Bonus: One Belt, One Road, Part I

TV Stephen Engel, who has anchored the first of our episodes. Stephen, you call this u At the beginning you you mentioned that this is this is potentially an empire building exercise. That's a Christian you want school or you then ask is it the creation of a new world order? What is the Belting Right initiative? Well, it is a revival of the old Silk Route, if you want to call

it that. It is in much grander scale though, going to a hundred and three different countries or international organizations everywhere from of course across Central Asia to Africa, to Europe, even to the Caribbean, uh to the Arctic, many different places that need trade and need investment and that China can come in and help facilitate that. China basically says, if we want to boil it down to three main points, uh Number one spur development and of course therefore global trade.

Number two incur some good will. Well, we're going to talk about whether they are incurring goodwill in depth in this podcast. And number three really promote economic integration at a time. Of course, there's dislocation, if you will, in global trade flows, with the brewing trade war between China and the United States, is China going to be looking further afield elsewhere than to its traditional number one trading partners like the EU of course, and also the United

States in particular. But there are a lot of critics of the Belt and Road initiative. You know already it's cost more than the Martial plan that rebuilt Europe following World War Two, of course, has measured in today's dollars. It is also much grander in scope than really what has been described by many Chinese the Chinese civilizations Golden era, and that was the Tongue Dynasty where we saw the

trade route really flourish to the west of China. Originally h the critics, though, say, who's going to pay for all this infrastructure? Also, how indebted will these some of them troubled economies, How indebted will they become when infrastructure, of course takes years to become cash flow positive. Are there going to be a lot of white elephants sitting around along the new Silk Road? And is this all to accommodate an increasingly assertive superpower as it spreads its influence,

And of course it's products and goods. I think that's one of the main issues really, that that that that part of the world is worried about it. It's what the last there, yeah, exactly, um, and you know it's it's it's the extent of China's ambition and and that ambition that was outlined by Cheesing Ping because when he talks about the belt of road, Belton Road and when he talked about it last year, um, you know, he puts it into the context of China's uh, you know, resurrection.

If you like, it's it's rebirth as a as a huge its exactly rightful place. Well, I'll tell you what interests me is is also looking at some of the numbers that are bandied around because Morgan Stanley has got an estimate that the whole project is going to cost

one point three million dollars. That's t for trillion. I think that's a pretty conservative dollars when and the question is, though, I suppose, um, you know, looking at looking at Belton Road from China's foreign policy ambitions and also looking at China's relationship now with the United States, which is rather concerned that the Belton Road is in fact designed to

somehow question US dominance in the world. How do you how do you look at the project when you consider what's going on with US China relations and at the moment I'm thinking in particular about the trade war. Well, of course, yeah, the trade war hangs over everything in between China and US relations. But look at the precursors to this trade war. You had Donald Trump pulling out of the Trans Pacific Partnership, not getting involved necessarily in

the Asia Infrastructure Investment Bank, and de pivoting. Is that a word, Well, I'm going to use it away from Asia if you will, as Obama did use his pivot towards Asia. So what you're seeing is China pushing forward with new initiatives or or building out on this initiative that did come about in UH and not being so reliant on the United States. And it's not surprising that we're hearing voices from the United States UH kind of

discounting the eventual viability of this large, large project. Sixteen U S senators recently warning about the dangers of falling into China's debt trap. Um. You know, there's a number of different warning signals and cautionary tales already. UH. You know surfacing. China likes to talk about how they've seen five trillion dollars in trade over the first five years, but also there's lots of debt that's been incurred. And we can go down the list from Sri Lanka to

Malaysia too, of course Pakistan, Djibouti. The list is getting a little bit longer. About this potential debt trap. To me, how is the funding going on with the built and road How see is China actually managing the funding here? Let's look at the numbers China state financing bodies. They've lent to date three d five billion dollars commercial state banks in China, they've pledged two hundred thirty three billion dollars and loans China lad Ai I be a hundred billion,

plus China's Silk Road Fund forty billion. That's seven eight billion dollars right there alone centered from China, real money from the Chinese, the World Bank fifty nine billion. So is this not being led by China? Oh? Absolutely, this is being led by China and dominated by China. Why don't we then listening to the comments that the head of the base said during the first episode, it's not

a program dominated by China. It's the program by which China works with other countries, working with international financial institutions Multi letal, November Banks, So it's kind of cooperation. Unfortunately, there's some people miss under students as a kind of China program. China wants to to take levant of these to promote its own interests, which nothing could be further

from the truth. Um, you've heard there from Jin Lee Chon, who's the head of the AII BE talking about how actually he thinks China isn't going to be dominating these projects, h Steve, There's a lot of investment that needs to be done. Um, if China is not to dominate them, or China suddenly dominating in terms of the money, but you know, do you have any sense that there's uh that these projects are going to be designed hand in

hand with the countries that actually need this infrastructure. Well, absolutely, I mean they're trying to instill and get some goodwill from these countries that need investment. A lot of these countries are are nearing default or they've have serious current account deficits. Look at Pakistan, as I mentioned there before. Uh, you know, they're on the verge of potentially getting an IMF bail out. There's fears that if they do get an i MF bailout, that money could be used to

pay back its SEPACK debt. SEPACK is the China Pakistan Economic Corridor. Basically the new Prime Minister Mr. Kahan, you know, he is trying to create jobs, create uh investment. But the problem is is if you look at Guadar, one of the ports there, it is dominated by the Chinese.

