Posts Tagged ‘railways’

Pakistan and China’s debt trap diplomacy

January 19, 2018

By Ronak D. Desai For The Straits Times

US President Donald Trump’s tough new approach towards Pakistan and suspension of over US$1 billion (S$1.32 billion) worth of security assistance may or may not get it to move meaningfully against religious extremists but there is little doubt over who the real winner will be of this bilateral bust-up: China.

The estrangement in ties will inevitably push Pakistan into China’s orbit, allowing Beijing even more leverage as it goes about practising what has been called “debt trap diplomacy” for strategic gains in the region.

China’s swift public declaration of support for Pakistan as its “all-weather partner” is an implicit rebuke of the United States. It comes as China is pushing ahead with its Belt and Road Initiative (BRI), a grand Eurasian project of which Pakistan is considered a key entry point.

As outlined by Chinese President Xi Jinping, this ambitious modern-day Silk Road calls for the creation of a network of railways, roads, pipelines and ports that would link China with its neighbours in Asia and beyond. Besides putting in place infrastructure critical for development, the aim is to create a platform for greater trade flows, economic cooperation and social exchanges.

But critics say there is a dark side to this mega-infrastructural endeavour : the BRI also functions as a major vehicle for China’s debt trap diplomacy, which, in South Asia, has already ensnared Sri Lanka.

They point to a disturbing formula: Beijing extends massive loans to cash-strapped states with terms disproportionately favourable to China, including access to lucrative national resources or market entry for cheap Chinese goods.

Once constructed by Chinese-run firms, the projects oftentimes bleed money. As a result, the borrowing country is saddled with onerous debts that it cannot repay on time, or at all, rendering it more vulnerable to China’s influence and control. Critics assert that the ultimate cost of the loan is nothing short of the borrower’s economic sovereignty.

By making foreign countries financially dependent on China, debt trap diplomacy has proven effective in allowing Beijing to achieve multiple objectives simultaneously through purely economic means. These include creating markets for its cheap exports, gaining access to invaluable natural resources, ensuring support for its geostrategic interests from borrower nations, and garnering a competitive advantage over its rivals, chief among them, India and the US.

Viewed against this backdrop, President Trump’s tweets blasting Pakistan could not come at a more fortuitous time for China.

Beijing had been confronting unexpected resistance from Islamabad over its US$62 billion China-Pakistan Economic Corridor (CPEC) in recent weeks. Part of the BRI, the corridor runs from the deep-water Pakistani port of Gwadar to China’s Xinjiang province over the Arabian Sea.

Just last month, Pakistan withdrew from a US$14 billion mega-dam project under CPEC citing the stringent financing conditions China attached to the proposal. Officials worried that the debt servicing terms lacked adequate transparency and risked making Pakistan too dependent upon Beijing’s largesse.

But now, Pakistan’s increasing diplomatic and financial isolation from the US makes the consummation of Chinese plans under CPEC more likely. In fact, shortly after the US announced the suspension of aid to Islamabad, Pakistan’s central bank announced it would finally begin using Chinese yuan for bilateral trade and investment between the two countries. More significantly, China’s ambassador to Pakistan proclaimed that the country would expedite the timetable of CPEC’s construction.

In this way, Pakistan risks becoming the latest victim of what has also been labelled China’s “creditor imperialism”. Just last month, Sri Lanka was forced to turn over control of its Hambantota port to a Chinese state-owned company under a 99-year lease deal after it was unable to repay the crushing debt the country incurred from Beijing to have it built in the first place.

Hambantota’s strategic value is difficult to overstate, sitting at the intersection of several Indian Ocean trading routes connecting Europe, Africa and the Middle East to South Asia. Even after the US$1.1 billion lease agreement with Beijing, Colombo still owes more than US$7 billion in debt to China.

But Sri Lanka’s experience with China should not be construed as a state-sponsored conspiracy by Beijing. Rather, it is a cautionary tale for other countries such as Pakistan about the danger of being ensnared by debt trap diplomacy and the importance of evaluating the true cost of doing business with China.

Across South Asia, the debate over the real cost of Chinese foreign investment rages on. Last November, Nepal abruptly cancelled a US$2.5 billion deal with China for the construction of a sorely needed hydroelectric dam.

Critics point to a disturbing formula: Beijing extends massive loans to cash-strapped states with terms disproportionately favourable to China, including access to lucrative national resources or market entry for cheap Chinese goods.

