China: Building Roads to the Future
2019-12-18 09:34

China is forging new global connections and expanding trade and market access in many ways. The country does seem to be opening its capital markets and working to become more transparent. We have seen the success of stock linkages between mainland China and Hong Kong, and recently, a new bond market connection has been announced. I think index-provider MSCI's recent announcement to include large Chinese mainland shares in its Emerging Markets Index1 beginning next year represents an important vote of confidence and a recognition that China's growth and capital market size must be taken into account by global investors.

中国正试图通过多种方式在全球范围内构建新的联系,扩大贸易和市场准入。中国的确打算开放其资本市场,旨在提高透明度。我们见证到中国内地在与香港就股票交易市场成功搭建新桥梁后,近期又宣布建立了新的债券市场联系。我认为,指数提供商摩根士丹利资本国际公司 (MSCI)不久前宣布自明年将中国内地的大量股票纳入其新兴市场指数【1】的决定,体现出极大的支持与信任,也说明该公司已认识到,全球投资者不可忽视中国的经济增长和资本市场规模。


China's ancient “Silk Road” trade route is thought to be traced back to the Han Dynasty more than 2,000 years ago. The importance of silk trading to the region inspired the name of this network connecting land and sea trade routes linking China, Central Asia, the Arab world and stretching into the African and European continents.

中国古代的 “丝绸之路” 贸易路线可以追溯到2000多年前的汉代。丝绸贸易对该地区的重要性可以说是该路线得名的灵感来源,丝绸之路是连接中国、中亚、阿拉伯地区和乃至非洲和欧洲大陆的陆海贸易通道。

In 2013, Chinese President Xi Jingping formally announced plans for a modern system of networks including railroads, ports, pipelines and even electronic information highways. The “One-Belt One-Road” (OBOR) initiative aims to transform economic and diplomatic interests in the region, taking shape in the form of investments in the various countries the program encompasses.

2013年,中国国家主席习近平正式宣布构建现代网络系统的计划,该建设项目包括铁路、港口、管道甚至电子信息高速公路在内。“ 一带一路 ” 倡议旨在以执行涵盖多国家投资行为的计划推动该地区的经济和外交利益转型。

In 2014, China established a special, multi-billion-dollar fund to finance a variety of infrastructure projects along the OBOR routes, creating new economic corridors. The initiative is thought to be perhaps the largest of its type initiated by just one country. The OBOR currently spans more than 60 countries.


The sea-route part of the program includes ports along China's coast, Hanoi in Vietnam, Kuala Lumpur in Malaysia, Jakarta in Indonesia, Kolkata in India, Colombo in Sri Lanka, Nairobi in Kenya and Athens in Greece, where the Chinese have acquired the port of Piraeus.


One indication that the Chinese are putting words into action was demonstrated to me when I recently visited Sri Lanka. Right on the Colombo waterfront was a spanking new giant container port the Chinese had built, capable of handling the world's largest container vessels.


A land-route portion of the project will start in Xian and Urumqi in the West of China, then travel through Kazakhstan and Uzbekistan and Tajikistan in Central Asia, then Tehran in Iran, Ankara in Turkey, Moscow in Russia and Rotterdam in the Netherlands. Of course, a number of other countries such as Pakistan and Georgia will likely be impacted as trade and energy cooperation expands throughout various areas in the region.

“ 一路 ” 将以中国西部的西安和乌鲁木齐为起点,然后途经中亚地区的哈萨克斯坦、乌兹别克斯坦和塔吉克斯坦,最后以伊朗德黑兰、土耳其安卡拉、俄罗斯莫斯科和荷兰鹿特丹为终点。当然,随着贸易和能源合作在该地区各个领域的逐步拓展,巴基斯坦和格鲁吉亚等其他一些国家可能会受到影响。

In mid-May of this year, the Chinese hosted a high-level OBOR summit. A number of new investments were announced at the summit, augmenting what already has taken place since 2013 when the OBOR was launched. At the summit, China pledged more than $100 billion in new investments.

今年5月中旬,中国举办了 “ 金砖国家领导人峰会 ” ,并在会议期间宣布了一系列新的投资计划,扩大了自2013年一带一路启动已经实施的项目。在进行会晤时,中国作出了投放1000多亿美元的承诺以推动新项目的进行。

Officials also announced that Chinese companies had built 56 economic cooperation zones in more 20 countries. The Chinese are emphasizing investments in the South Caucasus and in Central Asia, as those areas represent a strategic link between China and Europe. Agreements made with Uzbekistan represent just one example of the substantial impact of Chinese investments. The two countries have made numerous, multi-billion-dollar agreements including energy infrastructure and a gas supply contract to China.


