:00:00. > :00:00.60 countries, 65% of the global population,
:00:00. > :00:11.One Belt One Road is China's ambitious infrastructure project
:00:12. > :00:17.But it is also expensive and controversial.
:00:18. > :00:20.China says it is going to start a new age of inclusive
:00:21. > :00:25.But others are worried that Beijing will use these economic investments
:00:26. > :00:29.to tilt the global balance of power in its favour.
:00:30. > :00:34.So, will the new Silk Road reshape global trade or is this just
:00:35. > :01:01.Welcome to Talking Business. I'm Karishma Vaswani.
:01:02. > :01:04.China's new Silk Road is the brainchild of
:01:05. > :01:10.It builds on ancient Eurasian trading routes but the scale
:01:11. > :01:12.of his new vision is nothing short of astounding.
:01:13. > :01:14.So, let's take a look at just what it is.
:01:15. > :01:18.It is made up of two main trading corridors, one overland called
:01:19. > :01:22.the Silk Road Economic Belt, and the other by sea,
:01:23. > :01:28.The idea to build roads, railways, ports, and create a financial
:01:29. > :01:32.is structure and free trade zones all along these routes.
:01:33. > :01:36.There is also a key parallel project, the China
:01:37. > :01:41.You can see the port, water, right over here.
:01:42. > :01:43.It is not only just direct maritime routes into Africa
:01:44. > :01:46.and the Middle East but it also potentially gives China
:01:47. > :01:50.control over some 40% of the world's energy supplies.
:01:51. > :01:55.Now, a big part of it is also creating faster more direct routes
:01:56. > :02:02.And building a free trade zones and commercial
:02:03. > :02:05.infrastructure along the way, like in Khorgos, along
:02:06. > :02:10.And, lastly, here in South-East Asia, China is funding
:02:11. > :02:13.a railway and port project in Malaysia, dams in Myanmar,
:02:14. > :02:17.and a high-speed bullet train in Indonesia,
:02:18. > :02:23.The two big questions really are, is it going to take off?
:02:24. > :02:26.And is China's big plan really as in official and benign
:02:27. > :02:31.Well, we've got a great panel of experts joining us
:02:32. > :02:38.Peter Chan is Professor at the University of
:02:39. > :02:44.Jonathan Woetzel is director of the McKinsey Global Institute
:02:45. > :02:47.and instrumental in building McKinsey's China
:02:48. > :02:52.And Nina Yang is Ascendas-Singbridge's CEO
:02:53. > :02:56.for sustainable urban development with more than 25 years of urban
:02:57. > :03:01.Thank you all for joining us for this discussion
:03:02. > :03:08.To begin with, it is a massive project, as we have just
:03:09. > :03:14.Jonathan, if you look at historically where many Asian
:03:15. > :03:17.companies have been able to get their financing,
:03:18. > :03:22.Asian countries for infrastructure projects, it has been
:03:23. > :03:25.the multilateral Western institutions that have done this.
:03:26. > :03:28.With One Belt One Road, it will be Chinese dominated,
:03:29. > :03:31.the Chinese lead plan, or a multilateral institution
:03:32. > :03:35.that will end up funding a lot of these projects.
:03:36. > :03:41.Well, actually, I think most of the funding will be by national
:03:42. > :03:47.finance so sovereign funds of the country, but, yes,
:03:48. > :03:49.there will be some investments that come from China
:03:50. > :03:53.or through the multilaterals like the New Development Bank
:03:54. > :03:59.I think that it is less important, actually, than the actual
:04:00. > :04:04.What we see now is Chinese companies globalising with One Belt One Road,
:04:05. > :04:07.say you have large construction groups that the state
:04:08. > :04:16.developers but also the small, private during companies,
:04:17. > :04:19.that is really the bottom line inpact, an avenue, if you will,
:04:20. > :04:23.Peter, I want to bring you into the discussion now,
:04:24. > :04:25.and talk about what this means for the region.
:04:26. > :04:29.I know we have said that Asia has always traded within the region
:04:30. > :04:34.but China will have a much bigger presence, as a result
:04:35. > :04:41.Indeed, China's One Belt One Road is, to me, the coming-of-age of
:04:42. > :04:47.If not regional, it is a global superpower.
:04:48. > :04:50.It is the manifestation of Chinese ambition,
:04:51. > :04:54.not just as an economic superpower but also eventually cultural,
:04:55. > :04:58.geopolitical, and also a military regional power.
