By Dr Jonathan Choi, Chairman, CGCC

The 19th National Congress explicitly supports the integration of Hong Kong and Macao into the overall national development, with focus on developing the Guangdong-Hong Kong-Macao Bay Area. President Xi Jinping even visited Hong Kong last year and witnessed the signing of the Framework Agreement on Deepening Guangdong-Hong Kong-Macao Cooperation in the Development of the Bay Area between the NDRC and the governments of the three places. This fully shows that the Central Government attaches great importance to the future development of the three places.

As an international financial and business center, Hong Kong can play a key role in the specific plans for the Bay Area. This year, I made a number of proposals to the CPPCC on how to make the best use of Hong Kong’s strengths to develop the Bay Area into an important hub for the country’s sustained and diversified economic development.

Develop LMC Corridor

The governments of Hong Kong and Shenzhen have inked a deal to jointly develop the Lok Ma Chau Loop (the “LMC Loop”) into an innovation and technology (I&T) park. Located at the border between the two places, the park is an important base for I&T development in the Bay Area. I suggested including some areas along Shenzhen River’s banks adjacent to the LMC Loop and transform the Futian Bonded Zone into a logistics and incubation base for technology industries to further expand the LMC Loop to form an innovation corridor, developing the Bay Area into a national I&T, R&D and application center.

Hong Kong and Shenzhen can consider setting up an administration bureau to formulate specific division of work in the LMC Loop, introduce arrangements to facilitate movement of technology and authorized personnel in and out of the area, cancel restrictions on cross-border research funding and exempt customs duties on imported scientific research equipment in order to lay a good foundation for I&T development in the Bay Area.

Support development of free-trade ports

The 19th National Congress report also mentioned considering developing free-trade ports. As a special economic zone with the world’s highest standard, Hong Kong’s strengths can be an important reference for the development of free trade ports in the Bay Area. The Central Government can explore using Hong Kong as a blueprint to support the upgrading of the Qianhai, Nansha and Hengqin free trade areas into free trade ports, strengthen the free flows of foreign trade, funds and talents including those from Hong Kong and Macao so as to facilitate the presence of talented people from Hong Kong and the rest of the world, and consider emulating Hong Kong in terms of tax structure and preferential treatment.

The authorities can also explore setting up onshore and offshore RMB centers in the Qianhai and Nansha free trade ports and work together with Hong Kong to broaden the two-way offshore RMB channel to attract more mainstream and emerging financial institutions from Hong Kong. For trade facilitation, policy arrangements can be made for exemption of import and export tariffs, and to attract more domestic and foreign enterprises, provide a convenient, standardized and efficient management system and business environment, and in particular support Hong Kong businesses in getting national treatment to access the relevant markets.

State-level leader to oversee development

To effectively implement the Bay Area’s development plan and enable it to play a key role in national economic development, it is necessary for the Central Government to formally incorporate it into its national development strategy. Since Guangdong, Hong Kong and Macao have different social and economic systems and are independent customs duty zones, and their key government officials are very highly ranked, it is better for the Central Government to set up a coordinating committee for the Bay Area. The committee should be headed by a state-level senior leader to supervise the implementation of the overall development plan. It should also coordinate with the NDRC, the relevant central ministries and the governments of the three places for research decisions on major cooperation issues and coordinate specific implementation tasks for integration among the cities in order to avoid duplication.

In fact, CGCC and Hong Kong’s industrial and business community earnestly look forward to the implementation of the Bay Area’s development plan, which will provide enormous new opportunities for Hong Kong businesses. We will actively facilitate stronger ties among entrepreneurs, chambers of commerce and industrial and business groups of the three places through a business cooperation platform, explore how to assist businesses to more effectively participate in the Bay Area’s development, and maintain close contact with relevant government departments to pass on the feedback of the business community, providing businesses with broad support in capturing opportunities in the area.

This article was first published in the magazine CGCC Vision March 2018 issue. Please click to read the full article.

By Linda Lim, Professor of International Economic Relations 2018 at the S. Rajaratnam School of International Relations (RSIS), Nanyang Technological University, Singapore

Synopsis

Despite its growing prominence internationally, China’s Belt-and-Road Initiative (BRI) is facing a host of challenges. Unless these are addressed, Beijing will find the BRI ending up more a nightmare than a bonanza.

Commentary

XI JINPING’S signature Belt-and-Road Initiative, BRI (which the rest of the world still calls One-Belt-One-Road or OBOR) has attracted a great deal of global attention. The United States and some European Union countries are apprehensive that BRI signals China’s attempt to dominate the two-thirds of the world’s population, and 40 percent of global trade, accounted for by BRI countries.

BRI links China with faster-growing emerging markets, providing an alternative to slow-growing, increasingly protectionist Western markets, and outlets for its abundant domestic savings and industrial excess capacity. Developing infrastructure and relationships in BRI countries will help private and state companies venturing abroad, where they will learn to compete internationally and thus “become stronger”, while also moving China “closer to (the world’s) centre stage”, as President Xi wishes.

Challenge of Infrastructure Play

But funding infrastructure projects is always a challenge. They are large, capitalintensive and expensive, with long construction and payback periods, thus involving high risk. They are also characterised by externalities or spillovers: because social exceed private costs and benefits, left to private investors there will be underinvestment.

Because of this, public funding is the most common funding model for infrastructure projects. Governments can borrow at lower cost than private entities, given an implicit sovereign guarantee against default. They have a longer time-horizon, and investing to prioritise social benefits in instances of “market failure” is their responsibility.

Consortia are also a popular model, involving public-private partnerships, and multilateral and regional agencies, such as the World Bank, Asian Development Bank, and Asian Infrastructure Investment Bank. Consortia can raise more capital and obtain more expertise from diverse multiple sources, and reduce the risk for any individual lender/investor as well as the borrower/project.

In developing countries capital is scarce, so at a premium, while borrowing from cheaper foreign sources requires repayment in foreign exchange, adding currency risk. Governance risk arises from governments often lacking the expertise to evaluate, implement and monitor projects, and leakage through corruption is common, increasing cost, delay and quality problems.

Political and Other Risks

There is also political risk, since the distribution of costs and benefits may not be equitable, and social unrest may result from disputes over land appropriation and compensation, labour, and environmental consequences such as harm to local
farming, forests and fisheries. Authoritarian governments are not transparent, and may use coercion to resolve disputes, while democratic governments may change and demand changed terms.

BRI countries pose additional high country risks. Many are low-income so lack capital, human resources, and capacity to earn export revenues to pay for imports of materials and equipment for BRI projects, posing high risks of debt and currency crisis. There may be domestic political or economic turmoil, unstable or unpopular governments, and contentious relations with neighbours sharing or affected by projects like dams.

A recent study by the Centre for Global Development identified eight countries (Djibouti, Kyrgyzstan, Laos, Maldives, Mongolia, Pakistan, Montenegro, Tajikistan) where the immediate marginal impact of BRI projects in the lending pipeline would raise their debt-to-GDP and debt-to-China ratios to “high risk” levels.

Even without such debt concerns, China’s eagerness for infrastructure projects in BRI countries may not mesh with perceived local needs and could heighten political risk for host governments who collaborate with them.

For example, in relatively developed Malaysia, one business person I interviewed said: “Most of the OBOR initiatives in Malaysia are not positive for the country. The large infrastructure projects like railways and ports are strategic for China but will be white elephants for Malaysia. The deal terms are poorly contrived for Malaysia. But Malaysia only has itself to blame for letting its politicians make such deals.”

Chinese Business Model

The preferred Chinese infrastructure business model does not help win local support, based as it is on exporting Chinese equipment, materials, management and labour to the recipient country so there is minimal local content, job creation, training and supplier linkages. This adds to the perception that BRI projects are for China’s rather than host countries’ benefit.

As another business respondent put it: “The Chinese are relentless in pursuit of profit/advantage without considering negative implications for local communities.” Chinese companies have been accused of poor business practices, such as undercutting local suppliers, failing to honour contracts and to comply with local regulations, while delivering inferior quality and reliability, such as plagued Chinesebuilt power plants in Indonesia.

Another business person familiar with BRI projects told me: “Big Chinese companies are unfamiliar with private enterprise and market economies, because they are all linked to the Chinese government and follow a top-down mode of operation. They are comfortable only with G2G deals.”

