WEBVTT - Bonus: One Belt, One Road, Part I 0:00:00.040 --> 0:00:20.840 M h. Hello everyone, Welcome to the first of for 0:00:21.040 --> 0:00:26.360 Bloomberg broadcasts on China's Felton Road. Initially, I'm David Tweeden. Today. 0:00:26.400 --> 0:00:28.520 Over the next three episodes, I'll be talking to the 0:00:28.640 --> 0:00:32.160 quarters and competing involved in our series about this potentially 0:00:32.200 --> 0:00:37.440 world altering project. President chi Ching King calls it the 0:00:37.760 --> 0:00:41.120 Project the Century. It's going to be a decade's long 0:00:41.280 --> 0:00:44.880 drive to less grease the wheels of trade with a 0:00:45.080 --> 0:00:50.519 massive infrastructure of spending. Program um with me is Bloomberg 0:00:50.560 --> 0:00:55.080 TV Stephen Engel, who has anchored the first of our episodes. Stephen, 0:00:55.640 --> 0:00:58.920 you call this u At the beginning you you mentioned 0:00:58.960 --> 0:01:02.880 that this is this is potentially an empire building exercise. 0:01:02.920 --> 0:01:05.720 That's a Christian you want school or you then ask 0:01:05.840 --> 0:01:10.120 is it the creation of a new world order? What 0:01:10.680 --> 0:01:13.440 is the Belting Right initiative? Well, it is a revival 0:01:13.480 --> 0:01:15.520 of the old Silk Route, if you want to call 0:01:15.640 --> 0:01:19.839 it that. It is in much grander scale though, going 0:01:19.959 --> 0:01:23.800 to a hundred and three different countries or international organizations 0:01:24.160 --> 0:01:28.520 everywhere from of course across Central Asia to Africa, to Europe, 0:01:29.200 --> 0:01:32.919 even to the Caribbean, uh to the Arctic, many different 0:01:32.959 --> 0:01:37.639 places that need trade and need investment and that China 0:01:37.800 --> 0:01:41.760 can come in and help facilitate that. China basically says, 0:01:42.240 --> 0:01:44.840 if we want to boil it down to three main points, 0:01:45.160 --> 0:01:49.919 uh Number one spur development and of course therefore global trade. 0:01:50.320 --> 0:01:53.880 Number two incur some good will. Well, we're going to 0:01:53.960 --> 0:01:57.400 talk about whether they are incurring goodwill in depth in 0:01:57.480 --> 0:02:02.360 this podcast. And number three really promote economic integration at 0:02:02.400 --> 0:02:05.280 a time. Of course, there's dislocation, if you will, in 0:02:05.320 --> 0:02:08.240 global trade flows, with the brewing trade war between China 0:02:08.480 --> 0:02:10.800 and the United States, is China going to be looking 0:02:11.160 --> 0:02:15.280 further afield elsewhere than to its traditional number one trading 0:02:15.320 --> 0:02:17.919 partners like the EU of course, and also the United 0:02:17.960 --> 0:02:21.000 States in particular. But there are a lot of critics 0:02:21.320 --> 0:02:24.560 of the Belt and Road initiative. You know already it's 0:02:24.600 --> 0:02:29.400 cost more than the Martial plan that rebuilt Europe following 0:02:29.480 --> 0:02:32.360 World War Two, of course, has measured in today's dollars. 0:02:32.720 --> 0:02:36.639 It is also much grander in scope than really what 0:02:36.760 --> 0:02:41.239 has been described by many Chinese the Chinese civilizations Golden era, 0:02:41.520 --> 0:02:43.679 and that was the Tongue Dynasty where we saw the 0:02:43.760 --> 0:02:48.000 trade route really flourish to the west of China. Originally 0:02:48.560 --> 0:02:51.359 h the critics, though, say, who's going to pay for 0:02:51.480 --> 0:02:56.320 all this infrastructure? Also, how indebted will these some of 0:02:56.400 --> 0:03:00.560 them troubled economies, How indebted will they become when infrastructure, 0:03:00.560 --> 0:03:04.560 of course takes years to become cash flow positive. Are 0:03:04.600 --> 0:03:06.320 there going to be a lot of white elephants sitting 0:03:06.360 --> 0:03:09.799 around along the new Silk Road? And is this all 0:03:09.960 --> 0:03:15.400 to accommodate an increasingly assertive superpower as it spreads its influence, 0:03:15.720 --> 0:03:18.359 And of course it's products and goods. I think that's 0:03:18.400 --> 