27 JULY 2015
TABLE OF CONTENTS
OVERVIEW: China’s new silk roads – implications for emerging market
sovereigns
2
Growth in South, Southeast Asia should rise on infrastructure
investment
6
7
Bilateral trade flows should receive a boost, particularly in
Central Asia
8
10
11
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Eurasian Sovereigns
China's Belt and Road Strategy – Credit Positive for Emerging
Markets In March 2015, China’s (Aa3 stable) government unveiled a
blueprint to develop a Silk Road
Economic Belt and 21st-Century Maritime Silk Road. Collectively,
these new silk routes are
known as China’s “Belt and Road” strategy — or “One Belt, One Road”
— and have become a
cornerstone of Beijing’s foreign economic policy.
The new silk roads develop the “Go Global” policy that China
officially launched in 2001,
broadening its initial industrial focus into a strategic, regional
investment initiative.
In this report, we examine the implications for the more than 40
participating sovereigns,
which span three continents, focusing on the two-thirds that are
rated. We believe that the
Belt and Road initiative will provide net benefits. Our conclusions
are as follows:
» Growth in South, Southeast Asia should rise on infrastructure
investment.
The Belt and Road strategy will likely have a transformational
impact on smaller,
infrastructure-deficient countries in this region, by spurring
investment and boosting
economic growth potential. Among rated sovereigns, Bangladesh (Ba3
stable), Cambodia
(B2 stable), Pakistan (B3 stable) and Vietnam (B1 stable) are
likely to be big beneficiaries.
» Infrastructure financing could put pressure on government balance
sheets. The
terms of loans extended by China for infrastructure development in
emerging markets
are both concessional and commercial. In either case, projects will
raise government debt
burdens and, in the latter case, impose pressures on budgetary
expenditure.
» Bilateral trade flows should receive a boost, particularly in
Central Asia.
Kazakhstan (Baa2 stable) and Mongolia (B2 negative) are among the
rated sovereigns
that will benefit from strengthened trade linkages.
» Belt and Road projects may encounter impediments. Most
participating
governments face considerable institutional and political
challenges and risks in project
implementation.
MOODY'S INVESTORS SERVICE SOVEREIGN AND SUPRANATIONAL
This publication does not announce a credit rating action. For any
credit ratings referenced in this publication, please see the
ratings tab on the issuer/entity page on www.moodys.com for the
most updated credit rating action information and rating
history.
2 27 JULY 2015 EURASIAN SOVEREIGNS: CHINA'S BELT AND ROAD STRATEGY
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OVERVIEW: China’s new silk roads – implications for emerging market
sovereigns First proposed by President Xi Jinping during a visit to
Kazakhstan in late 2013, the Belt and Road strategy is a
wide-sweeping initiative
that seeks to revive the ancient Silk Road. The overland belt and
maritime road would integrate China with Central Asia and
ultimately
as far as the North and Mediterranean Seas through a contiguous
infrastructure network, including road and railway systems, oil
and
gas pipelines, power plants, and ports (see Exhibit 1). The two
corridors would give Beijing a key role in the integration of
Eurasia.
China’s ambitions broaden an industry-focused outward investment
policy into a geo-economic strategy. The government
officially
adopted a “two-way” investment policy when Vice Premier Wu Bangguo
in 2001 encouraged enterprises to “go global” and invest
overseas. Former President Jiang Zemin in his report at the 16th
National Congress of the Communist Party of China in November
2002 envisaged that this outward policy would result in a number of
globally strong enterprises with brand names.1
The Belt and Road plan, jointly announced by the National
Development and Reform Commission, the Ministry of Foreign
Affairs
and Ministry of Commerce in March 2015 and authorized by the State
Council, highlights that the scope of the initiative will
extend
well beyond infrastructure construction to financial and trade
integration. New regional institutions, such as the Asian
Infrastructure
Investment Bank (AIIB) and Silk Road Fund, will support the
development of the Belt and Road.
The initiative signals China's rise as a global economic power.
However, unlike the US government’s Marshall Plan for the
reconstruction of war-torn Europe in the late 1940s, it does not
seek to influence directly the regional political economy. Rather,
core
principals are mutual non-interference in internal affairs and an
advancement of common prosperity.
