April 10, 2018 Read More →

Report: China Has Energy Security in Mind in ‘Belt-and-Road’ Initiative, Biggest Venture Capital Project in History

S&P Global Market Intelligence ($):

Reconnecting the ancient “Silk  Route” with modern infrastructure could both extend China’s economic reach and enhance its energy security. Ultimately, however, success of the initiative

will be measured by the extent to which private-sector investors participate in projects. That’s according to a special report published today by S&P Global’s China Senior Analyst Group, titled “China’s Belt and Road Initiative: Is This The World’s Largest Venture Capital Project?”

“Success of the Belt and Road Initiative (BRI) will ultimately rest on whether China’s initial ‘seed money’ will create creditworthy projects that attract true private sector outside money,” said Paul Gruenwald, S&P Global Ratings’ chief economist. “Seen in this way, the initiative is arguably the world’s largest attempted venture capital project”.

Another key measure of success is whether the Belt and Road can win the local hearts and minds in the recipient countries. The initiative aims to connect the Eurasian supercontinent through land and sea “Silk Roads” using infrastructure and industry projects.

The S&P Global cross-practice report examines the scope and rationale of BRI. The report also looks at what BRI is not. Finally, it identifies the measures by which to judge the initiative’s ultimate success.

BRI is often compared to the Marshall Plan, launched by the U.S. to rebuild Western Europe after the Second World War. BRI aims at connecting an even larger land mass, with the added challenges of building, rather than rebuilding, the foundations of a modern economy across a collection of countries that have little history of working together, few commonalities in culture, and differing geopolitical aspirations and competing spheres of influence (Russia, India, Iran, Turkey).

“The ambition and scale of the Belt and Road Initiative are massive,” said Mr Gruenwald.

BRI will help finance Asia-Pacific’s substantial infrastructure needs. The region’s “infrastructure gap”–or difference between investment needs and investment levels–is estimated at 5% of GDP.

“Why does China think it can close the investment gap where others have not?” S&P Global asks in the report. “We see a number of factors that could yield a better risk-return trade-off for China than for other creditors.”

These potential trade-offs for China include: creating new trading markets, increasing China’s sphere of influence, and improving the country’s energy security. For example, 85% of China’s oil imports pass through the Straits of Malacca. Several early BRI projects directly address China’s energy supply issue, including pipeline projects in Central Asia.

More ($): “China’s Belt and Road Initiative: Is This the World’s Largest Venture Capital Project?”

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