China One Belt One Road Special Report Nomura

Global Markets Research
ANCHOR REPORT
The Jade Belt Road Bridge – Beijing, China
16 April 2018
Belt and Road: Globalisation, China style
Research analysts
 The Belt and Road Initiative (BRI), China’s infrastructure push
spanning over 80 countries and worth over USD1.5trn over ten years, Asia Economics
will have significant economic, geopolitical and investment implications
Sonal Varma - NSL
for China, but likely even more so for BRI-recipient countries. sonal.varma@nomura.com
+65 6433 6527
 For China, the BRI helps address its economic rebalancing priorities.
Geopolitically, it supports a rise in China’s foreign policy “soft power”. Euben Paracuelles - NSL
euben.paracuelles@nomura.com
For the smaller, recipient economies, this platform expedites a move +65 6433 6956
towards a higher stage of economic development.
Asia Ex-Japan Equity Strategy
 We identify Pakistan, Bangladesh, Malaysia and the Philippines as
some of the biggest BRI beneficiaries. We highlight risks, particularly Wendy Liu - NIHK
wendy.liu@nomura.com
on debt sustainability and geopolitics, but these appear manageable, +852 2252 6180
in our view.
Trevor Kalcic, CFA - NSL
 Equity strategy: In China equity, we expect infrastructure, financials trevor.kalcic@nomura.com
+65 6433 6968
and consumption proxies to benefit and identify a basket of 10 Hong
Kong/China-listed stocks with meaningful BRI exposure. In ASEAN
Global EM Strategy
equity, the BRI is positive for contractors, tourism, last-mile delivery
and hospitals. However, competition from China could be negative for Craig Chan - NSL
craig.chan@nomura.com
Indonesian cement and auto manufacturers and Philippine telcos. +65 6433 6106
 FX strategy: We expect longer-term RMB appreciation as the BRI
supports RMB internationalisation. Production Complete: 2018-04-16 10:21 UTC
See Appendix A-1 for analyst certification, important disclosures and the status of non-US analysts.
Nomura | Asia Special Report 16 April 2018
Contents
Executive summary ..................................................................................................................................4

Introduction: The Belt and Road ...............................................................................................................5
The advantages ....................................................................................................................................5
The risks ...............................................................................................................................................5
How to invest on the BRI theme ............................................................................................................6
Globalisation, China style .........................................................................................................................8
The Belt and Road Initiative ..................................................................................................................8
Box 1: The six economic corridors ......................................................................................................10
A ripe time for China-led fiscal activism...............................................................................................13
China’s economic reasons behind the BRI ..........................................................................................13
The risks facing China.........................................................................................................................15
The direct winners outside China ........................................................................................................16
The geopolitics behind the BRI ...............................................................................................................17
China’s geopolitical and geostrategic reasons ....................................................................................17
Response to the BRI ...........................................................................................................................18
Will the BRI succeed geopolitically? ....................................................................................................19
Box 2: The BRI and the Marshall Plan ................................................................................................19
Recipient economies: Fast tracking growth.............................................................................................20
A new impetus to growth .....................................................................................................................20
A growth bonanza for smaller economies............................................................................................23
The big beneficiaries ...........................................................................................................................24
The risks from BRI ..............................................................................................................................25
Overcoming the challenges .................................................................................................................27
Box 3: The risk of debt distress ...........................................................................................................29
Indonesia: Not so fast .............................................................................................................................30
Malaysia: Ahead of the pack...................................................................................................................33
Philippines: The pivot is proving prescient ..............................................................................................36
Thailand: EEC does it .............................................................................................................................38
Singapore: Playing the intermediary .......................................................................................................40
CLMV: A mixed bag................................................................................................................................42
Cambodia: Accelerating bilateral ties ..................................................................................................42
Laos: From land-locked to land-linked.................................................................................................42
Myanmar: A strategic partner ..............................................................................................................43
Vietnam: Staying cautious...................................................................................................................43
South Asia: Gains for all, but India wary .................................................................................................45
Pakistan: A game-changer ..................................................................................................................45
2
Sri Lanka: Infrastructure lifeline amid sovereignty concerns ................................................................49

Bangladesh: To boost manufacturing competitiveness........................................................................50
India: Growing strategic concerns .......................................................................................................52
China equity: Meet the implementers of BRI ...........................................................................................53
Listed Chinese companies with BRI exposure ....................................................................................55
First things first, infrastructure build-out, China style ...........................................................................57
Financials help to fund infrastructure build-out ....................................................................................61
After infrastructure comes ecommerce, housing etc. ...........................................................................63
Equity strategy: ASEAN and Korea ........................................................................................................66
Indonesia ............................................................................................................................................66
Malaysia .............................................................................................................................................68
Philippines ..........................................................................................................................................71
Thailand ..............................................................................................................................................75
Korea ..................................................................................................................................................77
FX: BRI to support RMB internationalisation ...........................................................................................80
The balance between structural outflows and inflows ..........................................................................80
Foreign ownership of China equities and bonds accelerating… ............................................................81
… while demand and usage of RMB is on the rise again ...................................................................82
Risks to our positive RMB view ...........................................................................................................83
Appendix 1: BRI timeline – September 2013 to March 2015 ...................................................................85
Appendix 2: Macro statistics for the BRI participant countries (end-2016) ..............................................86
Appendix 3: China’s trade balance with BRI countries ............................................................................88
References .............................................................................................................................................89
Recent Special Reports ..........................................................................................................................90
3
Executive summary
The Belt and Road Initiative: Globalisation, China style
The Belt and Road Initiative (BRI) seeks to connect China to its neighbouring countries Asia Economics
via land- and sea-based infrastructure development. More than 80 countries and Sonal Varma - NSL
international organisations have already joined the BRI and we estimate total investment sonal.varma@nomura.com
will reach at least USD1.5trn over 10 years under this game-changing initiative, with +65 6433 6527
significant win-win implications for both China and recipient economies. Euben Paracuelles - NSL
euben.paracuelles@nomura.com
China to gain economically and geopolitically +65 6433 6956
China stands to gain both economically and geopolitically. We estimate that the BRI, Brian Tan - NSL
through new demand sources and exporting overcapacity, will boost China’s GDP growth brian.tan@nomura.com
by 0.1 percentage points (pp) annually over the next decade. There are economic benefits +65 6433 6930
– improved industrial structure, balanced regional development, secure trade routes and Wendy Chen - NIHK
a higher return on capital – that are more difficult to quantify but potentially more material. wendy.chen@nomura.com
+86 21 6193 7237
Geopolitically, the BRI is China’s response to a more inward-looking US, an open bid for
global leadership and an attempt to increase China’s foreign policy “soft power”. Lisheng Wang - NIHK
lisheng.wang@nomura.com
Opportunity for developing economies to leapfrog +852 2252 2057
The BRI is a platform for lower-income recipient economies to fast track to a higher Charnon Boonnuch - NSL
stage of economic development by increasing FDI inflows, plugging infrastructure gaps, charnon.boonnuch@nomura.com
leap frogging to a digital economy, and, importantly, integrating their trade into global +65 6433 6189
supply chains, which can boost productivity and help lift potential growth. Some studies
Greater-China Equity Strategy
suggest growth gains of 0.3-1.4pp, with larger gains for the smaller economies.
Wendy Liu - NIHK
Pakistan, Bangladesh, Malaysia, Philippines – the biggest beneficiaries in Asia wendy.liu@nomura.com
The biggest beneficiaries among South Asian economies are Pakistan (BRI investment +852 2252 6180
commitment of ~20% of Pakistan’s 2017 GDP) and Bangladesh (15% of its GDP). In Yiran Zhong - NIHK
ASEAN, Malaysia (12% of GDP) and the Philippines (10.5% of GDP) stand to benefit the yiran.zhong@nomura.com
most. In these countries, BRI-related infrastructure projects are already underway. +852 2252 1413
Risks for both China and recipients… but should be manageable ASEAN Equity Strategy
The BRI is not without risks. With high debt levels locally, China’s financial sector is in a
weak starting position and some BRI projects carry the risk of low investment returns. Trevor Kalcic, CFA - NSL
trevor.kalcic@nomura.com
For the recipients, an increased debt burden, sovereignty issues, execution delays and +65 6433 6968
balance-of-payment risks could come to the fore, not to mention the potential geopolitical
flashpoints. However, we believe China’s own investment-led development has taught it Elvira Tjandrawinata - PTNSI
elvira.tjandrawinata@nomura.com
valuable lessons, and via new multilateral funding institutions, there will be a focus on
+62 21 2991 3341
promoting the best practice of public-private partnerships and the role of market forces.
Marcin Spiewak, CFA - CNS, Thailand
FX strategy: To support longer-term RMB appreciation marcin.spiewak@nomura.com
We expect the BRI to support our longer-term view of RMB appreciation, as it should be +66 2638 5796
positive for China’s push towards RMB internationalisation. Further, improved medium- Tushar Mohata, CFA - NSM
term growth prospects should in turn help contain local demand for foreign assets. Our tushar.mohata@nomura.com
FX valuation analysis shows RMB is mildly overvalued, but a pick-up in structural +603 2027 6895
demand for RMB could lead to an even deeper FX overvaluation. Dante Tinga Jr - BDO-NS
dante.tingajr@nomura.com
China equity: Infrastructure, financing and consumption proxies to gain +632 878 4969
We see three winners. First, new projects in BRI countries will create demand for capital
goods and infrastructure, e.g., construction, industrials, telecom, transport and utilities. Chetan Seth, CFA - NIHK
chetan.seth1@nomura.com
Second, increased financing needs of BRI projects will benefit financials including
+852 2252 6154
lenders, exchanges and brokers. Third, vibrant domestic demand in BRI countries should
benefit China’s private enterprises via rising trade and local presence. Military industries Global EM Strategy
may also see new orders for safeguarding investments. We identify a basket of ten Hong Craig Chan - NSL
Kong/China-listed stocks with meaningful BRI exposure. craig.chan@nomura.com
+65 6433 6106
ASEAN/Korea equity: An opportunity and a threat
Wee Choon Teo - NSL
The BRI-related infrastructure boom should be positive for contractors throughout weechoon.teo@nomura.com
Southeast Asia. Siam Cement (Thailand), heavy equipment names (Hyundai +65 6433 6107
Construction Equipment and Doosan Infracore in Korea) and industries like tourism, last-
mile delivery and hospitals should benefit. However, strong competition from Chinese
entrants into the domestic markets could disrupt existing business models such as for
Indonesian auto manufacturers, Philippine telcos and Indonesian cement companies.
4
Introduction: The Belt and Road

The Belt and Road Initiative (BRI) is a China-led vision for economic development that
seeks to connect China to its neighbours through large-scale infrastructure development.
The BRI is a combination of the land-based Silk Road Economic Belt, which
st
encompasses six economic corridors, and the ocean-crossing 21 century Maritime Silk
Road. More than 80 countries and international organisations have already joined the
BRI and we estimate total investment could reach at least USD1.5trn over a 10-year
horizon. The BRI is an open-ended initiative and, as such, both the list of countries and
the amount of investment are only set to grow. We see the BRI as a game-changing
initiative with significant multi-decade economic and investment implications. We
highlight the risks, but overall our analysis strongly suggests that BRI will be a win-win
for China and even more so for its developing recipient economies.
The advantages
From China’s perspective, there are both economic and geopolitical gains:
• Reduce overcapacity: The BRI can help China address its manufacturing over-capacity
issues and boost exports. We estimate the BRI can boost China’s real GDP growth by
at least 0.1pp annually over the next decade which, taken in aggregate, is sizable.
• Move up the global value chain: It offers China a platform to relocate its low-cost
manufacturing to other low-cost developing countries, while upgrading its production to
high value-added products, consistent with the “Made in China 2025” strategy.
• Balanced regional development: The BRI’s economic corridors aim to integrate the
less-developed Chinese regions with the outside world, helping to ease income
inequality and boost growth.
• Higher return on capital: China’s investment in infrastructure will yield better returns
over time than low-yielding US Treasuries.
• Foreign policy soft power: As the US turns more inward-looking, the BRI has enabled
China to emerge as the new champion of free trade. It is a projection of its rising foreign
policy “soft power” and an open bid for global leadership.
• Geostrategic advantages: The new economic corridors through Pakistan and Central
Asia create alternate routes for China to source commodities, reducing its reliance on
South China Sea routes for trade.
From the perspective of recipient countries, the BRI creates new economic
opportunities via increased investment, trade and tourism, and via greater
integration.
• Boost to potential growth: It provides the developing economies a big chance to
leapfrog to the next stage of economic growth via large physical infrastructure
investment and by fast-tracking them towards the digital economy.
• Regional trade integration; large FDI inflows: Greater regional trade integration is
likely, as manufacturing shifts to these low-cost economies. They would be expected to
attract large FDI inflows, becoming an integral part of the global value chain.
• A shot in the arm for services: Beyond infrastructure and manufacturing, services –
transit trade, cross-border e-commerce, real-estate, tourism, banking, legal and
professional services – should all gain.
The risks
Big, bold, innovative initiatives cutting across more than 80 countries no doubt pose
risks, but we believe China’s own investment-led economic development has taught it
valuable lessons, and via multilateral funding institutions like the Asian Infrastructure
Investment Bank (AIIB), there will be a focus on promoting the best practice of public-
private partnerships and the competitive role of market forces. These are some of the
risks facing both China and the recipient countries:
• Financial risks: China’s financial sector has a weak starting position, with high
domestic debt levels. Infrastructure projects may face long payback periods, uncertain
returns and potential default risk due to regulatory or political risk in the recipient
economy, increasing financial risks for the investing (Chinese or other) entity.
5
• Debt sustainability: For smaller BRI economies, large loans taken at a commercial
rate for a project that does not generate sufficient returns could result in debt distress.
Sovereignty issues could come to the fore if China takes control of strategic
infrastructure projects.
• Public backlash: Use of Chinese funding, construction materials and workers raises
questions over the direct benefit of such projects to the recipient economies. Along with
sovereignty concerns, this could trigger public backlash.
• Balance-of-payment risks: A sharper rise in imports from China than exports to China
(worsening trade deficits), along with debt repayments and repatriation of profit (capital
outflows) could result in balance-of-payment pressures.
• Geopolitical tensions: Tensions with India could escalate, threatening the
Bangladesh-China-India-Myanmar (BCIM) trade corridor. Tensions in the South China
Sea could resurface after Philippines President Duterte’s term expires in 2022. The US,
Russia and Europe remain suspicious of China’s real motives behind the BRI.
How to invest on the BRI theme

Identifying the countries that will benefit
In our view, the biggest beneficiaries in South Asia are Pakistan and Bangladesh.
Pakistan received BRI-related investment commitments from China equivalent to about
20% of its GDP, and Bangladesh ~15% of its GDP. Among major ASEAN countries,
Malaysia and the Philippines stand to benefit the most, with the former securing
investments of 12% of GDP, while the latter has received investment pledges of 10.5%
of GDP, of which 1.3pp are in infrastructure projects already underway (Figure 1).
Outside of Asia, industrialised countries could benefit from increased demand for their
capital- and technology-intensive manufacturing goods, while hectic infrastructure activity
could benefit resource-rich economies, such as Australia and Indonesia.
BRI to support longer-term RMB appreciation
We expect the BRI to support our longer-term view of RMB appreciation, as it should
benefit China’s push towards RMB internationalisation. Further, improved medium-
term growth prospects should in turn help contain local demand for foreign assets. Our
FX valuation analysis shows RMB is mildly overvalued, but a pick-up in structural
demand for RMB could lead to an even deeper FX overvaluation. That said, we are
cognisant of the risk to this view from trade protectionism and China’s ongoing
financial deleveraging efforts.
In China equity, infrastructure, financing and consumption proxies look set to gain
New projects in BRI countries will create demand for capital goods and infrastructure,
e.g., construction, industrials, telecom, transport and utilities. Increased financing needs
for these projects should benefit financials, including lenders/creditors, exchanges and
brokers. Vibrant domestic demand in BRI countries should benefit China’s private
enterprises via rising trade with BRI countries plus local presence via strategic
investments or joint ventures. Military industries may see new orders too, mostly for
safeguarding overseas investments. We identify a basket of ten Hong Kong/China-listed
stocks with meaningful BRI exposure in Figure 2.
ASEAN/Korea equity: An opportunity and a threat
The BRI-related infrastructure boom should be positive for contractors throughout
Southeast Asia, even if primary contracts are awarded to Chinese developers, as local
names would benefit as sub-contractors or as joint-venture partners. Where the BRI
boosts infrastructure, tourism, and trade between China and recipient countries,
companies in tourism, last-mile delivery and hospitals should benefit. In Thailand, Siam
Cement could benefit from increased cement demand. While Korea is not a direct BRI
recipient, Korean heavy equipment manufacturers (Hyundai Construction Equipment and
Doosan Infracore) could be beneficiaries of BRI-related infrastructure spending.
However, strong competition from Chinese entrants into the domestic markets also means
disruption of existing business models. Few examples include the entry of Chinese auto
manufacturers into Indonesia, the potential entry of Chinese names into the Philippine telco
market (if the regulator pushes ahead with the entry of a third telco) and the threat to
Indonesian cement companies due to competition from Chinese entrants.
6
Fig. 1: Key BRI infrastructure projects

PROJECT VALUE PROJECT VALUE
(USD bn) (USD bn)
INDONESIA MYANMAR
Jakarta-Bandung High Speed Train 5.5 Deep seaport in Kyaukphyu 7.2
% of GDP 0.6 % of GDP 10.8
MALAYSIA VIETNAM
East Coast Rail Link 14.1 Cat Linh – Ha Dong metro line 0.9
Malaysia-China Kuantan Industrial Park 8.4 % of GDP 0.4
Expansion of Kuantan Port 0.8 PAKISTAN
Malacca Gateway 11.0 Rail line: Expansion/reconstruction of existing Line ML-1 8.2
TOTAL 34.2 SSRL Thar Coal Block-I 6.8 mtpa &SEC Mine Mouth 3.3
Power Plant(2×660MW)
% of GDP 9.9 Road: Peshawar-Karachi Motorway (Multan-Sukkur 3.0
PHILIPPINES Kohala Hydro Project 2.4
Two bridges across Pasig river 0.1 TOTAL 16.8
Metro Manila Flood Management Project 0.5 % of GDP 5.5
PNR South Longhaul Project 3.4 SRI LANKA
Safe Philippines Project, Phase 1 0.4 Colombo Port City 2.4
TOTAL 4.4 Hambantota deep sea port 1.6
% of GDP 1.4 TOTAL 4.0
THAILAND % of GDP 4.8
Thai-Chinese High Speed Train 5.7 BANGLADESH
% of GDP 1.3 Padma Bridge Rail Link 3.3
CAMBODIA Dhaka Chittagong rail link 6.0
Phnom Penh-Sihanoukville motorway 1.9 Payra power plant (1320MW) 2.0
New Phnom Penh airport 1.5 Marine Drive expressway 2.9
New Siem Reap airport 0.9 Elevated expressway: Dhaka airport-Ashulia 1.4
TOTAL 4.3 Four-lane highway: Dhaka-Sylhet 1.6
% of GDP 19.3 TOTAL 17.1
LAOS % of GDP 6.9
Chinese-Laos railway 5.8
% of GDP 33.8
Source: Nomura Global Economics estimates.
Fig. 2: China stock basket with meaningful BRI exposure

Ticker Company Sector Comments
1829 HK CMEC Construction Engineering 65% overseas revenue in 2017, including 15% from Angola and 13% from Pakistan
002051 CH China CAMC Construction Engineering 95% overseas revenue in 2017
1800 HK CCCC Construction Engineering 23% overseas revenue in 2017; Acquired construction engineering company John Holland to
enter Australia market
196 HK Honghua Energy 58% overseas revenue in 2017, including 23% from Europe & Central Asia and 16% from
Middle East
1623 HK Hilong Energy 70% overseas revenue in 2017, including 34% from Russia & Central Asia and 16% from
South Asia
3337 HK Anton Oilfield Energy 64% overseas revenue in 2017, including 39% from the Iraq
2386 HK Sinopec Engineering Energy 40% overseas revenue in 2017, including 12% in Malaysia and 11% in Kuwait
1251 HK SPT Energy Energy 42% overseas revenue in 2017, including 27% in Kazakhstan
2883 HK COSL Energy 25% overseas revenue in 2017
2388 HK BOC HK Banks The company aims for 15% profit contribution from ASEAN business over the next five years
(2018-23)
Source: Nomura research, company data.
7
Globalisation, China style

“The Dao produced One; One produced Two; Two produced Three; Three produced All
things.”
Laozi, Chapter 42 of the Dao De Jing Asia Economics
At a philosophical level, the BRI can be seen as an extension of the traditional Taoist Wendy Chen - NIHK
teaching of “helping oneself by helping others”. wendy.chen@nomura.com
+86 21 6193 7237
• “The Dao produced One; One produced Two; Two produced Three; Three produced All
Lisheng Wang - NIHK
things”: The one “Dao” gave birth to the two opposing/conflicting forces of Yin and lisheng.wang@nomura.com
Yang, which then produced three entities of action: Heaven, Earth and Mankind. From +852 2252 2057
there came all things (道生一，一生二，二生三，三生万物). Sonal Varma - NSL
• “All things leave behind them the Obscurity (out of which they have come), and go sonal.varma@nomura.com
+65 6433 6527
forward to embrace the Brightness (into which they have emerged), while they are
harmonised by the Breath of Vacancy. So it is that some things are increased by being Greater-China Equity Strategy
diminished, and others are diminished by being increased”: The existence of the two
opposing forces means that too much of a good thing is bad, and that misfortunes can Wendy Liu - NIHK
wendy.liu@nomura.com
become good. As such, helping others is therefore helping one’s self, and hurting others +852 2252 6180
is hurting one’s self (万物负阴而抱阳，冲气以为和…物或损之而益，或益之而损).
Yiran Zhong - NIHK
yiran.zhong@nomura.com
+852 2252 1413
The Belt and Road Initiative
In late 2013, President Xi Jinping introduced the concept of the “Silk Road Economic
Belt” (the Belt) and the “21st Century Maritime Silk Road” (the Road) as a multi-country
infrastructure-building megaproject that would connect China with its neighbours, and
thus the outside world. Initially referred to as the “One Belt, One Road” initiative, this was
later abbreviated to simply the “Belt and Road”, and changed to the “Belt and Road
Initiative” (BRI; 一带一路) as an official translation. In March 2015, Beijing released a key
guideline document entitled “Vision and Actions on Jointly Building Silk Road Economic
Belt and 21st Century Maritime Silk Road”, which laid down the broad strategy.
Illustrating China’s complete conviction in backing the BRI, it was written into the
constitution of the Communist Party of China (CPC) at the 19th National Congress of the
CPC (see Appendix 1: BRI timeline – September 2013 to March 2015).
By land and by sea
The BRI is a combination of the land-based Silk Road Economic Belt, which
encompasses six economic corridors, and the ocean-crossing 21st Century Maritime Silk
Road (Figures 3 and 4).
On land, the Belt aims to connect China to Asia and Europe (via Central Asia) via six
economic corridors (see Box 1: The six economic corridors). The:
• China-Pakistan Economic Corridor
• China-Mongolia-Russia Economic Corridor
• China-Central Asia-West Asia Economic Corridor
• New Eurasia Land Bridge Economic Corridor
• China-Indochina Peninsula Economic Corridor
• Bangladesh-China-India-Myanmar Economic Corridor
At sea, the Maritime Silk Road connects China’s southern provinces to Southeast Asia,
the Middle East, Africa and Europe via numerous ports. Currently, China operates 11
ports along the Maritime Silk Road, including Darwin (Australia), Kuantan (Malaysia),
Kyaukpyu (Myanmar), Colombo (Sri Lanka), Gwadar (Pakistan), Haifa (Israel), Piraeus
(Greece), Naples (Italy), Central Harbour (Algeria), Djibouti (Republic of Djibouti) and
Lamu (Kenya). China is also establishing several transportation links in the Indian Ocean.
8
Fig. 3: Six economic corridors (the Belt) and the Maritime Silk Road (the Road)
Source: Hong Kong Trade Development Council and Nomura Global Economics.
Fig. 4: Ports operated by China along the Maritime Silk Road
Source: “One Country Two Systems” Research Institute and Nomura Global Economics.
9
Box 1: The six economic corridors

• China-Pakistan Economic Corridor (CPEC): The CPEC consists of a collection of
infrastructure projects linking Southwestern China to Pakistan, mainly covering
Baluchistan, Gilgit-Baltistan, Khyber Pakhtunkhwa, Punjab and Sindh in Pakistan, and
Xinjiang in China. The CPEC projects so far are concentrated in the transportation (road
and railway) and utilities (water, gas and electricity) sectors. The value of CPEC projects
has already reached around USD62bn.
• China-Mongolia-Russia Economic Corridor (CMREC): The CMREC consists of
infrastructure projects linking Northern China to Eastern Russia, through Mongolia. Most
BRI-related projects have been launched in Inner Mongolia, Beijing, Tianjin, Hebei,
Liaoning, Jilin and Heilongjiang in China, most regions in Mongolia, and Tuvan and
Buryatia in Russia. They are concentrated in the transportation (road and railway),
energy, tourism and environmental protection sectors.
• China-Central Asia-West Asia Economic Corridor (CCAWAEC): The CCAWAEC
consists of infrastructure projects connecting Western China and the Arabian Peninsula.
It crosses five Central Asian countries (Kazakhstan, Kyrgyz Republic, Tajikistan,
Uzbekistan and Turkmenistan) and 17 countries and regions in West Asia (including Iran,
Saudi Arabia and Turkey). Most CCAWAEC projects are related to transportation (roads,
railways, and ports), energy, telecommunications, real estate and construction materials.
• New Eurasia Land Bridge (NELB): The NELB, also known as the Second Eurasia Land
Bridge, is an international railway line running from Lianyungang in Jiangsu province
through Alashankou in Xinjiang, to Rotterdam in Holland, touching more than 30
countries and regions along the route. NELB-related projects so far are concentrated in
the transportation (roads, railways, ports), energy and tourism sectors.
• China-Indochina Peninsula Economic Corridor (CICPEC): The CICPEC links China with
the Indochina Peninsula and crosses Vietnam, Laos, Cambodia, Thailand, Myanmar,
Malaysia and Singapore along the way, with infrastructure projects mainly covering
transportation (roads, railways, ports), manufacturing and agriculture sectors.
• Bangladesh-China-India-Myanmar Economic Corridor (BCIMEC): The BCIMEC, as its
name indicates, mainly covers infrastructure projects in the four titular countries invested
in the transportation, telecommunications and energy sectors.
A win-win initiative
According to the Chinese government1, the BRI aims to “promote the connectivity of
Asian, European and African continents and their adjacent seas, establish and
strengthen partnerships among the countries along the Belt and Road, set up all-
dimensional, multi-tiered and composite connectivity networks, and realise diversified,
independent, balanced and sustainable development in these countries”.
The fundamental economics underpinning the BRI is the theory of comparative
advantage, where industrialised and developing countries own different resources and
thus enjoy the advantage as a consequence in international trade. Industrialised
countries have abundant capital and manufacturing capacity, while developing countries
usually have abundant natural resources and cheap labour, but lack the infrastructure,
manufacturing capacity and funding to improve productivity.
The BRI is seen as a win-win initiative for both China and the recipient economies. China
has the financial muscle and the technical infrastructure expertise, while many of the BRI
countries are fiscally constrained and lack infrastructure funding. The BRI allows China
to export its own manufacturing overcapacity, while better infrastructure in recipient
countries will enable local industrialisation and business creation (see China: The long
and winding “Belt and Road”, 17 May 2017).
An expanding network of countries
In his opening speech at the BOAO Forum this month, President Xi said that more than
80 countries and international organisations across Asia, Africa and Europe have joined
the BRI since he first proposed it in 2013. The most recent official list of BRI countries,
1
See National Development and Reform Commission, Ministry of Foreign Affairs, and Ministry of Commerce (with
State Council authorization), “Vision and Actions on Jointly Building Silk Road Economic Belt and 21st-Century
Maritime Silk Road”, 28 March 2015.
10
released at end-2016, included 65 countries. Figure 5 lists the major BRI participants,
while Appendix 2 gives a summary of macro statistics of all BRI countries, based on the
2016 official country list. These 65 countries account for at least 31% of global GDP,
62% of the global population and 32% of global trade values. Excluding China, the 64
BRI countries account for 16% of global GDP, 43% of the global population and 22% of
2
global trade values (Figure 6).
Collectively, this is an underdeveloped part of the world with great upside potential for
economic growth. In 2016, China’s exports to BRI countries accounted for 28% of its
total exports, up from 27% in 2015 and 24% in 2011. In 2016, China had a trade surplus
with 52 of the 64 BRI countries tracked by China’s State Information Centre, and a trade
deficit with the other 12 (Appendix 3: China’s trade balance with BRI countries).
Fig. 5: An overview of major BRI participants (data as of 2016)

GDP per Trade Trade
Major GDP Population Import Export
Region capita balance openness
countries (USD bn) (mn) (USD bn) (USD bn)
(USD thou) (USD bn) (% of GDP)
East Asia China 11199.1 1378.7 8.1 1950.4 2200.0 249.6 37.1
Indonesia 932.3 261.1 3.6 170.7 177.9 7.2 37.4
Thailand 407.0 68.9 5.9 220.5 280.4 60.0 123.1
Southeast
Philippines 304.9 103.3 3.0 112.6 85.3 -27.3 64.9
Asia
Singapore 297.0 5.6 53.0 434.4 511.2 76.9 318.4
Malaysia 296.5 31.2 9.5 180.8 200.7 19.8 128.6
India 2263.8 1324.2 1.7 467.1 434.1 -33.0 39.8
South Asia
Pakistan 278.9 193.2 1.4 44.6 25.5 -19.1 25.1
Saudi Arabia 646.4 32.3 20.0 195.1 198.3 3.2 60.9
Turkey 863.7 79.5 10.9 214.6 189.7 -24.9 46.8
Iran 419.0 80.3 5.2 89.2 93.9 4.7 43.7
West Asia and
North Africa Egypt 348.7 9.3 37.6 353.8 362.1 8.3 205.3
United Arab
332.8 95.7 3.5 65.5 34.4 -31.1 30.0
Emirates
Israel 317.7 8.5 37.2 89.5 96.2 6.6 58.4
Russia 1283.2 144.3 8.9 263.7 329.9 66.2 46.3
Europe
Poland 471.4 37.9 12.4 227.3 246.3 19.1 100.5
Note: Trade openness is measured by the sum of import and export as % of GDP. Source: eng.yidaiyilu.gov.cn, World Bank, State Information Centre and Nomura Global
Economics.
Fig. 6: 64 BRI countries make up the 43% of world population, 22% of world trade and 16% of world GDP (data as of 2016)
Population Trade GDP
China
China 10% China
19% 15%
Rest of the
world Other 64
38% BRI Other 64
countries BRI
22% countries
16%
Rest of the
Rest of the
world
world
Other 64 68%
69%
BRI
countries
43%
Note: We estimate the macro statistics of BRI countries based on the 2016 BRI country list . See Appendix 1 for more details. Source: State Information Centre of China and
Nomura Global Economics.
2
According to Xinhua News, at end-2017, China had signed agreements of cooperation with 86 countries and
international organisations under the BRI, but as yet there is no full country list from official sources. We estimate
the summary statistics based on the 2016 BRI country list including China and 64 countries.
11
Expected investment amounts