EXHIBIT 1
Source: Moody’s Investors Service
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The Belt and Road strategy will have tangible benefits for China
itself. It will help counteract the economic slowdown by
jump-starting
investment. It will also boost exports and provide the access to
commodities necessary for China to sustain strong economic
growth.
Moody’s believes that such integration will be net positive for
China, aiding the establishment of better regional trade and
financial
links, and accelerating the government’s long-term economic reform
agenda. This would include renminbi internationalization for
trade
and project finance, a subject discussed in a parallel Special
Comment on China .
Immense geographical scale implies credit implications will be
far-reaching
The precise scope of the countries that the new silk roads will
encompass is dynamic, since the initiative is open to
external
cooperation. As it covers, but is not limited to, the area of the
ancient Silk Road, we estimate that the eventual implementation of
both
routes will cover over 50 countries, accounting for 16% of world
GDP, and more than half of its population (see Appendix).2
For the purpose of this analysis, we focus primarily on the credit
implications of the Belt and Road for those emerging market
sovereigns that fall within Moody’s rated universe and for which
projects have been already announced. The Belt does run across
more
developed economies, notably in Europe, which will likely benefit
from improvements in relations with China, tourism, and an
increase
in bilateral trade flows. However, the bigger beneficiaries will be
emerging markets across Central and South Asia.
Almost two-thirds of the sovereigns across the Belt and Road are
rated by Moody’s. Of these, close to half are sub-investment
grade
(see Exhibit 2). Other common threads linking these countries are
that they are relatively underdeveloped economies with large
infrastructure gaps, tending to have modest per-capita incomes.
Their natural resource wealth has fuelled dynamic growth, and
although the recent collapse in commodity prices clouds the
economic outlook for these countries, they exhibit fairly strong
growth
potential (see Exhibit 3).
Countries Across New Silk Roads Are Primarily Non-Investment Grade
(Number)
Source: Moody’s Investors Service
EXHIBIT 3
Belt and Road Sovereigns Have High Growth Potential (% year on
year)
Source: Moody’s Investors Service
Implementation of the Belt and Road strategy will boost growth, but
effects will vary
Given that a lion’s share of countries across the new silk routes
are emerging markets with a high growth potential, the net
credit
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EXHIBIT 4
Rated Belt and Road Sovereigns: Who Will Benefit? Sovereigns with
Low Per-Capita Incomes, Current Account Imbalances and Large
Infrastructure Gaps Stand to Gain
Government Bond Rating
2010-14
144 Investment/
GDP 2014
Europe ( including Eastern Europe) Belarus Caa1/NEG 18,161 9.5 76
3.5 -6.7 - 35.3 Hungary Ba1/STA 24,942 9.9 137 1.3 4.2 41.0 22.0
Poland A2/STA 25,105 38.0 548 3.1 -1.4 79.0 20.3 Turkey Baa3/NEG
19,610 76.9 800 5.4 -5.8 33.0 19.0 Ukraine Ca/NEG 8,668 42.8 132
-0.2 -4.0 75.0 14.8 Middle East and Africa Kenya B1/STA 3,084 42.9
61 6.1 -9.1 65.0 22.6 Saudi Arabia Aa3/STA 52,183 30.8 752 5.3 14.9
29.0 26.7 Egypt B3/STA 10,877 86.7 286 2.7 -0.8 125.0 14.0 Kuwait
Aa2/STA 71,020 4.0 171 3.3 29.6 67.0 16.6 Nigeria Ba3/STA 6,031
173.9 567 6.2 1.6 133.0 15.2 Oman A1/NEG 39,681 4.1 82 4.6 6.5 25.0
28.4 Qatar Aa2/STA 143,427 2.2 210 9.2 25.9 26.0 34.2 United Arab
Emirates Aa2/STA 64,479 9.3 402 4.0 9.9 3.0 23.1 Central Asia
Russia Ba1/NEG 24,805 143.7 1,861 2.8 3.2 74.0 19.9 Azerbaijan
Baa3/STA 17,618 9.4 75 3.2 14.1 47.0 23.9 Kazakhstan Baa2/STA
24,020 17.4 209 6.0 2.2 62.0 25.7 Mongolia B2/NEG 11,882 2.9 12
14.0 -8.2 119.0 32.0 South/South East Asia Bangladesh Ba3/STA
3,373 158.2 174 6.6 0.8 130.0 29.3 Cambodia B2/STA 3,263 15.3 17
6.9 -9.2 109.0 23.2 India Baa3/POS 5,855 1259.7 2,039 7.2 -1.2 90.0
31.5 Indonesia Baa3/STA 10,641 251.5 889 5.8 -3.0 72.0 33.8
Malaysia A3/POS 24,654 30.3 338 5.8 4.5 20.0 25.2 Pakistan B3/STA
4,736 186.3 243 3.5 -1.2 113.0 14.0 Philippines Baa2/STA 6,962 99.4
285 6.3 4.4 95.0 19.4 Singapore Aaa/STA 82,762 5.5 308 6.4 19.1 5.0
27.6 Sri Lanka B1/STA 10,372 21.0 75 7.5 -2.7 37.0 27.6 Thailand
Baa1/STA 14,354 68.7 405 3.8 3.2 76.0 25.6 Vietnam B1/STA 5,635
90.6 186 5.9 4.8 112.0 25.6
Note: Shaded cells denote those countries that will likely benefit
from Belt and Road projects, because they fall lower than the
average for developing, investment-grade countries in terms of
per-capita income, current account balances and investment rates,
and higher than the average for five-year GDP growth rates (i.e
exhibit economic dynamism).
