November 23, 2016ASEANAsiaAsian BalanceChinaEconomyForeign AffairsgeoeconomicsIndo-PacificOBOR

On OBORs commercially suspect projects

Win-win, for China. Analysts have observed that many projects that China is financing and building under Xi Jinping’s One Belt One Road (OBOR) initiative are commercially dubious. People whose job it is to worry about such things have have surmised that the real motivation might be military-strategic in nature.

This is an archived blog post from The Acorn.

There is another — less sinister, but non-mutually-exclusive — explanation. Fitch’s Kalai Pillay says that the real motivation is exporting China’s excess construction capacity that is accompanied by financing from Chinese state-led enterprises.”

A lot of the big construction companies in China have bulked themselves up significantly over the last 10 years to carry out the big infrastructure projects in China. As many of these come to the tail end they have this excess capacity, the know-how, the real technical knowledge, a lot of patented technology that can be sold abroad, that needs to be exported abroad,” Pillay says.

He adds that there may be little room for non-Chinese banks and institutions to play a role in financing OBOR infrastructure projects. The final leg to this is the capital. There is excess capital which finds itself into all kinds of things, international bond markets, the spread market wherever. But one way to export it also is through financing projects that’s going to take place outside of China. So that’s part of that OBOR strategy,” Pillay says. [The Asset]

In other words, China is providing cheap loans to regional countries to build infrastructure — that might not be commercially viable — using Chinese construction companies. If the projects take off, China benefits. If they don’t, then regional governments will be stuck with debts to the Chinese government. Not bad. For Beijing, that is.

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