Nepalese officials were worried that the deal would align the country too closely with Beijing. And yet, recent reports have suggested that China finalised an agreement for one of its state-owned companies to build a different dam in the Himalayan kingdom, but not before first securing a 75 per cent ownership stake upfront.

The recent turbulence in US-Pakistani relations poses a complex set of questions for New Delhi. On the one hand, it has enthusiastically welcomed Washington’s tough line on Islamabad, hailing the suspension of aid as a long overdue step. On the other hand, Indian officials are certainly aware that Beijing will inevitably exploit the US-Pakistani rift. India will not support any policy that could potentially destabilise Pakistan, and there is little it can do to prevent Beijing and Islamabad from further consolidating ties.

At the same time, India finds itself woefully unprepared to meeting the formidable challenges China’s debt trap diplomacy has created for New Delhi. It has yet to formulate an effective strategy of its own that effectively confronts Beijing’s steadily expanding influence both in the region and in the Indian Ocean.

 •The writer is an Affiliate at the South Asia Institute at Harvard University and a Law & Security Fellow at the New America think-tank.

A version of this article appeared in the print edition of The Straits Times on January 19, 2018, with the headline ‘Pakistan and China’s debt trap diplomacy’.
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Train crash puts pressure on Trump to deliver on infrastructure

December 20, 2017

WASHINGTON – When President Donald Trump took to Twitter in reaction to a train crash in Washington state on Monday morning (Dec 18), it was to remind Americans of the country’s increasingly creaky infrastructure – and his proposed US$ 1 trillion infrastructure Bill.

The much-awaited Bill, reportedly approved by Mr Trump, may finally appear in Congress next month. It will reportedly propose US$200 billion in federal money over the next decade to unlock, through incentives including grants and loans, another US$800 billion from local and state authorities and private entities.

“The train accident that just occurred in Dupont, WA shows more than ever why our soon to be submitted infrastructure plan must be approved quickly,” he tweeted. “Seven trillion dollar(s) spent in the Middle East while our roads, bridges, tunnels, railways (and more) crumble! Not for long!”

It is not yet certain to what degree the tragic crash that took three lives and left many badly injured, can be attributed to infrastructural shortcomings or failure.

The Amtrak train was reportedly well over the speed limit for that section of the track. The derailment followed a multimillion dollar track upgrade. However, a braking system called Positive Train Control mandated by Congress was not in use on that track. The investigation by the National Transportation Safety Board is still in its early stages.

But the crash highlighted issues surrounding infrastructure in America – one of the President’s pet subjects.

That it came on the heels of an 11-hour power outage at Atlanta International over the weekend, forcing the cancellation of over a thousand flights and affecting Delta Airlines’ schedules, only sharpened the message. Atlanta is the world’s busiest airport and a Delta Airlines hub.

The train crash also shut down a part of Interstate 5, a major north-south artery for the west coast. The train derailed south of Seattle on an overpass and part of it fell into the highway.

The incidents showed the domino effect of infrastructure failures, said Mr Brian Pallasch, managing director of government relations and infrastructure initiatives at the American Society of Civil Engineers (ASCE).

“This incident, and the incident the day before in Atlanta, shows the interdependence of pieces of infrastructure. Infrastructure is one of those things that we take for granted and we probably should not,” he told The Straits Times over the phone.

The ASCE issues a report card every four years on American infrastructure. Its 2017 report gave infrastructure a D+. Railways scored the highest with a B. Airports, dams, drinking water, inland waterways, levees, and transit infrastructure were all given Ds.

“Infrastructure is not meeting our needs and it is costing us daily,” Ms Kristina Swallow, President of the ASCE, said at a conference earlier this month in Washington DC.

“We are seeing bridge failures, we are seeing water main breaks, we are seeing failure on a consistent basis which is why the grades are so low. Many of our airports are at capacity,” she said.

“Our population is growing so our infrastructure needs are growing. What we have today is not going to meet the needs of tomorrow,” she warned.

The Republican Party is expected to turn its attention to infrastructure after getting the Tax Bill passed this week.

The Tax Bill itself has good news and bad news for infrastructure.

The good news is that it proposes innovative funding mechanisms.

But the bad news, as Mr Pallasch pointed out is that there was “an opportunity in the tax bill to find some revenue to pay for additional infrastructure, but that didn’t happen”.