Sources: Moody’s Investors Service, International Monetary Fund,
World Bank
Many countries that the Belt and Road initiative will cover face
pressing infrastructure needs that are an impediment to
medium-term
growth (see Exhibit 5). The Asian Development Bank (Aaa stable)
pegs Asia’s total infrastructure requirements at more than $8
trillion
over 10 years.3 Sectors facing the greatest shortfalls include
electricity generation and road transport (see Exhibit 6). While
constraints
are well-recognized, limited fiscal space and difficulties in
mobilizing financial resources for infrastructure investment have
acted as
impediments. For these emerging economies, the impetus for
investment that will come with the Belt and Road initiative will
provide a
meaningful thrust to growth.
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EXHIBIT 5
Many Countries Across the New Silk Roads Have Weak Infrastructure
(Infrastructure rank of 144 countries)
Source: World Economic Forum Global Competitiveness Report,
2014-15
EXHIBIT 6
Asia’s Infrastructure Gap is Large, Especially for Energy and
Transport (Estimated needs by sector, 2010-2020, $ billion)
Source: Asian Development Bank
Other economies have an infrastructure framework in place, but one
that is obsolete and in need of upgrading. Such economies
will
likely witness only marginal benefits in terms of an investment
uplift. However, many of these countries, notably those in Central
Asia
and the Middle East, have large natural resources. The construction
of the routes should improve accessibility to these resources,
aiding
an increase in trade and business competitiveness.
Apart from these gains, for all countries along the Belt and Road,
the initiative will serve to increase consumption over time as
regions
become integrated and form a large market for China’s exports. This
will be particularly so as they move up the income chain from
current low levels (Exhibits 7 and 8).
EXHIBIT 7
Source: World Bank Development Indicators
EXHIBIT 8
A Growing Middle Class Suggests Strong Potential for Growth
(Middle-class population in millions, global share)
2009 2020 2030
Number % Number % Number % North America 338 18% 333 10% 322 7%
Europe 664 36% 703 22% 680 14% Central & South America 181 10%
251 8% 313 6% Asia Pacific 525 28% 1,740 54% 3,228 66% Sub-Saharan
Africa 32 2% 57 2% 107 2% Middle East & North Africa 105 6% 165
5% 234 5% World 1,845 100% 3,249 100% 4,884 100%
Source: Organisation for Economic Co-operation and
Development
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Growth in South, Southeast Asia should rise on infrastructure
investment For relatively small, infrastructure-impoverished
countries in South and Southeast Asia, the new routes will likely
have a transformative
economic impact, spurring investment and therefore a rise in
national income.
In South Asia, investments focus primarily on Pakistan
» In Pakistan, construction of the China-Pakistan Economic Corridor
will connect the port of Gwadar in the south of the country
with Kashgar in China’s northwestern Xinjiang region. It will serve
as a 3,000-kilometer transport link, and involve the
development
of special economic zones and coal, wind, solar and hydro energy
projects. In April 2015, President Xi pledged investments
worth
$46 billion towards corridor projects in the country, which
represents 18% of GDP or 28 times the FDI that Pakistan received in
the
fiscal year ended June 2014. A majority of the investment will go
to ramping up Pakistan’s energy capacity, shortfalls in which
have
kept growth anemic. Development of roads and railways is also a
priority.
