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'One Belt, One Road' provides bureaucratic financial cover

Early signs point to scheme as excuse to shuffle money between state firms



WHAT do investments in engineering companies, banks and bananas have in common? They're all justified by China's "One Belt, One Road" plan to boost trade and spread soft power. Yet early signs are that the scheme may provide another excuse to shuffle money and favours between state companies.

President Xi Jinping envisions the People's Republic at the nexus of global trade, with a "belt" of trade routes across central and southern Asia connecting China with new markets, and a maritime channel - confusingly known as a "road" - centred on Chinese ports.

China is backing its vision with hefty investment: it has set up a US$40 billion Silk Road Fund and was the driving force behind the new US$50 billion Asian Infrastructure Investment Bank. Chinese policy banks will provide further financial muscle to build infrastructure and invest in foreign businesses from Pakistani power plants to Malaysian banana plantations.

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But investments in foreign countries take time and diplomatic wrangling. So in the meantime, China's new funds are likely to take the easier step of investing in state-owned enterprises. This allows them to observe the letter of the slogan while ignoring the spirit of extending China's international financial reach.

Potential recipients of state cash are therefore dutifully incorporating "One Belt, One Road" into their policies. It will likely be a neat trick to justify state-owned company expansion plans or dust off mothballed provincial projects.

To date, the Silk Road Fund has invested in a power plant in Pakistan and helped fund the acquisition of Italian tyre-maker Pirelli. It also invested US$300 million in the Hong Kong initial public offering (IPO) of power plant builder China Energy Engineering Corp, which sold 70 per cent of its US$1.8 billion equity issue to state-owned cornerstone investors. The Silk Road Fund also backed the IPO of China International Capital Corp, the investment banking group.

President Xi's vision may eventually open up new markets for China. For now though, it will also provide financial cover for bureaucrats whose main ambition is to curry favour with their superiors.