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China's mega Silk Road project hits road blocks on yuan depreciation

The Silk Road plan initiated by Chinese President Xi Jinping involved a maze of roads including the revival of ancient Silk Road connecting China and Europe through Central Asia, Bangladesh, China, India, Myanmar (BCIM), 21st Maritime Silk Road (MSR) and the USD 46 billion China, Pakistan Economic Corridor (CEPC) through the Pakistan occupied Kashmir (PoK).


China's mega Silk Road project hits road blocks on yuan depreciation

Beijing: Sharp depreciation of yuan coupled with neighbours' suspicions are "holding back" China from the full rollout of its mega Silk Road project, prompting the country's think tanks to term the ambitious initiative as a "high risk project".

The depreciation of yuan late last year raised the cost of currency settlement for Chinese firms conducting overseas businesses, Chu Yin, an associate professor at the University of International Relations here said.

"The use of the yuan as a settlement currency overseas is a problem as the government is very cautious to take bold steps out of fear of shorting the yuan in the offshore market," Chu was quoted as saying by Hong Kong-based 'South China Morning Post'.

The depreciation almost amounting to four percent helped Chinese exports to post better numbers but depreciated yuan denominated overseas investments.

"Moves such as draining offshore yuan are a retreat of the currency's global push. Companies are facing a complicated process in currency settlement along with its very limited use in the region [of Southeast Asia]," Chu said.

"'One Belt, One Road' (official name of Silk Road) is a high-risk project. We are bound to see some ill-conceived projects in the future, but it is more important to see how many are successful rather than how many fail," he said.

The 'One Belt, One Road' push also needed to maintain "a low profile" to counter suspicion among neighbouring countries, Chu said.

The Silk Road plan initiated by Chinese President Xi Jinping involved a maze of roads including the revival of ancient Silk Road connecting China and Europe through Central Asia, Bangladesh, China, India, Myanmar (BCIM), 21st Maritime Silk Road (MSR) and the USD 46 billion China, Pakistan Economic Corridor (CEPC) through the Pakistan occupied Kashmir (PoK).

China has set up USD 40 billion Silk Road Fund to roll out the initiative.

India for its part backed only BCIM and declined to endorse the MSR over its concerns of Chinese domination in Indian Ocean and protested over CEPC as it goes through the PoK.

Chinese enterprises signed nearly 4,000 project contracts across 60 countries - with a cumulative value of USD 92.6 billion - last year.

The figure is equivalent to 44 percent of China's total overseas project contracts.

Despite the impressive investment figures, there are concerns both within and outside the Chinese government that the initiative may have been "too hasty, too broad, too ambitious and without sufficient preparations for unexpected contingencies," Post quoted Christopher Johnson, a senior researcher with the Centre for Strategic and International Studies in Washington as saying in a research report.

Profits should be the key focus, Chu said.

"We should scale back some of the infrastructure projects as many of them don't make money," he said, adding that "some projects saw returns of about one percent".

Some infrastructure projects were even at risk of default because of the market turmoil in neighbouring countries, accentuated by an economic slowdown in the region and capital flows to the US, Chu said.

China should allow more market access to foreign companies when Beijing itself is reaching out to other global markets. This will help dispel the speculation that the initiatives are self-serving, he?said.

"The success of the 'One Belt, One Road' relies on how we view it and also how our neighbouring countries treat it," Chu said.

China is pushing its initiatives in Kazakhstan and other central Asian countries that have traditionally been strongholds of Russia.

Speculation is also rife that Russia is getting worried over China's increasing presence there as Astana, Kazakhstani capital, wants to use Beijing's economic strengths to cut its dependence on Moscow, the report said.

Meanwhile, in Southeast Asia, Beijing is challenging the presence of Japan, which has enjoyed strong economic dominance in the region for over three decades.

"Almost every province and some cities in China have set up funds or unveiled projects to dovetail with One Belt, One Road, but there was no agency to coordinate overseas investment," said an economist at a think tank in Jakarta.

"The ministries do not share information. Each goes its own way. Without proper communication with local people, it is easy to fuel fears of neocolonialism and speculation about China's real intentions," the report quoted Jakarta-based economist as saying.

From Zee News

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