Chinese companies’ preference for working through local political leaders, rather than directly with communities affected by their projects, may mean that project social costs are not adequately calculated and compensated for. This results in protests which can stall projects, as has happened with the Myitsone dam and Kunming-Kyaukphyu railway and oil-and-gas pipeline in Myanmar.

If the local leaders China works with are incompetent, corrupt, greedy or unpopular, this rubs off on them, while  dissatisfaction with Chinese projects can rub off on the local leaders who collaborate with them — in both cases, heightening political risk.

China’s Creeping Arrogance

In Sri Lanka, the government’s leasing Hambantota port to a Chinese state-owned company in payment of debts incurred for its construction contributed to its local electoral losses in February 2018. And in Indonesia, there are rumours that President Jokowi’s encouragement of Chinese investments could undermine his prospects for reelection in 2019.

Chinese companies also lack experience operating in ethnically and culturally diverse countries, and are frequently accused of lacking respect for local practices and customs, such as observation of Muslim prayer times and the fasting month. They
show no interest in learning about or understanding local populations (or eating their food), displaying what one of my respondents called “unconscious arrogance due to their superior feeling of the success of China”.

This can backfire on local ethnic Chinese populations in Southeast Asia, who already dominate business in some countries, are favoured as local partners by Chinese companies, and would be resented if seen to benefit disproportionately from China investments. Other local Chinese worry that the unpopularity of high-profile Chinese projects could exacerbate latent anti-Chinese feelings that could adversely affect them.

What Can China Do to Correct Image?

What can China do to counter these destabilising negative perceptions of BRI projects?

First, Chinese companies should undertake only projects which are financially, economically and politically viable, and environmentally and socially sustainable. Including such calculations means many projects will not make the cut. Second, they should partner with other lenders and investors, from different countries. Diversification reduces risk, and dilutes the image of being Chinese.

Third, they should make investment decisions together with the host country, not unilaterally, to ensure that the projects are “mutually advantageous” as claimed. Fourth, they can help recipient countries to repay their loans by earning foreign
exchange, for example, by establishing industrial zones for companies relocating labour-intensive manufacturing from China, and by developing markets in China for their exports.

Fifth, they should employ better public relations. This includes being transparent and communicating with local media and host communities about project rationales. And they should reduce high visibility ̶ opening ceremonies should include other foreign partners and investors as well as more locals, and projects should be “branded” not as “Chinese” but as “national” projects, to reduce fears of a loss of sovereignty.

Sixth, they should employ locals as labour and management, provide technical and skills training, and work with all stakeholders, not just the government or party-inpower. In addition, they should train, encourage and expect their Chinese employees to understand, respect and engage with local cultures. All this requires fundamental changes in corporate culture and business model.

Be ‘Less Chinese’

In short, to be successful, BRI projects should become less Chinese. While this might seem to run counter to China’s hope for “soft power”, the billions invested will otherwise not deliver, and may even undermine, its foreign policy goals.

Today, with a massive US$57 billion investment in energy and infrastructure projects in the China-Pakistan Economic Corridor, the Pakistan government has to employ a 15,000-strong military force to protect Chinese workers. Despite this, in February 2018, a Chinese shipping executive was shot dead in his car in Karachi in “a targeted attack”. If China does not learn to adapt to life outside the Great Wall, the Belt-and-Road Initiative risks turning into a foreign policy nightmare, not a bonanza.

Please click to read full report.

中國外經貿企業服務網

習近平總書記在2013年訪問中亞四國和東盟期間，先後提出了"絲綢之路經濟帶"和"海上絲綢之路"的戰略構想，並在2013年12月召開的黨的十八屆三中全會上通過的《中共中央關於全面深化改革若干重大問題的決定》關於“構建開放型經濟新體制”中進一步明確提出："加快同周邊國家和區域基礎設施互聯互通建設，推進絲綢之路經濟帶、海上絲綢之路建設，形成全方位開放新格局。""一帶一路"倡議的提出，是時代的要求，是把快速發展的中國經濟同沿線國家利益結合起來，利用中國自身發展優勢實現自身發展的同時，帶動其他國家乃至世界經濟發展的偉大創舉。

亞洲開發銀行(簡稱"亞開行")在2014年發佈的《亞洲發展展望報告》裡面指出，雖然亞洲區域的經濟增長速度有所放緩，但其仍然是全球主要國家中增速最快的區域，尤其是該區域主要經濟體正在執行的改革措施將繼續推動該區域領銜全球經濟增長，因此亞洲區域是實行"一帶一路"倡議的重點。

經濟的快速發展需要相應的配套設施，然而目前亞洲國家在基礎設施上依然存在巨大的不足。根據亞開行的預測，2010-2020年亞太地區對基礎設施的需求高達8萬億美元。基礎設施的建設是支持經濟發展的重要保障，也是實現"一帶一路"倡議互聯互通的基本要求，而基礎設施的建設需要巨額資金的支持。

"一帶一路"倡議實施過程中的資金需求主要集中在以下幾個領域：一是通信、供水和環衛設施等基礎設施領域。沿線的中亞、東南亞等國家的基礎設施較為落後，對基礎設施的新增需求強烈。二是交通、港口等跨境通道領域。"一帶一路"的暢通需要提升鐵路、公路、管道等通道能力。三是能源、資源領域。"一帶一路"跨越的地區能源和資源豐富，特別是中亞、俄羅斯等地區蘊藏著豐富的礦產、石油、天然氣等資源，開發潛力巨大。"一帶一路"沿線國家雖然經濟發展迅速，但是差異較大，一些國家市場制度不完善，在這些國家進行基礎設施建設，存在資金需求量大，投資回報期長而且未來收益不確定的問題。與此同時，"一帶一路"沿線國家間目前跨境金融合作的層次較低，大部分的貸款集中在油氣資源開發，管道運輸等能源領域，其他領域未能從中受益。因此，為了順利推進"一帶一路"倡議的實施，為"一帶一路"沿線特別是亞洲區域的基礎設施建設提供資金支持，我們需要對融資進行總體的規劃，構建以絲路基金為引導，以亞洲基礎設施投資銀行等國際開發性金融機構為重要支撐，以國內政策性銀行、國內商業銀行以及民間投資機構為主要基礎的多元聯動的融資機制。

充分發揮絲路基金的引導作用

2014年11月，在加強互聯互通夥伴關係對話會上，習近平總書記發表了《聯通引領發展夥伴聚焦合作》的重要講話：中國將出資400億美元成立絲路基金。絲路基金成立的初衷是為“一帶一路”服務，主要使命是為"一帶一路"沿線國家提供基礎設施建設、資源開發、產業合作等有關項目提供投融資支持。絲路基金是一個開放的平臺，它的包容性和多元化可以為"一帶一路"倡議實施提供豐富的融資渠道和方式，可以吸引有資金實力、有知識和管理經驗的銀行和投資機構參與，多方彙聚就可以優勢互補，博採眾長。絲路基金的定位是中長期的開發投資基金，注重合作項目，更注重中長期的效益和回報。不同於以往股權投資7~10年的投資週期，絲路基金的投資期限能夠到15年或者更長的時間，可以滿足一些發展中國家中長期的基礎設施建設的資金需求。絲路基金首期資本金100億美元(首期注入的資本為美元)，這主要是便於國內外投資者通過市場化方式加入進來，外匯儲備通過其投資平臺出資65億美元，中國投資有限公司、中國進出口銀行、國家開發銀行亦分別出資15億、15億和5億美元。隨著"一帶一路"倡議的不斷推進，相信會有更多的資本進入。

