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