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THIS WEEK'S SILK ROAD HEADLINES
Among the news items and analyses from this week, remarkable attention is paid to the financial dimension of China’s Belt and Road Initiative (BRI), which is too often overshadowed by more lofty geopolitical concerns. As pointed out in a New York Times article [Global Banks Sharpen Focus on Yuan Offerings as China's Silk Road Fuels Demand], China’s soaring investments along the Belt and Road have led many of the biggest banks to strengthen their focus on Beijing’s initiative, accelerating the already steadily increasing internationalisation of the RMB and therefore fuelling the debate concerning the evolution of the global currency ‘power balance’.
Financing issues are key to understand the future of the BRI, and another piece [Who Is Financing The New Economic Silk Road?] provides a very helpful comprehensive overview of the major financial players involved in the initiative. What is most striking –yet hardly surprising- is the significant involvement of many non-Chinese multilateral and national funds, including institutions such as the Asian Development Bank (whose largest shareholders are the US and Japan) and even the World Bank, some of whose projects are in BRI target countries.
The scale and scope of these financial developments have been the object of a recent report by Moody’s [Moody’s Rates Belt & Road Initiative “Overall Credit Positive” But Warns China Of Risks]. Overall, the rating agency considers the BRI’s effects on China’s financial fundamentals positive. However, it points out at least two major sources of concern. First, regarding the allocation of risk between Chinese players and participating sovereign nations, many of which have relatively poor credit profiles. Specifically, 54% of BRI investments have flowed to countries deemed to have ‘speculative elements and significant credit risk’, or worse. Second, the report warns about the risks linked to a ‘too successful’ BRI. If the initiative becomes too financially invasive, it might lead to a relative weakening of the ‘traditional’ financial institutions, which remain the staple funding sources for many of the BRI target countries. This, the report implies, might in turn trigger financial instability in those countries, and therefore become a liability for the BRI itself.
Francesco S. Montesano
To increase awareness of and facilitate the debate on China's Belt and Road Initiative, the Clingendael Institute publishes Silk Road Headlines, a weekly update on relevant news articles from open sources.
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