And in 2020, the Federal Highway Trust – which funds highway maintenance from tax Dollars – will not be taking in as much money as it will need to spend, he added. “That also has to be fixed and at this point it is not being fixed,” he said.

In May, Amtrak, the national railroad which carries over 31 million passengers a year across America, saw its budget cut by 13 per cent in President Trump’s transportation budget.

A 2007 Minneapolis bridge collapse, which was attributed to a design defect and led to 13 deaths as vehicles tumbled into the river below, spurred a gasoline tax to fund bridge maintenance.

Though it took six months to institute the tax, it funded a 10-year plan to put more than US$2 billion into inspecting and repairing 172 old bridges. The programme involved several major bridge replacements. But it will end next year, and transport safety advocates worry that revenue from the the 2008 gas tax increase will not be able to meet future needs.

Analysts hope the Amtrak crash, like the Minnesota tragedy 10 years ago, will catalyse efforts to spur safety improvements – and find the funding for them.

China pollution, ‘Belt and Road’ may aid iron ore, coal amid steel slowdown

October 30, 2017

London (Platts)–30 Oct 2017 811 am EDT/1211 GMT


Iron ore and coal miners may have been reassured last week as China’s National Congress showcased stronger determination to tackle pollution in lifting living standards, a move likely achieved by more higher-grade raw materials and imports.

China is looking to cut pollution by curbing steel output and at domestic processing plants this winter.

This creates the incentive for importing higher grade iron ore to operate at the remaining operating plants, and for boosting productivity when restrictions are lifted during the seven or so months outside winter.

At the same time, China’s steel-reliant “Belt and Road” initiative — a plan to build and strengthen overland and sea logistics routes across Asia and into Africa — was added into China’s constitution. This is the strongest indication for infrastructure shaping China’s trade and foreign policy.

A stronger signal for optimism in seaborne steel raw materials trade is that China looks to be taking on pollution cutting seriously.

This year marks the first winter steel and aluminum plants will be idled for months at a time to improve air quality. And this may become a regular seasonal occurrence, Russian aluminum producer Rusal indicated to investors in August.

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China with smog…

China may reduce steel production by about 33 million mt between mid-November and the end of March 2018, based on S&P Global Platts estimates published Friday.

These cuts, which comprise 3.9% of China’s projected 2017 crude steel output, are taking place across the provinces of Hebei, Shandong, Henan and Shanxi plus Beijing and Tianjin, and may provide longer term support to currently robust steel margins.

As President Xi Jinping stressed at the National Congress, much remains to be done to cut and improve pollution levels.

Processing iron with less slag emitted, and cutting coke and other energy consumption may be a benefit and aid demand for seaborne cargoes, especially at coastal plants.

“We believe environmental measures are more a reality than they were before, this is supportive for iron ore premiums, for higher quality iron ore,” a steel and iron ore industry analyst said.

Iron ore prices have been volatile, rising during China’s summer, before falling back in September, with a wider price spread between high and low grade ores.

A drop for 62% Fe fines to below $50/dry mt CFR China against current quality-based pricing adjustments may spell danger for cash margins at lower quality Australian mines.

Prices for IODEX 62% Fe fines closed Friday at $59.10/dmt CFR China, dropping $3.20/dmt from Thursday. IODEX averaged at almost $70/dmt in September.

Iron ore miner Fortescue Metals Group said Chinese steel mill profitability remaining at historically high levels “continues to incentivize blast furnaces to maximize production supporting the premium for higher grade iron ore,” in an update report Thursday.

“This has maintained the spread in prices between iron ore grades and these are expected to remain in the near term,” the Australian company said.

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FMG cut its July 2017-June 2018 price guidance for its ore to price at a lower 70%-75% ratio of the Platts 62% Fe IODEX CFR index, from its earlier estimate of achieving 75%-80% of IODEX.High grade iron ore and pellet prices this year into China have increased premiums over reference import 62% Fe fines to new highs.

For 65% Fe fines pricing, this premium is exceeding 30% on an equivalent iron content and gangue basis in the past month.

S&P Global Market Intelligence expects 62% Fe reference fines to average at $64.10/dmt CFR China in Q4 2017 and prices to fall further in 2018 and 2019.

