Speaker 1: M h. Hello everyone, Welcome to the first of for
Speaker 1: Bloomberg broadcasts on China's Felton Road. Initially, I'm David Tweeden. Today.
Speaker 1: Over the next three episodes, I'll be talking to the
Speaker 1: quarters and competing involved in our series about this potentially
Speaker 1: world altering project. President chi Ching King calls it the
Speaker 1: Project the Century. It's going to be a decade's long
Speaker 1: drive to less grease the wheels of trade with a
Speaker 1: massive infrastructure of spending. Program um with me is Bloomberg
Speaker 1: TV Stephen Engel, who has anchored the first of our episodes. Stephen,
Speaker 1: you call this u At the beginning you you mentioned
Speaker 1: that this is this is potentially an empire building exercise.
Speaker 1: That's a Christian you want school or you then ask
Speaker 1: is it the creation of a new world order? What
Speaker 1: is the Belting Right initiative? Well, it is a revival
Speaker 1: of the old Silk Route, if you want to call
Speaker 1: it that. It is in much grander scale though, going
Speaker 1: to a hundred and three different countries or international organizations
Speaker 1: everywhere from of course across Central Asia to Africa, to Europe,
Speaker 1: even to the Caribbean, uh to the Arctic, many different
Speaker 1: places that need trade and need investment and that China
Speaker 1: can come in and help facilitate that. China basically says,
Speaker 1: if we want to boil it down to three main points,
Speaker 1: uh Number one spur development and of course therefore global trade.
Speaker 1: Number two incur some good will. Well, we're going to
Speaker 1: talk about whether they are incurring goodwill in depth in
Speaker 1: this podcast. And number three really promote economic integration at
Speaker 1: a time. Of course, there's dislocation, if you will, in
Speaker 1: global trade flows, with the brewing trade war between China
Speaker 1: and the United States, is China going to be looking
Speaker 1: further afield elsewhere than to its traditional number one trading
Speaker 1: partners like the EU of course, and also the United
Speaker 1: States in particular. But there are a lot of critics
Speaker 1: of the Belt and Road initiative. You know already it's
Speaker 1: cost more than the Martial plan that rebuilt Europe following
Speaker 1: World War Two, of course, has measured in today's dollars.
Speaker 1: It is also much grander in scope than really what
Speaker 1: has been described by many Chinese the Chinese civilizations Golden era,
Speaker 1: and that was the Tongue Dynasty where we saw the
Speaker 1: trade route really flourish to the west of China. Originally
Speaker 1: h the critics, though, say, who's going to pay for
Speaker 1: all this infrastructure? Also, how indebted will these some of
Speaker 1: them troubled economies, How indebted will they become when infrastructure,
Speaker 1: of course takes years to become cash flow positive. Are
Speaker 1: there going to be a lot of white elephants sitting
Speaker 1: around along the new Silk Road? And is this all
Speaker 1: to accommodate an increasingly assertive superpower as it spreads its influence,
Speaker 1: And of course it's products and goods. I think that's
Speaker 1: one of the main issues really, that that that that
Speaker 1: part of the world is worried about it. It's what
Speaker 1: the last there, yeah, exactly, um, and you know it's
Speaker 1: it's it's the extent of China's ambition and and that
Speaker 1: ambition that was outlined by Cheesing Ping because when he
Speaker 1: talks about the belt of road, Belton Road and when
Speaker 1: he talked about it last year, um, you know, he
Speaker 1: puts it into the context of China's uh, you know, resurrection.
Speaker 1: If you like, it's it's rebirth as a as a
Speaker 1: huge its exactly rightful place. Well, I'll tell you what
Speaker 1: interests me is is also looking at some of the
Speaker 1: numbers that are bandied around because Morgan Stanley has got
Speaker 1: an estimate that the whole project is going to cost
Speaker 1: one point three million dollars. That's t for trillion. I
Speaker 1: think that's a pretty conservative dollars when and the question is, though,
Speaker 1: I suppose, um, you know, looking at looking at Belton
Speaker 1: Road from China's foreign policy ambitions and also looking at
Speaker 1: China's relationship now with the United States, which is rather
Speaker 1: concerned that the Belton Road is in fact designed to
Speaker 1: somehow question US dominance in the world. How do you
Speaker 1: how do you look at the project when you consider
Speaker 1: what's going on with US China relations and at the
Speaker 1: moment I'm thinking in particular about the trade war. Well,
Speaker 1: of course, yeah, the trade war hangs over everything in
Speaker 1: between China and US relations. But look at the precursors
Speaker 1: to this trade war. You had Donald Trump pulling out
Speaker 1: of the Trans Pacific Partnership, not getting involved necessarily in
Speaker 1: the Asia Infrastructure Investment Bank, and de pivoting. Is that
Speaker 1: a word, Well, I'm going to use it away from
Speaker 1: Asia if you will, as Obama did use his pivot
Speaker 1: towards Asia. So what you're seeing is China pushing forward
Speaker 1: with new initiatives or or building out on this initiative
Speaker 1: that did come about in UH and not being so
Speaker 1: reliant on the United States. And it's not surprising that
Speaker 1: we're hearing voices from the United States UH kind of
Speaker 1: discounting the eventual viability of this large, large project. Sixteen
Speaker 1: U S senators recently warning about the dangers of falling
Speaker 1: into China's debt trap. Um. You know, there's a number
Speaker 1: of different warning signals and cautionary tales already. UH. You
Speaker 1: know surfacing. China likes to talk about how they've seen
Speaker 1: five trillion dollars in trade over the first five years,
Speaker 1: but also there's lots of debt that's been incurred. And
Speaker 1: we can go down the list from Sri Lanka to
Speaker 1: Malaysia too, of course Pakistan, Djibouti. The list is getting
Speaker 1: a little bit longer. About this potential debt trap. To me,
Speaker 1: how is the funding going on with the built and
Speaker 1: road How see is China actually managing the funding here?