:04:59. > :05:01.So, the impact, but consequences for us smaller nations in Asia
:05:02. > :05:13.I think the important component of One Belt One Road is this
:05:14. > :05:16.And connectivity takes a lot of money to create.
:05:17. > :05:19.Physical infrastructure is the most important thing.
:05:20. > :05:23.Without this physical infrastructure connectivity,
:05:24. > :05:26.the One Belt One Road will go back to the seventh century,
:05:27. > :05:31.So, who is going to invest in this One Belt One Road,
:05:32. > :05:35.connectivity building up the infrastructure chat?
:05:36. > :05:43.I would say that a lot of countries along this One Belt One Road
:05:44. > :05:45.in the past do not have that singular ability to pull
:05:46. > :05:50.this thing together, and with this initiative,
:05:51. > :05:53.there is suddenly a reason for all these companies
:05:54. > :05:55.and countries to come together, and a lot more viability
:05:56. > :05:58.for their infrastructure project and a lot of viability for funding
:05:59. > :06:00.to come in to build this infrastructure.
:06:01. > :06:11.So, aside from China trying to assert its influence
:06:12. > :06:16.which is often reported that way, I think that from a is this
:06:17. > :06:25.point of view, there is a reason now for city is,
:06:26. > :06:28.full countries along that One Belt One Road to have commercial
:06:29. > :06:30.viability for trade to happen and for business
:06:31. > :06:34.Peter, can you try to help explain why there is this suspicion
:06:35. > :06:36.in countries like Malaysia, where you are from,
:06:37. > :06:38.certainly across the region, while many of the nations
:06:39. > :06:43.are welcoming of this, there is still a bit of reluctance
:06:44. > :06:45.and almost antagonism about it as well.
:06:46. > :06:47.Let me begin by saying that we do need Chinese investment,
:06:48. > :06:50.we do need Chinese leadership, we do need that kind of direct
:06:51. > :06:53.investment and that is coming into Malaysia to generate
:06:54. > :06:56.Having said that, there is an aspect of the Chinese entrepreneurship
:06:57. > :07:03.It has this image problem of being unethical and little bit predatory,
:07:04. > :07:08.and doesn't really have real transfer of technology, downstream
:07:09. > :07:14.So, on that score, China really needs to work
:07:15. > :07:21.But the bigger picture, the net benefit is there,
:07:22. > :07:26.we do need Chinese investment, but there are some significant
:07:27. > :07:29.changes that China needs to make along the way.
:07:30. > :07:31.Jonathan, on the point of transfer of technology,
:07:32. > :07:34.I know that you work very closely with the government in China
:07:35. > :07:42.That when China goes in to build a massive infrastructure project,
:07:43. > :07:46.there is no transfer limited transfer of technology?
:07:47. > :07:54.I think China has learned from some of those experiences
:07:55. > :07:56.where the approach was let's get 10,000 Chinese workers to fly
:07:57. > :08:04.It just became very painful and expensive.
:08:05. > :08:07.So, actually, if you are a Chinese company in Kenya or Ethiopian now,
:08:08. > :08:10.you are really going to think hard about how many Chinese
:08:11. > :08:13.people you want to bring with you because everyone you bring
:08:14. > :08:15.costs you four or five times what the equivalent
:08:16. > :08:23.So, there is a big shift from the Chinese mindset to how
:08:24. > :08:26.to be more effective at creating a local presence, getting
:08:27. > :08:33.The technology part is a different challenge.
:08:34. > :08:35.It is the same problem that Western companies faced in China
:08:36. > :08:38.when they came to China, now Chinese companies faced the same
:08:39. > :08:40.thing going to developing countries, which is that the supply
:08:41. > :08:42.infrastructure is in there. The technology is backwards.
:08:43. > :08:47.And that is a lot of work and a lot of investment.
:08:48. > :08:49.China is looking for partners, local partners, looking for other months,
:08:50. > :08:58.but also looking for private sector companies that can work with them
:08:59. > :09:03.We are the going to move the chat on to where the money
:09:04. > :09:05.for this ambitious project is going to come from next.
:09:06. > :09:07.To all intents and purposes, China is the sole funder
:09:08. > :09:10.of One Belt One Road projects at the moment, but that
:09:11. > :09:15.At some point, we will have to look at where the money to make this
:09:16. > :09:17.whole project a reality is going to come from.