“Prominent volatility and continued environmental pressures [are expected to] enact stronger downward forces on 58% Fe prices,” an S&P Global research report Friday said.

China coking coal imports surged by 24% so far over this year, while China’s blast furnace iron output rose around 3.5%.

Additional steel output-tied demand, looks to have prioritized imported raw materials. Potential for a price arbitrage between domestic Chinese materials against imports from spot markets is adding interest.

Without drivers of additional steel demand, analysts are expecting a slowdown in several steel consuming sectors in China next year may lead to flatter steel output growth.

Support from infrastructure may be welcomed. The indoctrination of the Belt and Road infrastructure initiative into the construction may help it to be carried out to a stronger conclusion and implemented at the grandest scale outlined in blueprints, withstanding wider political backing.

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 Chinese steel mill

Steel-fed railways and other haulage and logistics chains and terminals needing steel, cement, and power may crisscross Eurasia and Southeast Asia.

Beijing has a desire for new markets to help reduce its overcapacity in steel and cement, and this is seen in the Belt and Road’s focus on infrastructure, and rail lines, according to Howard French, a China expert, and author.


Beijing and the commodity markets may see the Belt and Road scheme providing China with another lever in managing domestic steel demand and output.

The Belt and Road may serve as a stop gap in a wider transition in China to greater consumerism from the economy’s reliance on investing in heavy industry and construction within China.

It may aid demand for raw materials imports as domestic steel usage slows or slips.

“Companies who supply steel, aluminum, cement and other construction-related materials,” will stand to immediately benefit from the Belt and Road Initiative, according to HSBC bank’s website, with a section dedicated to the project and its financing and investment needs.

Tata Steel Managing Director TV Narendran, in his role as chairman of World Steel Association’s economics committee, said this month that Belt and Road will have an impact on countries participating in it, reflected in the steel demand forecast of those countries, rather than China itself.

But China’s steel exports could fill some of the neighboring demand generated by the project.

The Belt and Road is not expected to help demand for Russian steel, with the networks in southern Eurasia more likely to be the focus, said a source at an industrial steel and mining group.

It may be good for Chinese steel, and any benefit may be indirect in supporting the seaborne coal and iron ore markets, he said.

“Africa could be the one that needs more steel than Belt and Road,” he added.

–Hector Forster,
–Edited by Richard Rubin,


Japan’s Abe to Launch $17-Billion Indian Bullet Train Project as Ties Deepen

September 12, 2017

NEW DELHI/TOKYO — Japan’s Prime Minister Shinzo Abe will lay the foundation stone for India’s first bullet train in Prime Minister Narendra Modi’s home state this week, in a tightening of ties just days after New Delhi ended a dangerous military confrontation with China.

The move by Abe, who starts a two-day visit to India on Wednesday, highlights an early lead for Japan in a sector where the Chinese have also been trying to secure a foothold, but without much success.

Modi has made the 500-km- (311-mile-) long high-speed rail link between the financial hub of Mumbai and the industrial city of Ahmedabad in western Gujarat a centerpiece of his efforts to showcase India’s ability to build cutting-edge infrastructure.

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The leaders will launch the start of work on the line on Thursday, India’s railways ministry said in a statement.

“This technology will revolutionize and transform the transport sector,” said Railways Minister Piyush Goyal, welcoming the prospects for growth brought by Japan’s high-speed “shinkansen” technology.

In Tokyo, a Japanese foreign ministry official told reporters, “We would like to support ‘Make in India’ as much as possible,” referring to Modi’s signature policy to lure investors in manufacturing.

“And for that, we want to do what’s beyond the Mumbai-Ahmedabad line and achieve economies of scale.”

India would make “all-out efforts” to complete the line by August 2022, more than a year earlier than planned, the government said this week.

Japan is providing 81 percent of the funding for the 1.08-trillion-rupee ($16.9-billion) project, through a 50-year loan at 0.1 percent annual interest.


Ties between India and Japan have blossomed as Modi and Abe increasingly see eye-to-eye in countering growing Chinese assertiveness across Asia.

Japanese investment into India has surged in areas ranging from automotives to infrastructure in the remote northeast, making Tokyo its third-largest foreign direct investor.

India and Japan are also trying to move forward on a plan for New Delhi to buy Japanese amphibious aircraft – ShinMaywa Industries’ US-2 – in what would be one of Tokyo’s first arms transfers since ending a self-imposed embargo.

