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China’s Goals & Key Challenges – and the opportunities they generate!

China’s Goals & Key Challenges – and the opportunities they generate!
February 2018

To be strong in the mean time, China’s leadership believes it needs to grow its international influence. And to assert its international position, it intends to use its economical prowess and its already home grown technology.

This is the rationale underpinning the One Belt one Road (OBOR) initiative, yet a new goal that China’s leadership has given itself!

The New Silk Road – China is going abroad, selling and shopping!

With the slowing down of growth, China’s infrastructure industry has grown oversized. Capacity reduction is underway (the famous “supply side reform”), however another way to solve the problem is to bring China’s vast experience in infrastructure building abroad and help reduce overcapacity by generating more business at home. The state-owned companies are eagerly proposing infrastructure development in Asia, conveniently financed through loans fueled by China’s large foreign exchange reserves.

In so doing, financing neighbors infrastructure is naturally a chance to establish closer relations and improve the Middle Kingdom’s position in the region. And by the way, it allows China to establish its own multilateral institutions, such as the Asian Infrastructure Investment Bank in Beijing (AIIB), which most of the developed world joined in funding, except the USA. As a result, the World Bank and the Asian Development Bank (essentially financed by developed nations) will have less of a monopoly in Asia.

To unroll this New Silk Road throughout Asia, Chinese enterprises are strongly encouraged to go abroad, to realize infrastructure projects but also to buy businesses and increase China’s global presence.

Ports and container terminals are being built and purchased (the Piraeus in Greece is an emblematic example), hi-speed railways are being planned and funded in South East Asia, highways and dams are constructed.

On the investment side, Syngenta’s purchase (by ChemChina, a state-owned enterprise) for over USD 40 billion is the most visible example of this drive. And while such investments aim to strengthen China’s overall ability to do business worldwide, they are also a mean to build up China’s own technology.

Here again, China’s ambitious goal of becoming a regional leader is creating large size opportunities. Those who partner up with Chinese companies building infrastructure abroad move in a China-size sales channel. And those who can utilize Chinese funds looking for a bridgehead abroad may have a fast track to develop their company in addition to gaining market access in China. Again, this is not without risks. (We will take the chance to detail the precautions to be taken in the follow-up to this analysis.)

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