China's ‘One Belt One Road’ investment to reach US$200 billion in three years

Mainland China’s outward investment in “One Belt One Road” regions is tipped to surge in the next three years, but analysts don’t expect it to solve the problem of excess capacity at home.

UBS expects mainland investment in “One Belt One Road” initiatives to double in the next three years, hitting a total of US$200 billion.

“‘One Belt One Road’ investment is not just about energy and transport infrastructure, we see increasing investments from real estate, technology and finance,” UBS H-share strategist Lu Wenjie said in a conference call on Tuesday. “These sectors accounted for 50 per cent of China’s foreign investment in the first half of 2015.”

Lu said more private enterprises were getting involved in “One Belt One Road” investment, including telecommunications equipment giant Huawei and e-commerce leader Alibaba’s investments in India this year.

Mainland outbound direct investment hit a record US$123 billion last year, up 14 per cent from 2013. It is expected to exceed US$150 billion this year.

UBS transportation and infrastructure analyst Robin Xu said he expected Chinese railway projects in Laos, Thailand and Indonesia would make big progress in next three to six months. .

Xu estimated the contracts to be signed will exceed US$20 billion, and that the China-Laos, China-Thailand and Jakarta-Bandung railways would be completed in three to five years.

“The future of the overseas railway market is very optimistic as long as the capital is put in place, since many countries are looking to improve their railway networks, including the US and Australia, which is not covered in ‘One Belt One Road’,” Xu said.

However, analysts have poured cold water on hopes that stepping up investment in “One Belt One Road” countries could help absorb excess manufacturing capacity on the mainland.

“Say steel for example, its transportation cost is extremely high and its economic radius of transportation distance is only 600 to 800km,” said Alexious Lee, CLSA’s head of China industrial research. “So it can’t really contribute for overseas railway building.”

Lee said long-distance transport was difficult for most raw materials, including cement. But certain areas like railway equipment and transport information systems would benefit from “One Belt One Road” projects.