Given the BRI is a multi-decade, open-ended initiative, there are no hard numeric targets
on the proposed investment amount as implementation will take place on a transaction-
by-transaction basis. Most estimates peg total investment under the BRI at USD1-2trn
over the next decade (Figure 7). We estimate total investment under the BRI could reach
at least USD1.5trn over a 10-year horizon based on the scale of current financial
arrangements and the average leverage ratio of major international development
financial institutions, in line with other estimates (see Sections “Funding of BRI projects”
and “China’s economic reasons behind the BRI” for more details). We expect both the
number of countries involved and the amount of investment to continue to rise.
Funding of BRI projects
Much of the BRI-related project funding has so far been carried out by China’s big
commercial banks and the policy banks (China Development Bank and the Export-Import
Bank of China). China has established several new international economic institutions,
including the New Development Bank, the BRICS Contingent Reserve Arrangement, the
Asian Infrastructure Investment Bank (AIIB) and the Silk Road Fund (SRF), as well as
the Shanghai Cooperation Organisation. All provide financing and project coordination
for China’s outbound investments. There are three special-purpose financial institutions:
• the Silk Road Fund (SRF), with USD40bn planned equity capital and RMB100bn
(equivalent to USD16bn as of 2017) add-on equity capital;
• the New Development Bank (NDB) with USD100bn equity capital; and
• the Asian Infrastructure Investment Bank with USD100bn equity capital.
We estimate total capital under existing financial arrangements to be more than
USD300bn, of which USD56bn comes from the SRF, and USD100bn each from the NDB
and the AIIB, with the rest from multilateral investment funds and green bonds (Figure
8). We believe BRI projects could be funded by multilateral investment funds and green
bonds. For example, projects related to infrastructure investment in Africa and Russia
may get funding from the China-Africa Industrial Capacity Cooperation Fund (AUM of
USD10bn) and the Russia-China Investment Fund (USD2bn), respectively; and
environment protection-related projects could be partly funded by green bonds. These
two sources of finance could contribute another USD40-50bn of capital.
The US and Japan have yet to join the AIIB. Japan, however, has the potential to
become a large member of the BRI, given its capability in credit financing for global
infrastructure projects and large retail savings. Pension funds and sovereign wealth
funds (SWFs) could also become natural investors in BRI projects over time, given
infrastructure projects are long-term investments, frequently offering inflation pass-
through and higher yields than government bonds.
Fig. 7: Size of the BRI projects by various estimates Fig. 8: BRI funding sources
Estimated
Source Estimated size of the BRI project BRI funding source Detail
capital size
Nomura (2018) At least USD1.5trn for next 10yrs (2018-2027) USD40bn planned equity capital + RMB100bn
Silk Road Fund USD56bn
(equivalent to USD16bn) add-on equity capital
Eurizon SLJ Capital (2016) USD1.4trn
New Development USD20bn from each founding members (Brazil,
USD100bn
USD1.6trn for China’s investment in BRI- Bank Russia, India, China, and South Africa)
Shanghai University of Finance
related countries for the next 10yrs (2016-
and Economics (2015) Asian Infrastructure Funded by its member countries with varying
2025) USD100bn
Investment Bank contributions
USD1.2trn for China’s investment in BRI- USD10bn from China-Africa Industrial Capacity
Morgan Stanley (2017)
related countries for next 10yrs (2018-2027) Multilateral Cooperation Fund + USD10bn from China-Africa
investment funds + USD40-50bn Development Fund + USD2bn from Russia-China
USD2trn for China’s overall outbound Green bond Investment Fund + other multilateral investments
Xi Jinping’s speech at APEC
investment (not necessarily on BRI countries) + Green bond issued for financing BRI projects
Summit (2014)
for the next 15yrs (2015-2029)
Outstanding
BRI funding source Detail
Ning Jizhe (director of the loans
National Bureau of Statistics and USD600-800bn for China’s outbound Outstanding loans in BRI countries (as of 2016):
Vice Chairman of the National investment (not necessarily on BRI-related China's domestic China Development Bank : USD110bn
~USD200bn
Development and Reform countries) for the next 5yrs (2018-2022) policy banks Export-Import Bank of China : RMB622.5
Commission, 2017) (~USD90bn)
China's commercial USD200bn of outstanding loans in BRI countries

USD200bn
Source: Media and Nomura Global Economics. banks from big four commercial banks as of 2016
Note: We deem the BRI-related funding from China's domestic policy banks and
commercial banks as public and private capital levered by the investments of BRI-
specific international financial institutions (AIIB, NDB and SRF) and investment funds,
out of their balance sheets.
Source: Annual reports of SRF, NDB, AIIB, media, and Nomura Global Economics.
12
Progress so far is ahead of expectations

According to the Ministry of Commerce, Chinese enterprises invested USD14.4bn in
BRI-related projects in 2017 (accounting for 12.0% of China’s total outbound foreign
direct investment), and signed 7,217 new contracts on BRI-related projects for a total
value of USD144.3bn (54.4% of China’s contracted value with foreign countries in 2017).
A ripe time for China-led fiscal activism

Many have questioned China’s fiscal activism; we would argue that the time is in fact ripe
for China to lead. The disproportionate reliance on ultra-loose monetary policy across the
world after the global financial crisis may have averted a great depression, but it did so at
the cost of a major build-up of debt and with no clear sign of a recovery in potential
growth. Fiscal austerity has its place, but it has probably gone too far, particularly in
some emerging market economies (EMEs). We agree with Nomura’s Richard Koo that
fiscal stimulus, alongside supply-side reforms, is key to lifting potential growth in EMEs.3
To date, efforts to boost investment in developing Asia have not been sufficiently large,
or sufficiently broad. The time is ripe for Keynesian-style fiscal activism across the whole
gamut of developing Asia to accelerate economic development. We see the BRI as the
chief catalyst to jumpstart fiscal activism and China is in the best position to spearhead
this effort. Of all the major economies, it has probably the most experience in employing
fiscal stimulus in a state-led way to boost potential growth – and, importantly, has also
learnt important lessons on the pitfalls, such as resource misallocation and debt build-up.
To avoid these pitfalls, it will be critical to ensure a high level of private-sector
involvement, and here the timing is ripe for private financing. The low interest rate world
has significantly increased the appetites of global pension funds, insurance companies
and other asset managers for higher yielding EM assets.
The timing is also ripe from two other perspectives. Demographic challenges from
ageing populations are no longer in the future; they are affecting China and many of the
advanced economies now. The resulting rise in domestic savings and decline in long-
term investment opportunities in these demographically challenged wealthy nations
provide a huge source of savings to tap. Second, many EMEs are on the cusp of leap-
frogging into the digital economic world. The BRI can be a catalyst for this too.
The BRI can also be an important counter to trade protectionism, US inward-looking
policies and technology-induced onshoring by advanced economies.
China’s economic reasons behind the BRI

The EMEs need China as much as China needs the EMEs. By enabling regional
economic integration, the BRI also addresses China’s economic urgencies, such as the
need to create new sources of demand to aid its economic rebalancing, creating a better
return on its capital and furthering RMB internationalisation.
A new source of aggregate demand
After the global financial crisis, slower world trade and rising protectionism in developed
economies has meant that productivity gains from Asia’s value supply chains have
perhaps peaked. Reducing excess capacity due to weak global demand has been a key
priority for Chinese authorities. According to the Chinese government’s 2018 work report,
the BRI is aimed at breaking this (stagnant demand) deadlock and re-starting global growth
by building a platform for investing in infrastructure across regions. It should generate
more external demand for Chinese goods from recipient countries, which should help ease
China’s manufacturing overcapacity burden as well as boost the investment and output
growth in China, to some degree.
One way to gauge the impact of BRI projects on China’s growth is to estimate the
investment multiplier. In terms of funding capabilities, the total size of capital under
existing financial arrangements is around USD300bn. As most BRI-related financial
institutions have only a short history, their current leverage ratios (total liabilities to total
4
equity) are just marginally higher than 1.0x. Using leverage ratios at the Asian
3
Koo, R. C. (2014). The escape from balance sheet recession and the QE trap: a hazardous road for the world
economy. John Wiley & Sons.
4
As of 2016, the SRF’s leverage ratio was 1.3x, while those of the NDB and AIIB were both around 1.0x.
13
Development Bank (ADB) and World Bank as benchmarks5 and assuming that the three
major BRI-related financial institutions reach 5x leverage in 10 years, we estimate that
total BRI investment could reach USD1.5trn (=USD300bn x 5) over 10 years, and
probably more, as other financial institutions (commercial banks, China policy banks,
other multilateral funding agencies) also fund the initiative.
The immediate growth impulse driven by the BRI is actually likely to be limited; but could
be sizable over time. Assuming BRI investments have an average 10-year time span,
with 40% investment turning into demand for China’s products, the BRI may generate
around USD60bn of additional demand for China’s exports annually, or ~0.6% of China’s
FAI and ~0.3% of China’s exports in 2017. Based on the long-run relationship between
FAI and GDP growth, we estimate that the BRI may boost China’s GDP growth by 0.1pp
p.a. over the next decade. In the near term, the impact is likely to be only ~20% of our
estimates (0.1pp for FAI growth and 0.02pp for GDP growth), given current low leverage
ratios, but the cumulative growth impulse is set to rise over time and should be sizable
given the size of China’s economy (at over USD12trn in 2017).
Pushing forward with RMB internationalisation
The BRI will help in the internationalisation of RMB as settlement of BRI-related trade
and financing should boost demand for RMB in the international market. The Chinese
government is also encouraging domestic financial institutions to conduct overseas
funding business in RMB when providing financial services to BRI-related projects. To
facilitate the use of RMB in cross-border trade settlement and investment, China has
signed bilateral currency-swap agreements with some BRI countries (including Thailand,
Malaysia and Singapore); the People’s Bank of China has named RMB clearing banks in
an increasing number of countries; and some countries have adopted RMB as an official
reserve currency (including Malaysia, Thailand and Cambodia). These efforts signal
China’s strong desire to push forward with RMB internationalisation (see FX section for
more details).
Moving up the global value chain
To be fair, the BRI in itself is not enough to absorb all of China’s excess capacity. It is
also about enabling China to move up the value chain. China has established itself as a
low-cost manufacturing hub, but with rising labour costs it now needs to establish itself in
high value-added products like telecom, high-speed railways, machinery, construction
and engineering, consistent with the Made in China 2025 strategy.
The BRI offers China the platform to relocate low-cost manufacturing (via outward FDI)
to low-cost countries (in Asia and Africa), while upgrading its domestic production
facilities. Financing of BRI projects is often tied to using Chinese goods (construction
materials) and technology (high speed rail), making the BRI recipient countries (with
large infrastructure deficits) a captive market for these high value-added Chinese goods.
China’s investment in high-speed rail projects in Southeast Asia is a good example of
this. Similarly, investing in telecom networks in developing countries should benefit
Chinese telecom equipment makers.
More balanced regional development
Economic growth in China has been uneven, with much of the growth benefit feeding
through primarily to Southern coastal provinces, while growth in the land-locked
Western, Northeastern and Central regions has been slower. The BRI’s economic
corridors aim to integrate these less-developed regions with the outside world, thereby
triggering faster trade and investment growth.
Higher return on capital in the foreseeable future
Infrastructure building across the BRI countries will enable China to make better use of
its FX reserves, which stood at USD3.1trn as of March 2018, rather than mostly investing
in low-yielding US Treasuries (USTs).
In the initial years, infrastructure investment may offer a relatively low return on capital
and is often exposed to high default risks due to political and economic factors. However,
the return on capital may pick up significantly over time once infrastructure, institutional
and market environment is developed, especially in countries with abundant natural and
labour resources. As such, BRI-related investments can be seen as an entrance fee that
China and other industrialised countries have to pay (in the short term) before enjoying
5
The ADB’s leverage ratio was 7.3x as of 2016, while the World Bank’s was ~3.0x in 2017. We thus find it
reasonable to assume a leverage ratio of 5.0x for BRI-related financial institutions (being roughly the average of
the ADB and World Bank ratios).
14
longer-term gains. These investments also provide China the option of diversifying its
foreign asset allocation to mitigate idiosyncratic risk in specific foreign countries.
Other benefits – environmental protection and secured commodity supply
The BRI provides China’s manufacturing firms with practical channels to offset rising
labour costs, that is, outsourcing and offshoring, most of which are green, as required by
BRI-related regulations. The relocation of manufacturing plants (especially those in
heavy industries) from China to other BRI recipient countries could help mitigate the air
and water pollution problems that have long troubled China.
Moreover, the BRI also helps China secure new sources for commodities and natural
resources at lower costs. For example, given more roads and railways in the China-
Central Asia-West Asia Economic Corridor and more ports along the Maritime Silk Road
(once operational), China has become more closely linked with oil exporters in Western
Asia (due to significantly lower transportation costs through both land and sea routes).
The BRI will result in greater trade integration globally. In 2006, the US was the largest
trade partner of 127 countries in the world, while the corresponding number for China
was 70. Just six years later, in 2012, China was the largest trade partner of 128
countries and the US 76. Importantly, for China this number continues to climb (although
there has been no official statistics on the exact number in recent years). BRI countries
accounted for 25.7% of China’s total trade in 2016 and we expect this to grow (Figure 9).
Fig. 9: China’s trade with other BRI countries as % of its total Fig. 10: Sovereign ratings along the Belt and Road
trade
% China's export to BRI countries as % in total export
30
China's import from BRI countries as % in total import
China's trade with BRI countries as % in total trade
28 27.8
27.2
26.9
25.8 26.1
26
25.2 25.2 25.7
25.0 25.3
24.7
24.6 24.8
24 24.5 24.2
23.9 23.0
23.1
22
20
2011 2012 2013 2014 2015 2016
Note: We estimate the statistics based on the 2016 BRI country list, including China Source: Bloomberg and Nomura Global Economics.
and 64 countries. See Appendix 1 for more details. Source: State Information Centre
of China and Nomura Global Economics.
The risks facing China

Undoubtedly, the BRI does expose China to multiple risks.
First, BRI projects are susceptible to providing low returns, delayed returns, and even a
risk of default at this current, early stage. This could partly be because some of the
infrastructure investments may not be profit-driven, particularly those led by Chinese
government entities. Most recipient economies are EMEs, still suffering from under-
developed legal institutions or frameworks, and unstable political systems (posing
security risks). Many have lower sovereign credit ratings due to small GDPs, weak fiscal
positions and higher risks; some are not even rated (Figure 10). The implementation of
BRI projects could be delayed by political, institutional and financial issues in recipient
countries, incurring losses for the investing (Chinese or other) entity.
Second, the sustainability of financing could become an issue. China’s domestic
debt is already very high, with an over-leveraged domestic financial sector. It could
look to supplement its financing by involving other countries, but given the nature of
BRI investments (uncertainty over returns, higher risk premia), private investors
could be deterred.
15
However, we believe the debt burden posed by BRI-related investments should be

limited on China. Our estimate of at least USD1.5trn of BRI projects over 10 years implies
just USD150bn of investment annually, which is dwarfed by the scale of domestic fixed
asset investment (~USD9.3trn based on 2017 data) and new loans provided by the
banking sector (USD2trn).
Moreover, we also see some offsets from China’s perspective. For financing, the BRI
may turn to international organisations such as the World Bank, IMF and ADB for
support. The political risk in BRI participants could be partially reduced by well-designed
insurance products, which could encourage more foreign investors to join.6 Once basic
infrastructure has been supplied and institutional and market environments have been
significantly improved, the above-mentioned disadvantages could be mitigated, which
may attract more private capital in due course.
As such, risks exist, but we also believe they are being actively managed and should be
largely contained.
The direct winners outside China

Industrialised countries – new source of demand
Higher demand and increased investment opportunities in BRI countries can benefit
other industrialised countries by boosting demand for their capital- and technology-
intensive manufacturing goods, as well as their services. Outside of China, for instance,
Japan, Germany, Korea, the US and EU could all benefit.
Resource-rich developing countries
Infrastructure building requires raw material and hence the BRI can benefit the
commodity-rich countries such as Russia, the Middle East oil exporters (Iran, Iraq,
Kuwait, Oman, Qatar, Saudi Arabia, and United Arab Emirates), Australia, Indonesia,
Mongolia, Myanmar and South Africa.
Low-cost developing economies – gain in manufacturing share
With low-cost labour already at hand, and good infrastructure (courtesy of the BRI),
developing countries could benefit from the relocation of manufacturing away from the
higher-cost industrialised countries. Such potential beneficiaries include Cambodia,
Vietnam, Indonesia and India.
Geopolitically linked countries
Among the BRI countries, those that already maintain a close geopolitical relationship
with China could benefit a lot more, as BRI-projects could be fast-tracked due to
geopolitical reasons. This would benefit living conditions in home countries such as
Pakistan, Cambodia, Laos, Nepal, Iran and Kazakhstan.
6
For example, the Multilateral Investment Guarantee Agency (MIGA) is an international financial institution
affiliated to the World Bank Group that offers political-risk insurance and credit-enhancement guarantees. These
guarantees help investors protect FDI against political risk, especially in developing countries.
16
The geopolitics behind the BRI

The Belt and Road Initiative is as much about geopolitics as it is about economics. It Asia Economics
symbolises China’s arrival on the international scene as a heavyweight counter to the
Sonal Varma - NSL
heretofore prevailing US hegemony. China is using the BRI to construct a new inter- sonal.varma@nomura.com
connected economic web that solidifies its regional leadership. Yet this is ringing alarm +65 6433 6527
bells not only in beneficiary countries, but also in others that see the BRI as a strategic
threat – namely India, Russia and the US. As Brahma Chellany, India’s leading China
expert, puts it, the new Silk Road really represents “a silk glove for China’s iron fist.”7
China’s geopolitical and geostrategic reasons

The BRI has been compared by some to the Marshall Plan – the US post-war initiative in
1948 to provide economic assistance to rebuild Europe – but the two are vastly different
in terms of scope, size and objective (see Box 2: The BRI and the Marshall Plan).
An open bid for global leadership; China’s soft power
Alastair Newton, co-founder and director of Alavan Business Advisory, a geopolitical
consultancy to Nomura, recently published an in-depth analysis on the BRI (see Belt and
Road: A Greater Game, Alavan Business Advisory, 13 April 2018), in which he states
that recent events in the West, most notably the election of President Donald Trump,
have encouraged China to ditch Deng Xiaoping’s ‘hide and bide’ approach to
8
international relations in favour of a more aggressive approach.
The BRI is China’s open bid for global leadership at the expense of the West.9 Initially,
the BRI was seen as a counterbalance to former President Obama’s policies such as the
strategic pivot to Asia and the Trans-Pacific Partnership (TPP). Now, President Trump’s
decision to withdraw from the TPP has damaged US credibility in the eyes of its Asian
allies and China has seized the moment, projecting itself as the new champion of free
trade. Mr. Newton notes that this is benefitting China indirectly through the projection of
its “soft power”, which is “bound to have an indirect positive impact on the perception of
China among its BRI partners”. A number of US regional allies are slowly gravitating
towards China.10
Domestic stability considerations
Mr. Newton believes that behind the BRI, there is also “a very important domestic
political dimension in play – how does China become more democratic and the
Communist Party of China (CPC) stay in power?” The rise of populism in the West has
made 'anti-democracy' an easier sell, but it would be easier “to persuade China’s citizens
to accept the political status quo at home if Beijing is able successfully to ‘sell’ and
sustain its governance model abroad… which is clearly what Beijing is increasingly doing
through the BRI.” The BRI also seeks to address the growing inequality between China’s
coastal and interior provinces, which should preserve domestic social stability. According
to The Economist, China’s investment in the volatile countries in Central Asia can also
create a more stable neighbourhood for China’s own restive Western provinces of
11
Xinjiang and Tibet.
Geostrategic reasons
China is heavily dependent on the maritime routes passing through the South China Sea
for trade. Over 80% of China’s oil goes through the narrow Malacca Strait near
Singapore. Even its interior provinces trade by shipping goods overland to and from the
coast, and not via overland routes to the West.12
7
A Silk Glove for China’s Iron Fist, Brahma Chellaney, Project Syndicate, 4 March 2015.
8
This and all subsequent citations are sourced from this report, which we highly recommend to our readers.
9
Mr. Newton also notes that “Beijing is more than somewhat miffed by what it sees as a broken promise to afford it
‘market economy’ status 15 years after it joined [the WTO] – thanks to the combined efforts of the EU and the US.
Add to this what is clearly a concerted (if justified) attack by the EU, Japan and the US on China in the margins of
last year’s WTO ministerial meeting and it is, in my view, inevitable that Beijing will redouble its efforts to build
organisations where it is the rule-maker rather than a rule-taker”. The BRI should be seen as a partial alternative
to the WTO (164 members).
10
See Understanding China’s Belt and Road Initiative, Peter Cai, March 2017, Lowy Institute.
11
“What is China’s belt and road initiative?”, The Economist, 15 May 2017.
12
“One belt, one road, no dice”, Jacob L. Shapiro, Geopolitical Futures, 12 January 2017.
17
However, the security of these routes is guaranteed by the US Navy and as Mr. Newton
notes, “the CPC appears to be convinced that, sooner or later, the US may attempt some
sort of naval blockade to contain China’s rise – with the South China Sea an obvious
choke-point”. As such, “both the island building and the development of alternative
routes [through Pakistan and Central Asia] to major sources of commodities and major
markets are not only logical but essential geopolitically from this perspective.” China’s
investment in the Gwadar port in Pakistan also has to be seen through this prism. In one
swoop, “it bypasses the South China Sea, the Strait of Malacca and the Bay of Bengal.”
Gwadar is also deep enough to accommodate submarines and aircraft carriers.
Response to the BRI

For recipients, economics triumphs geopolitics
Suspicion surrounding the real intent behind Chinese investment runs deep, even among
those receiving Chinese support. In Sri Lanka there were violent protests when the
Hambantota Port was handed over to China on a 99-year lease after Sri Lanka was
unable to repay Chinese debt. Yet, many countries have little choice.
In the case of Sri Lanka, its two sponsors – India and the US – stepped back when the
government decided to fight a full-fledged war against Tamil separatists in 2008 – giving
China the opportunity to step forward. China also stepped in to help Pakistan when its
relationship with the US soured. Even as the US claims it is committed to ASEAN, Mr.
Newton notes that the notion of the US being a totally reliable ally “would have been a
very hard sell even before Mr Trump withdrew it from the TPP.” ASEAN has been unable
to agree to a united stand against China’s territorial claims in the South China Sea, but
still “China really only needs to continue its current ‘soft power’ approach to have its
southeast Asian neighbours move gradually across the spectrum of influence towards
Beijing and away from Washington.” The BRI will only bolster China’s claims in the South
China Sea.
Alarm bells ringing in Delhi, Moscow and elsewhere
This growing ‘soft power’ has many countries worried. India tops the list; it boycotted the
May 2017 BRI ‘summit’ in Beijing, primarily because the China-Pakistan Economic
Corridor (CPEC) crosses Pakistan-administered Kashmir, which is still a disputed
territory. However, Mr. Newton believes that India’s concern is “almost certainly
strategic”: it is worried about the “string of pearls – the chain of third-country ports
stretching from the Chinese mainland to Djibouti and Port Sudan to which China’s navy
and commercial interests have privileged access” and through which it is trying to cordon
off India. Beijing is also “pulling the Maldives, Nepal and Sri Lanka out of India’s sphere
of influence and into its own”. Finally, India is concerned that China may use the
Hambantota port in Sri Lanka and Gwadar port in Pakistan as naval bases.
Elsewhere, China’s growing economic influence in the Central Asian Republics has
Russia’s attention, but Mr. Newton believes that Russia is “uniquely well-placed to keep
China’s ambitions within bounds by subtly slowing down the BRI’s progress through
bureaucracy.” In Europe, the concern is that BRI is being used to “nurture the existing
and increasingly deep ‘East/West’ division within the EU to China’s geopolitical
advantage.”
Countering the BRI
To counter a China-led BRI, a US-centred “Indo-Pacific Strategy” is being developed,
involving a quadrilateral alliance of Japan, India, Australia and the US to build a free and
open Indo-Pacific region, involving a quasi-military alliance focused on maritime safety,
regional security, connectivity infrastructure and development in Southeast Asia and
Africa. Many of the ASEAN countries are also expected to join the initiative. However,
this strategy is still under development and not yet strong enough to counter the BRI.
India, on its part, has signed an agreement with Iran to develop the Chabahar port as
part of a proposed Indo-Pacific ‘Freedom Corridor’, linking India to Afghanistan and
Central Asia, while Prime Minister Modi personally invited ASEAN leaders to India’s last
national day celebrations – a signal that he seeks to deepen security ties across ASEAN.
Trade treaties are also being revived. TPP has been rebranded as the Comprehensive
and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and Mr. Newton
expects many more countries such as Indonesia, the Philippines and South Korea to join
for both economic and geopolitical reasons.
18
Will the BRI succeed geopolitically?

In the final analysis, Mr. Newton notes that “the BRI presents a systemic threat to the
US-driven post-war economic and political model” and that while he expects the BRI to
be a significant economic success, he expects “it to run into strong resistance as far as
its geopolitical objectives are concerned.” Any geopolitical success “may well come down
to a race between Beijing’s ability to sustain something akin to the domestic status quo
and the West’s willingness to reform and regenerate.”
The BRI rollout will continue to be marked by “bilateral and regional tussles between
China on the one hand and its partners on the other, with India and Russia likely to
feature prominently” and, while regarding it currently as a low-probability event, Mr.
Newton “cannot rule out the possibility that China’s ambitions will result in violent conflict
either regionally” or, consistent with history, between a declining hegemony (the US) and
a rising competitor (China).
One thing is clear, says Mr. Newton: “China is prepared, if push comes to shove, to pay
an economic price in its quest to realise geopolitical goals through the BRI.”
Box 2: The BRI and the Marshall Plan

China’s BRI has been compared to the Marshall Plan, but it is a comparison that China
has dismissed.13 Officially known as the European Recovery Program, under the Marshall
Plan from 1948 to 1951 the US gave aid worth USD13bn (~USD130bn in 2016 USD
value) to Western Europe to rebuild their economies after World War II. To receive aid,
recipient countries needed to lower trade barriers and allow a greater role for market
forces. The plan has been seen by some as a master move by the US as it cemented its
position as the “most preeminent political and economic power in the world.”14
There are certainly parallels between the BRI and the Marshall Plan. For instance,
concessional loans under the BRI to finance infrastructure require use of Chinese
equipment. Under the Marshall Plan, US aid was used to finance reconstruction of
European infrastructure and for purchase of industrial goods from the US. Yet, the two are
very different.
• The current value of the Marshall Plan (~USD130bn) pales in comparison to the
investment anticipated under the BRI (>USD1trn).
• Over 90% of the funding under the Marshall Plan was aid money and came entirely from
the government, while lending under BRI is a mix of concessional and commercial loans,
and will involve lending by private entities as well.15
• Geographically, the Marshall Plan was limited in scope (Western Europe), being
16
predicated on participation in the US-led North American Treaty Organisation. The BRI
is open for all nations and is not limited by geography.
• The BRI is about development, not reconstruction.
• Every dollar of Marshall Plan aid had to be matched by an equal amount in the domestic
currency, which is not the case with the BRI.
• The Marshall Plan required recipient countries to reform (allowing a greater role for
market forces), while China has steered clear of any interference in domestic reforms.
17
According to Brad DeLong and Barry Eichengreen (1991), the Marshall Plan lifted
European growth, not through expansion of the capital stock but by promoting a rapid
dismantling of controls over product and factor markets (more market forces). Here, the
Marshall Plan offers an important lesson for the BRI. For the recipient countries to truly
benefit from the BRI, dollars are not enough; domestic structural reforms need to follow.
13
In March 2015, Chinese Foreign Minister Wang Yi said the BRI is "the product of inclusive cooperation, not a
tool of geopolitics, and must not be viewed with an outdated Cold War mentality”.
14
“China’s ambitious new Marshall Plan for Asia”, Peter Cai, The Australian Business Review, 31 March 2015.
15
“Will China’s Belt and Road Initiative outdo the Marshall Plan?”, The Economist, 8 March 2018.
16
“How the Belt and Road could change the 21st century”, Dan Steinbock, The Daily Telegraph, May 2017.
17
“Bradford DeLong and Barry Eichengreen, The Marshall Plan: History’s Most Successful Structural Adjustment
Program”, NBER, October 1991.
19
Recipient economies: Fast tracking growth

“The first challenge is ensuring that Belt and Road only travels where it is needed.”
– Christine Lagarde, Managing Director, International Monetary Fund, 12 April 2018.
Asia Economics
Sonal Varma - NSL
China stands to gain both economically and geopolitically from the BRI. At the same sonal.varma@nomura.com
time, the BRI also offers a plethora of opportunities to recipient economies in both +65 6433 6527
Southeast and South Asian markets such as Pakistan, Bangladesh and Sri Lanka, as Euben Paracuelles - NSL
they benefit from China’s infrastructure expertise and financial strength. Many of the euben.paracuelles@nomura.com
economies under the BRI are low- to middle-income countries that could experience +65 6433 6956
significant growth gains as the BRI creates new economic opportunities via increased
investment, trade and tourism, not just from China, but also via greater integration
among themselves.
However, BRI-driven lending could be a double-edged sword as recipient countries also
face risks from a greater debt burden, balance-of-payment risks and potential
geopolitical tensions. Nonetheless, we see the benefits outweighing the risks in the
medium-term for the recipient economies.
A new impetus to growth

The BRI can boost growth in recipient economies through multiple channels.
An infrastructure stimulus
An infrastructure deficit – chronic power shortages, creaking logistics – due to stretched
government finances and lack of technical capabilities has impeded growth in a number of
recipient countries. China aims to fill this gap by investing in various forms of infrastructure,
including road, rail, pipelines, energy, fibre optic links and ports (Figure 11). The proposed
investments are large from the recipient economy’s perspective, particularly for smaller
economies: 20% of 2017 GDP for Pakistan and ~15% for Bangladesh.
Large infrastructure investment will boost productivity and growth, especially in the
poorer economies in Asia. Better connectivity and quality transport infrastructure should
enable these economies to become an integral part of the global value chain, especially
as rising labour costs force Chinese firms to move up the value chain and invest in
manufacturing in other lower-cost destinations, for example, in garment manufacturing in
Bangladesh. Improved infrastructure will also support regional development in general.
The BRI also presents an opportunity for the more developed economies. For instance,
Singapore could partner with China in building these BRI projects and Malaysia could
benefit from increased Chinese FDI in solar power.
20
Fig. 11: Key BRI infrastructure projects and their current status
PROJECT FUNDING SOURCE VALUE STATUS
(USD bn)
INDONESIA
Jakarta-Bandung High Speed Train 75% loan from China Development Bank 5.5 Groundbreaking on January 2016 but President
Jokowi called for a project reassessment; target
completion pushed out to 2020
% of GDP 0.6
MALAYSIA
East Coast Rail Link Exim Bank of China (85%); local banks (15%) 14.1 Groundbreaking on August 2017; targeted
completion 2024
Malaysia-China Kuantan Industrial Park JV - IJM Land Bhd, Guangxi Beibu Gulf 8.4 Under construction
International Port Group and Qinzhou
Investment Co
Expansion of Kuantan Port JV - IJM Corporation Bhd and Guangxi Beibu 0.8 Under construction; targeted completion 2018
International Port Group
Malacca Gateway JV - KAJ Development Sdn Bhd and Power- 11.0 Under construction; targeted completion 2025
China International Group Limited
TOTAL 34.2
% of GDP 9.9
PHILIPPINES
Two bridges across Pasig river China - ODA grant 0.1 Launched November 2017; construction yet to
start
Metro Manila Flood Management Project AIIB 0.5 -
PNR South Longhaul Project China - ODA loan 3.4 Loan agreement signed November 2017
Safe Philippines Project, Phase 1 China - ODA 0.4 -
TOTAL 4.4
% of GDP 1.4
THAILAND
Thai-Chinese High Speed Train Domestic financing by Thai govt; China only 5.7 Under construction; targeted completion 2021
provides technical expertise
% of GDP 1.3
CAMBODIA
Phnom Penh-Sihanoukville motorway China loan 1.9 Construction to start in 2018; targeted
completion in 2022
New Phnom Penh airport USD1.1bn funded by foreign banks 1.5 Construction to start in 2019
New Siem Reap airport China’s state-run Yunnan Investment Holdings, 0.9 Under construction; targeted completion 2020
Ltd
TOTAL 4.3
% of GDP 19.3
LAOS
Chinese-Laos railway Laos (30%); China (70%) 5.8 30% completed; targeted completion 2021
% of GDP 33.8
MYANMAR
Deep seaport in Kyaukphyu Myanmar (30%); China (70%) 7.2 Under negotiation
% of GDP 10.8
VIETNAM
Cat Linh – Ha Dong metro line Vietnam (25%); China (75%) 0.9 Under construction, targeted completion 2018
% of GDP 0.4
PAKISTAN
Rail line: Expansion/reconstruction of existing Chinese Government Concessional Loan 8.2
Line ML-1 Project will be completed in 2 phases by 2022
SSRL Thar Coal Block-I 6.8 mtpa &SEC Mine Independent Power Producer 3.3 Expected commercial operation date for mine
Mouth Power Plant(2×660MW) (2019) and plant (2018-19)
Road: Peshawar-Karachi Motorway (Multan- Government Concessional Loan 3.0 Under construction; targeted completion
Sukkur Section) August 2019
Kohala Hydro Project Exim Bank of China; IFC 2.4 Expected Operation Date: 2023
TOTAL 16.8
% of GDP 5.5
SRI LANKA
Colombo Port City China Communications & Construction 2.4 Under construction; targeted 2020
Company
Hambantota deep sea port China Exim bank 1.6 Completed
TOTAL 4.0
% of GDP 4.8
BANGLADESH
Padma Bridge Rail Link China Exim Bank 3.3 Under construction; completion by 2022
Dhaka Chittagong rail link Government-to-government agreement with 6.0 To be completed by 2022
China
Payra power plant (1320MW) China EXIM Bank; China Development Bank 2.0 Under construction; completion by 2019
Marine Drive expressway Bank of China 2.9 Planned completion in 2021
Elevated expressway: Dhaka airport-Ashulia Bank of China 1.4 Planned completion in 2022
Four-lane highway: Dhaka-Sylhet Bangladesh government 1.6

