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CPEC: beyond infrastructure

Recently, I came across a very interesting research undertaken by a private sector firm that ranked the 67 Belt and Road Initiative (BRI) countries to assess their attractiveness for investment and infrastructure. The research was based on publicly available data from the IMF, World Bank, UNDP and Transparency International.

On this Belt and Road Index, Pakistan was ranked the 11th least attractive country. The index was based on economic potential, demographic advantage, infrastructure development, institutional effectiveness, market accessibility and resilience to natural disasters. Out of the six parameters, Pakistan performed the worst on institutional effectiveness, with a score that was less than half of India’s and lowest within South Asia, surpassing only that of Afghanistan.

The results are not surprising and resonate rather well with data from other sources as well as with anecdotal evidence. A few weeks ago, I met an investor, who has set up a multi-million dollar manufacturing plant in Pakistan on an industrial plot in a government-sponsored industrial estate. To his dismay, the land title still is in the name of private individuals and despite knocking on various doors he has not had any luck in the last two years in transferring the title in his name, despite payment of all dues. In the meanwhile, his lenders are pushing for ownership record before he can access credit.

This is one of countless such examples. Investors keep on complaining about bureaucratic red tape, rent seeking by regulatory agencies and frequently changing policies leading to unforeseen costs.

About $46 billion worth of infrastructure projects have been committed under the China-Pakistan Economic Corridor (CPEC). These have to be completed within 10 years or so. For a country with $300 billion GDP, it translates into additional 1 to 1.5% of GDP every year and provides the much needed capital to build north-south highways to facilitate trade and construct power plants to help overcome years of load-shedding.

Infrastructure development and growth go hand in hand. Ensuring uninterrupted supply of energy, building state-of-the-art road, rail and transport infrastructure and providing reliable urban services pave the way for future investments and growth. If, however, the infrastructure stock is not maintained and new investments are not made at the requisite level, it may lead to power shortages and transmission losses, congested roads prolonging travel time and poor quality infrastructure services discouraging investors to relocate, thereby straining growth prospects.

But the real question is whether good infrastructure is sufficient to attract investment. As per World Economic Forum’s Global Competitiveness Index, the five most problematic factors for doing business in Pakistan are corruption, tax rates, government instability, crime and inefficient government bureaucracy. Availability of infrastructure comes way lower in the list. This means that without addressing these soft yet potent issues, no amount of investment in hard infrastructure can convince the investors to invest.

The stories of Rajapaksa Airport and Hambantota Port in Sri Lanka have been frequently quoted by critics of CPEC and BRI, as examples of misplaced priorities and building expensive infrastructure without demand. With ten times more population than Sri Lanka and a strategically located port, Pakistan does not face the same risk of low demand. If anything, the CPEC road infrastructure can provide a very busy transit and trade route in future. Its special economic zones can host manufacturers that wish to relocate closer to their markets and the power plants can provide energy for the new industries. This is where the real returns on CPEC have to be expected.

This however would require a lot of homework domestically in addressing the softer issues. Without an enabling business environment, Pakistan can never achieve the dream of prosperity that has been promised under CPEC. And this would require fixing governance. Sooner or later, we’ll have to realise that there are no shortcuts to reform.

SOURCE:https://tribune.com.pk/story/1738036/6-cpec-beyond-infrastructure/

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‘CPEC is not a gift’: Professor Jia Yu at the CPEC 2018 Summit

Pakistan should not take CPEC for granted, writes Dr. Jia Yu. Both public and private sectors must take ownership of the opportunities.

 

The economic relations between the two countries have been phenomenal, especially since the turn of the century. Early economic cooperation was based on political and security interests, like Karakoram Highway, nuclear capability, arms trade etc. Also, it was focussed on energy and mining, but there is now a need for diversification. Pakistan has to take advantage of China’s rise on the global scene. There is a tendency towards having even better economic relations based on market forces and there is a lot of under-exploited potentials.

When it comes to win-win cooperation, of course, there is a lot at stake for both countries. Pakistan’s interests lie in promoting growth, private sector investment, employment, exports, technology and transfer of skills as well as in the relocation of Chinese firms. China’s interests lie in overseas production bases, new export markets, energy cooperation, and its need for production capacity relocation.

