- There will be even more money
Through boosting the existing Silk Road Fund and re-arming the favoured policy banks, Xi Jinping has pledged an extra US$124bn in funding for the One Belt One Road (OBOR) initiative. US$14.5bn will go to the official fund from the government purse. China Exim Bank and China Development Bank will have around US$55bn to lend in the form of concessional loans, while there will be approximately US$8.7bn available in aid for developing countries.
The figures, as is often the case with China, are eye-watering large, but with its huge foreign reserves, China can afford it – particularly if it is going to put Chinese companies, resources and labour to work. Little information has been forthcoming about currency or timescales on the lending, but you would back China to deliver.
Officially, it’s been a difficult 18 months for OBOR. Direct investment from China into OBOR countries fell by 2% last year and 18% thus far this year. Perhaps – as GTR reported on Friday – this is due to capital controls, or perhaps down to the government clamping down on the perceived hijacking of the “OBOR brand” to purchase non-related, unintended assets.
Whatever the reason, Xi used this weekend to announce that he means business, and is willing to put his (or China’s) money where his mouth is. Referring to OBOR as “the project of the century”, he projected an image of inclusiveness and connectivity that simply hasn’t been borne out in reality thus far. We said that it needed some direction, maybe this is what we’ve been waiting for.
- Xi continues to position himself as the champion of globalisation
With Donald Trump pursuing his “America First” narrative in the US, Xi used the Belt and Road Forum to reiterate his anti-protectionist views. He was first proclaimed the champion of globalisation after a speech in Davos at the World Economic Forum at the beginning of the year. Here, his language couldn’t have been more different than that of Trump.
“We need to improve policy coordination and reject beggar-thy-neighbour practices. This is an important lesson that can be drawn from the global financial crisis and is still very relevant to the development of the world economy today. We need to seek win-win results through greater openness and cooperation, avoid fragmentation, refrain from setting inhibitive thresholds for cooperation or pursuing exclusive arrangements and reject protectionism,” he said.
Xi, as the leader of the world’s largest nominally Communist country, is an unlikely saviour for free traders. But his rhetoric is strong. Last week, GTR called for OBOR to return to its roots as a trade facilitation programme, and that is what Xi conveyed in numerous speeches on Sunday and Monday. He said OBOR is open to all, perhaps to encourage US collaboration. Let’s see how that plays out in practice.
- Security was high on the agenda
Since it was announced four years ago, it has been clear that OBOR would be a political tool. Look at where most of the infrastructure investment has happened to date: the restive west of China and the volatile republics of Central Asia. By pumping these places with money, improving infrastructure and creating jobs, China hopes to minimise the threat of terrorism within its own borders.
The sentiment was wheeled out by a number of VIPs over the course of the weekend too. The Turkish President Recep Tayyip Erdogan described OBOR as “the kind of initiative that will put an end to terrorism”.
The Prime Minister of Pakistan Nawas Shariff added that by improving people’s lives, OBOR could help counter terrorism. “”Pakistan believes that the most powerful impact of OBOR will be on the lives of poor and marginalised people, who would have higher incomes, better education and more health facilities. It would help in eradicating poverty and achieving sustainable development, leaving no one behind,” he said.
- Not everybody was so pleased with proceedings
Shariff’s counterparts in India begged to differ. The government of Asia’s second largest economy boycotted the Belt and Road Forum, having previously expressed concern over the China-Pakistan Economic Corridor (CEPC) – a huge infrastructure initiative paid for by China, which passes through territory claimed as part of India.
“Regarding the so-called ‘China-Pakistan Economic Corridor’, which is being projected as the flagship project of the BRI/OBOR, the international community is well aware of India’s position. No country can accept a project that ignores its core concerns on sovereignty and territorial integrity,” said external affairs ministry spokesperson, Gopal Baglay, in a statement.
India is in the midst of a domestic infrastructure improvement programme of its own, and its poor internal transport routes are often said to hold back its trade performance. China has previously said it is willing to rename CEPC to avoid offending India further. This seems to be the most sensible option for all concerned.
- US companies at least are taking note
After speculation that no representative from the US would attend, Washington DC sent Matt Pottinger, the national security council East Asia director. Rather than make any specific reference to government policy, Pottinger framed his attendance in alignment with the opportunities for US firms.
He said: “American companies have much to offer here. US firms can offer the best-value goods and services required over the life of a project. US firms have a long and successful track record in global infrastructure development, and are ready to participate in Belt and Road projects.”
This handy New York Times report shows that the likes of GE, Honeywell and Citi are already hustling for some of the action. Former Treasury Secretary Henry Paulson, who also spoke at the forum, reiterated that US firms are taking note.
He said: “The more China can demonstrate that the Belt and Road initiative is open to outside participation in this way, the more it will be embraced by global – and even American – firms and suppliers. Conversely, the more the Belt and Road evolves as an exclusively Chinese initiative, built around Chinese firms alone, the fewer opportunities there will be for Americans and others, and the more that we are likely to hear from sceptics and critical voices.”
Around the time as the forum was kicking off, Trump’s administration announced early details of trade negotiations with China. Among the highlights, China will lift a ban on beef exports from the US, while US LNG companies will be allowed to sell to China too. Despite the US negotiating side hailing it as a “Herculian” effort, other experts have roundly scoffed at the deal, saying that most of the headline successes had already been agreed upon before Trump took office.
Source: Global Trade Review (GTR)