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RWR Advisory: Belt and Road at a Glance

This edition covers developments from March 12 - March 26.. 

Belt and Road at a Glance
 

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Top Developments

China National Machinery Industry Corporation, commonly known as Sinomach, has agreed to build a $845 million, 255-mile railway across Iran, building upon a sustained period of growth for Chinese investment in Iran that accelerated after Xi Jinping’s state visit to the country in January 2016. The railway will link the cities of Tehran, Hamedan and Sanandaj. China Civil Engineering Construction, a subsidiary of CRCC, is currently also building a 263-km railway line from Kermanshah to Khosravi. According to Chinese entrepreneur Lin Zuoru, who owns factories in Iran, “Iran is at the center of everything.”On March 23, China’s Ministry of Commerce announced that foreign direct investment by Chinese companies in 50 Belt and Road countries fell by 30.9% year-on-year. While the Ministry stated that this number covers investment across all industries, it did not specify the precise countries covered. In another year-end performance statistic, the Ministry of Commerce found that year-on-year activity was down 1.9% across 59 Belt and Road countries. Confusion over definitions for Belt and Road and the basis for these sorts of official statistics is further highlighted by Chinese state media, which hasstated that the number of Belt and Road countries has risen to 69. While this makes quantifying Chinese Belt and Road performance difficult, RWR’s data corroborates the general trend put forward, showing that overall investment fell 24.5% from year-end 2016 to year-end 2017.In a sign of a readjusted policy towards Central and Eastern Europe, Chinese Foreign Minister Wang Yi called the Visegrad countries – SlovakiaHungary,Czech Republic, and Poland – “the most dynamic force within the EU.” Thiscomment comes as some have observed a reassessment by China of the importance it has given to its “16+1” China-Central and Eastern Europe summits, where a commitment was essentially being made to all 16 countries comprising this region. Chinese projects, however, continue in these countries: on March 13, China’s Zijin Mining Group expressed interest in entering a strategic partnership with the Serbian government to invest $100 million in copper mining RTB Bor, which is undergoing a restructuring process to write-off debt.Ties between Russia and China appear to be strengthening, with Foreign Minister Wang Yi’s upcoming March 27-28 visit to Moscow expected to accelerate planning for President Putin’s state visit to China, which is anticipated to coincide with the June 2018 Shanghai Cooperation Meeting in Qingdao. In this context, on March 12, China National Nuclear Corporation became the first foreign investor in Russia’s uranium mining industry aftersigning an agreement with the Russia-China Investment Fund for Regional Development and Rosatom subsidiaries ARMZ Uranium and Priargunsky Industrial Mining and Chemical Union to develop a uranium mining project in Siberia. However, it is not full steam ahead: there is much to be sorted out regarding CEFC’s pending acquisition of a 14% stake in Rosneft and some strain in relations over the surprise fall from grace of the Chinese energy giant and its chairman, Ye Jianming.Chinese investment in the UAE saw two major steps forward. On March 22, China National Petroleum Corporation (CNPC) agreed to a $1.18 billion deal for stakes in the Umm Shaif Nasr and Lower Zakum oil and natural gas concessions, adding to its 8% stake in an onshore oil concession acquired in February 2017. Then, on March 24, the China Council for the Promotion of International Trade signed an MoU with Abu Dhabi Ports, the administrator of the UAE’s Khalifa Port, to strengthen the two countries’ trade relationship. The agreement also encouraged Chinese investment in the Khalifa Industrial Zone (KIZAD) and Khalifa Port Free Trade Zone (KPFTZ). China-UAE Industrial Capacity Cooperation Construction Management already has a 50-year agreement with Abu Dhabi Ports to develop 23.7 million sq. ft. of KIZAD. COSCO Shipping Ports has a 35-year concession agreement with Abu Dhabi Ports as well, and is currently building the $700 million container terminal at Khalifa Port.The Export-Import Bank of China approved two major loans in recent weeks. It will fund China Water Electric's construction of the 450MW Souapiti hydroelectric plant in Guinea, which it initially agreed to finance over a decade ago, before political instability in Guinea stalled the project. The bank also agreed on March 13 to provide $300 million in financing for the development of an agribusiness services center in Myanmar, as part of an effort to provide the country with precision technology and technical assistance.Reports emerged on March 23 that Vietnam had halted an oil drilling project off its southeastern coast. The project is located at the “Red Emperor,” which is part of the 07/03 block in the Nam Con Son basin, 440 km from Vung Tau and close to China’s contested "nine-dash line.” Spanish energy firm Repsol, which has the license to the block, is now at risk of losing $200 million that they had already invested in the project. Reports suggest that the work was halted to avoid confrontation with China. In July 2017, Repsol was also ordered by the Vietnamese government to halt its development drilling work on Block 136/03, which is adjacent to “Red Emperor.” This decision was allegedly made after Vietnamese outposts were threatened by the Xi administration. This means that twice in the past twelve months the Chinese government has pressured Vietnam to put two major drilling projects on hold.On March 15, Chilean financial regulator SVS approved China Southern Power Grid (CSG)'s $1.3 billion acquisition of a 27.7% stake in Transelec SA. The purchase is significant as Transelec SA operates approximately 10,000 km of electricity transmission lines throughout Chile and is said to control around 85% of the Chilean market. The State Grid Corporation of China had also participated in the tender process, but withdrew before the end of 2017, when CSG won preliminary approval. The final stake was 2.3% less than the initial bid considered by State Grid and CSG, and may have been reduced in order to gain regulatory approval. The regulatory approval comes two months after the January 2018 China-CELAC Forum, which was held in Santiago, and may signal warming ties between Chile and China. At the forum, China claimed that Latin America was “eager” to join the Belt and Road Initiative.Data from IntelTrak, March 12 - March 26.Subscribe to Inteltrak