A successful execution of CPEC will ensure economic progress and stability for both the countries, particularly along the border region.

The two countries signed the FTA in 2006 which came into effect a year later. The FTAs play a major role in the general tendency of increasing trade. Surprisingly, the trade has been relatively low compared to the other neighbors (India, Vietnam, Philippines etc.). And there is a large and widening trade imbalance that needs to be worked on.

There has been a considerable increase in FDI since 2014 which is a positive sign for both China and Pakistan. The main FDI sectors by priority are: power, construction, financial services, and communication. There is, however, very little FDI in the light manufacturing sector.

The Belt and Road Initiative (BRI) is a $900 billion investment, with finance channels targeting green development. It connects more than 60 countries, 60pc of the global population, 30pc of global GDP, and 35pc of global trade.

CPEC, a central link of BRI, cuts 10,000 miles of shipping by sea, and connects ports from Shanghai to Africa and Europe through Gwadar.

PAKISTAN AND CPEC

If things work out smoothly, Pakistan could use the FDI in its power and transport infrastructure and then in the manufacturing sector with the experience of leveraging SEZs to unlock this trio’s potential for rapid gains in job-rich industrialization. This can be done without unrealistic pre-requirements as the work to lay the foundations for industrialization has already begun.

The potentials are outlined below along with policy options needed to convert them into actions. At a regional level, Pakistan has been growing steadily in terms of GDP per capita since 2010, according to the World Bank. Investors are very keen to a growing economy. Consistent growth of purchasing power (GDP per capita) really matters for domestic consumption; therefore the growth rate must be maintained to catch up with competitors.

Pakistan is one of the world’s largest reservoirs of human capital and has a tremendous potential consumer base. In 2016, the country was home to 193,203,476 people, being the world’s 6th most populous country. World Economic Forum estimates that it will be among the top five populous countries in the world by 2060.

However, a large population is necessary but not sufficient to attract investors. The population has to be equipped with adequate skills to meet industrialization needs. An effort is also needed to attract global buyers.

Thirdly, China and Pakistan have long hailed each other as “all-weather friends”, or “iron brothers” as close as “lips and teeth” in the words of The Economist. There is already solid trust between the two countries, but the Pakistani officials need to visit China more often to convince the private investors for investment opportunities in Pakistan.

The CPEC will improve road, air, sea, and energy infrastructure. It will ensure land, sea and air security. It will enhance trade and investment facilitation and will establish free trade areas that meet high standards, maintain closer economic ties, and deepen political trust. Also, it will enhance cultural exchanges and promote mutual understanding, peace, and friendship between the people of the two countries.

Having said that, the CPEC should not be considered just a ‘gift’ from China, but the Pakistani government should also establish an FDI Advisory Board that shall promote the new image of the country. This includes visiting China more often and ensuring that investors understand the opportunities and benefits available under the CPEC.

Besides, according to the State Bank of Pakistan in November 2017, the country received net FDI worth $207 million out of which $206 million came from China. Potential investors pay significant attention to first movers, other Chinese investors may follow and eventually stay in Pakistan if the government helps the pioneers to be successful.

In terms of binding constraints, a study case of Malaysia estimates that FDI can effectively contribute to growth if it is at least 3.14pc of GDP. Pakistan should be able to compete. This requires overcoming the binding constraints by addressing security issues and risks, hard infrastructure challenges, especially SEZ-specific constraints like energy, roads to SEZs etc. Soft infrastructure challenges include corruption, rule of the law, coordination among institutions, inadequate capacity and cultural biases. Absorption capacity can be adjusted by setting yearly realistic targets of FDI amount.

There are six steps to identify the right industries, as narrated by Prof. Justin Lin. They include identifying countries with consistent growth, with GDP per capita three times as Pakistan’s or was at the same level as Pakistan 30 years ago.

Next comes investigating the existing private investment in those target industries and encourage its development by leasing the market regulations. Attracting global investors into the target industries which lack existing domestic private investment is the third step, followed by paying attention to new enterprises and supporting innovation in the target industries.

