When it comes to twists and turns, China’s grandiose Silk Road project is starting to resemble a theme park rollercoaster.
In the latest development, Beijing is considering allowing companies involved in the Belt and Road Initiative to raise cash through yuan-dominated initial public offerings in Hong Kong.
Under the proposed plan, the Chinese government would “pick” leading firms linked to this massive program to boost their liquidity.
“The government hopes Hong Kong would be able to play a greater role in facilitating the initiative on the investment front and further promote the internationalization of the yuan,” Zhang Xiaoqiang, vice-chairman of the China Center for International Economic Exchange, told the Chinese media after being consulted about the scheme.
Rolled out in 2013 by President Xi Jinping, the awkwardly-named Belt and Road Initiative is a highly ambitious development project, connecting modern-day economic “Silk Roads” through Asia, the Middle East, Africa and Europe.
The scale and depth of the venture is massive, with China planning to inject about $150 billion into the $1 trillion-plus program each year.
“Already $900 billion in projects are planned or underway,” Fitch Ratings highlighted in a report last year.
With mind-blowing numbers like these, it is hardly surprising that Beijing is keen to raise money on the international markets.
But like most tentative proposals, the Chinese government has yet to put forward a timeframe, or a list of companies, for the IPOs, China Daily reported.
“Hong Kong’s lack of restrictions on capital and currency convertibility make it ideal as a core center for Belt and Road-related fundraising,” Zhang, a former vice-director of the powerful Chinese National Development and Reform Commission, told the state-owned newspaper.
At first glance, the whole “initiative” has a bewildering look to it. The “road” is not actually a road but a sea route linking China’s southern coast to East Africa and the Mediterranean. The “Belt” is various overland corridors, connecting China with Europe, via Central Asia and the Middle East.
“It is a very confusing name,” Peter Cai, the author of Understanding China’s Belt and Road Initiative for the influential think tank Lowy Institute, told The Guardian newspaper in London.
Translated from the Chinese yi dai yi lu, which tends to roll off the tongue in Mandarin, “One Belt, One Road or Belt and Road” sounds like a car component company.
Still, the blueprint is impressive. Kevin Sneader, a senior partner at global consultancy McKinsey, stressed that the project could even dwarf the United States’ Marshall reconstruction plan, which was unveiled after World War II.
“Some people have talked about this being the second Marshall Plan,” he said in a podcast. “It is worth recalling that the Marshall Plan, which regenerated Europe after World War II, was one-twelfth the size of what is being contemplated in the One Belt, One Road initiative.”
At the heart of this venture is a colossal development program, involving up to 65% of the world’s population and one-third of global GDP. The aim is to produce a series of “land and sea conveyor belts” which will move goods and services through a vast infrastructure network.
Financing this has been a massive undertaking and is fraught with risks. “Raising more money in the offshore market will be helpful to fill the financing gap related to the initiative,” Huang Shaoming, head of the macroeconomy research department at Haitong International Securities, told China Daily.
But serious concerns persist about the project since many of the 60 countries and emerging economies involved have political and financial hazards lurking beneath the surface.
“There is no doubt in my mind that there will be a large number of projects that will have unforeseen problems,” Bjorn Conrad, vice-president at the Mercator Institute for China Studies, told CNBC recently.
“There are considerable risks of nonperforming credit in many of these projects and high risks of default. A risk to China’s banking system is, by default, a risk to the global banking system,” he added.
But then, rollercoaster rides have never been for the faint-hearted.
This is the best news so far in 2018. Thanks to the improved infrastructure business will thrive. Capital is needed to achieve these objectives. Asia has huge unleashed potential, new green energy, (China is #1 in Lithium components, Asia goes to natural gas to get cleaner and less expensive energy). India is providing more dependable electricity that will benefit industry.
Focus on continued reduction in poverty will boost Asia’s GDP the next decades. In Asia Times today, we see an article how Vietnam still have a “bottle-neck” problem with the ports, if fixed it will generate $Billions in new business. Building up capital markets with Asian knowledge will increase investments and reduce dependency of capital markets in New York and London.
BRI/OBOR will have to be an Asian initiative since no Westerner would invest in this venture.
1. The Corporate Capitalist West is heavily in debt already.
2. The infrastructure where investment is being poured into is West-unfriendly, so securing the assets is a problem.
3. BRI/OBOR weakens the competitive advantage of the West, Japan, India, therefore politically not sellable to these already cash strapped systems.
However Asia, ME, Russia, and Gerrmany would be most attracted to this IPO. Returns will be high for sure.
China does not have to be 100% successful with all the projects and all the countries in order to be spectacularly successful. They have already taken away some of the reserve currency market from the USA. They have thousands of students in china from other countries learning skills and Chinese for demands that will work better in China than their home countries. They have positive trade balances with all their tradingb partners despite the fact that China needs the trading partners resources. They loan money to the BRI countries and those countries use most of the money to buy materials and corporate resources from Chinese companies. They have few constraints they put on their BRI customers and they all deal with China’s international position politically and financially. What they offer is to upgrade the economy and potentially the life style of the BRI countries while reaping benefits critical to China’s growth and strength. What’s to question or dislike? It’s brilliant and the stupid domestic American media don’t have the interest or intelligence to recognize it or its impact on America.
Very true. I don’t like the idea of a world order being driven by the Chinese government (not that the US government is run by a bunch of saints), but they are on a path to disrupting current US global hegemony at the very least. And the plan is quite brilliant, as you say.