By Anastas Vangeli, Torino World Affairs Institute (T.wai)

In 2012 China launched a platform for pragmatic cooperation with the sixteen countries of Central, East and Southeast Europe (called “16+1” cooperation): Albania, Bosnia and Herzegovina, Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Macedonia, Montenegro, Poland, Serbia, Slovenia, Slovakia and Romania. In 2013, after the unveiling of the Belt and Road Initiative (BRI), “16+1” was repurposed as one of the mechanisms for implementation of the Silk Road vision. The visits by President Xi Jinping to Prague, Belgrade and Warsaw in 2016 reinforced the impression that China considers these countries to play an important role in the implementation of the BRI.

In Europe, the main questions on the “16+1” cooperation revolve around its potential effects on the relationship between the European Union (EU) and China (eleven of the sixteen are EU member states). Yet, China’s cooperation with the other five countries – Albania, Bosnia and Herzegovina, Macedonia, Montenegro and Serbia – also raises important questions on issues pertaining to Sino-EU ties. To understand the prospects for a Sino-Balkan relationship and the Silk Road in the Balkans, it is therefore necessary to first grasp the context in which this relationship is developing.

The violent conflicts from the 1990s and the subsequent political and economic decline of the region have led to the Balkan countries losing much of their agency on the international stage. The agenda for the Balkans over the past 25 years has been set by the “international community” – the EU and the United States in primis. They have prioritized peacebuilding, statebuilding and democratization, accompanied by economic neoliberalization, which were to be implemented through a closely supervised process of comprehensive reforms of the countries’ political and economic systems.

Today, in terms of political transformation, the outcomes have been underwhelming – while there may be some stability in the region, political tensions and undemocratic tendencies still loom large. The EU has been seen as promoter of positive change in the past, but nowadays is growingly seen as parts of the problem. In terms of economic transformation, the impression is even worse –neoliberal reforms have resulted in rampant economic devastation. The global financial crisis has cemented the Balkans as a European “super-periphery,” as it was precisely these countries that “suffered the most from the global recession of 2008-09.” Today, labor-intensive trade-processing industries thrive in the region, as manual labor is cheaper than in China itself.

The BRI, therefore, comes to the Balkans at a time when there is a sense of incompleteness and disillusionment with mainstream paradigms from the past 25 years. It is, in fact, based on a very different set of principles compared to those of the West. The Chinese keyword about the Balkans is “untapped economic potential.” The cooperation spans across different policy fields but is dubbed “pragmatic”, meaning that political issues are off the table. The cooperation is focused on conceiving and implementing concrete projects, fostering, “industrial capacity cooperation,”, alongside boosting trade and investment. Slowly but steadily, China has been delivering: highways, energy plants, steel mills and other projects are in the works or have been already completed – although an even greater number of projects is still at the discussion stage. Slowly but steadily, China has been delivering: highways, energy plants, steel mills and other projects are in the works or have been already completed – although an even greater number of projects are still at the discussion stage.

What is important to note, however, is that even though Beijing does recognize the different status of EU
and non-EU countries (saying the latter have more “flexibility” in cooperating with China), it does not perpetuate the orientalization of the Balkans or the “Western Balkans” as an inherently distinct group based on historic and cultural specifics. Rather, it treats Balkan states as subset of a larger region based on structural similarities and geographical proximity. China’s mental geography, therefore, does not see the Balkans as Europe’s hinterland, but as a bridge between different regions. The BRI thus envisions large-scale projects, such as the China-Europe Land-Sea Express Railway, which spans from Budapest to the Piraeus Port in Greece (now 67% owned by COSCO) through Serbia and Macedonia, getting both EU and non-EU countries involved. This also runs opposite the history of divisions and disputes, and stimulates much-needed intra-regional cooperation, allowing for the Balkans to exercise their agency again, and to have a certain degree of ownership over their own development agenda.

Cooperation under the BRI framework is an open-ended process, there is no conditionality, and the results it delivers (in the form of infrastructure investment or trade flows) are easily measurable. Yet, the BRI in the Balkans has yet to mature. Assuming this trend continues, then, what would its end result look like? China does not seek to replace EU and the United States as a major external actor in the region, nor does it have the potential to do so. Records from elsewhere have shown that intensification of China’s economic diplomacy can indeed stimulate better economic performance; but the benefits of China’s presence come at certain costs, as Beijing indirectly influences local debates on domestic policy models and principles, often providing inspiration for leaders who fancy the creation of strong-armed states with free economic zones.

How will other global actors, then, adjust to the advancement of the BRI in the Balkans? The European Union started the so-called Berlin Process on the Western Balkans in 2014, coupling it with its Balkan Connectivity Agenda (BCA) in 2015, putting strong weight on economic development – emphasizing connectivity, infra- structure construction, and economic renewal for the first time. Given the change in tone, some see the BCA as the European “response” to the BRI in the Balkans. Yet, China and the EU are comprehensive strategic partners, after all they have already explored ways to bring together the Juncker Plan and the BRI and, with enough political will, they may be able to make both projects align.

The more important challenge would be, however, to make the BRI work for the benefit of, as Chinese scholars say, “the majority of the people” in the Balkans – a region that has bore the costs of neoliberal globalization. In the official documents, the BRI is framed as a means to contribute to the post-2008 global economic renewal and ameliorate inter-regional inequalities. However, it is also framed as a mechanism to strengthen the very same world economic system that has produced those disparities. The success of the BRI, therefore, is dependent on whether these goals will be attainable in the Balkan Peninsula – a region which, once again, gains renewed centrality as history unfolds.

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By Dr. Gal Luft - co-director of the IAGS and a senior adviser to the United States Energy Security Council

China's Belt and Road Initiative (BRI) is not only the most ambitious and all-encompassing economic development project in the history of humanity but also the core of what is likely to be China's grand strategy for the twenty-first century. It aims to connect China and Europe in a web of roads, high-speed rail, power lines, ports, pipelines, fiber-optic lines and other infrastructure with the goal of stimulating growth in the scores of developing countries in between. New maritime trade corridors provide China with new shipping alternatives while offering its less developed western, northern and southwestern provinces easier access to new markets. While the initiative offers China great strategic and economic benefits it also offers hope to the struggling economies of Europe, Asia and Africa.