Establishing and developing SEZs to eliminate entering barriers, attracting foreign investment, and encouraging industrial cluster. And, finally, providing policy incentives for the first movers, including tax reduction, foreign exchange access, etc.

THE WAY FORWARD

Development can start from ‘low-hanging fruit’ through SEZs. The government should attract first movers to invest and help the pioneers succeed.

CPEC should not be taken for granted. A proactive and systematic approach is needed for attracting investors, together with strong market factors.

Despite long-term and solid trust at the government level, more mutual dialogues and exchanges need to be enhanced in the private sector. Let the peoples get to understand each other.

CPEC and SEZs are open for all investors, including those from other countries beyond China.

The writer is a professor at the Institute of New Structural Economics (INSE), Peking University, China.

SOURCE: https://www.dawn.com/news/1409721

 

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India refuses to endorse CPEC at SCO summit

India was the only country on Sunday not to endorse a high-profile Chinese project at the end of the 18th Shanghai Cooperation Organisation SCO summit in Qingdao even as Prime Minister Narendra Modi stressed that New Delhi’s priority was connectivity with the neighborhood and between the SCO countries.

All remaining seven members of the SCO summit bloc supported the China-Pakistan Economic Corridor (CPEC) project which is part of President Xi Jinping’s Belt and Road Initiative (BRI) – a multi-billion inter-continental connectivity mission. The 17-page joint Qingdao declaration said all other seven member countries had endorsed the project and agreed to work towards implementing it. India was not expected to endorse the BRI in the Qingdao declaration which was released soon after Prime Minister Narendra Modi speech at the plenary session.

The China-Pakistan Economic Corridor (CPEC) is one of the flagship projects of the BRI. India has stayed away from the BRI – the only SCO country to be opposed to it – saying the CPEC violates its territorial integrity.

Earlier on Sunday, Prime Minister Modi said India supports connectivity projects that are inclusive, transparent and respect territorial sovereignty.

Speaking at the plenary session of the summit, Modi said India’s priority was connectivity with the neighborhood and between the SCO summit countries in the region. “We have again reached a stage where physical and digital connectivity is changing the definition of geography. Therefore, connectivity with our neighborhood and in the SCO region is our priority,” he said and emphasized the need for inclusiveness and transparency in connectivity projects to be successful.

Published in Daily Times, June 11th 2018.

SOURCE: https://dailytimes.com.pk/252018/india-refuses-to-endorse-cpec-at-sco-summit/

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At SCO summit, India again says ‘no’ to Belt and Road

India on Sunday again said “no” to China’s Belt and Road project, while Prime Minister Narendra Modi and Pakistan President Mamnoon Hussain merely shook hands on the final day of the Shanghai Cooperation Organisation (SCO) Summit in Qingdao city.

India, which participated at the Chinese-led security bloc for the first time after being inducted into the grouping last year, did not figure in the list of rest of the member states endorsing Beijing’s Belt and Road initiative in the joint declaration.

 Earlier in the day, Modi made it clear that New Delhi was all for connectivity projects but could not compromise its sovereignty and territorial integrity.

India strongly opposes Beijing’s multi-billion dollar project, which aims to connect Asia with Europe through a network of roads, ports and sea lanes.

New Delhi’s objection is to the key artery of the project – the China-Pakistan Economic Corridor (CPEC), which goes through the Kashmir governed by Pakistan and claimed by India.

“We have again reached a stage where physical and digital connectivity is changing the definition of geography. Therefore, connectivity with our neighborhood and in the SCO region is our priority,” Modi said.

“We welcome any new connectivity project, which is inclusive, sustainable and transparent, and respects a country’s sovereignty and regional integrity,” he said at one of the sessions at the Summit.

This is one of the contentious issues between India and China but both seem to have decided not to let it affect other aspects of bilateral ties.

Like India, Pakistan also became a member of the SCO in 2017 and attended the event for the first time.

“It was noted that the SCO had asserted itself as a unique, influential and authoritative regional organization whose potential had grown remarkably following the accession of India and Pakistan,” the 17-page Qingdao declaration said.

