Belt and Road: Why Trump is key to turning on flow of capital

Tepid interest from private investors is holding back China's infrastructure push. Bringing the US in is vital – and one expert believes the commander-in-chief can be won over.
Photo provided by host
Photo provided by host

US President Donald Trump's support can unlock the trillions of dollars of international capital that will make China's Belt and Road Initiative a success, a leading expert on Sino-US relations says.

And while the idea of Trump putting his China-bashing into reverse in support of a global infrastructure push may sound far-fetched, Professor Jin Canrong says having a businessman in the White House boosts the likelihood of a change of policy from Washington.

“At the moment, the Belt and Road Initiative is largely financed by Chinese government money … and it’s not enough,” Jin said last week.

Jin, as associate dean at the School of International Studies at Renmin University, was speaking to FinanceAsia on the sidelines of the 21st Century Maritime Silk Road Forum in Zhuhai. While the event was largely an opportunity for government officials and corporate executives in Guangdong province to talk up their contribution to the national initiative, Jin sounded a note of caution.

International capital is still quite hesitant towards participating in Belt and Road,” he told a panel discussion.

Speaking to FinanceAsia, he pointed to the $40 billion Silk Road Fund, set up by the central government in 2014. The “Silk Road Fund is calling for social capital at home, but it’s not going that well,” Jin said.

Additionally, the US had cautioned China not to turn the Beijing-led Asian Infrastructure Investment Bank (AIIB) into an ATM for Belt and Road, according to Jin. As a result, AIIB has been “a bit timid” about offering generous loans and is still largely investing alongside the World Bank, Jin said.

That's why Jin believes a change of approach from the US – whose opposition to Belt and Road dates back to the Barack Obama administration – can unlock international investment.

“Once the US is in, international capital will feel more comfortable,” Jin said.

“The Ministry of Foreign Affairs has been lobbying the US to join, and with [Donald] Trump in office, the likelihood should be better than expected,” he added.

Jin didn't specify what form international investment could take if Trump's stance changed, but loans from multi-jurisdiction lenders like the AIIB or the World Bank or direct investment from foreign funds are possible.

The academic believes Trump's recent visit to China was a step towards a softer line on China. But Jin acknowledged the US president's difficulties at home could get in the way.

“President Xi likes Trump and that he’s a businessman…the $253 billion trade contracts signed with the US recently has made Trump soften his tone towards China.”

“He [Trump] had made two verbal promises: considering joining Belt and Road, and loosen some current restrictions on high-end technology exports” from the US to China, said Jin. “Whether he can keep the promise … also considering [whether he can keep] his leadership in the US, is another thing."

Talking up Guangdong

Other speakers at the conference were keen to talk up progress on Belt and Road and, in particular, Guangdong's role in it. As one guest speaker, a former foreign diplomat who is now his country's representative in the Asia-Pacific region, told FinanceAsia after the summit, it was a great opportunity for leaders of the local private and public sectors to talk up their support for President Xi's signature initiative.

As the established trade and manufacturing hub for the world's second biggest economy, the southern province is arguably the most proactive regional supporter of the initiative.

Guangdong’s trade with Belt and Road countries totaled $199.56 billion last year, some 20.9% of the national total, Zheng Yanxiong, executive deputy director of the Publicity Department of CPC Guangdong Provincial Committee, told the conference.

He Yafei, a former vice-minister of foreign affairs, told the forum Guangdong should further its opening up and accelerate the execution of the Greater Bay Area initiative, a government scheme to link nine Guangdong cities and the special administrative regions of Hong Kong and Macau.

China projects GDP in the Greater Bay Area - which is the nation's answer to Silicon Valley - to reach $4.62 trillion by 2030 from $1.38 trillion in 2016, which will surpass the Tokyo, New York and San Francisco metropolitan regions.

To put money to work, the provincial government sponsored a Guangdong Silk Road fund, which has raised Rmb20 billion ($3 billion) in its first phase, according to Zheng.

Local goes global

And Guangdong is not alone. From the central administration to local governments, policy funds worth billions in size are springing up to finance Belt and Road work, a stark contrast to the lack of enthusiasm from private sector or international capital.

The national Silk Road Fund kicked it off in 2014. Then there was National Advanced Manufacturing Investment Fund in 2016, backed by China’s top policymaker, the National Development and Reform Commission, and focused on industries including rail transportation, high-end shipping and marine engineering equipment with an Rmb20 billion war chest in its first phase.

In 2017, Henan province, located in Central China, launched a Rmb20 billion Zhongyuan Silk Road Fund, a fund of funds to support airport construction and logistics.

To offer more Belt and Road insights, FinanceAsia is hosting its first Belt and Road Connected: Invest Philippines conference in Manila on January 30. For more information, contact Andrew Wright on +852 31751926 or via email.

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