QNB Discusses Challenges Facing Belt Road Initiative

Doha, July 22 (QNA) - Qatar National Bank (QNB) said Saturday in its weekly note that China's Belt Road Initiative (BRI), which was launched in 2013, to link China with West Asia as well as Africa and Europe faces great challenges. The report said that the sheer task of construction on the proposed scale of BRI could take several decades and this is to say nothing about how China might bring about coordination across 60 different countries. Achieving the requisite level of return will also be extremely difficult as the investments are mainly long-term development projects rather than purely commercial ventures. The report also noted that subpar returns could cause debt servicing issues in recipient countries and hurt investors and banks in China. In short, policymakers will need to be mindful of these risks. While the benefits of BRI could be immense, so could the costs. The weekly note discussed the reasons that could propel China to carry out such a project. They proposed three possible reasons behind China's actions. The first was that slower growth in Chinas domestic economy has led to excess production capacity, particularly in large-scale infrastructure development where Chinese firms have developed a particular expertise. BRI offers an avenue to export that productive capacity and technological know-how that could otherwise be a drag on its domestic economy. Second, there remains a substantial surplus of domestic savings in China. Rebalancing towards consumption is occurring but not fast enough to materially reduce the savings glut. Policymakers could see outward investment into what is largely Chinese controlled and led projects as an important avenue to direct those savings. Third, China should reap the benefits of greater trade flows. Of all the countries involved in BRI, Chinese exporters and trade-related sectors are likely to benefit the most. BRI will reduce transport costs, shorten delivery times and improve access in frontier and emerging markets. Moreover, it offers the opportunity to keep China in control of the flow of Asian trade, even if it is losing share to other Asian countries in terms of production as it moves up the manufacturing value chain and shifts to consumption-based economy. The weekly note provided an overview of the project and said that nearly 30 world leaders gathered in Beijing in May to discuss the BRI. First launched in 2013, BRI is a Chinese-led global infrastructure programme aimed at improving connectivity and trade between Asia, Africa and Europe. Current plans suggest BRI projects would span across more than 60 countries which account for nearly a third of global GDP. The first wave of projects is being implemented and China is courting more international support for the project. China announced at its recent summit that it would spend $124 billion on projects while it has previously made $890 billion available in loans through its development and multilateral banks. Overall, the full cost of BRI investments is estimated to be in the range of $1-2 trillion but so far, just $35 billion has been spent. There are several major BRI projects. In Pakistan, China is leading the transformation of the southern port of Gwadar into an energy hub linking China to the Middle East. This involves road and pipeline networks stretching from Gwadar to western China, reducing a 12,000km journey to import hydrocarbons by sea to less than 3,000km over land. Work on the road network and port expansion has already begun. Rail links between Tehran and China were established in 2016 and the Khorgos Gateway, a major cargo hub between China and Kazakhstan, is also operational and expected to be expanded under BRI. There are other promising flagship projects that have not begun. These include rail connections from Beijing to Moscow, and southern China to Malaysia and Singapore, as well as a deep sea port in Sri Lanka. (QNA)