Posts Tagged ‘roads’

Inflation in Philippines a faultline for Duterte’s ‘Build, Build, Build’ ambition — $180 billion infrastructure building plan

June 1, 2018

In hundreds of hours of speeches during his nearly two years in office, Philippine President Rodrigo Duterte has rarely talked about the economy, something he says is best left to the “clever guys” in his cabinet.

Photographer: Veejay Villafranca/Bloomberg

So he raised a few eyebrows when he told central bank officials last month after the government announced an inflation spike to “remain vigilant in ensuring price and financial stability”.

Duterte was speaking just days after the government said inflation rose for a fourth successive month in April to hit a five-year high of 4.5 percent, affecting growth in what has for more than six years been one of Asia’s fastest expanding economies.

What may have been of concern to Duterte was that many people have blamed rising prices on a new tax bill his government has implemented to raise funds for a massive $180 billion infrastructure building plan, a rare disapproval of the administration.

“This year is all about the poor’s rising cost of living, perceived to be triggered by the TRAIN law,” said Victor Manhit, president of private think tank Stratbase ADR Institute.

TRAIN is the Tax Reform for Acceleration and Inclusion law, which took effect in January and saw excise taxes raised on fuels, levies on sweetened beverages and lowered some personal income taxes, among other measures.

A survey by Social Weather Stations published last month showed only six percent of Filipinos approved of the government’s handling of inflation, a massive 18-point slump from the previous quarter, and its first single-digit rating in any category.

While Duterte has been condemned abroad for his indifference to thousands of deaths in his brutal war on drugs, he has so far been enjoying consistently high ratings in opinion polls for fighting crime, illegal drugs, terrorism and graft.

But a survey published by pollster Pulse Asia in April showed the most urgent issues for Filipinos were wages, inflation and poverty.

“Inflation has never been a direct factor in political popularity. But if public perception is that the government is not doing anything about it, then it becomes a problem, it becomes political,” said Ramon Casiple, a well-known political analyst.

ANXIETY BUT NO ANGER

There have been no signs of public anger about inflation, but some people are getting anxious.

“I hope Duterte can fix this. Inflation has eaten into our profit,” said Orlando Cristobal, 56, who runs a food delivery business and had just bought a few kilograms of rice and fish at one of Manila’s biggest markets.

His wife, Elizabeth, worries they’ll lose customers if they pass on their costs.

“We used to earn 500 pesos ($9.50) a day,” she said. “Now we’d be lucky if we’d be left with 200.”

Inflation has exceeded the government’s 2-4 percent target range, and its impacts could be far-reaching. First quarter growth fell short of the 7-8 percent goal after inflation weighed on consumer spending, which makes up about seven-tenths of the economy.

The central bank raised interest rates for the first time in more than three years on May 10 to try to head off climbs in inflation and oil prices.

Economic planning minister, Ernesto Pernia, said Duterte was aware that prices mattered most to the public.

“He is worried”, he told Reuters. “He was concerned about inflation, because it affects the poor.”

Duterte’s ambitious economic agenda is geared towards the poor and at the heart of it is the massive plan to overhaul roads, ports, railways and airports – which would create jobs, attract more investment and boost competitiveness and domestic spending.

The government calls it “Dutertenomics”, and the TRAIN law was intended to at least partially fund the initiative.

Now, the big challenge for Duterte’s government is ensuring that a plan geared towards helping his political base doesn’t end up alienating it.

“This is the greatest challenge to the president specifically since Dutertenomics is built around the promise of inclusive growth,” said Manhit, from the Stratbase ADR Institute.

Some opposition lawmakers have started to call for the law to be repealed, or adjusted if inflation gets too high.

Duterte’s economic managers have taken turns to defend TRAIN, insisting that while it may have contributed to inflation, a jump in world oil prices, a weak peso currency and a shortage in state-subsidised rice were the main culprits.