Speaker 1: Let's look at the numbers China state financing bodies. They've
Speaker 1: lent to date three d five billion dollars commercial state
Speaker 1: banks in China, they've pledged two hundred thirty three billion
Speaker 1: dollars and loans China lad Ai I be a hundred billion,
Speaker 1: plus China's Silk Road Fund forty billion. That's seven eight
Speaker 1: billion dollars right there alone centered from China, real money
Speaker 1: from the Chinese, the World Bank fifty nine billion. So
Speaker 1: is this not being led by China? Oh? Absolutely, this
Speaker 1: is being led by China and dominated by China. Why
Speaker 1: don't we then listening to the comments that the head
Speaker 1: of the base said during the first episode, it's not
Speaker 1: a program dominated by China. It's the program by which
Speaker 1: China works with other countries, working with international financial institutions
Speaker 1: Multi letal, November Banks, So it's kind of cooperation. Unfortunately,
Speaker 1: there's some people miss under students as a kind of
Speaker 1: China program. China wants to to take levant of these
Speaker 1: to promote its own interests, which nothing could be further
Speaker 1: from the truth. Um, you've heard there from Jin Lee Chon,
Speaker 1: who's the head of the AII BE talking about how
Speaker 1: actually he thinks China isn't going to be dominating these projects,
Speaker 1: h Steve, There's a lot of investment that needs to
Speaker 1: be done. Um, if China is not to dominate them,
Speaker 1: or China suddenly dominating in terms of the money, but
Speaker 1: you know, do you have any sense that there's uh
Speaker 1: that these projects are going to be designed hand in
Speaker 1: hand with the countries that actually need this infrastructure. Well, absolutely,
Speaker 1: I mean they're trying to instill and get some goodwill
Speaker 1: from these countries that need investment. A lot of these
Speaker 1: countries are are nearing default or they've have serious current
Speaker 1: account deficits. Look at Pakistan, as I mentioned there before. Uh,
Speaker 1: you know, they're on the verge of potentially getting an
Speaker 1: IMF bail out. There's fears that if they do get
Speaker 1: an i MF bailout, that money could be used to
Speaker 1: pay back its SEPACK debt. SEPACK is the China Pakistan
Speaker 1: Economic Corridor. Basically the new Prime Minister Mr. Kahan, you know,
Speaker 1: he is trying to create jobs, create uh investment. But
Speaker 1: the problem is is if you look at Guadar, one
Speaker 1: of the ports there, it is dominated by the Chinese.
Speaker 1: And that's one of the biggest struggles. A lot of
Speaker 1: these countries that take the loans at China's conditions, Uh,
Speaker 1: they take China's investment, they take Chinese workers, and what
Speaker 1: do the local governments get other than perhaps a port
Speaker 1: or a facility that eventually will be handed back to
Speaker 1: China because China, the local governments cannot pay. We've seen
Speaker 1: that in Sri Lanka, they've had to hand over a
Speaker 1: majority control all of this newly developed port to a
Speaker 1: Chinese state on enterprise to ease part of the burden,
Speaker 1: that debt burden that they've seen to China. And we
Speaker 1: want to go into details of that if you want.
Speaker 1: One of the one of the other statistics that comes
Speaker 1: out of this report that really struck me was that
Speaker 1: out of the seventy or so countries apparently that have
Speaker 1: signed up, seven percent the sovereign debt is ray to junk.
Speaker 1: So you know, there is this this this debt trap issue.
Speaker 1: But also I mean, considering that China has got potential
Speaker 1: debt problems at home, it seems as if China sort
Speaker 1: of like has the risk of importing debt problems by
Speaker 1: investing in these projects, it could potentially dodgy. Right, yeah,
Speaker 1: well that is a concern as well. With a growing
Speaker 1: escalating trade tensions with the United States, simultaneously with the
Speaker 1: crackdown on over leveraging in China, does it force China
Speaker 1: to scale back its risk appetite in these developing countries.