TOTAL 17.1
% of GDP 6.9
Source: Nomura Global Economics estimates.
21
A mega boost to regional trade integration

The BRI will promote connectivity not only via hard infrastructure investment, but also
through softer elements such as more harmonised cross-border administrative
procedures, which should promote greater regional trade integration. China’s bilateral
trade with the BRI countries stood at USD962bn in 2016 (25% of total) and Chinese
President Xi Jinping stated back in 2015 that he hoped China’s annual trade with the BRI
18
countries would surpass USD2.5trn in a decade.
The benefit to recipient countries will flow through due to reduced transport costs and
better trade facilitation. Trade costs are currently high in the BRI countries. For instance,
it takes eight days to export in G7 economies, but about 50 days on average to export in
Central and Western Asia.19 These costs should fall, as seen with the development of
the Chongqing-Sinjiang-Europe International Railway, which reduced the transit time for
goods to 16 days from 36 days using the old maritime transport route.
20
According to Bruegel (2016) , a 10% reduction in railway, air and maritime costs
increases trade by 2.0%, 5.5% and 1.1%, respectively. Streamlined cross-border
regulations should facilitate trade by making it faster. These gains have the potential to
generate additional exports worth anywhere from USD6.5bn to USD135bn (Figure 11).
21
Another study (ESCAP, 2017) finds that a 1% improvement in trade facilitation can
increase exports by more than 1.5%, while a 1% improvement in the quality of transport
infrastructure can increase exports by ~0.69%. Chinese authorities are also considering
free trade agreements with BRI countries, which should further dismantle trade barriers
and promote exports.
Advantage services
The BRI will also promote development of services sectors, and especially in areas that
cater to transit trade. For instance, Pakistan expects up to 4% of global trade to pass
through the Gwadar-Xinjiang corridor by 2020, while Sri Lanka should also be integrated
into a China-backed global trading route.
Cross-border e-commerce and real-estate investments are other areas expected to
receive a boost. Tourism in most BRI countries will benefit as better infrastructure
attracts tourists from both China and elsewhere. Financial-sector integration is also likely
as the banking sector in partner countries will need to cooperate in on-lending and trade
finance, in turn leading to growth in legal and professional services. We believe
Singapore stands to benefit the most, first, as a stopover for Chinese tourists en route to
other destinations; second, as a logistics and trans-shipment hub; and third, as an
international financial centre.
Rising FDI inflows
As we have argued previously (see Anchor Report: India and ASEAN: Asia’s next FDI
magnets, 31 July 2017), the next big FDI opportunities are in India and ASEAN
countries. But unlike in the past, when the US and EU accounted for the bulk of FDI
flows, the sources of FDI are changing from the West to East, which will be in part
triggered by the BRI. The same can apply for the other smaller BRI countries and likely
could have a greater impact in their respective economies. BRI-related investments,
beyond physical infrastructure, could prove transformational, allowing them for instance
to shift to more service-driven economies as argued above. More FDI inflows could
boost productivity growth, and hence help lift potential growth.
The experience of some ASEAN countries, which have seen increased FDI inflows in
recent years from both China and Japan, provides some evidence to this (see Asia
Special Report - Philippines: Beyond words, 20 October 2016). Yet we see scope for
higher FDI inflows from China which, despite recent increases, still has a relatively small
share of total FDI (Figure 12). As we show in the subsequent country pages, FDI
prospects as a result of the BRI look fairly positive. Some examples include: 1) the
electronics and tourism sectors could be an attractive destination for more Chinese FDI
18
“China’s Xi: Trade between China and Silk Road nations to exceed $2.5 trillion”, Reuters, 29 March 2015.
19 th
The One Belt, One Road Initiative, Impact on Trade and Growth, Villafuerte, Corong and Zhuang, 19 Annual
Conference on Global Economic Analysis, June 2016.
20
Alicia Garcia Herrero and Jianwei Xu, China’s Belt and Road initiative: can Europe expect trade gains?, Bruegel,
Working Paper, Issue 5, 2016.
21
Bala Ramasamy, Matthew Yeung, Chorthip Utoktham and Yann Duval (2017), “Trade and trade facilitation
along the Belt and Road Initiative corridors”, ARTNeT Working Paper Series, No. 172, November 2017, Bangkok,
ESCAP.
22
in Thailand under its flagship Eastern Economic Corridor; 2) the banking sector in the
Philippines which has already been fully liberalised in 2014; and 3) the manufacturing
sector in Indonesia, which is trying to reduce its dependence on the commodity sector.
There are also opportunities across the board for greater tourism-related investments
even as China’s share of ASEAN’s tourist arrivals are already relatively high compared
with export shares (Figures 13 and 14).
Fig. 12: FDI from China to ASEAN Fig. 13: Tourists from China to ASEAN Fig. 14: Exports from China to ASEAN
FDI from China (% of total) visitor arrivals from China (% of total) exports to China (% of total)
40 30 20
35
18
25
30
25 16
20
20 14
15 15
12
10
10 10
5
0
5 8
-5 2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017
2012 2013 2014 2015 2016 2017 ID MY PH ID MY PH
ID MY PH TH SG TH SG TH
Note: We use FDI inflows for Malaysia, equity FDI for Note: Malaysia includes China, HK and Macau. Source: Note: We use non-oil domestic exports for Singapore.
the Philippines and net FDI for Thailand. Source: CEIC, CEIC, Nomura Global Economics. Source: CEIC, Nomura Global Economics
Nomura Global Economics.
A growth bonanza for smaller economies

Econometric estimates confirm the growth benefit to BRI recipient economies (Figure
15). According to a 2016 ADB study22, improved transport networks and trade facilitation
in BRI countries could raise GDP growth by as much as 1.4pp in Mongolia and ~0.5pp in
Pakistan and Bangladesh. It predicts GDP gains across Central (0.27pp), South (0.66pp)
and Southeast Asia (0.34pp).
Another ESCAP study (2018)23 identifies the countries that could benefit from each of
the six land corridors that form a cornerstone of the BRI. It finds that while output gains
will vary across participating countries, the land-locked economies will likely experience
the largest increase in real GDP. Gains (increase in output level) range from 4% for
Pakistan (under the China Pakistan Economic Corridor), 7% for Bangladesh
(Bangladesh China India Myanmar Corridor), 8% for Mongolia (China Mongolia Russia
Economic Corridor) to as high as 17% for Vietnam (under the China Indochina Peninsula
Corridor). The benefits from the other two corridors are expected to accrue to Central
Asian Republics: 13% for Kyrgyzstan under China-Central-West Asia Economic Corridor
(CAWA) and 5% for Kazakhstan under New Eurasian Land Bridge (NELB).
Interestingly, most studies find that growth gains due to trade facilitation are larger than
those created by infrastructure investment. As such, infrastructure investment is
necessary – but on its own, not enough – for recipient countries to benefit from the BRI.
22
James Villafuerte, Erwin Corong and Juzhong Zhuang, “The One Belt, One Road Initiative: Impact on Trade and
Growth”, 19th Annual Conference on Global Economic Analysis, Asian Development Bank, June 2016.
23
Hongjoo Hahm and Selim Raihan (2018), “The Belt and Road Initiative: Maximizing benefits, managing risks – A
computable general equilibrium approach”, Journal of Infrastructure, Policy and Development 2(1): 97-115.
23
Fig. 15: Potential gain in value of bilateral exports Fig. 16: Growth impact
USD bn Scenario 1 Scenario 2 Scenario 3
China 3.2 24.5 36.9 Mongolia 1.41
Mongolia 0.0 0.1 0.3 South Asia 0.66
Southeast Asia 0.0 2.3 19.1 Pakistan 0.53

South Asia 0.0 0.1 0.2 Bangladesh 0.46
India 0.7 5.9 10.2 West Asia 0.35
Pakistan 0.2 0.6 1.3 Southeast Asia 0.34 GDP (pp)
Bangladesh 0.0 0.1 0.4 India 0.29
Central Asia 0.3 4.6 7.0 Central Asia 0.27
West Asia 0.9 32.8 49.3 Turkey 0.22
Russia 0.8 2.9 7.1 Rest of East Asia 0.15
Turkey 0.5 0.9 3.7 China 0.12
Total 6.5 74.8 135.4 Russia 0.11
Note: Scenario 1: an unweighted 25% reduction in road transport margins and 5% Rest of the world -0.02
reduction in sea transport margins. Scenario 2: a weighted 25% reduction in road
transport margins and 5% reduction in sea transport margins.+ iceberg approach -0.10 0.40 0.90 1.40 1.90
(reduction in time costs). Scenario 3: an unweighted 25% reduction in international
road transport margin and 5% reduction in sea transport margin for all BRI
Note: The growth impact shows deviation from baseline based on Global Trade
regions/countries + iceberg approach (reduction in time costs). Analysis Project (GTAP) Simulations. The scenario assumes an unweighted 25%
Source: Villafuerte, Corong and Zhuang, June 2016. reduction in international road transport margin and 5% reduction in sea transport
margin for all BRI regions/countries. The iceberg approach (reduction in time costs) is
used to model improvement in trade facilitation costs.
Source: Villafuerte, Corong and Zhuang, June 2016.
The big beneficiaries

South Asian economies
In general, the smaller economies in South Asia are set to benefit a lot more from the
BRI than the larger economies. Pakistan stands out as one of the biggest beneficiaries.
The total amount of investment commitment by China to Pakistan is estimated at
USD62bn (20% of Pakistan’s 2017 GDP) with the China Pakistan Economic Corridor at
the centre and the Gwadar port, transport infrastructure, power projects and industrial
collaboration being four key areas. All in, more than 2.3m jobs over 2015-30 are
24
expected, with 2.0-2.5pp added to GDP growth . Pakistan’s integration into regional
trade and its tourism sector should receive a significant boost, while there is potential
that this development also results in more political stability.
Bangladesh is set to receive total investment of USD38bn (15% of its 2017 GDP) under
the Bangladesh-China-India-Myanmar Corridor project, focussed on rail, power, roads,
ports and oil pipelines. Bangladesh has low-cost labour, but lacks the infrastructure – a
void that China will fill. Good infrastructure is its opportunity to develop an even more
competitive manufacturing base, move towards more value-added exports, attract more
foreign investment and raise its share in global trade.
In Sri Lanka, China has currently invested the equivalent of about 4% of its GDP under
the BRI, but this may rise to ~10% in the years ahead with the focus on the Colombo
Port City and Hambantota port projects. Sri Lanka expects the Colombo project to entail
a total investment of USD13bn over the next 25-30 years. Better infrastructure will
provide a fillip to tourism, one of the main FX earners, and integrate Sri Lanka in a
China-backed global trading route.
ASEAN
From a regional standpoint, ASEAN collectively now looks to benefit more from the BRI
than was thought in the initial years after the idea was first floated. To date,
infrastructure-related projects worth USD53.3bn (2.5% of ASEAN-5 GDP) have been
25
identified in the pipeline for the ASEAN 5 alone. Of these projects, around 90% have
already broken ground (Figure 11). The most pivotal development in allowing this was, in
our opinion, the easing of tensions in the South China Sea after Philippine President
Rodrigo Duterte reversed his predecessor’s stance and became more welcoming of
24
“Rebuilt port heralds success”, The Telegraph, 5 May 2017.
25
We excluded the USD115.3bn Forest City project in Malaysia.
24
China. His official visits to Beijing resulted in large investment pledges, later replicated by
26
other ASEAN leaders.
The biggest beneficiaries among major ASEAN economies are Malaysia and the
Philippines:
• Compared to other ASEAN economies, Malaysia is well ahead of the pack in securing
Chinese investment, with USD34.2bn (10% of GDP) of BRI-related infrastructure
projects. The USD14bn East Coast Rail Link (ECRL) broke ground in August 2017 and
is targeted for completion in 2024. It will complement two other BRI projects on the east
coast: the Malaysia-China Kuantan Industrial Park (MCKIP) and the expansion of
Kuantan Port in the state of Pahang. The improved freight connectivity will likely
increase the viability of the east coast – where wages are far lower than the more
developed west coast – for manufacturing activities, which should support regional
development. The ECRL would also create a land bridge between the Kuantan Port
and Port Klang on the west coast, providing an alternative route for Chinese trade
through the South China Sea, the Strait of Malacca and the Indian Ocean.
• In the Philippines, President Duterte’s so-called “pivot to China” is paving the way for a
slew of proposed China-funded infrastructure projects and investments at a time when
the government is pushing a “golden age of infrastructure.” A total of USD4.4bn (1.4%
of GDP) of infrastructure projects are now in the pipeline. In particular, the South Long
Haul Railway, with a price tag of USD3.4bn, just received a loan agreement signed on
the sidelines of the ASEAN summit in November 2017. The 610km line will run across
six provinces on the island of Luzon, connecting ports and special economic zones, in
line with the government’s goal to promote regional development. That said, there are
no major port development projects − which would have been more in line with the
BRI’s thrust of increasing regional connectivity and allow the Philippines to be linked to
the Maritime Silk Road – and as such we believe the project will actually somewhat limit
the prospects of new trade linkages.
By contrast, high-speed rail projects – the most high-profile BRI projects – in Thailand
and Indonesia have been marred by significant delays. The Thai government, after long
drawn-out negotiations since the Thai-Chinese railway MOU was signed in December
2014, eventually opted to fully invest in the project using local financing and construction
materials, while China will primarily provide technical assistance. In Indonesia, the
Jakarta-Bandung high-speed rail which broke ground in January 2016 seems to be
facing a similar fate. President Jokowi has mandated a project reassessment following
problems with land acquisition and cost over-runs.
These issues, in our view, underscore the significant inherent risks facing implementation
of BRI-related projects despite the potential benefits and seemingly strengthening ties
between China and recipient ASEAN countries.
Among the frontier ASEAN economies – Cambodia, Laos, Myanmar and Vietnam
(CLMV) – strong economic linkages with China already exist but their willingness to
participate in the BRI projects still varies. On the one hand, Cambodia has already
signed multi-billion-dollar agreements on extensive infrastructure development, while
Myanmar is developing a deep seaport with gas and oil pipelines connecting to China.
Vietnam, on the other hand, has endorsed the BRI diplomatically but has seen no major
infrastructure projects identified under the BRI and its government is taking a seemingly
cautious stance amid territorial disputes in the South China Sea.
The risks from BRI

South Asian economies
Countries receiving investment from China are exposed to multiple economic and
political risks.
Debt sustainability: The biggest concern with BRI is the risk posed by an increased
debt burden. Some of the smaller economies (Pakistan, Bangladesh) are likely to receive
substantial lending from China. The exact terms of the funding are not all publicly
available, but they cover both concessional and commercial loans. Loans taken at a
commercial rate for a project that does not generate sufficient returns would hurt the
debt-servicing capacity of borrowers and result in debt distress. A Centre for Global
26
See Box 10: ASEAN’s timely pivot to China in Asia Economic Outlook - Asia 2017 outlook: Sailing into the
storm, 8 December 2016.
25
Development paper (2018) identifies eight countries, including Pakistan, which could
suffer from debt distress due to future BRI-related financing (Figure 17 and Box 3: The
risk of debt distress).
Sovereignty: In cases of debt distress, sovereignty issues could come to the fore. Sri
Lanka’s inability to service debt taken to finance construction of the Hambantota Port,
resulted in China receiving a 99-year lease for managing the port. This in turn has raised
concern in India that the port could serve as a Chinese naval base. Smaller developing
countries are more at risk as they do not have the bargaining power. Already, there are
concerns that with China using Chinese construction materials and Chinese workers for
BRI projects, less local content means limited multiplier effects for recipient economies.
Balance-of-payment risks: The BRI will increase trade between China and partner
countries, but given the competitiveness of Chinese goods and the import of Chinese
machinery under the BRI projects, lower trade barriers could result in a sharper rise in
imports from China than exports to China, resulting in a widening of trade deficits. Debt
repayments and repatriation of profit could add further pressure, deteriorating the
balance of payments position and putting pressure on currencies. External indicators
already show Pakistan and Kazakhstan are starting from a weak position.
Geopolitical risks: BRI projects are susceptible to geopolitical risks within the region.
For instance, India has objected to the CPEC due to its concern that part of it goes
through disputed territory in Kashmir. Similarly, balancing India and China is tricky for
Bangladesh; an Indian boycott of the BRI would threaten the BCIM trade corridor.
Legal risks: Most of the frontier economies have varied and less developed legal
systems. Resolving disputes in international contracts could open a can of worms for
companies involved in BRI projects.
Fig. 17: Public debt and BRI lending pipeline
90 Djibouti
80 Higher risk
BRI lending pipeline (% of 2016 GDP)
Kyrgyz Republic
70
60
50
Tajikistan
40 Montenegro
Laos
30
Maldives
Cambodia Mongolia
20
Kenya Pakistan
10 Belarus
Afganistan Ethiopia Sri Lanka
Bhutan Lebanon
0
0 20 40 60 80 100 120 140 160
Public and publicly guaranteed debt, 2016 (% of GDP)
Source: John Hurley, Scott Morris, and Gailyn Portelance. 2018. “Examining the Debt Implications of the Belt and Road
Initiative from a Policy Perspective.” CGD Policy Paper. Washington, DC. Center for Global Development.
ASEAN
Among major ASEAN countries, while balance-of-payments or debt-sustainability issues
are relatively limited, sources of uncertainty around the BRI stem mainly from execution
risks and politics. Ironically, while we have identified Malaysia and the Philippines as
large beneficiaries of the BRI, these are also the two countries that appear most at risk of
a rise in domestic political struggles which could lead to project delays.
Geopolitical risks: ASEAN governments could remain sceptical of the viability of these
long-term projects given the risk that tensions in the South China Sea could resurface
after President Duterte’s term expires in 2022. Given the lack of consensus within
ASEAN over territorial issues with China in the South China Sea, this could undermine
ASEAN centrality/unity, and in turn affect other projects that are related to ASEAN’s own
plans to integrate more, such as the ASEAN Economic Community and the masterplan
for greater connectivity via regional infrastructure.
26
Moreover, questions remain over whether China is taking control of strategic projects.
Those projects that are already underway have faced a degree of public backlash as
China provides funding, project management, supplies equipment, construction materials
and workers, raising more questions about the direct benefits to the host country.
Progress could be undermined if these questions intensify in Malaysia, or if disputes in
the South China Sea flare up again as the continued building of structures on disputed
islands has not gone unnoticed by the Filipino public.
Implementation delays: Across host countries we have identified varying execution
problems ranging from land acquisition to cost over-runs and other constraints. Delays
are not uncommon for big-ticket projects, but one benefit from the BRI is supposed to be
an improved execution of such infrastructure projects, with Chinese funding support and
technical capabilities. However, this is so far not playing out as expected in some
ASEAN countries. The high-speed rail projects in Thailand and Indonesia are not only
experiencing significant delays but are even facing the risk of reduced or minimal support
from China. These problems may preclude other BRI-projects which have yet to be
included in the pipeline and may affect other channels such as non-BRI-related FDI
inflows and stronger linkages in trade and tourism.
Overcoming the challenges

Nonetheless, there have been encouraging developments recently that suggest greater
recognition of these associated risks and challenges and the need to address them,
hence a stronger push to take concerted action. This should ultimately allow the large
long-term benefits of the BRI, as mentioned above, to materialise.
China has taken steps to improve the perception of the BRI after questions were raised
over its real motives, especially by emphasising the importance of greater connectivity
and more investment in both hard and soft infrastructure. The BRI is evolving to show
that it is flexible enough to accommodate the growth strategies of recipient countries.
This is particularly relevant for the ASEAN region where BRI projects are being made
consistent with development goals and infrastructure plans in many individual countries
as well as on a regional level, for instance making Yunnan province a gateway to the
Greater Mekong region and connected via a network of railways and high-speed trains.
More centralised financing mechanisms, as opposed to bilateral government-to-
government negotiations with China, to increase transparency via the establishment of
AIIB in 2014 and the New Silk Road Fund are also likely to be welcomed by regional
leaders. The AIIB is currently set to finance nearly USD7bn of projects across several
countries so far (Figure 18). There are also other schemes being developed which
involve the private sector, for example with Singapore encouraging domestic firms to
become “complementary partners,” generating opportunities for outward direct
investment into other BRI economies.
Lastly, we believe multilateral institutions are increasingly endorsing the BRI and offering
technical assistance to both China and BRI countries in managing the risks. In her recent
speech at the Boao Forum, entitled “Belt and Road Initiative: Strategies to Deliver in the
Next Phase,” IMF Managing Director Christine Lagarde said that “Fortunately, we know
that China’s leadership is aware of these potential risks – as well as the proven strategies
that can help address the challenges.” She announced the China-IMF Capacity
Development Centre, which “will soon begin offering a series of activities, including macro-
financial training courses, to officials from many of our member countries, including China.”
27
Fig. 18: AIIB projects

Total Project Cost AIIB Investm ent /
Project Sector Country Status (USD m n) Loan (USD m n)
IFC Emerging Asia Fund Multi-sector Asia Approved 640 150
Beijing Air Quality Improvement and Coal Replacement Project Energy China Approved 761 250
Dam Operational Improvement and Safety Project Phase II Multi-sector Indonesia Approved 300 125
Regional Infrastructure Development Fund Project Urban Indonesia Approved 406 100
National Slum Upgrading Project Urban Indonesia Approved 1,743 217
Strategic Irrigation Modernisation and Urgent Rehabilitation Project Water Indonesia Proposed 578 250
Metro Manila Flood Management Project Water Philippines Approved 500 208
Myingyan Pow er Plant Project Energy Myanmar Approved 300 20
National Road 13 Improvement and Maintenance Project Transport Laos PDR Proposed 128 40
Bangalore Metro Rail Project - Line R6 Transport India Approved 1,785 335
Transmission System Strengthening Project Energy India Approved 303 100
Gujarat Rural Roads (MMGSY) Project Phase I Transport India Approved 658 329
India Infrastructure Fund Multi-sector India Approved 750 Up to 150
Andhra Pradesh 24x7 - Pow er For All Energy India Approved 571 160
West Bengal Major Irrigation and Flood Management Project Water India Proposed 413 145
National Investment and Infrastructure Fund Multi-sector India Proposed 2,100 200
Madhya Pradesh Rural Connectivity Project Transport India Proposed 502 141
Amaravati Sustainable Capital City Development Project Urban India Proposed 715 200
Mumbai Metro Line 4 Project Transport India Proposed 2,224 500
Tarbela 5 Hydropow er Extension Project Energy Pakistan Approved 824 300
National Motorw ay M-4 Project Transport Pakistan Approved 273 100
Bangladesh Bhola IPP Energy Bangladesh Approved 271 60
Natural Gas Infrastructure and Efficiency Improvement Project Energy Bangladesh Approved 453 167
Distribution System Upgrade and Expansion Project Energy Bangladesh Approved 262 165
Solid Waste Management Project Urban Sri Lanka Proposed 274 115
Climate Resilience Improvement Project - Phase II Water Sri Lanka Proposed 155 78
Trans Anatolian Natural Gas Pipeline Project (TANAP) Energy Azerbaijan Approved 8,600 600
Batumi Bypass Road Project Transport Georgia Approved 315 114
260 MW Nenskra Hydropow er Plant Energy Georgia Proposed 1,083 100
Tuz Golu Gas Storage Expansion Project Energy Turkey Proposed 2,500 600
Nurek Hydropow er Rehabilitation Project Phase I Energy Tajikistan Approved 350 60
Dushanbe-Uzbekistan Border Road Improvement Project Transport Tajikistan Approved 106 28
Railw ay Electrification Project (Bukhara-Urgench-Khiva) Transport Uzbekistan Proposed 339 168
Pow er Transmission Project in Tashkent Energy Uzbekistan Proposed 30 25
Round II Solar PV Feed-in Tariffs Program Energy Egypt Approved 70-75 18-19
Broadband Infrastructure Project Telecomms Oman Approved 467 239
Duqm Port Commercial Terminal and Operational Zone Development Project Transport Oman Approved 353 265
Total 32,033 6,821
Source: AIIB website
28
Box 3: The risk of debt distress

Why is debt distress a risk?
The Belt and Road Initiative (BRI) raises the risk of debt distress in recipient economies
because many participant countries are low-income developing countries for which
concessional financing is vital for debt sustainability. The financing terms of all BRI
27
projects is not transparent, but the Centre for Global Development (CGD, 2018) notes
that terms from China’s policy banks vary from “interest-free loans in the case of some
Pakistan projects to a fully commercial rate in the case of the Ethiopia-Djibouti railway.”
For countries with a high debt burden as a starting point, large front-loaded borrowing at
commercial rates of interest, for projects that are unlikely to deliver a high return
immediately, can result in a debt trap.
What happens in case of a debt distress?
Once stuck in a debt trap, the impact on debtor countries’ will depend on whether China
decides to forgive the debt, restructure it, or resolve it through other means. Historically,
China has taken a country-specific approach. In the case of heavily indebted poor
countries (HIPCs), China has provided relief to 28 of the world’s 31 HIPC countries and
offered full debt forgiveness to several (Afghanistan, Guinea and Burundi). In 2011, China
reportedly agreed to write-off Tajikistan’s debt in exchange for 1158sqkm of disputed
territory (CGD). As already noted, Sri Lanka agreed in 2017 to a 99-year lease of the
Hambantota Port after it was unable to repay its debt.
Then there are the economic risks. The inability to service debt can trigger a debt spiral if
a country decides to borrow even more to repay, or it can force governments to cut back
on essential spending. Increased risk premia due to debt defaults can trigger capital flight,
causing a fiscal crisis to transform into a balance of payments crisis and even a banking
crisis. A weaker currency can increase the debt burden as much of the lending by China is
in USD or RMB. All this can result in a significant negative growth shock.
Which countries are most at risk?
The CGD study notes that overall lending under the BRI (USD8trn over 20 years, or 1.5%
of the region’s GDP per annum) is modest compared to the Asian Development Bank’s
estimated infrastructure financing “needs” in Asia28 (5.1% of the region’s GDP). But
looking at the aggregate figures masks country-specific differences: for the smaller
economies, there is a “risk of a sovereign debt default if planned BRI projects are
implemented in an expeditious manner and financed with sovereign loans or guarantees.”
Using a debt threshold of 50-60% of GDP and the BRI-related lending pipeline, the study
identifies eight countries at risk of debt distress: Djibouti, Kyrgyzstan, Laos, the Maldives,
Mongolia, Montenegro, Pakistan and Tajikistan.
For instance, Djibouti’s public external debt has risen from 50% to 85% of GDP in two
years, with much of this owed to China Exim bank. In Laos, the USD6bn Laos-China
Railway project equals nearly 40% of Lao GDP and the IMF has raised doubts about its
ability to service the debt. In Tajikistan, 80% of the total increase in its external debt in the
10 years 2007-2016 is owed to China, while loans to Kyrgyzstan from China’s Exim Bank
stood at USD1.5bn, or 40% of total external debt at end-2016. The CGD identifies
Pakistan as the “largest country at high risk” with China financing 80% of the estimated
USD62bn of additional debt under the BRI, with some projects contracted at higher
interest rates.
Overall, as much as the BRI offers new growth opportunities to these developing
economies, it also exposes them to new, potentially serious, risks.
27
John Hurley, Scott Morris and Gailyn Portelance, “Examining the Debt Implications of the Belt and Road
Initiative from a Policy Perspective.” CGD Policy Paper. Washington, DC: Center for Global Development, 2018.
28
ADB. 2017. Meeting Asia's Infrastructure Needs.
29
Indonesia: Not so fast

