June 06, 2018

RWR Advisory : Belt and Road at a Glance


 

Top Developments

China Pursues $10 Billion Investment Package in Peru
The first stages of a $10 billion investment package were unveiled in Peru in recent days. On June 1, Chinese Ambassador to Peru Jia Guide announced that COSCO Shipping will build and operate a $2 billion port near the capital of Lima. The same day, Aluminum Corporation of China (Chinalco) began work on a $1.3 billion expansion of the Toromocho copper mine in central Peru. And China Railway Engineering Corporation (CREC) announced plans to build a port in Ilo, the capital of Peru’s copper mining region. Interestingly, however, Edgar Patino, Peru’s National Port Authority, said he was unaware of any proposal from CREC and that any port expansion work would be contracted via a public auction.Myanmar Gets Cold Feet Over Kyaukphyu Cost Concerns
A deep-water facility due to be built at Kyaukphyu, Myanmar by a consortium led by China’s CITIC Group is under review by Myanmar’s government. According to the Financial Times, two people with direct knowledge of discussions said that economic officials are looking for ways to negotiate down the costs for the planned port in Rakhine state, out of concern that Myanmar may not be able to afford the $9 billion price tag, and the port could ultimately fall under Beijing's control if Myanmar were to default on its debt. CITIC won a tender for the port in 2015, taking a 70% stake in the project.Uncertainty over Nepal Power Project 
Although Nepalese Finance Minister Yubaraj Khatiwada announced on May 29, “we will mobilize Nepal’s internal resources and build the West Seti hydroelectric project,” seemingly marking an end to the role of China Three Gorges Corporation (CTGC) in the $1.6 billion hydroelectric project, subsequent comments appear to have reversed that position. On June 4,Xinhua quoted Energy Minister Barsha Man Pun, saying that, “the West Seti project is still in the hands of CTGC and we are ready to continue with CTGC if it is eager to develop this project.” This would have been Nepal’s second withdrawal of a hydropower contract from a Chinese company in six months. In February, new Prime Minister Khadga Prasad Sharma Oli also pledged to revive the Budhi Gandaki project. In November 2017, then Energy Minister and Deputy Prime Minister Kamal Thapa announced Nepal had scrapped plans to award the Budhi Gandaki project to China Gezhouba Group due to “irregularities” in the contract.Malaysia Rail Contracts Under Scrutiny
Chinese rail contracts in Malaysia remain in jeopardy following the election win of Mahathir Mohamad, who promised to review major Chinese investments in the country as part of his campaign. Despite being a high-profile target of criticism from Mahathir, the East Coast Rail Link, already under construction, appears likely to progress. The Malaysian government would reportedly have to pay significant penalties if it canceled the project. Mahathir, however, has also announced his intention to cancel the long-rumored Kuala Lumpur-Singapore High Speed Railway. Even though it has not yet been awarded. China Communication Construction Corporation (CCCC) is believed to be considering a proposal. There are mixed messages, however, on this project. Mahathir has said that he may be more open to large-scale infrastructure projects once Malaysian public finances are stabilized.Danish Prime Minister: Greenland Should Not Choose Chinese Companies for Airports Project
On May 28, Danish Prime Minister Lars Lokke Rasmussen warnedGreenland’s Home Rule Government that, according to the Act on GreenlandSelf-Government, Danish authorities may intervene in matters of foreign and security policy. In an attempt to benefit from growing activity in the Arctic, Greenland wants to expand airports in the capital of Nuuk as well as in Ilulissat and Qaqortoq to allow direct flights from Europe and North America. Greenlandic Premier Kim Kielsen met with representatives from CCCC and Beijing Construction Engineering Group during his visit to Beijing last year. CCCC was shortlisted for the project in March of this year. In his comments, Rasmussem said that “investments in airport projects of this magnitude, of course, raise some questions and may–depending on funding and choice of external partners–have foreign policy perspectives that the government will discuss with the Home Rule Government.”Air China Markets New Routes as Supporting Belt and Road
China’s flag carrier Air China has operated an international route network since it was founded in 1988, taking over routes and long-haul aircraft previously operated by the Civil Aviation Administration of China. Its continued expansion international services to cities such as Hanoi in Vietnamand Irkutsk in Russia, however, is now marketed as supporting the Belt and Road Initiative. Air China Managing Director Luo Yong commented that, “the Belt and Road Initiative has provided opportunities and is a main driving force for Air China to build and expand out global air network.” This appears to be a case of Chinese entities branding international business activity under Belt and Road that almost certainly would have occurred anyway.Hong Kong International Arbitration Centre: Steep Rise in Belt and Road Cases
The Hong Kong International Arbitration Centre, a dispute settlement institution, revealed June 3 that the number of disputes it handled involving parties from Belt and Road countries jumped by 77% to 124 last year. Almost a third of disputes last year were between parties from mainland China and Belt and Road countries, up 17% from 2016, 13.5% from 2015, and 12.6% from 2014. Last month, the center formed a Belt and Road Advisory Committee and launched an online resource portal for parties with projects in Belt and Road countries at risk of legal disputes.Export-Import Bank of China Begins Zimbabwe Disbursement
On June 2, the Export-Import Bank of China released the first $200 million tranche of a $1 billion loan facility to the Zimbabwe Power Company. The loan will finance expansion of the Hwange Thermal Power Station’s Units 7 and 8, increasing total generation capacity from 920MW to 1,520MW. Sinohydro Corporation, the project’s contractor, will hold a 36% stake in the power station through a special purpose vehicle (SPV) for at least five years after construction to ensure continued involvement in operations and maintenance. China has sought to expand its presence in Zimbabwe since Emmerson Mnangagwa replaced Robert Mugabe in late 2017.Sri Lanka Continues to Struggle Under China Debt Burden
On May 25, the Sri Lankan government received a $1 billion syndicated loan from China Development Bank to repay other loans maturing this year. Among the four banks bidding for the loan, only China Development Bank had a bid for an eight-year tenure with a three-year grace period. The other banks offered three-year tenures. Sri Lanka has struggled under the weight of Chinese debt incurred from agreements made by previous President Mahinda Rajapaksa. It is notable that even Sri Lanka’s efforts to recalibrate its existing debt obligations to China are won by Chinese entities willing to offer terms other financial institutions are unwilling to offer.