0:03:20.959 one of the main issues really, that that that that 0:03:21.320 --> 0:03:23.359 part of the world is worried about it. It's what 0:03:23.480 --> 0:03:27.480 the last there, yeah, exactly, um, and you know it's 0:03:27.520 --> 0:03:31.120 it's it's the extent of China's ambition and and that 0:03:31.240 --> 0:03:34.000 ambition that was outlined by Cheesing Ping because when he 0:03:34.080 --> 0:03:36.280 talks about the belt of road, Belton Road and when 0:03:36.320 --> 0:03:38.520 he talked about it last year, um, you know, he 0:03:38.600 --> 0:03:43.080 puts it into the context of China's uh, you know, resurrection. 0:03:43.160 --> 0:03:45.600 If you like, it's it's rebirth as a as a 0:03:45.720 --> 0:03:51.240 huge its exactly rightful place. Well, I'll tell you what 0:03:51.360 --> 0:03:53.400 interests me is is also looking at some of the 0:03:53.480 --> 0:03:56.120 numbers that are bandied around because Morgan Stanley has got 0:03:56.120 --> 0:03:58.040 an estimate that the whole project is going to cost 0:03:58.520 --> 0:04:02.440 one point three million dollars. That's t for trillion. I 0:04:02.480 --> 0:04:06.880 think that's a pretty conservative dollars when and the question is, though, 0:04:06.920 --> 0:04:09.840 I suppose, um, you know, looking at looking at Belton 0:04:09.960 --> 0:04:14.480 Road from China's foreign policy ambitions and also looking at 0:04:14.720 --> 0:04:18.160 China's relationship now with the United States, which is rather 0:04:18.240 --> 0:04:21.560 concerned that the Belton Road is in fact designed to 0:04:21.760 --> 0:04:26.520 somehow question US dominance in the world. How do you 0:04:26.560 --> 0:04:28.000 how do you look at the project when you consider 0:04:28.080 --> 0:04:31.080 what's going on with US China relations and at the 0:04:31.160 --> 0:04:33.560 moment I'm thinking in particular about the trade war. Well, 0:04:33.640 --> 0:04:36.280 of course, yeah, the trade war hangs over everything in 0:04:36.360 --> 0:04:39.920 between China and US relations. But look at the precursors 0:04:39.960 --> 0:04:42.680 to this trade war. You had Donald Trump pulling out 0:04:42.760 --> 0:04:46.560 of the Trans Pacific Partnership, not getting involved necessarily in 0:04:46.680 --> 0:04:51.040 the Asia Infrastructure Investment Bank, and de pivoting. Is that 0:04:51.120 --> 0:04:53.440 a word, Well, I'm going to use it away from 0:04:53.560 --> 0:04:56.920 Asia if you will, as Obama did use his pivot 0:04:56.960 --> 0:05:01.080 towards Asia. So what you're seeing is China pushing forward 0:05:01.720 --> 0:05:05.320 with new initiatives or or building out on this initiative 0:05:05.360 --> 0:05:09.080 that did come about in UH and not being so 0:05:09.320 --> 0:05:12.000 reliant on the United States. And it's not surprising that 0:05:12.480 --> 0:05:16.360 we're hearing voices from the United States UH kind of 0:05:17.160 --> 0:05:24.040 discounting the eventual viability of this large, large project. Sixteen 0:05:24.120 --> 0:05:27.200 U S senators recently warning about the dangers of falling 0:05:27.240 --> 0:05:30.839 into China's debt trap. Um. You know, there's a number 0:05:30.920 --> 0:05:35.240 of different warning signals and cautionary tales already. UH. You 0:05:35.320 --> 0:05:39.560 know surfacing. China likes to talk about how they've seen 0:05:39.800 --> 0:05:43.719 five trillion dollars in trade over the first five years, 0:05:44.120 --> 0:05:47.280 but also there's lots of debt that's been incurred. And 0:05:47.360 --> 0:05:49.440 we can go down the list from Sri Lanka to 0:05:49.600 --> 0:05:54.120 Malaysia too, of course Pakistan, Djibouti. The list is getting 0:05:54.120 --> 0:05:56.480 a little bit longer. About this potential debt trap. To me, 0:05:57.320 --> 0:05:59.440 how is the funding going on with the built and 0:05:59.520 --> 0:06:02.720 road How see is China actually managing the funding here? 0:06:02.880 --> 0:06:06.320 Let's look at the numbers China state financing bodies. They've 0:06:06.440 --> 0:06:10.120 lent to date three d five billion dollars commercial state 0:06:10.200 --> 