Despite breaking ground early in January 2016, the Jakarta-Bandung High-Speed Rail is Asia Economics
ironically advancing very slowly. Similarly, there has been a lack of detail or a pipeline of
Euben Paracuelles - NSL
concrete projects related to the so-called “Maritime Silk Road” which Chinese President euben.paracuelles@nomura.com
Xi Jinping proposed when he visited Jakarta in 2013, alongside the launch of a bilateral +65 6433 6956
29
comprehensive strategic partnership between the two countries. Nonetheless, we Brian Tan - NSL
continue to see the potential for Indonesia to attract more Chinese FDI to tap the brian.tan@nomura.com
country’s comparative advantages. We have argued that Indonesia remains a top +65 6433 6930
destination to attract more FDI given its solid growth prospects, favourable Charnon Boonnuch - NSL
demographics, stable politics and solid reform agenda (see Anchor Report: India and charnon.boonnuch@nomura.com
+65 6433 6189
ASEAN: Asia’s next FDI magnets, 31 July 2017). On 13 April 2018, Indonesia and China
30
signed five BRI-related contracts valued at USD23.3bn (2.3% of GDP) .
Infrastructure development: The BRI’s most high-profile infrastructure project in
Indonesia is the 142km Jakarta-Bandung High-Speed Rail (USD6bn) which aims to
slash travel time to just 40 minutes from three hours by car.31 Better connectivity
between two of Indonesia’s largest cities should spur investment and services activity,
spreading growth outside of Jakarta. China beat Japan for the project after offering to
build and finance it with loans from China Development Bank (CDB) to Indonesia’s state-
32
owned banks without any guarantees from the Indonesian government. However, the
project is now facing significant delays and cost over-runs.
Apart from the high-speed rail, the Maritime Silk Road and its emphasis on connectivity
complements the Global Maritime Fulcrum doctrine launched by President Joko Widodo
(“Jokowi”) in 2014, providing opportunities for port projects and other maritime
infrastructure. Indonesia and China have agreed to jointly develop BRI infrastructure
projects in North Sumatra, North Kalimantan and North Sulawesi, which will likely focus
33
on industrial estates in those provinces. However, details of these projects remain
patchy and there are other port projects that have been awarded to the Japanese, such
as the Patimban deep seaport in West Java. Similarly, the government is now promoting
Indonesia to several countries to attract investment to develop “10 new Balis,” which will
likely need significant infrastructure investment, but it is not clear at this point how much
Chinese investors will participate.
We see clearer prospects for Chinese FDI in utilities, especially power plants, where
China already has a track record of investing in Indonesia. This is also a key focus for
President Jokowi’s program to add 35,000MW of electricity supply in 2015-21, which had
only reached 3.8% of target as of 1 February.34 China Huadian Engineering, for
example, is part of a consortium that received a formal letter of intent from the state-
owned electricity distribution company PLN for a power purchasing agreement related to
35
the construction of the Riau-1 Project, a 2x300MW coal power plant. The five BRI-
related contracts signed on 13 April 2018 included a USD2bn hydropower plant in
Kayan, North Kalimantan; a USD17.8bn joint venture to build a hydropower plant on the
Kayan river; and a USD1.6bn joint venture to build a power plant in Bali.
FDI prospects: Data from Bank Indonesia (BI) show FDI from China surged to
USD1.8bn in 2017 from USD1.1bn in 2014 and just USD0.3bn in 2012. China accounted
for 8% of Indonesia’s FDI in 2017, up from just 2% in 2012, of which 62% went into the
wholesale and retail trade, repair of motor vehicles and household goods sectors. This
reflects the fact that Chinese companies are already capitalising on Indonesia’s large
domestic market. Another 13% went into the manufacturing sector; 11% into
transportation, storage and communication; and 8% into mining and quarrying.
29
“China, Indonesia to cooperate under B&R initiative”, Global Times, 10 February 2018.
30
“Indonesia, China sign $23.3b in contracts”, The Jakarta Post, 14 April 2018.
31
Jakarta-Bandung High Speed Rail Project: Little Progress, Many Challenges, Siwage Dharma Negara and Leo
Suryadinata, ISEAS-Yusof Ishak Institute, 2018.
32
Why is the High-Speed Rail Project so Important to Indonesia, Wilmar Salim and Siwage Dharma Negara,
ISEAS-Yusof Ishak Institute, 2016.
33
“China becomes Indonesia's No. 2 investor with infrastructure drive”, Nikkei Asian Review, 1 February 2018.
34
“Jokowi’s 35,000 MW program only reaches 3.8 percent progress”, Jakarta Post, 4 March 2018.
35
“BlackGold Consortium Awarded Letter of Intent from PLN for PPA on the Riau-1 Project”, Asia One, 24
January 2018.
30
China’s participation in developing Indonesia’s industrial estates will likely encourage

more manufacturing FDI, aligning with the government’s aim of developing the sector
and reducing economic dependence on commodity-related sectors. For example,
Delong Holdings Limited plans to build a USD0.9bn stainless steel factory in Morowali
Industrial Park in Central Sulawesi.36 Another upcoming BRI project is the construction of
an airport at Bitung, North Sulawesi, where a special economic zone focusing on the
maritime and pharmaceuticals sectors is located.37 The five BRI-related contracts signed
on 13 April 2018 also included USD0.7bn in facilities to convert coal to dimethyl-ether
and a USD1.2bn steel smelter.
To facilitate financing, CDB signed a strategic cooperation memorandum of
understanding with Bank Mandiri in August 2017. This follows cooperation between the
two banks on credit extension amounting to USD1bn in 2015. In 2016, China
Construction Bank opened a branch in Indonesia to support BRI projects. Following an
agreement signed with the PBoC on 5 January 2018, BI will also open a representative
office in Beijing, only its fifth overseas.
Trade flows: China is Indonesia’s largest export market (13.8% of exports), exceeding
Japan (10.7%) and the US (10.5%). The bulk of these exports are commodities,
including coal, coke & briquettes (22% of exports to China); palm oil (10%); liquefied
natural gas (LNG; 5%); crude oil (5%); and copper ores (3%). As China grows, we
expect its demand for such commodities to expand accordingly.
The government is also keen to attract Chinese investment in tourism, especially the “10
38
New Balis” scheme, which will require an estimated USD1.6bn in investment. China is
now Indonesia’s top source of tourist numbers, accounting for 14% of visitor arrivals.
Indonesia and China have agreed to allow more flights between the two countries with
free parking and landing for Chinese airlines.39 While data on China’s share of services
exports is unavailable, travel services (i.e., tourism) accounts for about half of total
exports, underscoring its growing importance.
Risks: Implementation issues are a key risk to BRI projects in Indonesia. For example,
40
problems with land acquisition have delayed the Jakarta-Bandung high-speed rail,
41
which was initially targeted for completion in 2019 but is now slated for October 2020.
The projected cost has risen to ~USD6bn from USD5.2bn and the government is
studying the possibility of reducing the stake of its state-owned enterprises to just 10%,
from 60%, leaving China with 90%.42
In addition, geopolitical risks remain. Indonesia has been quite assertive in pushing back
against China’s claims that the waters surrounding the Natuna Islands are part of its
“traditional fishing grounds,” conflicting with Indonesia’s claimed exclusive economic zone.
President Jokowi has personally observed a number of military exercises in those waters,43
beefing up Indonesia’s military presence in the area and renaming the waters the North
44
Natuna Sea, drawing protest from Beijing. This could undermine not just the infrastructure
pipeline but also the broader prospects for future FDI. Domestically, President Jokowi has
already been accused of selling Indonesian sovereignty, which could slow the momentum
45
of Chinese FDI inflows if it evolves into an election issue in 2019.
36
“China’s Delong to build $950m steel factory in Morowali”, Jakarta Post, 18 June 2017.
37
“Belt and Road Initiative, Indonesia-China Bakal Bangun Bandara di Bitung”, Okezone, 14 December 2017.
38
“Indonesia invites China to invest in ‘10 new Bali’”, Jakarta Post, 24 January 2018.
39
“Indonesia, China cooperate to boost tourist arrivals”, Jakarta Post, 11 March 2017.
40
“High-speed rail land acquisition to be settled in March”, Jakarta Post, 9 February 2018.
41
“Jakarta-Bandung railway project won’t meet target: Minister”, Jakarta Post, 19 February 2018.
42
“Jakarta may offer China larger stake in high-speed rail project”, Straits Times, 27 July 2017.
43
“Jokowi observes massive Indonesian military exercise near South China Sea”, Straits Times, 20 May 2017.
44
“Indonesia, Long on Sidelines, Starts to Confront China’s Territorial Claims”, New York Times, 10 September
2017.
45
“Dituding Jual Negara ke Pihak Asing, Ini Jawaban Jokowi”’, Kompas, 18 November 2014.
31
Fig. 19: Indonesia: Key BRI projects Fig. 20: Indonesia: FDI by source country/region
Key Projects USD bn USD bn
Jakarta-Bandung High Speed Rail 5.5 14
Industrial estates 12
- Delong Holdings Limited stainless steel 10
factory in Morowali Industrial Park 1.0 8
- China Railway 17 Bureau Group
6
ferronickel production facilities in Sulawesi
4
Ferronickel Industrial Park
- airport at Bitung 2
- facilities to convert coal to dimethyl-ether 0.7 0
- steel smelter 1.2 -2
10 New Balis 1.6 -4
Power plants 2012 2013 2014 2015 2016 2017
- Riau-1 Project coal power plant US EU Japan
- hydropower plant in Kayan, North
ASEAN China
Kalimantan 2.0
- joint venture to build hydropower plant on Source: Bank Indonesia, Nomura Global Economics.
the Kayan river 17.8
- joint venture to build power plant in Bali 1.6
Source: Nomura Global Economics.
32
Malaysia: Ahead of the pack

Compared to other ASEAN economies, Malaysia is well ahead of the pack in securing Asia Economics
Chinese investment and we expect more progress as the BRI continues to roll out. Prime Euben Paracuelles - NSL
Minister Najib Razak’s official visit to Beijing in November 2016 led to the signing of 14 euben.paracuelles@nomura.com
memoranda of understanding (MOUs) worth USD37bn (11% of GDP), followed by +65 6433 6956
another 9 MOUs worth USD7bn (2% of GDP) in May 2017. This should mean more FDI Brian Tan - NSL
inflows from China and help increase trade and tourism flows. brian.tan@nomura.com
+65 6433 6930
Infrastructure development: The USD14bn East Coast Rail Link (ECRL) broke ground Charnon Boonnuch - NSL
in August 2017. Targeted for completion in 2024, the 668km ECRL will connect the charnon.boonnuch@nomura.com
largely rural states of Kelantan, Terengganu and Pahang on the east coast of peninsula +65 6433 6189
Malaysia to Port Klang – Malaysia’s largest port – in the more urbanised and
industrialised state of Selangor on the west coast. The government estimates it will
transport 5.4m passengers and 53m tons of cargo a year coast to coast by 2030,
boosting GDP growth in the three east coast states by 1.5pp.46 However, the three
states accounted for just 9% of national GDP as of 2016, so the overall impact on the
national level would only be a small 0.1pp addition to GDP. However, the improved
freight connectivity will likely increase the viability of the East coast – where wages are
far lower than the more developed west coast – for manufacturing activity, which should
support regional development.
The ECRL will complement another two BRI projects on the east coast: the Malaysia-
China Kuantan Industrial Park (MCKIP) and expansion of the Kuantan Port in the state of
Pahang. The MCKIP will focus on heavy and high-tech manufacturing, which will be able
to export directly – and more quickly to China – via the Kuantan Port located 10km away
once its expansion is completed (expected in mid-2018).
The ECRL would also create a land bridge over peninsular Malaysia between Kuantan
Port in the East and Port Klang in the West, allowing freight to bypass Singapore and
parts of the Strait of Malacca. However, the impact on Singapore should be limited as
sea transport will likely remain cheaper than rail. Nonetheless, this should help provide
an alternative route for Chinese trade through the South China Sea, the Strait of Malacca
and the Indian Ocean. Similar motivations likely underpin the USD11bn Malacca
Gateway project which aims to turn four islands off the west coast state of Malacca into
not just a hub for tourism, entertainment, commercial and property development, but also
a free trade economic zone, a deep sea port and a maritime industrial park.47
FDI prospects: FDI inflows from China reached USD2.3bn in 2017 compared to just
USD0.7bn in 2014 before Prime Minister Najib’s visits to Beijing. As a result, China now
accounts for 7% of FDI inflows, close to Indonesia (8%) and well above other major
ASEAN economies, by our estimates. Malaysia launched the world’s first Digital Free
Trade Zone (DFTZ) outside China in March 2017 to facilitate cross-border e-commerce.
The DFTZ will feature an e-fulfilment logistics hub and e-services platform developed in
collaboration with the Alibaba Group, whose founder and executive chairman Jack Ma
has also been named Malaysia’s digital economy advisor. The Alibaba Group’s
involvement will likely provide Malaysia with an edge in attracting Chinese e-commerce
and logistics FDI.
We also expect continued Chinese manufacturing FDI into Malaysia. Solar power is a
key sector for Chinese FDI which includes Xinyi Glass Holding’s first raw solar glass
factory outside China, and solar-cell manufacturing facilities by JA Solar and Xi’an
LONGi Silicon Materials Corp. The MCKIP has also attracted USD8bn in FDI,48 including
from Alliance Steel (for a steel mill), Guangxi Zhongli Enterprise Group (manufacturing of
clay porcelain and ceramics) and ZKenergy (Yiyang) New Resources Science and
49
Technology (renewable energy).
China is also now Malaysia’s biggest foreign real-estate investor by some estimates,
having invested over USD2bn in 2014-16, more than double the USD1bn from now-
46
“East Coast Rail Link: Malaysia touts rail trade route as rival to Singapore”, Straits Times, 10 August 2017.
47
“Chinese firms harbour doubts over Malaysian port projects”, Straits Times, 8 May 2017.
48
“Malaysia-China Kuantan Industrial Park on track to achieve investment target: chairman”, China Daily, 6
September 2017.
49
“Prospects for the Malaysia-China Kuantan Industrial Park and Kuantan Port”, HKDTC, 16 May 2017.
33
second place Singapore.50 Chinese developers have also entered the Malaysian market,
most notably Country Garden with its USD115bn Forest City project which it has been
51
heavily marketed to Chinese investors.
Apart from the real sector, linkages in financial services also look likely to strengthen. To
provide financing for these BRI projects, China’s policy banks have signed a number of
agreements with Malaysian banks. In particular, China Development Bank will cooperate
with Maybank to conduct financing and bond underwriting, while the Exim Bank of China
has signed framework agreements with the Exim Bank of Malaysia regarding lines of
credit and will cooperate in on-lending and trade finance.
Trade flows: China is currently Malaysia’s second-largest direct export market (13.5% of
52
exports) after Singapore (14.4%). About 43% of Malaysia’s direct exports to China are
machinery & transport equipment, of which 57% are electronic integrated circuits. Malaysia
also exports commodities to China, including rubber (5% of exports to China) LNG (5%),
iron ore (3%), palm oil (2%), refined petroleum products (2%) and copper ores (1%).
Sustained Chinese demand will likely continue to support these exports. In addition, there
are increased efforts to promote Malaysian products to Chinese consumers.
Away from goods, Chinese tourists will likely only continue to grow in importance. China
accounts for 6% of Malaysia’s services exports, the bulk of which is tourism. Together
with Hong Kong and Macau, China accounts for 9% of tourist arrivals. Malaysia has
undertaken measures to further increase tourism from China, including the introduction
of visa-free entry and eVisa facilities in 2016.
Risks: So successful has Prime Minister Najib’s effort to attract Chinese FDI been, that
his political opposition has taken aim at the issue, accusing his administration of
jeopardising Malaysian sovereignty.53 Critics of the ECRL worry that the project may not
be economically viable and that it is too expensive, even though the government claims
that the terms of China’s soft loan – with an interest rate of 3.25% – is more favourable
54
than commercial financing . There are also claims that the ECRL will mainly benefit
55
Chinese firms and workers (the prime minister has refuted this, stating that 30% of the
56
project will be left to local contractors). Nonetheless, while the opposition is unlikely to
win in the 2018 general election, there remains a risk of social backlash that could delay
these projects or further Chinese FDI inflows, as calls grow for an increase in
transparency in the award of projects and the direct benefits to the domestic economy.
50
“Report: China now top property investor in Malaysia”, Malay Mail Online. 27 March 2017.
51
“Chinese flood Johor in Malaysia to invest in US$100b ‘eco city’ billed as the ‘next Shenzhen’”, South China
Morning Post, 1 September 2017.
52
Possibly the largest overall if exports to Hong Kong are included (5.4%) as about 70% of these are re-exported
to China.
53
“Najib urges voters to reject opposition to protect China-Malaysia ties”, Today, 24 February 2018.
54
“Debate on ECRL”, The Star, 12 August 2017.
55
“Highways stimulate economy, not ECRL, says Mahathir”, Free Malaysia Today, 8 April 2017.
56
“East Coast Rail Link: Malaysia touts rail trade route as rival to Singapore”, Straits Times, 10 August 2017.
34
Fig. 21: MOUs between Malaysia and China

Value
MoU USD bn % of GDP
MoUs signed in November 2016 36.8 10.6
Engineering procurement, construction and commissioning agreement between Malaysia Rail Link Sdn Bhd, China
Communication Construction Company Limited and China Communications Construction Company (M) Sdn Bhd
Memorandum of agreement for investment, development and construction of Malacca Gateway Project between KAJ
Development Sdn Bhd and Power China
Heads of agreement between Bandar Malaysia Sdn Bhd and Greenland Holdings Group Overseas Investment Company
Limited on the proposed purchase of land and development in Bandar Malaysia
Heads of agreement between Selat PD Sdn Bhd and CCCC Dredging (Group) Co Ltd
Framework cooperation agreement between Sarawak government, Hebei Xinwuan Steel Group and MCC Overseas United on
proposed steel plant in Sarawak
Memorandum of agreement between KAJ Development Sdn Bhd, Power China, Shinzen Yantian Port and Rizhao Port for
partnership collaboration on Malacca Gateway Port
Heads of agreement for the Bandar Malaysia Financial Scheme between IWH CREC Sdn Bhd and ICBC
Memorandum of understanding between ECERDC and Wuxi Suntech Power Co Ltd for production of crystalline silicon solar
cells and modules in Malaysia-China Kuantan Industrial Park
Memorandum of agreement between BHS Industries Sdn Bhd and China Nuclear Huaxing Construction Co Ltd for Green
Technology Park in Pekan, Pahang
Banking license for China Construction Bank (Malaysia) Bhd to provide infrastructure financing in Malaysia
Memorandum of understanding between Yanming Resources Sdn Bhd and Fuzhou Xin Zibu Culture Communication Co Ltd
for the growth and development of the bird's nest market in China
Memourandum of understanding between Matrade and Alibaba.com
Research and development collaboration agreement between Royal Bird's Nest, Walet Company-International Private Limited
Company and Peking University on standardisation of edible bird's nest extract and medical properties for pharmaceutical drug
discovery
Memorandum of understanding between Aladdin Group Sdn Bhd and Suzhou Lian Cheng Yihao Information Technology Co
Ltd
MoUs signed in May 2017 7.2 2.1
Strategic Alliance Agreement between Johor Corporation and Siasun Robot Investment Co. Ltd to develop 400 hectares of land
for the Robotics Future City in Johor
Development of a methanol and derivatives complex in Tanjung Kidurong, Bintulu, Sarawak, between Yayasan Hartanah
Bumiputera Sarawak, Consortium of Huanqiu Contracting & Engineering Co, and MACFeam Sdn Bhd
Joint development of Malacca Gateway by KAJ Development, Power China, Shenzhen Yantian Port Group and Rizhao Port
Group
Cooperation agreement to promote and develop the Malaysian Innovation Cluster within the China-Malaysia Qinzhou Industrial
Park
Exclusive agent agreement between Agrofresh International Sdn Bhd and Dashang Co Ltd for the supply of Cavendish Banana
and Tropical Fruits
Investment for a mixed development called "The Shore" in Kota Kinabalu, Sabah
Collaboration between the Shanghai Stock Exchange and Bursa Malaysia Bhd to explore ways to improve market accessibility
and products in both markets
Memorandum of understanding between AirAsia Bhd, China Everbright Group and Henan Government Working Group to
establish a low-cost carrier in China
Source: Malaysiakini, The Sun Daily, Nomura Global Economics.
35
Philippines: The pivot is proving prescient

President Duterte’s so-called “pivot to China” – which was a quick reversal from his Asia Economics
predecessor’s stance57 – is paving the way for a slew of proposed China-funded
infrastructure projects and investments into the Philippines. This is happening at a time euben.paracuelles@nomura.com
when the Duterte administration is pushing the “golden age of infrastructure,” suggesting +65 6433 6956
potentially large benefits to an already fast-growing economy. The first two visits yielded Charnon Boonnuch - NSL
investment pledges totalling USD24bn (7.1% of GDP) while in April 2018 when Duterte charnon.boonnuch@nomura.com
attended the Boao forum an additional USD9.5bn (2.8% of GDP) was pledged. But more +65 6433 6189
relevant to the BRI thrust of increasing connectivity between countries, we do not believe Brian Tan - NSL
these projects could pave the way for the Philippines to participate in the Maritime Silk brian.tan@nomura.com
+65 6433 6930
Road, despite the country’s strategic location, limiting the prospects of new trade linkages.
Infrastructure development: Around USD4.0bn (1.3% of GDP) in the form official
development assistance (ODA) is in the infrastructure pipeline, and has begun with two
bridges in Manila opened in November 2017 to help ease congestion (USD0.1bn). A
much larger project, the South Long Haul Railway which costs USD3.4bn, had its loan
agreement signed on the sidelines of the ASEAN summit in November 2017 as well. The
610km line will run across six provinces on the island of Luzon, connecting ports and
special economic zones, in line with the government’s goal to promote regional
development. However, prospects for timely construction are unclear given that the
much smaller Manila bridge project suffered delays from the original schedule.
Meanwhile, despite the Philippines now being a full member of the Asian Infrastructure
Investment Bank (AIIB), it has received so far a funding commitment of only one flood-
management project in Manila which is relatively small (USD0.5bn). At the same time,
there are no major port development projects which would have been more in line with
the BRI goal of greater connectivity. The main port project on the ODA list, which is a
new USD0.2bn international container port in Cebu, will be funded by Korea, while the
plan to develop the coastline and port of Davao, President Duterte’s home city, is at a
standstill despite China expressing initial interest.
FDI prospects: Net FDI inflows from China have remained tiny at just USD0.03bn in
January to November 2017, albeit up from USD0.01bn in 2016. But this is a far cry from
the USD24bn (7.1% of GDP) in investment pledges garnered from China from President
Duterte’s visits to Beijing since he took office in 2016, suggesting extremely slow
progress in converting these pledges into actual investments. Part of the reason may be
the foreign ownership limits in key sectors as mandated by the Philippine constitution.
The negative investment list has also not yet been revised despite government plans to
liberalise certain sectors last year.
That said, prospects for higher FDI inflows look more promising in the banking sector
which was fully liberalised in 2014. ICBC has announced that it will set up a branch in the
Philippines. There are also some signs of increasing transaction flows from Chinese
companies exploring investment opportunities in the Philippines. For instance, BDO, the
largest local bank, is receiving four or five inquiries a month (from one pre-Duterte) and
one or two new account openings a month (from one every two months) from Chinese
corporates. In addition, under the BRI, Metrobank has signed a strategic cooperation
framework agreement regarding lines of credit and bond underwriting.
Trade flows: Government officials have said “trade between the two countries
could double or even triple in the next few years to reach the USD60bn target in five
years.”58 However, this is an ambitious target, in our view, given that an ASEAN free
trade area which includes China has existed since 2010. The Philippines is already part
of the electronics supply-chain, with around 60% of its exports in low value-added
semiconductors, and it lacks comparative advantage in consumer products like food and
agriculture products to capitalise on China’s economic rebalancing to consumption-led
growth. Prospects for metal ore exports may improve as a result of the BRI, but the
mining sector is weighed down by regulatory risks including taxation (see Anchor Report:
57
In 2013, President Aquino’s administration filed claims against China in a bid to settle disputes over the South
China Sea in the Permanent Court of Arbitration (PCA) in The Hague. In July 2016, the PCA ruled in favour of all
of the Philippines’ claims, but China’s response was that the ruling was not binding (see First Insights -
Philippines: Claims against China upheld by international tribunal, 12 July 2016).
58
“PH trade with China can grow to $60B in 5 years – trade chief,” Inquirer, 21 October 2016.
36
Philippines tax reforms - The other big catalyst, 12 April 2017). We also see limited
prospects for the pipelined infrastructure projects to allow the Philippines to be part of the
Maritime Silk Road given the lack of port development projects, limiting prospects for
increased trade linkages to BRI countries.
Where we may expect a greater impact on growth is in tourism and associated flows in
services trade. Chinese tourists to the Philippines totalled 968,000 in 2017, representing a
43% y-o-y increase and accounting for the second-largest group of foreign national visitors
(after South Koreans). Chinese tourists now account for 15% of all visitor arrivals, from just
7% in 2011. In the last few years, more flights have been launched by both Philippine and
Chinese airlines, providing more direct access to the main tourist destinations.
Risks: As mentioned, progress of China-funded infrastructure projects is unlikely to be
smooth sailing as is evident in delays of even the smaller projects. Most of the big-ticket
multi-year projects in the pipeline are still under consideration and may therefore be
susceptible to the risk of another pivot when a new president takes over in 2022, unless
they get underway soon. Most importantly, a lot will hinge on whether tensions in the South
China Sea remain contained, which in turn may also depend on the next administration.
Even today, amid President Duterte’s high popularity ratings there are growing concerns
about the mismatch between the speed with which China has built structures on disputed
islands and how little progress has actually been made on infrastructure projects or the FDI
inflows that the Philippines has received from China so far.
Fig. 22: Key China-funded infrastructure projects in the pipeline

Project already launched Projects in the priority list but still subject to approval / feasibility study
Funding source USD bn Funding source USD bn
Two bridges - Pasig river China - ODA grant 0.1 New Centennial Water Source – Kaliwa Dam Project China 0.2
Metro Manila Flood Management AIIB 0.5 Chico River Pump Irrigation Project China 0.1
Project
PNR South Longhaul Project China - ODA loan 3.4 Mindoro - Batangas Super Bridge China 0.6
Safe Philippines Project, Phase 1 China - ODA 0.4 Clark-Subic Rail China 1.1
North Luzon Expressway East, Phase I and II China 0.9
Metro Manila BRT - Phase 3 (BGC-NAIA Segment) China 0.8
Ilocos Norte Irrigation Project, Stage 2 China 0.3
Camarines - Catanduanes Friendship Bridge China 0.4
(Nationwide Island Provinces Link Bridges)
Bohol - Leyte Link Bridge ( included in the Nationwide China 1.4
Island Provinces Link Bridges)
Cebu - Negros Link Bridge (Nationwide Island China 0.3
Provinces Link Bridges)
Panay River Basin Integrated Development Project China 0.4
Cebu - Bohol Link Bridge (Nationwide Island Link China 1.1
Bridges)
Davao City Expressway Project China 0.5
Ambal Simuay Sub-Basin of the Mindanao River Basin China 0.3
Flood Control and River Protection Project
Luzon - Samar Link Bridge (Nationwide Island China 1.1
Provinces Link Bridges)
Leyte - Surigao Link Bridge(Nationwide Island Link China 0.9
Bridges)
Total 4.3 Total 10.2
% of GDP 1.4 % of GDP 3.3
Source: NEDA, Nomura Global Economics.
37
Thailand: EEC does it

Thailand is embarking on an ambitious “Thailand 4.0” plan to overhaul its economy and Asia Economics
boost infrastructure investment, which on paper can be complemented by the BRI and
help address some of Thailand’s structural challenges. The projects under the plan euben.paracuelles@nomura.com
should at the minimum help expand capacity of both exports and the tourism sector, +65 6433 6956
which are the main growth engines amid headwinds to domestic demand like high Charnon Boonnuch - NSL
household debt and unfavourable demographics. The government has managed to kick- charnon.boonnuch@nomura.com
start projects, but the implementation of BRI-related projects remains a distant prospect +65 6433 6189
despite Thailand being central to the China-Indochina corridor. Brian Tan - NSL
brian.tan@nomura.com
Infrastructure development: Under Thailand 4.0, the government plans to build on the +65 6433 6930
flagship Eastern Economic Corridor (EEC), which is a special economic zone comprised
of industrial estates and tourism destinations. The EEC act was ratified by legislators in
January 2018 and will come into force in coming months. EEC projects will be integrated
into the BRI through an 873km Thai-Chinese high-speed train, with construction of its
USD5.6bn first-phase investment – which runs for 250km from Bangkok to Nakhon
Ratchasima – having begun in December 2017. The plan is to ultimately extend the
project outside of the Thai border to Vientiane in Laos and to Kunming in China.
However, this is definitely a longer-term project, as the bidding for all sub-contracts for
the first phase is only expected to conclude in 2018. It is also contingent on several
factors like concerns over transparency in bidding process and government-to-government
negotiations, as well as the development of the Laos section of the high-speed train.
FDI prospects: With more generous tax incentives and a well-integrated infrastructure,
the EEC project aims to attract 10 targeted industries, namely next-generation
automobiles; smart electronics; medical and wellness tourism; agriculture and
biotechnology; food; robotics for industries; logistics and aviation; bio-fuels and bio-
chemicals; digital and medical services. Foreign investment applications so far look
promising, as they have totalled USD9bn in 2017, up 12.3% y-o-y according to the Board
of Investment (BOI). Around 76% of these applications are in targeted industries, led by
automotive, electronics and petrochemicals.
However, Japan remained the main source of FDI at 47% of total, while China accounted
for 10%. Investment flows from China were driven by tourism and trade flows which
should benefit if connectivity with China and other countries in the BRI were to increase.
Hotels were the biggest FDI recipient in 2017 thanks to the tourism boom, followed by
rubber tires, as China substitutes imports of Thai rubber by backward vertical FDI. In our
view, electronics also stand out as an attractive sector for China’s FDI. Not only does
Thailand have an established supply chain, but it can also be positioned as an export
hub to ASEAN, which is China’s largest market after Hong Kong and the US.
Trade flows: China is already the largest economic partner to Thailand on tourism and
trade, but we think there is scope for a further expansion if linkages are enhanced
through the BRI. China accounted for the highest share of total tourist arrivals in 2017 at
27.7%, far exceeding Malaysia (9.5%) and South Korea (4.8%). The large influx of
tourists doubled up the share of tourism revenue to GDP to a staggering 12.6% in 2017
from 6.3% in 2007. However, this trend also resulted in congestion at existing airports. In
order to accommodate sustained growth, increasing connectivity in the EEC and a direct
link from a Thai-Chinese railway are much needed developments.
China also represented the largest share of export demand at 12.4% in 2017 versus
11.2% for the US and 9.4% for Japan. Shipments to China are heavily concentrated in
intermediate goods and raw materials, such as rubber (19.7% of exports to China), hard
disk drives (11.9%), integrated circuits (10.8%) and plastics (9.7%). However,
automotive exports have experienced exponential growth over the past few years,
growing from USD166mn in 2011 (0.6% of total exports to China) to USD1.2bn in 2017
(4.1%). The increased penetration in the Chinese market not only bodes well for the
export outlook but also helps maintain Thailand’s status as a regional automotive hub.
Risks: Policy continuity will be necessary for the EEC to succeed, and the elections
slated for February 2019 are a key risk. The current government has managed to start
some projects, with PM Prayut Chan-o-Cha invoking a special law, Section 44, which
allows him to bypass legal constraints. Despite this, progress in general has been
subject to significant delays. Since the Memorandum of Understanding on the Thai-
38
Chinese railway was signed in December 2014, long, drawn-out negotiations between
the two governments often resulted in disagreement on various issues, such as project
ownership and financing. Eventually, the Thai government opted to fully invest in the
project using local sources of financing and construction materials, while China would
primarily provide technical assistance. This in our view points to a high degree of
uncertainty over other BRI-related projects yet to be included in the pipeline.
Fig. 23: Eastern Economic Corridor
Source: BOI, Nomura Global Economics
39
Singapore: Playing the intermediary

Singapore’s well-developed infrastructure leaves fewer opportunities for direct BRI-related Asia Economics
investment in the country. Nonetheless, the government recognises opportunities for Euben Paracuelles - NSL
Singapore to act as an intermediary and facilitator for the BRI, even if it is not a direct euben.paracuelles@nomura.com
recipient of Chinese financing. In the 2017 Belt and Road Forum in Beijing, Singapore +65 6433 6956
signed a memorandum of understanding (MoU) with China on the BRI to cooperate in Brian Tan - NSL
trade connectivity and financial integration. On 8 April 2018, Singapore signed another brian.tan@nomura.com
59 +65 6433 6930
MoU on Third-party Market Cooperation with China creating a working group that will
pinpoint sectors and markets of interest to both sides and encourage Singaporean and Charnon Boonnuch - NSL
charnon.boonnuch@nomura.com
Chinese firms to collaborate in these areas. The MoU also supports the financing and
+65 6433 6189
project structuring of such third-party ventures by Singaporean and Chinese firms.
Infrastructure development: The BRI may play some role in Singapore’s future
infrastructure development, as the government considers whether to borrow to fund
growing infrastructure needs60. In his 2018 budget speech, Finance Minister Heng Swee
Keat revealed that the government is studying the option of allowing statutory boards
and government-owned companies to borrow for infrastructure projects such as the
Johor Baru-Singapore Rapid Transit System Link, Changi Airport T5 and the Integrated
Waste Management Facility (see Asia Insights – Singapore: Budget 2018… and beyond,
19 February 2018). Furthermore, a Chinese consortium led by China Railway Corp will
reportedly participate in the bidding exercise of the Kuala Lumpur-Singapore High Speed
Rail this year.61
FDI prospects: China’s outward direct investment to Singapore rose to USD3.2bn in
2016 from USD2.8bn in 2014. However, China still accounts for just 2% of the total FDI
stock in Singapore – well behind the EU (25%), US (21%) and Japan (7%). Of that, 48%
of FDI from China is in finance & insurance, reflecting Singapore’s role as an
62
international financial centre and one of the largest offshore RMB centres in the world.
We expect China’s participation in Singapore’s financial centre to only increase as the
pace of BRI financing and RMB internationalisation picks up. For example, China
Construction Bank’s (CCB) Singapore branch issued USD145mn in BRI bonds in 2016
63
and the Bank of China (BoC) issued USD600mn in 2017 . IE Singapore, the
government’s trade promotion agency, has inked BRI MoUs with BoC, CCB and the
Industrial and Commercial Bank of China (ICBC) to increase financing and Chinese
partnership options for Singaporean firms in 2015 and 2016. More recently, in 2017,
CCB set up its first infrastructure financing services centre outside of China in Singapore.
Another 39% of China’s FDI in Singapore is in wholesale & retail trade, which reflects
Singapore’s role as a logistics and shipping hub. China is already the destination of 14%
of Singapore’s non-oil re-exports (NORX), behind Hong Kong which receives another
17% of NORX. Singapore’s importance in this sector will likely only grow, not just as
trade between China and the rest of ASEAN intensifies, but also as e-commerce
continues to develop in the region.
The BRI also provides opportunities for outward direct investment from Singapore to other
BRI economies and has potential to broaden trade and investment linkages. IE Singapore
has encouraged domestic firms to become “complementary partners” to Chinese firms in
building BRI projects, leveraging on Singapore’s engineering capabilities, financial
ecosystem and policy framework. Examples include a joint venture for strategic
collaboration between Ascendas-Singbridge and China Machinery Engineering
Corporation (CMEC) in industrial and business park investments and developments
59
Comprised of Singapore’s Ministry of Trade and Industry, Enterprise Singapore and China’s National
Development and Reform Commission (NDRC). See “Singapore, China sign MOU to boost collaboration in Belt
and Road Initiative”, Channel News Asia, 8 April 2018.
60
“ST interview: Heng Swee Keat on 'money not enough', why statutory boards need to borrow, and being the
face of GST hike”, Straits Times, 22 February 2018.
61
“Chinese consortium to bid for high-speed rail project linking Singapore and Kuala Lumpur”, Straits Times, 27
December 2017.
62
The Bank of China (BoC) and the Industrial and Commercial Bank of China (ICBC) have qualifying full bank
licenses while the Agricultural Bank of China, China Construction Bank (CCB), China Merchants Bank and
Shanghai Pudong Development Bank have wholesale bank licenses.
63
"Singapore - the gateway to Asia's Bond Market" - Opening Address by Ms Jacqueline Loh, Deputy Managing
Director, Monetary Authority of Singapore, at the Global Borrowers & Investors Forum - Asia on 21
September 2017.
40
across Asia; two MoUs between Pacific International Lines (PIL) with China Merchant
Port (CMPort) and CMEC to partner in business development and overseas projects in
shipping and ports and logistics in Africa, South Asia and Southeast Asia; and a MoU
between Sembcorp Industries and Chongqing Energy Investment Group for strategic
partnership on development areas like renewable energy projects, township
development, engineering and construction projects, and overseas energy projects.
Trade flows: Rather than goods exports, we think services exports likely have greater
scope for expansion, spurred by both exports to China and to other BRI-related projects.
Singapore is already involved in three government-to-government projects in China: the
China-Singapore Suzhou Industrial Park, the Sino-Singapore Tianjin Eco-City and the
China-Singapore (Chongqing) Demonstration Initiative on Strategic Connectivity
(Chongqing Connectivity Initiative, CCI).
China accounts for just 5% of services exports, well behind the EU (17%) and US (11%).
By comparison, China is Singapore’s largest non-oil domestic export (NODX) market
(18.0% of NODX), well ahead of the EU (11%) and US (9%). 47% of these services
exports to China are in transport services, which should benefit as trade along the
Maritime Silk Road increases and drive up demand for Singapore’s traditional role as a
logistics and trans-shipment hub. In tourism, China accounts for 19% of visitor arrivals;
Singapore could benefit as a stopover for Chinese tourists en route to other destinations
in ASEAN.
Risks: The main risk involves bilateral relations between Singapore and China and how
this is balanced against ties with other countries like the US, a traditional ally. Prime
64
Minister Lee was reportedly not invited to the 2017 Belt and Road Forum in Beijing,
which came on the heels of the incident in November 2016 when Singaporean military
vehicles returning from exercises in Taiwan were seized by Hong Kong customs
authorities. The rift appears to have subsided since, but the risk of tensions between US
and China, including on trade, have risen recently.
Fig. 24: Singapore: Key BRI-related projects and MoUs Fig. 25: Singapore’s stock of outward direct investment (ODI)
Key Projects USD bn by recipient country
China-Singapore Suzhou Industrial Park 50.3 ODI stock (% of Singapore GDP)
Sino-Singapore Tianjin Eco-City 0.4 35
China-Singapore (Chongqing) 30
Demonstration Initiative on Strategic
Connectivity (Chongqing Connectivity 25
Initiative, CCI) 20
Key MoUs
MoU on Third-party Market Cooperation with China 15
- create a working group to pinpoint sectors and markets of 10
interest to both sides and encourage Singaporean and
5
Chinese firms to collaborate in these areas
- support the financing and project structuring of third-party 0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
BRI ventures by Singaporean and Chinese firms