With the inclusion of India and Pakistan, the grouping has expanded into an 8-member bloc. China, Russia, Kyrgyz Republic, Kazakhstan, Tajikistan and Uzbekistan are SCO’s other members.

Modi, who had bilaterals with Chinese President Xi Jinping and other leaders, just had a handshake with the Pakistan head of state.

The ties between the two countries have plummeted following attacks at Indian Army bases and continuing violence in Jammu and Kashmir.

The bloc vowed to fight terrorism.

“The SCO’s coordinated policy of waging an effective fight against challenges and threats to security remains unchanged. Practical interaction in this area will be facilitated by the adopted Programme of Cooperation between the SCO Member States in Opposing Terrorism, Separatism, and Extremism for 2019-21.”

During the summit, Modi and Xi had a “substantive” meeting on Saturday. India struck major deals like the export of rice and Indian pharmaceutical products to China.

The bilateral trade target of $100 billion by 2020 was another important announcement by both sides.

The Kyrgyz Republic will take over the Presidency of the organization. The next meeting of the Council of SCO Heads of State will be held in the Kyrgyz Republic in 2019.

SOURCE: http://m.greaterkashmir.com/news/world/at-sco-summit-india-again-says-no-to-belt-and-road/287805.html

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To avoid China’s debt trap, Malaysia to re-examine projects under Belt and Road Initiative

Malaysia is not keen to blindly go ahead with projects offered by China under its Belt and Road Initiative (BRI), the recently-elected Malaysian government has said. It also indicated that it would attempt to balance its relationship with Beijing and re-examine the projects that were earlier agreed to by the previous government.

The need to avoid the Chinese debt trap was a topic that was repeatedly underscored in the run-up to the elections in Malaysia by the Pakatan Harapan alliance and its leader and current Prime Minister, the 92-year-old Mahatir Mohamad.

“China comes with a lot of money and says you can borrow this money. But, you must think, ‘How do I repay?’ Some countries see only the project and not the payment part of it. That’s how they lose large chunks of their country. We don’t want that,” Mohamad said, reported news agency ANI.

 Mohamad’s newly formed government would take a look at the projects under the BRI that were agreed to by the previous government led by Najib Razak, Mohamad’s former protégé.

Malaysia is not the first country in which projects funded or built by China have come under the scanner when the government changed after an election. The same thing happened in Sri Lanka in 2015, when the new Maithripala Sirisena government cancelled some of the Chinese-backed projects that had been signed by the previous government of Mahinda Rajapakse.

The Sirisena dispensation, left to deal with the mounting debt because of the Chinese projects, found itself unable to repay the loans. In December 2017, the Sri Lankan government was forced to hand over control of the Hambantota Port to Chinese companies for a period 99 years.

Concerns have also been rising in Pakistan, which has placed its already-precarious economy under further strain of Chinese loans to continue its projects along the troubled China-Pakistan Economic Corridor (CPEC).

Mahatir Mohamad’s concerns seem to stem from the spate of agreements that were signed by the Najib government under Chinese President Xi Jinping’s pet Belt and Road Initiative. Among these was the $13.1 billion East Coast Rail Link (ECRL), which aims to link Malaysia’s more industrialised east coast with its less-developed western coast and interior highlands. will run from Port Klang, Malaysia’s main port near the capital Kuala Lumpur, to Tumpat on the border with Thailand, bisecting the peninsula’s hilly interior.

Other projects include a build-and-manage agreement for a deep-sea port and an industrial park near the city of Melaka, a port rebuilding project in the town of Kuantan, and a massive residential project close to the southern border with Singapore.

China has already been accused by a number of countries of using the Belt and Road Initiative as a tool to further its expansionist goals by giving out loans for high-value projects of uncertain viability.

Malaysia’s geography would also provide an attractive strategic positioning for China, given its location along the Malacca Strait, through which a massive portion of China’s energy supplies pass through.

SOURCE: http://zeenews.india.com/world/to-avoid-chinas-debt-trap-malaysia-to-re-examine-projects-under-belt-and-road-initiative-2114262.html

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How China’s Belt And Road Just Got A Big Boost From Europe’s TIR Convention

In 2016, China became a member of the UN’s TIR Convention, which enables transporters to ship goods through 73 partner countries by truck with just a single customs inspection, but it wasn’t until this month that their participation officially went into effect.