2015年4月20日，絲路基金、三峽集團及巴基斯坦私營電力和基礎設施委員會在伊斯蘭堡共同簽署了《關於聯合開發巴基斯坦水電項目的諒解合作備忘錄》(以下簡稱《諒解備忘錄》)，該項目是絲路基金註冊成立後投資的首個項目。根據《諒解備忘錄》，絲路基金將投資入股由三峽集團控股的三峽南亞公司，為巴基斯坦清潔能源開發、包括該公司的首個水電項目——吉拉姆河卡洛特水電項目提供資金支持。電力行業是巴基斯坦政府未來十年發展規劃中優先支持的投資領域，絲路基金首個對外投資項目落地巴基斯坦的電力項目，標誌著絲路基金開展實質性投資運作邁出了重要一步，而"中巴經濟走廊"建設是"一帶一路"建設的旗艦，表明絲路基金服務"一帶一路"建設的使命。從項目運營管理模式來看，卡洛特水電站計劃採用"建設—經營—轉讓"(BOT)模式運作，於2015年底開工建設，2020年投入運營，運營期30年，到期後無償轉讓給巴基斯坦政府；從項目融資方式來看，絲路基金投資卡洛特水電站，採取的是股權加債權的方式：一是投資三峽南亞公司部分股權，為項目提供資本金支持。在該項目中，絲路基金和世界銀行下屬的國際金融公司同為三峽南亞公司股東；二是由中國進出口銀行牽頭並與國家開發銀行、國際金融公司組成銀團，向項目提供貸款資金支持；從控制風險方面來看，通過股權加債權的方式，一方面可以通過股權鎖定長期投資的高額回報，獲取一定股份，參與公司治理，提高投資收益的確定性，另一方面可以通過債權獲取優先清償權，有助於控制風險。絲路基金不是援助性的，在一定程度上也是逐利的，因此絲路基金在服務"一帶一路"建設的同時要評估項目的風險，平衡好風險和收益之間的關係。

然而，就絲路基金目前的設計規模來看，即使不斷加入新的投融資機構，其資金也難以滿足"一帶一路"沿線上萬億基礎設施建設的資金需求，因此我們有必要充分發揮絲路基金的引導作用，為國際開發性金融機構以及國內政策性銀行、國內商業銀行以及民間投資機構等投資指引方向，通過不同方式吸納調動各方資金，服務"一帶一路"建設。

絲路基金的資金是政策性質，象徵性和號召力較強，因此當絲路基金決定投資某一項目時，就為外界傳遞一種積極的信號，這時商業資本的逐利性和風險規避性決定了當其發現這一項目有政府保障而且有利可圖的時候，商業資本就會參與項目投資，這樣就可以吸引國際金融機構以及商業性金融機構參與進來。絲路基金還可以通過吸納境內外資金支持戰略開發項目，充分依託政府信用，向境內外金融市場發行“一帶一路”倡議專項債券，引導外匯儲備、社保、保險、主權財富基金等參與"一帶一路"投資。

充分認識國內政策性和商業性銀行以及投資機構的基礎作用

"一帶一路"沿線國家數目眾多，在這些國家進行基礎設施建設不僅需要巨大的資金，而且需要有專門的海外項目投融資的知識和經驗。

國內政策性銀行的資金為政策性質，國家信用擔保，並且本身資金實力雄厚，可以對大型、長期的項目提供融資服務。雖然政策性銀行的境外服務網絡不多，但是其合作代理行較多，因此可以通過信貸產品的發行為"一帶一路"融資服務。如2014年中國進出口銀行對"一帶一路"周邊29個國家累計貸款超過1200億美元，其中向巴基斯坦的能源和基礎設施領域提供了約8億美元融資支持，隨後還將為其提供多達十億美元的融資支持，這可以有力的促進巴基斯坦基礎設施建設，推進"一帶一路"倡議的順利實施。2014年，國家開發銀行向"一帶一路"周邊29個國家累計貸款超過1200億美元，目前國家開發銀行已與世界69個國家和地區的100多家區域、次區域金融機構建立了合作關係，在中長期投融資方面具有顯著優勢，可以為"一帶一路"基礎設施的建設提供有益支持。除了本身的項目貸款，中國進出口銀行和國家開發銀行還應該積極的支持有實力的中國企業"走出去"，為企業開展對外投資提供貸款支持，幫助企業進行項目的建設融資。

商業銀行的信用較好，籌資能力較強，對於"一帶一路"中的一些大型項目可以採取銀團貸款的方式為其提供融資服務，也可以利用自身境外網點眾多，牌照比較齊全等優勢，為"一帶一路"各種項目和各個企業提供各種金融服務，如可以利用人民幣發放境外貸款降低融資成本或者也可以在離岸市場開發新的避險產品，幫助境外企業降低匯兌風險。因此我們要積極發揮商業銀行在"一帶一路"倡議實施中的重要作用。2015年，中國銀行將為"一帶一路"相關項目提供不低於200億美元的授信支持，而中國建設銀行也已確立相關項目資金需求約2000億元。中國工商銀行借助其境外網絡優勢，如今已經在"一帶一路"沿線的18個國家和地區擁有120家分支機搆，並與700多家銀行建立了代理行關係，其在2014年支持的"一帶一路"境外項目已達到73個，總金額達109億美元，業務遍及33個"一帶一路"沿線國家，而且目前中國工商銀行已經儲備了131個"一帶一路"的重大項目，支持項目投資額高達1588億美元，涉及電力、交通、油氣、礦產、電信、機械、園區建設、農業等行業，基本實現了對"走出去"重點行業的全面覆蓋。

中國投資有限公司(簡稱"中投")是中國最大的主權財富基金，在絲路基金首期資本金100億美元中，中投出資15億美元，超過進出口銀行和國家開發銀行的出資額。中投在很大程度上代表著"國家角色"，在全球資本佈局、海外商業網絡等多方面擁有獨特優勢，推進"一帶一路"建設，要積極發揮中國投資有限公司的重要作用。

另外，我們還要積極鼓勵民間的投資機構走出去進行海外投資，為"一帶一路"建設添磚加瓦。目前中國最大的民營投資集團是中國民生投資股份有限公司(簡稱"中民投")，註冊資本500億元人民幣，由中國59家知名的民營企業發起成立，參股股東均為大型民營企業。2015年3月27日，中民投宣佈將帶領數十家國內優勢產業龍頭民營企業，共同在印度尼西亞投資50億美元建設中民投印尼產業園，且投資規模短期內將超過百億美元，主要包括鋼鐵在內的水泥、鎳礦、港口等四大產業項目，這是中民投貫徹落實"一帶一路"國家倡議、踐行企業國際化的最新舉措。民營企業在技術、管理、工藝等方面都具有比較大的優勢，但是相比政府背景的銀行和機構來說，抵禦風險的能力較低，因此他們在選擇投資項目時會事先對其進行詳細的考察、論證，在形成一套比較成熟的投資方案之後才會最終確定投資方案。這樣就可以保證確定的項目在一定時間內基本上都能順利完成，減少爛尾風險，可以有效的推進"一帶一路"倡議的實施。

我們應該摒棄以往參與跨國基礎設施援助項目和部分工程承包項目中"政府主導"的觀念，以更加"市場化"的運作推動基礎設施建設。因此要鼓勵民間資本參與"一帶一路"信貸項目，加快政府和社會資本合作的步伐，創新公私合營模式(Public-Private Partnership，簡稱PPP模式)。通過PPP模式既可以在不過度增加財政負擔和不加稅的情況下改善一國基礎設施建設並提供公共服務的能力，也可以有效的"撬動"私營資本參與基礎設施建設，所以在推進"一帶一路"倡議實施中涉及到的能源、水和汙水處理、運輸和通訊等部門可充分發揮PPP模式的作用。

綜上所述，助力"一帶一路"倡議實施的各個資金提供機構之間不是各自為戰、相互競爭的關係，而是相互合作、協同發展的關係。為了推進項目融資的有效進行，我們要形成多方聯動的融資機制。"一帶一路"建設中的一般項目都需要債權融資和股權融資相配合，在充分發揮絲路基金的引導作用的基礎上，由絲路基金聯合其他投資機構比如亞投行共同投資股權，中投也可以附加參與一部分股權投資，啟動一些本來因缺少資本金而難於獲得貸款的項目，然後由中國進出口銀行和國家開發銀行跟進發放貸款，由商業銀行為項目參與企業提供銀行業務，積極引進民間資本參與項目建設，多方聯動，共同促進項目實施，有力的推動"一帶一路"倡議的實施。

請按此閱覽原文。

By Jan Gaspers, Head of the European China Policy Unit, Mercator Institute for China Studies

Nowhere else in Europe has China’s Belt and Road Initiative (BRI) been met with quite such a warm embrace as in Central and Eastern Europe (CEE). China’s large-scale financing of highways, railways, ports, and other infrastructure to better connect China to Southeast Asia, Africa, the Middle East, and Europe has clearly struck a chord with CEE leaders.

