Samson: AIIB to Expand Spending

26th June, 2018

China-led Asian Infrastructure Investment Bank said Monday it will invest in or lend $3.5 billion this year to India, Bangladesh, Turkey and Egypt for projects aimed at strategically connecting Asia and Africa.

Since its launch in 2016, AIIB has approved around $4.4 billion in loans. The body, which comprises 86 member-countries, revealed the new plan at the start of its two-day annual meeting in Mumbai, India, on Monday. India is AIIB’s second largest shareholder after China, Nikkei reported.

“India is the largest borrower, we are working in Bangladesh, Turkey … Country is not a limitation,” said AIIB Vice President and Chief Investment Officer D.J. Pandian, adding that the decision still needs approval by the bank’s board of directors.

India has already borrowed $1.21 billion from AIIB. On Sunday, Indian Economic Affairs Secretary Subhash Chandra Garg, told reporters India has sought project financing of around $2.40 billion from the bank. Of that, $200 million will be invested in India’s National Investment and Infrastructure Fund, which funds commercially viable infrastructure projects.
Six projects in India have been approved by the AIIB, while another six are in the pipeline.

The new projects include a Mumbai subway line, irrigation and flood management projects in West Bengal, and rural roads and city development for Amravati, the new state capital of Telangana in the south. Bangladesh has proposed a water supply and sanitation project while Turkey has sought funds for a gas storage expansion project in the middle of the country.

Enough Capital Available

AIIB said it has enough capital to back the projects and does not need fresh funding. Pandian said that the bank has $20 billion in cash and $80 billion worth of guarantees from member countries.

Pandian also stressed that AIIB, which has faced questions about Chinese influence on its decision-making, is “an apolitical organization”. Some have said that Beijing-based AIIB had hoped to change the idea that it’s an arm of the Chinese government by holding the annual meeting in India, China’s biggest regional rival.

Speaking at a separate session, AIIB President Jin Liqun said the bank’s vision is to collaborate closely with all governments that it works for, especially on behalf of private sector companies that are working on infrastructure projects.

“We try to give you feedback … I hope the government will be listening to and do something practical to help them (private players) out. I think in this regard the private sector will be willing to pour in money,” he said.

$4.5t Infra Investment, a Challenge

Creating infrastructure will need $4.5 trillion investments over the next decade and the cost of the money will be a challenge, India’s interim finance minister Piyush Goyal said.

The minister, however, said finding the required finance will not be a “deterrence” for the country. “Infrastructure creation requires $4.5 trillion in investments over the next 10 years, Goyal said at a panel of governors at the summit.

He further said the required funds will be available and raising it will not be a “deterrence” for infra creation. However, in the comments that come amid rising interest rates globally, led by hardening of rates in the US, as also domestically, Goyal flagged the cost of finance as an “important challenge”.

Capacity building to handle big infra projects is also a challenge, he added and hoped that the multilateral institutions like the AIIB will help in both the challenges.

However, Singaporean lender DBS chief executive Piyush Gupta said finding finance for infrastructure is not easy as banks, which have traditionally financed infra, have a limited capacity, making bond markets the go to platform for raising the resources.

But the bond markets too have their own challenges in supporting greenfield projects and tend to keep away in the initial years, which is critical for a project, Gupta pointed out.

Co-financing with the World Bank and other peers accounts for two-thirds of the AIIB’s 25 approved projects so far, worth $4.4 billion in total. Its lending has grown in line with expectations, rising to $2.5 billion last year from $1.7 billion in 2016.

Contrary to some predictions, the list of AIIB loan recipients has not been skewed toward countries that enjoy close relations with China, such as Pakistan. Besides India, Indonesia, the Philippines and Central Asian and Middle Eastern nations are also among the names.

Its membership has grown steadily, with Kenya and Papua New Guinea joining in May, bringing the total to 86. France, Italy, Germany and Britain have been members since the outset. Of the Group of Seven leading industrialized economies, only Japan and the US do not belong to the AIIB.   LINK


Samson:  China, EU to Form Group to Overhaul WTO Rules

27th June, 2018

China and the European Union agreed Monday to launch a group that will work to update global trade rules to address technology policy, subsidies and other emerging irritants and preserve support for international trade amid US threats of import controls.

Actions such as US President Donald Trump’s unilateral tariff hikes in a technology dispute with Beijing show World Trade Organization rules need to keep pace with changes in business, said an EU vice president, Jyrki Katainen, AP reported.

Attending the 7th China-EU High-level Economic and Trade Dialogue, Katainen said Europe was not siding with Beijing in its dispute with Trump but was taking action to protect the global system of regulating free trade. He said the EU wants other governments to join the WTO group.

Companies worry the US-Chinese dispute could chill global trade and economic growth if other governments respond by raising their own import barriers. Even before Trump took office, economists were warning countries were tightening import restrictions and taking steps to favor their companies over foreign rivals.

US officials complain the WTO, the Geneva-based arbiter of trade rules, requires an overhaul because it is bureaucratic, rigid and slow to adapt to changing business conditions.
Katainen said Europe wants to focus on issues including subsidies to industry, government pressure on foreign companies to hand over technology and the status of state-owned industry—all areas in which Beijing faces complaints by Trump as well as other trading partners.

“I don’t expect these negotiations to be easy,” Katainen said at a news conference. But if nothing is done, “the environment for multilateral trade will vanish.”

The European Union and China’s planned exchange of market access offers in investment talks is a step closer to reaching an agreement, he said.

Separately, he said EU’s countermeasures against US tariffs are in line with WTO rules.

Complaints and Challenges

Trump has threatened to impose tariffs of 10% to 25% on up to $450 billion of Chinese goods. Beijing responded to Washington’s first round of hikes on $34 billion of imports by raising duties on US soybeans and other products.

Other governments have similar complaints but Trump has been more direct about challenging Beijing and threatening to disrupt exports.

Beijing might agree to talks to deflect further sanctions but is unlikely to agree to changes that hamper its technology plans, said Mark Williams of Capital Economics. “I very much doubt they would agree to anything that would have teeth and punish them,” said Williams. Policies companies object to are “integral to the growth model China is pursuing,” he said.

Beijing agreed to narrow its multibillion-dollar trade surplus with the United States by purchasing more American goods but scrapped that after Trump went ahead two weeks ago with a tariff hike on $34 billion of imports.

Beijing also has cut import duties on autos and some consumer goods and promised to remove limits on foreign ownership in its auto, insurance and finance industries.

But the Chinese government has resisted any change to its plans that call for challenging US and European technology dominance by creating Chinese companies capable of competing in fields including clean energy, biotech and aerospace.

Positive Note

Chinese officials deny foreign companies are required to give up technology. But in many industries they are compelled to work through state-owned partners, which requires them to share know-how with potential competitors.

One in five companies that responded to a survey by the European Union Chamber of Commerce in China released last week said they felt compelled to hand over technology in exchange for market access.

Trump infuriated US allies—from the EU to Canada and Mexico—last month by imposing tariffs of 25% on imported steel and 10% on aluminum. He said imports threatened America’s national security—a justification countries use rarely because it can be easily abused.

Beijing has tried to recruit European allies in its dispute with Washington, promising visiting leaders including Germany’s Chancellor Angela Merkel in May to open industries wider to their companies.

On Monday, Premier Li Keqiang, China’s No. 2 leader, told visiting French Premier Edouard Philippe that Beijing would allow more imports of beef and other food from France. Li said French companies were welcome to invest.

“China takes a positive attitude to cooperation with the French side,” Li said.   LINK

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