railways,highways,portsandlogistics.Thedevelopmentofthesegivesrisetosignificantrealestateinvestmentopportunities,sometimesproducingaboveaveragereturns.
AnumberofcountriesinvolvedintheInitiativehavealreadymadeconsiderablegainsinaddingnewenergyandinfrastructureincludingCambodia,Laos,Sudan,Ethiopia,KenyaandPakistan,tonamejustafew.
Pakistanhasproduced7,000megawattsofnewenergyinjustoverthreeyearswithanother10,000megawattsexpectedtobecomeoperationalwithinthenextthree.Allitsmainmotorwaysareexpectedtobeoperationalbytheendofnextyear.Withadequateenergy,specialeconomiczones(SEZs)arenowbeingdesignedtogrowmanufacturinginPakistan,whichhasalsobeenabletoattractsubstantialcorporatecapitalsince2016.
ThefivecountriesoftheGreaterMekongSubregion(Cambodia,Laos,Myanmar,ThailandandVietNam)haveallsignedBeltandRoadagree-ments.TheChina-Laosrailway,China-ThailandrailwayandChina-Myanmarland-watertransportationareindevelopment.Theserailways,linkingKunmingwiththeMekongDeltaandintoMalaysiaandSingapore,shouldbeoperationalwithinthenextfivetosevenyears.
AgoodEuropeanexampleofawin-winprojectisPiraeusPortinGreece,oneofthelargestportsintheMediterraneanandinEurope.BeforeChinaOceanShipping(Group)Company(COSCO)becameinvolved,containerflowwasonly1.5millionTEUsperyearattheport.In2017,containerflowincreasedto3.7millionTEUs.
AccordingtoajointstatementbytheforeignministersofChinaandGreece,PiraeusPort’sglobalrankinghasclimbedto36from93in2010.Fiftyfiveshippinglineswiththeportastheirhubhaveafar-reachingimpactontheMediterraneanandconnectvariouscontinentsintheworld.Thereare16to18freighttrainsdepartingfromPiraeusPortforCentralandEasternEuropeancountrieseveryweek.PiraeusPort’sdirecteconomiccontributiontoGreecehasexceeded600millioneuros($700million),withmorethan10,000jobopportunitiesbeingcreated.
Somedevelopedcountries,suchastheUK,aswellaslargemultinationalcorporations,haveexpressedinterestinparticipatingintheBeltandRoadInitiativeintheformofthird-partymarketcooperation.HowhavetheyworkedwithChinaundertheinitiativeinrecentyears?
WhiletheUKandmanyotherEuropeancountrieshavenotyetsignedofficialBeltandRoadpartnershipagreements,severalofthesecountriesareactivelyparticipatingintheinitiative.
DuringQ12018,ChinaandtheUKcom-mittedtoincreasingcooperationinfintech(theUKledtheworldinfintechinvestmentsinH12018).Chineseinvestorsalsopledgedover1billioneuros($1.16billion)infundingtotwoBritishventurecapitalfirms.InDecember2017,StandardCharteredagreedtolendatleast$20billioninfinancingtoBeltandRoadprojectsby2020andinFebruary2018,theChinaDevelopmentBankagreedtomake$1.6billionavailableinthenextfiveyearstoStandardCharteredtofacilitateBeltandRoadprojects.HSBChasalsobeenactiveingreenfinance,whiletheLondon-Shanghaistockconnectprogramisexpectedtobelaunchedinlate2018.
TheUKalsopossessesalengthytrackrecordwithmanyCentralAsiancountries,includingPakistan,BangladeshandKazakhstan,ingovernment,investmentandbusiness,aswellaswithmanyAfricancountries,whichcouldassistfutureChineseinvestmentinsuchcountries.
ChinaisindiscussionswithLuxembourgtobuildaSilkRoadintheair,whiletheNetherlandsandChinahavebeendiscussinghowtheformercouldplayaroleasakeyEUlogisticshub.
Recently,ourfirmhasbeenanalyzing28investmentsfromChinainGermanyduringtheperiod2010-14—approximately4billioneuros($4.65billion)aggregatevalue—aswellas17investmentsfromGermancompaniesintoChinain2000-14.Therehavebeennumeroussuccessesineachdirection.ChineseinvestmentinKIONGroupandLindehashelpedtransformthesecompanies,aswellasatPreh,PutzmeisterandSCHWING.However,thesepaleincomparisontothe60billioneuros($69.74billion)plusthatGermanyhasinvestedinChinatodate,ledbylargejointventures,somedatingbacktotheearly1980s,involvingVolkswagen,BMW,Daimler,Bosch,AllianzandBASF.
InJune2018,Siemens,whichhasoperatedinChinaforoveracentury,enteredintoaformalagreementinvolvinganumberofmajorChinesestate-ownedenterprisesforBeltandRoadprojectsinIndonesia,thePhilippines,Nigeria,MozambiqueandcountriesinLatinAmerica.In2017,DeutscheBanksignedamemorandumofunderstanding(MoU)withtheChinaDevelopmentBanktojointlyfund$3billionofBeltandRoadprojectsbeforetheendof2022.InJuly2018CommerzbanksignedanagreementwithICBCtolend$5billiontoBeltandRoadprojectsinpartnershipwithICBC.
