China Is Reevaluating Economic Ties In 65 Foreign Countries

Officials in Beijing worry about high project costs and capital flight along their pan-Eurasian Belt and Road.

When 3,000 Chinese legislators kick off their major annual meeting next week, a bulk of the attention will go to the country’s fabled economic expansion. Much of that expansion over the past five years has broken past Chinese borders into deals with countries from Pakistan into Europe — China helps build infrastructure in exchange for smoothing trade routes that help commerce on both sides.

But that $900-billion, 65-nation initiative dubbed “Belt and Road” is coming under new pressure in China over returns on the investments, analysts say.

Chinese leaders going forward will probably support this outbound investment, from a port lease in Sri Lanka to railway construction aid to the Philippines, only if it serves state interests rather than just those of individual investors, some scholars say.

A regulator’s decision last month to take over the private, China-based Anbang Insurance Group for a year as its former head stands accused of economic crimes, shows China’s intent to place state ambitions over company-specific ones, according to Scott Kennedy, a China business and political economy project director with the U.S. think tank Center for Strategic & International Studies.

“There’s definitely a tension between China’s emphasis on the Belt and Road on the one hand and its current focus on reducing financial risks in its economy on the other,” Kennedy says.

Schism: Develop other countries but stop capital flight

Chinese officials have pushed since 2016 to stop capital from fleeing overseas, a would-be threat to currency rates as well as other pillars of the centrally-controlled economy. But it takes capital to build roads, ports and railways around Eurasia as prescribed by the Belt-and-Road initiative.

Officials will be on guard for now against Chinese firms that bill projects overseas as Belt-and-Road measures to avoid capital controls, analysts expect.

“China wants to ensure that overseas investments serve the government priorities,” Kennedy says. “It’s possible that many Chinese companies and financial institutions will frame their outward investments as part of the Belt and Road, even if they are not to lower the likelihood they’d be blocked by Beijing.”

Mining projects with no resource gain for China itself, for example, might fall to that suspicion.

Costs too high offshore?

Some in the Chinese government may worry that their own funding for Belt and Road — namely outlays by state-run enterprises such as telecom operators — cost too much and should be refocused inside China, says Stuart Orr, China-specialized professor of strategic management at Deakin University in Australia. Much of China, particularly poor inland regions, still want new infrastructure. “Many will be of the opinion that this money is better spent on infrastructure development in China,” Orr says.

Yet no one in Beijing is seen stopping work along the Belt and Road, an initiative that has gained so much attention overseas that Chinese geopolitical rivals such as India and Japan are plotting their own replicas.

To manage costs, Chinese leaders might steer their already more than 10-year-old official focus on innovation to the targeted foreign countries — many of them poorer, smaller and less technologically-savvy than China, Orr says. “I would expect that there will be some mention of developing some specific innovation policy in relation to the Belt-and-Road initiative,” he says, looking ahead to the legislative sessions.

Innovation will enter broader official discussions on how to improve work on the Belt and Road, says Zhao Xijun, deputy School of Finance dean at Renmin University of China. Leaders and legislators would talk about how innovation can open markets for Chinese products in the targeted countries, “among other results,” he says.

Hints of debate this month

Senior Chinese officials may drop hints about Belt and Road’s new direction in a series of work reports to the 3,000-member National People’s Congress legislative session that opens March 5 or to its advisory body, the Chinese People’s Political Consultative Conference. These sessions have covered the Belt and Road before. At the 2015 congress, for instance, Premier Li Keqiang said his country had vowed to “advance talks” on free trade zones with Israel and Gulf Cooperation Council, which includes six other Middle Eastern nations.

The advisory body may have a chance to kick off debate about some of the Belt and Road’s limitations, Orr says. “Conversations about whether the implementation of the (initiative) is too ambitious are likely to be hotly debated by consultative conference delegates later,” he forecasts.
Source: Forbes