On May 18th, a caravan of trucks with large blue and white TIR plates departed in a ceremonial launch from Dalian in the northeast of China bound for Novosibirsk in Russia, 5,600 kilometers away. Having already undergone a customs inspection in the Dalian-bonded zone, these vehicles will not need to go through another for the duration of the journey, speeding up their transit time considerably. Why does this matter so much to China and its future economic prospects?

What is the TIR Convention?

Founded in Geneva in 1975, the Transports Internationaux Routiers (TIR) or International Road Transports convention is a multilateral treaty facilitated by the United Nations Economic Commission for Europe (UNECE) to improve road transportation throughout the continent by removing en route customs inspections and on-site duty payments for approved carriers departing from select locations. This essentially allowed trucks to traverse dozens of European countries without needing to be checked at each border, which greatly improved the speed and efficiency of trade, decreasing the lead time of a journey by up to 80%.

With the creation of the European Single Market in 1993, TIR was rendered moot for intra-European transit. However, as globalization kicked into high gear throughout the 1990s and 2000s, the TIR was expanded to include countries outside of the EU, eventually attracting 73 member states across Europe, Central Asia, the Middle East, North Africa, and East Asia, making it the go-to customs arrangement for international ground transport which is currently speeding up 1.5 million border crossings per year.

The TIR has also been adapted from its original vision of being solely for road transport and has become truly multimodal, allowing for rail, river and sea legs to be included if at least one part of a journey is done by truck.

Now that China is part of the TIR picture, goods can be shipped from some of the biggest manufacturing centers in the world more rapidly and cheaper. Going the other way, the TIR allows manufacturers from other member states to get their products to China’s booming middle-class market by land more efficiently than they ever could before–in theory, anyway.

“As well as opening up new, more efficient and cost-effective trading routes for China’s manufacturers to the rest of the world, the TIR Convention will open up reciprocal trading routes for external manufacturers into the country,” said Umberto de Pretto, the Secretary General of the IRU, a major international road transport organization with over 100 member countries.

Why this matters

Hard infrastructure—roads and rail lines and airports—mean little without the soft infrastructure which makes them viable. Countries don’t only need to “build it” but they need to come up with policies and agreements with other countries to maximize the potential of these new infrastructural offerings. Some of these agreements come in the form of trade organizations, customs zones and multinational economic areas, while others are along the lines of initiatives like China’s Belt and Road Initiative (BRI) or conventions like the TIR. As we previously covered on Forbes:

The first stage of China’s Belt and Road initiative, which aims to create a network of interconnected trade stations across Eurasia, is customs. Getting rid of the red tape to allow goods to traverse this massive land mass as efficiently as possible is key to making these routes sensible and profitable. The aim is to make land borders nearly as easy for goods to flow across as the open ocean, and this is being done step-by-step.

Later this month, the Shanghai Cooperation Organization (SCO) is going to have its summit in Qingdao, and it should not go without notice that every member of the group has already ratified TIR.

How the TIR Convention helps China’s Belt and Road

IRU press photo

Truck with TIR plates departing from Dalian.

China’s Belt and Road Initiative (BRI) is a large-scale endeavor to create and enhance economic and political corridors across Eurasia and Africa, and programs such as the TIR Convention ultimately provide a major boost towards these ends. According to the IRU, the TIR convention has the potential to increase the volume of total trade between China and the other countries of the Belt and Road by $13.6 billion.

It currently takes between 8-12 days to transport products door-to-door by truck between an inland city in China and Europe. This is roughly four times faster than shipping by sea and around 50% faster than rail. Now with China being a full-fledged member of the TIR, shipping overland between China and Europe becomes an increasingly attractive option for manufacturers looking to get their products to the other side of Eurasia.

Production moving deeper inland

The impact of the TIR convention and China’s participation in it is magnified many-fold by the geographic redistribution of manufacturing to inland areas throughout Eurasia.

