Article by Gabriel Vildau and Ma Nan. Translation by Nick Trickett.
Investments in President Xi Jinping’s high-profile project One Belt, One Road declined in 2016, evidenced by several indicators. This calls into doubt commercial enterprises’ preparedness to sink money into the strategy, which pursues not only economic but geopolitical goals.
The leaders of 28 states will gather this weekend in Beijing at a conference dedicated to the initiative, which includes the creation of two transport corridors – the Economic Belt of the Silk Road, and the Maritime Silk Road of the 21st Century. First proposed in 2013, they call for the construction of road and trainline networks, ports, fuel pipelines, and power plants on the route connecting China with Southwestern and Central Asia, the Near East, Africa, and Europe. The new Silk Road has even occupied a central place in Beijing’s economic diplomacy and become a subject of its propaganda. But certain data suggest that the hype surrounding the initiative may be exaggerated.
China’s Foreign Direct Investment (FDI) into the countries taking part in One Belt, One Road dropped 2% in 2016 and another 18% year-on-year from the beginning of 2017, according to data from the Ministry of Commerce. Non-financial FDI into these 53 countries stood at $14.5 billion in 2016 – a mere 9% of China’s total volume of FDI. This volume rose to a record 40% last year, which forced Chinese regulators to restrict the foreign activity of local companies and the outflow of capital. Additionally, the geographic distribution of FDI connected to the initiative makes one question how much money is actually going into infrastructure. Singapore received the largest amount of investment in 2016 and has well-developed infrastructure.
“With large investments, especially abroad, the numbers won’t necessarily grow each year,” says Xiao Qing, chairman of the Committee on Control and Management of State Property of China (SASAC). He stresses one should not watch the growth of investment in annual terms, but the development of the projects themselves. Xiao therefore expressed confidence that in the long-term, investments in the Silk Road countries will grow. According to SASAC, 47 Chinese state companies were involved in 1,676 projects in these countries.
But privately, some bankers and representatives of state-owned enterprises complain that the government forces them to take part in unprofitable projects. “Many state-owned companies are now fixated on this: the government forces us to do what we do not want,” says a recently retired top manager of one of the largest state-owned enterprises.
In addition to FDI, cross-border lending is an important part of the initiative. But the loans issued by the China Development Bank (CDB) fell by $1 billion to $100 billion in 2016, according to information on its website. The share of CDB loans going to Silk Road countries peaked at 41% in 2014, falling to 33% in 2016. The CDB declined our request for comment.
Chinese experts insist that these figures don’t reflect the full picture. According to Jia Jinjing from the Chunyang Institute of Financial Studies at the People’s University of China, most Chinese FDI passes through other countries before reaching its final destination. This makes the Ministry of Trade data an unreliable tool for assessing investment in the countries of the Silk Road. “To assess them, you need to look at how many countries signed a memorandum of understanding to participate in the One Belt, One Road initiative and how many heads of state or other important guests and delegations will attend the summit. That’s the most important thing,” says Jia.