0:06:13.080 banks in China, they've pledged two hundred thirty three billion 0:06:13.120 --> 0:06:16.640 dollars and loans China lad Ai I be a hundred billion, 0:06:16.720 --> 0:06:20.480 plus China's Silk Road Fund forty billion. That's seven eight 0:06:20.760 --> 0:06:25.680 billion dollars right there alone centered from China, real money 0:06:25.760 --> 0:06:29.040 from the Chinese, the World Bank fifty nine billion. So 0:06:29.839 --> 0:06:32.320 is this not being led by China? Oh? Absolutely, this 0:06:32.480 --> 0:06:35.000 is being led by China and dominated by China. Why 0:06:35.000 --> 0:06:38.440 don't we then listening to the comments that the head 0:06:38.480 --> 0:06:44.120 of the base said during the first episode, it's not 0:06:45.000 --> 0:06:50.760 a program dominated by China. It's the program by which 0:06:50.920 --> 0:06:58.119 China works with other countries, working with international financial institutions 0:06:58.560 --> 0:07:03.640 Multi letal, November Banks, So it's kind of cooperation. Unfortunately, 0:07:03.640 --> 0:07:06.280 there's some people miss under students as a kind of 0:07:06.640 --> 0:07:11.160 China program. China wants to to take levant of these 0:07:11.200 --> 0:07:14.480 to promote its own interests, which nothing could be further 0:07:14.600 --> 0:07:19.920 from the truth. Um, you've heard there from Jin Lee Chon, 0:07:20.000 --> 0:07:22.520 who's the head of the AII BE talking about how 0:07:22.560 --> 0:07:26.560 actually he thinks China isn't going to be dominating these projects, 0:07:27.120 --> 0:07:29.480 h Steve, There's a lot of investment that needs to 0:07:29.520 --> 0:07:32.280 be done. Um, if China is not to dominate them, 0:07:32.400 --> 0:07:34.960 or China suddenly dominating in terms of the money, but 0:07:35.560 --> 0:07:37.840 you know, do you have any sense that there's uh 0:07:38.520 --> 0:07:41.840 that these projects are going to be designed hand in 0:07:41.960 --> 0:07:45.760 hand with the countries that actually need this infrastructure. Well, absolutely, 0:07:45.800 --> 0:07:49.120 I mean they're trying to instill and get some goodwill 0:07:49.240 --> 0:07:51.880 from these countries that need investment. A lot of these 0:07:51.960 --> 0:07:56.880 countries are are nearing default or they've have serious current 0:07:56.880 --> 0:08:01.760 account deficits. Look at Pakistan, as I mentioned there before. Uh, 0:08:02.000 --> 0:08:04.000 you know, they're on the verge of potentially getting an 0:08:04.040 --> 0:08:06.520 IMF bail out. There's fears that if they do get 0:08:06.560 --> 0:08:09.920 an i MF bailout, that money could be used to 0:08:10.280 --> 0:08:14.320 pay back its SEPACK debt. SEPACK is the China Pakistan 0:08:14.440 --> 0:08:20.000 Economic Corridor. Basically the new Prime Minister Mr. Kahan, you know, 0:08:20.160 --> 0:08:25.200 he is trying to create jobs, create uh investment. But 0:08:25.520 --> 0:08:28.400 the problem is is if you look at Guadar, one 0:08:28.440 --> 0:08:31.760 of the ports there, it is dominated by the Chinese. 0:08:31.840 --> 0:08:33.400 And that's one of the biggest struggles. A lot of 0:08:33.480 --> 0:08:38.800 these countries that take the loans at China's conditions, Uh, 0:08:38.880 --> 0:08:42.360 they take China's investment, they take Chinese workers, and what 0:08:42.559 --> 0:08:47.080 do the local governments get other than perhaps a port 0:08:47.280 --> 0:08:50.480 or a facility that eventually will be handed back to 0:08:50.640 --> 0:08:56.959 China because China, the local governments cannot pay. We've seen 0:08:57.000 --> 0:08:59.199 that in Sri Lanka, they've had to hand over a 0:08:59.280 --> 0:09:01.959 majority control all of this newly developed port to a 0:09:02.080 --> 0:09:04.920 Chinese state on enterprise to ease part of the burden, 0:09:05.240 --> 0:09:07.959 that debt burden that they've seen to China. And we 0:09:08.040 --> 0:09:09.800 want to go into details of that if you want. 0:09:10.200 --> 0:09:13.160 One of the one of the other statistics that comes 0:09:13.200 --> 0:09:15.160 out of this report that really struck me was that 0:09:15.320 --> 0:09:17.959 out of the seventy or so countries apparently that have 0:09:18.040 --> 0:09:23.280 signed up, seven percent the sovereign debt is ray to junk. 0:09:23.480 --> 0:09:26.720 So you know, there is this this this debt trap issue. 