Making sense of Belt and Road – The China analyst: CLSA
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It falls to analysts like Alexious Lee, head of China industrial research at CLSA, to make sense of the vast scope and long-term themes of Belt and Road. Lee heads CLSA’s research coverage of Belt and Road and public-private partnerships, assisting clients seeking access to China for projects related to the new Silk Road.
Speaking in July, Lee
says that $600 billion of framework agreements have been signed around
infrastructure, of which about $400 billion is in energy, power and
“The other 30% of these projects would be policy
projects – those that depend on what the country wants. So, if Thailand
wants a metro system, China can help.
“So, 70% of what has been signed is to enforce energy and trade security, and 30% is for bilateral collaboration.”
that $600 billion, Lee sees $200 billion as being underway. He believes
the total value of projects could treble within five years. He is
encouraged by, for example, seven countries coming together in May to
talk about improving connectivity through railway development and
signing improvement plans to increase speed, quality, connectivity and
“Politically, that’s a very big achievement,”
he says. “We are starting from a stage where we have had no investment
in railway at all: it’s all been talk.”
Lee, like many of the
people interviewed, was at the Belt and Road Forum in Beijing in May,
and came away from it with a different point of view to many others.
guys always think infrastructure is the key theme in Belt and Road,” he
says. “It’s not. In the opening speech, it was clear: the most
important theme to the Chinese government is trade.”
15 free trade agreements today, he says, with an eclectic bunch of
partners, from Asean to Iceland, Australia to Peru; he predicts the
number will reach 30, maybe even 40, by the end of 2020.
also interested in the way that the AIIB and Silk Road Fund – although
they are very different institutions – may shape the way funding works
in the region.
Before the appearance of these institutions, he
notes, there were some countries that appeared to be off-limits for the
World Bank and ADB for political reasons: he cites Thailand after the
military coup as an example. After China began to fund in Thailand, the
international multilaterals changed their tune and re-engaged.
Alexious Lee, CLSA
growth in the region may change the way traditional agencies decide who
they lend to and who they do not want to lend to,” he says.
notes, however, that AIIB is not a policy instrument like the Silk Road
Fund (a message AIIB is extremely keen to convey). “AIIB wants
commercially viable projects with a solid internal rate of return,” he
says. “Silk Road Fund is 100% Chinese sovereign and will take on
strategic projects that cannot be quantified just by IRR. It is, in
simple terms, a tap for financing countries that have been deprived of
funding from the rest of the world.”
Although Pakistan is the
place that gets the most headlines for Belt and Road projects so far,
for Lee the real meat of it all is the ‘stans’ of central Asia.
are the most eager to work with China,” he says. “Kazakhstan,
Uzbekistan – these are oil and gas countries in a market crying out for
energy security, and they are much more important to China than whether
they can get involved in an Indonesian railway to Bandung.” (China is
involved in the Jakarta-Bandung railway, incidentally, although the $5.5
billion project remains 60% owned by Indonesia.)
As an analyst,
Lee is expected to find the stock market winners that come with Belt
and Road. Lee has buy recommendations on the H-shares of China
Communications Construction Company and China Railway Construction Corp,
but an under-perform on China Railway Group, demonstrating that simply
buying everything in a sector is to miss the nuances of individual