Source: Financial Times Published: 2017-5-10
Investment in President Xi Jinping’s signature “Belt and Road Initiative” declined last year, according to several measures, raising doubts about whether commercial enterprises are committed to a strategy for a new Silk Road defined as much by geopolitics as by profit-seeking.
Twenty-eight heads of state will gather in Beijing this weekend for a conference intended to “define and actuate” Mr Xi’s plans for a “Silk Road Economic Belt” and a “21st-century Maritime Silk Road”, first proposed in 2013.
The initiative centres on building a network of roads, railways, ports, power plants and fuel pipelines connecting China with south-east and central Asia, the Middle East, Africa and Europe.
The BRI has become the centrepiece of Chinese economic diplomacy and the subject of an aggressive and occasionally bizarre propaganda campaign. But some hard data suggest the hype surrounding BRI may exceed the substance.
Foreign direct investment from China to countries identified as part of the BRI fell 2 per cent in 2016 year on year and has dropped an additional 18 per cent so far in 2017, according to commerce ministry data. Non-financial FDI to 53 BRI countries totalled $14.5bn last year, comprising only 9 per cent of overall outbound FDI.
This decline occurred despite a 40 per cent jump in outbound FDI in 2016, which raised overseas investment to a record high and prompted regulators to clamp down on foreign deals in a bid to curb capital outflow.
The geographic distribution of BRI-linked FDI by country raises doubts about how much of that investment flowed into infrastructure. Among BRI countries, the leading investment destination in 2016 was Singapore, a high-income country with well-developed infrastructure.
“Big investments, especially overseas, mean that the numbers might not rise every year,” said Xiao Yaqing, chairman of the State-owned Assets Supervision and Administration Commission, which oversees state-owned enterprises. “Let’s not look at year-on-year growth but at the development of the investment and the projects themselves. Over the long term, I believe investment into BRI countries will rise.”
Mr Xiao disclosed figures showing that 47 central government-owned SOEs were involved in 1,676 projects in BRI countries.
Some bankers and state enterprises complain privately that the government is pressuring them to undertake BRI projects that are unprofitable.
“A lot of SOEs are stuck on this idea that ‘the country is making me do it, and I don’t want to do it’,” said a recently retired senior executive at a large SOE. “Well, do you want to be an SOE or don’t you? Have you ever counted all the benefits you get from being an SOE?”
In addition to FDI, cross-border bank lending is also a key component of the initiative. But loans outstanding from China Development Bank, the largest of China’s three state-owned development lenders, fell to $110bn at the end of 2016, down from $111bn from a year earlier, according to CDB’s website.
As a share of CDB’s total foreign lending, loans to BRI countries peaked at 41 per cent at the end of 2014 and fell to 33 per cent by the end of 2016. CDB did not respond to questions.
Chinese experts counter that published figures do not paint a complete story. Jia Jinjing, chief researcher at the Renmin University’s Chongyang Institute for Financial Studies in Beijing, said much outbound FDI passes from China through an intermediate country before reaching its final destination, making the commerce data an unreliable gauge of total BRI investment.
“To evaluate BRI, we have to look at how many countries have signed BRI memoranda of agreement and how many heads of state or other important people and delegations will attend this summit. This is the most important thing,” he said.
Jia Jinjing is Director of the Macro Research Department at Chongyang Institute for Financial Studies, Renmin University of China.