ASEAN EU China
HK Australia US
Source: CEIC, Nomura Global Economics.
64
“What new Silk Road snub means for Singapore’s ties with China”, South China Morning Post, 18 May 2017.
41
CLMV: A mixed bag

Cambodia, Laos, Myanmar and Vietnam (CLMV) already have strong economic linkages Asia Economics
with China, but their willingness to participate in BRI projects varies. Although Cambodia Euben Paracuelles - NSL
is relatively open to China’s initiatives, domestic resistance to Chinese projects has been euben.paracuelles@nomura.com
a key obstacle to stronger economic ties elsewhere. This opposition is driven by several +65 6433 6956
factors ranging from project feasibility and environmental concerns to territorial disputes. Charnon Boonnuch - NSL
However, the most common factor is the risk of debt exposure that comes with large- charnon.boonnuch@nomura.com
scale investment in such a small economy. +65 6433 6189
Brian Tan - NSL
brian.tan@nomura.com
Cambodia: Accelerating bilateral ties +65 6433 6930
Key projects
Cambodia is in need of large-scale infrastructure investment, but financing constraints
have been a key impediment. The arrival of Chinese financing is a welcomed reprieve for
the Cambodian government and the two countries have already signed multi-billion-
dollar agreements on extensive infrastructure development, ranging from roads and
expressways to an airport and seaport, 70% of which will be China financed.
• China will fully invest in the USD1.9bn 190km Phnom Penh-Sihanoukville motorway to
connect the capital with the coastal special economic zone, under a build, operate,
transfer (BOT) framework, where China will recover its costs from toll revenues.
Construction is expected to start this year and will take four years to complete. The
project is part of a USD9bn investment in 850km of expressways by 2020.
• A new USD1.5bn airport in Phnom Penh has already been approved. Construction is
expected to start in 2019. This expansion was motivated by the rapid increase of
Chinese tourism in recent years. The project adds to an already approved plan for a
Chinese SOE to develop a new USD0.9bn airport in Siem Reap.
Economic impact
Although Cambodia shares no border with China, the two countries have quickly
improved their economic ties, which could be further strengthened through BRI
investment. In 2016, China accounted for 6.1% of total Cambodian exports and 16.6% of
tourist arrivals to Cambodia, and the pace of economic integration has been staggering,
with exports and tourism expanding by an average of 31.6% and 21.4% annually over
the past five years, far exceeding overall growth of 8.5% and 11.7%, respectively.
Risks
Although Cambodia’s ratio of public debt to GDP is a relatively low 33.0%, Cambodia is
subject to debt concentration risk, as debt to China alone accounts for about one-fifth of
its GDP.
Laos: From land-locked to land-linked

Key projects
Laos is a mountainous country, land-locked by China, Vietnam, Cambodia, Thailand, and
Myanmar. The Lao government has touted the USD5.8bn Laos-Chinese railway’s ability to
transform Laos into a land-linked country. Construction began in December 2016 and was
already 30% complete as of March 2018. The project is expected to be completed by end-
2021, running 414km from Kunming, China through the Lao capital, Vientiane, to
Thailand’s border, where it will connect to Bangkok via the Thai-Chinese high-speed rail
that is also under construction. However, due to the sizeable investment needed, Laos will
contribute only 30% of the investment, with the remainder financed by China.
Economic impact
As a land-locked economy, Laos relies heavily on adjacent countries, especially China,
which accounted for 36.1% of its total exports and 12.9% of tourist arrivals in 2016. The
railway project will create new opportunities for trade, tourism and investment linkages,
not only with China but with other countries in the BRI, particularly Thailand through the
Thai-Chinese high-speed rail.
Risks
The cost of the Chinese-Laos railway is disproportionately large at 33.8% of Lao GDP. In
2016, public debt had already reached 61.6% of GDP, a large portion of which was owed
to China. Thus, the project exposes Laos to a potential debt trap.
42
Myanmar: A strategic partner

Key projects
Myanmar stands out as a strategic partner to China, not only because it connects to
South Asia, Southeast Asia and China, but also because it provides an alternative oil
pipeline to the Malacca Straits. Central to BRI cooperation is the USD7.2bn deep seaport
of Kyaukphyu in Rakhine, from which gas and oil pipelines extend across the country to
China. The seaport is a joint venture in which Myanmar holds a 30% stake with the rest
held by China. However, negotiations are still ongoing, as relevant agreements have not
yet been finalised.
Economic impact
Myanmar is highly dependent on China, which accounted for the largest export and
tourism shares of 40.8% and 10.1%, respectively, in 2016. Improved connectivity should
reduce transportation costs and boost Myanmar’s growth potential.
Risks
Project feasibility and environmental concerns have motivated domestic resistance to
Chinese projects. For instance, in December 2017, Myanmar cancelled a USD3.6bn
hydroelectric power project, citing high costs as the main reason. However, unlike other
small countries participating in the BRI, public debt levels remain relatively low at 35.8%
of GDP at end-2016.
Vietnam: Staying cautious

Key projects
Vietnam has become more welcoming to BRI-related projects, as it took some key steps
in 2017 that effectively endorsed the BRI. When President Xi Jinping visited Hanoi in
November 2017, the “Two Corridors, One Belt” (TCOB) framework that was originally
proposed by China in 2003 was revived via a MoU signed by the two leaders, which re-
aligned the TCOB with the BRI. These two corridors are aimed at connecting Yunnan
and Guangxi with a few provinces in Norther Vietnam.65 In addition, the Vietnamese
government, during a visit by the AIIB president in March 2017, invited the AIIB to look
into and invest in infrastructure projects in Vietnam.
So far, however, no major infrastructure projects have been identified as part of the BRI,
except for the USD0.9bn Cat Linh – Ha Dong metro line in Hanoi, construction of which
had already started in 2011. However, due to cost overruns (the original cost was
USD0.6bn), China reportedly provided a USD0.3bn loan that is considered BRI-related.
Economic impact
China is already one of Vietnam’s largest economic partners, accounting for 10.2% of
total exports and 26.9% of tourist arrivals in 2016. However, China can help bridge
Vietnam’s financial infrastructure gap, which is projected to be USD102bn over the next
20+ years (up to 2040).66 Around 70% of the gap is intended for roads, ports and
railways (i.e., projects that would be consistent with the BRI).
Risks
BRI projects in Vietnam suffer from high implementation risks. While Vietnam has
officially endorsed the BRI and has increasingly displayed diplomatic support, progress
on BRI projects remains unclear, as territorial disputes in the South China Sea have
limited actual bilateral cooperation. In addition, Vietnam’s public debt to GDP of 62.4% is
relatively high and could be a constraint to large-scale investment. This, combined with a
lack of political will, suggests enhanced cooperation on BRI-related projects is unlikely.
65
The two corridors are 1) the Kunming-Lao Cai-Ha Noi-Hai Phong-Quan Ninh corridor and 2) the Nanning-Lang
Son-Ha Noi-Hai Phong-Quang Ninh corridor.
66
Global Infrastructure Outlook 2017, Global Infrastructure Hub.
43
Fig. 26: CLMV: Key BRI projects Fig. 27: CLMV: Public debt to GDP
Key projects USD bn
% Public debt to GDP (2016)
Cambodia 4.3
80
Phnom Penh-Sihanoukville motorway 1.9
New Phnom Penh airport 1.5 70
New Siem Reap airport 0.9 60

Laos 5.8 50
Laos-Chinese railway 5.8
40
Myanmar 7.2
30
Kyaukphyu deep seaport 7.2
20
Vietnam 0.9
Cat Linh-Ha Dong metro line 0.9 10
CLMV 18.2 0
Cambodia Laos Myanmar Vietnam
Source: Nomura Global Economics
Source: Focus Economics, Nomura Global Economics
44
South Asia: Gains for all, but India wary
Pakistan: A game-changer
Historically, Pakistan and China have enjoyed strong ties and helped each other during Asia Economics
times of need; this relationship has culminated in the China-Pakistan Economic Corridor Sonal Varma - NSL
(CPEC), one of the flagship corridors under the BRI (Figure 28-30). CPEC is a 3000km sonal.varma@nomura.com
road composed of railways, highways, pipeline networks and optical cables that +65 6433 6527
connects Kashgar (a city in Xinjiang province of China) with Gwadar (a port city in
Southwest Pakistan). Estimates vary, but the total investment commitment by China into
67
CPEC is estimated at USD62bn – a not-so-modest 20% of Pakistan’s 2017 GDP.
CPEC will be completed in phases over the next 15 years (by 2030) and has been funded
via a mix of grants, long-term government concessional loans and zero-interest loans.
For Pakistan, the CPEC is a game-changing project that could add to medium-term
growth prospects. For China, CPEC offers a geo-strategic access to the Indian Ocean,
which would reduce China’s reliance on the Strait of Malacca for shipping commodities
and enhance its energy security. The distance travelled for products shipped via CPEC
is expected be about 15,000km shorter than traditional routes.
Key projects under CPEC
Under CPEC, China and Pakistan have formed a “1+4” cooperation structure with four
key areas: Gwadar port, transport infrastructure, energy and industrial collaboration.
Specifically, CPEC includes (Figure 31):
• Energy projects: Power projects with a total 17GW of additional energy capacity are
planned under the CPEC with total investment of over USD35bn68 to tackle the power
shortages prevalent in Pakistan. Much of this capacity is expected to be generated from
coal-fired power plants, but construction is also planned for hydro, solar and wind-
based power plants. Supportive power transmission networks are also being constructed.
• Infrastructure connectivity: Connectivity projects under the CPEC include
modernisation of roads and rail networks (USD14bn) as well as a new optic fibre
network (USD44mn). Construction of roadway infrastructure for four projects –
Kashgar-Islamabad, Peshawar-Islamabad-Karachi, Sukkur-Gwadar Port and Dera
Ismail Khan-Quetta-Sohrab-Gwadar – is underway. Capacity expansion initiative for
existing railway lines (ML-1) is of strategic nature under CPEC. Finally, CPEC initiatives
include the construction of cross-border optical fibre cables between China and
Pakistan and laying the backbone optical fibre network cables in Pakistan.
• Gwadar projects: Construction and development of the Gwadar port and city, including
the Gwadar East-Bay expressway, the new Gwadar International Airport, fresh water
treatment, the Friendship Hospital and others are estimated to cost USD800m. In 2015,
the Gwadar port was leased to China for 43 years (until 2059).
• Other projects: Other projects under the CPEC include four urban mass transit
projects in major cities, nine special economic zones and six new provincial projects,
among others.
Economic impact
Because infrastructure has been such a large constraint to Pakistan’s growth, the
expected infrastructure spending by China should address this issue and help accelerate
the process of industrialisation and economic development. Large investments in power
infrastructure will help limit power shortages, while road investments will improve the
movement of goods, increasing productivity. These projects are expected to create more
69
than 2.3mn jobs during 2015-2030 and add 2.0-2.5pp to GDP growth.
Both trade and investment will also likely receive significant boosts. Pakistan expects up
to 4% of global trade to pass through the Gwadar-Xinjiang corridor by 2020, which should
help it improve revenues and boost growth in services sectors that cater to transit trade.
Bilateral trade between China and Pakistan has grown rapidly at an average annual rate
of 15.1% over the last ten years, and the CPEC should accelerate this integration even
67
“China’s $62 billion bet on Pakistan, Arif Rafiq”, Foreign Affairs, 24 October 2017.
68
“China takes ‘project of the century’ to Pakistan”, Financial Times, 18 May 2017.
69
“Rebuilt ports herald success”, The Telegraph, 5 May 2017.
45
further, as Chinese imports of machinery and other industrial products into Pakistan rise.
FDI inflows from China totalled USD1.8bn in 2017, accounting for around 65% of total
FDI inflows and elevating China to Pakistan’s largest source of foreign capital, a trend
we expect will accelerate. Tourism, which is currently only a tiny part of overall earnings,
will also benefit due to the opening of the economic corridor. Finally, greater economic
development could, in turn, improve political stability in the region.
Risks
Even though the benefits are substantial for Pakistan, the project is susceptible to
multiple risks.
First, Pakistan is susceptible to a balance of payments problem. Given the
competitiveness of Chinese goods, Pakistani markets could become flooded with cheap
Chinese imports rather than the envisaged surge of Pakistani exports to China. For
instance, in 2016, Pakistan’s steel melting and rolling factories were running at less than
30% of capacity, partly because local steel mills were unable to compete with cheaper
70
Chinese imports. Thus, Pakistan’s trade deficit with China, which has already been
rising due to imported machinery under CPEC, could worsen significantly. This could be
exacerbated by debt repayments and once Chinese firms start repatriating profits back
home. Pakistan’s currency (PKR) could also come under pressure.
Second, debt sustainability is a risk. According to the Centre for Global Development71,
Pakistan faces the highest risk of debt distress among BRI countries, as relatively high
interest rates (as high as 5% versus the concessional rate of 2-2.5% given to China Exim
Bank customers) are being charged by China. Lastly, there are security risks due to
extremist forces.
Fig. 28: Highways network of China Pakistan Economic Corridor
Source: CPEC and Nomura Global Economics.
70
China, Pakistan and the challenges of Silk Road connectivity, South China Morning Post, 20 June 2017.
71
Examining the Debt Implications of the Belt and Road Initiative from a Policy Perspective, Hurley et al, CDG
Policy Paper 121, March 2018.
46
Fig. 29: Railways network of China Pakistan Economic Corridor
Fig. 30: Fiber Optic Project of China Pakistan Economic Corridor
47
Fig. 31: China Pakistan Economic Corridor – Chinese Finance Projects

POWER USD mn
CPEC-Energy Priority Projects MW
1 2×660MW Coal-fired Power Plants at Port Qasim Karachi 1320 1980
2 Suki Kinari Hydropower Station, Naran,Khyber Pukhtunkhwa 870 1802
3 Sahiwal 2x660MW Coal-fired Power Plant, Punjab 1320 1600
Engro Thar Block II 2×330MW Coal fired Power Plant 660
TEL 1×330MW Mine Mouth Lignite Fired Power Project at Thar Block-II, Sindh, Pakistan 330
2000
4
ThalNova 1×330MW Mine Mouth Lignite Fired Power Project at Thar Block-II, Sindh, Pakistan 330
Surface mine in block II of Thar Coal field, 3.8 million tons/year 1470
5 Hydro China Dawood 50MW Wind Farm(Gharo, Thatta) 50 125
6 300MW Imported Coal Based Power Project at Gwadar, Pakistan 300 600
7 Quaid-e-Azam 1000MW Solar Park (Bahawalpur) Quaid-e-Azam 1000 1302
8 UEP 100MW Wind Farm (Jhimpir, Thatta) 100 250
9 Sachal 50MW Wind Farm (Jhimpir, Thatta) 50 134
10 SSRL Thar Coal Block-I 6.8 mtpa &SEC Mine Mouth Power Plant(2×660MW) 1320 3300
11 Karot Hydropower Station 720 1420
Three Gorges Second Wind Power Project 50
12 150
Three Gorges Third Wind Power Project 50
13 CPHGC 1,320MW Coal-fired Power Plant, Hub,Balochistan 1320 1940
Matiari to Lahore ±660kV HVDC Transmission Line Project 1500
14
Matiari (Port Qasim) —Faisalabad Transmission Line Project 1500
15 Thar Mine Mouth Oracle Power Plant ( 1320MW) & surface mine 1320 1300
CPEC-Energy Actively Promoted Projects MW
16 Kohala Hydel Project, AJK 1100 2397
17 Rahimyar khan imported fuel Power Plant 1320 MW 1320 1600
18 Cacho 50MW Wind Power Project 50
19 Western Energy (Pvt.) Ltd. 50MW Wind Power Project 50
CPEC-Potential Energy Projects MW
20 Phandar Hydropower Station 80
21 Gilgit KIU Hydropower 100
INFRASTRUCTURE
Length
Road
(km)
1 KKH Phase II (Thakot -Havelian Section) 120 1,366
2 Peshawar-Karachi Motorway (Multan-Sukkur Section) 392 2,980
3 Khuzdar-Basima Road N-30 (110 km) 110 80
4 Upgradation of D.I.Khan (Yarik) - Zhob, N-50 Phase-I (210 km) 210 195
5 KKH Thakot-Raikot N35 remaining portion (136 Km) 136 719.8
Length
Rail Sector Projects
(km)
6 Expansion and reconstruction of existing Line ML-1 1,830 8,172
7 Havelian Dry port (450 M. Twenty-Foot Equivalent Units) 65
8 Capacity Development of Pakistan Railways
GWADAR
Gwadar projects
1 Gwadar East-Bay Expressway 141
2 New Gwadar International Airport 230
3 Construction of Breakwaters 123
4 Dredging of berthing areas & channels 27
5 Development of Free Zone 32
6 Necessary facilities of fresh water treatment, water supply and distribution 130
7 Pak China Friendship Hospital 100
8 Technical and Vocational Institute at Gwadar 10
9 Gwadar Smart Port City Master Plan 4
10 Bao Steel Park, petrochemicals, stainless steel and other industries in Gwadar
11 Development of Gwadar University (Social Sector Development)
Upgradation and development of fishing, boat making and maintenance services to protect and
12
promote livelihoods of local population
OTHER PROJECTS
Digital & others
1 Cross Border Optical Fiber Cable 44
2 Pilot Project of Digital Terrestrial Multimedia Broadcast (DTMB)
3 Early Warning System (EWS), Pakistan Meteorological Department
CPEC Rail Based Mass Transit Projects
1 Karachi Circular Railway
2 Greater Peshawar Region Mass Transit
3 Quetta Mass Transit
4 Orange Line - Lahore
CPEC New Provincial Projects
1 Keti Bunder Sea Port Development Project
2 Naukundi-Mashkhel-Panjgur Road Project connecting with M-8 & N-85
3 Chitral CPEC link road from Gilgit, Shandor, Chitral to Chakdara
4 Mirpur – Muzaffarabad - Mansehra Road Construction for connectivity with CPEC route
5 Quetta Water Supply Scheme from Pat feeder Canal, Balochistan
6 Iron Ore Mining, Processing & Steel Mills complex at Chiniot, Punjab
CPEC Special Economic Zones (SEZs)
1 Rashakai Economic Zone , M-1, Nowshera
2 China Special Economic Zone Dhabeji
3 Bostan Industrial Zone
4 Allama Iqbal Industrial City (M3), Faisalabad
5 ICT Model Industrial Zone, Islamabad
6 Development of Industrial Park on Pakistan Steel Mills Land at Port Qasim near Karachi
7 Special Economic Zone at Mirpur,AJK
8 Mohmand Marble City
9 Moqpondass SEZ Gilgit-Baltistan
48
Sri Lanka: Infrastructure lifeline amid sovereignty concerns

As Sri Lanka’s largest provider of both FDI and tourism, China is already a very important
economic partner for Sri Lanka. For China, Sri Lanka, set in the Indian Ocean, offers a
strategic logistical foothold to service markets in Asia, Africa and Europe. Sri Lanka has
a free-trade agreement with India, and Chinese investment into the Hambantota free
trade zone could support an increase in Chinese exports to South Asia. The Hambantota
port also serves as a base for companies engaged in container ship maintenance and
refuelling. Energy security is another important factor for China, because oil shipments
from the Middle East pass by Sri Lanka. Sri Lanka also gains economically due to
increased Chinese investment. China has currently invested ~4% of Sri Lanka’s GDP
under the BRI, but the total investment may rise to ~10% in coming years. Much of this
money is being financed through China’s Exim bank at commercial rates.
Key projects
• Colombo Port City: Colombo Port City also known as Colombo International Financial
City is China’s biggest investment project in Sri Lanka. It received an initial investment
of USD1.4bn in August, 2016 and an additional USD1bn in funding was provided in
December 201772, making this the largest FDI project implemented in Sri Lanka. Built
off of the coast of Colombo on reclaimed land, the project plans envisage a modern city
by 2040 with corporate offices, residential apartments, malls, hotels etc. that is
connected to Colombo through a light rail transport system. China Harbour Engineering
Company (CHEC) is building the city and will receive about two thirds of the marketable
land on lease for 99 years. The reclamation work is likely to be completed in 2019 and
the project will be developed in phases thereafter.
• Hambantota port: Hambantota sits on the southern coast of Sri Lanka and provides
access to sea lanes on the Indian Ocean. Construction of the deepwater container port’s
first phase was funded by China’s Exim bank, but the port has since incurred heavy
losses that made debt repayment difficult. In 2017, Sri Lanka sold a 70% stake in
Hambantota port to China Merchants Port Holdings (CMPH) for USD1.12bn for a 99-year
lease, with the funds to be used mainly to repay the debt, and the remainder to be used
to develop the port into a key deepwater port for ships plying the route between Suez and
East Asia.
• Hambantota SEZ: The Hambantota SEZ is an 11sq km special economic zone around
the Hambantota port, where a number of Chinese state-owned enterprises are
expected to set up manufacturing facilities. The SEZ will see USD1.1bn of the USD8bn
debt owned by the Sri Lankan government to China waived, with China getting an 80%
stake in the SEZ. China has promised to invest USD5bn in this SEZ and create
100,000 jobs. CMPH is drawing up a masterplan for the SEZ.
Economic impact
Sri Lanka benefits most from the significant ongoing infrastructure development, which
has in the past suffered from inadequate government finances. Development of the
Colombo Port City has meant spending on the development of supportive infrastructure
such as two looped roadways, an underground tunnel, a new inter-city train link and a
direct connection to Sri Lanka’s expressway network. Sri Lanka expects the Port City
project to entail a total investment of USD13bn over the next 25-30 years, creating
83,000 jobs.
Better infrastructure will provide a fillip to tourism, one of the main forex earners.
Importantly, as Sri Lankan ports are further integrated into China-backed global trading
routes via local production by Chinese firms and increased trading volumes at these
ports, Sri Lanka’s share of global trade could increase. Increased capacity at the
Colombo port can attract major shipping lines and benefit from greater connectivity to
China and its trading partners. Better prospects and improved investor confidence also
73
mean increased FDI investment, especially from China. According to CHEC , FDI into
Sri Lanka could rise to USD15bn from ~USD300mn in 2016.
Risks
The 99-year lease of the Hambantota port to China has raised concerns around Sri
Lanka’s sovereignty. Countries such as India, US and Japan have also raised concerns
that the port could serve as a naval base for China.
72
Extra US$1 Billion of Chinese Funding Boosts Sri Lankan BRI Project, HKTDC Research, 7 December 2017.
73
“Sri Lanka: A country trapped in debt”, BBC News, 26 May 2017.
49
Rising debt is another risk. Sri Lanka’s external debt rose from 51.7% of GDP in 2011 to
58.2% in 2016; the BRI lending pipeline suggests this will rise even further.
Finally, Chinese firms continue to use Chinese labour and technical skills for
construction, which limits the multiplier effect into the domestic economy.
Bangladesh: To boost manufacturing competitiveness

Bangladesh and China have historically enjoyed strong trade ties, and Bangladesh
joined the BRI in October 2016 during a visit from Chinese President Xi Jinping, during
which the two countries signed investment deals worth over USD38bn74, amounting to a
significant 15% of Bangladesh’s 2017 GDP (Figure 32). Bangladesh has a low cost of
labour but lacks infrastructure – a void that China hopes to fill. For China, Bangladesh
offers a geographical advantage, as it is located between two important regions (ASEAN
and India) and development of its port (in Chittagong and Mongla) would represent a
strategic advantage.
Bangladesh’s integration into the BRI is primarily via the Bangladesh-China-India-
Myanmar (BCIM) trade corridor, which will link Kunming in China with Mandalay in
Myanmar, Dhaka and Chittagong in Bangladesh and Kolkata in India. The corridor aims
to increase trade and investment between the four countries, but progress has been slow
due to India’s reluctance to join BRI over concerns on another corridor (the China-
Pakistan economic corridor).
Key projects
• Rail: Rail infrastructure development accounts for nearly 45% of the total investment
projects, and include key projects such as the Padma Bridge Rail Link (USD3.3bn), the
conversion of metre gauge rail track into dual gauge for the Akhaura-Sylhet link
(USD1.8bn) and a 200km Dhaka Chittagong rail link (USD5.95bn).
• Power: China is funding close to USD8bn in various power projects: expansion and
strengthening of the power system network (USD2.04bn), a coal-fired power plant in
South Dhaka (USD1.6bn), strengthening of the power grid network (USD1.63bn) and a
1320MW power plant in Payra (USD2bn).
• Roads, highways & expressways: The flagship project is the 170km Marine Drive
(seaside) expressway (worth USD2.86bn), which will connect Chittagong's industrial
hub of Sitakunda with sea beach in Cox's Bazar, boosting tourism. China is also
helping construct an elevated expressway connecting Dhaka airport-Ashulia
(USD1.4bn), a four-lane highway connecting Dhaka-Sylhet (USD1.6bn) and an eighth
friendship bridge, among others.
• Port: China will build several components of the Payra deep seaport, including the core
port infrastructure as well as housing, healthcare and education facilities, with
Bangladesh having signed a Memorandum of Understating worth USD600mn with two
Chinese companies. British consultancy HR Wallington believes that the port could be
75
financially viable, but could cost as much as USD20bn . China National Complete
Engineering Corporation is also helping to expand and modernise facilities at the
Mongla port (USD550mn).
• Oil pipeline: China will help build a single point mooring in Maheshkhali and a 220km
double pipeline to carry oil from tankers in the Bay of Bengal to the depot of Eastern
refinery in Chittagong at a cost of USD694mn.
• Digital projects: China is investing close to USD1bn on digital connectivity projects
that aim to connect 2,250 unions with sub-districts through optical fibre cables. These
include the ‘Info-Sarkar 3’ project, which will link all government agencies, and another
that will modernise Bangladesh’s telecom network by offering triple-play services
(voice, video and data) through a single network.
Economic impact
The economic benefits to Bangladesh are immense and straightforward. An
infrastructure deficit – chronic power shortages, creaking logistics – has held back rapid
growth, but this should change with the massive rail, power and road infrastructure
investments in the pipeline. Bangladesh is already the second largest ready-made
garments exporter (after China) benefitting from its low cost of labour. These
74
“The (Belt and) Road to a Golden Bangladesh”, China.org.cn, 17 November 2017.
75
Bangladesh opts to make Payra a deep-sea port, JOC.com, 21 November 2017.
50
improvements to infrastructure represent an opportunity to develop an even more

competitive manufacturing base, attract more foreign investment and raise its share in
global trade.
Bangladesh-China trade is currently skewed, with Bangladesh running a USD10bn (4% of
Bangladesh’s GDP) trade deficit with China. As China moves away from low value-added
manufacturing, some of these industries could shift to Bangladesh, which could then export
finished products back to China, reducing the trade deficit. Finally, there is potential for a
substantial rise in tourism revenues, driven by improved infrastructure and logistics.
Risks
The main challenge for Bangladesh is balancing India and China. It needs China to fund
infrastructure improvements but cannot risk antagonising India. An Indian boycott of the
BRI would risk Bangladesh’s prospects, as seen with the very slow rate of progress of
the BCIM trade corridor.
Debt is also a risk for Bangladesh. A number of the infrastructure projects have been
financed using concessional loans, but China is seeking76 to convert some of these
projects from concessional loans to commercial credit, which would attract higher
interest rates along with tougher conditions and higher fees, creating a larger debt
burden for Bangladesh and risking macroeconomic instability.
Finally, domestic corruption and political instability in Bangladesh could dilute the
benefits of the BRI.
Fig. 32: Key BRI projects in Bangladesh
Cost
Sector Key Projects (USD bn)
Rail Padma Bridge Rail Link 3.3
Conversion of metre gauge rail track into dual gauge for the Akhaura-Sylhet link 1.8
Dhaka Chittagong rail link 6.0
Power Expansion and strengthening of the power system network 2.0
Coal-fired power plant in South Dhaka 1.6
Strengthening power grid network 1.6
Payra power plant (1320MW) 2.0
Roads, highways &
expressways Marine Drive expressway 2.9
Elevated expressway connecting Dhaka airport-Ashulia 1.4
Four-lane highway connecting Dhaka-Sylhet 1.6
Eighth friendship bridge
Karnaphuli Tunnel
Port Payra deep seaport 0.6
Expand/modernise Mongla port 0.6
Oil pipeline Single point mooring in Maheshkhali & 220km double pipeline 0.7
Digital Digital connectivity projects; Info-Sarkar 3 1.0
Total (Above projects) 27.0
76
China now offers commercial credit for three projects, Daily Sun, 12 February 2017.
51
India: Growing strategic concerns

India is an integral part of China’s BCIM corridor, which connects Kolkata in India to
Kunming in China via Bangladesh and Myanmar. India is also a founding member of the
AIIB. However, it has not officially endorsed China’s BRI project. During her visit to
Beijing in 2015, India’s External Affairs Minister Sushma Swaraj stated that India will not
give a blanket endorsement to the Maritime Silk Road project but support where there
are synergies between the two countries. For India, the BRI represents both a threat and
an opportunity.
Concerns and counters
India has many concerns with the BRI: sovereignty issues (China Pakistan Economic
Corridor), security threats (‘string of pearls’; use of port infrastructure as a naval base)
and its weakening strategic influence in the Indian Ocean region (countries like Sri
Lanka, Bangladesh, Nepal and Maldives gradually pivoting towards China). To counter
Beijing’s influence, India is part of a US-led Indo-Pacific strategy and is partnering with
Japan to develop connectivity projects in Africa. It has started its own maritime initiative
‘Project Mausam’, which seeks to connect countries around the Indian Ocean littoral.
India is investing in various infrastructure projects in Iran’s Chabahar port to circumvent
Pakistan and connect with Afghanistan and Central Asia. It is also increasing investment
in Andaman and Nicobar Islands to strengthen its presence in the Bay of Bengal.
Areas of cooperation
Despite the concerns, India and China are co-operating in various areas. India is a
founding member of both the AIIB and the New Development Bank. Of the total AIIB
loans approved since inception, India has received the largest funding at USD1.1bn
(Figure 33). More than half of this funding – both approved and proposed – will be spent
on transport infrastructure (Figure 34). India is a part of the Regional Comprehensive
Economic Partnership and a member of the Shanghai Cooperation Organisation.
Economic impact
India and China already share a close economic relationship. China accounts for only
~4% of India’s exports, but 16% of India’s total imports are sourced from China, largely
composed of machinery and chemical products. Chinese companies also stand out in
terms of their FDI commitment to India, especially in manufacturing (electronics) and
power (renewable energy). India is more likely to participate selectively in BRI projects
where it sees synergies. The BCIM corridor will help develop infrastructure in India’s
Northeast borders and enable connectivity with bordering countries. India could
cooperate in BRI projects in Iran and central Asia, which are to its advantage. Access to
finance, logistics infrastructure and connectivity with major trade partners are the obvious
benefits. As the ADB study (2016) shows, India’s GDP growth could rise by 0.29pp due
to lower transport costs and increased exports.
Fig. 33: AIIB loans approved since inception Fig. 34: AIIB projects on India: approved and proposed
Total AIIB
USD mn
Financing
1200 Project Name Sector (USD mn)
APPROVED PROJECTS
1000 Bangalore Metro Rail Project – Line R6 Transport 335
Transmission System Strengthening
800 Project Energy 100
Gujarat Rural Roads Project Transport 329
600 India Infrastructure Fund Multi-Sector Upto 150
Andhra Pradesh 24x7 – Power For All Energy 160
400 Total - approved 1074
200 PROPOSED PROJECTS

