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Assessing the
Economic Impact
of Chinas
New Silk Road
INSIDE
Chinas Modern Marco Polos Bring No Novelties Westward
Mapping Chinas One Belt, One Road Ambitions
Chinas Road to Africa Closes Infrastructure Gap, Adds Debt Risk
One Belt, One Road Wont Move Dial on 2015 Growth: Simpfendorfer
Chinese Steel Capacity May Go West
Asean and Central Asian Cement Markets Show Promise of Growth
Improved Infrastructure to Streamline Shipping for Exporters
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Jun-14
Aug-14
Source: Bloomberg
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ately and exclusively on made-in-China products, they wouldnt bring all the blast furnaces
and cement kilns back to life.
Looking longer term, the potential demand
is enormous. The Asian Development Bank
estimates infrastructure needs for the region
at $750 billion a year through 2020. Chinas
policy banks could put substantially more
funds to work than the $40 billion available
from the Silk Road Fund. Even so, difficult
negotiations with host countries on which
projects are priorities and whose national
firms win construction contracts mean Asias
infrastructure needs are unlikely to solve Chinas overcapacity problems.
Enhancing trade links has the potential to
make a lasting impact. The area covered by
the One Belt, One Road initiative includes
about 50 percent of the worlds GDP and
roughly the same share of global trade. Reduced transport costs should increase trade
flows, bringing the benefits of greater competition and efficiency that come with it.
The trouble is that while Marco Polo returned from China with his bag stuffed with
oriental novelties, Chinese goods are already
old news for customers on the new Silk Road.
China is the top trade partner for close to half
of the countries on the route. That doesnt
mean there isnt scope to do more. It does
mean the benefits from increased trade will
likely come as a slow burn, not a quick blast.
Finally, with all the roads in the region leading to the Middle Kingdom, and many of them
paid for with their checkbook, Chinas leaders
hope that they will gain enhanced strategic
influence. In that sense, One Belt, One Road
falls under the same heading as the Asian
Infrastructure Investment Bank and island
building in the South China Sea.
All represent Chinas attempt to expand its
influence over everything from shipping routes
for crucial oil imports to decision making in
the global financial system. How that plays out
remains to be seen. Strategic influence comes
with economic weight if One Belt, One Road
and the governments other efforts dont reverse the deceleration in Chinas growth, its
strategic ambitions could be tough to realize.
2015 Bloomberg LP. All rights reserved. These commentaries were originally published in the Bloomberg Brief: Economics Asia and on the Bloomberg Economics wire.
For more analysis and data, run BI ECON <GO> on the Bloomberg Professional Service. Take a trial to the Briefs at www.bloombergbriefs.com or run BRIEF<GO>.
Mapping
MappingChina's
Chinas
One
One
Road
Ambitions
OneBelt,
Belt,
One
Road
Ambitions
The One Belt, One Road initiative ends where Marco
Polo's original Silk Road journey began in Europe.
Sclerotic growth has made Europe receptive to
Chinese investment.
2.4 2.2
14.5
East Europe
(excluding EU members)
European Union
1.3 0.4
7.4 5.4
Central Asia
12.8
South &
Southeast Asia
Source: Bloomberg
7.6
BloombergBriefs.com
Chinas One Belt, One Road initiative promises to expand an already active engagement with Africa.
Chinas deep pockets and dearth of natural resources and Africas mineral reserves and infrastructure
needs make a compelling combination. Yet the misuse of increased fiscal space by some African states
means Chinas investment adds to debt risks.
Its the ability of Chinese firms to bring
financing to the table thats often been the
deal-clincher. The bulk of investments are
spearheaded by state-owned enterprises,
with preferential financing supplied by the
China Development Bank and Export Import
Bank of China. The stock of Chinese investment in Africa has more than tripled to $26
billion in 2013 from $7 billion in 2008. Chinas
credit line to Africa is expected to expand
substantially from the current $20 billion.
For African nations, the headline benefits
are clear. The World Bank says Africa needs
$93 billion in infrastructure spending a year.
Chinese investment, coming at a time when
many western donors and businesses are
retreating, helps build the roads, rails and
ports needed to kick-start development. It also frees up domestic resources for spending
on other priorities like health and education.
Improved infrastructure has facilitated
a boom in trade, underpinned by Africas
Trade Balance
120
100
$ Billion
80
60
40
20
0
-20
-40
Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14
Source: Bloomberg
BloombergBriefs.com
VISIT:
BI ECON
<GO>
SPECIAL ISSUE
GLOBAL GROWTH
How Strong Is the Engine?
Read it here.
http://bit.ly/globalgrowth2015
The large-scale investments needed to build the One Belt, One Road plan
will boost demand for steel and encourage a shift in Chinas production
capacity to western countries as it becomes easier to bring in raw materials.
Meeting all of Asias demand for railways,
pipelines, power stations and other projects
may generate demand for 272 million tons of
steel through 2020, according to Bloomberg
Intelligence estimates. If the program is fully funded and rapidly put in place over five
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BloombergBriefs.com
Sub-Saharan Africa
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Chinas cement companies that plan to expand to Asean and Central Asia should see
long-term benefits from the enormous cement demand that is set to be generated by
the One Belt, One Road initiative. The current capacity of these regions totals about 290
million tons, equivalent to about 10 percent of Chinas total and 70 percent of that for its
largest cement producer, China National Building Materials.
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Kilograms
BloombergBriefs.com
SPECIAL ISSUE
CHINAS SMOG
Clearing Skies Without Killing Growth
Read it here.
http://bit.ly/BBGChinaSmog
BRIEF
Improved Infrastructure to
Streamline Shipping for Exporters
BY JOHN MATHAI, BLOOMBERG INTELLIGENCE ANALYST Originally published on June 29.
The One Belt, One Road program could boost shipping and cargo demand as planned
infrastructure investments improve ports that dot the silk route. Some of these ports are
currently constrained by depth restrictions and lack equipment capacity to handle the
trend of increasingly large ships. Investments in port, rail and road infrastructure might
boost cargo volumes and provide shippers more options for carrying freight.
As land access opens up, exporters will
have the choice to optimize the various
modes of shipping via air, sea, road and
rail or use a modal mix. Freight movement
by road may grow, especially as exporters may increasingly use combinations of
air-and-road or rail-and-road to optimize
supply chains.
Rail between China and Europe currently takes 20-to-25 days, while sea freight
takes double that time. Implementation of
infrastructure projects related to OBOR
may shorten lead times as high-speed
rail begins to replace multiple rail gauges
and as customs clearance procedures are
streamlined.
In January of this year, China started
the Transports Internationaux Routiers, also known as the International Road Transport, accession process. If implemented,
it will enable goods to transit from origin
to destination by road in sealed load compartments. The shipments would be able to
Time (Days)
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8
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2
0
Cost (USD/Unit)
30
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20
15
10
5
0
Ocean
Rail*
Sea-Air
Air
BloombergBriefs.com
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