Investment floods into China’s One Belt, One Road strategy
HONG KONG — China’s ability to throw staggering amounts of money at projects was on display again this week with the announcement that a state-owned investment giant will pour $113 billion into supporting the One Belt, One Road trade strategy.
China International Trust and Investment Corporation (Citic) will invest in 300 projects stretching from Singapore to Turkmenistan that include a network of roads and railways, oil and gas pipelines, power grids, internet networks, and maritime links.
The One Belt, One Road initiative is already well under way and connects China with Europe and every country in-between. China’s aim is to improve trade via the Silk Road Economic Belt through the Asian continent and the 21st Century Maritime Silk Road that covers the Asia-Europe sea trade and Asia-Africa connections.
Citic is another of China’s sprawling state-owned entities and many of its subsidiaries will be involved in the projects. In announcing the strategy in March, President Xi Jinping said China’s annual trade with countries along the proposed route could reach $2.5 trillion in 10 years.
According to Barclays Research, those countries collectively accounted for 21.9 percent of Chinese exports in 2014 , up11.7 percent in the past three years, and supplied 37 percent of China’s commodity imports.
“We believe that the development of this trade route could significantly improve the longer-term trade outlook for China. We expect increasing exports of the One belt, One Road countries will create positive feedback loops to sustain the growth of Chinese exports,” the bank said in a report.
This promotion of regional connectivity through infrastructure development will continue to be the key driver in regional trade, bringing development to relatively underdeveloped Xinjiang and Tibet as it links the economies of Central Asia with Western China.
Barclays China Economics team expects China to register GDP growth of 6.8 percent in 2015, and 6.6 percent in 2016, supported by easing and stimulus measures. The country is looking for new ways to sustain its growth that, while higher than most economies, is a sharp drop from the double-digit growth China enjoyed during the last decade.
China’s exports as percentage of GDP have declined to 22 percent in 2014, from 25 percent in 2011, while net exports have remained at around 2-3 percent of GDP during 2011-2014.
“There exists a virtuous cycle between growth of Chinese exports and the countries that lie along the One Belt, One Road, which are generally resource rich. The countries accounted for 21.9 percent of Chinese exports in 2014, with this figure growing at an 11.7 percent compound annual growth rate in the last three years,” Barclays noted.
With so many land borders between China, Central Asia and Europe, a key part of the trade strategy rests on the cooperation between countries along the routes with which China is engaging to remove investment and trade barriers.
Those hurdles will soon be worn down by China’s chequebook diplomacy and the huge economic gains to be made by trading with the mainland.
Contact Greg Knowler at email@example.com and follow him on Twitter: @greg_knowler.