Tokyo hopes that by gaining a head start on rival exporters of rail technology such as China and Germany, its companies will be able to dominate business in one of the most promising markets for high-speed rail equipment.

In 2015, China won a contract to assess the feasibility of a high-speed link between Delhi and Mumbai, part of a network of more than 10,000 km (6,214 miles) of track India wants to set up, but little progress has been made.

Bullet train critics say the funds would be far better spent to modernize India’s slow and rickety state-controlled rail system, the world’s fourth largest.

But a $15-billion safety overhaul has hit delays as a state steel firm proved unable to fill demand for new rail.

(Additional reporting by Sanjeev Miglani and Rupam Jain in NEW DELHI; Editing by Clarence Fernandez)


Hong Kong firms join forces to make deals under Silk Road plan

June 19, 2017

Companies will draw on their experience to initially establish infrastructure projects and industrial parks in Thailand and Vietnam

By Josh Ye
South China Morning Post

Monday, June 19, 2017, 8:48pm

Hong Kong companies will form a consortium to build infrastructure projects and industrial parks in Thailand and Vietnam under mainland China’s Silk Road project, the Trade Development Council says.

Council president Vincent Lo Hong-sui said over 40 business leaders from Hong Kong and Shanghai formed a delegation while visiting the two countries last month and met both prime ministers.

He added that this was one of many steps in further involving Hong Kong companies with the “One Belt, One Road” initiative.

Lo said the statutory body was now forming “a consortium of local companies” to help them enter these developing markets as a collective force.

“We are looking to build infrastructure projects and industrial parks in countries under the belt and road initiative.”

The initiative was launched by Beijing in 2013 to promote the building of railways, roads, power plants and other infrastructure projects in 60 countries from Asia to Europe on its old Silk Road to promote trade and economic growth.

The council has identified eight countries out of the 65 under the scheme as the initial destinations for Hong Kong investment – Vietnam, Thailand, Indonesia, Saudi Arabia, United Arab Emirates, Poland, Hungary and the Czech Republic.

Nicholas Kwan, research director at the council, said Hong Kong investors were seasoned in managing supply chain systems across countries.

 Vincent Lo says numerous multibillion-dollar deals will be closed this year. Photo: Sam Tsang

Lo said the development level of many of the belt and road countries reminded him of mainland China three decades ago.

“Hong Kong investors have garnered a lot of practical experience in developing mainland China,” he said. “This experience is unique and will definitely benefit other countries.”

He said the council aimed to close several deals this year and estimated some projects were worth more than US$10 billion.

Lo added that chief executive-elect Carrie Lam Cheng Yuet-ngor had told him the next administration would fully support the council in furthering deals with countries linked to the trade initiative.

The council also announced that it would host its second belt and road summit in September, which looked to introduce more concrete plans for local firms to enter relevant countries.

Commentary: China’s One Belt, One Road gaining traction but unanswered questions leave funding uncertain

April 22, 2017

By Diaan Yi Lin and Joseph Luc Ngai

Channel News Asia

Coming to four years since China’s unveiling of the One Belt One Road initiative, many substantial questions remain, which has implications for financing this ambitious project.

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One Belt, One Road is an ambitious development initiative, a multi-trillion dollar plan to link Asia to Europe with an unbroken chain of modern infrastructure. It has the potential to kick start economic growth in countries stretching from the South China Sea to the English Channel.

Put forward by the Beijing government, funding for the infrastructure proposal has gained some traction lately with accumulated pledges of about US$240 billion, but private investors will need more persuasion before they commit fully.

The One Belt, One Road initiative was proposed by China in 2013 as a way to modernise trading routes running from East Asia to Europe. The “belt” represents land routes that would run through Central Asia and the Middle East before reaching Northern Europe. The “road” represents sea routes that pass Southeast Asia, South Asia and Africa, before turning northward up the Suez Canal and terminating in the Northern Adriatic Sea.

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If successful, the initiative represents the world’s largest example of regional economic cooperation.

Altogether, it will connect about 80 countries with road, seaports, railways, and pipelines, covering roughly two-thirds of the world’s population, about a third of its GDP, and about a quarter of total global trade in goods and services.