:09:18. > :09:19.And part of the question people are asking now is,
:09:20. > :09:21.will the money come, especially from private investors
:09:22. > :09:26.We will talk about that in a moment, but for now let's take a small break
:09:27. > :09:29.with a light-hearted look at this topic with our comedy
:09:30. > :09:31.Chinese Chinese foreign direct investment in Europe,
:09:32. > :09:34.but how best to represent Chinese money abroad without
:09:35. > :09:48.Nothing says Chinese money abroad more eloquently than at giant
:09:49. > :09:50.distribution centre on the edge of a British city.
:09:51. > :09:55.This is part of Airport City being built on the edge of Manchester,
:09:56. > :10:01.The investment made by China may be less visible but it is growing
:10:02. > :10:08.and it is becoming strategically significant in the global economy.
:10:09. > :10:10.There has been a huge increase in foreign direct investment
:10:11. > :10:23.That has reached nearly 46 billion in Europe.
:10:24. > :10:25.The Chinese money flowing into Europe is growing fast,
:10:26. > :10:28.and while Britain and Germany are at the forefront
:10:29. > :10:31.as recipients of that money, we Irish are no slouches ourselves.
:10:32. > :10:34.We get the fifth largest slice of the Chinese FTI pie.
:10:35. > :10:43.Private investors in China now represent over three quarters
:10:44. > :10:48.It reflects a shift over the last year or two to away from investment
:10:49. > :10:55.by the big state-owned enterprises towards investors by private
:10:56. > :11:00.Most obviously, we have had the investment in nuclear
:11:01. > :11:04.from China, but also distribution centres in Manchester,
:11:05. > :11:13.and other utilities sectors, and that will continue.
:11:14. > :11:16.And, plus, the future, will we become more aware of Chinese
:11:17. > :11:19.investment in the real economy or will it remain tucked away
:11:20. > :11:22.China's model of investment overseas has shifted a lot over
:11:23. > :11:27.Especially after Donald Trump's collection, I think the focus
:11:28. > :11:34.will move from the United States to Europe, especially to the UK
:11:35. > :11:37.because China sees the UK and find strategic assets that China wants
:11:38. > :11:42.to acquire, such as intellectual property, such as advanced
:11:43. > :11:45.manufacturing techniques, such as a way of
:11:46. > :11:49.So, those will be the things that China will have great interest
:11:50. > :11:52.Then, of course, there is the Chinese investment
:11:53. > :11:55.in football clubs and football players, or the giant
:11:56. > :11:58.waste of money, depending on your point of view.
:11:59. > :12:03.China is more broadly integrated now into the global economy,
:12:04. > :12:07.and that is why the investment, particularly in Europe
:12:08. > :12:11.and in the US is turning to world-class businesses.
:12:12. > :12:15.And, of course, that most potent symbol of integration
:12:16. > :12:20.to the global economy, English football league clubs.
:12:21. > :12:23.Take the example of the Northern Powerhouse.
:12:24. > :12:26.The fourth quarter of 2015 alone, there is over ?2.3 billion
:12:27. > :12:29.of investment from China and much of that, 80% of that, actually,
:12:30. > :12:34.And this has been spent on mostly China, such as the construction
:12:35. > :12:39.Right, that's just about wraps up our whistle top tour of Chinese
:12:40. > :12:42.investment in Europe, and we didn't even have to resort
:12:43. > :12:49.Now, that is what I call a great wall.
:12:50. > :13:01.Well, if you enjoyed that, you can find more on our website.
:13:02. > :13:03.Now, actor the topic at hand, China's One Belt One Road.
:13:04. > :13:06.The Chinese and has pledged $1 trillion to the project and has
:13:07. > :13:12.set up the Asian Infrastructure Investment Aank, the AIIB,
:13:13. > :13:15.to help fund roads, ports, and highways.
:13:16. > :13:19.But China can't do this alone, so where will the money come from?
:13:20. > :13:23.Our panel of experts today are Alexander Capri,
:13:24. > :13:25.who is currently senior fellow at the National University
:13:26. > :13:28.of Singapore Business Schools, Jonathan Woetzel from McKinsey,
:13:29. > :13:31.and Nina Yang from Ascendas-Singbridge.
:13:32. > :13:34.Thank you again for joining us for this discussion.