Beginning in the early 2000s, China’s “Go West” policy saw the all-out rebuilding of the country’s transportation infrastructure and the large-scale migration of companies inland from the prosperous cities of the east coast to then-backwaters like Chongqing, Chengdu, Zhengzhou, Wuhan and Xi’an.

Chongqing City, China. (Photo by: Prisma Bildagentur/UIG via Getty Images)

This movement has gained momentum in recent years with the Belt and Road Initiative, and even cities in China’s far west, such as Horgos and Kashgar, have been primed to become major manufacturing centers.

These development gave new relevance to overland trans-Eurasian transport, as the places where goods were being manufactured in China were suddenly very far from any seaport and significantly closer to their target markets in Europe, so it no longer made any logistical sense to truck products thousands of kilometers east in order to ship them back west again.

It is no coincidence that most of the TIR gateways in China are emerging BRI transport hubs:

Dalian: a major multimodal transport hub on the Pacific.

Erenhot: a new city and trade station on the border of China and Mongolia that sits at the heart of the China-Mongolia-Russia Economic Corridor.

Horgos: a massive conurbation of development that extends across the China/Kazakhstan border.

Manzhouli: a major BRI hub on the China/Russia border.

Suifenhe Port: another China/Russia trade hub.

When you add to this picture the emerging special economic zones in other parts of Eurasia–such as those on the Kazakhstan side of Khorgos, Alyat in Azerbaijan, Malaszewicze in Poland, and dozens of others–along with mega-transportation projects like the Western Europe-Western China Expressway, which runs from the east coast of China all the way to the Baltic Sea at St. Petersbur–it is looking as if the the geospatial distribution of manufacturing and the way goods are moved across Eurasia could have the potential to be significantly altered in the near future.

SOURCE: https://www.forbes.com/sites/wadeshepard/2018/05/31/how-chinas-belt-and-road-just-got-a-big-boost-from-europes-tir-convention/#34ab6f8a2517

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Peace in IOR important to reap benefits of BRI: PM Abbasi

STAFF REPORT: Institute of Maritime Affairs (IMA) Bahria University, Islamabad, organised the International Maritime Symposium (IMS-2018) in the capital on “Impact of BRI on the Geo-economics of the Indian Ocean Region (IOR): Prospects for Pakistan, the Region and Beyond”. Prime Minister (PM) Shahid Khaqan Abbasi was the chief guest on the occasion.

In his address, the prime said in reference to the importance of IOR that the global blue economy footprint showed that a major global trade share came from this region. Given the importance of the Indian Ocean and significance of globalisation, we acknowledge and appreciate the vision of Chinese President Xi Jinping for conceptualising and announcing the Belt and Road Initiative (BRI) with the economic objectives of connectivity, unimpeded trade, and financial integration, he added.

The potential scope of BRI projects was vast and its financial scale was huge, the PM said. We have to optimise our share in BRI through China-Pakistan Economic Corridor (CPEC) and for this, Gwadar Port would play an all-important role, he added.

Furthermore, PM Abbasi also highlighted the enhanced regional economic activity arising from BRI and said this would have a positive impact on the region and beyond. “We are working hard on strategising measures to ensure that both Chabahar and Gwadar ports were utilised as sister ports, so as to diversify and manage the huge potential of CPEC and BRI,” he added.

More importantly, the regional countries could pursue economic initiatives in Afghanistan for prosperity and socio-economic development to ameliorate the trends of extremism and terrorism, he said. This would be a win-win situation for the region and the world at large, he added.

Focusing on maritime concerns, Abbasi said that he was aware of the current security concerns in IOR, adding, “There is a need for collaborative and well-coordinated response mechanism to deal with security threats in order to keep IOR peaceful and economically sound.”

He also commended the role of the armed forces of Pakistan in general and Pakistan Navy in particular for their initiatives to ensure maritime security of the country, especially the security of CPEC and Gwadar port.

In his inaugural address, Chief of the Naval Staff Admiral Zafar Mahmood Abbasi NI (M) in his inaugural address said that the subject was deep-rooted in the remarkable trade history of the region which had transcended various races, cultures and religions.

In the 21st century, the conceived ‘Economic Networking’ through BRI would not only help to revive historical links but also contribute towards economic prosperity of the countries that had renewed transcontinental trade routes connecting Asia, Africa, Europe and beyond.