Yet, despite the magnitude and promise of the initiative and its interface with almost every region in which the United States has strategic interests – the Middle East, South China Sea, India-Pakistan, Eastern Europe and Central Asia to name a few – Washington has largely ignored it, and in some cases it even took active measures to undermine it. This course of action is wrong. With the BRI territory accounting for seventy percent of the world's energy and almost all of the world's Muslim countries, many of them vulnerable, politically unstable, financially embattled and perplexed by perceived American atrophy, Washington's response to the creation of what could become by the middle of the century the world's largest economic zone will determine to a large extent not only the future of the U.S.-China relations but the fate of the global system writ large. With the global economy facing a potentially prolonged deep freeze and with hundreds of millions of Asians still disconnected from the global market with little hope of rising from poverty, Washington should recall that, like it or not, its fate is interlinked with that of the developing world, and it should thus at the very least give its blessing to those who offer relief. Instead of snubbing the BRI the United States should consider ways to embrace those parts of it that correspond with its geopolitical rationale and ideological worldview while staying away from those BRI elements that undermine its strategic interests. This option leaves the United States with sufficient maneuverability yet it positions it as a willing and pragmatic team player rather than a spoiler. The following recommendations should be considered:

• Adjust the Washington bureaucracy to deal with the BRI's vastness and complexity

• Form a dedicated mechanism to engage with china on BRI matters

• Carve out a role for America

• Join the Asian infrastructure investment bank (AIIB)

• Define red lines

• Initiate transatlantic coordination on the BRI

• Promote U.S.-Chinese understanding at sea

• Leverage the U.S Role in multilateral development banks and international organizations

• Craft a red, white and blue development agenda

• Cease fire in the war on coal

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By CCR Advisory Group

In September 2013, just six months after his election as President of China and ten months after his election as General Secretary of the Communist Party of China, Xi Jinping made a tour of Central Asia. In a speech at Nazarbayev University in Astana, Kazakhstan, he announced, for the first time, the One Belt, One Road (OBOR) project for Eurasian integration, comprised of the New Silk Road and the Maritime Silk Road. Since that initial announcement, OBOR has emerged as a cornerstone of China's economic and political outreach to Eurasia, Africa and beyond.

A Network of Development Banks

Under the OBOR umbrella, China has launched a series of development banks, including the multilateral Asia Infrastructure Investment Bank (AIIB), and the Silk Road Fund. AIIB now has 57 member states, including major United States allies in Europe, as well as South Korea and all the countries of ASEAN. China is one of five founders of the BRICS New Development Bank (NDB), along with Russia, India, Brazil, and South Africa. Between these three institutions, there is a capital base of $240 billion.

The Chinese government, in addition to its capital contributions to these three funds, has invested $62 billion in infrastructure capital through the China Development Bank, the Export-Import Bank of China, and the Agricultural Development Bank of China, outside of the formal structure of the OBOR projects. The China Construction Bank, another Chinese financial institution focused on infrastructure lending, has been investing $40 billion per year since the launching of OBOR in 2013, and has partnered with the Singapore state development board to invest an additional $22 billion for projects, largely in Southeast Asia, which are part of the Maritime Silk Road.

In a speech in Beijing on August 17, 2016, President Xi Jinping reviewed the progress of the OBOR effort, telling the audience that over 100 countries and international organizations have signed on to the project in one way or another.  he One Belt, One Road project has been called "The Second Marshall Plan," but boosters point out that the Chinese initiative is 12 times larger than the Marshall Plan, in constant dollar terms. It extends across all of Eurasia, from eastern China to the Atlantic Ocean and inland ports of Western Europe.

Scope of Major Projects Underway or Planned

The OBOR project extends from the Pacific Far East through Southeast and Central Asia into Europe, the Middle East, and Africa.  Maritime projects intersect the New Silk Road overland rail and road projects.

China is heavily investing in African infrastructure as part of the Maritime Silk Road component. In recent years, China has invested in 1,000 African projects, including the construction already of 2,200 kilometers of railroads and over 3,300 kilometers of paved highways. In trips to South America, Xi Jinping and other Chinese officials have negotiated for the building of a trans-continental railroad, linking the Atlantic coast of Brazil with the Pacific coast of Peru.

Within Eurasia, China has modernized the Greek port of Piraeus. As of August 10, 2016, China's State Owned Enterprise (SOE), China Ocean Shipping Company (COSCO), has bought a 51 percent ownership in the Piraeus Port Authority.

At the heart of the OBOR program is a Eurasia-wide grid of freight and passenger rail, running along three corridors, extending from Eastern China to port cities on the Atlantic coast of Western Europe.  China, in the past two decades, has built more high-speed rail (HSR) than all the rest of the world combined. While some of the rail projects simply involve connecting links between existing regional rail grids, the fact is that there are already regular freight shipments, by rail, between Xian and Belgium, Yiwu and Madrid, and Eastern China and Duisburg in Germany, at the juncture of the Ruhr and Rhine Rivers. The first freight rail train arrived recently in Iran from Eastern China, cutting the travel time by 2/3 to just 14 days, at a greatly reduced cost.

The potential scope of the OBOR project is vast, directly impacting 65 percent of the world population, a third of the world's GDP, a quarter of the world's goods and services, and three-quarters of the world's proven energy supplies.  That translates into 4.4 billion people and $21 trillion per year in economic activity, carried out in the regions directly involved in the OBOR.

This has positioned Chinese SOEs to play a pivotal role in rail construction projects globally.  The trans-continental railroad from Brazil to Peru, cutting through the Amazon Jungle and the Andean Mountains, alone, is a $250 billion project, which China has proposed to finance and construct. As part of the integration of the Maritime Silk Road and the New Silk Road, China is building a high-speed rail system between Belgrade and Budapest, which will link the Piraeus port to the Danube River basin, through additional rail and road grids running up from Southeast Europe. China is also bidding on a high-speed rail project in the United States, running from San Diego through Los Angeles to San Francisco.  China is prepared to finance half the cost of the project.

As part of the Maritime Silk Road, China is building a deep water port at Gwadar in Pakistan on the Arabian Sea, at an initial cost of $1.6 billion. The port will link the New Silk Road and the Maritime Silk Road, and will be part of a larger complex in Gwadar which will include an LNG (liquefied natural gas) facility.  The China-Pakistan Economic Corridor (CPEC), a showcase project of the overall OBOR, is a $46 billion investment from China, which is greater than all foreign direct investment (FDI) in Pakistan since 1970.

Can China's Financial Resources Meet Funding and Governance Demands?