This is hardly surprising. Almost three decades after the end of the Cold War, the CEE region still displays a remarkable infrastructure gap. Estimates from July 2017 suggest that shortages in transport infrastructure financing alone in CEE and CIS countries will amount to $730 billion up to 2025. Rather conveniently, China has pledged about $15 billion in investments in CEE infrastructure since the launch of the so-called “16+1” platform in 2012. Made up of 11 EU member states (Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, and Slovenia), 5 EU neighbourhood countries (Albania, Bosnia and Herzegovina, Macedonia, Montenegro, and Serbia), and China, the 16+1 platform has become a primary venue for economic and political dialogue.

Cooperating more closely with China, the 16 CEE countries do not only hope for infrastructure financing but also for foreign direct investment (FDI) in a wide range of other sectors. In November 2016, the Industrial and Commercial Bank of China established a €10 billion China-CEE investment cooperation fund to finance investments in sectors such as high-tech manufacturing and consumer goods. At the Budapest Summit in November 2017, Chinese Premier Li Keqiang promised that the fund would be expanded by another $1 billion and also announced that the China Development Bank would create a $2.38 billion development finance facility for CEE. In addition, China has also used bilateral channels to conclude investments deals with individual CEE countries.

However, the economic realities of Chinese engagement in CEE hardly live up to the ambitious rhetoric habitually vented at 16+1 summits. Comprising only one bridge in Serbia and one motorway in Macedonia, as of late 2017, the list of China-financed 16+1 infrastructure projects completed remains short. The few projects currently underway in the region – notably all of them in the five non-EU 16+1 countries – suffer from the same problems that have accompanied BRI projects in other parts of the world. Hence, Chinese infrastructure loans in the Balkans have been linked to Chinese contractors and suppliers performing the work, providing little stimulus to local economies. Moreover, the fiscal stability of smaller Balkan countries is at peril, as Chinese infrastructure loans and corresponding sovereign guarantees reach the level of 1/3 of national GDPs, like in the case of Macedonia.

Inside the EU, the economic picture is similarly bleak. In February 2017, the European Commission opened a formal investigation into the flagship BRI construction project in Europe, a $2.89 billion high-speed rail link between Belgrade and Budapest. At the time, Brussels expressed doubts about the financial viability of the project and its compliance with EU public procurement rules, as Budapest had failed to issue a call for public tender as is normally required for projects of such magnitude. Eventually, at the Budapest 16+1 Summit, an official call for tender for the project was issued, but, Hungary has made it clear behind closed doors with EU officials that it expects Chinese companies to win the contract. However, for now, China has little to show with EU members in CEE other than some sizeable investments in utility providers. Chinese loans for large-scale infrastructure remain rather unattractive in light of existing EU financing mechanisms, such as the EU’s structural cohesion funds, the European Fund for Strategic Investment (EFSI), or the Trans-European Transport Networks (TEN-T), which tends to partially consist of grants.

Wider Chinese FDI in Central and Eastern Europe also hardly aligns with Beijing’s ambitious rhetoric. China’s own official figures suggest that, as of June 2017, roughly $8 billion in FDI had flowed into CEE industries, including into machinery equipment manufacturing, chemicals, telecoms, and new energies. Considering the size and output of CEE economies, the investment is significant, but it pales when compared to investments in Western EU member states. Part of the reason why overall Chinese FDI in CEE remains low is that financing has been and remains concentrated in the biggest CEE EU member states and Serbia rather than spanning across the whole region. Moreover, the China-CEE investment cooperation fund seems to have failed to complete a single transaction to date.

Despite these sobering economic realities, some political elites in CEE EU member states cling to cooperation with Beijing, actively positioning closer ties with China as a counter-narrative to EU cooperation and the liberal values underpinning the European project. In a clear reference to Brussels, Hungary’s prime minister, Viktor Orban, remarked at the Budapest 16+1 Summit, “We see the Chinese president's 'One Belt, One Road' initiative as the new form of globalization, which does not divide the world into teachers and students but is based on common respect and common advantages.” During Chinese president Xi Jinping’s visit to the Czech Republic in March 2016, Czech president Milos Zeman declared on TV that his country’s poor relations with China in the past were due to the “submissive attitude of the previous government towards the U.S. and the EU” and celebrated the signing of a strategic partnership with China as “an act of national independence.”

While it is not clear whether statements like this are meant to be bargaining chips in negotiations with Brussels over national economic and political priorities or whether they reflect genuine sympathy for China’s political and economic system, the political damage Chinese investment in the CEE has created for the EU is already visible. The EU has been unable for some time to act cohesively vis-à-vis China on trademarks of EU foreign policy, namely upholding the international rule of law and protecting human rights.

In July 2016, Hungary and Greece – the latter of which is a 16+1 observer and major beneficiary of Chinese investments in recent years – fought hard in Brussels to avoid a direct reference to Beijing in an EU statement about a court ruling that struck down China’s legal claims over the South China Sea. In March 2017, Hungary derailed the EU’s consensus on signing a joint letter denouncing the reported torture of detained lawyers in China. In June 2017, Greece blocked an EU statement at the UN Human Rights Council criticizing China’s human rights record, marking the first time the EU failed to make a joint statement at the UN’s top human rights body. CEE countries have since blocked similar EU statements on China.

Considering these developments, current discussions in Brussels about creating a European investment screening mechanism, which is first and foremost geared at Chinese strategic investments in European high-tech industries, will become a litmus test for the EU’s ability to act decisively on China. Chinese investments have already prompted individual 16+1 EU members to challenge the current proposal. However, even if the EU manages to adopt the mechanism by summer 2018 – as is currently envisaged by the biggest member states – this will not help to overcome what is already a central theme in European China policymaking: a growing lack of trust between the East and the West.

Please click to read full report.

By UNCTAD

The governments of the Lao Peoples’ Democratic Republic, Myanmar and Liberia – among the world’s least developed – are looking to new horizons and e-commerce to boost trade and create jobs.

Each country asked UNCTAD to carry out a Rapid e-Trade Readiness Assessment to guide them in building the right “e-commerce ecosystems” and provide their policymakers with a blueprint for harnessing the economic and developmental potential offered by online trade.

The reports were showcased on the first day of e-Commerce Week on 16 April. The event was opened by UNCTAD Deputy Secretary-General Isabelle Durant and attended by Liberia’s industry and commerce minister, Wilson Tarpeh, Myanmar’s deputy commerce minister, Aung Htoo, and Ambassador Kham-Inh Khitchadeth of the Lao People's Democratic Republic.

The event was also an opportunity for ministers, donors, investors and representatives of development banks and international organisations to survey the e-commerce landscape for other developing countries.

The UNCTAD assessments for each country analysed:

• E-commerce assessments and strategy formulation

• Information and communications technology infrastructure and services

• Trade logistics and facilitation

• Access to financing

• Payment solutions

• Legal and regulatory framework

• Skills for e-commerce

 “Each assessment, and this is the beauty of the exercise, includes a list of concrete recommendations for governments,” Ms. Durant said. “We know that digitalisation offers great opportunities for development. It's true, but if we refuse to see it, we will not benefit.”

Mr. Tarpeh highlighted the importance of this assessment for Liberia – the first of its kind that  UNCTAD has carried out in Africa.

“When shaping the right framework for e-commerce in Liberia, at stake lies not only our innovation capacity, but also the need to repair the broken linkages between our local industries and across our country,” Mr. Tarpeh said.

“E-commerce is as much about widening our frontiers as creating much needed jobs, particularly for our youths and women-led small and medium-sized enterprises,” he said.

Compelling business case

Policy-level attention to e-commerce is increasing in all three countries, but for different reasons.

A focus on trade and private sector development in Liberia – driven by its recent accession to the World Trade Organization – has also sparked interest towards e-commerce.

Myanmar’s recent reintegration into the global trade system, its membership of the Association of Southeast Asian Nations (ASEAN), and the liberalisation of key sectors including telecommunications have presented significant opportunities for the formerly isolated country.

In the Lao Democratic Peoples’ Republic, interest in e-commerce has been triggered by a drive towards services-led growth, along with the country’s integration into ASEAN and the negotiations on a Regional Comprehensive Economic Partnership (a free trade agreement between the 10 ASEAN states and the six states with which ASEAN has existing free trade agreements).

