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00:00Expensive and expensive in empire building exercise was the creation of a new world trade order it's not a program dominated by China. It's the program by which China works with other countries . Tentacles that stretch from China through Central Asia to Europe to the Middle East and Africa to India and Southeast Asia over land and see through some of the world's most unchartered economic territories. Defaults can always happen . Infrastructure is a risky business. A project that when finished will have cost China and its partners trillions of dollars. These are countries that need infrastructure at the end of the day. Money will drive this process forward . Hello I'm Stephen Engle. Welcome to a look at how the economic future of the world's oldest continuous civilization is evolving . A new dynasty that's being built from Beijing on the foundations of a project that is China's belt & Road Initiative . Fast trains are one of the symbols of modern China. And so too is the pace at which the networks are being built. Top speed for the trains. More than 300 kilometers per hour . And rightly or wrongly in the eyes of some perhaps a reflection of China's belt & road ambitions. Contrary to some other people's misconception it's not a program dominated by China . It's the program by which China works with other countries working with international financial institutions multilateral development banks. So it's kind of cooperation. Unfortunately some people miss and do stir this as a kind of China program. China wants to to take advantage of these to promote its own interests . What. Nothing could be further from the truth. Views on China are often often mixed. China builds up again enormous amounts of goodwill by building infrastructure. These markets are desperate for better metro system road systems especially in these small the midsize economies was not easy building infrastructure. But at the same time there are some concerns and one refrain you often hear from from from locals whether it's individuals or companies is that Chinese companies will often will often win or come out on top in the next 10 or 15 years or next 50 years. The world will invest about 90 trillion dollars in infrastructure mostly in emerging market and developing countries. So whilst that sum is a very large sum it's only perhaps a couple of percent or less of the world's infrastructure investment. And it may be 3 4 5 percent of infrastructure investment in Asia. So it is very big. But we shouldn't overdo the magnitude of this in the context of infrastructure investment . In its simplest form China is looking to revive the roots of the ancient Silk Road with modern infrastructure economic corridors by road and rail linking major ports dry wet to a maritime silk road that circles back to China. But the reality is much more complicated when we have 86 countries. It's very hard for me to say which countries is not part of the better road initiative and also finances. Traditionally when we think about maritime Silk Way it might be west about but given the increased the relationship between Asia and Latin America it could be East or Southwest bound Africa. So you see this is really an effort to promote regional and global integration. It started out as unilateral policy. A focus on infrastructure a focus on relieving excess supply. Back at home. But it's a if inefficiently since then and what we've seen is a growing ecosystem emerge around those infrastructure projects. A growing number of Chinese firms not just state firms private firms all looking to participate not just because of belt & road but simply because the business opportunities as a result of the infrastructure spend are beginning to to grow and to expand. So the policy today is very different to what we saw five years ago . The belt & Road initiative is still very much in its early stages being designed crafted Of course there are some projects already through to Central Asia and the road down to Guadalajara in Pakistan. But it's in the early stages. What we have seen so far is that there is a basic idea here which is connecting the world to East Asia particularly China make no mistake China's leadership is serious. The project has been enshrined in the Communist Party's constitution and rise or fall. The belt & Road initiative will be seen as one of the great legacies of Xi Jinping President Xi Jinping said very very clearly we are not going to build a garden in our backyard. We are interested in building the beautiful garden with beautiful flowers which will be enjoyed by all of the nations in this world. I think the piano is central to the strategy of China and the Xi Jinping. It's about the story of the rise of China and the reality of the size of China's economy and the reality at the size of China's trade. China is now almost equal in size in its economy. The United States depends how you measure it. Some measurements it would be bigger much more trade than the United States. So the VRA is a story of the rise of China and the openness of China. So in China we say you aim high. You achieve something a little bit lower. You aim middle you may achieve in the you know the Lower East. So the Chinese people are very much ambitious but I will RTS China will be ambitious for the rest of the world. The ten economies by themselves account for nearly 70 percent of the belt & road GDP . Chinese firms have won some deals in these economies but not too many. They are struggling and in order to compete with a Korean Korean the Japanese American the European or the local firms whether they Indian or Turkish construction companies Chinese firms are going to have to adapt. And that means collaborating with foreign or local partners. If an infrastructure is built in Southeast Asia or Pakistan or Kazakhstan or linking up with Africa first and foremost that infrastructure should be shaped by the country in which it is and that I think is extremely important in the whole execution of the idea. It's not for China dictates not China saying this is what your infrastructure must look like. That would be a face new maritime routes new roads new railways new pipelines new ports China's superhighway is taking shape moving its products to new markets and bringing the world's offerings into China. Up next will weigh the risks versus rewards of doing business through uncharted territory. One of China's greatest challenges in realizing its belt & Road initiative will be paying for it. The capital scope for targeted projects ranges from 4 to 8 trillion dollars but its how it manages its money across countries with high risk and poor credit profiles that provides one of the biggest unknowns of the 70 or so countries China as partners the sovereign debt of 27 of them are rated as junk below investment grade. 