» Bangladesh is an integral part of a transport corridor to link
China with India and Myanmar – the so-called
Bangladesh-China-
India-Myanmar Economic Corridor (BCIM Corridor). Other projects
connected with the Belt and Road in Bangladesh include a coal
plant, a deep sea port and a bridge.
» Although the BCIM Corridor will run through India (Baa3
positive), no large Belt and Road projects have yet been announced
there.
Even if China does not fund large projects in the country, India is
likely to benefit from economic opportunities offered by the
integration of East and South Asian supply chains.
» Sri Lanka (B1 stable) has already benefited considerably from
large-scale investment following the end of the civil war in
2009.
Between 2010 and 2014, Chinese investment backed the development of
the Hambantota Port, the Colombo Transshipment Port,
an expressway, a coal power plant, and an airport, among other
infrastructure projects. We regard these completed projects,
which
have served to boost investment and headline growth in the country,
as part of the new silk roads.
The Greater Mekong sub-region is also a key focus area
Projects have also been announced across Southeast Asia,
particularly in the ‘Greater Mekong' sub-region, where China has
historically
been a large investor. While the quantum of investment involved is
less clear, the countries' small economic size suggests that they
will
be relative beneficiaries.
» Over the last decade, Chinese FDI into Laos (unrated) has
contributed to rapid growth, particularly in the hydropower and
mining
sectors. In 2010, the two countries agreed to construct a 420km
rail link connecting Kunming in China's southwestern Yunnan
province with Vientiane. Although plans have stalled due to the
sharp increase in the country’s debt burden that will result
from
the $7.2 billion project, implementation would mark a remarkable
advance for Laos’ rail network, which at present is only
3.5km
long.
» Work on the Myanmar (unrated) section of the BCIM Corridor has
been underway for a while. Early this year, an oil and gas
pipeline connecting the country with China, built by China National
Petroleum Corporation (A3 stable) and Myanmar Oil and Gas
Enterprise (unrated), began trial operations. And in 2014, China
Unicom (unrated), a state-owned telecoms company, completed
an optical cable between Yunnan and Myanmar. An expressway
connecting Yunnan with Ruili in western Myanmar is also under
construction.
» Last year, Thailand’s (Baa1 stable) ruling junta approved plans
for a transport infrastructure project which included the
building
of two rail links with China. Another railway line connecting
southern Yunnan to the border with Vietnam is already
operational.
Together, the rail links with Laos, Myanmar, Thailand and Vietnam
will form part of the North-South Economic Corridor, linking
Kunming with Bangkok.
Other countries outside the region that are likely to benefit from
Chinese investment in transport infrastructure include Kenya
(B1
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been signed in the energy and transportation sectors. However,
China’s contribution towards building infrastructure in Africa has
been
long-standing.
Impact on investment is not large, but will increase
A rise in public investment in emerging markets is typically
associated with higher output. The International Monetary Fund
(IMF)4
finds that growth in public investment in emerging economies has
flattened (see Exhibit 9). It calculates that large and
sustained
increases in government expenditure in emerging and developing
economies result in output rising 8% in the fifth year after
the
spending boom, compared with the year before it. Given their low
investment rates as a percentage of GDP, we recognize that
many
economies across South and Southeast Asia would likely have
experienced some increase in investment even in the absence of Belt
and
Road projects, and are thus unlikely to see an additional rise in
output to this degree.
Because the size of the projects relative to GDP varies across
countries, some will benefit more than others. For example,
investments
are of a larger order of magnitude in Pakistan (18% of GDP), Laos
(62% of GDP), potentially Bangladesh and Myanmar, and some
Central Asian or Eastern European countries.
Looking at some emerging economies in Asia5 as an example, we
calculate that, based on past trends, investment growth would
have
averaged around 8% year on year from 2015 to 2019. However,
assuming Belt and Road projects take off as envisaged, growth
in
investment will likely be over 9% (see Exhibit 10). This gap widens
over time, and will help sustain headline GDP growth rates.