New Project Locations

Data from IntelTrak, May 22 - June 5

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What They're Saying

SYED MUAZZEM ALI, BANGLADESHI HIGH COMMISSIONER TO INDIA
Speaking to the Indian Women's Press Corps

"The bank manager does not become my elder brother just because he gave me a loan. Our relationship with China is basically economic whereas our relationship with India has several facets."

CHRISTIAN COMBES, AFRICA DIRECTOR
FRENCH CONSTRUCTION COMPANY, EFFIAGE INFRASTRUCTURES
Speaking on Effiage's expansion in West Africa

"We are not going to try and fight the Chinese. The problem is that they are state-owned companies, whereas we are privately held companies. We don’t have the same objectives, we don’t work in the same way, and our economic models are not the same. Due to funding from China ExIm Bank, their prices are very low. So when we see them arriving in countries where they have a strong presence, we know there’s no point [in counterbidding]."

REP. MAC THORNBERRY (R-TX)
U.S. HOUSE OF REPRESENTATIVES
Commenting on th strategic value of Chinese projects in Sri Lanka

"While I share the hope of many that these projects will one day benefit the Sri Lankan people, I was struck by what one Sri Lankan official told me: ‘one cannot assume that China’s motives are entirely innocent.’"


 

AHMED NASEEM, FORMER MALDIVIAN FOREIGN MINISTER
Speaking to Nikkei Asian Review

"Many of these Chinese mega projects are merely licenses for President Yameen and his cronies to steal hundreds of millions of dollars. The Chinese look the other way to this theft, because they want the Maldives to borrow [and fall into debt], enabling China to demand land in compensation."


UNNAMED CHINESE DIPLOMAT
Speaking to Malaysia's Star Online

"As Chinese construction firms are highly competitive, fast and efficient, main contractors prefer to give jobs to them. Our companies have to hire Chinese nationals to be workers as most locals do not want to work long hours. This also happened in the case of Alliance [Steel]."

JONATHAN HILLMAN, RECONNECTING ASIA DIRECTOR
CENTER FOR STRATEGIC AND INTERNATIONAL STUDIES (CSIC)
Speaking to Reuters about troubled Belt and Road projects

"[A lack of quality control] has the potential to undermine the Belt and Road coherence and its ability to achieve the goals that Chinese officials actually talk about."

