One of the main factors driving the OBOR (One Belt One Road) effort is the slowdown in China’s own economy. The Communist Party is striving to transition away from growth led by investment and exports to development led by domestic consumer demand and services, and to keep growth at more sustainable levels than in the past. The government set a growth target of 6.5% in 2017 at the National People Congress in March, down from a 2016 target of 6.5% to 7%. In a sense, China is seeking to export the investment-led part of its economy, to help its own overbuilt heavy industries and provinces.
It will take a decade or more for the OBOR projects and construction to scale up to hundreds of billions of dollars per year where it will be a significant share of the business for major Chinese companies.
Compared to the size of China’s steel industry or other industries, it would take a very long time for demand from the projects to be big enough to make a difference, he says. “Many of the projects are far away from China, and some types of steel are worth transporting but not all kinds of steel. It would not help reduce excess capacity of cement because it is not economically viable to transport cement over such long distances,” Kuijs says. Bottelier, also, sees overcapacity as only a marginal factor in the OBOR plan.
Already, more than US$900 billion in projects are planned or underway, Fitch Ratings says in a report titled “China’s One Belt and One Road Initiative Brings Risks.” It says most funding will likely come from China’s policy banks, the Export and Import Bank of China, China Development Bank and its largest commercial banks. “We estimate that outstanding loans from Chinese banks total US$1.2 trillion, and a large portion of that has financed infrastructure projects involving Chinese state-owned enterprises,” the report says. China also has other major financial resources such as its sovereign wealth fund and foreign exchange reserves.
One project that got a head start was construction of a railway link from the port of Piraeus in Greece to Eastern Europe. Piraeus is a gateway to Europe for Chinese products, and major Chinese companies have been using the port to enter the European market. China, through its China Ocean Shipping Company, bought a 67% stake in the port’s Pier I from the Piraeus Port Authority SA in January 2016.
The Japan and U.S.-led Asian Development Bank says infrastructure development in Asia and the Pacific will exceed $22.6 trillion through 2030, or $1.5 trillion per year. In a recent report, “Meeting Asia’s Infrastructure Needs” issued in February, the estimate rises to more than $26 trillion, or $1.7 trillion a year when costs for climate change adaptation and mitigation are included. “This is a grand vision, and it may take a decade, but there is no rush. You cannot really put any number on the total investment,” says Rajiv Biswas, Singapore-based Asia-Pacific chief economist at IHS Global Insight.
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