EXHIBIT 9
Public Investment in Emerging Economies Has Plateaued (In real
terms; %, year on year)
Sources: International Monetary Fund, Moody’s Investors
Service
EXHIBIT 10
Chinese Investment Could Help Prop up Capital Formation in Asia;
Effects Will Be Gradual (%, year on year)
Source: Moody’s Investors Service
Infrastructure financing could put pressure on government balance
sheets China’s options to fund the Belt and Road projects are
diverse. Typically, funding for most Chinese projects so far has
come from loans
extended by the China Development Bank Corporation (Aa3 stable) and
the Export-Import Bank of China (Aa3 stable). However, there
are now several alternative choices.
Fifty countries have signed the Articles of Agreement for the
China-led AIIB. Including seven more prospective members, total
founding
members may number 57 by the end of this year. Of these, 31
countries fall along the Belt and Road, indicating that lending
from the
AIIB will be well-aligned with China’s strategic initiatives (see
Exhibit 11). The AIIB will have an initial authorized capital stock
of $100
billion.
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Other funding options include: the $40 billion Silk Road
Infrastructure Fund set up by China last year, the chief mandate of
which is to
invest in Belt and Road projects; the New Development Bank
established by Brazil (Baa2 negative), China, India, Russia (Ba1
negative)
and South Africa (Baa2 stable) – the so-called BRICS – with $100
billion of initial authorized capital; and multicurrency bonds,
such as
those recently issued by the Bank of China (A1 stable).
The terms of the loans for infrastructure development will vary
according to the financing capacity of the recipient sovereign,
with
some on a concessional basis and others on commercial terms. In
many countries, the government will partly finance projects,
or
funding will be raised in the markets, increasing fiscal risks.
This could become a stumbling block for implementation, a topic we
discuss
later in this report. A case in point would be the construction of
the railway line in Laos, which is due to rely primarily on
government
funding. This would likely result in a ratcheting up of the debt
burden – a key reason behind why it has stalled.
Given the range of financing methods, the initiative will have
varied effects on public debt. In the short term, spending related
to
infrastructure projects will boost domestic demand, as discussed.
The IMF finds that in those emerging markets countries where
the level of economic slack and efficiency associated with public
investment projects is relatively low, an increase in
infrastructure
development would come at the cost of higher public-debt-to-GDP
ratios.6 In commodity-exporting economies, where an increase
in
public investment coincides with natural resource windfalls that
boost public revenues, the impact on debt could be smaller.
EXHIBIT 11
A Majority of AIIB Prospective Founding Members Lie Across the New
Silk Roads
Source: Moody’s Investors Service
EXHIBIT 12
Belt and Road Sovereigns Don't Have High Debts, But Are Dependent
on Foreign Finance (%)
Source: Moody's Investors Service
We find that most Belt and Road sovereigns have relatively low
government debt levels compared to the median for rated
sovereigns
across other regions, but their dependence on foreign currency
borrowing is high (see Exhibit 12). Nonetheless, if the increase in
the
debt burden outweighs output gains, the net credit implication
would be negative. This would act as a particular rating constraint
for
those emerging markets in South and Central Asia that already have
weak fiscal and debt metrics.
Bilateral trade flows should receive a boost, particularly in
Central Asia By integrating diverse markets, the new silk route
projects will facilitate trade within the region. At the Boao Forum
in Hainan, China,
in March 2015, President Xi said he expected that annual trade with
countries along the Belt and Road would surpass $2.5 trillion in
a
decade.
In gauging the credit implications, it is important to net out
investment-related imports associated with the ramp-up of
infrastructure,
before payoffs are realized in the form of higher export growth,
particularly those linked with mining and energy projects. In the
interim
period of adjustment, how governments manage the monetary and
fiscal implications of large foreign inflows will have an
important
bearing on the credit profile.
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In Southeast Asia, the initiative ties in with the Master Plan for
ASEAN7 Connectivity, which seeks to integrate the region
through
enhanced physical infrastructure development, effective
institutions and people-to-people exchange. China has been ASEAN’s
largest
trading partner since 2011, and its share in ASEAN trade rose to
14.5% in 2014 from 9.2% in 2005.
