German Commercial Bank Chinese Expert: How to interpret the “Belt and Road” in overseas markets?

“One Belt, One Road” is not only one of the hottest topics in China, but also attracts a lot of attention in overseas markets. This behind not only represents China's pivotal position in the world economic landscape, but also largely represents the concern of overseas markets for the future direction of the Chinese economy.ORIGINAL ARTICLE IN CHINESE appeared on FTchina : https://www.ftchinese.com/story/001080612?full=y

Author： zhouzhao 周浩 2018-12-13

“One Belt, One Road” is not only one of the hottest topics in China, but also attracts a lot of attention in overseas markets. This behind not only represents China's pivotal position in the world economic landscape, but also largely represents the concern of overseas markets for the future direction of the Chinese economy.

In the past year, the author has participated in several seminars and roadshows on the “Belt and Road”. In general, the market has a high degree of attention to the “Belt and Road”. Almost every discussion is full, but in all fairness, the market's related research and discussion on the “Belt and Road” is still on the surface. The author believes that the discussion on the “Belt and Road” in overseas markets has the following aspects worth considering:

First of all, many overseas institutions lack a deep understanding of the Chinese economy when discussing the “Belt and Road”, which has led to many discussions becoming difficult to carry out. Most of the discussions about the “Belt and Road” that the author participated in often ended up lacking focus and few substantive measures.

For most people, the “Belt and Road” reflects the strength of China’s economy, but few people understand the “Belt and Road” from the development track of the Chinese economy itself. In the author's view, the “Belt and Road Initiative” is the crystallization of China's 40 years of reform and opening up. From the perspective of China's economic and historical development, one of the important reasons for China's rapid economic growth is continuous openness and continuous reform. From the "reform and opening up" in 1978 to the large-scale state-owned enterprise reform in 1998, to the entry of the World Trade Organization in China in 2001, the "Belt and Road" proposed five years ago is actually in the same line. The development and growth of Chinese enterprises will inevitably lead to the strategy of “going outward”. The “Belt and Road” has only adapted to this trend to some extent. In other words, whether or not a similar strategy is proposed, the overseas expansion of Chinese companies is the general trend.

In fact, although the overseas expansion of Chinese companies has caused many people to feel the “threat”, the proportion of overseas income of Chinese companies is still very limited. If we look at the bond market, China’s domestic RMB bond market is more than 80 trillion yuan, but the size of US dollar bonds issued by Chinese companies and governments is only about 500 billion US dollars, or less than 4 trillion yuan. The stock of bonds issued by Chinese companies and governments overseas is rapidly shrinking. The current stock is less than 300 billion yuan. Compared with the peak of more than 500 billion yuan in 2016, there is actually a big landslide. In general, the stock bonds issued by the Chinese government and enterprises overseas are only about 5% of the domestic market stock. From this perspective, although the expansion of Chinese companies seems to be fierce overseas, the upside is still huge. In this sense, the “Belt and Road” strategy may accelerate this trend.

Second, the interpretation of the “Belt and Road” in the international market has a tendency to be politicized. This seems to be influenced by many international mainstream media, and issues such as trade wars have made it difficult for the “Belt and Road” to get rid of political issues. For example, after Malaysia’s new Prime Minister Mahathir took office, he announced that he would tighten supervision of investment from China, which added a hostile label to the “Belt and Road” to some extent. But in fact, Chinese companies have been cultivating overseas for a long time. I work in Singapore and I can often see Chinese institutions around. These Chinese-funded institutions have been exploring overseas markets for many years. Strict supervision from foreign governments has even been "rebellious," and it is almost common for them. Only after the media attention has increased, many of the phenomena that seem to be normal have been over-interpreted.

I once received a Chinese heavy machinery company in Singapore. To my surprise, this company, which has already been ranked among the top in the global heavy machinery industry, has in fact been operating in Southeast Asia for more than 20 years and has a considerable market in several countries. scale. For this company, on the one hand, enterprises in the Southeast Asian countries have been very localized and created a considerable amount of employment in the local area. On the other hand, for enterprises, the changes in the market environment are eternal and most important. It is still to improve the competitiveness of its own products, rather than over-emphasizing the external environment. Therefore, the interpretation of pan-politicization, despite “eye catching”, does not overreact to mature companies.

Third, on the basis of the former two, many international investors regard the “Belt and Road” as an exclusive plan, that is, Chinese companies bring capital from China, attack the city in overseas markets, and eventually change these overseas markets. For your own back garden. This is also a somewhat ridiculous point of view. In general, the overseas operations of Chinese companies are still constrained by local policies, finances, and the labor environment. Chinese companies have not received more preferential policies than other countries in overseas investment. In fact, in the process of overseas expansion, Chinese-funded enterprises especially want to diversify their financing. However, the recognition of Chinese-funded enterprises by international financial institutions is still very low, which makes many Chinese-funded enterprises unable to rely excessively on Chinese-funded enterprises. Financial institutions seek financing. In many “Belt and Road” forums, the author has heard the voice of Chinese-funded institutions wishing to diversify their financing channels, but feedback from international financial institutions is still often cautious.

From a more realistic point of view, many developing countries themselves need a lot of infrastructure construction. Since China is willing to provide corresponding funds and technical assistance, other countries have no “real money and silver”, only “shaking the flag”, rationally Should these developing countries seek help from China? Another obvious fact is that after the current international financial crisis, the interest of many Western companies in overseas investment has declined, which naturally provides objective convenience for Chinese companies to enter these markets, for many living below the poverty line. In the less developed regions, the most immediate need is still to improve the quality of life of the people, rather than entangled in political issues.

Judging from the feedback from the overseas market on the “Belt and Road”, China should adopt more moderate and inclusive measures in the process of promoting the “Belt and Road Initiative”. After encountering criticism and various obstacles, China should also consider ways to improve communication. For example, Chinese companies should pay more attention to the local cultural and cultural environment in their overseas operations, rather than completely replicating their traditional business models and corporate culture, while Chinese officials also give more “One Belt, One Road” initiatives. Inclusiveness, compatibility and win-winness, adopt a more convincing and acceptable approach to external communication. Overall, the author's feeling is that the promotion of the “Belt and Road” will not be smooth sailing. The Chinese government and enterprises should have a long-term and dynamic vision, and adjust in response to changes in reality. (The author is Zhou Hao, a senior economist at the German Commercial Bank)

Editor: Liu Meng