14 of them countries like Afghanistan Iran and Syria are not rated at all. Defaults can always happen. Infrastructure is a risky business. In the early stages and that's why it's so important to have the right kind of finance in the right place at the right scale in the right time and that's what our multilateral development banks tried to do to get involved in the early stages where it's risky and manage that risk. See the policy is very clear. The bank is inclusive and we do not intentionally try to grab some people into this bank because it's ultimately the decision making of the sovereign governments and the door is open and we are inclusive. If they're interested in joining and working with other members they'll most welcome. But each and every sovereign government has its own ideas. Too many government to government deals will be a concern. But again the belt & Road Initiative is evolving in its early stages. There were many government the government deals increasingly these deals are profit driven not just between state owned firms and local firms but private owned firms particularly we're seeing Chinese technology firms beginning to move into the belt & road markets and looking to tap what is a very market driven consumer opportunity. And what role should and will commercial banks play because they are risk adverse as well but they're being driven by policy in many places. Commercial banks have a very important role to play particularly the foreign commercial banks because they provide a robust due diligence process to project selection projects screening and ultimately of course financing . Chinese officials recognize this. My conversations at the highest levels often echo sentiments around where we need the private banks to participate. We need the foreign banks to participate. We're not going to fund all these projects but more importantly we don't want to see white elephants. We want these projects to be viable. Transparency and good governance are among the biggest challenges facing supporters of the belt & Road initiative in Malaysia. A change in government has seen the new prime minister pare back some of the deal signed by his predecessor and in countries like Sri Lanka a debt default is steering the project somewhat off course. A couple of countries Sri Lanka is a good example. The Chinese financed a big port there but it's actually not very useful. It's not economic. So now the Chinese have taken it over and I think we'll see that in some smaller more vulnerable countries. You know infrastructure sounds nice but if it doesn't generate a lot of business then it's not good infrastructure. You can see that dam Hambantota port was taken up without any proper economic feasibility study . Sri Lanka ended up Babe getting to get tap as it isn't. The government of Sri Lanka had to handle or amended the port on a 99 year lease not just the port but a vast area of nearly 67 square kilometres around the for India which is the single biggest critic of the belt & road project it's also a question of national security. China's biggest project to date runs the length of neighboring Pakistan to the port of Gwadar on the Indian Ocean. When you talk about maritime Silk Road dam the fact that day to day China has come to quite control or controlling stakes in some 75 ports in five countries. Clearly that's not being done just with all commercial objectives in mind. If you're very close to China then there's more nervousness. India was a great example but some of the ASEAN countries you know they have to worry that there's a strategic element to this. China's lending a lot of money to Cambodia and Lao it's clearly buying friendship from those two countries and they provide a kind of veto within RCI ASEAN operates on a consensus basis. So if you're worried about South China Sea for example you can count on Lao and Cambodia to stick with China prevent ASEAN from doing anything that China would find objectionable. Be out witnessing a rapidly expanding business of China in the Indian Ocean region Indo-Pacific. We understand that China has decided to emerge as a major maritime but we don't quite end with that. But what's happening has implications for us. I think that when you have a rising power like China countries which are close neighbors like India or countries which were the dominant economic power like the United States have to think about their position and they might get a bit uneasy because of the strengths of China and the way in which China wants to quite understandably and rightly in my view link up with the rest of the world and the rest of the world now means much more than just routes along the ancient Silk Road . Globalization connectivity 21st century transport and finance is still very hard to get clarity around the financing of these projects. So even in countries such as Pakistan for instance many of these deals with the financing arrangements around the deals are not made clear. So there are some concerns that the Chinese as well as local governments are overpaying for it for Chinese for Chinese contracts. The initial set of Chinese loans over the last few years you know a lot of it's gone to countries with very poor governance. You know Venezuela is a big borrower Sudan Angola Iran Pakistan. These are countries that may very well run into debt problems. But here's an important but Indonesia is a big borrower. South Africa Eastern African countries so I think China has some good clients some bad clients. And what you'd expect is that the projects would work out in the better managed countries at the same time I would say there is a tendency for people to focus on deals that were done five years ago but have only just come to market whether it's a port or a rail project. When you were deeply involved as we are in these projects and you see some of the deals being done today they look no