With its latest assessments of these two Southeast Asian countries, UNCTAD has now covered e-trade readiness of all three least developed countries in ASEAN (the other is Cambodia) and provided a major boost to these countries’ implementation of the ASEAN’s 2017-2025 Work Programme on E-Commerce.

Sweden funded the assessments for the Lao Peoples’ Democratic Republic and Myanmar, while the Liberia assessment was funded by the Enhanced Integrated Framework (EIF), a multilateral partnership.

In detail: Myanmar

Only a decade ago SIM cards cost upwards of $3,000 in Myanmar, compared to $1.50 now. This has been brought about by an expanding and highly competitive telecommunications market.

High mobile phone use (close to 100%) and smart-phone penetration of 80% offer unprecedented opportunities to use e-commerce as an economic driver.

This is apt, given the fast pace of private sector growth, but it also presents challenges – internet users heavily rely on Facebook for access to information.

Still, the move from a cash-only to a cashless society remains a long-term goal in a country where only 6% of the population has a bank account, and the use of card payments is rare.

In detail: the Lao Peoples’ Democratic Republic

The economy of the Lao Peoples’ Democratic Republic has continued to show signs of resurgence over the last several years, and there has been a noticeable shift in its economic outlook.

Interest in the digital economy is triggered by renewed focus on trade, and especially services. Technology will be an important driver.

It is also essentially a mobile-only country, meaning that 96% of the population who access internet do so on their cell phones.

However, the country is one of the most expensive in the world when it comes to using information and communications technology: it was recently ranked by International Telecommunication Union as 144 out of 166 countries for the cost of using IT and telecoms services. Unlike Myanmar and Liberia, mobile money has not yet been taken off, owing to regulatory concerns.

In detail: Liberia

In the case of Liberia, policy conversations have shifted from post-conflict reconstruction to a greater involvement in global value chains, domestic market development and, recently, the role of information and communications technologies in government and business.

The information and communications technology infrastructure has improved significantly, driven by increased competition among service providers.

Fifty percent of the population has access to a 3G signal, while approximately 17% can access a 4G signal. This means that a relatively high 20% of mobile connections can get broadband.

Driven by select firms led by young Liberians – people under the age of 24 make up more than 50% of Liberia’s population – e-commerce is fast picking up pace and regulations on e-transactions and consumer and data protection are struggling to keep pace.

Online payments options have emerged only recently and use of mobile money is gathering steam.

Please click to read full report.

By Le Xia, Chief Asia Economist, BBVA

Mainland China’s outbound foreign direct investment (ODI) saw a big turnaround as its strong growth momentum in 2016 – which reached 49.3% for non-financial ODI flows – came to a halt last year. This is mainly due to the authorities’ restrictive measures to curb capital outflows. In particular, the National Development and Reform Commission (NDRC) formalized the regulatory pathway for ODI transaction approval in August 2017 to classify outbound investment into three groups: encouraged, restricted and prohibited transactions.

The encouraged group includes the areas which are important to the country’s growth and development such as infrastructure projects related to the Belt and Road Initiative (BRI), high-tech business, advanced manufacturing, and research and development. Meanwhile, the restricted group includes deals related to real estate, sports clubs, hotels, entertainment and the film industry. Moreover, overseas investment in gambling or sex industries is strictly prohibited.

These tightening measures have proved to be effective. Since August 2017 there have been no recorded Chinese acquisitions in property, sport and entertainment. Meanwhile, the share of ODI in the commodity and energy sectors started to rise. Investment in these sectors accounted for 49.4% of total ODI flow in 2017, way above 29% in 2016.

Although the decline of ODI is broad-based, the government has continued to stress its determination to press ahead with its new national BRI strategy, with the Mainland’s ODI flow to the 65 BRI countries remaining broadly flat in 2016 and 2017. Accordingly, the share of investment to BRI countries increased to 12% of total ODI from 8% in 2016.

The authorities’ newly selective stance on overseas investment has led state-owned enterprises (SOEs) to outperform their private peers, as many of the former’s overseas investment projects are tied to the government’s favoured BRI strategy. Moreover, their dominance in international construction projects can give them more opportunities to make investments related to construction.

However, the ODI of Chinese SOEs may be substantially aided by concessionary financing from state controlled banks, which has increasingly caused foreign concerns over the fairness of the playing field.

Looking ahead, a number of tailwinds and headwinds have emerged to shape the pattern of Mainland China’s ODI going forward.

Encouragingly, many foreign countries’ views towards overseas investment have somewhat improved over the past two years despite the rise in populism around the globe. Our research has found that the evolution of media sentiment regarding Chinese investment in infrastructure improved in most countries in 2017 compared to 2015.

Adding to the tailwinds are some government-led initiatives. Under the BRI, China created a US$40 billion Silk Road Fund to boost infrastructure investment. Additionally, Beijing spearheaded the creation of the US$50 billion Asian Infrastructure Investment Bank (AIIB) and the US$50 billion BRICS New Development Bank.

In 2015, the country also set up two funds earmarked for its cooperation with Latin America – the China LAC Industrial Cooperation Investment Fund and the China-Latin America Infrastructure Fund. ODI flows to these regions will be greatly aided by improved economic integration and financing for infrastructure investments. Latin America is another region that is bound to receive more ODI on the back of new bilateral lending and investment deals.

However, headwinds to Mainland China’s ODI exist not only at home but also abroad. Anti-globalization movements have intensified in recent years and the international environment has become increasingly uncertain.

The United States has expressed increasing concern about Chinese attempts to acquire technology. The European Union has unveiled proposals of a new framework to screen foreign investments to avoid hostile takeovers in some sensitive sectors; this idea was pushed by France and supported by Germany and Italy. More recently, Australia said it plans to tighten rules on foreign investment in electricity infrastructure and agricultural land, amid concerns about growing Chinese influence in business, politics and society.

In the future, despite the uncertain global environment, outbound investment by Chinese firms is likely to rise over the long term, due to the authorities’ efforts to boost BRI projects and its support of overseas acquisitions that allow Chinese firms to acquire advanced technology and strategic assets.

Continued growing investment and trade links between Mainland China and BRI countries are expected amid connectivity improvements in the next few years. The country’s various industrial sectors will benefit via government-backed entities and, to a lesser degree, multilateral entities. These government-led initiatives will help to improve economic integration and expand the market for Chinese goods and services overseas, all of which will open opportunities for Chinese companies abroad.

Supported by discount financing, immediate beneficiaries will be seen in sectors such as engineering and construction, survey and design, railway signalling systems and rolling stock, as well as in steel machinery and aerospace and defence exports. Over time, we expect operators of ports, railways and other infrastructure to gain from higher volumes initiated by increased bilateral trade between Mainland China and BRI countries. Moreover, mining, transportation infrastructure, manufacturing and information transmission sectors will also benefit.

The industry growth driver for the Mainland’s ODI will move from the property market, hotels, and entertainment to the infrastructure sector, and SOEs will still dominate. Government support for initiatives such as BRI and AIIB will not only fuel infrastructure-related sectors, but also boost bilateral trade over the medium term, with upgraded interconnectivity. These initiatives may also promote increased RMB usage in funding for infrastructure projects and trade deals.

This article was first published in the magazine The Bulletin April 2018 issue. Please click to read the full article.

Although officially cynical as to the aims of the BRI, India is a major recipient of related infrastructure funding.

The Madhya Pradesh road network: Urgent AIIB-backed upgrade underway.

While some have expressed surprise that Mumbai was the setting for last month's third annual meeting of the Beijing-headquartered Asian Infrastructure Investment Bank (AIIB), the choice was wholly in keeping with both the body's long-term agenda and its more recent track record. For more than a year now, India – despite its public protestations of concern over the apparent political intent behind the Belt and Road Initiative (BRI) – has been partnering with China in order to fund a number of its infrastructure projects, with the AIIB the primary investment vehicle.

It is also worth remembering that, after China, India is the AIIB's second-largest shareholder, as well as, of late, one of its key beneficiaries. Of the US$5.3billion in loans signed off by the AIIB, nearly a quarter of that sum – around $1.3 billion – has been allocated to India-based projects.

Opening proceedings on 25 June, Jin Liqun, the former banker and academic who now serves as the AIIB's President, made clear the links between the institution and the BRI programme, saying: "In addition to our formal partnerships, our members are involved in a wide range of regional infrastructure and trade arrangements, with the BRI being a prime example."