West Bengal Major Irrigation and Flood
Management Project Water 145
0
National Investment and Infrastructure
Fund Multi-Sector 200
Madhya Pradesh Rural Connectivity
Project Transport 141
Amaravati Sustainable Capital City
Development Project Urban 200
Source: AIIB and Nomura Global Economics. Mumbai Metro Line 4 Project Transport 500
Total - proposed 1186
Source: AIIB and Nomura Global Economics.
52
China equity: Meet the implementers of BRI

China and Chinese companies’ view of the world will impact their actions Greater-China Equity Strategy
To understand what impact China’s BRI may bring to the BRI economies, we think it is Wendy Liu - NIHK
best to see what China and Chinese companies have done at home in the recent wendy.liu@nomura.com
decades, with a particular focus since GFC. We identify an inclination toward achieving a +852 2252 6180
win-win outcome, via positive-sum games over – either where both parties lose out (a Yiran Zhong - NIHK
negative-sum game) or where the winner takes all (a zero-sum game). yiran.zhong@nomura.com
+852 2252 1413
Shared prosperity in terms of income growth and job growth: We believe that the
extent of real income growth and job creation in China since the global financial crisis
reflects this approach, ensuring the benefits of economic growth are enjoyed by the
general public. The government’s commitment under President Xi to eradicating poverty
by 2020 indicates its intent not to leave a single person behind.
Fig. 35: Net employment growth among the top 20 economies by GDP (GFC to 2016)
(mn) Net change in no. of employment (LHS) % change in no. of employment (RHS)
30 27.8 60%
25 50%
20.2
20 40%
15.2 37%
15 30%
9.4
10 14% 21% 20%
6.4 6.2
14% 4.6 11%
5 3.1 2.9 10%
2% 7% 8%2.2 1.9 1.4 1.36% 1.1 9%
4% 3% 3% 4%0.5 0.0
0 2% 0% 0%
-3% -3% -2%
-0.3 -0.8 -1.2 -8%
-5 -1.9 -10%
Indonesia
India
Australia
Japan
China
Mexico
Russia
Korea
Switzerland
Saudi Arabia
Germany
United Kingdom
United States
Brazil
Italy
Turkey
Netherlands
Canada
France
Spain
Source: World Bank, Nomura Global Economics.
Fig. 36: China led in real national income (GNI) per capita among the top 20 economies (GFC to 2016)
Cumulative real growth in GNI p.c. Cumulative nominal growth in GNI p.c.
160% 147%
140% 133% 141%
127% 122%
120% 104%
96%
100%
80%
57%
60% 43% 44%
39% 36%
40% 23% 15% 25% 27% 22% 17% 6% 17%
11% 11% 10% 7% 8%
20% 7% 7% 6% 6% 9% 1%
4% 5% 4% 3% 2%
3% 2% 1%
0%
-20% -7%
India
Canada
Japan
Germany
China
Korea
Switzerland
Russia
Saudi Arabia
Brazil
Mexico
United Kingdom
Italy
Turkey
Indonesia
United States
Australia
France
Netherlands
Spain
Note: we measure the “cumulative growth since GFC” as the change of GNI in 2016 from its 2007-09 average levels. Source: World Bank, CEIC, Bloomberg, Nomura research.
Preference for real-economy businesses: In Chinese, money made from real

businesses (利) and money made from extending loans (息) are two different words. This
reflects an appreciation that investment gains are a derivative of underlying economic
returns. Money/liquidity/savings do not lead to cash flow or growth in cash flow by
themselves. They lead to cash flow and growth when combined with learning, investing
and consumption. The BRI certainly expands the global pool of income-producing real
economy assets, which is a good thing for return-starved financial assets.
53
Collaborate and compete at the same time. According to Gao Feng Advisory77
compared to foreign multinational companies, Chinese private sector companies are
more inclined to 1) collaborate and compete at the same time, and 2) create ecosystems
across sector boundaries. Most foreign multinationals tend to focus on core
competencies, a result of the “core competence” doctrine that has prevailed corporate
thinking in the West for about 30 years.
Eager learners: data from listed non-financial equity pool. Our comparative studies
for the US, Japan, China, India and seven EMs showed that the most prominent feature
of Chinese non-financial listed companies since the global financial crisis was a strong
effort to learn and improve, as indicated by the growth in R&D spend and free cash flow
relative to sales growth (Figure 37). Investing in R&D is a good indication of continued
learning and investing for the future.
The data also showed that the China-listed non-financial sample looked after employee
compensation better than the US and Japan samples, and prioritised long-term payoffs
to equity investors via R&D, over current-period payoffs.
Fig. 37: Non-financial listed-companies in China, the US, Japan and India: relative payoff to stakeholders since GFC
China US
R&D R&D
Disposable income per 10 Disposable income per 10
8 Capex 8 Capex
capita 6 capita 6
4 4
Dividend 2 EBITDA Dividend 2 EBITDA
0 0
-2 -2
-4 -4
Common Equity FCF Common Equity FCF
Income Taxes Net Income Income Taxes Net Income

Net Debt Net Interest Expense Net Debt Net Interest Expense
Japan India
R&D R&D
10 10
Disposable income per… 8 Capex Disposable income per… 8 Capex
6 6
4 4
Dividend 2 EBITDA Dividend 2 EBITDA
0 0
-2 -2
-4 -4
Common Equity FCF Common Equity FCF
Income Taxes Net Income Income Taxes Net Income

Net Debt Net Interest Expense Net Debt Net Interest Expense
Note: relative payoff is calculated by the post-GFC growth in each category relative to growth in revenue. Source: Bloomberg, Nomura research.
We believe that these above preferences for shared prosperity, real economy
businesses, “co-petition” (i.e., collaboration and competition) as well as learning are the
positive features we are likely to see regarding China’s BRI initiatives.
77
Tse E. (2018). ‘打造“指数 X 级组织”’.
54
Listed Chinese companies with BRI exposure

For many of the Chinese companies actively involved in BRI-related projects and/or
expanding into BRI countries, overseas revenue still accounts for only a small mix of
their domestic revenues.
However, many have stepped up investments in the BRI countries and their presence is
increasingly being felt in the local economies (Figures 38 and 39).
Our table below shows that the movers thus far are industry leaders in logistics,
consumer (autos and textile manufacturing), electronics and internet – in addition to the
infrastructure-related sectors – setting up manufacturing bases and/or investing in a
stake in local businesses.
Fig. 38: Notable listed companies with operations in BRI countries

BRI Exposure Sector Company Ticker Comments
Infrastructure / Infrastructure-related
Construction Engineering CRG 390 HK 6% overseas revenue in 2017
Construction Engineering CRCC 1186 HK 6% overseas revenue in 2017
Construction Engineering CSCEC 601668 CH 7% overseas revenue in 2017
Construction Engineering Power Construction 601669 CH Over 20 projects in 10+ OBOR countries (Laos, Pakistan, Nepal, Indonesia, Kenya etc.) as of 2017
Construction Materials Anhui Conch 914 HK 3% overseas revenue in 2017; operations in Indonesia, Myanmar, Cambodia, Laos and Russia
Energy PetroChina 857 HK Russia-China crude pipeline/gas pipeline
Logistic CWT (formerly HNA) 521 HK Acquired Singapore's leading logistic company CWT limited
Logistic COSCO 600428 CH Acquired majority of the shares of Greece's largest port Piraeus since 2016
Logistic SF Express 002352 CH Operate service centers in Singapore, Malaysia, Vietnam and Thailand
Logistic Kerry Logistics 636 HK Cooperate with China Railways to integrate its strong network in SEA with China Railways' domestic
network
Logistic Vanke 2202 HK/000002 CH Participated in the privatization of Asia's largest warehouse operator company GLP
Logistic China Merchants SH 001979 CH Replicate "Ports/Parks/City" model in OBOR countries; invested in Africa's Djibouti Free Trade Zone
Telecom China Mobile 941 HK/CHL US Operate CMPak in Pakistan
Telecom China Unicom 762 HK/600050 CH Obtained IGW license in Myanmar
Telecom China Telecom 728 HK/CHA US Launched China-Pakistan information corridor in 2017
Telecom Huawei Unlisted 50% overseas revenue in 2017; Overseas strategy since 1996 (entered Russia market since 1996, Latin
America since 1997, Africa since 1998, Asia market since 2000)
Telecom ZTE 763 HK/000063 CH 43% overseas revenue in 2017; Partner with OBOR local operators (India, Indonesia, etc.) to implement
broadband and mobile network infrastructure
Non-infrastructure
Autos SAIC 600104 CH SAIC-GM-Wuling started operation of its manufacturing facility in Indonesia
Autos BAIC 1958 HK Opened manufacturing base in Ruili, close to the Myanmar border
Autos Geely 175 HK 0.6% overseas revenue in 2017; Agreed to buy a 49.9% stake in Malaysian carmaker Proton and its Lotus
subsidiary
Autos Brilliance Auto 1114 HK Established manufacturing bases in Iran, Egypt, Russia, Philippines
Autos Chongqing Sokon 601127 CH Competing to enter Indonesia market
Textile Texhong Textile 2678 HK Over 40% market share of Vietnam's yarn market
Textile Shenzhou International 2313 HK Expanded overseas manufacturing base in Vietnam and Cambodia
Electronics Midea Group 000333 CH Acquired Israeli motion control and automation systems firm Servotronix
Electronics TCL 000100 CH Set up a joint production TV plant in Egypt with Egyptian consumer electronics company Elaraby
Internet Alibaba BABA US Invested in 2 of the largest e-commerce companies in Indonesia (Lazada and Tokopedia); Launched
Aliexpress and Tmall in Russia
Internet Tencent 700 HK Invested in India's messaging unicorn company Hike; Partner with Africa's Standard Bank to implement
mobile payment in Africa
Internet JD JD US Invested in Vietnam's local e-commerce company Tiki; plans to build new logistic warehouses in
Indonesia
Internet Ant Financials unlisted Invested in India's mobile payment company Paytm
Technology Xiaomi unlisted Partner with SEA e-commerce company Shopee
Property Country Garden 2007 HK Projects in Malaysia with GFA around 3,087 thousand sqm; Malaysia sales ranked No. 1 in Malaysia
Property GZ R&F 2777 HK Projects in Malaysia and Cambodia with GFA around 2,763 thousand sqm
Property Agile 3383 HK Projects in Malaysia with GFA around 271 thousand sqm
Property Logan 3380 HK Projects in Singapore with GFA around 190 thousand sqm
Financials
Banks Bank of China/BoCHK 3988 HK/2388 HK Strong international/ASEAN presence; participated in over 500 BRI-related projects
Banks China Construction Bank 939 HK/601939 CH Acquired a majority stake of Indonesia’s Bank Windu in 2016
Banks ICBC 4606 HK/601398 CH Acquired a majority stake in the South African Standard Bank’s global markets business in 2015
Banks Agricultural Bank of China 1288 HK/601288 CH Provide financing services to cross-border agricultural project in Tajikistan
Source: Company data, Nomura research
55
Fig. 39: Sector distribution of Chinese listed companies operating in BRI countries
Russia:
Autos, E-commerce
Italy:
Port Greece:
Port Israel:
Algeria:
Port
Port
Egypt:
Electronics, Pakistan: Vietnam:
Autos Port, Textile,
Telecom Logistics, E-
commerce
India: Myanmar: Philippines:

Djibouti: Autos, Cambodia: Autos
Ports Digital Payment, Textile,
Social Media Port,
Telecom Real Estate
Kenya: Sri Lanka:

Thailand: Indonesia:
Port Port
Logistics Autos,
Logistics,
Malaysia: Real E-commers,
Estate, Australia:
Logistics, Port, Port
Autos;
Singapore:
Real Estate,
South Africa: Logistics
Mobile payment
Source: Nomura research
In Figure 40, we highlight a basket of 10 stocks with meaningful revenue/profit

contribution from BRI-countries should investors want to create a China BRI basket.
Fig. 40: China stock basket with meaningful BRI exposure

Ticker Company Sector Comments
1829 HK CMEC Construction Engineering 65% overseas revenue in 2017, including 15% from Angola and 13% from Pakistan
002051 CH China CAMC Construction Engineering 95% overseas revenue in 2017
1800 HK CCCC Construction Engineering 23% overseas revenue in 2017; Acquired construction engineering company John Holland to
enter Australia market
196 HK Honghua Energy 58% overseas revenue in 2017, including 23% from Europe & Central Asia and 16% from
Middle East
1623 HK Hilong Energy 70% overseas revenue in 2017, including 34% from Russia & Central Asia and 16% from
South Asia
3337 HK Anton Oilfield Energy 64% overseas revenue in 2017, including 39% from the Iraq
2386 HK Sinopec Engineering Energy 40% overseas revenue in 2017, including 12% in Malaysia and 11% in Kuwait
1251 HK SPT Energy Energy 42% overseas revenue in 2017, including 27% in Kazakhstan
2883 HK COSL Energy 25% overseas revenue in 2017
2388 HK BOC HK Banks The company aims for 15% profit contribution from ASEAN business over the next five years
(2018-23)
Source: Nomura research, company data.
Industries that should benefit from the BRI can be classified into four categories:
• Infrastructure related industries are the first ones to benefit as they are laying the
foundation for the local physical economies. These industries include steel, electrolytic
aluminium, plate glass, chemical fibre, mechanical and electronic products, and so on.
Construction, transportation, utilities, telecoms and other infrastructure industries may
have opportunities to expand overseas with BRI infrastructure projects. This bodes well
for established and competent names in the infrastructure-related industries, as the
overseas infrastructure investment requires strong financial position and political
connections.
• Financial services are crucial for BRI in bankrolling the build-out of infrastructure and
subsequently funding consumption related sectors. Large banks and non-bank financial
institutions with overseas business and branches have more advantages in funding BRI
projects and facilitating the “going-global” strategies of domestic enterprises.
56
• Following infrastructure, other industries arrive such as e-commerce, logistics

services, autos and property developers catering to local market demand as well as
more outbound direct investments from China.
• Military industries should also see new orders as China seeks to deter chaos and
safeguard its overseas interests.
First things first, infrastructure build-out, China style

China has experience with an investment-led economic growth model. In the figures
below, the fiscal spending data show that the government paid high up-front costs for
long-payback investments on behalf of businesses and households – namely investment
in public infrastructure and public education. Besides fixed assets, China has spent a
higher proportion on science, technology and education than the US and Japan.
• China has prioritised putting money toward future income-producing assets over
current-period spending. Education, science, technology and infrastructure accounted
for 36% of government spending in 2016, up from 28% in 2007. In comparison, the
ratio of general government spending on education/infrastructure in the US and Japan
has both fallen since the global financial crisis, from 26% and 25%, respectively, in
2007 to 20% in both cases in 2015.
Fig. 41: China general government Fig. 42: US general government Fig. 43: Japan general government
spending spending spending
(CNY Education, Science & Tech Education Education
(USD (JPY
trn) trn) trn)
Infrastructure Infrastructure Infrastructure
20 Social Security + healthcare + Interest Social security+health care+debt Social security+health care+debt
expense + defense/public security 7 service+defence+public security service+defence+public security
Others 18% Others 200 Others
6 15% 11%
15
18% 5% 13% 9%
5 150
21% 12%
4 5%
10
36% 100 58%
3 71% 53%
5 18% 2 63%
10% 50
30% 27% 1
22% 21%
42%
0 12% 9% 0
0
2009
2014
2007
2008
2010
2011
2012
2013
2015
2009
2013
2007
2008
2010
2011
2012
2014
2015
2016
2007
2015
2008
2009
2010
2011
2012
2013
2014
Source: CEIC, Nomura research. Source: Congressional Budget Office and Nomura Source: Japan MoF, Nomura research.
research.
Be it energy, transportation/logistics, telecom, water or sanitation, the first batch

of projects are about modernising physical infrastructure in recipient countries.
• From inception in 2016 to March 2018, the AIIB has approved loans of USD4.2bn:
energy (45%), transport (29%), urban/water/sanitation (15%), telecom (4%) and other
multisector projects (7%).
• By geography: India (USD1.1bn) accounting for one-quarter of all approved
investments; Azerbaijan (USD600m), Indonesia (USD442m) and Pakistan (USD400m).
• While Beijing has raised scrutiny over capital outflows, it has also redirected overseas
investment towards BRI-related projects. Dealogic shows that China’s outbound M&A
targeting BRI countries reached USD47.1bn in 2017, up 86% from USD25.3bn in 2016.
• Real estate (including logistics) accounted for 24% of outbound M&A volume in 2017,
overtaking natural resources and utilities (20%) and TMT (14%).
57
Fig. 44: AIIB investment operations
Source: AIIB
Replicating China’s onshore module: Ports, Parks and City

The comprehensive development of ports/land and/or industrial parks followed by
residential property development on the back of potential land appreciation has been a
successful model in China over the past few decades. Now, China is replicating this
development module in BRI countries extensively.
• China operates 11 ports along the Maritime Silk Road, including Darwin (Australia),
Kyaukpyu (Malaysia), Kuantan (Malaysia), Colombo (Sri Lanka), Gwadar (Pakistan),
Haifa (Israel), Piraeus (Greece), Naples (Italy), Central Harbour (Algeria), Djibouti and
Lamu (Kenya).
• While large-scale infrastructure projects are primarily led by SOEs, the development of
land and industrial parks has seen active private enterprise participation. China has
over 70 industrial parks along BRI areas, which will help drive the development of
labour-intensive manufacturing, supply-chain management and other services.
Fig. 45: Eastern Industry Zone in Ethiopia Fig. 46: Thai-Chinese Rayong Industrial Zone
Source: One Country Two Systems Research Institute Source: One Country Two Systems Research Institute
Energy sector participation

According to our energy sector analyst, Lin Chen, the participation of China’s energy
sector in the BRI is twofold: 1) oil & gas companies acquiring resources in recipient
countries and importing them back to China; and 2) power companies/EPC investing in
58
power projects in BRI countries, i.e. exporting infrastructure, including nuclear power
technology.
Upstream/resources: Chinese oil majors were keen to acquire oil and gas assets in
resource-rich countries including Russia, Central Asia and the Middle East during the
last commodity super-cycle and long before the launch of the BRI. Rising demand for
energy in China and slowing growth in domestic production have led to rising import
ratios for crude oil and natural gas, which currently stand at 68% and 40%, respectively.
Overseas acquisitions have been funded by internal free cash flow, the capital markets
and policy banks. It has, however, slowed in recent years on the collapse of oil prices
and China’s anti-corruption campaign. Chinese oil majors had to make impairment
charges on their overseas assets acquired at the peak of the commodity super-cycle. For
the private sector, their strong interest in acquiring overseas resources for vertical
integration has been curbed lately due to Beijing’s scrutiny over capital outflows.
Fig. 47: China crude demand vs. import ratio Fig. 48: China gas demand vs. import ratio
mn tons China crude demand Net import as % of demand (RHS) China gas demand Net import as % of demand (RHS)
bcm
700 80% 250 45%
600 70% 40%

200 35%
60%
500
50% 30%
400 150
25%
40%
300 20%
30% 100
200 15%
20%
50 10%
100 10%
5%
0 0%
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
0 0%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Source: NBS, China Customs, Nomura research Source: NBS, China Customs, Nomura research
Also, we have seen oilfield services, oilfield equipment companies, refining and
chemicals (R&C) and EPC companies expanding into BRI countries as well.
So far, the execution track record shows an ability to win projects on the basis of being
better able to deliver at lower costs than US and European names. Chinese companies’
ability to come up with economical and practical solutions is a boon for BRI countries
operating with constrained or limited budgets.
As tracked by the Boston University Global Development Policy Center, energy-related
projects in BRI countries totalled USD226bn as of end-2017. Oil projects account for the
biggest share (USD92bn), followed by coal (USD45bn) and hydropower (USD40bn).
Russia (USD43bn), Brazil (USD39bn) and Pakistan (USD25bn) are the biggest
recipients. Figure 49 contains a list of energy megaprojects of over USD1bn.
59
Fig. 49: Energy megaprojects: oil-related projects account for the biggest share
Mega projects Location Value (USD bn)
Yamal LNG Project Russia 12.0
Russia - China Oil Pipeline Russia 10.0
10-Year Oil Supply Plan (10Mt/Year), "Oil for Loan" Brazil 10.0
Karachi Nuclear Power Complex (K-2/K-3) Pakistan 6.5
Boiler, Generator and Turbine Procurement India 5.5
Mambilla Hydroelectric Plant Nigeria 4.9
The Nestor Kichner and Jorge Cepernic Dams Argentina 4.7
Ioujno-Elotenshoie Gas Field Turkmenistan 4.1
Gas to Coal Projects Ukraine 3.5
Galkynysh (South Yolotan-Osman) Gas Field Turkmenistan 3.0
Gwadar-Nawabshah LNG terminal and pipeline project Pakistan 2.7
Gwadar-Nawabshah LNG terminal and pipeline project Pakistan 2.7
Europe - China International Transport Route Multi-country 2.5
Coal Resources Development in Far East Russia 2.0
Karot Run-of-River Hydropower Project Pakistan 1.9
Coca-Codo-Sinclair HPP Ecuador 1.7
Kafue Gorge Lower Hydro-Power Project Zambia 1.7
Karuma Hydroelectric Power Stationation Uganda 1.6
Pakistan Port Qasim Power Project Pakistan 1.6
Karot Hydropower Project Pakistan 1.6
Hubco Coal Power Plant Pakistan 1.5
Suki Kinari Hydropower Project Pakistan 1.5
Quaid-e-Azam Solar Park Phase 1 Pakistan 1.5
Coal-fired Thermal Power Plant Project (IPP project) Vietnam 1.4
West Seti Hydropower Project Nepal 1.4
Jhmpir Wind Power Plant Pakistan 1.3
Bangko Tengah, aka South Sumatra 8 or Sumsel-8 Indonesia 1.2
Vinh Tan 1 Coal-Fired Thermal Power Plant Vietnam 1.2
Arctic LNG 2 Russia 1.2
Sasan UMPP India 1.1
Trans-Sabah Gas Pipeline (TSGP) Malaysia 1.1
Western Corridor Gas Infrastructure Development Project Ghana 1.0
Source: Global Development Policy Center, Boston University, Nomura research
China construction rising by contract completion and by new orders

Figures 50 and 51 show China’s 12-month rolling balance in terms of completed contract
values in BRI countries and newly signed contract values. Completed value reached
USD88.4bn for the 12 months ending February 2018, up 17% y-o-y, while newly signed
contract value reached USD146.3bn over the same period, up 20% y-o-y.
Fig. 50: China contracted projects in BRI countries, by Fig. 51: China contracted projects in BRI countries, by newly
completed value signed contract value
(USD mn) China Contracted Project in BRI (y-y%) China Contracted Project in BRI
100,000 Countries: Completed Value (12- 18% (USD mn) Countries: Newly Signed Contract (y-y%)
month rolling sum, USD mn) 160,000 Value (12-month rolling sum, USD mn) 45%
90,000 16%
y-y% (RHS) y-y% (RHS)
140,000 40%
80,000 14%
35%
70,000 120,000
12%
30%
60,000 100,000
10%
50,000 25%
80,000
8% 20%
40,000
6% 60,000
30,000 15%
4% 40,000
20,000 10%
10,000 2% 20,000 5%
0 0% 0 0%
Jul-16
Jul-17
Jul-16
Jul-17
Jan-16
Nov-16
Jan-17
Nov-17
Jan-18
Jan-16
Nov-16
Jan-17
Nov-17
Jan-18
Sep-16
Sep-17
Sep-16
Sep-17
Mar-16
May-16
Mar-17
May-17
Mar-16
May-16
Mar-17
May-17
Source: CEIC, Nomura research Source: CEIC, Nomura research
We also note the recovery in China’s construction machinery demand – construction

volumes and sales have been particularly strong in the regions associated with the BRI,
including Yunnan, Guizhou, Guangdong and Tibet. Looking ahead, nationwide demand
should see a geographic shift and be driven by a further rise in the weighting of
60
construction machinery sales from the Southwest and South Central regions, while the
weighting of the Northeast falls.
Against this backdrop, first, we expect Chinese construction companies to actively
participate in expanded opportunities overseas.
• Nomura’s Industrials analyst, Patrick Xu, notes that China’s five major construction
companies under coverage (CRG, CRCC, CCCC, CSCEC and CMEC) combined
recorded healthy year-on-year growth of 15%/14%/20% in overseas revenue in
FY15/16/17, outpacing their domestic revenue growth of 5%/5%/9% y-o-y (Figure 52).
• In terms of new contract value for FY17, CSCEC recorded a significant jump in
overseas contracts (by 74% y-o-y to RMB198.8bn), outpacing its peers (Figure 53).
Fig. 52: Chinese construction companies under Nomura Fig. 53: Chinese construction companies under Nomura
coverage: overseas revenue coverage: new contract value
(CNYmn) (CNYmn)
CRG (390 HK) CRCC (1186 HK) CRG (390 HK) CRCC (1186 HK)
300,000 CCCC (1800 HK) CSCEC (601668 CH) 700,000 CCCC (1800 HK) CSCEC (601668 CH)
CMEC (1829 HK) CMEC (1829 HK)
250,000 600,000
500,000
200,000
400,000
150,000
300,000
100,000
200,000
50,000 100,000
- -
2013 2014 2015 2016 2017 2013 2014 2015 2016 2017
Source: company data, Nomura research Source: company data, Nomura research
Secondly, China’s rolling stock equipment manufacturer, CRRC Corp, derived 9.2% of its
2017 revenues from overseas (up from 8.4% in 2016). Over 2014-17, it announced
USD11.8bn worth of product sales in BRI-related projects, most notably USD3.1bn in
South Africa.
Thirdly, construction materials producers are actively acquiring market shares in BRI
countries, riding on the increased construction demand from infrastructure projects. For
example, Anhui Conch has operations and/or is starting cement projects in countries
including Indonesia, Myanmar, Cambodia, Laos and Russia. As noted in the ASEAN
equity section of this report, competitive pressures are starting to be felt by domestic
names in Indonesia. Among the biggest cement companies in China, overseas revenues
accounted for 3.1%/1.5%/0.5% of total revenues in FY17 for Anhui Conch/CNBM/BBMG,
respectively.
Financials help to fund infrastructure build-out

Commercial banks with sizable overseas/infrastructure focus
Large Chinese banks with an overseas presence and a focus on infrastructure will be the
major providers of funding for BRI-related projects. Among Hong Kong/China Banks
covered by Nomura:
• Bank of China (3988 HK)/BoCHK (2388 HK) has a strong presence both in ASEAN and
internationally. As of end-2017, BoC has participated in over 500 BRI-related projects,
extending a total of USD100bn in credit to BRI countries.
• China Construction Bank (939 HK) has an edge in financing infrastructure projects.
BoCHK stands to gain from further internationalisation of RMB
The BRI will offer opportunities for China’s banks to extend abroad and play a greater
role in the international financial system. According to SAFE data, the China banking
61
sector’s external financial assets totalled USD997.7bn by end-2017, from USD877.6bn

at end-2016. Notable overseas acquisitions in recent years include China Construction
Bank’s 2016 acquisition of a majority stake of Indonesia’s Bank Windu and ICBC’s 2015
acquisition of a majority stake in South Africa’s Standard Bank’s global markets
business, based in London.
Would non-performing loans pose a systemic risk to China’s banking system?
There are no annual numeric targets for BRI investments, which offers flexibility in the
timing of project implementation. Chinese commercial banks are profit-oriented, which
means policy banks are likely to play a bigger role in some of the more challenging
projects and longer-term financing. For the whole system, potential credit risks aside, we
believe it is a preferred choice for China’s own savings. Investing in emerging markets
with some element of China-style development should result in positive returns. The
alternative is to invest in low-yielding foreign sovereign bonds off the basket of ageing
populations, slow economic growth, rising political tensions and structural fiscal deficits.
China’s corporate bond market to benefit: green bonds and BRI bonds
China was the world’s second-largest issuer of green bonds in 2017 after the US, with
USD23.6bn of issuance that qualified under the international definition for green bonds,
or 15% of total 2017 issuance globally.
• In 2016, President Xi called for the BRI to be “green, healthy, intelligent and peaceful”,
followed by the joint issuance of the “Guidance on Promoting Green Belt and Road” by
four ministries in 2017. Beijing has also encouraged BRI-related green bond issuance
in Hong Kong, to help broaden the investor base.
• In its 2018-19 budget announcement, the Hong Kong government included a green
bond issuance program of up to HKD100bn for its public works projects, and plans to
start issuance in 2018.
In early March, the China Securities Regulatory Commission (CSRC), the country’s
securities regulator, announced that it would allow domestic and foreign companies to
issue official ‘Belt and Road’ bonds via the Shanghai and Shenzhen stock exchanges –
and that it had approved applications from seven companies to issue such bonds worth a
total of CNY50bn.
• The logistics firm bought out by a Chinese consortium, Global Logistics Properties, had
received approval from the CSRC to issue up to CNY12bn in Belt and Road bonds in
Shenzhen. Proceeds are to repay debt related to its acquisition of another European
logistics firm, Gazeley.
Two types of exchanges: community reservoirs vs regional gateways
China’s onshore capital markets are funded by high domestic savings (46.5%), with low
foreign exchange debt and low foreign ownership of equities/debt securities. It functions
like a community reservoir, helping to sustain the local ecosystem, and taking a slice of
what that ecosystem produces. The Tokyo Stock Exchange also offers such a function.
On the other hand, the Hong Kong and South African exchanges function more like
regional gateways. South Africa’s domestic saving rate is low (19.5%), but it is the
financial hub for international funds accessing sub-Saharan African listed companies,
hence its equity market is substantially bigger than other EMs’ of comparable GDP. This
is a business case built on an efficient exchange/marketplace, collecting a fee over
transactions taken place on the exchange.
What trades on the exchanges is not what occurs in the South African local economy.
For South Africa, good infrastructure for clearing and settlement, approval time for
ECM/DCM issuance and availability of financial instruments such as ETF/options, do
affect the financial depth of an economy. Hong Kong, in our view is also operating on a
similar model. Hence, we expect Hong Kong to demonstrate more of its aggregation
capabilities in years to come, for BRI projects and BRI countries.
Japanese financials: potentially an important role to play
Expertise: Based on Thomson Reuters’ rankings, Japanese banks are major forces in
global project financing (Figure 54). Chinese and the Indian banks also post large
project-financing in dollar amounts, but they are mostly domestic projects. In the case of
Japanese banks, they have had decades of participation and extensive expertise in
global project financing. ADB is key in project financing. AIIB is relatively new and ADB
has a wealth of technical expertise.
62
Balance sheet: Nomura’s Japan banks analyst, Ken Takamiya, notes that with global
banks being required to become Basel III-compliant in 2018, they face additional capital
constraints. European banks, traditionally major players in global project financing, have
downsized their roles to meet Basel III requirements. Instead of taking a leading role,
they are now arrangers of syndicates. US banks, which have generally shunned long-
term loans on their balance sheets in the interest of keeping their books more liquid,
have not taken centre stage in global project financing. In this comparison, Japanese
banks stand out in terms of balance-sheet strength: thanks to Japanese households,
massive amounts of deposits sit on Japanese banks’ balance sheets.
How Japanese banks see the BRI: According to Ken Takamiya’s feedback from
Japanese banks, the BRI is not so much about ASEAN, but Central Asia beyond
ASEAN, and Africa, involving energy, power and transportation projects.
Fig. 54: Global mandated arrangers ranking in 2017: Japanese banks are major forces
in global project financing
Source: Global Project Finance Loans Review, Thomson Reuters.
Progress among Japan banks on BRI: Among the Japanese commercial banks we
spoke to, their current focus in terms of investments is in ASEAN and they are closely
following developments surrounding the BRI. The general assessment seems to be that
they will do some business in this area.
• One notable change is the Abe administration’s attitude toward BRI due to a slightly
improving relationship with China, from a nadir several years ago. Should the bilateral
relationship improve again, Japanese banks could, and may, pursue more BRI projects.
• One major bank has been providing its Japanese clients with research on the BRI and
is willing to take on project financing. For most others, however, their interest lies in
settlement, not credit financing.
After infrastructure comes ecommerce, housing etc.