0:09:27.120 --> 0:09:30.240 But also I mean, considering that China has got potential 0:09:30.920 --> 0:09:33.959 debt problems at home, it seems as if China sort 0:09:34.000 --> 0:09:38.320 of like has the risk of importing debt problems by 0:09:38.400 --> 0:09:41.800 investing in these projects, it could potentially dodgy. Right, yeah, 0:09:41.840 --> 0:09:43.680 well that is a concern as well. With a growing 0:09:43.880 --> 0:09:48.360 escalating trade tensions with the United States, simultaneously with the 0:09:49.080 --> 0:09:53.920 crackdown on over leveraging in China, does it force China 0:09:54.040 --> 0:09:58.600 to scale back its risk appetite in these developing countries. 0:09:59.160 --> 0:10:02.640 I mean I keep on bringing up various examples, but 0:10:02.760 --> 0:10:06.640 take for example, Djibouti in Africa. China has provided one 0:10:06.679 --> 0:10:11.839 point for billion dollars in infrastructure funding about seventy Djibouti's 0:10:11.880 --> 0:10:14.200 g d P. Most of that came in the form 0:10:14.240 --> 0:10:17.599 of loans from the Export Import Bank of China. The 0:10:17.720 --> 0:10:22.320 fears though this will end up like uh in Sri Lanka, 0:10:22.960 --> 0:10:26.080 that China will gain control of the Dorala counter terminal 0:10:26.160 --> 0:10:30.280 container jominal excuse me, and then also Humbug total Port 0:10:30.520 --> 0:10:34.920 in Sri Lanka, and then Guadar in Pakistan. It's we're 0:10:34.920 --> 0:10:38.240 talking about a string of pearls that China is investing in, 0:10:38.480 --> 0:10:41.800 and many of them happen to be strategic deep water ports. Well, 0:10:41.840 --> 0:10:45.280 I mean, Jibouty is actually a new Chinese base, right, Um, 0:10:45.440 --> 0:10:47.760 so I suppose there's the risk that they're going to 0:10:47.880 --> 0:10:50.920 turn Guadar and maybe the port in Sri Lanka into 0:10:50.960 --> 0:10:53.360 a base. We don't know that that's not going to happen. Well, 0:10:53.400 --> 0:10:57.440 they say Guadar, which is in I believe what western Pakistan, 0:10:57.600 --> 0:10:59.599 and it's it's pretty much out in the middle of 0:10:59.760 --> 0:11:02.280 no war. But it's a deep water port and it's 0:11:02.480 --> 0:11:06.120 primarily a Chinese town right now. And we talked about 0:11:06.720 --> 0:11:11.079 uh Khan talking about building or creating what ten thousand 0:11:11.200 --> 0:11:13.840 or ten million new jobs excuse me, over the first 0:11:13.920 --> 0:11:16.880 hundred days of of being in office. Let me get 0:11:16.920 --> 0:11:20.040 those numbers exactly right. He's talked about creating, yes, ten 0:11:20.120 --> 0:11:23.520 million new jobs in the first hundred days in office. 0:11:23.720 --> 0:11:26.040 But one of the biggest complaints coming out of Guadar 0:11:26.400 --> 0:11:29.679 is if you look around, you see more Chinese security 0:11:29.800 --> 0:11:36.280 agents and security soldiers and police protecting Guadart, their investment 0:11:36.760 --> 0:11:40.839 and their reports basically that they've invested in from what 0:11:41.000 --> 0:11:44.839 they say is potential terrorism threats uh and and and 0:11:45.040 --> 0:11:48.800 various other problems and people they're saying, it's become a 0:11:48.880 --> 0:11:51.079 little bit of a little China. Steve, I just want 0:11:51.080 --> 0:11:53.240 to end with with with with a little chat about 0:11:53.240 --> 0:11:55.679 what you think UM b r IY is going because 0:11:56.040 --> 0:11:58.160 in the first five years, and let's face it, it's 0:11:58.160 --> 0:12:00.120 a pretty short period of time since it was us 0:12:00.120 --> 0:12:03.560 pronouncing that speech by ping Um, we've seen a lot 0:12:03.600 --> 0:12:06.120 of projects have been labeled b r I. But I 0:12:06.160 --> 0:12:08.839 suppose now we're going to see, you know, projects which 0:12:08.880 --> 0:12:12.800 are specifically b r I. There might be more you know, 0:12:12.880 --> 0:12:15.880 the the the the the lending covenants around those projects 0:12:16.200 --> 0:12:19.320 might be more commercial. Where do you see the project 0:12:19.400 --> 0:12:22.680 going over the next say, the next five years or beyond. 