In a rare comment about TRAIN, Duterte on Wednesday accepted that it was driving inflation, and that he might have to pursue alternative means of financing, and would settle for making a “modest improvement on what we have now”.

“I need money also to run the country, if you do not give it, fine,” he said in a speech.

“But with the limited resources of our country, there are many who are willing to help.”

https://www.reuters.com/article/us-northkorea-missiles-southkorea-talks/north-korea-proposes-joint-celebration-of-2000-summit-during-talks-idUSKCN1IX3HG

Graphic on Philippines’ key economic indicators’ performance since 2000, click tmsnrt.rs/2nZqDWx

Graphic on Duterte government scorecard, click tmsnrt.rs/2L8YxDE

Editing by Martin Petty and Raju Gopalakrishnan

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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.

http://www.straitstimes.com/world/united-states/news-analysis-train-crash-puts-pressure-on-trump-to-deliver-on-infrastructure

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.

http://www.scmp.com/news/hong-kong/economy/article/2099050/hong-kong-firms-join-forces-make-deals-under-silk-road-plan

Donald Trump’s Infrastructure Plan Faces an Urban-Rural Divide in Congress

June 8, 2017

Representatives and Senators in rural regions are concerned that private investors would focus on cities

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June 8, 2017 8:38 a.m. ET

WASHINGTON—President Donald Trump’s plan to tap the private sector to rebuild $1 trillion worth of roads, bridges and rails has encountered an early problem: geography.

The administration says it will rely on private investors to supply the vast majority of cash to support a decadelong infrastructure rebuilding effort. But members of Congress…

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Trump infrastructure push faces cold shoulder from Congress
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Repairing the nation’s crumbling roads and bridges was supposed to be an area ripe for bipartisan compromise between congressional Democrats and President Donald Trump. Instead, Democrats are panning Trump’s proposed $1 trillion overhaul and even Republicans are balking at some aspects of the emerging plan.

The White House’s self-proclaimed “Infrastructure Week” began with Trump appearing Monday with aviation officials and some prominent GOP lawmakers to announce plans to privatize the nation’s air traffic control system and separate operations from the Federal Aviation Administration.

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“We live in a modern age yet our air traffic control system is stuck, painfully, in the past,” Trump said, noting the FAA had been working to upgrade the system for years.

But the proposal quickly drew bipartisan opposition, and there were few signs it would get far on Capitol Hill. “All but our largest airports nationwide stand to be hurt by this proposal,” said Sen. Jerry Moran, R-Kansas.

Next up will be a series of events throughout the week, including some with the nation’s mayors and governors, that will allow Trump to highlight his effort to muster public and private funding to overhaul the highway, waterway, electrical and airway systems on which the nation depends. The president plans to travel to Ohio on Wednesday to address ways of improving levees, dams and locks along inland waterways that are crucial to agricultural exports.

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The details of the plans must still be fleshed out. According to Trump’s budget proposal, the funding would come from $200 billion in tax breaks over nine years that would then — in theory — leverage $1 trillion worth of construction.

But although the goal of upgrading crucial infrastructure has broad support, Democrats do not like Trump’s plan for paying for it, arguing that his approach would result in taxpayer-funded corporate profits at the expense of investments in rural areas where money-making opportunities are scarce.

“A private-sector-driven infrastructure plan means tolls, tolls, tolls — paid by average, working Americans,” said Senate Minority Leader Chuck Schumer of New York. “It also means that infrastructure that can’t be built with tolls, like repairing our crumbling schools, for instance, will likely get left behind.”

Schumer struck a far different tone in the days immediately after Trump’s election, when he told The Associated Press that infrastructure investment was an area where Trump appeared more aligned with Democrats than with Republicans. Indeed, Schumer said that he’d spoken with Trump, offering his own support for a large infrastructure package but warning that conservative Republicans were unlikely to go along.

