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“The Belt and Road” Infrastructure Investment and Financing Demands and China’s Roles
2017-04-14
By Zhang Liping
Research Report Vol.19 No.2, 2017
“Facility Connectivity” is not only an important part of “The Belt and Road” Connectivity System, but also is committed to improving the hardware required for development of the regions along “The Belt and Road”. The core of Facility Connectivitylies in infrastructure construction and improvement of the regions along “The Belt and Road”, which calls for enormous capital investments. According to this paper, during 2016-2020,the countries along “The Belt and Road” [] will raise desired infrastructure investment demands[] amounting to at least USD10.6trillion, among which investment demands from those countries along “The Belt and Road” (except China[]) will amount to about USD1.4 trillion. In order to meet such enormous investment demands, it is far from enough by relying solely on the financial resources within these regions. It is necessary to make full use of internal financial resources, and integrate the worldwide available financing channels on this basis. As revealed by historical experience, development and improvement of any country’s infrastructure mainly depend on endogenous force, as external force can only play the role of a useful supplement. China is the first to advocate “The Belt and Road”, but “The Belt and Road”concerns 65 countries all along the way. China is the world’s second largest economy, and has a wealth of experience in infrastructure development and advanced technology. With regard to “The Belt and Road” infrastructure investment and financing, China should effectively make its contribution under the principle of co-construction, take an active part under the premise of insistence on mutual benefit, win-win and market operation,and play the role of an active experience sharer, a major participant in co-construction and a joint promoter of cooperative mechanism.
I. Enormous Investment Demands Are Implied for “The Belt and Road” Infrastructure Construction
Enormous investment demands are implied for “The Belt and Road” infrastructure construction. The most cited argument is Infrastructure for a SeamlessAsia jointly issued by the Asian Development Bank (ADB) and the Asian Development Bank Institute (ADBI) in 2009. According to this report, total demand for infrastructure investment across Asia is projected at USD8.28 trillion during 2010-2020. But this estimate result covers only 30 of all 45 developing members of ADB, among which seven countries don’t stand along “The Belt and Road”. In order to more fully estimate the size of “The Belt and Road” infrastructure investment demand,on the basis of the existing research findings, Proportional Estimation Method is adopted herein. Under this method, desired ratio between investment in all infrastructure sectors and GDP is determined, and then respective GDP bases and GDP growth rates of the countries along “The Belt and Road” during estimation period are set. On this basis, Total Desired Investment Demands for “The Belt and Road”Infrastructure and Annual Average Sizes of these countries are respectively calculated. The specific calculation method is described as follows:
1. The scope of infrastructure.Measurement indicators of infrastructure investment vary in current research findings. For example, statistical indicators for the Private Participation in Infrastructure (PPI) Project Database of the World Bank include: Energy (Power Generation, Transmissionand Distribution; Natural Gas Transmission and Distribution); Information and Communication Technology (ICT); Transportation (Aviation, Railways, Highways and Ports); Water (Drinking Water Production and Distribution; Sewage Collection and Treatment). Research findings of Union Bank of Switzerland (UBS) for some infrastructures of the OECD Countries and BRIC Countries (2006) lay stress on Roads, Railways, Telecommunications, Electric Power (Power Transmission and Distribution Only) and Water. Due to the availability of data, the scope of infrastructure inthis papercovers “Energy”, “Transportation” and “Municipal Public Infrastructure”. Among them, “Energy” and “Transportation” are herein defined by the World Bank PPI Database, while Chinese measurement indicators are adopted for “Municipal Public Infrastructure” herein, including Water Supply, Gas Supply, Heat Supply, Public Transportation, Roads and Bridges, Drainage and Sewage Treatment, Flood Control, Gardening and City Appearance and Environmental Sanitation, among others.
2. Determination of desired investment ratio: Since desired infrastructure investment ratio is closely related to the development conditions, levels and patterns of various countries, in order to make estimations consistent with actual demands,the countries along “The Belt and Road” [] fall into three groups: 1) IDA-eligible countries[] (IDA refers to “International Development Association”);2) IDA-ineligible countries other than China; and 3) China.
Among them, the desired ratio of infrastructure investment in IDA-eligible countries is a sum of empirical value of China’s municipal infrastructure construction (1993-2000) and average ratio between PPI for infrastructure (Energy and Transportation) Construction and GDP of IDA-eligible countries (accessed by the World Bank, 2011-2015), which is 2.2%. Desired ratio of infrastructure investment in IDA-ineligible countries is a sum of empirical value of China’s municipal infrastructure construction (2001-2008) and average ratio between PPI for infrastructure (Energy and Transportation) Construction and GDP of IDA-ineligible countries (accessed by the World Bank, 2011-2015), which is 3.2%. For China, desired ratio adopts the average of infrastructure investment and GDP during “The Twelfth Five-year Planning Period”, which is 15%[].
3. Desired GDP size during estimation period:When GDP values of IDA-eligible countries (2016-2020) are calculated, the nominal GDP growth rate is set at 5.5%.The nominal GDP growth rate of IDA-ineligible countries is set at 4%. In accordance with the goals specified in “The Thirteenth Five-year Planning Period”, China’s nominal growth rate is set at 7.5% GDP. With GDP (2015) as a base, desired GDP sizes[] of three groups of countries during estimation period are respectively calculated.
4. Estimation results: Based on the results of the foregoing Section 2 and Section 3, annual amounts of desired infrastructure investment in the next five years are calculated, which are totaled up as the entire investment demand (USD10.6 trillion), (including USD400 billion from IDA-eligible countries and USD1 trillion for IDA-ineligible countries, collectively accounting for 13% of the total demand for “The Belt and Road” infrastructure investment).
II. Initiation and Launch of Quality Projects Is the Key to Smooth Progress in “The Belt and Road” Infrastructure Investment and Financing
In terms of infrastructure investment and financing, the project available for investment is a prerequisite, based on which it is likely to carry out financing and follow-up business. The profit-seeking essence of capital implies that investors favor those quality projects with bright development expectations. In reality, -quality infrastructure projects along “The Belt and Road”are mainly concentrated in high-income economies and a small number of middle-income countries (including China), which have favorable access to market funds and enjoy relatively unconstrained financing environment. By contrast, those countries and regions, which are in urgent need to tap into development potential through infrastructure improvement, lack quality projects and suffer from severe hindrance from the shortage of funds.According to survey results, although there are many potential investment projects for infrastructure of these countries and regions, the absence of quality projects is an unavoidable problem. Main reasons are explained as follows:
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