For more from Reconnecting Asia, click here


By the Numbers

Data from RWR's IntelTrak tool

Data from RWR's IntelTrak tool

Regional Developments

Southeast Asia

May 31: The “China-Japan Cooperation on the Eastern Economic Corridor (EEC) of Thailand” seminar was held in Bangkok, with representatives from China, Japan, and Thailand in attendance. EEC is the flagship project of Thailand 4.0, the country’s sector-specific industrial policy.June 1: Pengxin International Mining Company is reportedly in advanced discussions to acquire the Martabe gold and silver mine in Indonesia for about $1.5 billion, which is twice its value from two years ago.June 1: China Jinjiang Environment’s Indonesian subsidiary acquired a 95% stake in Indonesia’s PT Indo Green Power (IGP). IGP has secured a concessionto construct, own, and operate a waste-to-energy (WTE) facility in Palembang, a port city in South Sumatra. The $120 million WTE facility will be funded by China Jinjiang Environment, which now has the exclusive right to provide waste treatment services in a defined area in Palembang for 30 years.June 1: Specifically referencing its support for the Belt and Road Initiative, Air China launched direct flights between Beijing and Hanoi, Vietnam, and plans to add flights from Chengdu to London, UK and from Beijing to Irkutsk, Russiavia Inner Mongolia in the near future. Just this year, Air China has launched direct flights from Hangzhou to Nha Trang, Vietnam; Chengdu to Bangkok,Thailand; and Beijing to Copenhagen, Denmark.June 1: Malaysia’s 688-km East Coast Rail Link project, connecting Port Klang to Pengkalan Kubor on the Thailand border, is reportedly proceeding  despiteefforts by new Prime Minister Mahathir Mohamad to dismantle it. The Malaysian government has already released about $5 billion to finance construction of the project by China Communication Construction Company (CCCC), which began in August 2017. Uncertainty remains about the fate of the Kuala Lumpur-Singapore High Speed Railway.June 4: Chinese latex manufacturer Yunnan Yun Manganese Group signed a memorandum of understanding (MoU) with Thailand’s Southern Border Provinces Administrative Center and Prince of Songkla University to commercialize the school’s research and develop rubber-based health products. Yunnan Yun Manganese Group is currently building the Southeast Asia Health Living Mall in Yunnan province, where it plans to sell health products manufactured in Thailand.June 4: Economic officials in Myanmar’s government are discussingrenegotiating the cost of the $9 billion Kyaukpyu deepwater port project in Rakhine, to be built by a consortium led by China’s CITIC Group. The port itself is estimated to cost $7.5 billion, and the adjoining economic zone is estimated to cost an additional $2 billion. Myanmar would need to take on an estimated $2 billion in debt in order to fund the project.June 5: Chinese startup imToken, the developer of an Ethereum blockchain wallet, announced plans to move its global headquarters to Singapore. imToken plans to expand its overseas business and its research and development team using funding from its Series A.

South Asia

May 24: The People’s Bank of China signed an agreement with the State Bank of Pakistan to extend the existing bilateral currency swap arrangement by three years. The extension nearly doubles the local currency amounts available from 10 billion yuan to 20 billion yuan ($3.13 billion) and 165 billion rupee to 351 billion rupee ($3 billion).May 24: China Communications Construction Company (CCCC) Second Harbour Engineering Company signed a $1.6 million contract with theMaldives Sewage and Water Company to construct a network of water pipelines and fiber optic cables along the China-Maldives Friendship Bridge. The bridge, which extends from the capital of Malé to suburban Hulhumale, is currently under construction by CCCC subsidiary China Harbour Engineering Company.May 25: The Sri Lankan government received a $1 billion syndicated loan from China Development Bank to repay other loans maturing this year. Among the four banks bidding for the loan, only China Development Bank had a bid for an eight-year tenure with a three-year grace period. The other banks offered three-year tenures.May 25: China Railway Construction Corporation (CRCC) subsidiary China Railway 25 Bureau Group signed an MoU with Kathmandu Metropolitan City in Nepal to conduct a feasibility study on the proposed monorail system in Kathmandu Valley.May 30: Pakistan’s Ministry of National Food Security and Research announced its first “National Food Security Policy,” under which the ministry will conduct feasibility studies on commodities in each sub-zone of the China-Pakistan Economic Corridor (CPEC). Pakistan will develop new business models to promote value-added agriculture along CPEC, and determine key areas for economic and technical agricultural cooperation with China.