Construction of natural gas pipeline will make Central Asian
sovereigns a key beneficiary
Central Asian sovereigns in particular should see a boost to trade
flows. In this region, the routes will run through some of
China’s
largest trading partners for its natural gas resources (see Exhibit
13). Chinese investments in Central Asia are primarily centered
around
the construction of a natural gas pipeline that will run from
Turkmenistan (unrated) to Xinjiang in northwestern China,
through
Uzbekistan (unrated) and Kazakhstan. The pipeline comprises three
parallel lines, each running for over 1,800km. Upon
completion
of the third line by the end of 2015, the overall delivery capacity
of the Central Asia-China Gas Pipeline will account for 20% of
China’s
annual natural gas consumption, according to CNPC. Construction of
a fourth line, which will also originate in Turkmenistan but
run
through Tajikistan (unrated) and Kyrgyz Republic (unrated),
began in 2014. Once fully operational, the Central Asia-China
Gas
Pipeline will have an annual deliverability of 85 billion cubic
meters, making it the largest gas transmission system in Central
Asia.
Taken as a whole, Chinese investments in Central Asia focus on
improving the region’s infrastructure capabilities and ensuring
energy
security. For instance, the Baku-Tbilisi-Kars railway through
Azerbaijan (Baa3 stable), funded by local sources, will act as the
final link
in an overland transport route connecting China to Georgia (Ba3
positive) and Turkey (Baa3 negative), bypassing Russian
territory.
The Kars-Edirne link, in Turkey, is funded by China. These railway
lines should boost total trade volumes between China and the
three
countries.
One risk is that the ongoing moderation in China's import demand
will hurt non-energy commodity exporters along the Belt and
Road.
However, China's demand for cleaner energy sources such as natural
gas should remain robust as it shifts away from coal. Even if
an
overall moderation in import demand were to occur, we view new silk
road projects as being supportive for investment and growth
for most sovereigns in Central Asia, since they will address
supply-side bottlenecks and boost domestic demand. However, for
those
countries that have a very large trade exposure to China, such as
Turkmenistan, infrastructure investment associated with Belt
and
Road projects alone will not be sufficient to offset the
deceleration in export growth.
In North Asia, China’s relations with Mongolia (B2 negative), which
have historically been contentious, have improved over recent
years. China absorbs nearly 90% of Mongolia’s exports,
primarily coal, copper and iron ore. The Chinese state-owned mining
group
Shenhua (unrated) is part of a consortium of companies which will
help build a railroad linking Tavan Tolgoi, Mongolia’s largest
coal
mine, to the border with China.
EXHIBIT 13
China’s Imports its Gas Primarily from Belt and Road Countries in
Central Asia (% of total gas imports)
* Pipelines. Source: BP Statistical Review of World
Energy
EXHIBIT 14
Central Asian Sovereigns Have Witnessed a Sharp Rise in Bilateral
Trade with China (% of GDP)
Source: China Stat
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Although the routes will pass through the Middle East, we expect
increases in trade here to be limited, given the developed
relationship
that China already enjoys with these countries. In 2014, the Middle
East supplied China with 52% of its total crude oil imports,
with
Saudi Arabia (Aa3 stable) accounting for 16% of the total. Other
energy-supplying countries in the Middle East through which the
Belt
and Road will run include Iran (unrated), Iraq (unrated), Kuwait
(Aa2 stable), Oman (A1 negative), Qatar (Aa2 stable) and the
United
Arab Emirates (Aa2 stable).8
Helped in large part by the opening of the gas pipeline network,
China is rapidly becoming the leading trade partner for all the
Central
Asian states (see Exhibit 14). These shares should only increase
with the development of shorter, alternative energy routes.
An immediate implication of the implementation of large-scale
investment projects would be to bolster these sovereigns'
external
positions through an increase in foreign direct investment and
loans. However, this benefit will be offset to the extent to which
such
investment finances project-related imports of goods and
labor.
Belt and Road projects may encounter impediments As an ambitious
strategy that seeks to integrate Eurasia, constructing the Belt and
Road will be a challenging exercise in diplomatic
coordination. In addition to serving as a transport network, the
initiative will expand China’s sphere of geo-economic influence.
Its
success, to a large extent, will depend on cooperation from the
political leadership in host countries, and their ability to accept
greater
Chinese involvement in the infrastructure-building process.