After a period of sharp decline, China's foreign hard-currency reserves have stabilized, and as of September 2016, the People's Bank of China set the reserves at $3.18 trillion. China has the cash to back up the ambitious OBOR plans, and has clearly demonstrated a willingness to "put their money where their mouth is." Between the multilateral development funds (MDF) and the direct Chinese investment in OBOR, a significant amount of long-term credit can clearly be generated. But World Bank and other agencies estimate that Asia alone requires $2-3 trillion a year in infrastructure investment to fill the "infrastructure gap," and the combined efforts of China and the newly-established MDFs can only provide a portion of those needs, at least for the next decade.

However, a 2015 study by the German Development Institute, "Financing Global Development: The BRICS New Development Bank," concluded that, with proper management of its lending, and by partnering with other multi-lateral development funds, NDB alone can provide as much as $34 billion a year in development loans in a short number of years. That would represent a more than ten-fold increase over the $2.5 billion in lending that has been announced for 2017 at the just-concluded BRICS summit in Goa, India. This would put the NDB on a par with the European Investment Bank, which is otherwise the largest regional development bank in the world, with $32 billion in infrastructure investment in 2012.

The German study contained a number of caveats and guidelines for the NDB to achieve those goals: "The scale of lending of the BRICS bank needs to be large enough to make a meaningful impact, given the significant level of needs identified. The impact of a BRICS bank must also be measured in terms of its capacity to enact leverage through its co-financing of projects in the private and public sectors.

"National and regional development banks, as well as the World Bank, will be natural partners. Indeed, the creation of the NDB and the AIIB also reflects a shift toward a greater emphasis on public development banks, regionally as well as nationally. There is a growing consensus that well-run public development banks can play a positive role in funding the real economy, especially in light of the limitations of the private financial system in doing so. This is the case in particular in certain sectors, such as infrastructure, where long-term finance is required before investments become profitable, often beyond the maturity dates that the private banks are willing to lend for, especially in poorer countries."[1]

The first question that must be answered in assessing the feasibility of China's OBOR project is whether the new development banks—the AIIB, the Silk Road Fund and the NDB—can live up to and surpass existing world standards.  From the outset, the Obama Administration expressed reservations about whether a Chinese initiative could meet those global standards.  Following Britain’s announcement that it was joining the AIIB as a charter member, the National Security Council issued a statement to The Guardian newspaper, explaining the Obama Administration’s stance:

"Our position on the AIIB remains clear and consistent. The United States and many major global economies all agree there is a pressing need to enhance infrastructure investment around the world. We believe any new multilateral institution should incorporate the high standards of the World Bank and the regional development banks.

"Based on many discussions, we have concerns about whether the AIIB will meet these high standards, particularly related to governance, and environmental and social safeguards… The international community has a stake in seeing the AIIB complement the existing architecture, and to work effectively alongside the World Bank and the Asian Development Bank."[2]

Now, 18 months later, many of those reservations have been at least initially proven to be over-stated. The fact that so many countries have joined the AIIB and have been given full participation in the designing and staffing of the governing structures of the bank, has actually translated into compliance with those global standards and norms.

The AIIB charter was devised on the basis of the Zedillo Commission study on needed reforms of the World Bank. The Commission, chaired by former Mexican President Ernesto Zedillo, formally called the "High-Level Commission on Modernization of the World Bank Group Governance,"[3] recommended crucial streamlining of the loan review process to avoid costly overhead and long delays in loan approval. Those reforms were absorbed into the design of the AIIB.

Security and Geopolitical Challenges

While the governance issues appear to have been resolved, at least in the initial phase of operations of the AIIB and the NDB, there are other daunting challenges that must be overcome for the full OBOR program to succeed. Those obstacles relate to security issues and geopolitical considerations that pose far greater challenges than structural issues or short-term capital shortfalls.

The flagship China-Pakistan Economic Corridor (CPEC) is itself the best example of the security and geopolitical challenges. Along the route of the CPEC, which is comprised of a road-and-rail link from Western China, a series of oil and gas pipelines, and other infrastructure projects, there are formidable security challenges. At least three major insurgent groups operate along the route, including the East Turkistan Islamic Movement (ETIM), the Pakistani Taliban and several Baluchistan separatist movements. The project has moved ahead slowly, because Pakistani security forces cannot even secure the Chinese workers who are part of the labor force for these roads, railroads, and pipelines. The proposed route of the CPEC also runs through part of Pakistan-occupied Kashmir (POK), which is the Indian name for the disputed border territory.

While India, in hosting the October 15-16 BRICS heads of state summit, chose to focus exclusively on areas of common interest among the five participating nations, the bilateral meeting between Indian Prime Minister Narendra Modi and Chinese President Xi Jinping focused on two major areas of China-India contention: China’s refusal to support India’s membership in the prestigious Nuclear Suppliers Group (NSG) and China's opposition to India’s Comprehensive Convention on International Terrorism (CCIT), which has languished at the United Nations Security Council since 1996, due to China’s reticence to open up ally Pakistan to sanctions for state support of the terrorists who have carried out attacks on India (the Indian parliament attack in 2001 and the Mumbai massacre in 2008, Kashmir 2016).

Writing in The BRICS Post on October 16, 2016, Jabin T. Jacob of the Institute of Chinese Studies in New Delhi called on Indian Prime Minister Modi to adopt a more proactive approach to the disputes, by openly joining in the CPEC project, thus taking a stake in the Pakistan-China economic advancement and providing Indian security assistance. He argued that, under such circumstances, India would be in a stronger position to shift China’s opposition to Indian accession to NSG.  Ultimately it is to India’s advantage to boost trade ties with China and Pakistan. China has already offered to invest in Modi's signature "Brand India" initiative, and in India's major investment in Iran's Chandahar deep-water port on the Arabian Sea.[4]

The China-Pakistan-India case is but one example of the complex geopolitical minefields that China and the other OBOR participating states will have to navigate. Chinese leaders are hardly unaware of these pitfalls. Xu Fengxian of the Chinese Academy of Social Science recently wrote that the biggest challenges to the success of the OBOR initiative are the “unbalanced economic development” of the countries included in the plan and the immense security challenges. He cited the China-Pakistan Economic Corridor as the test case for whether the project can succeed. Can the prospect of economic development trump the ethnic and other conflicts that abound along the New Silk Road route?[5]

There are further concerns related to China's own internal economic growth. While the IMF recently projected that China's GDP growth would remain at a healthy 6.5-7 percent per annum in the coming decade, some analysts project economic turmoil in the next decade, due to bloated SOEs, high rates of internal debt, including in the vast shadow banking sector, and pressure to continue to increase wages and establish a genuine social safety net (Chinese wages have increased at an annual rate of 10 percent over the past decade, the highest rate in Asia). A July 2015 study by the Brookings Institution's David Dollar concluded that the OBOR project will only have a minimal impact on solving China’s SOE-centered over-capacity problems.[6]

But that same study, as well as a more recent presentation by the McKinsey Group, concluded that the potential for conflict between the Obama Administration's signature Trans-Pacific Partnership and China's OBOR initiative is overrated, and that TPP provides the "software" for future trans-Pacific trade, while the OBOR provides the "hardware" in the form of infrastructure for trade growth.[7]

Underlying all of the problems that lie ahead for China's OBOR is a broad-based uncertainty, in many leading nations, about China's motives. President Xi Jinping has branded the OBOR project as a model for "win-win cooperation" aiming towards creating a "community of common destiny."

