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BEIJING's
'One Belt One Road' initiative announced
by China's President Xi Jinping more than
two years ago is finally gathering steam
just as the prices of oil, steel, concrete
and other building materials sink, says
Bloomberg.
The
very volatility of commodity markets is
making it easier for China to sell its ambitious
vision to build roads, railways, pipelines
and ports from China to Europe, diversifying
the country's trade options and exporting
the excess industrial capacity that's dragging
down its own economy.
The
so-called Silk Road Economic Belt and 21st-Century
Maritime Silk Road - or "One Belt,
One Road" - sits at the centre of President
Xi's effort to bolster geo-economic clout
across more than 70 countries in Asia, Europe
and Africa.
With
many nations along the route dependent on
commodity exports, the prices slump could
make them more willing to accept Beijing's
investment pitch and a share of its US$40
billion Silk Road infrastructure fund.
"It
will help to ease cost pressures on the
'OBOR' construction projects, potentially
boosting their financial viability,"
said Andrew Wood, the head of Asian country
risk at BMI Research in Singapore.
The
commodities meltdown could make participating
countries "even more amenable to the
stimulative effects of the large infrastructure
projects proffered by China," Mr Wood
said.
Iron
ore plunged 39 per cent last year, hitting
$38.30 a dry ton last month, the lowest
since at least May 2009 by Metal Bulletin
Ltd. Citigroup said that there was a "strong
possibility" of the material falling
below $30 a tonne this year amid weak Chinese
demand. Crude oil was selling for about
$30 a barrel, a price not seen in more than
a decade.
Meanwhile,
the Silk Road, which until recently appeared
to be a nebulous collection of existing
projects and civil engineering pipe dreams,
is taking shape. President Xi hosted senior
financial officials from 57 countries in
Beijing to mark the formal launch of the
Asian Infrastructure Investment Bank, which
he envisions as a big sponsor for OBOR projects.
Recently,
construction began on a $5.5 billion high-speed
train between the Indonesian cities of Jakarta
and Bandung, the official China Daily said.
It's being built by a joint venture between
the two countries and financed with a loan
from the China Development Bank.
More
recently still, is news that Cosco is expected
to make an offer for Greece's rail network
after becoming the sole bidder for the country's
largest port to advance the state owned
shipping giant's plan to build a European
transshipment hub.
"This
year was the year of action for the One
Belt, One Road, the year when the concept
materialised to action and implementation,"
Chinese Foreign Minister Wang Yi told a
conference in Beijing on December 12.
China
signed more than 20 country-to-country energy
cooperation deals last year to facilitate
the plan.
The
People's Bank of China announced in April
that a dam project in northern Pakistan
- part of a $46 billion economic corridor
linking western China to the Arabian Sea
- would be the Silk Road fund's first recipient,
a total investment of $1.65 billion. China
also started building a highway between
Karachi and Lahore, and took over a 923-hectare
(2,281-acre) free-trade zone at the deep
sea port Gwadar.
More
nascent projects have helped expand Chinese
influence in places such as Southeast Asia
and the former Soviet states of Central
Asia, where Russia has long been the dominant
power.
Kazakh
Prime Minister Karim Massimov, who has watched
oil's fall upend budget projections, during
a visit to Beijing last month locked in
Chinese support for 52 projects worth $24
billion, with at least 10 expected to start
next year. At the same time, China's Shenyang
Lianli Copper Co signed a memorandum of
understanding to explore mining resources
in Kazakhstan's Atyrau region.
Yang
Shu, director of Lanzhou University's Institute
of Central Asian Studies, called the commodities
slump "a great opportunity for Chinese
capital to further penetrate Central Asia,
a key link in the Belt", and could
help alleviate concerns about becoming too
beholden to Beijing. "The oil-price
collapse helps reduce obstacles to the initiative,"
Mr Yang said.
Malaysia,
which derives more than one-fifth of government
revenue from oil-related sources, is also
courting Chinese infrastructure investment.
Malaysian Transport Minister Liow Tiong
Lai said at Silk Road forum in Kuala Lumpur
last month that connectivity was a key growth
driver and that railway cooperation with
China was a core focus, according to Xinhua.
The
Silk Road has been cast as a solution to
several of China's most vexing challenges,
from reducing reliance on oil shipped through
Pacific ports to converting economic strength
into geopolitical might. The project, outlined
in a 9,000-word action plan released in
March, would eventually "directly benefit
4.4 billion people, or 63 per cent of the
global population," Xinhua said.
One
more pressing motivation is to "correct
internal imbalances" by exporting China's
glut of industrial materials such as steel
and cement. That oversupply is fuelling
deflation at the nation's factory gates
and contributing to the country's economic
slowdown.
With
the plan still ramping up, Chinese steelmakers,
who produce about half the world's steel,
are already exporting at record levels.
Outbound cargo soared 20 per cent to more
than 112 million tons last year, an all-time
high.
Low
commodity prices also make it cheaper for
Chinese state-owned companies to acquire
energy and material assets along the Silk
Road route in exchange for infrastructure,
said Hong Hao, chief China strategist at
Bocom International Holdings Co in Hong
Kong. "The commodity cycle is still
in a secular bear market, and will probably
start to consolidate at low levels,"
Mr Hong said. "As such, these assets
can be had at a cheap price."
The
commodity slump isn't a clear positive or
negative for the new Silk Road because it
reflects weak Chinese demand and a domestic
production glut, said Mark Patrick, head
of Asia- Pacific country risk for JPMorgan
Chase & Co. Still, it provides extra
incentive to quicken the plan's pace.
"It
will increase pressure to execute the policy,"
Mr Patrick said. "And maybe that makes
China bolder regionally."
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