In many countries, domestic political sensitivities could prove to
be a stumbling block. In Sri Lanka, for example, a new
government
suspended the China-backed Colombo Port City project. In the Middle
East, sectarian strife poses political and project risks. In
Baluchistan, Pakistan, where the CPEC is charted to begin, there is
an ongoing separatist insurgency.
In Southeast Asia, if territorial disputes in the South China Sea
were to intensify, this could raise domestic opposition to
projects. For
example, there are no Belt and Road plans in the
Philippines (Baa2 stable), and the rail line project in
Vietnam has stalled. Another
stumbling block could be geopolitical rivalry with larger economies
such as India and Russia, through whose backyards the Belt
and
Road will run.
Besides this, the financing of infrastructure development will face
many impediments, given weak legal and regulatory frameworks
in
the countries involved. Projects that rely on market financing will
be more dependent on recipient governments establishing a
legal
framework that supports enforceability of contracts, effective
regulation and an expeditious judiciary process.
A further challenge will be a lack of administrative capacity in
the less developed Belt and Road economies. These typically
have
weak delivery mechanisms and a relatively inefficient public
investment process. In many of these economies, legislation
surrounding
environmental and social protection is weak.
All in all, the ramp-up in infrastructure will likely be a gradual
process, but the potential benefits of the various projects, and
China's
MOODY'S INVESTORS SERVICE SOVEREIGN AND SUPRANATIONAL
11 27 JULY 2015 EURASIAN SOVEREIGNS: CHINA'S BELT AND ROAD STRATEGY
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Appendix – Belt and Road sovereigns (including unrated)
Government Bond Per-Capita
GDP Growth Current Account
Balance Infrastructure
Index Investment/
GDP Rating $, 2014 Mns, 2014 $ billion, 2014 %, 2010-14 % GDP, 2014
Ranking %, 2014
Europe ( including Eastern Europe) Belarus Caa1/NEG 18,161 9.5 76.1
3.5 -6.7 - 35.3 Hungary Ba1/STA 24,942 9.9 137.1 1.3 4.2 41.0 22.0
Poland A2/STA 25,105 38.0 548.0 3.1 -1.4 79.0 20.3 Turkey Baa3/NEG
19,610 76.9 799.5 5.4 -5.8 33.0 19.0 Ukraine Ca/NEG 8,668 42.8
131.8 -0.2 -4.0 75.0 14.8 Middle East and Africa Angola Ba2/NEG
7,203 24.4 142.6 5.2 0.8 141.0 14.1 Benin Unrated 822 10.6 8.7 4.5
-8.5 - 18.7 Egypt B3/STA 10,877 86.7 286.4 2.7 -0.8 125.0 14.0 Iran
Unrated - - - - - - - Iraq Unrated 14,571 35.9 221.1 6.4 6.9 - 0.0
Kenya B1/STA 3,084 42.9 60.9 6.0 -10.4 65.0 22.6 Kuwait Aa2/STA
71,020 4.0 170.6 3.3 29.6 67.0 16.6 Nigeria Ba3/STA 6,031 173.9
567.0 6.2 1.6 133.0 15.2 Oman A1/NEG 39,681 4.1 81.8 4.6 6.5 25.0
28.4 Qatar Aa2/STA 143,427 2.2 210.1 9.2 25.9 26.0 34.2 Sudan
Unrated 1,980 37.3 73.8 5.5 -5.2 - 17.3 Syria Unrated - - - - - - -
Tanzania Unrated 1,006 47.7 47.9 6.8 -10.2 117.0 31.3 United Arab
Emirates
Aa2/STA 64,479 9.3 401.6 4.0 9.9 3.0 23.1
Saudi Arabia Aa3/STA 52,183 30.8 752.5 5.3 10.2 72.0 26.7 Central
Asia Russia Ba1/NEG 24,805 143.7 1860.6 2.8 3.2 74.0 19.9
Afghanistan Unrated 649 31.3 20.3 6.8 -5.2 - 20.4 Azerbaijan
Baa3/STA 17,618 9.4 75.2 3.2 14.1 47.0 23.9 Kazakhstan Baa2/STA