However, in Washington and New Delhi, the Gwadar port, a key element of the CPEC, is viewed as a future potential base for the Chinese PLA Navy's growing submarine fleet, which is looking to project sea power beyond the nine-dash-line into the heart of the Indian Ocean.

Throughout the West, there is another growing concern over the emerging geopolitical alliance between Russia and China, which in recent months has included a number of joint Russian-Chinese military maneuvers in the Pacific Northeast, including joint naval maneuvers. Already, a preliminary agreement has been reached to integrate China’s OBOR program with the Russian Far East Development Program, and a $40 billion gas deal between Russia and China is already being implemented. The Russia-led Eurasian Economic Union has already signed cooperation agreements with China's OBOR, and the two countries are moving towards bilateral trade denominated in local currencies, potentially bypassing the role of the U.S. Dollar as the reserve currency for global energy trade.

China First, or Genuine 'Win-Win'?

When he visited Seattle, Washington earlier this year, President Xi Jinping assured American corporate leaders that China is a fully responsible player in the existing global financial architecture. He cited, as an example, China's pivotal role during the 2008 financial crisis in stabilizing the U.S. Dollar by maintaining its vast Treasury holdings. But despite those reassurances, there is a persistent concern that, beyond the "win win" rhetoric, there are long-term Chinese global geopolitical ambitions underlying the OBOR. China's assertive moves in the South China Sea, while it is advancing the 2010 China-ASEAN Free Trade Area, has raised concerns among many smaller states of the region, who seek American military guarantees while pursuing Chinese investments and trade expansion.

Over 2,500 years ago, the great Chinese strategist Sun Tzu wrote in his The Art of War that "winning a hundred victories out of a hundred battles is not the ultimate achievement; the ultimate achievement is to defeat the enemy without ever coming to battle." To succeed in the ambitious "Second Marshall Plan," Chinese leaders are going to have to convince skeptics that China is advancing a reform of the global system, and not merely pursuing a "China First" agenda while engaging in a great deception.

1. German Development Institute (Deutsches Institut fur Entwicklungspolitik) briefing paper, "Financing Global Development: The BRICS New Development Bank," Paper 13, 2015, by Professor Stephany Griffith-Jones.
2. "U.S. anger at Britain joining Chinese-led investment bank AIIB," by Nicholas Watt, Paul Lewis and Tania Branigan, Guardian, March 12, 2015.
3. "Repowering the World Bank for the 21st Century, Report of the High-Level Commission on Modernization of World Bank Group Governance," October 2009. http://siteresources.worldbank.org/NEWS/Resources/WBGovernanceCOMMISSIONREPORT.pdf
4. "India and OBOR: It’s Not Complicated," The BRICS Post, October 16, 2016, by Jabin T. Jacob.http://thebricspost.com/india-and-obor-its-not-complicated/
5. "China’s Xi Jinping Talks Up 'OBOR' as Keynote Project Fizzles," Time magazine, August 18, 2016, by Charlie Campbell from Beijing.
6. China's rise as a regional and global power: The AIIB and the 'one belt, one road,' by David Dollar, The Brookings Institution, July 15, 2015. https://www.brookings.edu/research/chinas-rise-as-a-regional-and-global-power-the-aiib-and-the-one-belt-one-road/
7. "China’s One Belt, One Road: Will it reshape global trade?" a McKinsey and Company podcast, July 2016, with Cecilia Ma Zecha, Kevin Sneader and Joe Ngai.http://www.mckinsey.com/global-themes/china/chinas-one-belt-one-road-will-it-reshape-global-trade

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HKGCC magazine "The Bulletin"

Ever since the Belt and Road initiative was announced three years ago, the ambitious intercontinental plan has captured the world's attention, especially countries across Asia where most of it passes through. For Hong Kong, the initiative offers opportunities but the question still remains how to seize them.

There have been discussions about the merits of the Belt and Road initiative, especially given the logistical, geographical and political challenges. These are valid issues but if the plan works out, trade flows and open markets will be the rewards, which would benefit Hong Kong, said Chamber Chairman Stephen Ng in his opening remarks at the second annual China Daily Asia Leadership Roundtable Luncheon.

"Throughout history, economic growth has always correlated strongly with trade flow and open markets. Hong Kong's own success relies entirely on trade flow and open markets. Hong Kong has become too inward looking and less open in recent years, almost 'protectionist.' For over 100 years, Hong Kong opened its market to the world to 'barter' for the world to open its markets to us. We have a small market ourselves and must keep on exploring new markets,” he said.

Ng urged Hong Kong to be more open to the Belt and Road. "The Belt & Road is happening with or without us. It is up to us to decide whether we wish to be left behind. Is Hong Kong open for business? Or is it closed?"

Given Hong Kong's status as an international finance hub and its highly developed financial services industry, we can exploit this advantage for the Belt and Road initiative as well.

"Without capital, the Belt and Road and its massive infrastructural projects cannot leave the drawing boards. Hong Kong can make things happen, and for a host of reasons," said Hong Kong Chief Executive CY Leung.

Hong Kong's expertise in finance goes beyond just traditional areas, with Islamic financing a key developing field. "The success of our two sukuk issuances in the past two years displayed to the world our ability to launch Islamic financial products and manage their financing needs. That can only help us down the road, given the number of Islamic countries backing the Belt and Road," he added.

Leung also announced a new support scheme to help professionals in foreign markets. The Government is allocating HK$200 million for the Professional Services Advancement Support Scheme (PASS), which is intended to support non-profit projects engaged in cooperation with professionals in overseas countries and carry out research and publicity activities to boost the industry.

