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THINK
of a small European country where China
currently manages a US$3.5 billion portfolio
of direct investment projects, suggests
Michael Ivanovitch, an independent analyst
in a recent CNBC Commentary.
And
while the hapless Europeans were stirring
up more trouble for Greece, he says, China
completes a US$368.5 million deal for a
67 per cent stake in the Piraeus Port Authority,
with another $350 million slated for investments
to create China's largest maritime hub in
the Mediterranean.
Piraeus
will be the seafaring endpoint of China's
21st Century Maritime Silk Road from East
Asia to Africa, Middle East and Europe,
said Dr Ivanovitch, a former economist at
the OECD and at the Federal Reserve Bank
of New York as well as teaching economics
at Columbia Business School.
The
sea route will connect with an overland
trading network called the Silk Road Economic
Belt from China and Central Asia to Europe's
major centres of commerce and finance, he
said.
On
the North African shores of the Mediterranean,
China is building infrastructure facilities
in the energy-rich Algeria and a strategically
positioned Egypt, which could become one
of the key logistics, commercial and industrial
centres on the Belt and Road project.
On
January 17, China and Algeria signed a $3.3
billion agreement to build and manage (by
the Shanghai Port Group) Algeria's major
seaport of Cherchell.
Two
days later, the Chinese signed a total of
12 contracts with Egyptian companies in
areas as diverse as agriculture, medical
equipment, and metal, chemical and textile
industries.
China
is also ready to participate in the development
of the Suez Canal Corridor (Suez Economic
and Trade Cooperation Zone), and in the
construction of Egypt's new administrative
capital.
Further
down into the Red Sea, there is a $10 billion
Yasref oil refinery that China's Sinopec
built at Yanbu on Saudi Arabia's west coast.
That
huge facility, of which Sinopec owns 37.5
per cent, was inaugurated (remotely, from
Riyadh) last by the Saudi King Salman and
China's President Xi Jinping, while they
upgraded their countries' ties to a "comprehensive
strategic partnership."
The
next gateway on the Maritime Silk Road is
in the Arabian Sea.
China
has 2,000 acres of land to develop Pakistani
deep sea port of Gwadar at the cost of $1.6
billion. That project is a starting point
of a $46 billion China-Pakistan Economic
Corridor, linking Gwadar to China's Kashgar
City, in the province of Xinjiang, with
a network of high-speed trains, highways
and oil pipelines.
India
is also a big part of this maritime trading
route. China-sponsored infrastructure and
industrial investments in India will probably
get a big boost once the Asian Infrastructure
Investment Bank (AIIB) and the Beijing-based
New Development Bank (chaired by an Indian
citizen) begin their operations in the course
of this year.
Meanwhile,
China's largest real estate developer has
decided to invest $10 billion in a five-square
mile industrial zone in the North Indian
state of Haryana.
Resource-rich
Kazakhstan, with its 1,112-mile border with
China, is also vying to get a slice of a
potential $800 billion market along Asia's
ancient trading roads.
To
begin with, Kazakhstan wants to establish
itself as a major regional hub, offering
faster land transport alternatives to maritime
cargo traffic from East Asia to Europe.
Astana's
plans are much more ambitious, though. In
December, China and Kazakhstan signed a
$4 billion agreement covering business operations
in energy, petrochemicals, uranium mining
and telecommunications. That was a sequel
to the $23.6 billion worth of deals in steel,
oil refineries, hydroelectric power generation
and car manufacturing signed in March.
Iran,
China's third-largest oil supplier, is the
latest addition to big Belt and Road projects.
A total of 17 agreements, with an estimated
value of $8.1 billion, were signed during
President Xi Jinping's two-day visit to
Tehran, when the two countries ramped up
millennia-old peaceful ties to a "comprehensive
strategic partnership."
The
business emphasis was apparently on civilian
nuclear energy facilities, but contracts
also cover oil and gas industries and infrastructure
investments in sea ports, roads and railways.
The
Export-Import Bank of China has been another
active participant in reviving old trade
routes. Some estimates have it that the
bank financed more than 1,000 infrastructure
and industrial park projects in 49 countries
along the Belt and Road destinations in
2015, for a total amount of about $80 billion.
These
are some of China's major and most recent
projects along the Belt and Road. It seems
that they are only the beginning of infrastructure
and production initiatives foreshadowed
by China's direct investment outflows currently
running at an estimated annual rate of more
than $120 billion.
Last
year also saw a record amount - apparently
exceeding $100 billion - of Chinese companies'
foreign acquisitions.
This
year, too, is off to a good start: In the
past few weeks, the Chinese have spent more
than $9 billion acquiring foreign firms
in entertainment, home appliances and chemical
industries.
All
this fits into China's short- and medium-term
development plans. Indeed, one of the immediate
objectives of China's Belt and Road construction
projects is to use excess production capacities
left by slowing manufacturing industries
at home.
The
steelmakers are a good example of that strategy:
They exported a record 112 million tons
last year, marking a 20 per cent increase
from 2014. A reduction of idle production
outlets is also part of China's medium-term
market reforms.
Large-scale
industry consolidations (already under way
in the shipbuilding sector) and outbound
foreign direct investments are expected
to soften the blow of inevitable job losses.
China
naysayers are legion. There is nothing new
about that; they have been around for a
long, long time.
But,
as always, markets will continue to respond
to China's monetary and fiscal policies
and to evidence on economic growth, structural
reforms and the country's rising share of
global demand and output.
China's
economic track record and its unique method
of economic management show that the Zhongnanhai
officials have known how to navigate in
what they call "deep waters" of
economic reforms ever since they initiated
that process in late 1970s.
Still,
watching what they are doing now, said Dr
Ivanovitch, one has the impression that
they are underestimating the serious challenge
posed by the opening up of China's financial
system and capital account transactions.
"As
a former international civil servant with
long experience in working with industrialised
countries on their financial sector reforms,
I have witnessed, up-close, how sophisticated
European governments struggled - all the
way to the creation of the common currency
with free capital flows and large exchange
rate swings.
"Investors
can safely ignore the views about China's
hard landing economic scenarios, but they
have to expect unsettling volatility of
their yuan-denominated assets.
"Those
who wish to avoid that can place their bets
on dollar- or euro-based companies deriving
large incomes from their Chinese operations,"
he said.
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