:13:35. > :13:37.Let's kick up on the point of financing.
:13:38. > :13:48.Well, look, deployment of capital is a very important issue here.
:13:49. > :13:52.And transparency, good governance, there is a need for building
:13:53. > :13:55.in that area, and I think that is where Western
:13:56. > :13:59.companies can come in, not just the consultancy firms,
:14:00. > :14:02.not just the accountancy firms, but even the financial
:14:03. > :14:05.intermediaries can come in, the law firms can come in and assist
:14:06. > :14:10.I think the other part of the capacity building
:14:11. > :14:15.So, when we think about One Belt One Road, we think
:14:16. > :14:18.about roads and bridges and so forth, but we actually need
:14:19. > :14:20.to be looking at the soft infrastructure that has to go
:14:21. > :14:25.And that is why you have companies like Ali Baba building these very
:14:26. > :14:29.impressive economist platforms and global trade platforms working
:14:30. > :14:37.with a lot of open source firms, a lot of IT firms are coming
:14:38. > :14:48.So, the capacity building will not happen without world
:14:49. > :14:52.Jonathan, I know you have done a lot of work with the Chinese government,
:14:53. > :14:55.and as well with a lot of these digital firms that are working
:14:56. > :14:59.on the IT structure, as Alex was just mentioning.
:15:00. > :15:05.Is China more open to this kind of knowledge transfer, if you will?
:15:06. > :15:10.One Belt One Road is an open source that form, it is available,
:15:11. > :15:19.What China is doing now is a big call on all the companies
:15:20. > :15:22.and all the banks, and saying, I would like to be there
:15:23. > :15:31.but there is this problem here or there is this
:15:32. > :15:34.China is saying, we are going to be there.
:15:35. > :15:39.Now, you can be part of it, but you have to to be part of it,
:15:40. > :15:43.It is open source but people have to invest, they have to commit.
:15:44. > :15:45.Nina, the suspicion that we were discussing earlier,
:15:46. > :15:47.amongst some parties, will that be a deterrent
:15:48. > :15:51.I think there is an open invitation for all companies to come along
:15:52. > :15:53.because they recognise that there is a lack
:15:54. > :15:57.of capability across the region and also in Chinese firms.
:15:58. > :16:00.It is an open invitation to come to China.
:16:01. > :16:03.I think the Wall Street Journal earlier reported that US companies
:16:04. > :16:20.So, suspicions aside, I think for companies and corporations,
:16:21. > :16:23.you have to get engaged, and this is the best
:16:24. > :16:29.Alex, when companies look at engaging with One Belt One Road,
:16:30. > :16:33.one of the issues you talked about is regulation.
:16:34. > :16:38.How did they manage navigate around this area
:16:39. > :16:42.I think a very interesting example is DHL.
:16:43. > :16:46.If you look at what DHL is doing on the belt, and think about it,
:16:47. > :16:50.you think about trade facilitation, how many countries district have
:16:51. > :16:53.to pass through from China all the way to Turkey
:16:54. > :17:04.It is got to go through all the 'stan countries, right?
:17:05. > :17:07.It is got to go through Iran, it has got to go through
:17:08. > :17:11.Now, one would think that you would have a lack of uniformity
:17:12. > :17:14.in the application of customs procedures, which is the case.
:17:15. > :17:16.But DHL has been very successful in using technology,
:17:17. > :17:18.pre-clearance, in other words, transmitting customs related
:17:19. > :17:26.information in advance of the freight coming through.
:17:27. > :17:29.They have been able to whisk that cargo through, apart
:17:30. > :17:41.But imagine that with high-speed rail going all the way,
:17:42. > :17:50.and having pre-clearance and electronic platforms
:17:51. > :17:53.taking care of customs, I think it is going to be fairly seamless,
:17:54. > :17:55.and I think DHL is a very good example of that.
:17:56. > :17:58.Jonathan, the risk to China, though, if it ends up loaning billions
:17:59. > :18:02.of dollars worth of investments to countries all projects that
:18:03. > :18:05.aren't able to make a profit, or aren't able to pay them act?
:18:06. > :18:11.The infrastructure, in and of itself, does
:18:12. > :18:14.not actually do much for you. What matters is economic activities.
:18:15. > :18:16.The Chinese government and Chinese companies are all very
:18:17. > :18:18.focused on how to create more economic activity.
