By: Azhar Azam
“It will only take us around 18 hours to send rice to China by train, with the freight cost lowered to about one-third of that of road or sea transport,” said Boonyong, a Thai businessman who sells rice to China at an annual profit of over 50 million yuan ($7.68 million).
B&R THEME
Through B&R, China wants to synchronize nearly 4.4 billion people, over 60-countries, take control of 30% of the global economy and a total of $2.1 trillion of gross production focusing infrastructure, trade, policy, finance, and people.
WHAT IS ONE BELT, ONE ROAD (OBOR) OR BELT AND ROAD (B&R)
In 2013, China’s President Xi Jinping announced Silk Route Economic Belt (SREB) and the 21st century Maritime Silk Route (MSR) during his visits to various states. The composition of these two initiatives was named Belt and Road or “一带一路” or “Yídàiyílù” in Chinese.
Silk Road Economic Belt (SREB) is planned to link China with Europe through central and western Asia; and the 21st Century Maritime Silk Route (MSR) is intended to connect southern China with South East Asia and Africa by sea.
SIX (6) ECONOMIC CORRIDORS
China is mulling six economic corridors to give a strong impetus to integrated economic growth between Eurasia and Africa:
Corridors are set to run through China-Mongolia-Russia, New Eurasian Land Bridge, China-Central and West Asia, China-Indo-China Peninsula, China-Pakistan, and Bangladesh-China-India-Myanmar, said vice premier Zhang Gaoli.
CHINA-PAKISTAN ECONOMIC CORRIDOR
China-Pakistan Economic Corridor (CPEC) is the first of six corridors to start construction. This “fate changer” project is deriving a huge $51 billion investment in infrastructure, energy, and railway along with creating thousands of job and investment opportunities.
It is about 20% of Pakistan’s GDP, divulges the scale and scope of the project. The whole project could add up to about 4.5% to Pakistan’s GDP, enlarging an overall GDP growth of 9% of the country.
The construction of CPEC is being progressed on fast track basis and just about half of the project has already completed. Keeping in the significance of CPEC for both China and Pakistan, special troops have been deployed for its security, overseen by Pakistan armed forces.
WHY GWADAR PORT IS SO VITAL
Gwadar Port, core of the CPEC, would help China to transport oil of $200 million/day ($73 billion/annum) from over 100-days to just about 30-days, besides other trade and strategic advantages. Gwadar, 18m, is the deepest port (9m; nearly double of Jebel Ali) in the world and could facilitate an 120-births or ships against Jebel Ali 67-births.
We could imagine that if Jebel Ali Port with 9m depth and 67-births can make GCC grow to such extent, how greatly Gwadar Port with 18m and 120-birth can lead to Pakistan growth.
PARTICIPATING COUNTRIES
70-countries have actively participated in scheme and 30-countries have already signed cooperative agreements with China to build B&R jointly. There are around 900 deals in negotiation valued at $890 billion, including a rail link between Beijing and Duisburg, a transport hub in Germany.
PROJECT FINANCING
China is expected to invest an estimated sum of eye-watering $900 in 60-countries included in the program to shore up road, rail, and maritime trade by creating economic corridors. Infrastructure construction in Asia would require an annual investment of around $730 billion from 2015 to 2020.
It has been financed by Silk Road $40 billion, Asia Infrastructure Investment Bank (AIIB) $100 billion, and the incorporation of New Development Bank (formerly BRICS Development Bank) with an initial capital of $50 billion and to be increased up to $100 billion. B&R is backed by beefy China’s foreign exchange reserves valuing at about $3.2 trillion as of August 2016.
Chinese Ministry of Commerce tells that in 2015, Chinese enterprises invested nearly $15 billion in 49-countries within the framework of Belt and Road cooperation, a year-over-year increase of 18.2%.
CHINA IS ALREADY REAPING BELT AND ROAD BENEFITS
In the next five years, China’s imports are expected to exceed $10 trillion, outwards direct investment (ODI) to reach $500 billion, and Chinese outbound tourist visits will also rise to 500 million.