What They're Saying

ROBERT DALY, DIRECTOR OF THE KISSINGER INSTITUTE ON CHINA AND THE U.S.
WOODROW WILSON INTERNATIONAL CENTER FOR SCHOLARS
Foreign Policy report on Eurasian perspectives on Belt and Road

"We found an eagerness to participate in projects that support national development, but deep resistance to any westward or northern expansion of China’s practices, ideas, or population…neither [Russia nor Kazakhstan] hopes that China’s power will increase with its investments."

MIAO WEI (苗圩)
CHINESE MINISTER OF INDUSTRY AND INFORMATION TECHNOLOGY
Speaking at the China Development High-Level Forum on Made in China

"More and more countries have been responsive to the Belt and Road Initiative. We absolutely will not export excess production capacity abroad. This is China’s bottom line. In regards to excess iron and steel production capacity, we will destroy the equipment and factories to fulfill this objective."

JOHN HURLEY, VISITING POLICY FELLOW
SCOTT, MORRIS, SENIOR FELLOW
CENTER FOR GLOBAL DEVELOPMENT
Report examining debt implications of Belt and Road

"If the [Belt and Road] initiative follows Chinese practices to date for infrastructure financing, which often entail lending to sovereign borrowers, then BRI raises the risk of debt distress in some borrower countries. We conclude that eight countries are at particular risk of debt distress based on an identified pipeline of project lending associated with BRI."


By the Numbers

Data from RWR's IntelTrak tool

Data from RWR's IntelTrak tool

Domestic Developments

Policy Guidance

March 17: Under the 19th Party Central Committee’s State Institutional Reform Plan, the China Banking Regulatory Commission (CBRC) and the China Insurance Regulatory Commission (CIRC) will merge. Their functions drafting key regulations will be moved to the People’s Bank of China (PBOC), which will take on the role of monetary policymaker in addition to its existing role as policy advisor.March 17: Also under the new Reform Plan, the newly-formed National Agency for International Development and Cooperation (SAIDC) will integrate the foreign aid functions of the Ministry of Commerce and the Ministry of Foreign Affairs. This change is designed to create one entity responsible for formulating the strategic guidelines and policies driving China’s foreign assistance programs as well as supervising and assessing their implementation. Ensuring the success of the country’s Belt and Road projects is considered within the merged entity’s mandate.March 21: People’s Bank of China (PBOC) released new rules on market access and supervision for foreign third-party e-payment companies, in an effort to open up China’s payment service market and introduce competition as well as to standardize the treatment of domestic and foreign capital. According to the rules, overseas non-financial institutions providing e-payment services for domestic Chinese transactions (or cross-border transactions with Chinese entities) will be required to establish foreign-invested enterprises in China, in accordance with PBOC regulatory requirements. The foreign-invested enterprises will also be required to store and process all personal and financial client information in China.

