Belt and Road Weekly Investor Intelligence #90
A wide variety of news this week, with an opinion piece on how the BRI fits into China’s ‘multipolar’ world vision, and an overview of current China-BRICS trade. We take a good look at Russia and India’s increasing trade and continue to explore the offshoots of the INSTC with a look at Iran-Uzbek trade via the Middle Corridor, and developments with the proposed Zangazur Corridor which would unite Iran directly with Russia. The Hong Kong-China SWAP Connect program should open by the year end, and offers foreign investors access to BRI projects, while Mongolia’s Power of Siberia 2 pipeline is to start construction in 2024, bringing gas previously earmarked for the EU, from Western Siberia to China. We round up with our usual global headlines of BRI around the world.
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Global geopolitics 2022 has become all about conflict. But there are multipolar paths ahead if one understands Chinese strategic thinking.
China’s trade with the BRICS nations (Brazil, Russia, India, and South Africa) grew by 14.1% in the period January-June this year. That is 4.7% points higher than the overall growth rate of China’s trade in the same period, illustrating the increasing trade emphasis and dynamics of the China-BRICS corridor now has. China’s trade also increased with the RCEP and BRI countries.
China and Hong Kong have announced that they will jointly launch a “Swap Connect” program by the year end to facilitate offshore investors’ access to the mainland interest rate swap (IRS) market. Swap Connect is another milestone in China’s financial opening up that further facilitates offshore investors interested in participating in the mainland financial derivatives market. The Swap Connect clearly intends to expand Hong Kong’s role as a connector between China and the world and has implications for foreign investment into BRI financing.
Iran-Uzbek non-energy bilateral trade is up 103% YoY. The main reason for the upturn in turn is improved connectivity along the ‘Middle Corridor’ route, which extends from Iran’s Caspian Sea ports and reaches Turkmenbashi Port on the Turkmen Caspian Sea coast. From there they are transferred to rail freight and sent on to Uzbekistan. It is a highly important route for Uzbekistan in particular as the country is landlocked. It is also the only Central Asian country with a substantial European Union trade agreement, which covers thousands of products.
Azerbaijan has been talking up the need for the contentious Zangazur Corridor development as the country expands its freight and energy transit capabilities. Transit cargo traffic through Azerbaijan increased by nearly 30% in H1 2022, while feeds through from Baku to the INSTC grew up to 300%. Azerbaijan’s geographical position and its established infrastructure have enabled the country to become an increasingly important transit logistics hub. Zangazur however has difficulties in gaining Armenian acceptance.
India’s Reserve Bank (RBI) has allowed the Rupee to be used in international trade settlements in moves generally seen as assisting its trade with Russia, with the USD and Euro out of reach due to Western sanctions on Moscow. However, that is not the entire story.
With the Indian Reserve Bank opening the route for the Rupee to be used in international settlements, increasing amounts of Russia-Indian trade can now be expected to be traded in each other’s currencies. Indian imports from Russia have already jumped 272% in the period April-May this year to reach US$5 billion, as Russian companies begin to look at accessing the vast Indian market. On top of these existing trends, Russia and India are negotiating a Free Trade Agreement via the Eurasian Economic Union, an opportunity that would suit both and see trade volumes jump further still.
Russia is now redirecting previously EU-bound Western Siberia gas fields via pipelines to China, with the construction of a Russian-Chinese natural gas pipeline transiting through Mongolia will begin in 2024, the Mongolian prime minister has said. The Power of Siberia-2 pipeline, which will deliver Europe-bound gas from western Siberian fields to China for the first time, has a target date to be online in 2030 but this may be brought forward.
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