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Chabahar Port not a challenge for CPEC: PM Abbasi

Islamabad – Prime Minister Shahid Khaqan Abbasi on Monday said the Iranian Chabahar Port wasn’t a challenge for China Pakistan Economic Corridor (CPEC), adding for the regional development, they would have to bring more projects like CPEC.

In his address at the International Maritime Symposium held in Islamabad under the auspices of Bahria University with the theme “Impact of Belt and Road Initiative on Geo-Economics of Indian Ocean Region”, the prime minister said CPEC project spoke volumes about the Pak-China friendship and Chabahar Port.

Khaqan Abbasi underlined the need to work in collaboration with China. He said regional connectivity and trade were inevitable for the development and prosperity.

The prime minister said they had constructed 1200 kilometre-long highways in Balochistan. He said Pakistan’s economy had been strengthening, and the Country’s e growth rate remained about six percent in the current financial year.

Terming the arrangement of International Maritime Symposium very important, Shahid Khaqan Abbasi said Pakistan’s trade was heavily dependent upon sea lanes. He said 40 people of world trade was linked with Pakistan.

The prime minister also remarked that Afghanistan was grappling with security issues.

Earlier in his welcome address, the Chief of Naval Staff Admiral Zafar Mahmood Abbasi said despite numerous challenges, Pakistan Navy had formulated a robust strategy to safeguard national maritime interests.

The Naval Chief said the prime minister had approved setting up of a modern shipyard at Gwadar which would contribute significantly to Pakistan’s economy. He said the government was fully alive to Pakistan Navy’s needs and was providing essential support in meeting the emerging security imperatives.

Admiral Zafar Mahmood Abbasi said the Ministry of Ports and Shipping had been renamed as the Ministry of Maritime Affairs to broaden its scope.

The Chief of Naval Staff expressed the confidence that Belt and Road Initiative (BRI) and CPEC would help realize the goal of the shared prosperity of the region.

 

SOURCE: https://en.dailypakistan.com.pk/headline/chabahar-port-not-a-challenge-for-cpec-pm-abbasi/

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China’s BRI may have risks, but Citi still sees big opportunities

Warnings of financial risks may be sounding on China’s Belt and Road Initiative (BRI), but global banks are still seeing a promising opportunity.

In an interview with CNBC, Marc Merlino, Citi’s global head for its global subsidiaries group, said there are opportunities for not just banks, but institutional and corporate investors.

The initiative aims to connect Asia, Europe, the Middle East and Africa with a vast logistics and transport network, using roads, ports, railway tracks, pipelines, airports, transnational electric grids and even fiber optic lines. It’s widely seen as an attempt by China to construct a massive, multi-national zone of economic and political influence that has Beijing at its core.

 For investors, there are “multiple levels” of potential opportunities, Merlino said, highlighting infrastructure and activities surrounding major projects under the plan.

“It’s the opportunities for micro infrastructure beyond the core projects. All the knock-on effects … if building a railroad, there’s going to be a lot of goods and services moving. You need warehouses, you need distribution capabilities. That’s where private investors are getting more involved.”

“I think the risk associated with construction of large projects is well understood in the banking sector.”
-Marc Merlino, Citi’s global head for its global subsidiaries group

According to a recent report published by Nomura, new projects will create demand for goods and infrastructure. That economic boost will benefit both lenders and brokers, it said.

In fact, Citi is seeing increased corporate and institutional investment in the Belt and Road (BRI) , which Merlino said will be bigger than the numbers published by the Chinese government.

The Nomura report, quoting numbers from China’s Ministry of Commerce, said Chinese enterprises invested $14.4 billion in Belt and Road (BRI) -related projects in 2017 — accounting for 12 percent of China’s total outbound foreign direct investment. More than 7,200 new contracts on initiative-related projects were signed for a total value of $144.3 billion.

Banks have a role in the initial construction phase and long-term debt financing, but Citi has also been putting in “a lot of resources” into supporting multinational companies involved in the initiative, he said.