Middle East and North Africa

May 29: CGC Overseas Construction Group signed an MoU with Egypt’s New Urban Communities Authority (NUCA) to establish a fully sustainable green industrial zone in New Alamein. NUCA will provide the investors with land and facilities.May 30: Telecom Egypt signed a $200 million loan agreement with Huawei Technologies, which will be provided by several Chinese financial institutions including Bank of China and China Export & Credit Insurance Corporation. Huawei Technologies is providing competitive financing conditions for Telecom Egypt, in order to expand Huawei’s business in Egypt and establish its 4G network in the country.June 4: China Energy Engineering Corporation was awarded a survey and design service contract by Shanghai Electric Group for the UAE’s 700MW concentrated solar power (CSP) park. Shanghai Electric Group is the joint engineering, procurement, and construction (EPC) contractor along withSaudi Arabia’s ACWA Power. The park will be Phase 5 of the Mohammed bin Rashid Al Maktoum solar power complex in Dubai.

Sub-Saharan Africa

May 23: The Chinese government launched the “2018 Kenya Railway Police Training Course” at Beijing Jiaotong University, a four-week vocational training program for thirty Kenyan railway police. Upon completion of the program, the police will provide security for the Mombasa-Nairobi standard gauge railway (SGR).May 24: The Export-Import Bank of China reached an agreement with the government of Niger to finance the $60 million East-West Road dualization project. The East-West Road is a 338-km dual carriageway divided into four sections and managed by the Ministry of Niger Delta Affairs. Through the dualization process, it will be widened and developed into a multi-lane, divided road.May 25: Kenya’s Ministry of Transport and Infrastructure awarded $40.6 million worth of contracts to three Chinese firms, including China Road and Bridge Corporation, China Wu Yi, and Sinohydro, for flood repair work on roads in Nairobi.May 28: The China Forum on Legalization was held in Angola’s Chinatown, located in Viana, Luanda. At the forum, Viana’s Director of Commerce Manuel Vaz explained commercial standardization procedures and penalties for Chinese companies operating in Angola. In response, Chinatown Chairman Jack Huang expressed his hopes that Angolan law enforcement would consider reducing or abolishing excessive fines for Chinese companies in consideration of the specific business benefits they bring to the country.May 28: Chinese high-tech environmental company Origin Water won the bid for the Angola National Tourism Area sewage treatment project. Origin Water will supply large-scale membrane bioreactor (MBR) equipment, and the treated wastewater will be used for irrigation to address the water scarcity problem.May 29: A team of eight Chinese ophthalmologists from the Gansu Population and Family Planning Commission, Lanzhou University Second Hospital, and Peking University People’s Hospital were sent to Madagascar to perform 200 cataract surgeries, train local doctors, and donate $250,000 worth of medical equipment and supplies to local health institutions.May 29: The Export-Import Bank of China signed a loan agreement withNigeria’s Ministry of Finance to fund the country’s Abuja water supply project and railway locomotive procurement project. The Abuja water supply project will improve water pipe networks in the main urban area of the city andprovide local residents with clean drinking water. The Abuja railway locomotive procurement project will import high-end Chinese equipment for the 45-km Abuja Light Rail, which was constructed by China Civil Engineering Construction Corporation.June 1: The Angola-China Chamber of Commerce signed a partnership agreement with the Tourism Agency of Angola to promote the country’s tourism sector. Angola’s Sol Bank will support the agreement by facilitating the acquisition of foreign exchange, allowing Angolans to operate businesses in China without incurring international payment expenses.June 1: The sixth Chinese medical team in South Sudan donated food andtreated children at the Juba Orphanage for eye and skin infections for International Children’s Day.June 2: The Export-Import Bank of China released the first $200 million tranche of a $1 billion loan facility to the Zimbabwe Power Company. The loan will finance expansion of the Hwange Thermal Power Station’s Units 7 and 8, increasing total generation capacity from 920MW to 1,520MW. Sinohydro Corporation, the project’s contractor, will hold a 36% stake in the power station through a special purpose vehicle (SPV) for at least five years after construction to ensure continued involvement in operations and maintenance.

Russia and Eurasia

May 28: Kyrgyzstan approved a draft agreement with China on technical and economic cooperation and will receive a $55 million grant to develop the street and road network in Bishek.May 28: China’s UnionPay International signed collaboration agreements withUzbek bank, Aloqabank, and bank card association, Uzcard, which provides switch and clearing service for all ATMs and POS terminals in Uzbekistan. Uzcard will replace half of all Uzcards in circulation with UnionPay cards, and promote large-scale issuance of UnionPay cards as the wage card of Uzbek residents. Aloqabank plans to cooperate with UnionPay International to implement mobile payment services.May 30: China will train 30 Kyrgyzstanis from the Alay and Chon-Alay districts of the Osh region to work on the Turkmenistan-China natural gas pipeline project. The pipeline starts in Turkmenistan and passes through Uzbekistan, Tajikistan, and Kyrgyzstan to reach China. In Kyrgyzstan, the pipeline runs for 215-km through Chon-Alay towards Irkeshtam.June 5: Tencent’s WeChat Pay entered the Russian market through Russian travel association World Without Borders’s China Friendly project. WeChat Pay will initially service only Chinese visitors to the country, but Russian financial institutions including VTB Bank and Azbuka Russian Standard Bank have expressed interest in incorporating the mobile payment platform in the near future.