He later amplified his comments at the 2 July Forum on Belt and Road Legal Cooperation. Addressing delegates at the Beijing-hosted event, he said: "To my mind, all AIIB-backed projects are connected with the Belt and Road Initiative."

Of the 28 projects so far approved by the AIIB, seven are located in India, with a further five such initiatives in the pipeline. Among those already in place are two India-specific infrastructure funds and five developments seen as hugely BRI-friendly.

Of the funds, the National Investment and Infrastructure Fund Phase I – as approved on 24 June this year – is a $700 million undertaking co-financed with the Indian Government. Overall, the AIIB has put up $100 million as a means of addressing the equity funding gap that is currently bedeviling a number of Indian infrastructure projects. The other fund, the North Haven India Infrastructure Fund, is a private equity fund, overseen by Morgan Stanley, with a remit of raising between $750 million and $1 billion, with the AIIB committed to putting in up to $150 million.

The most recent initiative to secure AIIB approval is the Madhya Pradesh Rural Connectivity Project, a $502 million upgrade to the road network in Madhya Pradesh, India's second largest state and one of its poorest. The project will enhance the connectivity of 1.5 million people living in 5,640 villages throughout the state, while giving them improved access to education, health and retail facilities.

A major undertaking, the project will require the surface-sealing of 10,000km of existing roads and the construction of 510km of wholly new roads. The project will also put in place the civic support structures required to manage and maintain this upgraded road network. In order to deliver on this, the AIIB has agreed to provide $140 million of funding, with the World Bank putting in an additional $210 million and the Indian Government making up the balance.

The AIIB has also signed-off on $329 million in funding for the Gujarat Rural Roads (PMGSY) Project, an initiative it is co-funding with the Government of Gujarat. A further two projects have seen AIIB funding earmarked for upgrading India's electricity transmission facilities. This has seen the bank agree to provide $160 million of funding for the Andhra Pradesh 24x7 Power For All Project. Co-financed with the International Bank for Reconstruction and Development and the Government of Andhra Pradesh, this will facilitate a major upgrade for the state's electricity transmission network.

The AIIB is also to commit $100 million to a Transmission System Strengthening Project in Tamil Nadu, India's 11th largest state. This initiative is to be co-financed with the Asian Development Bank and India's Power Grid Corporation.

The final project – the AIIB's largest undertaking in India – is Line Six of the Bangalore Metro Rail Project. With the bank committed to providing $335 million of the estimated overall $1.785 billion cost, the project will involve a 22km extension to the city's existing metro system and the construction of 18 new stations. The co-financers in this particular project are the European Investment Bank and the Indian Government.

Geoff de Freitas, Special Correspondent, Mumbai

Having signed 14 BRI-related MoUs with China, Nepal must work harder than ever to keep India genuinely neighbourly…

Peak time: The importance of cross-Himalayan trade has transformed Nepal into a key BRI player.

Last month's five-day visit to Beijing on the part of Khadga Prasad Sharma Oli, the recently-elected Prime Minister of Nepal, seems to have opened the Belt and Road Initiative (BRI) floodgates, with 14 related projects having now been given the go-ahead by the Himalayan kingdom, while several existing hydro-electric developments have been galvanised back into life. Backed by a series of Memorandums of Understanding (MoUs), the new projects are largely geared towards boosting cross-border connectivity between the two neighbouring nations.

In a statement released in the immediate aftermath of the visit, both countries agreed "to prioritise the implementation of the connectivity-related BRI MoU as it relates to ports, roads, rail and air links and overall communications activity within the Trans-Himalayan Multi-Dimensional Connectivity Network." In a telling aside, Chinese Premier Li Keqiang, who hosted the visit, said: "I now have every hope that a Free Trade Agreement can be concluded in the very near future."

Overall, though, the most significant development to emerge as a result of the visit was the green light given to extending China's Tibetan rail network from its current terminus, close to the Nepal border, to Kathmandu. This will connect the Nepalese capital to Lhasa and plug into the wider mainland rail resource. Although some aspects of the project have yet to be finalised, China has already agreed to fund an in-depth feasibility study of the proposed extension.

With this initial study set to be completed next month – which will then be followed by a more in-depth two-year review – it is now expected that this line will become operational in 2025. In total, the project will require the laying of some 540km of additional track.

At present, estimates as to the final cost of the project vary from US$2.5 billion to $8 billion, a figure that Nepal – given that its total annual GDP is just above $20 billion – would struggle to find on its own. At present, there seems to be a tacit assumption on the part of Nepal that China and India, its other giant neighbour, will somehow cover the costs of both this extensive infrastructure upgrade and several of the energy projects already underway. If the bill was left for Nepal alone to carry, it is believed this overhead would prove a crippling burden for the country for generations to come, with no real ROI likely until well into the 22nd century.

All of which highlights another problem for the mountain kingdom – while looking to ensure its own economic development stays on course, it has to maintain a tricky balancing act, neither overtly-favouring nor inadvertently alienating China or India, its two suitors who, somewhat awkwardly, remain more competitive than co-operative. To complicate matters still further, while India has long had a quasi-monopoly on Nepal's external and internal trade, government figures in Kathmandu have made no secret of their desire to be a little more promiscuous, a development that their New Delhi counterparts have already intimated disapproval of.

This, however, has not deterred China from openly wooing its 30-million-strong neighbour at a time when India appears to have tightened its own purse strings. In 2017, for instance, Beijing pledged $8.3 billion in support of Nepal's infrastructure and energy development projects, more than 26 times the $317 million forthcoming from India over the same period.

Despite the clear challenges that remain, the potential size of the rewards on offer may yet prevail. From China's point of view – given that one of the key BRI aims is to open new markets for its more underdeveloped western regions, including Tibet and Xinjiang – establishing an effective trade route into India via Nepal remains a clear priority.

In order to deliver on this, mainland officials have already mooted the idea of a tripartite China-Nepal-India trade corridor, a similar arrangement to the existing China-Pakistan-India initiative. To date, India has refused to play ball. This is despite the fact that, as Nepal borders Uttar Pradesh, one of India's key food production and manufacturing hubs, a direct route through to China would clearly be in its own interest. Given the clear win-win-win on offer to all three prospective participants, there is still a strong belief that agreement on tripartite trade connectivity may yet be reached.

Geoff de Freitas, Special Correspondent, Kathmandu

By Michal Makocki, Senior Associate Analyst, European Union Institute for Security Studies

Introduction

China’s regional approach to the EU’s neighbourhood is shaped by its flagship Belt and Road Initiative. Reviving the image of the ancient Silk Road, through this massive infrastructure project Beijing aims to re-connect Europe and Asia and to link China to markets in Europe and beyond. This has inevitably attracted the attention of countries in Eastern Europe and the South Caucasus, which in ancient times contained key transit and trading posts before the land routes were gradually superseded by maritime routes which proved faster and more economical. China-backed overland routes boost expectations among these countries of tangible benefits such as new infrastructure construction, transit fees, modernisation of the trade sector, improved connectivity with China’s booming market and ultimately enhanced geopolitical significance. Chinese engagement is also welcomed as it helps diversify Eastern Partnership (EaP) countries’ trade relations beyond their traditional markets, in particular the Russian market. Or so the Chinese slogan promises. Too often Chinese plans lack concrete details: doubts over their implementation, feasibility and viability abound. And most importantly, China’s official slogans focus on economic benefits but gloss over the geopolitical reality of the new routes which may potentially alter the balance of power in the region. This chapter firstly describes the implications of China’s Belt and Road project for the EU neighbourhood, then goes on to examine the region’s responses to the initiative and, finally, attempts to gauge the geopolitical consequences of the project, with a focus on Russia and the EU.

Reactions in the region

Belarus has acquired (together with Russia and Kazakhstan) a pivotal role for the Chinese corridors. Proximity to the European market gives Belarus an edge in attracting Chinese investments, sought not only because of their economic value but also because they offer a coveted source of diversification from the dominant economic partnership with Russia. China has invested in the creation of the Great Stone China-Belarus Industrial Park, which is supposed to support joint production and logistics hubs. Few companies have actually made use of the park so far, but direct connections to Shenzhen (China’s innovation hotspot on the border with Hong Kong) may change that.