:18:19. > :18:22.How do we make it more productive? And who is going to do that with us?
:18:23. > :18:24.That is the opportunity now for Western countries.
:18:25. > :18:30.And $1 trillion sounds like a big number, but in the infrastructure
:18:31. > :18:33.Actually, emerging Asian needs about $20 trillion
:18:34. > :18:37.Most of that money is go to have to come out
:18:38. > :18:39.of those Asian and African and Middle Eastern
:18:40. > :18:42.They are going to be the ones investing.
:18:43. > :18:44.China doesn't want to be seen as a free lunch.
:18:45. > :18:47.There is no incentive then for people to step up their game,
:18:48. > :18:51.and that is the big bet for One Belt One Road.
:18:52. > :18:57.Will they become true partners to China and the rest of the world?
:18:58. > :19:00.Well, that leaves us bury nicely to the way forward.
:19:01. > :19:09.The discussion about whether or not this week bet will act to repay off.
:19:10. > :19:24.I think there are at least four areas that we can talk about.
:19:25. > :19:26.The first is this physical infrastructure, logistics,
:19:27. > :19:29.And that one is a reasonably commercial decision.
:19:30. > :19:32.And the second area will be trade that became possible
:19:33. > :19:37.The third area will be exchanged at people, community level,
:19:38. > :19:41.in terms of education exchanges, cultural exchanges, very
:19:42. > :19:49.There are tonnes of collaborations being spoken about and being
:19:50. > :19:55.followed through, exchanges that can happen at community level.
:19:56. > :19:59.And the last area is what we spoke about, between governments
:20:00. > :20:04.and specifically on capability building and exchanges in terms
:20:05. > :20:08.of government to have it, learning from each other,
:20:09. > :20:15.For instant, there is a project called the connectivity initiative,
:20:16. > :20:23.it is about exchanges in all these for areas, specifically leading
:20:24. > :20:26.from logistics aviation and government to government
:20:27. > :20:38.exchanges in terms of capability building.
:20:39. > :20:42.So, it is a much broader kind of benefit that we can come up with.
:20:43. > :20:45.It is too narrow to define whether there will be a commercial
:20:46. > :20:50.And this is how we will look at the One Belt One Road.
:20:51. > :20:53.And being in Asia for so many years and having done business in China,
:20:54. > :20:56.I think it is an invitation for everybody to jump
:20:57. > :21:00.There are all these challenges, but there are also potential
:21:01. > :21:07.What is your take, Alex? I would agree.
:21:08. > :21:13.There are a couple of things we need to keep our eyes on.
:21:14. > :21:18.Everybody was breathing a sigh of relief last week
:21:19. > :21:22.when Donald Trump announced he was going to recognise
:21:23. > :21:32.I think collectively, the whole region breathed a sigh of relief.
:21:33. > :21:36.This is not a big bang, this is a gradual development.
:21:37. > :21:40.One thing we didn't talk about is the development of tourism.
:21:41. > :21:46.I think tourism is another possibility along the whole
:21:47. > :21:54.Hotels, and the tourist industry, in general.
:21:55. > :21:59.I think, overall, even if the belt and the road don't overlap
:22:00. > :22:04.to their full potential, even if we get a portion of it and,
:22:05. > :22:06.I still think it was a great deal for Western companies
:22:07. > :22:11.Jonathan, on that point of the potential for
:22:12. > :22:16.Winston Churchill said, I am an optimist, there doesn't
:22:17. > :22:22.seem to be much point in being anything else.
:22:23. > :22:26.But that said, it is a long-term challenge.
:22:27. > :22:28.This is 60% of the world's population that has
:22:29. > :22:34.How do you get 60% of the population to have 60% of the world's GDP?
:22:35. > :22:36.That is not going to happen tomorrow, but I
:22:37. > :22:38.believe it will happen. Excellent.
:22:39. > :22:41.Thank you very much to all of you for the joining
:22:42. > :22:44.us for this discussion on the One Belt One Road initiative.
:22:45. > :22:46.That is it for this season of Talking Business.
:22:47. > :22:52.Thank you so much for joining us throughout all of our shows.
:22:53. > :23:27.We have enjoyed bringing them to you.
:23:28. > :23:35.Some breaking news and the weather front. Macro to on the other side of
:23:36. > :23:36.the Atlantic is heading this way. It