As with any ambitious initiative, One Belt, One Road faces significant obstacles, and the first is financing. A crucial factor behind China’s economic miracle in the late 20th century was aggressive infrastructure investment, and to create similar infrastructure improvements through Asia and Africa, annual investment of US$2 trillion to US$3 trillion will be needed. Altogether, the initiative could need public and private investments roughly 12 times the size of the Marshall Plan that helped rebuild Europe after World War II.

Public funding for the effort has already raised hundreds of billions of dollars in pledges. For example, the Asian Infrastructure Investment Bank, funded largely by China, has about US$100 billion available for the program. The Silk Road Fund, also set up by China, has about US$40 billion, and the New Development Bank, which focuses on projects in Brazil, Russia, India, and China, has another US$100 billion. These commitments show the seriousness China and other countries along the route are giving the One Belt, One Road initiative.

While this committed US$240 billion is roughly the annual GDP of Finland, it is still less than an eighth of what is needed annually to finance the infrastructure needs of the emerging economies along the land and sea routes. Further commitments will be needed, not only from developing markets that would be the direct beneficiaries of the infrastructure improvements, but also from European governments that would benefit from improved trade connections as well as private investors.

Meanwhile, the world is watching closely to see whether China’s enthusiasm for the initiative might ebb following a slowdown in the country’s economic growth rates in recent years.


With funding sources starting to materialize, the second major challenge in attacking the One Belt, One Road initiative is to create transparency in all aspects of administration and investment. Private investors especially will hesitate to join the effort unless they are persuaded that the funds and assets will be used effectively.

In particular, how the available funds will be deployed and how the programme will be administered remain critical uncertainties that hinder further commitments. This is because infrastructure investment in emerging markets is notoriously risky, and corruption and wasteful bureaucracies remain unfortunate realities for many of the countries along the routes. So public and private investors will want some assurances that the funds are not being misused on over-priced projects with no real impact on promoting trade.

China, as the primary promoter of the initiative, should take the lead in assuaging these concerns. For China, the initiative has an economic and a political dimension, and officials should be crystal clear on their motives and the economic rationale. If rhetoric can be matched with action, investor scepticism can be turned around.

Operations and projects supported by the investment funds will be scrutinised with some questions in mind. First, can One Belt One Road show that its investments follow market principles? Second, do projects adopt a clear regulatory system that transcends borders? Third, is there an appropriate balance between public and private investment such that risks are shared? If these questions are answered, they can change how private investors think about risk in these regions and for the project.


Governments outside China have given the One Belt, One Road initiative mixed receptions. Some, for instance Indonesia and Malaysia, have welcomed the proposal, focusing primarily on the economic benefits it could deliver. For others, however, the economics are muddled by geopolitical disputes and other challenges, such as the conflicting territorial claims to the Spratly Islands in the South China Sea, which make bi- and multilateral discussions about funding and project priorities more complicated.

Countries that are not directly on One Belt One Road land or sea routes, such as Japan and the United States, are also likely to focus on potential political implications. For example, concerns have been raised of whether One Belt One Road will expand China’s economic influence at the expense of these countries. This may be the case especially if the Asian Infrastructure Investment Bank tries to wrestle influence from more established institutions led by developed countries such as the US, like the Asian Development Bank and the World Bank.


Faced with these obstacles, it would be easy for investors to wait on the sidelines until there are more certainties around the One Belt, One Road initiative. Outstanding questions should give any executive pause: Is this primarily a foreign policy play by China? Do the economics actually work? Is the geographic breadth too big? Will returns be realised?

While it might still be too early to commit financially unless these questions are answered, aggressive companies will want to devote resources to staying informed of its progress and be ready to commit if the opportunity arises.

On the flipside, for most private and public investors, it is also still too early to decide to opt out. Doing so might relegate them to watching as others seize the opportunities presented by the world largest single trade and development initiative.

Diaan-Yi Lin is managing partner, Singapore and Joseph Luc Ngai is managing partner, Greater China in McKinsey and Company. 

Source: CNA/sl


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Will international law be respected? Will human rights be respected?


 A Chinese cargo train, to be used as part of China-Iran efforts to revive the Silk Road, arrives in Tehran in February 2016. Photo: EPA
Chinese ant-terror troops in Kashgar, Xinjiang Uighur Autonomous Region, China, February 27, 2017. REUTERS/Stringer

Paramilitary policemen stand in formation as they take part in an anti-terrorism oath-taking rally, in Kashgar, Xinjiang Uighur Autonomous Region, China, February 27, 2017. REUTERS/Stringer (Is there really so much terrorism there?)