0:12:22.920 --> 0:12:25.480 What's interesting for Chinese companies if you want to look 0:12:25.520 --> 0:12:28.319 at it from that perspective, is there have been a 0:12:28.400 --> 0:12:30.839 lot of capital controls over the last couple of years 0:12:31.440 --> 0:12:36.360 that Chinese companies have had to stringently abide by because 0:12:36.400 --> 0:12:39.000 of the protection of the REM and B. But if 0:12:39.080 --> 0:12:42.079 you somehow make a business case that your company is 0:12:42.160 --> 0:12:45.280 investing or part of the Belton Road, Uh, you can 0:12:45.360 --> 0:12:48.160 sort of get around a lot of those rules. Uh. 0:12:48.400 --> 0:12:52.160 It's interesting, Michael, every of Rubble Bank, he says, being 0:12:52.280 --> 0:12:55.000 tied to Belton Road is like, you know, is a 0:12:55.120 --> 0:12:58.760 political special Saucy says, if you drizzle it on anything, 0:12:58.800 --> 0:13:02.880 it tastes better. So so again, this is really being 0:13:03.000 --> 0:13:06.280 driven by Siejin Ping. Keep in mind Siejun Ping has 0:13:06.360 --> 0:13:11.640 had the constitution changed. He is now a leader, uh, 0:13:12.640 --> 0:13:17.160 potentially for life. This is his calling card project and 0:13:18.000 --> 0:13:21.679 he is going to undoubtedly push this forward and try 0:13:21.760 --> 0:13:24.839 to make it a success. Already, China signed a hundred 0:13:24.840 --> 0:13:27.800 and eighteen cooperation agreements with a hundred and three countries 0:13:27.960 --> 0:13:31.599 and international organizations. Uh, they've built a number of or 0:13:31.760 --> 0:13:33.720 in the process of building a number of high speed 0:13:33.840 --> 0:13:37.520 railways or regular railways. But keep in mind as well, 0:13:37.600 --> 0:13:40.960 there's been pushed back Maha to Mohammed went to Beijing, 0:13:41.360 --> 0:13:44.840 the new old new slash old Prime Minister of Malaysia 0:13:45.120 --> 0:13:47.719 basically went to Beijing and instead of cow towing and 0:13:47.880 --> 0:13:52.800 talking nice, he said, listen, China, this is turning out 0:13:52.840 --> 0:13:55.679 to be a new form of colonialism. And you know what, 0:13:55.760 --> 0:13:59.640 We're gonna scrap that twenty billion dollar high speed railway project. 0:13:59.840 --> 0:14:03.079 We don't necessarily need to be beholden to the Chinese. 0:14:03.440 --> 0:14:08.040 We want to employ Mala Malaysians on these projects, not 0:14:08.200 --> 0:14:11.360 bringing imported labor from China. Steve hold that thought because 0:14:11.720 --> 0:14:14.960 episode two of the program is going to take us 0:14:15.000 --> 0:14:17.760 to India with Slender Ammon and she's Windyer is one 0:14:17.800 --> 0:14:20.760 of the big skeptics when it comes to Belton Road. 0:14:20.840 --> 0:14:23.840 She's also going to go to Thailand and Kazakhstan. Um 0:14:24.240 --> 0:14:27.600 Richard Saloma in the third episode is going to have 0:14:27.680 --> 0:14:31.640 a look at East Africa and particular in particular Kenya. 0:14:32.320 --> 0:14:37.440 And then finally Tom McKenzie, who's our Aijing correspondent will 0:14:37.480 --> 0:14:39.640 be in Europe and he's going to talk to to 0:14:39.720 --> 0:14:43.320 the Europeans about their concerns and also what they think 0:14:43.360 --> 0:14:46.760 about the project in general. So there's a lot coming up. Steve, 0:14:46.920 --> 0:14:50.080 thank you very much indeed for speaking to me. I'm 0:14:50.160 --> 0:14:52.600 David Tweed. This has been the first in our podcast 0:14:52.680 --> 0:14:55.920 about our new Belton Road series. You can actually catch 0:14:56.000 --> 0:14:58.200 up and see a little bit more about this with 0:14:58.320 --> 0:15:02.320 some stories, and also the series are on a Bloomberg 0:15:02.400 --> 0:15:07.400 dot com. I just looked at Belton Road m