Ukraine’s geographical position rivals that of Belarus but the conflict with Russia means that China has adopted a cautious attitude towards the country. Ukraine offers the shortest route between China and Europe (through Kazakhstan, Rostov and Donbass) but due to continued hostilities in Donbass as well as Russia’s transit ban, China has until recently suspended sending its cargo through Ukraine to Slovakia and further on to Europe. The conflict between Ukraine and Russia has also derailed other potential investments from China. Before the annexation of Crimea China was planning to build a deep-sea port in Crimea, a plan which was obviously forestalled by Russia’s annexation of the peninsula. Currently other Ukrainian Black Sea ports are being discussed as alternatives for Chinese investments but without any concrete results at this stage.

Ukraine’s signature of a Deep and Comprehensive Free Trade Area (DCFTA) agreement with the EU offers significant opportunities for cooperation with other countries, including China, but until the conflict subsides and Russia lifts its transit ban there is little scope for increased cooperation with China. Ukraine’s key objective in its engagement with the Chinese Silk Road initiative will be to find an alternative supply route which would circumvent Russia. A trial train project was launched immediately after the imposition of the Russian transit ban to transport Ukrainian cargo to China via the Trans-Caspian corridor but it never became fully operational. In terms of infrastructure investments, Ukraine’s upgrading needs are substantial but so far the experience with Chinese projects has been discouraging. A Chinese loan for the construction of a high-speed rail link between central Kyiv and Boryspil airport has been linked with corruption under the Yanukovych administration and had to be renegotiated.

Azerbaijan is being forced by low commodity prices to diversify its economy beyond its traditional reliance on hydrocarbon exports and welcomes the opportunities offered by the Chinese project. Infrastructural improvements in the port of Baku have taken place, helping establish regular connections with Kazakhstan’s Caspian port of Aktau. With the recent opening of the Baku-Tbilisi-Kars (BTK) railway, the corridor will be able to rely on a connection from the Azeri Caspian coast through Georgia and Turkey to the European railway network. However, expectations of significant cargo flows from China have to be assessed against their business rationale. The Trans-Caspian corridor is more expensive than other Chinese routes as it involves a number of points where cargo has to be shifted from trains to vessels or vice versa, thereby increasing the overall costs. It is also interesting to note that Azerbaijan has suddenly acquired importance on the crossroads not only of East-West but also North-South routes, as it is primed to be a transit point along the so called North-South Transport Corridor linking Russia with Iranian ports (however, substantial investments are still necessary on the Iranian portion of the railway, to be financed with Azeri loans). Whether any of these corridors brings Baku benefits beyond not-so-substantial transit fees, will depend solely on Azerbaijan as it firstly needs to build its industrial base virtually from scratch. Chinese investments and the outsourcing of Chinese overcapacity may indeed facilitate this.

Georgia has quickly grasped the potential offered by trade diversification and signed a free trade agreement with China. Together with the DCFTA with the EU, it offers an attractive regulatory package for Chinese investors looking for facilitated access to the EU market. It is also working to improve logistical connections with both of its trading partners. In particular the above-mentioned Baku-Tbilisi-Kars railway link and new port on the Black Sea coast in Anaklia (built by a Georgian-American consortium) will be pivotal.

Moldova and Armenia seem to have been largely left behind by the Chinese initiative. China Shipping Group has launched container services in Giurgiulesti, the only Moldovan port on the Danube. But other than that Moldova does not present much interest to China in terms of the BRI. Similarly, connections through Armenia do not seem to offer much added value for China.

Eastern promises…

The Belt and Road project holds two major promises for the EaP countries. First, expanded trade relations with the world’s second-biggest economy will lead to trade diversification. Many countries in the region suffer from tense relations with Russia, which leverages its trade policies for political purposes. Moscow has for example imposed a transit ban on Ukrainian goods. In 2006, at a time of deteriorating relations with Moldova and Georgia, it banned imports of wine from both countries. It may also suspend trade benefits attached to the Commonwealth of Independent States’ Free Trade Area (CIS FTA) or use sanitary and phytosanitary rules to impede access to its market, even for members of the Eurasian Economic Union (EAEU). From this perspective, the Chinese market offers significant potential for diversification. However, while growing in importance, China’s share of the region’s trade remains small (for example, in 2016 Ukraine’s trade with China amounted to €5 billion or 8% of Ukraine’s total trade). The significance of the Chinese market may change with the improved transport connections. Geopolitically, the Trans-Caspian route in particular offers a way to circumvent Russia, thwarting any future attempts by Moscow to use the transit ban against any of the EaP countries.

The second promise of the Belt and Road initiative is that of increased investments in infrastructure. However, Chinese investments may not be a silver bullet for EaP countries’ infrastructure deficit. China’s model of infrastructure deals is less attractive than that of the EU, which involves grants rather than loans, especially under the Neighbourhood Investment Facility.

…and challenges

The initiative also presents certain challenges. The EaP countries will need to make sure they do not serve as mere transit points but rather are able to use the new corridors to increase their market share in China. For the time being, the fastest growing market will be the EU, with China possibly trailing even behind the US and Turkey. This will justify prioritisation of scarce domestic resources for infrastructure connections with Europe rather than China. Also it is important to remember that customs and trade facilitation often brings faster and much cheaper improvements in logistical efficiency than costly infrastructure investments. On another note, improved connections with China will increase imports and, hence, competition among domestic producers. If such competition compels them to move up the value chain, so much the better, but it might trigger economic dislocation.

Chinese pragmatism is double-edged. While China helps Ukraine circumvent Russian transit bans, Chinese companies have shown interest in building a bridge between annexed Crimea and the Russian mainland. Chinese investments in separatist territories in the region may further fuel conflicts. Beijing’s own rapprochement with Moscow may limit China’s potential to play a positive role in the neighbourhood. For example, Russia forced China to formally acknowledge Russia’s role in the post-Soviet space and agree to consider the ‘interests of Russia during the formulation and implementation of Silk Road projects’. China has already demonstrated that it will respect Russia’s perceived sphere of influence and displayed reluctance to invite interested countries such as Ukraine and Moldova to join the so-called 16+1 platform for cooperation between China and the EU.

For the EU, the Chinese initiative is also a double-edged sword. Firstly, China may aim to tap into Caspian energy resources and compete with the EU for access to them. Chinese energy companies have been cooperating with Turkmenistan to develop offshore gas deposits and have built a network of pipelines from the region to China. Secondly, the Chinese project may bring economic growth and help build the region’s resilience. But that will only happen if Chinese projects are placed on a sustainable footing, do not undermine EU reforms and do not facilitate corruption.

Conclusion

It remains to be seen if China’s ambitious project will bring the benefits to the region that Beijing has often promised. Transit countries enjoy little value added. Fear of dependence on Russia drives many countries to welcome connections to China’s market. But multiple corridors will mean that ultimately it will be China who will maintain the geopolitical leverage thanks to the ability to switch between them whenever conditions so dictate. Also China’s growing economic presence, coupled with skilful diplomacy, may eventually herald mounting political influence in the region. This would add a new layer of complexity to an already complicated political landscape.

This article was originally published as a chapter in Chaillot Paper No. 144, “Third powers in Europe’s east” (EUISS, March 2018), and is reproduced here with the permission of the Institute. Please click to read the full article.