Regional Developments

ASEAN

March 13: China’s CITIC Construction signed an agreement with the MyanmarRice Federation (MRF) and Myanmar Agribusiness Public Corporation (MAPCO) to jointly develop a $300 million Agribusiness Services Center. The project will be financed primarily with a loan from the Export-Import Bank of China, and implemented in 33 townships across Myanmar to provide precision technology and technical assistance for the improvement of post-harvest conditions.March 15: China’s Alibaba Cloud launched its first data center in Indonesia, offering the country its first global cloud platform. The data center features a big data facility, networking and security services, and products for small-and-medium enterprises (SMEs).March 16: The Southeast Asia-Japan 2 consortium (SJC2) signed an agreement with Japan’s NEC Corporation to build a high-performance cable that complements the existing SJC cable. The new 10,500-km cable will link 11 landing stations across SingaporeThailandCambodiaVietnamHong KongTaiwan, China, Korea, and Japan. SJC2 companies include China Mobile International (CMI), Cambodia’s Chuan Wei, Taiwan’s Chunghwa Telecom, Japan’s KDDI, and Singapore Telecommunications (Singtel). Facebook will also play a role in backing the project.

South Asia

March 12: China's CECEP Solar Energy Technology (Zhenjiang) received a contract to supply modules for the Chennai 35MW centralized power plant inIndia. The plant will be developed by Indian contractors.March 13: Alibaba’s affiliate, Ant Financial Services Group, signed a strategic partnership agreement with Pakistan’s Telenor Group to acquire a 45% stake in Telenor Microfinance Bank (TMB) for $184.5 million. TMB launched Easypaisa, Pakistan’s first and largest digital financial services platform, in 2009. Ant Financial plans to help develop Easypaisa’s mobile payment service using Alipay technology.March 15: China Machinery Engineering Corporation (CMEC) signed a shareholders agreement with Pakistan’s Hub Power Company (Hubco) and Fauji Fertilizer Company (FFC) to jointly build a 330MW coal-fired power project in Thar under a special purpose company, Thar Energy Limited. The agreement, which is under the CPEC framework, is subject to corporate and regulatory approvals.March 15: China’s Chongqing Water Turbine Works (CWTW) signed an engineering, procurement, construction, and financing (EPCF) contract withNepal’s Peoples Energy Public Limited (PEPL) to develop the 48.8MW Khimti-2 hydropower station project. CWTW will also provide $88 million in financing.March 20: China National Technical Import and Export Corporation (CNTIC) and the China National Corporation for Overseas Economic Cooperation (CCOEC) were awarded an engineering, procurement, and construction (EPC) contract by Bangladesh’s Ashuganj Power Station Company Limited (APSCL) for the construction of a 420MW coal-fired power plant.

Middle East and North Africa

March 12: China National Heavy Industry Corporation (Sinomach) signed a cooperation agreement with the government of Iran to build a 470-km railway connecting Tehran, Hamadan, and Sanandaj. Sinomach will serve as the engineering, procurement, and construction (EPC) contractor for the project.March 18: China State Construction Engineering Corporation (CSCEC) announced that Chinese banks will extend a $2.5 billion loan to financeconstruction of the Central Business District (CBD) in Egypt’s new administrative capital. Egypt’s Ministry of Housing, Utilities, and Urban Development will be responsible for the remaining $500 million, backed by a sovereign repayment guarantee. CSCEC will build residential buildings, hotels, business complexes, and a skyscraper for the CBD.March 22: China National Petroleum Corporation (CNPC) signed an agreementwith Abu Dhabi National Oil Company (Adnoc) to take a 10% stake in theUAE’s Umm Shaif Nasr offshore oil concession and Lower Zakum concession. CNPC paid a total of $1.075 billion for the combined stakes. CNPC already holdsan 8% stake in Abu Dhabi’s onshore oil concession, operated by Adnoc Onshore, acquired last February.March 24: China Development Bank (CDB) and Morocco’s BMCE Bank of Africa (BOA) signed a memorandum of understanding to enhance bilateral trade and investment through infrastructure programs, car manufacturing, and technology parks. BOA plans to open a branch in Shanghai in the near future.March 24: Abu Dhabi Ports, administrator of the UAE’s Khalifa Port, signed a memorandum of understanding with the China Council for the Promotion of International Trade to strengthen the two countries’ trade relationship andencourage Chinese investment in the Khalifa Industrial Zone (KIZAD) and Khalifa Port Free Trade Zone (KPFTZ). The signing took place during KIZAD Business Week.March 25: China’s SAIC Motor is in talks with Egypt’s Ministry of Trade and Industry to build a car manufacturing factory that would serve as a hub for SAIC exports to regional countries that have free trade agreements with Egypt.