Speaker 1: I mean I keep on bringing up various examples, but
Speaker 1: take for example, Djibouti in Africa. China has provided one
Speaker 1: point for billion dollars in infrastructure funding about seventy Djibouti's
Speaker 1: g d P. Most of that came in the form
Speaker 1: of loans from the Export Import Bank of China. The
Speaker 1: fears though this will end up like uh in Sri Lanka,
Speaker 1: that China will gain control of the Dorala counter terminal
Speaker 1: container jominal excuse me, and then also Humbug total Port
Speaker 1: in Sri Lanka, and then Guadar in Pakistan. It's we're
Speaker 1: talking about a string of pearls that China is investing in,
Speaker 1: and many of them happen to be strategic deep water ports. Well,
Speaker 1: I mean, Jibouty is actually a new Chinese base, right, Um,
Speaker 1: so I suppose there's the risk that they're going to
Speaker 1: turn Guadar and maybe the port in Sri Lanka into
Speaker 1: a base. We don't know that that's not going to happen. Well,
Speaker 1: they say Guadar, which is in I believe what western Pakistan,
Speaker 1: and it's it's pretty much out in the middle of
Speaker 1: no war. But it's a deep water port and it's
Speaker 1: primarily a Chinese town right now. And we talked about
Speaker 1: uh Khan talking about building or creating what ten thousand
Speaker 1: or ten million new jobs excuse me, over the first
Speaker 1: hundred days of of being in office. Let me get
Speaker 1: those numbers exactly right. He's talked about creating, yes, ten
Speaker 1: million new jobs in the first hundred days in office.
Speaker 1: But one of the biggest complaints coming out of Guadar
Speaker 1: is if you look around, you see more Chinese security
Speaker 1: agents and security soldiers and police protecting Guadart, their investment
Speaker 1: and their reports basically that they've invested in from what
Speaker 1: they say is potential terrorism threats uh and and and
Speaker 1: various other problems and people they're saying, it's become a
Speaker 1: little bit of a little China. Steve, I just want
Speaker 1: to end with with with with a little chat about
Speaker 1: what you think UM b r IY is going because
Speaker 1: in the first five years, and let's face it, it's
Speaker 1: a pretty short period of time since it was us
Speaker 1: pronouncing that speech by ping Um, we've seen a lot
Speaker 1: of projects have been labeled b r I. But I
Speaker 1: suppose now we're going to see, you know, projects which
Speaker 1: are specifically b r I. There might be more you know,
Speaker 1: the the the the the lending covenants around those projects
Speaker 1: might be more commercial. Where do you see the project
Speaker 1: going over the next say, the next five years or beyond.
Speaker 1: What's interesting for Chinese companies if you want to look
Speaker 1: at it from that perspective, is there have been a
Speaker 1: lot of capital controls over the last couple of years
Speaker 1: that Chinese companies have had to stringently abide by because
Speaker 1: of the protection of the REM and B. But if
Speaker 1: you somehow make a business case that your company is
Speaker 1: investing or part of the Belton Road, Uh, you can
Speaker 1: sort of get around a lot of those rules. Uh.
Speaker 1: It's interesting, Michael, every of Rubble Bank, he says, being
Speaker 1: tied to Belton Road is like, you know, is a
Speaker 1: political special Saucy says, if you drizzle it on anything,
Speaker 1: it tastes better. So so again, this is really being
Speaker 1: driven by Siejin Ping. Keep in mind Siejun Ping has
Speaker 1: had the constitution changed. He is now a leader, uh,
Speaker 1: potentially for life. This is his calling card project and
Speaker 1: he is going to undoubtedly push this forward and try
Speaker 1: to make it a success. Already, China signed a hundred
Speaker 1: and eighteen cooperation agreements with a hundred and three countries
Speaker 1: and international organizations. Uh, they've built a number of or
Speaker 1: in the process of building a number of high speed
Speaker 1: railways or regular railways. But keep in mind as well,
Speaker 1: there's been pushed back Maha to Mohammed went to Beijing,
Speaker 1: the new old new slash old Prime Minister of Malaysia
Speaker 1: basically went to Beijing and instead of cow towing and
Speaker 1: talking nice, he said, listen, China, this is turning out
Speaker 1: to be a new form of colonialism. And you know what,
Speaker 1: We're gonna scrap that twenty billion dollar high speed railway project.
Speaker 1: We don't necessarily need to be beholden to the Chinese.
Speaker 1: We want to employ Mala Malaysians on these projects, not
Speaker 1: bringing imported labor from China. Steve hold that thought because
Speaker 1: episode two of the program is going to take us
Speaker 1: to India with Slender Ammon and she's Windyer is one
Speaker 1: of the big skeptics when it comes to Belton Road.
Speaker 1: She's also going to go to Thailand and Kazakhstan. Um
Speaker 1: Richard Saloma in the third episode is going to have
Speaker 1: a look at East Africa and particular in particular Kenya.
Speaker 1: And then finally Tom McKenzie, who's our Aijing correspondent will
Speaker 1: be in Europe and he's going to talk to to
Speaker 1: the Europeans about their concerns and also what they think
Speaker 1: about the project in general. So there's a lot coming up. Steve,
Speaker 1: thank you very much indeed for speaking to me. I'm
Speaker 1: David Tweed. This has been the first in our podcast
Speaker 1: about our new Belton Road series. You can actually catch
Speaker 1: up and see a little bit more about this with
Speaker 1: some stories, and also the series are on a Bloomberg
Speaker 1: dot com. I just looked at Belton Road m