4 October 2017 China’s lending tumbles as Belt and Road gets a refresh



China’s outbound investment fell by 17% in the third quarter of 2017, continuing a trend that has been in place since the end of last year.

Government-related loans fell by 44% to US$11.7bn in Q3, while government-to-government agreements fell by 67% over the same period. It marks the third straight slippage since a peak in Q4 of 2016, during which government-to-government agreements hit a whopping US$114.2bn.

Government lending has been inflated in recent years by massive state loans between China and countries such as Pakistan, to which the Chinese government pledged US$46bn in 2015.

The latest data from boutique investment banking and research firm Grisons Peak, seen by GTR, shows that the only significant government-to-government agreement in the last quarter was a US$10bn deal between the China Development Bank and the Russia Direct Investment Fund.

This helped to create a joint investment fund and fund a factory for manufacturing electric vehicle batteries.

The tailing off in China’s outbound investment comes amid government efforts to get a handle on capital flight from the country. Trade finance experts have told this publication that Beijing’s formal and informal moves to limit the amount of foreign currency leaving the country in an effort to prop up the renminbi have interrupted cross-border transactions between Hong Kong and China.

The government has also been trying to streamline Belt and Road Initiative (BRI) projects, which may also explain the slump in outbound investment.

BRI (previously branded as “One Belt One Road”) has been billed as a reconstruction of the Old Silk Road trade route, comprising maritime and land infrastructure belts. However, the plan was hijacked by investors keen to export their money into non-infrastructure deals

Joerg Wuttke, the former president of the EU chamber of commerce in Beijing, recently told GTR that Chinese President Xi Jinping was angered by officials using BRI as an excuse to host conferences and travel.

“The next I heard was that he was not impressed that people were using the OBOR label just to get the money out of China. In areas that are taking advantage of his liking of soccer, the frenzy of buying soccer clubs was unbelievable. Xi is annoyed about how this scheme, which originally is a good scheme about connecting, has been hijacked to be getting money out of China and travelling,” he said.

The Grisons Peak data shows that nine of 15 transactions recorded in the last quarter went to BRI countries, including port investments in Sri Lanka, tech projects in Indonesia, energy deals with Australia and Russia, as well as logistics in Singapore.

There’s no mention of real estate, luxury hotels or football, leading the firm to conclude that “the messages were well received”.

This week it also emerged that the China Railway Construction Company (CRCC) is to be armed with US$30bn in export finance by the Export-Import Bank of China (Cexim) in a bid to push its high-speed train technology overseas.

Local media reports that CRCC will receive a range of credit support services after the government identified bullet trains and the underlying technology as a way of boosting its exports. China has 22,000km of high-speed rail network, by far the world’s longest. Running at a maximum speed of 350 km/h, it also produces the world’s fastest train.

CRCC has been a focal point of BRI since the project was conceived in 2013. In 2014, CRCC signed a near-US$12bn contract to build a coastal railway line in Nigeria. It has also won contracts to electrify and double-track the Gemas-Johor Bahru line in Malaysia and is expected to build the Kuala Lumpur to Singapore high-speed rail line.
Its new overseas orders jumped by 26% last year and continue to grow this year, showing that Beijing’s efforts to refocus BRI on trade infrastructure may be bearing some fruit.