Although the BRI is very much perceived as a state-capital led infrastructure boom, our
on the ground data from various country teams indicate that private enterprises are
playing an active and leading role.
With regard to trade in BRI areas, private sector companies accounted for 59% of total
exports to BRI countries in 2016 (rising from 47% in 2011), followed by foreign
enterprises (28%) and SOEs (13%). On imports from BRI countries, private enterprises
63
account for 28% of total, behind foreign enterprises (37%) and SOEs (32%) but up
significantly from 22% in 2011.
According to the Gao Feng Advisory78, China’s non-state sector is becoming more
powerful in its own right. For example, China’s new-economy companies are mostly
private-sector companies, while the fastest growing companies in China over the last few
decades have predominately, if not entirely, been entrepreneurial companies from the
private sector.
Fig. 55: Breakdown of China’s export to BRI countries by Fig. 56: Breakdown of China’s import from BRI countries by
enterprise type enterprise type
% SOEs Private enterprises % SOEs Private enterprises
Foreign enterprises Other enterprises Foreign enterprises Other enterprises
100 0.1 0.1 0.1 0.0 0.1 0.3 100 0.1 0.1 0.1 0.1 1.8 3.2
90 90
30.8 28.8 28.0 27.8 32.8 33.1
35.4 33.3 35.3 35.1
80 80 36.6 37.0
70 70
60 60
21.6 22.1 23.4 24.3
50 50 26.4
28.2
40 46.6 50.2 54.4 57.6 58.6 58.9 40
30 30
20 20 43.1 42.7 43.8 42.5

35.1 31.6
10 17.9 16.4 10
14.8 13.5 13.3 13.1
0 0
2011 2012 2013 2014 2015 2016 2011 2012 2013 2014 2015 2016
Source: State Information Centre of China and Nomura Global Economics. Source: State Information Centre of China and Nomura Global Economics.
China e-commerce and logistics services are now in BRI

For logistics companies under Nomura’s coverage, our analyst Shirley Lam flags that SF
Holding’s (002352 CH) recent confirmation of its estimated RMB27bn investment in
Hubei airport should help drive volume from international parcels. It is also operating
service centres in Singapore, Malaysia, Vietnam and Thailand.
There has been a rise in outbound logistics M&A targeting the BR countries over the
past year. This includes CIC’s USD13.8bn acquisition of Logicor Europe in June 2017
and USD11.6bn buyout of Global Logistic Properties by a Chinese private equity
consortium in July 2017.
China’s e-commerce giant Alibaba is also expanding globally to establish logistics and e-
commerce hubs through its logistics arm, Cainiao (the company’s footprints in Southeast
Asian countries are laid out in page 69). China’s cross-border e-commerce has been
growing at a rapid pace, with total transaction value reaching RMB3.6tn in H1 2017
(30.7% y-o-y growth), according to the Ministry of Commerce. With better logistics
infrastructure along the Belt and Road area, Alibaba envisions stronger e-commerce
volume connecting tens of millions of merchants with over two billion consumers globally.
Chinese listed developers in ASEAN real estate
Among the companies covered by Nomura’s China property analyst, Elly Chen, property
developers including Country Garden, Guangzhou R&F, Agile and Logan have entered
Southeast Asian markets either because of lower land acquisition cost compared to their
domestic projects, or for reasons of asset diversification. In some cases (e.g., Country
Garden in Malaysia), Chinese developers have become major competitors in local
markets.
78
Tse, E. (2018).’China-US trade and investment is thriving in pockets on the ground, despite the policy frictions’.
64
Fig. 57: Major overseas projects by Chinese property developers

Project 项目 Country GFA Land acquisition year
(th sqm)
Country Garden
Serendah Project 双文丹项目 Malaysia 294 2014
Country Garden Diamond City 碧桂园钻石城 Malaysia 588 2014
Country Garden Danga Bay 碧桂园金海湾 Malaysia 1,023 2014
Country Garden Forest City 碧桂园森林城市 Malaysia 1,182 2014
GZ R&F
R&F Princess Cove 富力公主灣 Malaysia 2,257 2013
Phnom Penh Monivong Boulevard Project 金边市莫尼旺大道项目 Cambodia 137 2017
Phnom Penh Hun Sen Boulevard Project 金边市洪森大道项目 Cambodia 369 2017
Agile
Kuala Lumpur Bukit Bintang Project 吉隆坡Bukit Bintang項目 Malaysia 129 2014
Agile Mont Kiara Kuala Lumpur 吉隆坡雅居樂滿家樂 Malaysia 142 2014
Logan
Queenstown Project 女皇镇项目 Singapore 89 2017
Florence Regency Project Florence Regency项目 Singapore 101 2017
65
Equity strategy: ASEAN and Korea

In this section, we present a brief overview of the industry sector and stock implications Indonesia Research Team
of the BRI for ASEAN and Korean listed stocks under our coverage. At the end of this Elvira Tjandrawinata - PTNSI
section we present a list of 49 stocks, of which 37 are in our coverage universe, that we elvira.tjandrawinata@nomura.com
expect to be affected either positively or negatively, as the BRI evolves. +62 21 2991 3341
Anthony Yunus - PTNSI
anthony.yunus@nomura.com
Indonesia +62 21 2991 3348
Infrastructure holds the biggest upside, though the risk is execution
Malaysia Strategy
On the surface, Indonesia should be a beneficiary of the BRI, as the government has
Tushar Mohata, CFA - NSM
made infrastructure development its top priority, seen as the only way to break the tushar.mohata@nomura.com
bottleneck in the country’s transition to a middle-class economy. +603 2027 6895
There are numerous initiatives and projects already signed between the two countries, Philippine Strategy
but the risk lies in execution, having to do with cost over-runs, land acquisition issues,
and to a certain extent, funding issues. Dante Tinga Jr - BDO-NS
dante.tingajr@nomura.com
Nevertheless, China remains an important partner for Indonesia to develop +632 878 4969
infrastructure, especially since it is more willing to provide more favourable terms (lower
interest rates; no required guarantees from the government) for project financing vis-a- Malaysia Research Team
vis Japan. Gopa Kumar - NSL
gopa.kumar@nomura.com
Specifically, China is heavily invested in the High-Speed Railway (HSR) and power +65 6433 6961
plants with a view to provide Chinese companies with access to the Indonesian market.
Abhishek Nigam - NSL
Despite the involvement of Chinese contractors in these projects, the bulk of the work is abhishek.nigam@nomura.com
being handled by Indonesian state-owned contractors, and hence is beneficial for these +65 6433 6969
companies.
Thailand Research Team
• The HSR project has now reached financial closure; however, the president has given
a mandate for project reassessment, which includes an evaluation of project feasibility Marcin Spiewak, CFA - CNS, Thailand
marcin.spiewak@nomura.com
and the possibility of extending the track to Kertajati Airport in Malajengka, West Java,
+66 2638 5796
which has resulted in delays and cost over-runs. The direct beneficiary should be
Wijaya Karya (WIKA IJ, Buy). Thanatcha Jurukul - CNS, Thailand
thanatcha.jurukul.1@nomura.com
• With the Maritime Silk Road – which in theory is in line with Indonesia’s vision of +662 287 6799
building a sea toll road and renovating 300 ports all across the country – there are
unfortunately few clear details on how these two initiatives will gel. However, should South Korea Transport/Logistics
more details become available, we believe this should benefit PTPP (PTPP IJ, Buy) Jaehyung Choi - NFIK
due to its expertise and focus on ports. jaehyung.choi@nomura.com
+82 2 3783 2318
Beyond infrastructure, Chinese companies are adding to local competition.
Chinese companies are keen to tap Indonesia’s large domestic market for a wide range ASEAN Strategy
of products and services, including cement, automotive, property and e-commerce. So
far Chinese companies have established a presence in these sectors with various Chetan Seth, CFA - NIHK
chetan.seth1@nomura.com
degrees of success. The impact on existing companies has generally been negative, as +852 2252 6154
the entry of Chinese firms intensified competition.
In the cement sector, Anhui is finally making its presence felt by significantly disrupting
the Indonesian cement market through aggressive price discounts, resulting in market
share gains over the past three years, after its initial investment 10 years ago. Anhui’s
entrance resulted in incumbents’ EBITDA margins declining significantly from ~31-32%
in 2013 to ~20% in 2017, similar to regional cement companies’ EBITDA margins.
Further, an increase in China’s investment in the Indonesian cement industry will likely
result in a continued price war, as it will exacerbate oversupply, particularly in the Java
area as it is still the most lucrative target area. While this is likely to negatively affect all
players, the incumbent with the most exposure in Java is Indocement Tunggal Prakarsa
(INTP IJ, Reduce).
Investors are also worried that the same is likely to happen in the automotive and
property sectors, where Chinese names could disrupt the market.
In the automotive sector, while Chinese firms have tried to penetrate the local market
for decades, they have yet to succeed, largely because Japanese firms have had such a
tight grip on the market, accounting for over 90% of market share in both the four-wheel
and two-wheel markets. In the four-wheel market, Chinese companies such as Wuling
and more recently Sokon, are now trying to establish a presence. However, where
66
previously they mostly attempted to compete on price, they are now offering innovation
and improved features on top of attractive pricing. While establishing brand equity and
trust among consumers takes time, this could be a threat to domestic automakers such
as Astra International and Indomobil.
In property, some large Chinese developers (Country Garden and China Fortune Land
Development) started to establish their presence in Indonesia two years ago by buying
several plots in the Serpong area, from Indonesian property companies such as Bumi
Serpong Damai (BSDE IJ, Buy). BSDE has a very substantial land bank that we estimate
can last it for at least 20 years. While this should be positive in the short term, as the
likes of BSDE are now able to monetise their land bank and can book large margins, in
the longer run, this could be negative, as Chinese developers may be able to take
market share by selling at lower, competitive prices. For now, though, the scale of
Chinese developers’ presence is small and mainly limited to the Serpong area.
E-commerce is another area in which Chinese companies are focusing, especially given
Indonesia’s growing internet penetration, favourable demographics, improving mobile
access and low penetration of modern retail. Despite the challenges such as low
penetration of credit cards, relatively poor quality of internet access, poor infrastructure
and last-mile delivery options, this has not stopped giants such as Alibaba and Tencent
from establishing a presence because, in fact, these are the same kind of roadblocks
that these companies faced in China during the development of their businesses.
Alibaba is backing Tokopedia Indonesia’s unicorn (with a valuation exceeding USD1bn]
and Lazada, ASEAN’s largest e-commerce player, while Tencent has invested heavily in
Go-Jek to develop an e-wallet/payment system.
The online impact on business could be far-reaching, encompassing sectors such as
retail, transport, telecommunication and even banking (the presence of fin-tech
companies and e-wallet/money).
• For the foreseeable future, we believe offline retailers may be at most risk, especially
department stores. Department stores generally have a high mix of apparel and
footwear, categories that are most popular on online channels. Hence, we believe
department stores such as Matahari Dept Store (LPPF IJ, Neutral) and Ramayana
(RALS IJ, Neutral) are vulnerable to the rapid expansion of online businesses.
• Meanwhile, we believe the grocery retail business model, especially of minimarket
operators, is still very relevant as proximity, and therefore convenience, are still very
appealing to consumers.
67
Malaysia
Summary of relative impact on sectors
• For Malaysian equities, we see the financials, construction/infrastructure/property,
consumer/food and logistics/transport sectors directly or indirectly affected by BRI.
• Most bullish for infrastructure from both macro and micro perspectives, although stock-
specific views will depend on which Malaysian corporates benefit from the spill-over.
• JVs/strategic partnerships are rising in popularity among consumer, financials,
insurance, stockbroking businesses; e-commerce acquisitions driving FDI into the
logistics sector.
• In transport, we view last-mile providers and Malaysia airports as key beneficiaries. In
the near term, airlines should benefit from higher cargo throughput, but as more ground
infrastructure links with China (via Thailand and Indochina countries) are put in place
with commercially viable shipment volumes, we would expect some air freight to shift to
ground transportation.
• We see a limited impact on telcos, utilities and oil & gas.
Infrastructure/construction: most directly affected
As part of the BRI, we have seen a marked increase in the number of construction
projects announced or awarded in which a Chinese contractor or a Chinese-led
consortium plays an anchor role.
• Analysing data since 2010, we find that China-driven projects have increased both in
scope and size, from standalone buildings or utility plants previously, to full-fledged
infrastructure projects such as the East Coast Rail Link, which was awarded to a
Chinese consortium in 2016.
• Investment/projects led by Chinese companies fall mainly into three types: 1)
infrastructure and transport; 2) energy; and 3) real estate.
• We expect that, after Prime Minister Najib’s visit to China in November 2016, where he
signed deals and MoUs worth MYR144bn, it looks likely that Chinese contractors will
continue to play an enabling role in the Malaysian construction space over the next
decade and likely beyond.
With the likelihood that the US-led Trans-Pacific Partnership will now take a back seat, it
looks likely that Chinese contractors will continue to play an enabling role in the
Malaysian construction space over the next decade and likely beyond.
Funding by Chinese financial institutions is a key advantage
An ability and willingness to finance almost 100% of project value, along with the
expertise of Chinese contractors in building large-scale infrastructure projects in China,
has improved their odds of winning projects in Malaysia, in our view.
• Excluding several Malaysian infrastructure projects (such as the recent MRT Line 1)
financed via off-balance sheet special purpose vehicles, such as Danainfra issuing
infrastructure bonds, over the last seven years the development expenditure budget for
the federal government has been flat at MYR40-50bn p.a.. This, along with the federal
government’s commitment to reduce the fiscal deficit to below 3% of GDP, leaves little
room for large megaproject capex on its own balance sheet.
• Chinese infrastructure companies are willing to finance most of the project value as
they are backed by soft loans from China-headquartered banks (for example, the East
Coast Rail Link is being financed with a soft loan from the Export-Import (Exim) Bank of
China, with a repayment holiday for the first seven years). Further, some Chinese
banks have been awarded banking licenses to operate in Malaysia – China
Construction Bank’s came as part of the 14 deals signed by the prime minister during
his China visit.
Stock-specific impact on Malaysian contractors
The arrival of Chinese contractors in Malaysia has rightly raised concerns over whether
they are going to take market share from domestic names such as IJM and Gamuda.
• We believe that many projects – for instance, the ECRL – would have been difficult to
implement without the financing provided by Chinese companies, given fiscal
constraints. The government has reiterated a domestic subcontracting ratio of 30% or
more of the contract value. While we have yet to see significant subcontracting to local
contractors, the arrival of China-led projects will grow the size of Malaysia’s overall
construction pie, and hence be a net positive, in our view.
68
• Smaller construction names to benefit more: Chinese companies have tended to

subcontract the simpler jobs, such as earth works, to smaller Malaysian names, and
these may stand to benefit more, in our view, than the larger names which are likely to
receive some contracts, but likely smaller roles relative to their existing order books,
thus being only modestly additive to their earnings.
• In the Malaysian construction space, IJM, Econpile, BHS Industries, George Kent,
Gabungan AQRS and KNM Group are listed names that have already benefitted from
collaboration with Chinese firms. Gamuda shares, on the other hand, have seen an
overhang, as some megaprojects which Gamuda has been driving, such as the MRT,
have been opened to foreign participation. With the award of projects such as MRT 3
(MYR 45bn) imminent, and with the KL-Singapore High Speed Rail PDP to follow, we
believe there is some likelihood of Gamuda securing some projects in the future.
Banks: limited impact due to regulatory restrictions
Due to limitations on foreign shareholding in local financial institutions and the heavily
regulated nature of the industry, direct Chinese participation in banking entities has been
limited over the past few years. Chinese banks have in fact set up local operating entities
to support their corporates driving BRI projects in Malaysia.
While we have seen a case of a Chinese bank buying a stake in CIMB’s equities
business, we believe the bigger Malaysian financials will also benefit somewhat from
bond underwriting cooperation, which can boost interest income for the banks.
For instance, a consortium of local (CIMB, Maybank, RHB and Affin Bank) and foreign
(Bank of China, Industrial and Commercial Bank, China Construction Bank) banks was
initially entrusted with financing the Bandar Malaysia land deal (which is linked to BRI
projects due to the strategic location as the designated High Speed Rail terminus on the
Malaysian side).
Consumer and autos: direct interests from Chinese companies
Among the more prominent deals has been Geely’s agreement with Proton to acquire a
significant 49.9% stake in the Malaysian carmaker and its Lotus subsidiary. This
illustrates the recent acceptance of FDI, in contrast to the traditional rejection of foreign
investment, especially for firms perceived to be ‘national champions’.
While there has been indirect FDI investment into the consumer space through vertical
supply chains, there has been much less direct investment into Malaysia’s retail and
consumer space, likely premised on the still-fragile recovery of sentiment among local
consumers.
Real estate: negatively affected by oversupply concerns
The impact on the Malaysian real estate sector so far seems to be negative, as Chinese
property developers are launching units at a faster pace, exacerbating concerns about
oversupply. As a result, stocks with exposure to Iskandar Malaysia are likely to see an
overhang in terms of slow sales, in our opinion.
Logistics services: large inbound investments from China
Given the strategic nature of transport assets, regulatory restrictions on foreign
ownership can be quite strict. FDI in the transportation space has been skewed towards
the more liberalised logistics industry in recent years.
• In 2017, Alibaba announced the establishment of a logistics and e-commerce hub
through its logistics arm, Cainiao in a joint venture with Malaysia Airports (ownership
split 70/30, respectively). In the initial phase, the facility will primarily provide support for
small and medium-sized companies, enabling them to market their products on
Alibaba’s global e-commerce platform. To be built on 60 acres around the KLIA
aeropolis, the facility is expected to be operational by end-2019. The facility will play an
integral role in Malaysia’s push for a “digital free trade zone” and act as a warehouse
and centralised customs clearance centre for Malaysia and the region (particularly
ASEAN).
• While Alibaba has chosen SingPost to be its strategic partner for its regional hub (for
transitting packages worldwide), we believe the Malaysia site will serve as a secondary
regional hub for ASEAN, serving the larger local population besides Singapore. Recent
reports suggests that Alibaba is also planning a logistics base in Thailand, which could
be dedicated to the Thai market, plus the Indochina region.79
79
See “Alibaba hub to launch next month”, Bangkok Post, 8 March 2018.
69
• Alibaba has invested substantially in Lazada, ASEAN’s leading marketplace provider,

which is a positive for last-mile delivery companies. Some sizeable acquisitions in
ASEAN by the largest names in last-mile delivery from both Japan (Yamato Holdings
acquiring a strategic stake in GD Express) and Korea (CJ Express acquiring a strategic
stake in Century Logistics (CLH MK)) also underscores the perceived upside in these
businesses.
Transportation to benefit from ground transportation links to China
The BRI is turning a ground transport link from China to ASEAN countries (primarily on
Indochina, Thailand, Malaysia and Singapore) into a reality, although it will take time for
volumes to grow to commercially viable levels.
• We prefer airport operators, as in our view they stand to benefit from increasing air
cargo volumes driven by cross-border e-commerce growth. We see airport operators,
particularly MAHB, as a key beneficiary of the aeropolis theme to monetise potential
future land bank development.
• While we recognise the long-term merit of last-mile delivery amid rising cross-border e-
commerce penetration, we remain selective as valuations for last-mile logistics names
are, in our view, on the expensive side.
Risks to Chinese projects: These are mainly geopolitical (a pullback by Chinese firms
to focus on their home market) and financial (government debt-to-GDP in Malaysia is
already elevated and close to the self-imposed debt ceiling.) Projects must be financially
viable for the debt to be repaid in an orderly fashion when it matures.
70
Philippines
The Philippines government is looking to ramp-up infrastructure spending from 3% of GDP
in 2015, before President Duterte took office, to at least 6% of GDP over 2016-22 (see
Philippines infrastructure: Aggressive ramp in infra spending ahead, 14 February 2018.
We note that the Duterte administration plans to move away from Public Private
Partnerships (PPP) as a funding mode, opting instead to rely more on Official
Development Assistance (ODA) loans, including from China, which is consistent with the
thrust of the BRI.
ODA offers fewer opportunities for Philippine conglomerates: Historically, large
conglomerates have been equity investors in large infrastructure projects. Government
funding and ownership of infrastructure projects means there may be less incentive for the
government to ensure that the regulatory environment for utility and infrastructure remains
conducive for private sector investment (see Metro Pacific Investments: Regulatory risks
re-emerge, 15 February 2018. Key priority projects are listed in Figure 58.
Fig. 58: Priority infrastructure projects in the Philippines

Project Description Total Project Estimate Completion Source of
Cost Date Funding
Clark International The project aims to build an 82,600sqm terminal PHP 12.55bn 2019 General
Airport (CIA) building, having a design capacity of 8m Appropriations
Expansion passengers per year. Act (GAA)
Mindanao Railway: This phase involves the establishment of a PHP 35.26bn 2020 General
Tagum-Davao City- 102.28km commuter railway from Tagum City in Appropriations
Digos Segment Davao del Norte to Digos City in Davao del Sur. Act (GAA)
PNR North 2 This project involves the construction of a commuter PHP 211.43bn N/A Official Dev't
(Malolos-Clark line and airport express railway between Malolos Assistance
Railway Project) and Clark Green City through Clark International (ODA) Loans
Airport. It is composed of two segments: Malolos to
Clark International Airport (50.5km) and Clark
International Airport to Clark Green City (19km).
Chico River Pump This project is seen to provide irrigation water PHP 2.7bn 2020 Official Dev't
Irrigation Project supply to around 8,700 hectares of farmland and Assistance
will benefit around 4,350 farmers. (ODA) Loans
New This involves: 1) construction of an air traffic PHP10.87bn 2019 Official Dev't
Communications, management automation (ATM) system and Assistance
Navigation and construction of the Manila ATM Centre Building in (ODA) Loans
Surveillance/Air Pasay City near the Ninoy Aquino International
Traffic Management Airport (NAIA), and 2) the installation of
(CNS/ATM) Systems communications equipment and surveillance
Development Project equipment in four radar sites (Tagaytay, Palawan,
Zamboanga and Davao).
Arterial Road The project aims to complete the remaining PHP 4.62bn 2019 Official Dev't
Bypass Project segments of the Plaridel Bypass Road "to alleviate Assistance
Phase II the perennial traffic congestion at the (ODA) Loans
interconnection point of the North Luzon
Expressway with the Daang Maharlika Highway,"
NEDA said.
Cavite Industrial About 151.5sqkm, this project aims to mitigate PHP 9.89bn 2024 Official Dev't
Area Flood Risk damage due to flooding in the lower reach of the Assistance
Management Project San Juan River Basin and the Maalimango (ODA) Loans
drainage areas in Cavite. It involves the
improvement of the San Juan River channel and the
drainage for Maalimango Creek.
New Centennial The project will increase Metro Manila's raw water PHP10.86bn 2019 Official Dev't
Water Source – supply and ensure water security, as it involves the Assistance
Kaliwa Dam Project construction of an additional supply source of 600m (ODA) Loans
litres per day.
Mega Manila First subway system in the Philippines with a PHP 227.0 2025 Official Dev't
Subway predicted daily ridership of 370,000 in the first year. Assistance
Construction to begin in 2018 with phase one (ODA) Loans
estimated to be completed by 2025. Estimated
project cost is PHP227bn with funding from the
JICA.
Source: https://www.rappler.com/business/174158-major-railways-national-transport-policy-neda-board-approval
Execution (project planning, right-of-way acquisition and actual project implementation)

rather than funding issues represent the most important bottleneck to rolling out quality
infrastructure in a timely manner. It is not clear whether shifting from a PPP funding
scheme to ODAs fully addresses the execution risk.
71
Property/construction/building materials: We believe that on a risk-reward

assessment, the property sector is likely to be the primary beneficiary of improved
infrastructure. A successful infrastructure rollout would improve connectivity to
developing regions outside Metro Manila. This should facilitate urbanisation and enhance
land values. Our top pick in the property space is Ayala Land (ALI PM, Buy) whose large,
high-quality land bank is likely to see its value enhanced if transport connectivity
improves. Accelerated infrastructure spending should also lead to increased construction
activity, which should benefit conglomerates with construction exposure (DMC and
MWIDE) as well as building materials companies (CHP).
Telcos: will the third/new operator be a Chinese SOE?
The government is considering adding a third telco operator and has indicated interest
from telcos across the region, including China. China Telecom is one operator evaluating
entry, with the government/regulator also favourable to its prospects.80 The third entrant
would need to partner with a local consortium that holds the license and may have to
present a capex plan of around USD6-10bn over five years, according to press reports.
The government says it hopes to disclose details in the next couple of months. We are
also waiting on clarity regarding tower companies, network sharing and spectrum.
We see this as an overhang for GLO and PLDT stock prices. Even with a duopoly, the
Philippines is fairly competitive and data prices have been under pressure. Hence, a
third telco may raise expectations of further pricing pressure – similar to what has been
seen in India and Singapore.
This raises questions of monetisation for the new entrant on its capex investments.
However, if a state-owned enterprise is involved, as in a government-to-government
transaction, then returns could be of secondary priority. Further, as seen in other
markets such as Singapore, if the regulator/government intends to increase competition
by facilitating a new entrant, there are levers to lower entry barriers: providing spectrum
at lower cost, or improving access for network rollout, for example. In all, the capital
market’s reaction could be choppy in anticipation of the launch as well. Nevertheless, we
highlight multiple factors to be considered here:
• Network rollout will be a challenge for the new entrant, from a logistical perspective and
in terms of government bureaucracy – unless there is a material improvement on the
ground in the execution of government bodies to speed up the approval process. This
has been a key challenge even for the incumbents.
• The government has indicated plans to form a towerco to allow smoother sharing of
passive infrastructure for the new entrant. Note that tower rollout is a key impediment
even for incumbents. Formation of a towerco with assets from the incumbents would
allow B2B sharing of towers which could lower the entry barrier for the newcomer.
However, details are lacking in terms of the number of towercos planned, tower
valuations and rentals. GLO/PLDT have around 20k towers in the market.
• Foreign ownership is currently capped at 40%. A majority stake (51%) in the local
consortium will require corresponding legislative changes. The ownership cap is an
important consideration for regional telcos in evaluating an entry into the Philippines, in
our view.
• Incumbents GLO/PLDT have collectively spent ~USD7.5bn in capex over the past five
years (Figure 60) and could look to spend ~USD900m to USD1.1bn p.a. over the next
one to two years. Their spectrum holding is robust, requiring the new entrant to have
balance-sheet capacity to fund similar capex to match.
• There are no mandatory roaming regulations now, and roaming/interconnection will
depend on agreements negotiated with the incumbents. Nevertheless, in the initial
phase, the new entrant would have to negotiate roaming deals to accelerate launch or
ramp-up network rollout. The Philippines has traditionally had high voice/SMS traffic in
the region, thought the market is moving towards 4G data.
80
“China Telecom studies Philippine Entry after Duterte offer”, Bloomberg, 11 December 2017.
72
Fig. 59: ASEAN telco data pricing USD/GB Fig. 60: Phil telco capex, 2012-18F
Data Rev Telkomsel Indosat PLDT Globe

USDmn
per GB XL AIS Thailand
Bharti PLDT - Philippines 1200
IDEA
7.0 1000
6.0
800
5.0
600
4.0
3.0 400
2.0 200
1.0
0
2018F
2012
2013
2014
2015
2016
2017
0.0
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
Source: Company Data, Nomura research Source: Company Data, Nomura research
Fig. 61: Spectrum acquired from SMC

Total Bandwidth for
assigned return to Net
Band bandwidth Gross Spectrum Govt/NTC Spectrum
700MHz 35MHz x 2 70MHz
10MHz x 2 70MHz
10MHz x 2 20MHz
850MHz 10MHz x 1 10MHz 10MHz x 1 -
900MHz 10MHz x 2 20MHz - 20MHz
1800MHz 15MHz x 2 30MHz - 30MHz
2300MHz 30MHz TDD 30MHz
- 60MHz
30MHz TDD 30MHz
2500MHz 80MHz TDD 80MHz
15MHz TDD 80MHz
15MHz TDD 15MHz
3500MHz 40MHz 40MHz 40MHz -
5000MHz 20MHz 20MHz 20MHz
Total 365MHz 85MHz 280MHz
Chinese FDI requires local partners due to foreign ownership limits

Entry of Chinese investors into the Philippines in the context of the BRI will likely be
structured in the form of joint ventures, in our view, given foreign ownership limits in key
sectors of the economy.
• Banking liberalisation plus the BRI may increase the presence of Chinese banks
onshore (e.g., strategic cooperation framework agreements regarding lines of credit
with Metrobank and bond underwriting cooperation). Philippine banks with international
desks servicing China could receive increasing transaction flows from Chinese
companies investing in the Philippines. Note that BDO (BDO PM, not rated) is receiving
four to five inquiries per month (as opposed to one inquiry per month before Duterte
took office) and one or two new account openings per month (from one every two
months) from Chinese corporates.
• MBT (MBT PH, Buy) has not seen anything specific yet from Chinese companies but
set up lines with two Chinese banks/agencies last year that can provide funding
sources once large flows for Chinese-related projects materialise. MBT’s investment
banking subsidiary, First Metro Investment Corp. (FMIC), however, recently signed a
general advisory contract with China National Heavy Machinery Corp. (CHMC), the
third-largest contractor of power projects and one of the top construction engineering
companies in China. CHMC is said to be keen to participate in the development of the
Philippines’ infrastructure sector, in areas such as power, transportation, water supply
and sewage, metallurgy and cement.81
81
See “Keen on investing in PH, Chinese firms taps First Metro”, Philippine Daily Inquirer, 17 February 2018.
73
Fig. 62: Summary of the Philippines negative investment list

Foreign ownership limit Industry
No Foreign Equity Mass media except recording
Retail trade enterprises with less than USD2,500,000
Small-scale mining
Utilisation of marine resources in archipelagic waters, territorial
sea, and small-scale utilisation of natural resources in rivers,
lakes, bays and lagoons
Up to 25% Foreign Contracts for the construction and repair of locally funded public
equity works
Infrastructure/development projects covered in RA 7718
Up to 40% Foreign Exploration, development and utilisation of natural resources
Equity
Operation and management of public utilities
Educational institutions other than those established by religious
groups and mission boards
Facility operator of an infrastructure or development facility
requiring a public utility franchise
Ownership of condominium units
All forms of gambling (RA 7042 as amended by RA 8179) except
those covered by investment agreements with PAGCOR
Rising number of Chinese tourists: Chinese tourists to the Philippines totalled

968,000 in 2017, representing a 43% y-o-y increase. Chinese tourists are now the
second-largest group of foreign nationals (after South Koreans) visiting the Philippines.
Chinese tourists accounted for 15% of all visitor arrivals in 2017, from just 7% in 2011.
Fig. 63: Chinese tourist arrivals to the Philippines