China starts $21.8 billion offshore fund amid currency concerns, new Silk Road initiative

December 7, 2016


China’s central government has launched a 150 billion yuan ($21.79 billion) fund designed to support investments offshore by Chinese companies as well as the country’s so-called new Silk Road initiative.

The first phase of the Guotong Fund, capitalized at 70 billion yuan, was registered on Nov. 25 in Hangzhou, according to a statement posted Wednesday on the website of the State-owned Assets Supervision and Administration Commission (SASAC).

The statement cited equipment manufacturing as one type of offshore investment the fund might support, and said the new vehicle might take a role in mergers.

Announcement of the fund comes as Chinese regulators tighten restrictions on foreign exchange transactions and outflows amid growing concern that offshore currency movement is adding pressure on the weakening yuan currency.

On Tuesday, officials from the National Development and Reform Commission, the Ministry of Commerce, the People’s Bank of China, and the State Administration of Foreign Exchange said that authorities will prevent risks from outbound investment to help maintain a balance in international payments, according to the official Xinhua News Agency.

China Reform Holdings Corp., an investment firm established by the State Council under the supervision of SASAC, is managing the fund, according to the statement.

It said China Reform, along with 10 central state-owned enterprises, China Postal Savings Bank (1658.HK), five other financial institutions and Zhejiang State-owned Assets Management Co, established the Guotong Fund.

China’s new Silk Road initiative, also known as the “One Belt, One Road” program, aims to open new trade and investment markets for firms as the domestic market slows.

The program aims to invest in infrastructure projects including railways and power grids in central, west and southern Asia, as well as Africa and Europe.

(Reporting by Matthew Miller; Editing by Richard Borsuk)

Why tensions are inevitable on China’s New Silk Road

September 6, 2016

Much-vaunted project is a thinly veiled aggressive export policy that will make mutually beneficial partnerships impossible – and offer a test for its diplomats

By Jonathan Holslag
South China Morning Post


China today boasts one of the most capable foreign services in the world. I have learned to appreciate its young diplomats as remarkably diligent, perceptive, and acculturated. Yet, even those bright officials struggle with an increasingly pressing challenge: to reconcile China’s promise of mutually beneficial foreign relations with a reality of unequal economic partnerships. China’s New Silk Road, also known as One Belt, One Road, is set to make that problem much worse as it is, in reality, not much more than a guise for a very aggressive export policy that will inevitably spark new tensions.

 A Chinese cargo train, to be used as part of China-Iran efforts to revive the Silk Road, arrives in Tehran in February 2016. Photo: EPA

A careful review of dozens of policy papers recently issued by various government departments affirms the need for an open world market and for China to cement stable economic relations with its partners. But it is impossible to comprehend how this can be squared with some of the other statements.

The general argument of the Chinese government seems to be that the world is in for more trouble, that protectionism looms, and that it has to act more vigorously to preserve the world market as a safety valve for its own congested economy.

The promotion of exports of manufactured goods remains key. For all China’s promises about rebalancing, its economy has become only more imbalanced. Last year, the trade surplus hit a record of US$293 billion. This trade surplus represents as much as 42 per cent of production in the manufacturing sector and the dependency of factories on exports continues to increase. The New Silk Road has to help China siphon off some of this glut.

 Employees work at a factory of XCMG Group, in Xuzhou, Jiangsu province. Two years after China unveiled a sweeping plan to rebuild Silk Road trade links with Europe and Asia, machinery maker XCMG Group has opened a factory in Uzbekistan, sent 300 staff abroad and set ambitious goals to grow overseas. Photo: Reuters

In one of its notes, the industry ministry vows to defend China’s international market share in labour-intensive manufacturing, given the millions of unskilled workers at home.

One paper calculates the 20,000km of new railways in the framework of the New Silk Road could create demand for as much as 85 million tons of Chinese steel. China also seeks to increase its market share in high-tech areas, like automobiles, planes, and renewable energy. In that regard, the New Silk Road is all about penetrating markets, overcoming possible trade barriers, and supporting national companies to develop better brands and distribution chains.