That’s despite the risks that have been associated with the mammoth initiative. A study in March found that debt risks in eight countries have been elevated because of their participation. In fact, 23 of the 68 countries identified as potential borrowers were found to be at a “quite high” risk of debt distress, the study found.

The Nomura report, too, flagged the risks.

“Infrastructure projects may face long payback periods, uncertain returns and potential default risk due to regulatory or political risk in the recipient economy, increasing financial risks for the investing (Chinese or other) entity,” it said.

But Merlino said that, despite such warnings, the banking industry is “well positioned” for that higher risk.

“I think the risk associated with construction of large projects is well understood in the banking sector. Generally, that tends to be a slightly higher risk than corporate kind of risks because you have completion risks, geopolitical risks. But I think the banking industry understands that and is well positioned to deal with that,” he said.

Plus, there will be investors who can fill in any gaps, he indicated.

“The good news is that there are quite a bit of institutional investors with appetite, whether it’s insurance companies, sovereign wealth funds, for long-term debt. The best solution would be risk distribution into the appropriate hands … to ensuring there’s a match between investor risk appetite and actual underlying risk of the projects,” he said.

SOURCE: https://www.cnbc.com/2018/05/03/chinas-belt-and-road-has-risks-but-banks-see-opportunities.html

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Standard Chartered Bank to play key role in second phase of CPEC

ISLAMABAD: Standard Chartered Bank (SCB) on Wednesday announced to play a key role in the second phase of the China-Pakistan Economic Corridor (CPEC), and it will provide different kinds of services including solutions to the Chinese currency RMB, hedging in RMB, currency risks, and cash management.

“After the successful completion of the first phase of CPEC where most of the funding in projects was based on Government to Government transactions, the second phase is now ready in which mainly, the private sector and financial institutions will be involved, especially in services and insurance areas,” said the SCB Head of Global Banking, Jean Lu while addressing a press briefing here today.

She said Pakistan had been a special partner to China for decades and with the launch of CPEC, the bilateral relations had further strengthened.

She informed that experts from Standard Chartered’s Greater China Region hosted road shows in Sri Lanka, Bangladesh, and Pakistan to outline the benefits of, and investment opportunities from China’s Belt and Road Initiative (BRI), together with Renminbi internationalisation.

The purpose of these roadshows was to enable our clients to take advantage of the benefits presented by the China-led BRI project, which is also bringing more opportunities for Pakistan and China, she added.

The B and R initiative, the biggest advocate of globalisation in the world today, is aiming to boost trade and growth of investment across Asia, extending to the Middle East, Africa, and Europe.

She said the total trade between China and BRI countries exceeded $3 trillion between 2014 and 2016, and the momentum has continued in 2017, despite subdued growth in global trade.

The BRI initiative has made significant headway in the past four years, and has gained support from more than 100 countries and international organisations, and more than 80 of them have signed cooperation agreements with China, she added.

Standard Chartered Pakistan CEO said that the bank was currently engaged with around 100 Chinese companies who were interested to invest in various sectors of Pakistan.

He said that with the passage of time, the trade volume will increase between the two countries and in this regard, the SCB will have a key role in providing RMB solutions to investors as they will be able to trade-in their own currencies instead of USD.

Many countries, like Pakistan, he said have robust demand for infrastructures, as they move toward further industrialization, move up the value chain, as well as absorb fast-growing populations.

He informed that the bank has been in Pakistan and China for more than 150 years.

“Our longstanding and deep-rooted presence in both countries along with 70 percent of footprint overlap with B&R countries equips us with in-depth knowledge of prevailing political, economic and cultural environments making us an indispensable partner in this extra ordinary progress,” he added.

“It is therefore incumbent upon us to assist our valued clients to capitalize on these enormous trade opportunities created through better connectivity between them and the rest of the world. This roadshow emphasize our promise to be ‘Here for good, while demonstrating our capabilities in providing comprehensive set of products, services and solutions to our existing as well as prospective clients who are looking to embark upon their growth journeys along the Silk Road”, he added

 

SOURCE: https://profit.pakistantoday.com.pk/2018/04/26/standard-chartered-bank-to-play-key-role-in-second-phase-of-cpec/