tv The David Rubenstein Show Peer to Peer Conversations Bloomberg September 1, 2018 2:00pm-2:30pm EDT
>> brought to you by standard chartered. one belt, one road, one bank. ♪ stephen: expensive and expansive. an empire-building exercise or, the creation of a new world order. ♪ >> it is not a program dominated by china, it is a program by which china works with other countries. stephen: corridors that stretch from china through central asia europe, to the middle east, south africa, to the world's
most unchartered economic territories. >> defaults can always happen, infrastructure is a risky business. stephen: a project that will have cost china and its partners trillions of dollars unfinished. >> these countries need infrastructure and at the end of the day, money will drive this process forward. ♪ stephen: hello, i'm stephen engle. welcome to a look at how the economic future of the world's oldest continuous civilization is evolving. a new dynasty being both from beijing on the foundations of a project that is china's one belt, one road initiative. fast trains are one of the symbols of modern china. so too is the pace at which they are being built. top speed, more than 300 kilometers per hour.
and rightly or wrongly in the eyes of some perhaps, a reflection of china's belt and road ambitions. >> contrary to other people's misconceptions, it is not a program dominated by china, it is a program by which china works with other countries come working with international financial institutions, multilateral banks, it is kind of a cooperation. unfortunately, some people misunderstand this as kind of a china program. china wants to take advantage and promote its own interests. >> china builds up enormous amounts of good will buy building infrastructure. these markets are desperate for better metro systems, road systems, especially in these small to midsize economies. at the same time, there are concerns.
one refrain you always hear from locals, whether it is individuals or companies, is that chinese companies will often win or come out on top. >> in the next 10 or 15 years, the world will invest about $90 trillion in infrastructure, mostly in emerging and developing countries. so whilst that, to some is a very large sum, it is only a couple of percent less than the world's infrastructure investment and it might be 3, 4, 5% of the infrastructure investment in asia. so it is very big, but we shouldn't overdo the magnitude of this come in the context of infrastructure investment. ♪ stephen: in its simplest form, china is looking to revive the roots of the inch and soak road with a modern infrastructure,
economics road and rail by linking major ports, joy and went to a maritime road that circles back to china. but the reality is much more complicated. >> when we have 86 countries, it is very hard for me to say, which country is in part of the belt and road initiative. >> also, for instance, when you think about it, maritime, it could be westbound. but given the increased relationship between asia and latin america, it could be eastbound, or southwest bound africa. so, you see, this is really an effort to promote regional and global integrations. >> it is not a unilateral policy, a focus on infrastructure, focus of relieving the excess supply back home. what we have seen is a growing ecosystem growing around those infrastructure projects. a growing number of chinese
firms, not just state, but private, on looking to participate, simply because of the business opportunities as a result of the infrastructure, are beginning to grow and expand. so the policy today is very different to what we saw five years ago. >> the initiative is very much in its early stages, the designed and crafted. of course, there are some projects already through central asia and the road down to what gwadar in pakistan. what we have seen so far is there is a basic idea here connecting the world to eastern asia in particular, china. ♪ stephen: make no mistake, china's leadership is serious. the project has been and enshrined -- enshrined in the commonest spot is constitution. rise or fall, it will be seen as one of the legacies of president xi jinping's rule. the president said very clearly.
"we will not build a garden in our backyard. we are interested in building a beautiful garden with beautiful flowers which will be enjoyed by all the nations in this world." >> i think it is central to the strategy of china and president xi jinping. it is about the story of the rise of china and the reality of the size of china's economy and trade. it is a must equal in size to the economy of the united states, it depends how you measure it, in some measurements, it would be bigger, much more trade than the u.s.. so, the bri is a story on the rise and openness in china. >> in china, we said, you aim high and you achieve something a little lower. if you aim lower, you might achieve the littlest. but the chinese people are very ambitious.
