- Politics may overshadow economics as investors pile into projects in China’s Belt and Road Initiative
- There’s still no clear indication of whether those projects will be economically viable in the long run
By Huileng Tan, CBNC.
Read original story here.
It wasn’t just Chinese President Xi Jinping who was written into the Communist Party constitution last week. His pet project, the Belt and Road Initiative was also enshrined in the document, signalling an all-out effort to realize the vision.
It also makes the project potentially riskier for investors.
The political gilding of the project (originally known in English as “One Belt, One Road”) may lead to blind spots in decision-making. The top-down directive from the Communist Party will surely put more pressure on state and private companies to make investment decisions that reflect Beijing’s political and strategic aims, said Hugo Brennan, Asia politics analyst at risk consultancy Verisk Maplecroft.
Politics more than economics
“The [initiative’s] place at the heart of China’s policy-making process is now unquestionable. It will underpin Beijing’s overseas investment strategy and activities long into the future,” added Brennan.
The “centrality” of the Belt and Road project “serves as a significant bottom-up incentive for Chinese executives to position their business activities within its framework, in order to access state financing, receive diplomatic support abroad and garner political favor at home,” Brennan added in a note published Monday.
The massive plan — which analysts are still struggling to quantify — aims to connect Asia, Europe, the Middle East and Africa with a vast logistics and transport network, using roads, ports, railway tracks, pipelines, airports, transnational electric grids and even fiber optic lines. The plan involves 65 countries, which together account for one-third of global GDP and 60 percent of the world’s population, or 4.5 billion people, according to Oxford Economics earlier this year.
It’s all part of China’s push to increase global clout — building modern infrastructure can attract more investment and trade along the route. The policy could also boost the domestic economy with demand abroad, and might soak up some of the overcapacity in China’s industrial sector.
Is it even economically viable?
One major issue with the Belt and Road project is “really a question of who the end buyers are going to be and whether any of these projects are going to be commercially viable,” said Zach Witlin, Eurasia region analyst at geopolitical consultancy Eurasia Group.
“We have these grandiose visions of railways and other majestic hubs connecting the Eurasian continent. Yet in the longer run, we’re not really sure if you can make an economic case for each one of these things there, which means for the time being, it’s politics that’s going to be driving it at this time,” he added to CNBC.
The best way to look at it, said Witlin, is that it’s a “statement of intention.”
It is “a vision of connecting these parts of the world and seeing an avenue, especially for Chinese products, to make their way through and beyond these countries here — with the quid quo pro being greater Chinese investment,” Witlin added.
— Sophia Yan contributed to this report.