different to those than any other multinational or any other large company country would which would execute on . So with that part and it's the most exciting part it's the one that promises the most over the coming years. That part's been overlooked for port operators like Hong Kong's modern terminals . The opportunities are massive. An estimated uplift of two and a half trillion dollars in trade over a 10 year period. Now coming up after the break we're going to get the word from giant APM Terminals as we continue to navigate the belt & Road initiative we're here in Sheahan the oldest of China's four great ancient capitals home to the Han Dynasty and the Terracotta Warriors . But more importantly on this trip the easternmost point of the ancient Silk Road it's here in CNN's Muslim quarter that you really can get a sense and quite literally a taste of the past. Much of the population here are descendants of Arab traders who travelled from months to get to China along the Silk Road. It's no surprise to us that China is the world's largest trading nation wants to promote world trade and we see very much that belt & road is an initiative that supports that. I think that the overall goal is to develop an addition of the 2.5 trillion dollars of trade over a 10 year period. So some of these projects could be very interesting to us as a transport and logistics provider. And broadly speaking if if the trade group does come. That's more cargo for our ships it's more throughput for our terminals it's more units in our warehouses even in the shipping and the cargo business for decades. Where do you see the biggest infrastructure gaps you have to keep building the connectivity. Our own research and I think a lot of academic research shows that when transport connectivity improves the cost of doing trade comes down. And that has a beneficial impact on growing trade. So our analysis as a 10 percent improvement in connectivity reduces trade costs by 3 percent and increases volumes by 5 to 9 percent. So we see a direct connection between these two things. And APM Terminals should know the transport and logistics arm of the seafaring giant Maersk has 78 port facilities in 58 countries many of them passing along routes of the ancient Silk Road very much. We are looking and have quite some advanced projects actually within the belt & road scope. So for example in Bordeaux in Italy we have co-invest it with COSCO and Qingdao port group to build a new container. So we're also working with Chinese construction companies to build out new ports in Africa. Well we have some interest in investing together so very much seeing the opportunity not just within Asia but along the whole scope of the belt & road to collaborate. So what do you think should be the priorities in the opening days or years of this belt & Road Initiative. I think it's for us it's that is the transparency is the area where we would really like to see the improvement come so that we can very often say you know projects are done . We only find out about them after the main players were already reached an agreement and I think that's probably where the international companies would like to get involved more with the EU. I think he's very much communicating along the same lines and it's the feedback to China that this is an area where improving the transparency is critical to the future success of belt & road. So plenty of roadblocks along the way but there's also a sea of opportunity. Trillions are to be spent. So who along the Belt & road stand to benefit the most. I think they're they're shifting toward better managed countries and it's a more general financing of infrastructure. So countries such as Brazil or South Africa East Africa they have vast infrastructure needs and there's a lot of potential for this to work out. So if you think of it as a Chinese master plan for where infrastructure should be. That's not going to work out . That's not realistic. You know at the end of the day money is the ultimate driver here. So if Chinese firms can provide elevated or construct elevated light rail projects for instance in India if Indian players whether it's Tata or other construction companies believe there's an opportunity there to make money by partnering up with Chinese companies and they'll do so. So at the end of the day money will drive this process forward. Well I think the closest neighbors to China and those nations on the route to Europe will be the early beneficiaries . That means central Asia and Southeast Asia. But I hope very much that the links to South Asia will strengthen particularly to India because China India relationship is the most important relationship in the world. And secondly I hope that there will be strong benefits for Africa to link up with the big fast growing markets of the world which are now Asia. Actually if you read President Xi Jinping ise I would a monumental statement in the first community. He said belt belt & Road initiative would it connect with the other initiatives proposed by many other countries. So we HDB are very very supportive of the Barrow Road initiative. Of course when. When we are approached for financing the projects we will have to to see whether they meet our standards. For us the three basic standards are as follows. Financial sustainability environmental protection and a protection of the local people's interests . By the mid 15th century due largely to more efficient seaborne trade as well as squabbles between the participating states the original overland Silk Road began its decay. It was about the same time that the Forbidden City here behind me was being completed to serve as the home to Chinese emperors. For the next five hundred years now the revival of the old route is indicative indeed of China's re-emergence as a global trading power. I'm Stephen Engle. Thanks for watching .

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China's Belt and Road Ambitions

China is in the midst of the largest, and most ambitious, infrastructure project in modern history. President Xi Jinping's trillion-dollar Belt and Road Initiative spans three continents and will touch nearly 60 percent of the world's population. Bloomberg's Stephen Engle takes a look at Beijing's plans to become the next global trade superpower. (Source: Bloomberg)

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