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On the New Silk Road III

By HSBC Global Research

Beijing’s publication of a detailed plan of action for the New Silk Road initiative confirms its centrality to Chinese policymakers’ thinking in the short and long run. Following on from our earlier reports Building on China's overseas investment (8 August 2014), and Xi's New Silk New Road plan (18 November 2014), this report looks at how the “One Belt, One Road” strategy is starting to become reality two years after it was first announced.

In the near term, the focus will be on infrastructure investment and promoting cross-border trade to ensure that goods, services and capital can flow easily on land (the “belt” connecting China, Central Asia, Russia and Europe) and sea (the “road” linking China to ASEAN, India and Africa). We estimate that the total could reach RMB1.5 trillion. This should help to support fragile domestic and external demand, the factors behind the downward trends in growth, prices and labour market conditions.

This report provides details on the initial projects, which emphasise upgrading transport links. It also looks at current efforts to make trade easier (e.g. faster customs clearance) and discusses different financing options. Apart from the new Asian Infrastructure Investment Bank and BRICS bank, there are ambitious plans to enable Chinese and foreign companies and governments to raise RMB funds in both China and countries along the ancient trading route.

This initiative is mutually beneficial. Countries with weak infrastructure should benefit from China’s expertise in this area and the new markets will generate demand for China’s exports. But major challenges lie ahead. We believe China’s record of overseas investment needs to improve and it will be important to balance the interests of the many stakeholders, public and private, both at home and abroad.

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