TOURISM TO FETCH REVENUE OF $200 BILLION
Belt and Road has a great potential to bring total revenue of $200 billion in tourism to countries engaged. In an ongoing tourism festival, a tourism official said that 150 million Chinese tourists are expected to visit Belt and Road countries in the next five years.
“Another 85 million tourists from those countries are expected to visit China, bringing revenue of up to $110 billion, he said at the Silk Road International Tourism Festival in Lanzhou, Gansu Province.” Between China and B&R countries, over 25 million tourists travel annually and the market is anticipated to expand quickly as the projects link more than 60-nations.
TACKLING INDUSTRIAL OVER-CAPACITY
China is facing acute industrial over-capacity and OBOR provides a great opportunity to block this monster dilemma. In 2014, China signed 44% of its new engineering projects with Belt and Road countries and the figure has escalated to 53% in the first 05-months of 2016.
TRADE WITH B&R COUNTRIES EXCEEDS $600 BILLION IN FIRST 08-MONTHS OF 2016
During the first eight months of 2016, China’s trade with Belt and Road countries have surpassed $600 billion, 26% of China’s total trade volume. For the same period, China has invested up to $10 billion in Belt and Road countries through AIIB and Silk Fund.
Deputy Head of Ministry of Commerce said that Chinese companies have established over 50-trade and economic cooperation zones in B&R countries, investing over $15.6 billion, earning host countries tax revenue of $900 million and creating 70,000 jobs.
YUAN INTERNATIONALIZATION
Trough B&R, China visualizes “more capital convergence and currency integration” and gradually lessening dependence on US dollar. The B&R countries will be pushed to trade in renminbi heading to yuan internationalization.
Some countries such as Russia, Mongolia, Kazakhstan, Uzbekistan, Vietnam, and Thailand are already broadly using renminbi for trade. “By the end of 2014, offshore renminbi deposits amounted to ¥1.6 trillion and offshore renminbi bonds reached ¥350 billion – a trend supported by the belt-road initiative. Moreover, this initiative calls for establishing a renminbi-nominated Asian bond market."
Targets 6.5% GDP Growth, 25-million New Jobs, and Reducing Poverty by 70 million
In 13th Five Year Plan, President Xi Jinping targets 6.5% annual GDP growth. Close down middle-income economic trap, raise annual per capita income to $12,600, create 25 million new jobs, and reduce poverty in rural areas by 70 million through urbanization policies.
CHINA’S ECONOMY
According to China Bureau of Statistics, China’s GDP grew by 6.7% on y-o-y in first three quarters of 2016, to reach $7.87 trillion.
Foreign trade declined for the same period by 1.9% to $2.61 trillion; exports dropped by 1.6% ($2.14 trillion) and imports plummeted by 2.3% (7.47 trillion yuan).
However, China continues to retain its global leading position on trade in goods with a rise in global market share from 11.2% in 2013 to 13.8% in 2015.
Foreign direct investment in (FDI) shoed a growth of 6% in 2015 and reached at $136 billion, ranked in top-3 in world, UN report says.
CHINA-AFRICA COOPERATION
Last year, in December, President Si announced at Johannesburg Summit in South Africa 10-major China-Africa cooperation plans worth of $60 billion in the next three years.
Vice-Foreign Minister Zhang Ming said at a news conference that China and Africa have signed at least 243 cooperation agreements of various kinds worth $50.7 billion since the summit.
“Among these agreements, Chinese companies’ direct investment and commercial loans to Africa surpass $46 billion, accounting for 91 percent of the total volume,” he said.
CHINA DEBT CRISIS
At the close of 2015, China reported total debt of 168.48 trillion yuan ($25.59 trillion). However, Li Yang, a Chinese expert is convinced that this debt is controllable and China would not suffer from debt crisis as the government owns enough assets to handle debt risk.
Li said that even taking the debt of local governments’ financing platform into account, the amount of total government debts at the end of 2015, reaching 56.8%, was still below the warning line of 60% set by the European Union.
In contrast, the current debt ratio of the Japanese government has surpassed 200%, and that of the US government and French government is over or around 120%.
Sources: The Market Mogul, USA China Daily, Maxxelli, Shanghai Daily, Lehman Brown, Yale Global, China State Council