china will be ambitious for the rest of the world. >> the 10 economies by themselves account for nearly 70% of the belt and road gdp. chinese firms have won some deals in these economies, but not too many. they are struggling in order to compete with all of the other firms, whether indian or turkish companies or chinese companies, they will have to adapt, which means collaborating with other partners. >> the infrastructure being built in southeast asia or hackathon or kazakhstan or linking up with africa, first and foremost, it should be shaped by the country in which it is. that, i think, is extremely important in the whole execution of the idea. it is not that china dictates, china saying, this is what your infrastructure must look like,
that would be a failure. stephen: new maritime routes, new roads, new railways, new pipelines, newport. the silk road highway is taking shape, moving its product to many markets and bringing the world's offerings into china. up next, we weigh the risks versus rewards of doing business through uncharted territory. ♪
♪ stephen: one of china's greatest challenges in realizing the belt and road initiative will be paying for it. the scope of the cost ranges from $4 trillion to $10 trillion. but it is how it manages money across countries with high risk and poor credit profiles that provides another biggest unknowns. of the 70 countries listed as partners, the sovereign debts of 27 of them are listed as adjunct. another 14 of them, countries like afghanistan, syria, are not rated at all. >> default can always happen. infrastructure is risky in the early stages, which is what it is important to have the right kind of finance in the right place, at the right time. that is what multilateral development banks try to do, to get involved in the early stages when it is risky and manage the
risk. >> the policy is clear, the bank is inclusive. we do not intentionally try to grasp of the people into the bank, because it is ultimately the decision-making of the sovereign governments, and the door is open. we are inclusive. if they are interested in joining and working with other members, they are most welcome, but each and every seven government has its own ideas. >> very many government to government deals will be a concern, but again, the initiative is evolving. in its early stages, there are many government to government him many government to government deals and increasingly, these deals are profit driven. not just local, firms or state firms, but private firms we are seeing chinese firms beginning to move into the market. >> what role should and will commercial banks play, because they are risk-averse as well, but there are being driven by policy many places?
>> these banks have a very important world to play, particularly the foreign, commercial banks. they provide a robust, due diligence process for selection projects, screening and financing. at the highest level -- chinese officials recognized this. my conversations at the highest level, they echoed sentiments around what we need the private banks to participate, the foreign banks to participate, we will not fund on these projects, and more importantly, we don't want to see white elephants, we want the project to be viable. stephen: transparency and good governance, one of the biggest challenges. in malaysia, a new government has seen the chinese government pair back some of its deals. in countries like sri lanka, a
debt default is steering the project off course. >> sri lanka is a good example. they built a court but it is not useful, not economic, so now, the chinese have taken it over. we will see that in more vulnerable and smaller countries. infrastructure sounds nice, but if it doesn't generate a lot of business, then it is not good infrastructure. >> you can see that, the hambantota port was taken up without any feasibility study. as a result, the government of sri lanka had to hand over hambantota port on a 99-year lease, not just the port, but a vast area of nearly seven square kilometers around it. stephen: for india which is the biggest critic of the project, it is also a question of national security. china's biggest project to date runs the length of neighboring pakistan to the port of gwadar on the indian ocean. >> when you talk about silk
road, the fact that today, china has come to acquire control or controlling stakes in some 75 ports in 35 countries, clearly, that is not being done just with commercial objectives in mind. >> if you are very close to china, there is more nervousness. india was a great example. but some of the asean countries have to worry about this. china is clearly buying friendship from cambodia and lao, and it provide a veto within asean which operates on a consensus basis. you can count on them sticking with china and preventing asean from doing anything which china might find objectionable. >> we are seeing a rapidly expanding presence of china in the pacific region, and we
understand that china has a desire to emerge as a major maritime power. we don't quarrel with that, but what is happening has applications for us. >> i think when you have a rising power like china, countries which are close neighbors like india, or countries which were the dominant economic power like the united states have to figure out their position, and they might get a bit uneasy because of the strength of china, and what china wants to do with the rest of the world. stephen: and the rest of the world means much more than just the routes along the asian silk road. globalization, conductivity, 21st century transport and findings. >> it is hard to get clarity around the financing of these projects.
