China increasingly looking to Belt and Road countries for export demand

Moody’s Investors Service says that against the background of China’s rising tensions with the US, China is increasingly looking to countries that participate in its Belt and Road Initiative (BRI) as an important source of export demand as well as a source of vital raw materials.

Moody’s points out that the number of countries forming part of the BRI has almost doubled to 115 from 64 when the BRI was first initiated in 2013.

“However, there are indications that China is becoming more selective in which BRI projects that it will pursue, as seen by the value of new Chinese-led BRI contracts and direct investment falling significantly for the first time in 2017,” says Michael Taylor, a Moody’s Managing Director and Chief Credit Officer for Asia Pacific.

Moody’s says that this fall could be due to several factors, including tighter funding conditions in China, as well as domestic political reactions in several BRI countries.

Moody’s conclusions are contained in its just-released report, “China’s Belt and Road Initiative – BRI report card: Deeper linkages, greater caution”.

“Asia outpaces Africa in holding the highest contract value in BR regions,” says Lillian Li, a Moody’s Vice President and Senior Analyst.

Moody’s points out that around 40% of the total value of Chinese-led direct investments and construction contracts is concentrated in the top 10 percentile countries.

“During 2014 to June 2018, the top countries ranked by BR contract value were Pakistan, Nigeria, Bangladesh, Egypt, Malaysia, Indonesia, Russia, Laos, the United Arab Emirates and Iran,” adds Li.

And, in 2017, Chinese contracts in BR countries with the highest value were in the energy (39%), transportation (37%) and real estate (13%) sectors.