China may hit funds roadblock over OBOR, says think tank

NEW DELHI: China's 'One Belt One Road' mega initiative could hit a roadblock, a Hyderabad-based think tank has claimed, arguing that the country may increasingly find it difficult to fund several infrastructure projects across continents owing to financial constraints at home arising from debts, shadow banking, Ponzi schemes and zombie companies.

OBOR is a $124-billion venture to build ports, railways, airports and power plants in South Asia, Central Asia, West Asia, Africa and even South America with Chinese loans and manpower, a prospect that has raised severe concerns in countries including India.

In a report released last week, the Centre for Asia Africa Policy Research said China may be forced to put brakes on its grandiose plans after credit ratings agency Moody's decided to downgrade the country's sovereign debt rating.

"Will the new credit rating put brakes on China plans? Frankly, there are no ready answers… Will they succeed? It depends on how the Chinese marshal their energies to blunt the Moody's critique and how the Chinese sweeten the deals for the cash strapped low income countries, which have come to see their infrastructure nirvana in OBOR," said the report titled 'China's Hard sell – Moody's Worries'.

The report claimed that China is fudging statistics on a wide range of issues from the growing unemployment rates to banking sector.

Shadow banking and Ponzi schemes are rampant in China and could hurt its economy, it said. Besides, the Chinese market is flooded with uninsured wealth management instruments and zombie companies which, the think tank said, can derail OBOR project.

China frustrates the world when it comes to data on economy. "There is no statistics less credible than the nation's official unemployment rate," said business magazine Fortune in August 2015. The Financial Times also said in the same year, "China's official unemployment statistics are the worst of a notoriously unreliable set."

The US National Bureau of Economic Research has said that China's real unemployment rate is much higher than the official rate and, when correctly measured, is much closer to that in other nations at similar levels of development. Its working paper on 'Long Run Trends in Unemployment and Labour Force Participation in China, estimated that the actual unemployment rate in 2002-09 averaged nearly 11%, while the official rate averaged less than half that.

The think tank's report said, "High and rising unemployment in China created by massive layoffs during major changes in the structure of the labour market is not reflected in government figures.

The jobless rate may be three times the official estimate, according to Fathom Consulting; its China's Underemployment Indicator has tripled to 12.9 percent since 2012 even while the official jobless rate has hovered near 4 percent for five years."

(Source : economictimes.indiatimes.com)

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