24,020 17.4 208.6 6.0 2.2 62.0 25.7 Kyrgyzstan Unrated 3,361 5.7
7.4 3.7 -13.7 - 27.0 Mongolia B2/NEG 11,882 2.9 12.0 14.0 -8.2
119.0 32.0 Tajikistan Unrated 2,688 8.3 9.2 7.1 -3.6 107.0 14.4
Turkmenistan Unrated 8,721 5.8 47.9 11.1 -5.9 - - Uzbekistan
Unrated 5,609 30.6 62.6 8.2 0.1 - 30.8 South/South East Asia
Bangladesh Ba3/STA 3,373 158.2 173.8 6.6 0.8 130.0 29.3 Brunei
Unrated 37 0.4 15.1 0.9 23.6 - 15.5 Cambodia B2/STA 3,263 15.3 16.7
6.9 -9.2 109.0 23.2 India Baa3/POS 5,855 1259.7 2039.2 7.2 -1.2
90.0 31.5 Indonesia Baa3/STA 10,641 251.5 888.5 5.8 -3.0 72.0 33.8
Laos Unrated 4,987 6.9 11.8 8.0 -25.1 - Malaysia A3/POS 24,654 30.3
338.1 5.8 4.5 20.0 25.2 Maldives Unrated 8,342 0.3 2.9 4.9 -8.4 -
20.0 Myanmar Unrated 1,221 51.4 62.8 6.9 -7.2 138.0 25.7 Nepal
Unrated 699 28.1 19.6 4.5 4.6 126.0 28.9 Pakistan B3/STA 4,736
186.3 243.4 3.5 -1.2 113.0 14.0 Philippines Baa2/STA 6,962 99.4
284.6 6.3 4.4 95.0 19.4 Singapore Aaa/STA 82,762 5.5 307.9 6.4 19.1
5.0 27.6 Sri Lanka B1/STA 10,372 21.0 74.9 7.5 -2.7 37.0 27.6
Thailand Baa1/STA 14,354 68.7 404.8 3.8 3.2 76.0 25.6 Vietnam
B1/STA 5,635 90.6 186.2 5.9 4.8 112.0 25.6
MOODY'S INVESTORS SERVICE SOVEREIGN AND SUPRANATIONAL
12 27 JULY 2015 EURASIAN SOVEREIGNS: CHINA'S BELT AND ROAD STRATEGY
– CREDIT POSITIVE FOR EMERGING MARKETS
Moody's Related Research
Sector In-Depth:
» China Credit: One Belt, One Road Is Credit Positive, Despite
Rising Overseas Risk Exposure, July 2015
Outlook:
» Sovereign Outlook - Commonwealth of Independent States:
Sovereigns affected by oil price movements and Russian
spillovers,
May 2015
» Sovereign Outlook - Asia Pacific: Credits diverge on domestic
factors; resilience to external risks is high, April 2015
» Sovereign Outlook - Central and Eastern Europe: Resilient Credit
Profiles Mitigate External Headwinds, April 2015
» Sovereign Outlook – MENA: Oil price shock is driving diverging
trends in sovereign creditworthiness, March 2015
Credit Opinion:
» China, Government of
MOODY'S INVESTORS SERVICE SOVEREIGN AND SUPRANATIONAL
13 27 JULY 2015 EURASIAN SOVEREIGNS: CHINA'S BELT AND ROAD STRATEGY
– CREDIT POSITIVE FOR EMERGING MARKETS
Endnotes 1 See Full Text of Jiang Zemin's Report at 16th Party
Congress
2 Estimates in newswires suggest that the network could be larger,
spanning across as many as 65 countries.
3 See Financing Infrastructure for Connectivity: Policy
Implications for Asia , June 2011, ADB Institute; p7
4 IMF Oct 2014 World Economic Outlook, Chapter 3
5 Calculations are based on nominal gross fixed capital formation
for Pakistan, Bangladesh, Cambodia, Thailand, Vietnam and Myanmar.
We exclude Laos for lack of data. Averages are weighted according
to nominal GDP.
6 See endnote 4
7 ASEAN, the Association of South East Asian Nations, includes
Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the
Philippines, Singapore, Thailand and Vietnam.
8 Source, EIA
MOODY'S INVESTORS SERVICE SOVEREIGN AND SUPRANATIONAL
14 27 JULY 2015 EURASIAN SOVEREIGNS: CHINA'S BELT AND ROAD STRATEGY
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15 27 JULY 2015 EURASIAN SOVEREIGNS: CHINA'S BELT AND ROAD STRATEGY
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AUTHOR Anushka Shah