In addition, the Government launched a scholarship program last December for undergraduate students from Belt and Road countries to study in Hong Kong. The Hong Kong Scholarship for Belt and Road Students began with Indonesia and was just extended to Malaysia.

"The plan is to gradually expand the scholarship to other Belt and Road countries. We have just extended the scheme to Malaysia, offering 10 scholarships to Malaysian students enrolled in undergraduate programmes here, beginning in the next academic year. We welcome the private sector to join us in offering Belt and Road scholarships," said Leung.

He believes there are ample opportunities but that more needs to be done to spread the message. "How do we grab opportunities for all? There is more messaging to be done."

Leung said there are already a lot of Hong Kongers working abroad, "300,000 or 8% of the workforce work in the Mainland. More young Hong Kong architects are knocking on doors in India and moving more to Malaysia and Indonesia."

Panellists also urged the Hong Kong Government to be more proactive in seeking more ties and agreements with other entities.

"Hong Kong can be a super connector but connecting who, what, how? If we can answer these questions, then we can concentrate our resources,"  said  Professor Edward K. Y. Chen, President, Qianhai Institute for Innovative Research.

"How to connect? Simple, you have to establish connections or you will never connect. What Hong Kong lacks is a partner, our partner in many ways can be Qianhai Free Trade Zone, which the Central Government has designated as a supporting hub, and where the financial innovations are being tested as pilot programs. Hong Kong has not been able to see the importance of Qianhai," warned Chen.

"The Government can do more in areas like visa enhancement, trade agreements, tax agreements and new air service agreements," said Ivan Chu, Chief Executive, Cathay Pacific Airways.

Hong Kong is also seen as a regional connector linking the Mainland and nearby countries.

"Going through Hong Kong to ASEAN countries will be smoother, as sometimes it is a bit sensitive, like Vietnam," said Dr Jonathan KS Choi, Chairman, Chinese General Chamber of Commerce.

Foreseeing a winning situation for everybody, Leung called on all segments of Hong Kong to work together to become a key link in the Belt and Road initiative.

"Working together – Government, business and community – we, Hong Kong, will be the 'key link,' the 'super-connector,' for the Belt and Road and definitely between the Belt and Road countries and the Mainland of China. And that can only reward us all."

This article was firstly published in the HKGCC magazine "The Bulletin" January 2017 issue. Please click to read the full report.

By Martina Poletti, Torino World Affairs Institute (T.wai)

In a world beset by economic and political insecurity, uncertainty looms large over which steps need to be taken to boost global development. In particular, Western countries appear as yet sceptical of the medium-to-long-term benefits that may derive from strengthening their economic ties with China, even at a time when it is one of the few global actors articulating a robust agenda for connectivity and growth. Diffuse mistrust of China's strategic intentions – nurtured by concern over the inner logic of its Leninist experiment of state capitalism, and magnified by Beijing's minimal progress in dispelling the political-institutional fog that renders its decision-making so opaque – are proving to be powerful constraints on the potential for more intense cooperation.

Nonetheless, what we currently know about China under Xi Jinping is that the connectivity-oriented Belt and Road Initiative (BRI), launched in 2013, is intended to increase the flows of goods, capital and people moving across the Eurasian landmass. Such flows are expected to proceed along two main corridors: the "Silk Road Economic Belt" – the overland trajectory reaching out from China to Europe through Central Asia – and the "21st-century Maritime Silk Road", which begins in China's main ports and extends to the Mediterranean via the Malacca Strait and the newly enlarged Suez Canal. In 2015, China's trade volume with countries along the latter corridor was equivalent to 1 trillion US dollars, while Chinese investments in the relevant regions reached 15 billion US dollars.

However, the broader significance of this initiative is mostly overlooked by the general public, especially in Europe. Western governments have not fully grasped the scope of opportunities and challenges that a new wave of Chinese investments may bring. Italy, for instance, is still in the process of formulating a coherent, long-term strategy for cooperation with China. Chinese acquisitions of Italian companies over the past few years, in particular, seem to have caught the Italian government by surprise. At the same time, however, China has thus far struggled to couple its initiative with effective means of "soft power" – which could in fact further ease the promotion of China's cooperation initiatives with economic partners across Eurasia.

In such context, getting representatives from key Chinese and Italian government agencies and research institutes to engage in knowledge-sharing initiatives has become crucial to fostering mutual understanding. Last November, Beijing's Pangoal Institute (盘古智库) and the Torino World Affairs Institute (T.wai) jointly ran the "ChinaMed – BRI and the New Centrality of the Mediterranean" workshop in Beijing, as part of the "Pangoal Wisdom Talks" series. The workshop enabled Chinese experts from the National Development and Reform Commission (NDRC), the Ministry of Commerce, the People's Bank of China, the China Institute of International Studies and the COSCO Shipping Group to meet with T.wai's delegation, which included representatives from the Studi e Ricerche per il Mezzogiorno centre (SRM), Intesa Sanpaolo Bank and the Bank of Italy.

In keeping with Pangoal's mission – "applying knowledge for public policy solutions" – panellists joining the workshop went beyond merely addressing what the BRI is and how the principle of "mutual development" lies at its core. Rather, they moved on to examining growth trends across the maritime infrastructure, shipping and finance sectors, and their interplay within the Mediterranean region. Since the launch of the BRI in 2013, Chinese investments across Europe have been mostly directed towards infrastructure development. Some of the projects funded thus far have included not only railways from Wuhan, Chongqing and Zhengzhou connecting to hubs such as Duisburg, Hamburg and Lyon, but also key maritime routes leading to ports such as Rotterdam-Antwerp, Haifa, Istanbul, the Piraeus, Algeciras and Savona-Vado Ligure.

As SRM research points out, since the inauguration of the BRI, the shipping sector has been expanding globally. Key developments include (1) the expansion of the New Suez Canal, which has doubled the number of ships transiting daily and reduced transit times from 18 hours to less than 11 hours; (2) naval gigantism, which has seen the average capacity of transoceanic ships increasing to 20,000 TEUs; (3) the creation of new global shipping alliances such as the Ocean Alliance, led by China COSCO Holdings and three other international shipping companies; and (4) the expansion of the Panama Canal, which will allow larger vessels to move between US Atlantic and Pacific ports with greater ease.

