Port Vila market in Vanuata.
Afghanistan joins the AIIB
Afghanistan officially received permanent AIIB membership while meeting with the president of the AIIB, Jin Liqun. The AIIB and Afghanistan met at the International Monetary Fund and World Bank Autumn Annual Meeting. The two parties discussed economic issues in Afghanistan including the solar energy industry, connecting the country to other Chinese-financed transportation systems in Central Asia, and infrastructure investment projects.
Besides Afghanistan, China plans to invest in Central Asia’s energy and transportation infrastructure as a part of its overall development framework. Soon, the AIIB will have 70 members with the addition of Afghanistan, and the 12 more countries that await official memberships. Read more here.
New ADB investments...
The ADB is allocating 1.2 billion USD to build up the Mongolian economy from 2017 to 2020. The funds will support nearly all sectors, including infrastructure, agriculture, tourism, renewable energy, small and medium-sized enterprises, and employment for people with disabilities. The Mongolian Prime Minister Khurelsukh Ukhnaa said the Goverment's Action Plan for 2016-2020 and the Program for the Restoration of the Mongolian Economy will continue alongside, and because of this funding. Read more here.
The ADB increased climate financing for Pacific members to over 500 million USD for 2017 to 2020. Fiji is receiving a 42 million USD loan to construct climate resistant water and sanitation infrastructure in greater Suva. The ADB is also granting 31 million USD to Fiji through the Green Climate Fund, which is co-financed with the European Investment Bank. Read more here.
The ADB and the Vanuatu government agreed to a 15.1 million USD project for renewable energy production and increased energy accessibility on the islands of Malekula and Espiritu Santo. The project aims to provide reliable energy to the mainly rural population, and to decrease reliance on diesel fuel. A major feature of the project is the construction of a hydropower plant in Brenwe, which will be supported by the ADB-supported Pacific Renewable Energy Investment Facility. Read more here and here.
The ADB will invest 435 million USD in the planned Pakistan Peshawar rail project and the Rapid Transit Bus system. Read more here.
While the ADB and AIIB granted a 1 billion USD loan to the Power Grid Corporation of India to construct a transmission system providing wind and solar power to more regions. Read more here.
The ADB and the New Development Bank met to discuss co-financing new operations in Asia, with a focus on new railway systems in India. They discussed the possibility of expanding into water and energy infrastructure. Read more here.
Updates on Chinese financed development projects
Indonesia is set to complete the first phase of ambitious Java rail line project funded through a 4.5 billion USD Chinese Development Bank investment by 2019. The loan disbursement will begin in November. Read more here.
The China-Thailand high-speed railway project has been delayed to January. The 179.4 billion THB project’s environmental impact assessment report was not approved, but experts speculate that the real reason for delays is political. Read more here.
An update on Japan...
The President of the ADB, Takehiko Nakao sees cooperation between the ADB and the AIIB as inevitable. Although the banks have different purposes, they can compliment each other, as Asia becomes the center of world economic growth. He advises Japan to welcome Chinese presence in the Asian economic circle. Cooperation between the two banks resembles cooperation between China and Japan. Read more here.
In an interview with Xinhua News, Japan’s former Prime Minister Yukio Hatoyama said Japan should take initiative to improve the China-Japan relationship. As a member of the AIIB’s international advisory panel, Hatoyama is disappointed that Japan has yet to joined the bank. He believes that Japan should not exclude itself from AIIB and should develop new cooperative foreign policies toward Asia. Read more here.
In addition, Japan Rail is looking to expand their involvement on Trans-Asian Railway projects. This shows Japanese discretion toward the growth of Chinese led rail projects across Asia, this including the newest 6 billion USD project that links Laos to Kunming China. Read more here.
Following the U.S. withdrawal from Trans-Pacific Partnership, Japan and the U.S. are looking to negotiate a bilateral agreement for export of U.S. agricultural products to Japan. Read more here.
The US jabs at the World Bank
The Donald Trump administration refuses to put forth more funds into the World Bank, citing that a vast majority of the funds go towards Chinese development. China has already expressed displeasure over the World Bank’s voting structure. This new statement from the U.S. could push China to further pursue their own development endeavors and alternative policies of development finance, like the Asian Infrastructure Investment Bank and the One Belt One Road Initiative.
News on China's One Belt One Road initiative
Carrie Lam, the Chief Executive of Hong Kong stated Hong Kong's plan of joining China on the One Belt One Road Initiative. The draft for this new agreement is already finished and will be ready to be signed by both parties at the end of this year. The Guangdong-Hong Kong-Macao Greater Bay Area is an important economic bridgehead. Hong Kong is most globalized of the 11 cities and will continue to use their power as the main source of contact. In order to not lag behind economically, the Hong Kong government will pursue expanding their manufacturing industries. Read more here.
China will launch four BeiDou-3 satellites before the end of 2017, and aims to have 18 satellites in 2018. These satellites will provide services to countries along the One Belt One Road Initiative. China plans to deploy 35 satellites around 2020 to cover the entire world. Although China states that the BeiDou satellite system is primarily for civilian use, the highly accurate navigation system is also useful for the military. Read more here.