Europe

May 23: Cambridge Innovation Park, Chinese start-up accelerator Cambridge Accelerate, and business incubator Incubyte announced the launch of the Cambridge Innovation Park China Center (CIPCC) in the UK.May 24-26: The second annual Zhejiang Export Fair (Serbia) opened in Belgrade, where 50 companies from China’s eastern province of Zhejiang presented products ranging from construction equipment to electrical and home appliances. The president of Serbia’s National Council for Coordination of Cooperation with China, Tomislav Nikolic, called for the participating companies to consider investing in production in Serbia. Through local engagement, the two sides seek to expand bilateral cooperation in the infrastructure, steel, and information technology industries.May 24-26: Lithuania’s International Exhibition for Agriculture and Food Industry, AgroBalt 2018, opened in Vilnius, where a delegation of 24 Chinese companies including exporters, traders, and distributors met with potential Lithuanian partners.May 28: Danish Prime Minister Lars Løkke Rasmussen stated that the Home Rule Government of Greenland is not allowed to make independent decisions on external partners and funding for major airport construction in Nuuk, Ilulissat, and Qaqortoq. Rasmussen’s statement is an indication that investmentin airports is considered a matter of foreign and security policy. The topic will be discussed at an upcoming plenary session in the Faroe Islands. China Communications Construction Company (CCCC) is one of six contractors that have been prequalified to bid on the project.May 28: The joint Slovenian-Chinese virtual laboratory for high performance computing (HPC) was launched at the University of Ljubljana’s Faculty of Computer and Information Science (FRI) by the Chinese Academy of Sciences, Chinese HPC manufacturer Sugon, and Slovenian information technology service provider Arctur. Among other projects, the laboratory will work on the Orange machine learning and data visualization program developed by FRI tosupport biomedical and climate research and development.May 28: The Shenzhen Cross-Border E-Commerce Association opened an office in Plovdiv, Bulgaria, which will support the existing agricultural e-commerce logistics center. The office will connect legal entities and governments to increase e-commerce between China and countries in Central and Eastern Europe, as well as in the Western Balkans.May 29: China’s Hisense Group announced a takeover bid for Slovenianhousehold appliance manufacturer Gorenje, seeking to acquire the remaining 67% of the company that it doesn’t already own. Hisense Luxembourg Home Appliance Holding increased its stake in Slovenian manufacturer Gorenje to 27.75% on May 23 after acquiring a 17.83% stake the day before. Hisense Luxembourg Home Appliance Holding and Hisense Luxembourg Holding currently own a combined stake of 32.95% in Gorenje.May 29: The 2nd Ukrainian-Chinese Forum of Economic Cooperation opened in Kyiv, organized by the China Overseas Development Association and Ukraine’s Chamber of Commerce and Industry. The forum included presentations of projects in the areas of agriculture, energy, infrastructure, and culture and tourism, allowing potential Chinese investors to explore new investment opportunities. Of particular interest to the Chinese side was agriculture cooperation in the Kherson region of Ukraine.June 4: China and Belarus signed an agreement to build a research and development transformation center in the China-Belarus Great Stone Industrial Park. China will provide an $84 million grant to build the center.

North America

May 29-30: A bipartisan delegation of U.S. lawmakers, led by the chairman of the House Armed Services Committee, Representative Mac Thornberry of Texas, visited Sri Lanka and met with government officials to discuss bilateral cooperation and shared values. The delegation toured the Port of Colombo and several other infrastructure projects financed and managed by Chinese companies.

Latin America and the Caribbean

June 1: COSCO Shipping announced plans to build and operate a $2 billion port in Chancay through a partnership with Peruvian mining company Volcán Compañía Minera. Volcán subsidiary Terminales Portuarios Chancay (TPCH) is currently developing the Chancay multi-purpose port terminal project, and has been in search of a strategic partner.June 1: Aluminum Corporation of China (Chinalco) broke ground on phase two of the Toromocho copper mine in the Junin region of central Peru. The $1.3 billion expansion, operated by Chinalco Mining Corporation, is expected toincrease production capacity by 45%. 

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