In light of all of these recent developments, the Mediterranean should be taking advantage of this newly reacquired centrality. Italy, for example, has the potential to become a pivotal logistics platform along the Far East-Europe and the Far East-Europe-USA routes, since the enlargement of the Suez Canal and the increase in the TEU capacity of new ships allow for more efficient freight transport from China to the USA. According to the Logistics Performance Index, Italy currently ranks 21st worldwide in terms of competitiveness in logistics, while the Liner Shipping Connectivity Index ranks Italy 16th worldwide. Greater synergy between Italian and Chinese authorities is thus crucial to releasing Italy's untapped potential.

Apart from investments in infrastructure and transportation, Chinese FDI has also been directed at the acquisition of high-tech know-how and renowned brands in a variety of sectors, including industrial machinery and equipment, information and communication technology, tourism, entertainment and fashion. This trend could be explained in light of the recent release of "Made in China 2025", a new industrial policy plan seeking to transform China into a world economic powerhouse, moving its production up the global value chain.

In 2016, for instance, Chinese FDI flows into Europe accounted for €35 billion. The situation remains unbalanced, however, as the value of EU FDI flows into China decreased for the fourth consecutive year to €8 billion. European countries have grown critical of this disequilibrium – that of having to deal with market access barriers when investing in China, while opening up to Chinese companies acquiring segments of key European industries. This "lack of reciprocity" has ignited national security suspicions, causing a number of European countries to adopt more defensive approaches to China. In the long term, however, such tactics have the potential to seriously damage the further strengthening of Sino-EU ties.

If the BRI has so far developed as a new and improved Going Out (走出去) strategy for Chinese companies, the time has come for the EU to evaluate how it could work as an entrance gate for European goods to what is projected to become one of the world's largest consumer markets. Cooperation between T.wai and the Pangoal Institute will continue throughout 2017 to further analyse the strategic implications of the BRI for Sino-Italian relations and China’s footprint in the wider Mediterranean region.

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By Sean Miner, Peterson Institute for International Economics (PIIE)

The role of Pakistan in China's large-scale One Belt One Road (OBOR) infrastructure push provides a clear illustration of the logistical and security challenges facing the project.  

In April of 2015, China's President Xi Jinping visited Pakistan and signed the China-Pakistan Economic Corridor (CPEC) Framework Agreement, one of the hallmarks of OBOR, or Belt and Road Initiative. Since, China has been pouring money into Pakistan, with more than $44 billion to be invested there relating OBOR. Politically, China has a lot riding on Pakistan’s success, the nation is one of China's strongest allies, and Pakistan borders one of China's most restive and underdeveloped regions, Xinjiang. But investing such large sums of capital into a single country can carry serious risks.

CPEC is a microcosm of China's efforts throughout its OBOR initiative in more than 60 countries. Part economic development and part geostrategic, CPEC hopes to bind China's and Pakistan's economies further, help ease some pressure on Pakistan's economic and security situation, and secure alternate access routes for natural resources. For Pakistan's Prime Minister, Nawaz Sharif, this is a very fruitful relationship, with a number of "early harvest" projects due to be finished in time for the next election in March 2018 – and many of the projects being built in his native Punjab. In fact, some in Pakistan are calling it the China-Punjab Economic Corridor. This would not be anything new, as this study of Chinese foreign aid to Africa shows: African political leaders' birth regions received substantially larger financial flows from China than other regions.

Due to the venerability of building infrastructure in remote regions of Pakistan, Sharif is not taking the safety of CPEC projects lightly, having created a "special security division for Pak-China economic projects," with more than 15,000 army and civil forces. With good reason – CPEC can help lift Pakistan's economy, at a time when growth prospects aren't so bright. The hope is that the scale of all this investment will help facilitate increased trade, lower unemployment, and increase economic development.

CPEC Projects

Pakistan's infrastructure is poor, including frequent power shortages and a number of badly maintained roads, so the Chinese are filling in a sizeable gap in financing and construction. Of the $44 billion, up to $35 billion is set for energy related projects. One of the first projects to begin construction is a hydropower dam in the Rawalpindi district of Punjab, which is expected to be completed in 2020 by the same Chinese firm that built the Three Gorges Dam.

China is also planning to enlarge Gwadar port in Balochistan province, having secured the land rights to the port and surrounding areas until 2058. The main objective of building up Gwadar is to connect it by highway and rail to Southwest China, giving China a way to bypass the Strait of Malacca, a major choke point for natural resources coming from the Middle East to East Asia. China Overseas Port Holding Co Ltd has plans to make the area a free trade zone, and build an airport as well as a fully operational port. The latter will have two oil terminals and a floating liquefied natural gas terminal with gas pipelines eventually expanding to Lahore.

In Karachi, the Chinese have been approved to build two nuclear power plants. ZTE Energy has constructed a solar power plant in the city of Bahawalpur, and HydroChina is building wind power projects. The Diplomat estimated energy projects tied to CPEC might eventually produce 16,400 megawatts of power, more than triple the 4,500 megawatts of power shortfall in Pakistan's electricity production, supposedly to meet the future needs of a rapidly rising industry stemming from CPEC. A large share of the new energy production, however, will come from coal fired plants.

The plans for highway construction and upgrades are extensive, the bulk of which are to connect Lahore and Karachi with at least a four lane highway, another highway extending from Gwadar to Islamabad along the western part of the country, and a third through the unforgiving Karakoram mountains, connecting to Kashgar in China’s Xinjiang province. A massive rail project to upgrade Pakistan’s Main Line 1 rail, stretching from Karachi in the south to Peshawar in the north was also recently approved (in total the railroad stretches more than 1,000 miles), with the vast majority of the $8 billion in financing coming from China.

Trouble ahead?

This month the International Monetary Fund's published its final review report for its three-year loan to Pakistan, and it touched on CPEC and sounded the alarm for a few reasons. The report noted that CPEC related imports (machinery and natural resources) could be so large as to push the current account deficit to 1.5 percent of Gross Domestic Product next year. Investment would likely boost growth in the short-term but medium-to-long term issues like increasing capital outflows "could arise from CPEC-related repayment obligations and profit repatriation," the report also noted.

Indeed, China is taking a significant amount of risk, given a recent precedent for non- or late-payment of debt by certain countries. China has lent and invested even more capital in unstable Venezuela, around $65 billion in total, mainly through policy banks. Venezuela has had to renegotiate its debt, forgoing payments on the principal temporarily. China thought its investments were safe since Venezuela could always repay in crude oil, of which it has the world’s highest reserves. But with the price of crude having stabilized at much lower levels and the country in total disarray, Venezuela's government looks increasingly likely to default on its international debt. This could lead to the seizure of its overseas oil assets, further decreasing oil production, and putting repayment in peril.