At a World Bank panel discussion held in Washington D.C., the bank’s President, Jim Yong Kim expressed support of the One Belt One Road Initiative. The panel included President of the Asian Infrastructure Investment Bank (AIIB) Jin Liqun, Vice-Minister of Finance Shi Yaobin, Indonesia's Minister of Finance Sri Mulyani Indrawati, and Kazakhstan's Deputy Prime Minister Erbolat Dossaev. Both Indonesia and Kazakhstan are two target countries of the One Belt One Road Initiative. All the panelists expressed support and approval for the AIIB's spearheading of multilateral development in Asia. Read more here.
The French Ambassador of France Maurice Ripert reasserts the importance of the One Belt One Road Project. He said that France plans to work with China to help developing countries. The French Agency of Development will contract hundreds of millions of euros with Chinese financial partners. The Public Bank of Investment and the Caisse des Dépôts et Consignations. Read more here.
Chinese development finance around the world...
After the Chinese company Liugong Dressta Machinery acquired Huta Stalowa Wola (HSW), a Polish military equipment manufacturer in 2012, local workers feared wage cuts and job losses. However, 5 years after the acquisition, Chinese capital investment in Poland has led to new growth and opportunity for firms and workers. In addition to wage and aggregate economic growth, Liugong's acquisition of HSW has led to the creation of 1,200 jobs and generated over 66 million USD.
Overall, Chinese investment in Poland has created around 15,000 jobs and prompted closer economic ties between the two countries. As China's One Belt One Road initiative extends into Europe, Chinese firms continue to invest more in European markets, not only spurring economic growth but also gradually bringing European markets within the periphery of China's economy. Read more here.
The China-Portugal Cooperation Development Fund held a conference in Macao on October 12. The National Development Bank and the Macao Industrial and the Commercial Development Fund established the fund in 2013 and jointly finance its reserves. With current size of 1 billion USD, the fund aims to facilitate more partnerships between the Macao business community and projects in Portuguese-speaking countries. Read more here.
Morocco and China announced the creation of an economic zone in the northern city of Fez, through the China Industrial Cooperation Association. This agreement hopes to boost bilateral cooperation and attract Chinese investment in various industrial sectors, including automobile, aviation, agriculture, health and renewable energy. The mount of the investments planned remains unknown. Read more here.
In other news...
The 19th National Congress of the Communist Party of China
The 19th National Congress of the Communist Party of China takes place on October 18th in Beijing. Five economic topics are expected to be discussed: new financial supervision for reducing financial risks, mixed-ownership reform in state-owned enterprises, supply-side structural reform, coordinated regional development, and the One Belt One Road Initiative.
AidData releases its China’s Global Development Footprint dataset
At a October 12 Ministry of Commerce, a reporter cited AidData statistics while asking if Chinese aid is used to further Chinese interests. The Ministry responded that China operates under the South-South cooperation framework of equality, and the recipients need Chinese aid to develop their infrastructure. They also suggested that the AidData report might have confused China's foreign aid funds with other types of financing, like commercial funding.
A new AidData study reassesses the notion that China is a bad donor. Between 2000 and 2014, China gave or lent almost 350 billion USD. Researchers reckon that the doubling of Chinese grant aid is associated with a 0.4 increase in the rate of GDP growth of the recipients after two years. But the findings assert that China might do more good in developing countries if their aid came as grants instead of cheap loans. Read more here.
Opinions on Chinese development finance
Does the One Belt One Road Initiative lack vision?
Fan Shih-Ping, a professor at the Institute of Political Science in the National Taiwan Normal University, finds on that China's plan for One Belt One Road lacks concreteness. Citing the UK's Financial Times, data provided from the Ministry of Commerce has shown a decrease in investment for the One Belt One Road Initiative, with a two percent decrease in 2016 and an 18 percent decrease in 2017.
The Brookings Institute on critiquing Chinese development finance
Criticism of Chinese development finance is centered on two arguments. One, China is not transparent with its data, and two, recipients of Chinese investments are often nations with poor governance structures. Given the scale of Chinese foreign direct investment, it would be fair to say that China should publish its data and be committed to transparency. But for a variety of political and economic reasons, official data is absent.
However, it is still possible to track investments, and with Chinese foreign direct investment, there appears to be no geographic or governance correlation. Meaning that, China is indiscriminate when considering the geographic proximity or political development of its investment recipients. The latter especially poses a problem, which China thus far has not officially addressed. Many borrowers, including Cambodia, Laos, Pakistan, Iran, Angola, Nigeria, Sudan, and Venezuela, are known for having poor governance structures (less democratic, less institutionalized, etc.)
This is an economic problem for China, as better governance is correlated with lower levels of risk. China is taking on a large amount of risk when investing in these countries, and the probability of a return on investment diminishes. In the case of Angola and Venezuela, China is already on track to lose large amounts of money, and this problem could spread to other recipients of Chinese investments.
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