Conservative opposition remains a potential roadblock to Trump’s infrastructure plans. Nonetheless, the White House appears to be making little effort to round up bipartisan support on the issue. Trump is holding a series of meetings Tuesday with members of Congress, but they’re all Republicans. And Schumer’s spokesman, Matt House, said the White House never responded after Democrats presented their own infrastructure blueprint in January and shared it with the administration.

Instead of involving the private sector, Democrats’ preferred method is to simply add $1 trillion to the deficit to pay for a range of infrastructure projects they claimed would create 15 million jobs over 10 years.

Still, the White House legislative affairs director, Marc Short, told reporters in a briefing Monday night that the goal remained to get Democratic support for the infrastructure package.

“Infrastructure, the president’s said all along he believes to be a bipartisan exercise and it’s one that we will be looking to partner with them on,” Short said.

The White House and Republicans are already proceeding on a partisan basis with their other two big legislative projects, health care and taxes, with uncertain chances for success on both. Chances for infrastructure legislation may be dim, too, given the poisonous atmosphere in Washington as an undisciplined president courts controversy over Twitter and an angry liberal base goads Democratic lawmakers to battle him at every turn. The investigation into Russian election meddling and ties with Trump’s campaign hang over everything.

“This is not what he campaigned on and I think his voters are going to figure that out, sooner rather than later,” said Sen. Chris Murphy, D-Conn.

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Associated Press writers Ken Thomas, Josh Boak, Jill Colvin and Mary Clare Jalonick contributed to this report.

Philippine minister starts damage control after Duterte’s China war remark — “Now we are on China’s ‘One Belt, One Road,’ and can’t get off?”

May 22, 2017

Reuters

 Newly installed Philippines’ Foreign Secretary Alan Peter Cayetano (R) delivers a statement during a flag raising at the Department of Foreign Affairs headquarters in Pasay City, Metro Manila, Philippines May 22, 2017. REUTERS/Romeo Ranoco
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Talks last week between leaders of China and the Philippines were frank and friendly, with no threats or bullying, Manila’s foreign minister said on Monday, after his president said he was warned of war if he drills for oil in the South China Sea.

Foreign Secretary Alan Peter Cayetano would not disclose more details of the Beijing meeting between President Rodrigo Duterte and China counterpart Xi Jinping, but said they had the kind of relationship in which they could openly discuss preventing maritime conflict.

The notoriously outspoken Duterte said during a televised speech on Friday that Xi warned him there would be war if he tried to explore for oil in a stretch of the sea that both countries claim. China has yet to respond to Duterte revealing contents of the meeting.

“The conversation was very frank. There was mutual respect, there was mutual trust,” Cayetano told reporters.

“The context was not threatening each other, that we will go to war. The context is how do we stabilize the region and how do we prevent conflict.”

The maverick Duterte has faced criticism at home for refusing to push China to comply with an award last year by the Permanent Court of Arbitration in The Hague, which ruled largely in favor of the Philippines.

It also said the Philippines had a sovereign right to access offshore oil and gas fields in its Exclusive Economic Zone (EEZ), including the Reed Bank.

Vietnam, Malaysia, Brunei and Taiwan also have claims to sovereignty in the South China Sea, a vital conduit for trade and a hotbed of territorial squabbling that has stoked nationalist fervor in some countries.

“I will not contradict the president’s words. I am just telling you…my interpretation: there was no bullying or pushing around, it was not a threat,” Cayetano added.

“It was more the threat of conflict will always be there if we don’t have dialogue.”

A Philippine Supreme Court judge on Saturday urged the government to file another international arbitration case over the alleged Chinese threat, and also lodge a complaint with the United Nations.

Supreme Court Associate Justice Antonio Carpio said failure to do that would mean Duterte would be “selling us out” and forfeiting sovereignty to secure Chinese loans and investments needed for his ambitious $180 billion infrastructure program.

