clarifying obor through the china-pakistan economic...

Confidential. © 2017 IHS MarkitTM. All Rights Reserved.Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

Clarifying OBOR through

the China-Pakistan

Economic Corridor

IHS Markit Country Risk and Forecasting Team

29 June 2017

Confidential. © 2017 IHS MarkitTM. All Rights Reserved.Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

1. What is OBOR?

▪ Key facts

▪ Recent Chinese overseas investment

▪ OBOR in Asia

2. China’s objectives

▪ Political

▪ Economic

▪ Security

3. The China-Pakistan Economic Corridor

▪ Overview

▪ Security and political risks

2

Presentation agenda

Confidential. © 2017 IHS MarkitTM. All Rights Reserved.


• The economic and geostrategic

aspects of OBOR are

inseparable.

• OBOR is subject to rhetoric and

hype – but that’s not to say that

there is no potential.

• Individual projects face specific

political risks that will dictate their

success.

3

Key takeaways


What is One Belt, One

Road (OBOR)?

4


Global scope

As many as 68 countries in three continents will be affected by OBOR, potentially

impacting 4.4 billion people

5

South Asia

East Asia

S.E Asia

Central Asia

Middle East

Europe


Key features

6

A plan to connect China economically with the rest of Asia, Europe

and Africa along overland and maritime routes.

A replication of China’s own domestic focus on infrastructure

development over the past several decades.

Emphasis is on infrastructure, but OBOR involves Chinese investment

in nearly all other sectors.


• Asia Infrastructure Investment Bank (AIIB)

➢Estimated budget of USD100-billion

• Silk Road Fund (SRF)

➢Estimated budget of USD40-billion

• New Development Bank (NDB)

➢USD100-billion (BRIC-focused)

• China Development Bank (CDM) and Export-

Import Bank of China (EXIM)

➢Provides loans for Chinese machinery and

equipment bought for OBOR projects

• Chinese state-owned and private companies

➢These will be encouraged by the government

to invest in OBOR countries

7

Financing


• Hong Kong remains the largest

destination for Chinese overseas

investment.

• The UK, US and Australia follow make up

the top four.

• Only Indonesia, Russia, and Kazakhstan

are OBOR countries featuring in the top

10.

• Nevertheless, Chinese foreign investment

is less risk averse than investment from

more traditional countries.

• Lending from Chinese policy banks has

increasingly focused on Asia and OBOR

countries.

8

Outbound investment

0

100

200

300

400

500

600

700

800

900

2010 2011 2012 2013 2014

China's increasing total ODI

© 2017 IHS Markit

OD

I(U

SD

Bil

lio

ns

)

Source: Ministry of Commerce


• 21st Century Maritime Silk Road

• Silk Road Economic Belt

• Six economic corridors

➢China Pakistan Economic Corridor

➢China Myanmar Bangladesh India

Economic Corridor

➢China-Mongolia-Russia Economic

Corridor

➢New Eurasian Land Bridge

➢China-Central Asia-Western Asia

Corridor

➢China-Indochina Peninsula Corridor

9

Key components


Potential OBOR map

10


Southeast Asia

11

Thailand

USD16-billion invested as of end-

2016 with further cooperation likely

in Thailand’s Eastern Economic

Corridor.

Indonesia

Only USD6 billion so far realised,

but the government is seeking

more investment in infrastructure.

Malaysia

USD34-billion of investment

pledged for the the Melaka

Gateway project and the East

Coast rail line.

Myanmar

Twelve OBOR projects, including a

Myanmar-China gas and oil

pipelines.


South Asia

12

India

In excess of USD20-billion

pledged but India has since

opposed OBOR due to territorial

disputes.

Pakistan

More than USD50-billion

committed to various sectors,

including energy and

infrastructure.

Bangladesh

USD28-billion pledged for

Bangladesh’s railway and

infrastructure sectors.

Sri Lanka

Port development and airport

management, but local political

opposition has grown.


China’s objectives

13


China’s interests

Domestic politics

EconomicSecurity

14


• President Xi Jinping’s personal

power stands to benefit from

OBOR.

• That said, the objectives behind

OBOR pre-date Xi Jinping, and

are not serving only his

interests, but the larger political

interests of the Party-state

leadership.

15

Domestic politics


Regional development

• OBOR aims to address regional

disparities between China’s

developed coastal areas and

poorer inland provinces.

• Large-scale spending by the

central government has so far not

worked.

• China now plans to connect its

hinterlands with regional

economies that are much closer

in proximity.

16

Economic rationale

OBOR domestic programs

© 2017 IHSSource: local media

Silk Road Economic Belt

21st Century Maritime Silk

Road


Surplus industrial capacity

• OBOR is perceived as a solution

to China’s overcapacity

problems.

• Not only does this involve selling

surplus product to OBOR

countries, but also moving

equipment to the countries

themselves.

17

Economic rationale

0

1

2

3

4

5

2003 2005 2007 2009 2011 2013 2015

Cement Glass Pig iron Crude steel

China heavy industrial output volume

Source: IHS © 2016 IHS

2002=

1, 12M

MA


China’s transitioning economy

• OBOR is intended to assist the

Chinese economy’s broader

transition away from a low-cost

manufacturing industry.

• OBOR countries are perceived to

be ideal customers for high-end

Chinese technological products.

• Emphasis is likely on high-speed

railways.

18

Economic rationale


Peripheral diplomacy

• OBOR is tied with the advent of a

more pro-active Chinese foreign

policy.

• Greater interdependence with

neighbors gives China’s stronger

regional leverage.

• In contrast to: “hide your strength

and bide your time”

19

Security


Security: South China Sea dispute

20


Security

21

China’s growing diplomatic leadership


Internal security

• OBOR also attempts to address

some of China’s most pressing

domestic security issues.

• Bringing prosperity to contain

separatist sentiments in Muslim-

majority Xinjiang.

• Stemming social unrest triggered

by mass dismissal of industrial

workers.

22

Security


The China-Pakistan

Economic Corridor

(CPEC)

23


CPEC Overview

24


Beyond infrastructure

• Chinese investment in Pakistan is

overwhelmingly concentrated in the

energy sector.

• The emphasis is on speed, reflecting the

Pakistani government’s political priorities.

• Infrastructure investment is also present,

with development of highways, railways

and ports key components.

• Chinese companies have bought the

Pakistan Stock Exchange (PSX).

• They have also purchased power utility

firms and telecommunications companies.

25


What’s in it for China and Pakistan?

26

Alternate access to the Arabian sea

Development of Xinjiang

Foreign military base?

Quelling Muslim separatism

Unprecedented investment

Energy generation

Geopolitical balance with India

Development of restive regions

China Pakistan


Political risks facing CPEC

• Pakistan has generally been

politically unstable for some time.

• Contract certainty has been a

long-term problem.

• Projects are commonly disrupted

due to corruption and lack of

transparency.

27


Security risks facing CPEC

28

0

50

100

150

200

250

300

350

2014Jan

2014May

2014Sep

2015Jan

2015May

2015Sep

2016Jan

2016May

2016Sep

2017Jan

Attacks Killed

NSAG attacks in Pakistan: January 2014 - March 2017


Conclusion: Evaluating OBOR

29

Infrastructure spending

Regional integration/connectivity

Regional interdependence

New trade routes/business opportunities

China’s political ambitions

Transparency

Commercial rationale

High risk environments

Potential Benefits Challenges

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