China is preparing to counter the accelerating slowdown in its domestic economy through enormous investments in overseas infrastructure that could absorb overcapacity in key industries, according to a report that draws on authoritative Chinese sources.
The report, prepared by Hong Kong-based brokerage CLSA and China’s Citic Securities, examines what lies behind Chinese president Xi Jinping’s One Belt One Road (OBOR) project for extending Chinese economic influence across the Eurasian continent.
The project has its base in two key bodies: the Asian Infrastructure Investment Bank (AIIB) and the Silk Road Fund. But their respective heads — president designate of the AIIB Jin Liqun and Silk Road CEO Jin Qi — have so far been unwilling to discuss their institutions’ plans.
There has been little elaboration of aims and strategies by Chinese officials. But as China’s leading brokerage with strong connections to powerful mutual funds, foreign institutions, companies and regulators, Citic Securities’ voice is regarded as being informed.
The OBOR plan “can help solve China’s over-investment problem by exporting production of [materials such as] steel, cement and aluminium in the construction of overseas infrastructure such as roads railways, sea ports and airports,” the CLSA-Citic report said.
“OBOR promises free trade and China hopes that it can ultimately create a broad free trade zone across Asia, parts of Africa and Europe. Part of this is to counter US-driven trade agreements such as the Trans Pacific Partnership and the Transatlantic Trade and Investment Partnership.
“At the heart of OBOR lies the creation of a Silk Road economic belt that links China’s dynamic Yangtze River delta, Pearl River delta and the Bohai Sea economic zones to the European economy.”
FUNDED BY FOREX RESERVES
The key to success of the concept, added the report, is the development of an unblocked road and rail network between China and Europe. “OBOR benefits China as it helps export the country’s overcapacity, improve trade relations and offset the perceived US policy of containment of China.”
The China-led $40bn Silk Road Fund was launched in February last year to invest in OBOR infrastructure projects. The fund was capitalised mainly by China’s foreign exchange reserves and is intended to be managed in the same way as China’s sovereign wealth fund, CIC.
The AIIB, which was established in October 2014 and is led by China, India and Russia, has attracted more than 50 member countries, not only from Asia but also from European countries where companies are anxious to secure a stake in what is seen a vast infrastructure investment opportunity in Asia.
According to the CLSA-Citic report, the so-called BRICS bank, or New Development Bank, which is based in Beijing and counts Brazil, Russia, India, China and South Africa as its stakeholders, is also part of the OBOR project, as is the China-ASEAN Investment Cooperation Fund.
“The Silk Road Economic Belt aims to build infrastructure to ensure a long-term presence for China and Eurasian countries and the 21st Century Maritime Silk Road plans to build ports and maritime facilities from the Pacific Ocean to the Baltic Sea,” the report said.