The $2trn Journey, Spanning 65 Countries, Connecting 4bn People

China’s new multi-trillion dollar infrastructure and trade initiative aims to link 65 nations and over four billion people to transform its standing as a political and financial force in the world. It consists of maritime, energy, road and rail projects expected to cost over $2 trillion.

After reviewing policy papers by leading think tanks, BRI focused academic papers, attending conferences and finally in conjunction with a recent research trip to China, Gregory Perdon, our Co-Chief Investment Officer, provides his thoughts on China’s Belt and Road Initiative in Arbuthnot Latham’s thought leadership paper.

Within our report, we outline China’s motivations behind the multi-trillion dollar initiative to link 65 nations encompassing over four billion people. We also provide case studies and consider, in depth, the European point of view, concluding with a schedule of policy recommendations.

How will China benefit from the BRI?

Chinese priorities are clear, and we think of them as falling into two broad categories: ambitions that are geopolitical in nature and those that play into China’s reform agenda. Overall we would posit that the Chinese wish to integrate globally their financial system, promote economic growth, access new markets, ensure domestic security/stability, expand their military footprint and take back its place as the undeniable hegemon of Asia.

However, Gregory warns that although this monumental initiative by China has the potential to benefit the countries in which it invests, it could also cause debt problems for some emerging economies, fuel trade imbalances and perhaps divide the EU.

Nevertheless, the BRI is real and happening now.

China and the BRI impacts for investors

China is now such a dominant economy that index providers such as MSCI cannot ignore the impact when assessing regions or assets in the emerging markets economies. As such, they are beginning the process of including Chinese A-Shares into mainstream trackers such as the MSCI Emerging Markets index.

This, twinned with the renminbi emerging as the fifth major currency behind US dollar, euro, Japanese yen and British pound, is forcing investment committees around the world to take a view on whether to include China as a direct allocation.

To download a full report and analysis, compliments of Arbuthnot Latham, please click here