AsamultilateraldevelopmentbankwhichplanstoinvestinsustainableinfrastructureandotherproductivesectorsinAsiaandbeyond,whathastheAsianInfrastructureInvestmentBank(AIIB)achievedsinceitsinception?HowhasitinteractedwithotherfinancialinstitutionssuchastheWorldBankandtheIMF?
TheAIIBwaslaunchedinJanuary2016with57members,andasofJune30,2018,had87members.TheAIIBhasbeenveryactiveinbuildingpartnershipstosyndicatecreditondealsitunderwritestopartnerbanks.Thisincludesaco-financingagreementwiththeWorldBanksignedinApril2016aswellasMoUssignedwiththeEuropeanBankforReconstructionandDevelopmentthesamemonth,theAsianDevelopmentBankandtheEuropeanInvestmentBankinMay2016,theInternationalBankforReconstructionandDevelopmentinApril2017andtheIslamicDevelopmentBankinJune2018.
Tworecentdealsaregoodindicatorsoffuturetrends.Oneisa$140millioncommitmentona$502millioncreditfacilityforroadimprovementsinIndia(theWorldBankunderwrote$210million),whiletheotherisa$100millioninvestmentina$600millionIndianfundoffundsfocusedoninfrastructure.ItisworthnotingthatthisloanandinvestmentrepresentthesixthandseventhloanstoIndiasinceQ12017—thesevenloansrepresent25percentofAIIB’stotalloanssinceitsinception.
MuchofChina’sBeltandRoadinvestmentisininfrastructure,whichwillhavealongtermeffectoneconomicgrowth,livelihoods,jobsandtaxrevenuesinthosecountries.However,thereareconcernsabouttheincreasingdebtburdenofthosecountries,withsuggestionsthatChinaissettinga“debttrap”forthesegovernments.Whatisyouropinion?
China’sfundingstructuresarewellcraftedandarepackagedtoincludenumerouscomponentssuchasseniordebt,oftenwithseveralyeargraceperiodsalignedwithrevenueproduction(asinKyrgyzstan),grants,mezzaninefinanceandequityfromvariousChinesesources,includingregionalChineseledequityfundsandtheSilkRoadFund,aswellasChinesecorporatesandconstructioncompanies.
WhileChinesepolicybanksusedtobethelowestrateseniorloanprovider(2-3percentinterestrates)withlongmaturities(20-plusyears),Japaneselendershaverecentlyissuedloansatmuchlowerrates(aslowas0.01percent)upto40years.MeanwhileChinesepolicybanks,commercialbanksandtheAIIBareincreasinglyunderwritingloanstheycansyndicatetoglobalbanksatmarketrates.
Forthepastfewmonths,manypublicationshavediscusseda“debttrap.”TheratiosfromsomeofAfricancountriesmostciteddemonstratethatinfacttheyarewellbelowsomeEuropeancountriesindebt/GDPratioandactuallydeclining:Ethiopia,34.9percentin2016,decliningto33.5percentin2017;Zambia,68.4percentin2015,decliningto55.6percentin2017,andAngola,75.8percentin2015,decliningto65.1percentin2017.WhiletheDemocraticRepublicofCongoshowed117.8percentin2017,itwasstillwellbelowItaly’sdebt/GDPratio—132percent—andGreece’s180percent.
Inadditiontoitslong-termstrategicpartnerships,ChinatakesaportfolioinvestmentapproachforeachBeltandRoadcountry.ItistruethattherearesomeprojectsinSriLankawhichhaveunderperformedtodate.However,theseprojectsneedtobeanalyzedaspartofthewholepackage.Thecountry’sColomboPortwasnamedAsianportoftheyearin2017forportsbelow4millionTEUs.TheChinaMerchantsjointventureshowed21.2-percentgrowthin2016and18.5percentin2017initsaccountsfromColomboPort.
Whatdoyouforeseeforthenextfiveyears?
Inthepastyear,twonewroutes—thePolarSilkRoad(PSR)andthePacificMaritimeSilkRoad(PMSR)—havebeendiscussed.ThePSRisdesignedtoshipliquefiednaturalgasproducedinnorthRussiabotheasttoChinaaswellaswesttoEuropeviatheNorthSea.Duringthepastmonth,fiveChineseships,ledbyRussianYamalicebreakers,madethisjourneyinlessthan50percentofthetimeitwouldhavetakenviatheSuezCanal.Yamal1isalreadyoperationalwhileYamal2isexpectedtobesoin2023.
ThePMSRappearstobeavariationofa16thcenturyAsiantraderoutewhichpassedthroughthePhilippinesandMexicobeforecontinuingtoSpain.The21st-centuryversionislikelytoenterPeru,andwillalsolikelyendinEurope.OptionsincludePortugal,whichisakeyhubfortheLatinAmericanandCaribbeanregionandWestAfrica,aswellasSpain,withitslinkstoMoroccoandAlgeria.
Withinvestmentincreasingoverthepastyear,itisalsoreasonabletoexpectmorecollaborationinvolvingKhalifaPortandtheDubaiSEZintheUnitedArabEmirates,aswellasTurkey,withIstanbulasafuturelogisticshubfortheSilkRoadEconomicBelt.
Lastbutnotleast,itislikelythatIndiawillplayanincreasingroleintheBeltandRoadInitiativeoverthenextfiveyears,whichcouldleadtoanewEconomicCorridororSilkRoad,alsoinvolvingNepal.
CopyeditedbyLaurenceCoulton
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