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中國對"一帶一路"沿線國家直接投資現狀

中國對"一帶一路"沿線國家直接投資起步較晚，遲至2007年才開始大規模直接投資。但在過去的10多年間，中國對"一帶一路'沿線國家OFDI一直保持了較快的增長速度，呈現出如下特點：

1. 持續快速增長趨勢

從流量看，據《中國對外直接投資公報》統計，2003年中國對"一帶一路"沿線64個國家OFDI流量僅2.02億美元，2015年飆升到189.3億美元，同比增長38.6%，年均增速高達46.0%，比同期中國OFDI總流量年均38.8%的增速快7.2個百分點，占中國OFDI總流量的比例也從 7.1%上升至 13%。從存量看，2003年，我國對"一帶一路"沿線國家的直接投資存量為13.2億美元，佔我國對外直接投資存量的4%，2015年，這一指標飆升為1156.8億美元，佔中國對外直接投資總存量的10.5%，2003年-2015年，中國對"一帶一路"沿線64個國家投資存量年均增速高達45.2%，比同期中國對外直接投資總存量的增速快11.4個百分點。

2. 近鄰化分佈趨勢

近些年，我國對"一帶一路"沿線國家投資在空間分佈上，呈現出先近後遠的特徵。按照規模大小，目前我國對外直接投資最集中地區依次為東南亞、北亞(俄羅斯和蒙古)、中東、中亞和南亞，除中東地區外，均為我國鄰國。其中東盟10國是我國對"一帶一路"沿線國家直接投資最集中的地區。

3. 集聚化趨勢

從空間分佈來看，中國在"一帶一路"沿線國家OFDI金額有明顯集聚化趨勢。截至2015年，有15個國家承接我國對外直接投資存量超過20億美元。據此，作者計算了首位國家集中度等指標。結果發現，無論是首位國家集中度、前3名國家集中度、前5名國家集中度，還是前10名、前15名國家集中度都基本隨著時間序列的推進，呈現出比較明顯的集聚化趨勢。

4．東道國排名變化大，與大宗商品價格漲落保持一致性的順週期性趨勢

近年來，我國對"一帶一路"沿線國家的投資還出現了東道國年度排名變化比較大，與大宗商品價格漲落保持較明顯一致性等順經濟週期性特徵。從流量上看，2014年有10個國家承接我國對外直接投資流量超過了5億美元，但在2015年，只有8個國家超過了5億美元，除新加坡、俄羅斯、印尼、阿聯酋和老撾5國外，巴基斯坦、泰國、伊朗、馬來西亞和蒙古5國直接出局，新增了印度、土耳其、越南3國。而資源豐富的中亞、北亞和西亞地區，近年來隨著大宗商品價格走軟，已經變成了我國主要的撤資地區，其中哈薩克斯坦撤資25.1億美元，伊朗撤資5.5億美元，分別名列我國總撤資榜的第2位和第4位。這表明我國對外直接投資具有非常明顯的順週期性，這種結構並不利於我國在"一帶一路"沿線國家獲取穩定的資源供給。從存量看，東道國排名也顯現出明顯的變化。2015年，承接我國OFDI存量累計超過40億美元的國家一共有8個，依次是：新加坡、俄羅斯、印尼、哈薩克斯坦、老撾、阿聯酋、緬甸、巴基斯坦。其中，阿聯酋進步最大，從第14位前進到了第6位；蒙古則退步最大，從第7位退到了第10位；哈薩克斯坦雖然只從第3位退到了第4位，但對其投資存量大幅下降了32.4%。

5. 產業多元化和升級化趨勢

近十年以來，中國對"一帶一路"沿線國家投資的行業結構呈現多元化和升級化趨勢。從三次產業角度劃分，我國直接投資主要分佈在農業、能源、金屬、化學、其他工業和公用事業等第一產業和第二產業，第三產業占比雖僅15.6%，但其佔比不斷提升。其中2005年-2011年，第三產業佔比平均為7.6%；2012年-2016年上半年，第三產業佔比升至24.9%，2012年和2016年上半年佔比還分別升至34.2%和35.1%，產業升級特徵明顯。如表5所示，中國投資是先從能源、化學等行業起步，2006年開始擴展到農業、金屬、交通、地產等行業，2007-2009年又拓展至科技教育、金融等更高技術含量行業，2012-2013年開始涉足娛樂和旅遊等服務業，2015年以後還涉足公用事業，呈現出從資源導向到資金密集型行業，進而升級到高科技和現代服務業的發展趨勢。

總體來講，"一帶一路"沿線國家目前還不是我國對外直接投資的主要對象，中國對其投資尚比較有限。目前中國對"一帶一路"投資主要流向有較穩定合作機制的周邊國家，例如中國東盟自貿區中的新加坡、印尼、緬甸和老撾等國，上海合作組織中的俄羅斯和哈薩克斯坦等成員國及印度、巴基斯坦、蒙古等觀察員國。值得提到的是，近年來中國對老撾、緬甸、柬埔寨和蒙古等欠發達鄰國的直接投資有了較大增長，但對經濟發展水平更高、制度環境也更為穩健的東歐諸國以及東盟中的馬來西亞、泰國直接投資的重視程度則明顯不夠。當然，由於近年來主權糾紛，中國對菲律賓、越南的直接投資也不多。

中國對"一帶一路"沿線國家直接投資中存在的問題

鑒於"一帶一路"沿線國家多處地緣政治敏感區和風險集中帶，這使得我國OFDI面臨的問題比較多，具體說來，主要表現在：

1．空間分佈不合理，大多數東道國投資環境不好

鑒於中國OFDI有近鄰化趨勢，而這些國家投資環境卻大多不太理想。根據中國電子科學研究院2016年所編制的"絲路信息化指數"，"一帶一路"國家總體得分均不高，其中得分最高的為新加坡，評分為7.05；排名最低的國家為不丹，評分僅為2.93。從地區分佈來看，中東歐國家信息化投資環境最為成熟，平均得分在4.88分，但我國對其投資非常少。東南亞居其次，平均得分4.81，是我國對外投資分佈最多的地區。獨聯體國家平均得分排名第三，但除俄羅斯外，我國對其直接投資都不多。中東和中亞國家雖普遍在能源資源方面具有強大保障能力，也是我國直接投資分佈較集中的地區，但其平均得分分別為4.47和4.03。南亞國家平均值僅為3.62，大多數國家在基礎設施建設方面非常薄弱，但近幾年我國對其投資卻增長很快。很顯然，中國OFDI這種空間佈局不是太好，有重構必要。

2．對外直接投資行業集中，投資失敗案件比較高

長期以來，中國對"一帶一路"沿線國家OFDI的行業分佈一直比較集中。據Merger market數據，在2005年至2016年6月這段時間內，中國對"一帶一路"沿線國家跨國並購的行業分類數據中，排名前五名的行業分別是能源(佔比55.6%)、金屬開採及冶煉業(佔比11.6%)、交通製造業(佔比8.2%)、地產業(佔比6.8%)，表現出非常明顯的資源尋求型特徵，資源類並購佔比67.2%。雖然近年來，中國對"一帶一路"國家投資已經開始多元化，但總體尚未形成規模。從某種意義上說，這種行業結構也是一把"雙刃劍"：一方面，通過OFDI，中國獲得了大量的資源補給，緩解了我國經濟高速增長導致的資源不足問題；另一方面，便利資源的獲得，也會弱化國內產業結構升級的動力。隨著近些年美聯儲不斷加息和中國經濟進入新常態，國際大宗商品價格出現明顯下滑，這不僅使相關產業投資不斷萎縮，也使東道國對我國資本的疑慮不斷加重，中國OFDI風險不斷累積。據Heritage Fundation統計，從2005年至2016年上半年，中國對"一帶一路"國家投資失敗案件51宗，失敗金額686.8億美元，明顯高於其他地區佔比。其中能源業投資失敗佔比69.5%；金屬業佔比9.2%；而且從年度數據看，這些行業的投資失敗事件出現最為頻繁。

3．"走出去"企業多為國有企業，而且主要是央企

目前"一帶一路"建設仍處於初期階段，以"道路聯通"，即基建、運輸等項目為主。但從投資規模來看，央企是中國對"一帶一路"沿線國家開展投資的主力軍，地方企業和民營企業只能發揮補充性作用。據Heritage Foundation統計，截至2016 年上半年，央企對"一帶一路"沿線國家大型項目投資的存量為1333.1億美元，佔中國對“一帶一路”大型項目投資總量的69.3%。與那些具備豐富投資經驗的跨國公司和開發銀行相比，中國企業甄別有利可圖的項目和控制風險的能力更差。隨著海外基礎設施貸款迅速增加，由於信息披露較慢，還款期更長，這些投資未來可能會為中國金融體系帶來新一輪資產質量問題。

4．培育競爭對手，可能導致產業"空心化"

長期以來，中國企業由於缺乏管理、技術、品牌和渠道等競爭優勢，面對日趨激烈的國際市場競爭時，只是一味依賴國內的低成本勞動力優勢。因此，在對外直接投資過程中，就比較容易培養競爭對手，導致國內相關產業出現"空心化"現象。例如紡織業，隨著我國對越南、印度投資力度的加大，當地興起的相關競爭企業越來越多，這些發展中國家企業在美國等第三市場的份額越來越高，進而導致我國紡織產業競爭優勢不斷下降，甚至導致一定程度的產業空心化。類似的行業還有家電、箱包等行業。

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