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Capital control may drag on B&R, but not seriously: PwC


Source: Global Times    Published: 2017-2-15


Experts from consultancy firm PwC forecast during a press conference on Wednesday that more project announcements across the "One Belt and One Road" (B&R) initiative will be made in 2017 as governments, that of China in particular, continue to tackle an economic slowdown.

However, they warned that stricter capital controls might act as a drag on China`s outbound merger and acquisition (M&A) transactions in the B&R sector.

More than $494 billion worth of projects and M&A deals were announced in 2016 across core infrastructure sectors relating to the initiative, of which one-third were in China, according to a report released by PwC on Wednesday.

"I think 2017 will be a landmark year for the B&R initiative as many projects will start to be carried out," Cyrus Lu, director of PwC China Corporate Finance, said during the conference.

PwC compiled the report based on statistics from major global data research companies like BMI Research.

Up to 66 countries and regions fall under the B&R initiative, which was put forward by Chinese President Xi Jinping in October 2013.

According to the report, the B&R picture was "positive" in general in 2016. PwC noted that the world`s total volume of B&R infrastructure projects increased 2.1 percent year-on-year to $401 billion last year, as governments sought to use those projects to inject vitality into a weak global economy.

On the other hand, M&A deals in the B&R sector slumped 48.7 percent year-on-year in 2016, and the PwC report noted that stricter capital controls in China was one cause.

In recent months, Chinese government has tightened its foreign-currency management, with measures such as requiring a much more detailed application form for foreign-currency purchases.

"I think that the tighter government regulations on foreign currency would affect B&R deals in China this year, though the impact wouldn`t be too great, as the B&R initiative is a national strategy and the government wouldn`t allow its policies to get in the way of such an important initiative," Linda Cai, partner in the PwC China Shanghai office, told the Global Times on Wednesday.

Lu said that the Chinese government might even launch foreign-currency management policies that tilt toward the B&R initiative.

Wang Yiwei, director of the Center for International Studies at the Renmin University of China, said that improved supervision of the outflow of foreign exchange reserves may affect the country`s guarantee capacity on infrastructure projects under the B&R initiative.

He also noted that China`s foreign exchange reserves of nearly $3 trillion  fall short of the capital needs of the B&R sectors. "For example, the Asian area needs funding of roughly $8 trillion in the coming 10 years."

China`s foreign reserves amounted to $2.998 trillion by the end of January, data from the State Administration of Foreign Exchange showed.

The PwC report noted that there won`t be a sharp rise in inbound M&A deals in 2017, for reasons such as the accumulation of risks in overseas markets, but the growing trend of B&R infrastructure projects will continue this year.

"Some demonstration and flagship projects may produce desired effects in 2017, as many projects got started before 2016. The Regional Comprehensive Economic Partnership, and free trade agreement negotiations between China and Sri Lanka and the Gulf Cooperation Council, may also be finished in the year," Wang noted.

The PwC report forecast a possible significant growth in several B&R areas, including power and healthcare, in a number of middle-income B&R countries and regions such as Kazakhstan in 2017.

Wang nevertheless cautioned that the security of finished infrastructure facilities needs to be resolved, as many governments along the B&R route lack the ability to protect these projects.


Wang Yiwei is a senior fellow of Chongyang Institute for Financial Studies, Renmin University of China.

Key Words: Belt and Road   report   currency  

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