A relatively new aspiration is to boost exports of services. Thus far, services have mostly catered to China’s domestic market, but as investment in infrastructure is slowing down, firms in the sectors of construction, railway development, electricity, and telecommunications need to conquer markets overseas. China also seeks to break through in so-called new services, like finance, shipping, and airlines. Even if it already had large companies in shipping, like COSCO, the aim in this cluster is to support traditional freighting with business services: engineering, brokerage, maritime legal services and insurance, and “to compete with today’s leaders of London, Singapore and Hong Kong”.

 A Chinese national photographs his colleague at the Pakistan-China Khunjerab Pass, the world’s highest paved border crossing at 4,600 metres above sea level. The crossing is part of the New Silk Road under construction in northern Pakistan. Photo: AFP

The government is aware, however, that this push for exports has to coincide with the promotion of certain imports, of tourist services, for instance, and of raw materials. The objective remains to have more imported energy supplied by Chinese firms. The government also wants to secure minerals. It vows to map “the metallogenic belt” along the New Silk Road and highlights the need to control foreign iron ore mines. Japan, for example, covers 50 per cent of its iron imports with equity ores, thus ensuring production by Japanese firms, whereas the equivalent figure is 8 per cent for China.

Those aspirations will make it impossible for China and its partners to build truly mutually beneficial partnerships. Out of the 34 countries along the New Silk Road, 30 already record a trade deficit. Those countries see their roles increasingly defined as raw material suppliers, which is not very convenient as global commodity prices plummet. As much as 78 per cent of the growth of Chinese imports from Silk Road countries since 2008 consisted of raw materials.

To developing countries that seek to create more manufacturing jobs, the New Silk Road does not necessarily come as a blessing either.

China provides loans for roads, but real investment in manufacturing remains very small. Only five per cent of China’s foreign investments are sunk into the manufacturing sector.

The new imbalances resulting from the New Silk Road will thus come as an even more taxing test to the agility of China’s diplomacy.

Thus far, China has mollified some of its partners with the promise of more gains, but with the gap between promises and reality growing, that may no longer be so easy.

Jonathan Holslag teaches international politics at the Free University Brussels. He is the author of China’s Coming War with Asia

China, Southeast Asian Leaders Seek Greater Cooperation Starting With Drought Fighting Water from China

March 23, 2016

Australia increases scrutiny on infrastructure sales to foreigners — compiling a register of agricultural land owned by foreigners

March 18, 2016


Australia is already compiling a register of agricultural land owned by foreigners

© AFP/File | Under new rules, Australia’s Foreign Investment Review Board is to more closely scrutinise the sale of major state-owned infrastructure to private foreign investors

SYDNEY (AFP) – The sale of major Australian state-owned infrastructure to private foreign investors will face tougher scrutiny under new rules announced Friday, after a deal involving a Chinese company last year drew criticism.

The new rules will apply from March 31 and ensure that sales of critical infrastructure to private foreign investors will be subject to a formal review by Australia’s foreign investment advisory body.

Under previous rules, the Foreign Investment Review Board (FIRB) was only required to assess the sale of such infrastructure to foreign state-owned enterprises.

The rules cover major assets such as airports, ports, public transport infrastructure, and electricity, gas, water and sewerage systems, while existing and proposed roads, railways, telecommunications infrastructure and nuclear facilities could also be reviewed by the body.

“While we welcome foreign investment in Australia it is imperative that critical infrastructure sales are scrutinised to ensure any potential national security risks can be addressed,” Treasurer Scott Morrison said.

The new rules follow the granting in 2015 of a 99-year lease for the Port of Darwin to China’s Landbridge Group.

United States President Barack Obama, whose Marines rotate through Darwin, reportedly chided Prime Minister Malcolm Turnbull over that deal, with the Australian Financial Review quoting him as saying: “Let us know next time”.

Canberra defended the decision which had been made in consultation with Australia’s Department of Defence, but a review of the rules followed.

“Foreign investment is an important source of capital to build the infrastructure that Australia needs and the government recognises that this investment can provide access to funds to restore and enhance ageing infrastructure networks and assets,” Morrison said Friday.

“But the government recognises this investment should occur on our terms, must be appropriately scrutinised and not be contrary to the national interest.”

Under pressure over the seemingly increasing foreign ownership of farmland, the government is already in the process of compiling a register of agricultural land owned by foreigners.

It has also lowered the threshold for screening proposed foreign purchases of agricultural land to Aus$15 million.


See also:

Chinese investors heat up Australian farm buying