And that's one of the biggest struggles. A lot of these countries that take the loans at China's conditions, Uh, they take China's investment, they take Chinese workers, and what do the local governments get other than perhaps a port or a facility that eventually will be handed back to

China because China, the local governments cannot pay. We've seen that in Sri Lanka, they've had to hand over a majority control all of this newly developed port to a Chinese state on enterprise to ease part of the burden, that debt burden that they've seen to China. And we want to go into details of that if you want.

One of the one of the other statistics that comes out of this report that really struck me was that out of the seventy or so countries apparently that have signed up, seven percent the sovereign debt is ray to junk. So you know, there is this this this debt trap issue. But also I mean, considering that China has got potential debt problems at home, it seems as if China sort of like has the risk of importing debt problems by investing in these projects, it could potentially dodgy. Right, yeah,

well that is a concern as well. With a growing escalating trade tensions with the United States, simultaneously with the crackdown on over leveraging in China, does it force China to scale back its risk appetite in these developing countries. I mean I keep on bringing up various examples, but take for example, Djibouti in Africa. China has provided one point for billion dollars in infrastructure funding about seventy Djibouti's g d P. Most of that came in the form

of loans from the Export Import Bank of China. The fears though this will end up like uh in Sri Lanka, that China will gain control of the Dorala counter terminal container jominal excuse me, and then also Humbug total Port in Sri Lanka, and then Guadar in Pakistan. It's we're talking about a string of pearls that China is investing in,

and many of them happen to be strategic deep water ports. Well, I mean, Jibouty is actually a new Chinese base, right, Um, so I suppose there's the risk that they're going to turn Guadar and maybe the port in Sri Lanka into a base. We don't know that that's not going to happen. Well, they say Guadar, which is in I believe what western Pakistan, and it's it's pretty much out in the middle of no war. But it's a deep water port and it's

primarily a Chinese town right now. And we talked about uh Khan talking about building or creating what ten thousand or ten million new jobs excuse me, over the first hundred days of of being in office. Let me get those numbers exactly right. He's talked about creating, yes, ten million new jobs in the first hundred days in office.

But one of the biggest complaints coming out of Guadar is if you look around, you see more Chinese security agents and security soldiers and police protecting Guadart, their investment and their reports basically that they've invested in from what they say is potential terrorism threats uh and and and various other problems and people they're saying, it's become a

little bit of a little China. Steve, I just want to end with with with with a little chat about what you think UM b r IY is going because in the first five years, and let's face it, it's a pretty short period of time since it was us pronouncing that speech by ping Um, we've seen a lot of projects have been labeled b r I. But I suppose now we're going to see, you know, projects which are specifically b r I. There might be more you know, the the the the the lending covenants around those projects

might be more commercial. Where do you see the project going over the next say, the next five years or beyond. What's interesting for Chinese companies if you want to look at it from that perspective, is there have been a lot of capital controls over the last couple of years that Chinese companies have had to stringently abide by because of the protection of the REM and B. But if you somehow make a business case that your company is investing or part of the Belton Road, Uh, you can

sort of get around a lot of those rules. Uh. It's interesting, Michael, every of Rubble Bank, he says, being tied to Belton Road is like, you know, is a political special Saucy says, if you drizzle it on anything, it tastes better. So so again, this is really being driven by Siejin Ping. Keep in mind Siejun Ping has had the constitution changed. He is now a leader, uh, potentially for life. This is his calling card project and he is going to undoubtedly push this forward and try

to make it a success. Already, China signed a hundred and eighteen cooperation agreements with a hundred and three countries and international organizations. Uh, they've built a number of or in the process of building a number of high speed

railways or regular railways. But keep in mind as well, there's been pushed back Maha to Mohammed went to Beijing, the new old new slash old Prime Minister of Malaysia basically went to Beijing and instead of cow towing and talking nice, he said, listen, China, this is turning out to be a new form of colonialism. And you know what, We're gonna scrap that twenty billion dollar high speed railway project. We don't necessarily need to be beholden to the Chinese.

We want to employ Mala Malaysians on these projects, not bringing imported labor from China. Steve hold that thought because episode two of the program is going to take us to India with Slender Ammon and she's Windyer is one of the big skeptics when it comes to Belton Road. She's also going to go to Thailand and Kazakhstan. Um Richard Saloma in the third episode is going to have a look at East Africa and particular in particular Kenya.

And then finally Tom McKenzie, who's our Aijing correspondent will be in Europe and he's going to talk to to the Europeans about their concerns and also what they think about the project in general. So there's a lot coming up. Steve, thank you very much indeed for speaking to me. I'm David Tweed. This has been the first in our podcast about our new Belton Road series. You can actually catch up and see a little bit more about this with some stories, and also the series are on a Bloomberg

dot com. I just looked at Belton Road m