Presidential Spokesman Ernesto Abella on Monday said the Philippines was “very clear that we are not giving up our claim of sovereignty and sovereign rights.”

(Reporting by Martin Petty and Karen Lema; Editing by Jacqueline Wong)

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China is preparing for the reclamation and construction on Scarborough Shoal

FILE — In this Dec. 24, 2015, photo, provided by Filipino fisherman Renato Etac, a Chinese Coast Guard boat approaches Filipino fishermen near Scarborough Shoal in the South China Sea. Scarborough Shoal has always been part of the Philippines, by international law. China says it is happy to control fishing in the South China Sea. Credit: Renato Etac

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For about five years China has been loudly proclaiming “indisputable sovereignty over the South China Sea.” China has said, everything north of the “nine dash line” shown here, essentially, belongs to China.  On July 12, 2016, the Permanent Court of Arbitration in The Hague said this claim by China was not valid. But China chose to ignore international law.

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.

ONE BELT ONE ROAD GAINS INITIAL FUNDING 

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.

TRANSPARENT IN ADMINISTRATION AND INVESTMENT 

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.

MIXED RECEPTION BY GOVERNMENTS 

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.

MOST WILL WAIT AND SEE 

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

Read more at http://www.channelnewsasia.com/news/asiapacific/commentary-one-belt-one-road-gaining-traction-but-unanswered-8743648

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

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 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
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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?)
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US construction spending hits more than 10-year high

January 3, 2017

Reuters

U.S. construction spending rose more than expected in November, reaching its highest level in 10-1/2 years, which could provide a lift to fourth-quarter economic growth.

The Commerce Department said on Tuesday that construction spending increased 0.9 percent to $1.18 trillion, the highest level since April 2006. It was boosted by gains in both private and public sector investment

Construction spending in October was revised up to show a 0.6 percent rise instead of the previously reported 0.5 percent increase. Construction spending was up 4.1 percent from a year ago in November.

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Economists polled by Reuters had forecast construction spending rising 0.6 percent in November. November’s better-than-expected increase and October’s upward revision to construction spending could prompt economists to raise their gross domestic product estimates for the fourth quarter.

Spending on private construction projects jumped 1.0 percent in November to its highest level since July 2006 as single-family home building, as well as home renovations, increased.

Investment in private nonresidential structures — which include factories, hospitals and roads — rose 0.9 percent after tumbling 1.5 percent the prior month.

Public construction spending gained 0.8 percent in November to the highest level since March. It was the fourth straight month of increases. Outlays on state and local government construction projects rose 0.6 percent, also gaining for a fourth consecutive month.

Federal government construction spending surged 3.1 percent after rising 0.2 percent in October.

US manufacturing expanded in December

A worker inspects measuring cups at World Kitchen's Pyrex factory in Charleroi, Pennsylvania.

Victor J. Blue | Bloomberg | Getty Images
A worker inspects measuring cups at World Kitchen’s Pyrex factory in Charleroi, Pennsylvania.

Economic activity in the manufacturing sector expanded in December, according to The Institute for Supply Management on Tuesday, and the overall economy grew for the 91st consecutive month.

The U.S. manufacturing index was hit 54.7, an increase of 1.5 percentage points from the November reading of 53.2 percent. Economist expected the index to hit 53.5 for December, according to a Thomson Reuters consensus estimate.

The ISM manufacturing index has topped 50 for nine of the last 10 months. A reading above 50 indicates expansion in the manufacturing sector and a reading below 50 indicates contraction.

“Of the 18 manufacturing industries, 11 are reporting growth in December,” Bradley Holcomb, chair of the Institute for Supply Management, said in the report.

U.S. factories are steadily rebounding from a rough patch hit in late 2015 and early 2016. The decline in energy prices caused cutbacks in orders for equipment and pipelines, while a stronger dollar and slower economic growth abroad hurt exports.

—CNBC’s Berkeley Lovelace and The Associated Press contributed to this report.