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China needs to gain trust for its '€˜one belt, one road'€™ initiative

  • The Jakarta Post

    The Jakarta Post

Singapore | Sat, October 31, 2015 | 05:01 pm

Analysts and foreign business leaders say China must tread carefully and work hard to gain the trust of other countries so that its '€œone belt, one road'€ (OBOR) development project, an enterprise designed to boost connectivity and commerce between China and 65 countries in Asia and Europe by building infrastructure to enhance financial and trade ties, will gain widespread acceptance.

Stephen Orlins, an American businessman with decades of experience of doing business in China, told a seminar on OBOR here on Friday that China should promote infrastructure projects in the interests of the people in the countries who reside alongside the OBOR route.

'€œInfrastructure such as the Jakarta-Bandung railway project will speak louder to the people as this facility will improve connectivity and enhance the economic development in the areas between the two cities.'€ Orlins said.

International business consultant Ronald Berger observed that after more than three decades of double-digit economic growth resulting in the country becoming the world'€™s second-largest economy, China has built up a huge pool of financial capital and foreign reserves.

'€œLast year, outbound investment from China amounted to US$116 billion, almost equal to inbound investment to China which totaled $120 billion,'€ Berger noted in describing how China had started flexing its economic muscles.

The seminar was organized by China Minsheng Investment Corp. (CMI), a private financial investment group with $8 billion in registered capital and a company that has been supporting the OBOR initiative through investment in Europe and Asia, including Indonesia.

The seminar addressed several issues around the ambitious OBOR initiative, which was launched by President Xi Jinping in early 2014. The project aims to build a network of overland road and rail routes, oil and natural gas pipelines and other infrastructure projects that will stretch from central China to Central Asia and ultimately reach as far as Moscow, Rotterdam and Venice.

Not long after the launching of the OBOR initiative, China set up the $100 billion Asian Infrastructure Investment Bank. Almost 60 countries, including Indonesia, have joined the bank as
shareholders.

However, because the initiative was launched at a time when China'€™s economic growth collapsed from two-digit growth levels to around seven percent, many in Japan and the US see the agenda as an attempt to export its huge excess manufacturing capacity in steel, cement and various other products.

The aggressive lending by China'€™s policy banks such as the China Development Bank and the Exim Bank to developing countries such as Indonesia has also been seen as a program to boost exports through Chinese companies that win construction jobs from the recipient nations. Such projects in road construction and power generation would pave the roads for Chinese goods and services to enter new markets.

Last August, for example, the China Development Bank gave $3 billion in loans to state-owned Bank Mandiri, BRI and BNI to finance infrastructure projects that involve Chinese construction companies.

The idle capacity of China'€™s steel sector is double that of America'€™s steel production, with iron, cement, aluminum, glass, coal, shipbuilding, solar panels and other industries all facing slumping demand and profit losses.

Another panelist at the seminar, Zuo Zongshen, the CEO of Zongshen industrial group, one of the largest manufacturers of engines and machinery in China, admitted that '€œwe have a huge production capacity to use in other countries.'€

Hong-Kong based brokerage CLSA and China'€™s Citic Securities noted in a recent report that China was preparing to counter the accelerating slowdown in its domestic economy through enormous investments in overseas infrastructure that could absorb overcapacity in key industries.

Suryo Bambang Sulisto, Chairman of Indonesian Chamber of Commerce and Industry (Kadin), noted at the seminar that the OBOR agenda suited Indonesia because the Indonesian government currently prioritized infrastructure development ahead of other considerations.

'€œOur logistics costs are among the highest in the ASEAN region due to an acute lack of infrastructure in seaports, roads and electricity. Hence, we welcome China'€™s investment in this sector,'€ Suryo pointed out.

Low Yerry Ling, a senior official at Singapore'€™s ministry of trade and industry, also applauded China'€™s OBOR focus on infrastructure because Asia presently suffered from an annual infrastructure deficit of $800 billion.

'€œThe OBOR initiative will improve trade and logistics connectivity within Asia and between Asia and Europe,'€ Low pointed out, adding that Singapore, as Southeast Asia'€™s regional logistics and financial center, would certainly play a very important role.

CMI Chairman Dong Wenbiao said his company had set up CMI International Holdings in Singapore with an initial capital of $1.5 billion as part of its business program to implement the OBOR agenda.

Also in the pipeline is a $5 billion industrial park in the western part of Java where Chinese investors will develop a wide array of manufacturing plants in cooperation with Indonesian companies, Dong added.

He said CMI had built a platform to facilitate Chinese companies to '€œgo global'€ on a large scale and in groups to generate high returns and amplify competitiveness. Developing overseas in groups will allow companies to blend into the local economy and society in a short period of time.

Regarding the importance of human resource development, Dong cited the old Chinese saying: '€œone who wants to do a good job must first sharpen his tools.'€

'€œIn cooperation with leading technical training schools in China and Indonesia, CMI will launch a $1.6 million CMI industrial technical training program to train large numbers of skilled workers for the Chinese companies in the industrial park,'€ Dong added. (vin)

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