Sub-Saharan Africa

March 14: The Export-Import Bank of China approved a $1.3 billion loan to the government of Guinea to finance construction of the 450MW Souapiti hydroelectric plant, which is being built by China Water Electric (CWE). ExIm Bank had originally agreed to finance the project over a decade ago, but construction was stalled by political instability in Guinea.March 19: China’s State Nuclear Power Technology Corporation (SNPTC) and TBEA Shenyang Power Design Institute jointly won a bid to design the third phase of the TBEA Zambia power transmission project, which includes the 228-km Kasama-Nakonde overhead transmission line, 330kV Mporokoso substation, 330kV Kasama substation, and 400kV Nakonde substation. The completed project will allow Zambia to receive electricity during the dry season, and transport surplus power to Tanzania during the flood season.March 23: Five development agreements were signed during the president ofCameroon’s first state visit to China. These include an economic and technical cooperation agreement, a memorandum of understanding on human resources development, a protocol agreement to reinforce cooperation on infrastructural development, a capacity-building framework agreement on production, and a concessional loan agreement from the Export-Import Bank of China to finance the second phase of a water supply project in Cameroon. China also pledged to forgive an undisclosed amount of Cameroon’s debt. This is significant, as China indicated at the end of last year that bilateral relations were hindered by payment delays on project financing debt.

Europe

March 13: China’s Zijin Mining Group has expressed interest in entering a strategic partnership with the Serbian government to invest $100 million in copper mining company, Mining-Smelting Bor Basin (RTB Bor). RTB Bor is undergoing a restructuring process to write-off debt, and Serbia will launch a tender for the company’s privatization this spring.March 14: China Harbour Engineering Company (CHEC) won a $15.6 million bid to carry out dredging in two lots at the Chornomorsk seaport in Ukraine. CHEC previously completed another dredging project in Ukraine’s Odesa region at the Yuzhny seaport.March 16: Bulgaria’s energy minister announced that China National Nuclear Corporation (CNNC) submitted a letter of interest in financing the construction of Belene nuclear power plant in Bulgaria. Industrial and Commercial Bank of China (ICBC) has also indicated interest in providing project financing. The plant was originally initiated in 2008 with Rosatom subsidiary, Atomstroyexport, but was subsequently cancelled for a variety of reasons leading to controvery and dispute with Russia.March 20: China signed a $3.2 million grant agreement with Bosnia’s finance ministry, with the use of funds still reportedly to be determined by Bosnia’s Council of Ministers. The two countries are expected to sign another follow-on agreement shortly to define future cooperation on specific projects.March 23: Belgian grid operator Elia announced a decision to exercise its pre-emptive right to buy a 20% stake in Germany’s 50Hertz network operator for $1.2 billion, edging out State Grid Corporation of China (SGCC), which had made a play to take the ownership stake from Australian infrastructure fund IFM Investors. The SGCC bid was closely watched by German politicians, whoviewed the asset as having strategic significance. Elia, which operates in Belgium and Germany, will own 80% of 50Hertz after the acquisition is completed.

Russia and Eurasia

March 12: March 12: China National Nuclear Corporation (CNNC) became the first foreign investor in Russia's uranium mining industry after signing anagreement with the Russia-China Investment Fund for Regional Developmentand two Rosatom subsidiaries, ARMZ Uranium and Priargunsky Industrial Mining and Chemical Union (PIMCU). CNNC will invest $281 million and RCIF will invest $44 million to develop a uranium mining project in Siberia’s Zabaikalsky region.

Latin American and the Caribbean

March 15: China’s Southern Power Grid (CSG) received the necessary regulatory approvals for its $1.3 billion acquisition of Brookfield Infrastructure’s 27.7% stake in Chile’s Transelec. Transelec is Chile’s largest power transmission company.March 17: China agreed to provide Cuba with assistance worth $36 million to carry out six projects involving livestock, renewable energy, and hydraulic infrastructure. The package will include equipment for Cuba’s livestock recovery program, technological modernization assistance, raw materials for photovoltaic solar panels, and machinery for aqueducts. Chinese technicians will work with local experts to install necessary equipment and machinery.March 21: Huawei Technologies signed a partnership agreement with Spain’sTelefónica to provide “big data as-a-service” products over Telefónica’s cloud infrastructure in Latin America. The two companies will also establish a big data and analytic applications marketplace.March 22: Chinese companies and institutions, including Huawei, Wuhan Fiberhome International Technologies, Haier New Energy Company, and GRG Banking, showcased new technologies at Cuba’s 17th International Convention and Fair (Informática 2018).

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