Economy & Trade
While the Belt & Road has become synonymous with China, fundamentally defining projects China has a vested interest in, the development of the new economic Silk Road overall includes much more than Chinese involvement (which is why this website refers to the Silk Road). While China generates much of the media attention, many other multilateral and national funds are also investing. Some have been doing so for years, and may be somewhat perplexed by suddenly being described as “funding a B&R project”. Others have been specifically created to deal with particular regions and trade blocs. In fact all countries involved in China’s Belt & Road will in one way or another have part of their own sovereign wealth involved, and especially when it comes to supporting their local industries and business interests. Further drilling down is required to establish the nature of such national project finance. Meanwhile, Chinese institutions are being re-targeted at Belt & Road financing and fund raising.
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Moody’s Investors Service has issued a report stating that China’s Belt and Road initiative (BRI) – which aims to strengthen linkages between it and a host of countries in Eurasia and beyond – will benefit its own economy and corporate businesses, but will also pose challenges in how risk will be allocated between participating Chinese entities and the participating sovereign nations.
However. Moody’s also warns that officials face significant logistical and fiscal challenges, due to the significant credit risks in doing business with some of the country’s eager to sign up to the infrastructure-targeted plans, many of which have poor credit profiles. Among the participating countries, Moody’s estimates less than 40% would be considered as having relatively “high financial strength”.
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Silk Road Briefing is produced and written by Dezan Shira & Associates. The firm provides governments and corporate businesses worldwide with strategic, legal, tax and operational advisory services to their SMEs and MNCs investing throughout Eurasia and has 28 offices across China, India, Russia and the ASEAN nations, and partner firms in Central Asia. We have specific and long term experience in China and the OBOR countries. For assistance with OBOR related issues, please contact the firm at silkroad@dezshira.com or visit the practice at www.dezshira.com
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The investment relationship between India and Russia is developing with two Indian ports eyeing trade opportunities at either end of Russia. Both New Delhi and Moscow are looking at creating a key maritime route connecting India with North East Asia and the Western Pacific region via a direct shipping link between Chennai and Vladivostok.
Another planned, mainly overland route extends from shipping originating in Mumbai through to Iran’s Chabahar Port, and overland to European Russia.
The shipping route concept comes following Indian Foreign Minister Sushma Swaraj’s visit to Vladivostok last week to attend the Eastern Economic Forum. India, like China, is looking to expand its presence in Russia’s Far East to harness natural resources there, among them oil and gas supplies as well as diamonds.
India has for centuries been a supplier and center for diamond processing, while the Russian Far East boasts the world’s largest reserves. The Eurasian Diamond Centre opened last month in Vladiviostok; Indian investors have been some of the first to acknowledge the opportunities.
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The Russian and Iranian joint railway projects benefit virtually all of Europe and Asia, according to Abbas Nazari, head of the Islamic Republic of Iran Railways’ foreign affairs department.
Nazari has stated that the railway project, part of the International North-South Transport Corridor is: “Profitable not just for both countries, but also for Asian and European states. Russia is a prominent railway power; it has an extensive network of railways, which accounts for 85 percent of all freight transported by the country. An important element of our cooperation is the North-South transport corridor which, as you know, begins in Europe and runs to India via Russia, Azerbaijan, and Iran. We seek to ensure that Iranian railways become the primary transit element of the North-South Transport Corridor”. He added further that the length of the Iranian segment of the corridor is about 2,000 kilometers”.
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Kirill Dmitriev, the Head of the Russian Direct Investment Fund (RDIF) has stated that the BRICS countries might discuss the possibility of creating the organization’s own cryptocurrency as an alternative to other payment systems. This fits in with existing preferences, where the BRICS member states prioritize payments made between the countries in their own currencies.
“Another topic discussed by the financial committee was cryptocurrencies. The creation of BRICS’ cryptocurrency as an alternative to other payment tools might also be discussed. However, cryptocurrencies are also being discussed as one of the possible options for financial settlement. For particular payments it might be quite relevant and serve as a good alternative to the dollar or any other currency. We estimate that the mutual investments of the BRICS countries might see an increase by 3-4 times due to such instruments as BRICS New Development Bank“, Dmitriev said.
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The ninth BRICS summit concluded in Xiamen this week, with the primary members of Brazil, Russia, India, Chin,a and South Africa all taking part. Less reported was the participation of five other nations – Egypt, Guinea, Mexico, Tajikistan, and Thailand, suggesting that each of the original members brought along a guest.
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The Russia-Mongolia-China economic corridor will open for international road transport next year, according to Russian Transport Minister Maxim Sokolov, who is reviewing preparations on the implementation of an intergovernmental agreement on international transport via the Asian network of highways.
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China’s President Xi Jinping and Indian Prime Minister Narendra Modi have met at the BRICS summit in Xiamen and agreed to “get relations on the right track”, following the recent stand off of their armies at Doklam, close to the Nathu La pass near Bhutan.
The BRICS grouping, along with the Shanghai Co-Operation Organisation of which both China and India are members, shows the importance these relatively new institutions are having when it comes to solving regional problems. The China-India border area has long been a contentious issue; however, both Xi and Modi agreed this week “to not allow differences to become disputes” and to have closer communication between the defense and security personnel, so that there is no repeat of incidents such as that at Doklam.
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