Economy & Trade
China’s wooing of India continues with the Asian Infrastructure Investment Bank (AIIB) announcing its first equity investment, signing off USD150 million in funding to the India Infrastructure Fund in a move aimed at attracting sought after private investment capital for infrastructure projects in India. The bank also announced that next year’s board of governors meeting will be held in Mumbai, in June 2018. India is the bank’s second largest shareholder and is becoming an increasingly important geography for AIIB investments.
“We appreciate the strong support provided by the Indian Government,” says AIIB vice president & corporate secretary, Danny Alexander. “It’s fitting that we bring the meeting to India next year, where we can deeply engage with local business and draw on the infrastructure expertise that India can offer.”
The Asian Infrastructure Investment Bank has just held its second annual meeting in Jeju, South Korea, with the board of governors adopting resolutions approving Argentina, Madagascar, and Tonga as new members.
The governors also signed off on two loans to Georgia and Tajikistan. A US$114 million loan for the Georgia Batumi Bypass Road Project, it being the bank’s first loan to Georgia, and part of a co-financing initiative with the Asian Development Bank.
The project aims to improve regional connectivity and the efficiency of road transport along the East-West Highway in Georgia. The project comprises a new two-lane road approximately 16.2 km long, in a key section of the East-West Highway that rings the Black Sea port city of Batumi. This will link with the existing main road connecting Sarpi at the border with Turkey to Poti, a major port at the Black Sea, and a key transit route along the coastline of the Black Sea for heavy goods and passenger traffic from Turkey to Tbilisi and then onto Azerbaijan and the Caspian Sea.
Georgia has recently signed a Free Trade Agreement with China.
Progress has been made concerning the introduction of tax harmonization within the EAEU, the trade bloc featuring Russia, Armenia, Belarus, Kazakhstan, and Kyrgyzstan.
Discussions among the current EAEU members are of increasing significance as several Asian nations are negotiating Free Trade Agreements with the EAEU, including China, India, and Singapore. Vietnam already has an FTA with the EAEU.
The EAEU Commission has noted that during the round table “Topical Issues of Tax and Customs & Tariff Regulation”, the Executive Secretary of the Advisory Committee for Tax Policy and Administration at the Board of the Eurasian Economic Commission (EEC), Nurmatbek Mambetaliev, spoke about promising directions for harmonization of tax legislation of the Member States of the Eurasian Economic Union (EAEU) in mutual trade. The event was organized by the Centre for Tax Policy and Tax Administration of the Financial University at the Government of the Russian Federation, in cooperation with the EEC, the Federal Tax and Customs Services, and several consulting companies.
China’s OBOR projects, thus far well illustrated by the Official OBOR Portal, have been exclusively driven by Chinese State Owned Enterprises. Many of these have diversified from their original purpose, such as the somewhat disconcerting sight of China Nuclear Energy Industrial Corp (CNEIC) proudly advertising the fact that they are the main contractors for building several skyscrapers in downtown Colombo, the capital of Sri Lanka. Locals wonder exactly what the buildings are being made of, in signs that China’s SOEs may not yet fully appreciate the wisdom behind alternative branding.
In terms of Chinese SOEs operating in just Sri Lanka alone, the number reaches beyond the ten digits on my hands in what remains a relatively small island nation. This demonstrates that the link between the Chinese Government and Chinese state owned businesses has never been stronger. Despite decades of foreign investment and influence in China, the CCP steadfastly refuses to give up its hold on major businesses. This itself is part of the on-going game of Chinese Political Poker; Chinese political individuals and families maintain political power and influence via holding onto, and jealously guarding assets they are in control of. Such companies may be classified as SOEs, but make no mistake, many of these companies are run and directed as miniature fiefdoms. As long as they manage to pull together in generally the same direction as the Politburo, everything is hunky dory.
Philip Klinkmüller, a financial partner with German based Hopf-Klinkmüller Capital Management has stated there is a visible trend in China and Russia to buy more bullion to end their dependency on the US dollar, and has suggested that over the next two decades global financial markets will see a significant devaluation of the US Dollar.
Klinkmuller said that both China and Russia continue to stockpile gold in a bid to cut their economies’ dependency on the US dollar, and said that if the dollar’s role as a global reserve currency is decreased the world will see radical political and economic transformation. “According to our estimates, there will be a downward trend in the dollar exchange rate in the next 15 years. In the long-run, it cannot be guaranteed that the dollar will remain a global reserve currency.” Klinkmüller stated.
Hong Kong’s CITIC Bank International has completed the purchase of 60% of equity in Kazakhstan’s Altyn Bank from its majority Kazak owner, the Halyk Bank for an undisclosed amount. It marks the first time that China has invested in Kazakhstan’s banking sector. CITIC Bank International is a Hong Kong based bank controlled by mainland CITIC Financial Holdings, and traces its history back to 1922 and the formation of the Ka Wa Savings Bank established in the territory by the former President of Hong Kong’s Baptist College. Today, CITIC Bank International has total assets of USD50 billion and an annual turnover of USD10 billion. It is listed on the Hong Kong Stock Exchange.
Nepal is in talks with China to build a cross-border rail link that may cost up to USD8 billion, with groundwork and funding to be expected after Nepal formally signed up to Beijing’s Belt and Road initiative, a Nepali finance ministry official has stated. Yug Raj Pandey, an under-secretary at Nepal’s ministry of finance, has said that the proposed 550 kilometre-long railway would connect China’s western Tibet region to Nepal’s capital of Kathmandu and will carry goods and passengers.
Nepal officially signed an agreement to be part of China’s OBOR initiative at last month’s Belt and Road Forum in Beijing. “Now we are a member of (the initiative) we can get some specific project assistance from China’s government. We expect it for the railway.” Pandey said. “Once we connect by railway then we can increase our trade and invite more tourists to Nepal.”
Germany’s Deutsche Bank has signed an agreement with the China Development Bank http://www.cdb.com.cn/English/ (CDB) to co-finance US$3 billion worth of infrastructure projects within China’s One Belt, One Road initiative. A memorandum of understanding was signed in Berlin on May 31st, ahead of the EU-China Summit in Brussels. The two banks expressed their interest in promoting the internationalization of the RMB, and in financing economic cooperation between China, Germany and other OBOR countries.
As part of the MoU, CDB and Deutsche Bank agreed to work together over the next five years with an aim of supporting projects worth a total of US$3 billion. Both banks also agreed to establish a joint team in order to cooperate on projects that promote the Belt Road initiative. CDB and Deutsche Bank will finance projects that are beneficial to clients of both banks, including through joint lending and project finance.