Further, China risks upsetting India with CPEC for several reasons, the most prominent being that some infrastructure projects will run through Pakistan-controlled Kashmir, land India claims as its own. Moreover, CPEC's upgrades of the Gwadar port have created fears the facilities may one day be used to service the Chinese navy. For these reasons, India could try to place roadblocks in CPEC’s path.

Clearly, the China-Pakistan alliance is growing even stronger through CPEC and increasing trade and investment between the two countries, though the project entails both reward and risk. In the short-term CPEC will lead to notable benefits like markedly fewer power outages and increased employment. Over the longer-term, issues related to project financing suggest CPEC faces a rockier road to the shared prosperity that is commonly acknowledged.

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HKGCC "The Bulletin"

Hungary's efforts to woo China investors seeking a hub for their European ventures are reaping dividends, and things are expected to get rosier as both parties are laying solid foundations to capitalize on the Belt & Road's potential.

Hungarian Minister of Foreign Affairs and Trade Peter Szijjarto has no disillusionment about Hungary's relationship with Mainland China and Hong Kong in President Xi Jinping's Belt & Road plan. "We are the two end points of the modern Silk Road," he told The Bulletin during his visit to Hong Kong in December. "Hong Kong is the Eastern end and we are the Western one. That gives us an opportunity to enhance our cooperation."

Many of the Mainland's leading companies, from Huawei to BYD, have chosen Hungary for their European headquarters. Attracted by its low corporate tax rate of 9%, as well as high labour productivity, Mainland companies have invested US$3.7 billion in Hungary since it started actively pursuing Chinese investment in 2013 under the "Eastern opening policy."

"We understand that as Chinese companies are becoming more and more successful in Europe, they want to have a firm European footprint. We would like to stop this investment flow of capital from East to West in Hungary," he said.

Hungary has come under fire from other members of the European Union about the rapidly growing number of Chinese investors heading to the country, but Szijjarto dismissed such concerns and staunchly defended the government's political line.

"It is a competition. Big countries usually worry when we deal with China and when Central European countries deal with China. We are all competing for investment so it is just a competition, but we are winning," he said. "Until they go out and actively look for business like we are doing, and until they put more emphasis on doing business with China we will continue to win."

He sees Hong Kong as having an important role to play in the flow of trade and investment from East to West, but realizes more effort will need to be put into increasing awareness of Hungary in Hong Kong. During his visit to Hong Kong on 1 December, Szijjarto signed an agreement to mark the establishment of a bilateral Working Holiday Scheme for young people from the two places. The scheme will commence operation on July 1 2017, and will allow up to 200 people between the ages of 18 and 30 to stay for a year and work for a maximum of six months to finance their stay.

"My intention for coming to Hong Kong was to sign the Working Holiday Scheme, which we have achieved. What I would like to conclude very quickly here is the ongoing negotiations for permission for more Hungarian food exports to enter Hong Kong," he said.

Hungary is predominately an agricultural country, but given the geographic distance from Hong Kong it is difficult to compete on quantity, but he believes there is huge potential to compete on quality.

"So far we have permission to export poultry and pork to Hong Kong, and that has been going very well. We have just agreed on the license for Hungarian exports of veal, and we are about to come to an agreement regarding rabbit and lamb meat," he said.

Increasing agricultural exports will be the icing on the cake. More significant will be reaching an agreement for the mutual protection of investments, which will make Hungary’s personal income tax rate of 15% and corporate tax rate of 9% all the more appealing to Hong Kong investors. This will be an important piece of the puzzle that will improve the success rate of Hungary's plan to be the end-point of the Mainland's Belt & Road ambitions.

Hungary applied to join the Asian Infrastructure Investment Bank (AIIB), and it is expected to be accepted in early 2017. "We think we can bring to the table infrastructure development as we have been preparing for the modernization of the railway from Budapest to Belgrade. Once completed, there will be no question which would be the fastest way to deliver Chinese goods from the Greek port of Piraeus to the Central and Western parts of Europe," he said.

The railway line will be used mainly for cargo trains up to 740 meters long and with a speed of 160 km per hour. Direct flights between Beijing and Budapest first took off in May 2015, which resulted in a 30% increase in Mainland Chinese tourists visiting the country, and a 22% increase in Hungarian exports.

"I have raised the issue of direct flights with the secretaries of the Hong Kong Government and I have received some promises that they will bring it to the attention of Cathay Pacific, so of course we would be very happy if we could start direct flights between Hong Kong and Hungary," Szijjarto concluded.

This article was firstly published in the HKGCC magazine "The Bulletin" January 2017 issue. Please click to read the full article.

Netherlands Institute of International Relations (Clingendael)

This Clingendael Report analyses the relevance of China's 'One Belt, One Road' (OBOR) initiative for China's relations with Greece, Turkey, Cyprus and the Balkan countries. The Greek port of Piraeus, in particular, is at the heart of China's strategic involvement in the wider region of Southeast Europe and Turkey. Piraeus is a major connector between the Maritime Silk Road (the maritime dimension of OBOR, which connects East Asia to Africa and Europe) and Europe. COSCO's acquisition of the Piraeus Port Authority in August 2016 accelerates the port's growth into a leading container, car and cruise harbour in the Mediterranean. In the Balkans, China is promoting the concept of a 'Land Sea Express Route', a north–south transport corridor that links Piraeus with Central Europe and Germany. Turkey and Cyprus, respectively, are part of the Silk Road's overland and maritime approaches to Greece. COSCO's long-term presence in Piraeus provides the Chinese government with a firm basis for its relations with Greece and facilitates further OBOR-related activities throughout the region. The Balkans, Turkey, and Cyprus all welcome investment from and trade with China, and China's economic relations with all the Balkan countries are increasing. While economic relations are mainly approached on a bilateral basis, the CEEC 16+1 platform provides an extra avenue for China–Balkans cooperation.

In the short term, the geopolitical impact of expanding Chinese interests in Southeast Europe and Turkey – for which OBOR has become the main engine – will probably remain limited to making regional countries somewhat less dependent on their relations with the European Union, the United States and Russia. In the longer run, however, China may develop into a more significant geopolitical actor in the region. As the New Silk Road develops, regional countries will become more dependent on China for their trade and investment relations. At the same time, the strategic importance of these countries for China will also increase. The greatest geopolitical significance, however, of Chinese activities in the region results from Beijing's relations with the other great powers at the interregional or global level. If China's security relations with the United States, Russia and the European Union, or some of these, become more strained and competitive in the coming decades, this may well have a negative impact on regional stability in the Southeast Europe–Turkey region.

