1. OBOR, the Eurasian Economic Union and Western Europe, financial aspects Jean-Louis Truel, PhD, MBA Vice-president Cercle Kondratieff Université Paris Est Creteil BRICS seminar EHESS Paris 12 May 2016 1

2. The B and R initiative and Eurasia, an evolutive strategy 2014 2

3. The economic belt seen from Russia Vostochny/ Vladivostok Destination Russia Transsiberian Moscow Yekaterinburg Novosibirsk Kaohsiung Ningbo Qingdao Dalian Xingang Xiamen Hong Kong/ Yantian Shanghai Keelung Jakarta Port Klang Haiphong Ho Chi Minh Bangkok/Laem Chabang Yokohama/Tokyo Nagoya Busan Transit port Russia China Ports 3

4. B and R initiative and Eurasia, an evolutive strategy October 2015 4

5. The B and R initiative and Eurasia, an evolutive strategy December 2015 Mercator Institute for China Studies MERICS GmbH 5

6. The challenges of the Belt and Road Initiative 6. The Belt and Road Belt and Road Initiative vs the Eurasian Economic Union. The Road Belt vs the maritime silk road. Investment priorities Key issues : economic alliances, financing

7. OBOR vs the Eurasian Economic Union The EEU viewThe Belt and Road view 7

8. OBOR vs the Eurasian Economic Union 8 In the long run is OBOR compatible with the EEU? In 2015 it was annouced that One Belt One Road would be linked with the Eurasian Economic Union. Since then nothing concrete has been achieved If the EEU gains in depth and increases the number of its participants there will clearly be a contradiction. Issues will cover tariffs, regulations, governance…

9. OBOR vs the Eurasian Economic Union Customs Union: main principles. Common customs territory. Unified customs tariff. Common customs code. Unified nontariff regulations. No restrictions or customs duties within the CU On top of this, Economic Union implies common policies. Economic and financial policy. Trade policy, eg quotas. Industrial policy. Competition, anti trust and anti-dumping policies. Technical regulations  Roadblocks for OBOR? 9

10. The Eurasian Belt vs the maritime silk road 10 What is the more strategic path? Issues of geopolitical priorities; access to raw material vs access to markets and securisation of maritime trade Central Asia + Russia are less than 5% of China’s foreign trade (2/3 of it for Rusia) 98% of the Chinese trade with Europe goes through the maritime road. Major issue = Malacca strait.  Choice of infrastructure investments

11. The Eurasian Belt vs the maritime silk road 11 Infrastructure investments. Not the same priorities.

12. The Eurasian Belt vs the maritime silk road 12. What is the most sensible and profitable investment: ports or railways?. Rail = quicker but still more costly than sea – 9 000$ per container vs 3 000$. Issue = what about trains from Europe to China? For the moment rail lines are not profitable.. Rail = more complex in terms of taxes, customs… In this respect EEU may help a bit.. Strong Chinese investment in ports and airports : Asia, Europe. Possible mix between the southern economic belt and maritime Silk road. In that case Central Asia will not be that much of a priority.

13. OBOR, Europe, Eurasia and Asia: the issue of investment priorities 13. A change in the Chinese strategy?. Surge in investments in Europe.. Priority to access to markets and trade infrastructure.. Access to technology.  What will be the major focus?

14. OBOR and allocation of financial resources Amount of Funding The current amounts committed for the Belt and Road initiative look significant: 50 B$ committed with potential of 100 B$ for the NDB, 50 B$ for the AIIB, 40 B$ for the New Silk Road project. The total committed capital of AIIB, NDB and New Silk Road Fund to be spent over 10 years is more or less equal to :. the flow of foreign direct investment in China for the year 2014 (128M$). the profits of the 4 largest Chinese banks in the same year (138B$). By comparison China’s foreign exchange reserves represented 3.22 trillion$ in December 2015 14

15. OBOR and allocation of financial resources If the OBOR projects are meant to cover other Asian countries or Africa the total investment needed will reach much higher levels. They have to be compared to the total amounts of capital flows required to finance economic development. For infrastructure projects alone, the needs are estimated between 1 500 and 2 000 B$ for the next six years in Europe. The Eurasian railways corridor could cost much over 100 B$. The investment for oil and gas pipelines is of several hundred billion dollars.  The funds are only a small part of investment needs. Raises the issue of investment choice. 15

16. OBOR and allocation of financial resources Which areas? 16

17. OBOR and Eurasia: Allocation of financial resources 17 Investment in Eurasia: Far from promises to reality In 2013, Kazakh President Nursultan Nazarbayev and Chinese Premier Xi Jinping signed an agreement on new investment projects in the country totaling almost $43 billion. Yet in 2015 investment in Kazakhstan amounted to less that 1 billion dollars – 4% of the Chinese investment in Western Europe. Target for Chinese FDI in Russia : 10 billion dollars in stock in 2020 (against 4 B$ in 2014). In reality decrease of 20% in Chinese investment flows into Russia in 2015.

18. OBOR and Eurasia: Allocation of financial resources 18

19. Europe vs Eurasia: Allocation of financial resources 19 Up to now, for China Eurasia is more important for trade than for FDI

20. The B and R initiative and Europe, a new focus 20

21. B and R initiative and Europe, a new focus Chinese FDI in Europe hit a new all-time record of $23 billion in 2015, against 18B$ in 2014. about 35% higher than investment in North America. In 2015 the top five EU countries by investment value were Italy ($7.8bn), France ($3.6bn), the UK ($3.3bn), The Netherlands ($2.5bn) and Germany ($1.3bn), accounting for 78 per cent of total European investment. Investment more than doubled in Italy and France driven by megadeals, and declined by 35% in the UK. The need for infrastructure and transportation investment in Europe, and active pursuit of Chinese participation attracted $10.5 billion of Chinese investment in airports, power generation, water supply and other European infrastructure assets. Other priority: technology. 21

22. Conclusion 22 OBOR should be considered as a slogan and a roadmap rather than a fully defined plan. Priorities changed and will change This raises several issues. Relations with the EEU. Priorities between the road belt and the maritime road. Priorities between Asia, Eurasia, Western Europe and other areas.. Coherence between the companies’ strategies and the government’s strategy.. Sustainability of the investment strategies.

23. Merci pour votre attention 23