even in countries such as pakistan, many of these financing arrangements around the deals are not clear, so there are concerns of their that the chinese, the local governments are overpaying for chinese contracts. david: the initial set of chinese loans over the last few years, a lot of it has done to countries with very poor governance. venezuela is a big borrower, so done, angola, pakistan, countries that may very well run into debt problems. but here is an important but, indonesia is a big oral work, south africa, eastern africa countries. so i think china has some good clients, but clients, and what you would expect is that the project would work out in that are managed countries. >> at the same time i would say that there is a tendency for people to focus on the deals that were done five years ago and have only just come to market, whether it is a port or rail project. in these projects, you see some of the deals being done today, they look no different to those
than any other multinational or large country would execute on. so, that part, and it is a most exciting part, is the one that promises the most over the next coming years. stephen: for port operators like this one, the opportunities are massive. an estimated uplift of $2.5 trillion in trade over a 10 year period. coming up after the break, we get the word from the giant apm terminals as we continue to navigate the belt and road initiative. ♪
where you can really get a taste of the past. much of the population here are descendents of arab traders who traveled from months to get to china along the silk road. although it is no surprise to us that china is the world's largest trading nation and wants to promote world trade. we see very much that belt and road is an initiative that supports that. the overall goal is to develop up to $2.5 trillion of trade in a 10 year period. some of these projects could be interesting to us. broadly speaking, if the growth comes back, it is more cargo for our ships, more movement for our tunnels, more units in our warehouses. >> we have been in the shipping and cargo business for decades, where do you see this going? >> you have to keep building the conductivity. a lot of academic research shows that when transport connectivity
improves, the cost of doing trade comes down and that has a beneficial impact on growing trade. our analysis is a 10% improvement in connectivity reduces trade cost by 3% and increases volumes by 5-9%. so we see a direct connection between these two things. stephen: and apm terminals should know. the transport and logistics arm has 78 port facilities in 58 countries, many of them passing along the ancient silk road. >> we have quite some of the best projects within the bells and road scope. for example, in vado, in italy, we have invested with costco and another company to build a terminal. we are also working with chinese companies to build boards in africa where we are interested in investing together, so we are eating opportunities not just in asia, but the whole scope of the belt and road, to collaborate.
stephen: what do you think should be the priorities in an opening days and years of the belt and road initiative? >> for us, it is a transparency, that is where we would like to see improvement. very often, projects are done and we only find out about them after the main players have already reached an agreement. i think that is probably where the international companies would like to get involved, the eu is coming getting along the same lines. this is an area where improving transparency is critical to the future success of belt and road. stephen: plenty of roadblocks along the way, but there is also opportunity. trillions are to be spent. so who along the belt and road stands to benefit the most? >> i think they are shifting toward better managed countries and it is a more general financing of infrastructure, so countries like brazil, south africa, east africa, they have vast infrastructure needs and there is a lot of potential for this to work out. if you think about it as the
chinese master plan for where infrastructure should be, it will not work out, it is not realistic. >> at the end of the day, money is the ultimate driver. chinese firms can provide elevated infrastructure projects. for instance in india whether it is construction companies, there is an opportunity to make money by partnering with chinese companies, and they will do so. at the end of the day, money will drive this process forward. >> i think the closest neighbors to china and those nations on the road to europe will be the best beneficiaries. but i hope very much that the link to southeast asia will strengthen china's and india's relationship. it is the most important in the world, and i hope there will be strong benefits for africa to link up with the big, fast growing markets in the world, which are now asia.
>> actually, if you read president xi jinping's i would say, monumental statement in the congress meeting, he said, the belt and road initiative would connect with the other initiatives proposed by many other countries. so, we are very supportive of the belt and road initiative. of course, when we are approached for financing the project, we will have to see whether they meet our standards. for us, the three basic standards are as follows financial stability, environmental protection and the protection of local people's interests.
♪ stephen: by the mid-15th century due largely to more efficient seaborne trade as well as squabbles between the participating states, the original overland silk road began decaying. it was about the same time the forbidden city behind me was being completed to serve as the home to chinese emperors for the next 500 years. now, the revival of the old route is indicative indeed, of china's reemergence as a global trading power. i am stephen engle. thanks for watching. thanks for watching. ♪ retail.
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