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By Dentons

The "One Belt One Road" project (OBOR) is one of China's key initiatives as part of its plan to assert its position as one of the world's strongest economic powers. OBOR was initially launched by China's President Xi Jinping in late 2013 as one of the Asian superpower's ambitious plans to accelerate outbound investment and to consolidate its position generally across the globe. This article explores what OBOR is, its objectives, current investment in OBOR, key challenges OBOR faces and how the PPP project model can be utilized to support OBOR projects .....

Conclusion – is the Silk Road paved in gold?

Whichever way one looks at it, the OBOR initiative is arguably the most globally far-reaching and impactful economic strategy since the US Marshall Aid Programme, which was implemented after WWII. Many commentators have and will continue to share their theories as to whether OBOR will be as successful as Beijing is hoping. As with anything of this nature, it will ultimately be judged and its legacy will be formed based on the results it achieves. What can be said at this point, however, is that China will not be found wanting in terms of the resources and planning it is throwing behind OBOR. The tenure of President Xi will to some extent be judged on the level of success OBOR achieves and, where many might shy away from this kind of pressure, he and his administration have made it clear that they are not of that ilk. This certainly bodes well for those along the belt and road and other stakeholders who are pinning high hopes on the success of this mega project.

Despite the best of intentions and efforts, it is without doubt that there are numerous challenges which lie in OBOR's path. Some of these which we have touched on can be considered somewhat obvious and inherent in a project of this scale. Others will emerge and evolve, as OBOR itself emerges and evolves in the years and decades ahead.

What is clear, however, and has been since OBOR was announced, is that the potential benefits for all involved are immense to the point of being immeasurable or accurately estimated at this point in time. Not only will these benefits be in favour of China and its people, but also to those along the OBOR route who choose to engage with China and its vision. The benefits will be economic, political, strategic, cultural and social. In the case of some countries these benefits are likely to be "game-changers" in their own modern history. Crucial infrastructure which otherwise might take decades to deliver is now seemingly in a position to be delivered on an accelerated timetable and the consequential benefits this can bring about are endless.

So yes, it is submitted that the Silk Road is potentially paved in gold, both for China (for the reasons stated), and for those countries that embrace this initiative and the potential benefits that it brings.

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By Coface

World trade under the threat of protectionism

Following two consecutive years of slower world growth, the outlook should improve slightly in 2017 (up from 2.5% to 2.7%). This will be driven by a rebound in business in emerging countries (4.1% growth), due to the recoveries in Brazil and Russia offsetting the slowdown in China. Advanced countries will see stable growth of 1.6%.

The lacklustre development in world trade (forecast at 2.4% for 2017, compared to an average of 2.2% between 2008 and 2015 and to an average of 7.0% between 2002 and 2007) could be further compounded by the resurgence of protectionist measures, following the election of Donald Trump. In the short term, these measures will have a lesser effect on America’s economy at the end of the cycle (+1.8%) than they will have on other countries that export heavily to the USA: Central America (notably Honduras, El Salvador, Mexico and Ecuador) and some Asian countries (such as Vietnam and Thailand).

Given Mexico's strong reliance on exports to the USA (which represent 7% of its GDP), against a backdrop of higher inflation and falling investments, Coface is downgrading its country risk assessment to B. Argentina, however, will be relatively immune to the "Trump" effect and, after a difficult year, should start to reap the benefits of its reforms. Coface is therefore upgrading its country risk assessment for Argentina to B.

Global political risks at a record high in 2017

Political risks will continue to be a major concern in 2017.

Among the advanced economies, it is Europe which is facing the greatest political uncertainties, as it awaits the outcome of a number of decisive electoral battles, as well as details on the exact terms of Brexit. Over the last year, Coface's European political risk indicator has increased by an average of 13 points for Germany, France, Italy, Spain and the United Kingdom. If there is a further major political upset, on a similar scale to that of the British referendum, European growth could slow by an average of 0.5 points.

Political risks in emerging countries are higher than ever, driven by social discontent and heightened security risks. The CIS (because of Russia, with a score of 63% out of 100% in 2016) and North Africa/Middle east regions (with Turkey and Saudi Arabia both at 62%) show the greatest risks among the major emerging economies. The rise of political and social frustrations in South Africa is partly to blame for the downgrade of its assessment to C, within a climate of very poor growth.

Security risks, which include terrorist attacks, conflicts and homicides, are a new factor in the emerging political risk indicator. Unsurprisingly, these are highest in Russia and Turkey.

Credit risks: high levels of company debt are a threat to the banking sector in emerging countries

These increased credit risks can assume different forms, depending on the country.

The level of company insolvencies should continue to fall in advanced economies. The negative aspect is, however, that the amount of company creations is often lower than pre–crisis levels (a variation of -19.8% in Germany, -5.1% in the United States and -4.1% in Italy between 2015 and pre-crisis peak levels). Loans granted to highly-indebted companies are straining the resources available for fast-growing younger companies.

Excessive company indebtedness is another problem for emerging countries. Companies in China have the highest levels of debt (equivalent to more than 160% of GDP) and this debt rose by 12 GDP points between the second quarter of 2015 and the second quarter 2016. The rate of bad debt in the banking sector is rising sharply in Russia, India, Brazil and China, while credit conditions are becoming stricter.

Upgrades in Europe and sub-Saharan Africa

This is the first time since mid-2015 that Coface has made more upgrades than downgrades in its country risk assessments.

Spain has been upgraded to A3, while Iceland and Cyprus (where risks related to capital controls are decreasing), are now assessed A2 and B respectively. Central European countries are continuing to improve in the ranking, among the 160 countries assessed by Coface. Estonia (A2), Serbia (B) and Bosnia-Herzegovina (C) have all seen improvements in their business environments and growth in these countries is reaching comfortable levels. Bulgaria (A4) has confirmed its recovery, thanks to moderate growth and the continued consolidation of its banking sector.

In sub-Saharan Africa, smaller countries are faring better than the larger economies. Two of the best performers in the region are Ghana (B), which passed its democratic maturity test in December, and now has a good level of public finance management, and Kenya (A4), which has seen a boost in tourism and increased public investments.

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