Transport corridors connect a railway system spanning China, Kyrgyzstan, Uzbekistan and Afghanistan, and also connect to seaports in Pakistan and Iran. At the conference underlining the importance of the Caucasus countries, China also signed a free-trade agreement with Georgia. One attraction of Georgia is the Association Agreement Georgia has with the European Union (EU). Chinese joint ventures in Georgia would thus be eligible for preferential treatment of its products within the EU markets.


In my view, the OBOR program will likely benefit many Chinese companies, but has widespread implications for other countries in the region and beyond. While some countries in Asia are likely to see the biggest initial impact, eventually I also see Africa as a key beneficiary. Even though African countries are not in the direct path of the “One Road” they will be included in the sea “One Belt” projects with various infrastructure improvements already underway. Countries in Europe could also benefit once the program is completed and new trade and investment linkages expand.

在我看来,一带一路项目可能会使许多中国公司受益,但也会对该地区和其他国家产生广泛影响。虽然亚洲一些国家在初期可能受影响最大,但最终非洲也将被列入主要受益者。尽管非洲国家不在 “ 一路 ” 的直接通道之上,但这些国家将被纳入海上 “ 一带一路 ” 项目,其中各种基础设施的改善工作正在逐步进行。一旦该计划完成,新的贸易和投资联系扩大,欧洲国家也会受益。

While China has established this program to bolster its economic position and power, I think the Chinese are going to be careful to not unduly favor Chinese companies involved in various OBOR projects. The bottom line is that clearly, China wants more global trade and many countries and companies involved in these efforts will benefit. Of course, others may not benefit at all, which emphasizes the importance of being highly selective as an investor in these markets.


A Note on China and Finance


While some observers see the OBOR program as likely to benefit China and many other countries in a number of ways, there are also some risks. China has put a consortium of banks and funds together to help finance OBOR-related projects but many investors remain concerned about the state of China's financial system.


China does face domestic challenges as it continues to transition its economy away from an export-focused model. China's pace of growth has been slowing a bit in recent years and concerns about overcapacity in certain sectors has sprung up.


In particular there has been considerable concern about so-called “shadow banking” in China, which refers to financial transactions outside the formal system that lack a strong safety net. This may be one of the reasons why a major ratings agency recently downgraded China, even though the country still maintains an investment-grade rating.

特别是,人们对中国所谓的 “ 影子银行 ” 相当担忧。“ 影子银行 ” 指的是正规体系之外、缺乏强大安全保障的金融交易。这可能是主要评级机构最近下调中国评级的原因之一,尽管中国仍维持在投资级评级。

There are signs the Chinese government is moving to clean up some of the excesses in the financial sector, particularly in regard to sales of wealth-management products—a key component of shadow banking.


In June, Chinese authorities ordered banks to suspend business dealings with a Chinese holding company that had a variety of financial services subsidiaries. It was announced that the company's head was “temporarily unable to fulfill his role for personal reasons.” Apparently the government's concern related to sales of high-yield financial products to clients in order to fuel real estate and banking assets overseas.

今年6月,中国有关部门下令暂停银行与一家中国控股公司的业务往来,该公司拥有多种金融服务子公司。相关部门称,该公司负责人 “ 因个人原因暂时无法履行职责 ”。“ 显然政府担忧的是该行为了刺激海外房地产和银行资产,向客户出售高收益金融产品。

Recently I was in New York and I noticed that the famous Waldorf-Astoria hotel was closed and boarded up. In 2015 it was purchased by the same large Chinese holding company mentioned above. The announced plan was to convert part of the hotel into condominiums, something that fans of the iconic art-deco designed hotel were unhappy about.


The acquisition created a lot of attention and probably raised eyebrows in Beijing. Authorities have been aiming to stem the outflow of foreign exchange to prevent a weakening of China's currency. Once the renminbi is stable and confidence in the domestic market has risen, I think it will be easier for the authorities to continue with their long-term financial reforms.


With the upcoming 19th Communist Party Congress this autumn, I think it will be important for President Xi to seek to ensure financial stability and to demonstrate that he is capable of presiding over a stable financial system so that China's stock and bond markets will attract more support for the OBOR program.


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