Total tourist arrivals (LHS) % tourists from China (RHS)
7 20%
18%
6
16%
5 14%
12%
4
10%
3
8%
2 6%
4%
1
2%
0 0%
2011 2012 2013 2014 2015 2016 2017
Source: DOT, Nomura research
74
Thailand
The BRI will be most felt in infrastructure development: Most of the impact from the
BRI is likely to come from the high-speed train project connecting Kunming (China),
Vientiane (Laos) and Bangkok (Thailand). However, progress on this project so far has
been limited.
The effect of direct cement demand is unlikely to be huge, in our view, but over time
indirect demand may receive a boost, mainly due to residential and commercial
developments.
Retail: Thai retailers should all benefit from the BRI projects in terms of: 1) SSSG, given
the positive correlation between infrastructure spending and higher domestic demand; 2)
more store expansion opportunities along infrastructure lines; and 3) potentially higher
tourist arrivals. We see the home improvement chains, Homepro (Neutral) and Siam
Global (NR) as the best way to gain exposure to the BRI theme, as residential and
commercial developments should result in higher demand for home improvement and
construction materials. We would expect Homepro and Global to benefit most relative to
other retailers.
Tourism: We expect a positive impact on tourist arrivals and domestic tourism activity,
particularly for second- and third-tier up-country provinces that will have high-speed rail
connections. Until now, many provinces outside Bangkok and the main tourism hubs still
have poor infrastructure, limiting tourism. A recent illustration of this was the
government’s attempt to encourage domestic tourism to 55 ‘unpopular’ provinces by
announcing tax breaks. After three months, the stimulus has met with sluggish demand,
due mainly to the lack of infrastructure making travel difficult.
The high-speed train lines should also be positive for land arrivals from China, Thailand’s
largest tourist group, accounting for almost one-third of total arrivals (Figure 64). We see
the most potential for growth in land arrivals, while there could be a mildly negative
impact on airport passenger traffic (impacting AOT and the airlines) capping traffic
growth opportunities. However, this will depend largely on final ticket pricing. As it is,
bilateral government negotiations between involved countries remain a long drawn-out
process with no firm finish date and with funding issues yet to be decided.
Fig. 64: Thailand: tourist arrival growth from China, y-o-y
100%
80%
60%
Impact of zero-dollar crackdown
40%
20%
0%
-20%
-40%
Nov-16
Dec-16
Nov-17
Dec-17
Apr-17
Apr-16
Oct-16
Oct-17
Jul-16
Jul-17
Jan-16
Jun-16
Jan-17
Jun-17
Jan-18
Aug-16
Sep-16
Aug-17
Sep-17
Feb-16
Mar-16
Feb-17
Mar-17
Feb-18
May-16
May-17
Source: Ministry of Tourism and Sports, Nomura research
Overall, for tourism we see the most potential for low-income growth, which could be
positive for Erawan (ERW TB, NR), given its exposure to two- and three-star hotel
chains. For MINT and CENTEL, we see less direct impact, as these two operators focus
on the upper four- and five-star hotel segment.
75
Fig. 65: Chinese tourist arrivals to Thailand

Visitor Arrivals by Visitor Arrivals: Excl Overseas Growth Rate (y-y) % of Total Chinese
Nationality: China Thai: From China by land Arrivals
1998 604,472 1,808 0.3%
1999 813,596 2,535 40% 0.3%
2000 753,781 2,505 -1% 0.3%
2001 801,362 3,362 34% 0.4%
2002 797,976 5,318 58% 0.7%
2003 606,635 6,537 23% 1.1%
2004 729,848 6,281 -4% 0.9%
2005 776,792 8,890 42% 1.1%
2006 949,117 13,652 54% 1.4%
2007 907,117 19,168 40% 2.1%
2008 826,660 25,702 34% 3.1%
2009 777,508 26,032 1% 3.3%
2010 1,122,219 31,168 20% 2.8%
2011 1,721,247 31,737 2% 1.8%
2012 2,786,860 32,305 2% 1.2%
2013 4,637,335 45,302 40% 1.0%
2014 4,636,298 74,355 64% 1.6%
2015 7,936,795 58,265 -22% 0.7%
2016 8,757,646 75,268 29% 0.9%
Source: Department of Tourism, Nomura research
Hospitals: Enhancing private hospital expansion in the EEC and Laos

Infrastructure development and its positive effect on FDI prospects could result in
increassafe saided patient traffic in the eastern province of Chonburi and Rayong and
support expansion opportunities for Thai hospital operators in second-tier eastern
provinces, such as Prachinburi and Chachoengsao, where private healthcare penetration
remains low. Job creation should support a rise in the middle-income population in the
promoted areas, resulting in increasing purchasing power and demand for private
healthcare. Employment driven by increased FDI should mean resilient growth in social
security patients, which is rising at around 3% p.a.
Chularat Hospital (CHG TB) is the hospital chain with the highest concentration of
business in the east, with its major operations in Samut Prakarn, where Suvarnabhumi
Airport is located, in the border area between Bangkok and the eastern region. CHG has
operations in top-tier eastern provinces, i.e., Rayong and Chonburi, and plans to open
hospitals in Prachinburi and Chachoengsao from 2018 onwards.
Expanding infrastructure in the Eastern Economic Corridor (EEC) also supports the
expansion plan of Bangkok Chain Hospital (BCH TB), which intends to open hospitals in
Prachinburi and Sa Kaeo in 2020. Lastly, the Thai-Chinese high-speed train project,
which will ultimately extend beyond Thailand into Laos, should strengthen opportunities
for BCH’s hospital expansion in Vientiane in 2020.
Kra Canal: The Kra Canal is one of the most costly and ambitious projects being
explored under the BRI, costing at least USD28bn, according to expert consultants.
Essentially, the creation of a canal through Thailand (creating a direct link between the
Pacific and Indian Oceans) would cut sailing distances by as much as 1,200km (or three
to four days) off the existing route through the Strait of Malacca, the busiest shipping
lane in the world. Without taking into consideration the multibillion-dollar cost, Thailand is
seen as the biggest would-be beneficiary of the project (particularly on collection of canal
toll fees), while it could also catapult economic activity along the canal zone. Such a
move would have a negative impact on the ports located along the Strait of Malacca,
particularly in Malaysia and Singapore, which serve as major trans-shipment points for
container movements worldwide. However, we understand the substantial costs involved
outweigh the possible benefits, and would have negative environmental implications for
Thailand, which could put its tourism industry at risk.
76
Korea
Construction machinery likely to benefit
The BRI is a long-term, mega vision, with completion not expected by the Chinese
government until in 2049. Its focus is centred on development of railways, ports,
highways and airports, which should boost demand for infrastructure investment. Details
of the project were outlined in 2015, and we expect the actual impact to be visible from
H1 2018, while infrastructure investment spending has already shown a rapid surge
since Q2 2017.
Accordingly, we believe that Korean construction equipment companies – Hyundai
Construction Equipment (267270.KS, Buy), Doosan Infracore (042670.KS, Buy) – could
benefit from any increase in infrastructure investment spending related to BRI projects,
which could boost excavator sales.
According to Korean construction equipment companies, their revenue exposure to BRI
projects is estimated at less than 5% of total revenue, but we believe there is potential to
increase revenue in both China and Emerging Asia related to BRI projects, along with
rising infrastructure investment spending.
77
Fig. 66: Stocks affected by the BRI

Country Name Ticker Rating Impact of Short Summary
BRI
Indonesia Wijaya Karya WIKA IJ Buy Positive HSR, plan to develop a train and improve logistics between Jakarta and Bandung should lead to additional orders for SOE contractors
especially Wijaya Karya
PT Pembangunan PTPP IJ Buy Positive Potentially additional orders for SOE contractors (like PTPP) on port projects
Perumahan
Astra International ASII IJ Reduce Negative Negative impact on existing players as Chinese companies are trying to establish a presence and offer innovative and improved features along
with attractive pricing
Indomobil IMAS IJ Reduce Negative Negative impact on existing players as Chinese companies are trying to establish a presence and offer innovative and improved features along
with attractive pricing
Bumi Serpong Damai BSDE IJ Buy Mixed Improvement in asset turnover/monetization due to improved Chinese developers land plot purchases. However, competition from Chinese
developers may result in loss of market share due to lower/competitive pricing
Summarecon Serpong SMRA IJ Buy Mixed Improvement in asset turnover/monetization due to improved Chinese developers land plot purchases. However, competition from Chinese
developers may result in loss of market share due to lower/competitive pricing
Matahari Dept Store LPPF IJ Neutral Negative Convenience, competitive pricing and ease of shopping online potentially affecting growth and appeal of the format
Semen Indonesia SMGR IJ Buy Negative Negative impact on existing players as Chinese companies are likely to trigger oversupply and price war in the market in an attempt to steal
market share
Indocement Tunggal INTP IJ Neutral Negative Negative impact on existing players, as Chinese companies are likely to trigger oversupply and price war in the market in an attempt to steal
Prakarsa market share.
Ramayana Lestari Sentosa RALS IJ Neutral Negative Convenience, competitive pricing and ease of shopping online potentially affecting growth and appeal of the format
Malaysia IJM IJM MK Neutral Positive Malaysia-China Kuantan Industrial Park (MCKIP); IJM has ~20% stake in the project. Also benefitting from their stake in Kuantan port due to
incoming Chinese investments like steel, oil refinery and tires.
Econpile ECON MK NR Positive China Communications Construction Company (CCCC) and Econpile JV won a subcontract job in SUKE highway
George Kent GKEN MK NR Positive In JV with China Communication Construction Co (CCCC) won MRT2 package SY204
KNM Group KNMG MK NR Positive Oil refinery construction contract for RAPID project; KNM Group's subsidiary will be the sub-contractor
Gamuda GAM MK Neutral Incrementally Still awaiting subcontracting works from the China-driven projects. Impact likely to be incrementally positive, although down from initial
Positive expectations due to Chinese competition and pricing hurdles.
Gabungan AQRS AQRS MK NR Positive Potential beneficiary of East Coast Rail Link project due to Pahang presence
HSS Engineers HSS MK NR Positive Awarded consulting contract from Kuala Lumpur High Speed Rail, ECRL.
CIMB CIMB MK Buy Positive Benefits from Strategic Partnership with China Galaxy Securities in the equities business; potential for bond underwriting from Infra and real
estate projects
Maybank MAY MK Buy Positive Bond underwriting from Infra and real estate projects
UEM Sunrise UEMS MK Neutral Negative Overhang from Iskandar exposure
Malaysia Airports MAHB MK Buy Positive Development of DFTZ aeropolis logistics hub with Alibaba, tourist flows
GD Express GDX MK Neutral Positive Benefit from more E-commerce
Pos Malaysia POSM MK Reduce Positive Benefit from more E-commerce
Genting Malaysia Bhd GENM MK Buy Positive Likely beneficiary from higher visitor numbers from China which comes as capacity expansion is ramping up and approaching its tail end
DRB-Hicom DRB MK NR Positive Benefit from acquisition of Proton by Geely
Source: Nomura research.
78
Fig. 67: List of companies affected by the BRI (contd.)

Country Name Ticker Rating Impact of Short Summary
BRI
Philippines Ayala Land ALI PM Buy Positive Primary beneficiary of improved infrastructure would be property sector. Successful infrastructure rollout would improve connectivity and increase
urbanization and enhance land values
DMC DMC PM Neutral Positive Increased construction activity to benefit conglomerates with exposure to construction sector
Megawide MWIDE PM Neutral Positive Increased construction activity to benefit conglomerates with exposure to construction sector
Construction Corp.
Cemex Holdings CHP PM Buy Positive Increase in construction activity would benefit building material companies
Philippines
BDO BDO PM NR Positive Philippines banks with international desks servicing China could get increasing transaction flows from China
MBT MBT PM Buy Positive MBT has setup lines with 2 Chinese banks/agencies to provide funding in case big flows for Chinese related projects start coming in. MBT
investment banking subsidiary First Metro Investment Corp..(FMIC) signed a contract with China national Heavy Machinery Corp., which is cited to
be keen on participating in development of Philippines infrastructure sector
Cebu Pacific CEB PM Buy Positive Increase in Chinese visitors would lead to additional revenues
Globe Telecom GLO PM Neutral Negative Potential introduction of a third telco could continue to be an overhang for Phil telco sector. Even with a duopoly, Philippines is fairly competitive and
data prices have been under pressure. Hence introduction of a new telco would raise prospects of further price moderation in the market which
PLDT TEL PM Neutral Negative
impacts earnings
Melco Resorts And MRP PM NR Positive Increase in Chinese visitors would lead to additional revenues
Entertainment
Philippines Corp
Travellers RWM PM NR Positive
International Hotel
Group Inc
Bloomberry Resorts BLOOM PM NR Positive
Corp
Macro Asia Corp MAC PM NR Positive
Thailand Home Product Center HMPRO TB Neutral Positive Homepro is likely to benefit more than other retailers, as the residential and commercial developments should result in higher demand for home
PCL improvement and construction materials
Central Pattana CPN TB Neutral Positive Infrastructure development should benefit shopping mall traffic and enhance opportunity for expansion
Chularat Hospital CHG TB Buy Positive Hospital locations, including future projects, are concentrated in the eastern region, which should benefit from EEC
Carabao Group CBG TB Neutral Slightly Could benefit from increased domestic energy drink consumption during infrastructure building phase and 2) more exports across ASEAN and
positive China.
Bangkok Chain BCHTB Buy Positive Expanding infrastructure in EEC would help in expansion of hospitals in Pranchinburi and Sa Kaeo as well as Laos
Hospital
Erawan ERW TB NR Positive Potential for low growth income due to increase in tourism.
Siam Cement SCC TB Buy Positive Slightly positive impact due to possible increase in indirect demand
AOT AOT TB Buy Negative High speed train connection could mildly have a negative impact on airport passenger growth
Singapore Genting Singapore GENS SP Buy Positive Likely beneficiary of higher visitor numbers from China especially given focus on growing premium mass and VIP market shares.
Korea Hyundai Construction 267270.KS Buy Positive Beneficiary from increase of infrastructure investment spending (related to BRI) which could boost Hyundai Construction Equipment's excavator
Equipment sales
Doosan Infracore 042670.KS Buy Positive Beneficiary from increase of infrastructure investment spending (related to BRI) which could boost Doosan Infracore's excavator sales
79
FX: BRI to support RMB internationalisation

Consistent with the view of our China economics team, we believe the BRI will be Asia FX Strategy
positive for China’s push towards RMB internationalisation (yuan financing for projects) Craig Chan - NSL
and allow China to offload some of its excess manufacturing capacity (see Globalisation, craig.chan@nomura.com
China style). Thus, the BRI should support China’s medium-term growth sustainability +65 6433 6106
prospects and bolster our view of longer-term RMB appreciation. Overall, we believe Wee Choon Teo - NSL
that, beyond recent signs of a stabilisation of China capital flows, the long-term weechoon.teo@nomura.com
internationalisation/demand for RMB is picking up again. In our view, this implies that, +65 6433 6107
even though Nomura’s FX valuation analysis shows RMB is mildly overvalued (~6.7%
82
according to our four FX valuation models ; (Figure 68), stable growth and a pickup in
structural demand for RMB could lead to an even deeper FX overvaluation. That said,
we are cognisant of the risks to this view that range from trade protectionism to China’s
ongoing financial deleveraging efforts.
Fig. 68: Historical RMB valuation based on our models Fig. 69: China private sector diversification into foreign
assets
FEER PPP
China private foreign assets (% GDP)
Prod.adj. REER REER 10y deviation 32%
40% 30.8%
30.0%
30% 30%
20%
28%
10%
0% 26%
-10% 23.8%
24%
-20%
22%
-30%
-40% 20%
01/08 05/09 09/10 01/12 05/13 09/14 01/16 05/17 2015 Q1 2015 Q3 2016 Q1 2016 Q3 2017 Q1 2017 Q3
Source: BIS, Bloomberg, CEIC, Nomura. Source: CEIC, Nomura.
The balance between structural outflows and inflows

In our Asia Special Report - The path to RMB internationalisation, 26 November 2015,
our view on RMB was negative, as we forecasted USD/CNY at 6.75 by the end of 2016
(USD/CNY was 6.389 on 26 November 2015 and 6.946 at end-2016). We highlighted
that, beyond the ongoing deleveraging of foreign currency liabilities and FX hedging,
structural outflows led by the domestic private sector diversification into foreign assets
were a medium-term risk. Private sector outflows rose rapidly, with foreign assets held
by locals rising from USD2.58trn in Q2 2015 (the quarter before the 11 August 2015
devaluation) to USD3.53trn or 30.8% of GDP in Q2 2017 (~USD1trn of outflows).
Although local outflows continued in H2 2017, the pace has slowed, with private sector
foreign assets comprising 30.0% of GDP in Q4 (reaching USD3.69tn; Figure 69). This is
consistent with our monitoring of major sources of capital outflows including BoP Errors
and Omissions (E&O), net FDI, and the tourism balance of the services account. The
deterioration of both the E&O and tourism balance were limited in 2017 versus 2016
(E&O: -USD221.9bn in 2017 from -USD229.5bn in 2016; tourism balance: -USD222.9bn
in 12M to February 2018 from -USD219.1bn in 12M to February 2017), while the
improvement in net FDI has been significant, with a surplus of USD66.3bn in 2017 (from
a deficit of USD41.7bn in 2016), partly due to the tightening of regulations on outward
direct investment (Figures 70 and 71).
82
FEER looks at the flows of external imbalances and finds the required shift in the real effective exchange rate to
achieve equilibrium; PPP stands for purchasing power parity; Productivity adjusted REER is based on productivity
differential against trade partners; * Used net trade settlement for CNY FEER; All measures (except FEER) are
deviation from 10y average. BIS REER is the basis for all currencies except INR which uses RBI 36-country
REER. EU measures are weighted average of France, Germany, Italy, Spain and the Netherlands.
80
Fig. 70: E&O and tourism deficits stabilising Fig. 71: Improvement in net FDI has been significant in 2017
Services Balance - tourism (USD bn) Direct Investment (Inward, USD bn)
50.0 150 Direct Investment (Outward, USD bn)
Net Error and Omission (USD bn)
Net Direct Investment (USD bn)
0.0 100
-50.0 50
Tourism Balance
-100.0 12M to Feb-2017: -USD219bn 0
112M to Feb-2018: -USD223bn
EnO 2017
2016: -USD230bn Net: -USD66.3bn
-150.0 -50 Inward: USD168bn (-3.7% y-oy)
2017: -USD222bn
Outward: USD102bn (-52.9% y-o-y)
Q4 2017: +USD43.5bn
-200.0 -100
Mar-03 Sep-05 Mar-08 Sep-10 Mar-13 Sep-15 Mar-03 May-05 Jul-07 Sep-09 Nov-11 Jan-14 Mar-16
Source: CEIC, Nomura. Source: CEIC, Nomura.
Overall, while we expect consistent local demand for foreign assets, the pace is likely to
remain contained if China is able to sustain a stable growth environment and avoid
significant local market volatility amid its financial deleveraging efforts. This is a
challenging task, but one that China has managed to achieve so far, as reflected by the
improvement in net capital flows, with FX reserves between August 2017 (when we first
noted an improvement in flows; see First Insights - China FX reserves in August, 7
September 2017) to March 2018 after adjusting for valuation and coupon effects nearly
flat (average decline of USD3.9bn per month). In the preceding twelve months to July
2017, FX reserves experienced an average monthly decline of USD19bn (USD228bn in
total; Figure 72).
Indeed, the ability of the government to sustain relatively stable growth is leading (in our
view) to renewed foreign interest in owning RMB-denominated assets, supporting the
government’s internationalisation drive. This is reflected by the rise in foreign purchases
of bonds and equities, signs of a bottoming of CNH deposits and an increase in RMB
trade settlements.
Fig. 72: More balanced net flow dynamics recently Fig. 73: Foreign equity/bond inflows rising quite rapidly
FX Reserves change adj. for FX and coupon (USD bn) Equity (market value) Bond (par value)
100
USD bn
Headline FX Reserves change (USD bn)
200 12M to Dec-17 total:
50 Equity: +USD84bn; Bond: +USD59bn
180 6M to Dec-17 total:
Equity: +USD51bn; Bond: +USD51bn
160
0
FEH % of mkt cap (Dec-17): 2.1%
140 FBH % of outstanding (Dec-17): 1.6%
-50 120
100
-100
80
60
-150
Jun-15 Nov-15 Apr-16 Sep-16 Feb-17 Jul-17 Dec-17
Jun-13 Mar-14 Dec-14 Sep-15 Jun-16 Mar-17 Dec-17
Source: CEIC, Nomura. Source: PBoC, CEIC, Nomura.
Foreign ownership of China equities and bonds accelerating…

Based on PBoC data, foreign investors net purchased USD58.5bn in RMB bonds in
2017, which resulted in a 47.5% increase in foreign bond holdings (in USD terms) from
end-2016. Of this, IMF COFER data show that reserve managers bought USD32.0bn
in 2017 (just over half of total foreign purchases), so most of the remaining USD26.5bn
was likely bought by foreign asset managers. Aside from low foreign ownership levels
(end-2017 holdings at USD182bn or 1.6% of bonds outstanding), we believe there are
other supports for strong bond inflows ahead including central banks/sovereign wealth
81
funds (CB/SWF) diversification and the inclusion of China in large global bond indices
(Figure 73).
83
The Bank of France and Germany’s Bundesbank recently highlighted their diversification
into RMB, and we believe this is only the start of a medium- to long-term trend among
84
global central banks. A survey by Central Banking Publications (April 2015) noted that
RMB’s share of FX reserves would likely rise to 10% over a 10-year period which, at this
point, would equal roughly USD832bn (10% of non-China global FX reserves; RMB
holdings at USD122.8bn in Q4 17; Figure 74).
The announcement that RMB-denominated government and policy bank securities would
be included in the Bloomberg Barclays Global Aggregate (BBGA) Index from April 2019
should lead to passive fund inflows from real money investors of around USD110bn (20-
month period; 5.49% weighting; see Asia Insights - China bonds: Index inclusion another
milestone, 26 March 2018). We see potential for the inclusion of RMB-denominated
assets in the JPM EM GBI index this year, which implies another USD22.5bn of passive
inflows (likely 10% weighting; estimated tracking AUM at USD225bn), while scope for
China’s inclusion in the Citibank World government Bond index has also risen (estimated
USD2trn of AUM tracking this index with a likely 5% China weighting).
Foreign equity inflows have also been strong, with net inflows of USD84.2bn in 2017,
although ownership remains low at around 2.1% of total market capitalisation (or
USD178bn) and a broadening of index inclusions beyond the MSCI’s initial partial A-
share inclusion (estimated inflows of USD16.8bn; see First Insights - Flow impact of
MSCI A-shares inclusion, 21 June 2017) would imply additional equity inflows over the
medium term.
Fig. 74: COFER data showing increasing allocation to RMB Fig. 75: China net crude imports from Russia and Angola
% of total FXR % net crude
USD bn Q4 2016 Q3 2017 Q4 2017 Q4 2017 import China net crude petroleum imports: Russia
12M rolling China net crude petroleum imports: Angola
Total FX Reserves 10,715 11,296 11,425 100%
Allocated Res 8,421 9,646 10,019 88% 30%
In USD 5,502 6,125 6,282 55%
25%
In EUR 1,611 1,934 2,019 18%
In JPY 333 436 490 4% 20%
In RMB 91 108 123 1%
15%
Others 885 1,043 1,106 10%
Unallocated Res 2,294 1,650 1,406 12% 10%
Source: IMF, Nomura.
5%
0%
12/08 02/10 04/11 06/12 08/13 10/14 12/15 02/17
Source: CEIC, Nomura.
… while demand and usage of RMB is on the rise again

Other signs of broadening demand for RMB/internationalisation are reflected in the
stabilisation of CNH deposits as well as the increase in RMB trade settlement. CNH
85
deposits (in Hong Kong, Taiwan and S. Korea ) fell sharply after the August 2015 FX
regime shift and hit bottom in March 2017 (a 41.9% or RMB572bn decline since July
2015). From March 2017 to February 2018, China’s relatively stable growth and local
financial markets have led CNH deposits to stabilise and rise marginally by 6.8% (or
RMB54bn) to RMB847bn.
86
RMB trade settlements have also been rising again after hitting a low of 12.5% of
China’s total trade in December 2016 to 15.3% in February 2018 (high of 32.2% in
83
Bundesbank looking to place some reserves into Chinese yuan, Reuters, 15 January 2018; Bank of France
currency reserves partly held in Chinese yuan , Reuters, 15 January 2018).
84
Central Banking Publications' Reserve Management Trends 2015 (April 2015): 51 reserve managers
responsible for $2.7 trillion in assets believe the renminbi will account for at least 10% of global reserves in 10
years' time.
85
Readily available data in Asia
86
3-month moving average
82
September 2015). We expect this to rise further, with numerous Chinese corporates
highlighting that they plan to increase their trade transactions in RMB instead of
dollars87. In addition, China is also pushing for RMB oil trade settlement (possibly with
Russia and Angola initially88), which could further increase RMB internationalisation, but
also provide additional support to China’s capital flow dynamics. China’s net crude oil
imports totalled USD168.0bn over the 12 months to February 2018, of which USD45.5bn
was from both Angola and Russia (55% from Russia; Figure 75), while China
experienced a net trade surplus of USD449.9bn over that same period.
Risks to our positive RMB view

The risks to our positive view on RMB revolve around local growth risks, particularly from
a severe intensification of trade protectionism or if China’s deleveraging drive from the
government leads to financial market volatility and an acceleration of local capital
outflows. In such a scenario, authorities would likely enact measures to reverse the
sources of instability and also tighten up measures to limit capital outflows. But this
would likely only be a temporary setback to our positive RMB view, as we believe a
stronger RMB is likely to be an eventual result of the government’s long-term goals of
internationalisation and becoming a larger global player. Another risk stems from the
likely gradual liberalisation of the capital account to allow for outflows – such as the
Qualified Domestic Limited Partnership (see First Insights - China: Gradually easing its
outflow restrictions, 8 Feb 2018). Other measures that allow for greater outward direct
investments, such as an increase in the Qualified Domestic Institutional Investor quota
etc. could also emerge, but we believe that these are only likely in an environment of
appreciating/stable RMB (Figure 76).
87
China’s Exporters are trading their way to a more global yuan, Bloomberg, 9 November 2017.
88
Exclusive: China taking first steps to pay for oil in yuan this year, Reuters, 29 March 2018.
83
Fig. 76: Capital account restrictions and recent liberalisation

Date Measures
23-Sep-16 SAFE said that the USD90bn QDII quota was exhausted in March 2015 and would not approve new requests.
News reported that (WSJ) that SAFE would put in place "strict controls" over any foreign acquisition valued at $10 billion or more; on
28-Nov-16 State-owned companies intending to build or invest in properties overseas in a deal valued at $1 billion or more; and on Chinese
companies seeking to invest $1 billion or more in overseas entities that are not related to their core businesses.
31-Dec-16 SAFE stepped up its monitoring of how Chinese use their annual quota for changing RMB into foreign currencies.
6-Jan-17 SAFE it will intensify its crackdown on foreign exchange irregularities in 2017, including underground banking.
News reported (Bloomberg) that SAFE sought to understand how bitcoin investment can be used to transfer assets overseas by
6-Jan-17
circumventing China’s forex control.
16-Jan-17 News reported (Bloomberg) that PBOC plans to urge banks to issue more overseas dollar-dominated bonds.
According to news report (Finance Magnates), banks in Shanghai must import RMB100 for every RMB100 they allow a client to remit
23-Jan-17 overseas, ensuring no net outflows of the Chinese currency. They were previously allowed to remit RMB160 overseas for every RMB100
they brought back into China.
Mid-2017 Increased scrutiny on several large Chinese corporates who were aggressively involved in "irrational outbound investments."
National Development and Reform Commission cautioned against "irrational outbound investments" in real estate, hotels, cinemas,
19-Jul-17
sports clubs and entertainment sectors".
The state council set three categories - banned, restricted and encouraged - outlawing investments in gambling and sex industries, while
18-Aug-17
backing companies to support the nation’s ambitious "Belt and Road" initiative.
Media reports (source: Bloomberg) have indicated that the NDRC is drafting rules for Chinese companies to report investments
3-Nov-17
exceeding USD300mn through their offshore units.
National Development and Reform Commission announced rules requiring Chinese companies to report investments exceeding
26-Dec-17
USD300mn through their offshore units
SAFE also announced that it will limit overseas cash withdrawals to individuals using Chinese bank cards to RMB100k per calendar
30-Dec-17
year, with a daily cap of RMB10k
Date Easing measures / Internationalisation
Chinese policymakers began to signal concerns over RMB appreciation for exporters and removed reserve requirements on onshore FX
8-Sep-17
forward purchases and CNH deposits (8 September)
Reuters report indicated that China would resume its Qualified Domestic Limited Partnership scheme for foreign investments, granting
8-Feb-18
licenses to “about a dozen” money managers, each with a quota of up to USD50mn
The People’s Bank of China appointed JPMorgan Chase Bank N.A. as a yuan clearing bank in the U.S., the first non-Chinese lender for
13-Feb-18
such a role globally and a further step to promote international use of the currency.
The State Administration of Foreign Exchange is looking into “reform” of the nation’s Qualified Domestic Institutional Investor system,
11-Apr-18
which sets a limit on how much money asset managers can invest offshore.
Source: Bloomberg, Nomura.
84
Appendix 1: BRI timeline – September 2013

to March 2015
September 2013: The Silk Road Economic Belt concept is introduced by Chinese Asia Economics
President Xi Jinping during his visit to Kazakhstan. In a speech delivered at Nazarbayev
Lisheng Wang - NIHK
University, he suggests that China and Central Asia cooperate to build a Silk Road lisheng.wang@nomura.com
Economic Belt. This is the first time the Chinese leadership mentions the strategic vision. +852 2252 2057
October 2013: President Xi proposes building a close-knit China-ASEAN community

and offers guidance on constructing a 21st Century Maritime Silk Road to promote
maritime cooperation. In his speech at the Indonesian parliament, he also proposes
establishing an Asian Infrastructure Investment Bank (AIIB) to finance infrastructure
construction and promote regional interconnectivity and economic integration.
November 2013: The Third Plenary Session of the 18th Central Committee of the
Communist Party of China calls for accelerating infrastructure links among neighbouring
countries and facilitating the BRI.
December 2013: At the Central Economic Work Conference, Xi urges strategic planning
of the BRI.
February 2014: Xi and his Russian counterpart, Vladimir Putin, reach a consensus on
construction of the Belt and Road, and its connection with Russia’s Euro-Asia Railways.
March 2014: Premier Li Keqiang calls for faster Belt & Road construction in the
government work report. It also calls for balanced development of the Bangladesh-
China-India-Myanmar Economic Corridor and the China-Pakistan Economic Corridor.
May 2014: The first phase of a logistics terminal jointly built by China and Kazakhstan
goes into operation in the port of Lianyungang in China’s Jiangsu Province. The terminal,
with a total investment of RMB606m (USD98m), is considered a platform for goods from
Central Asian countries to reach overseas markets.
October 2014: An MOU to establish the AIIB is signed by 21 Asian founding members.
As agreed, Beijing will house the AIIB’s headquarters. The AIIB is expected to be
formally established by the end of 2015.
November 2014: Xi announces a USD40bn contribution in setting up the Silk Road
Fund. During APEC meetings in Beijing, he says the fund will be used to provide
investment and financing support for infrastructure, resources, industrial cooperation,
financial cooperation and other projects in countries along the Belt and Road.
December 2014: The Central Economic Work Conference sketches out priorities for the
year ahead, which include implementation of the BRI. Earlier in the month, Thailand
approves a draft MOU with China on railway cooperation.
January 2015: The 21 founding AIIB members, many of which are important countries
along the Silk Road routes, are joined by New Zealand, the Maldives, Saudi Arabia and
Tajikistan.
1 February 2015: At a special meeting attended by senior leader Zhang Gaoli, China
outlines its priorities for the BRI, highlighting transportation infrastructure, easier
investment and trade, financial cooperation and cultural exchange.
5 March 2015: Premier Li, in his government work report, again highlights the initiative,
saying China will move faster to strengthen infrastructure with its neighbours, simplify
customs clearance procedures and build international logistics gateways.
8 March 2015: Foreign Minister Wang Yi dismisses comparisons of the BRI to the post-
war Marshall Plan. The initiative is "the product of inclusive cooperation, not a tool of
geopolitics, and must not be viewed with an outdated Cold War mentality”, he says,
adding that diplomatic efforts in 2015 will focus on making progress on the BRI.
28 March 2015: The National Development and Reform Commission, Ministry of Foreign
Affairs and Ministry of Commerce jointly release an action plan on the principles,
framework, cooperation priorities and mechanisms of the BRI after President Xi
highlights the strategy on the same day in his address to the opening ceremony of the
Boao Forum for Asia in Hainan.
This timeline is sourced from the Xinhua news network.
85
Appendix 2: Macro statistics for the BRI

participant countries (end-2016)
According to the official list issued as of end-2016, there were 65 BRI countries (details
below). The official BRI website (eng.yidaiyilu.gov.cn) states that six countries have been
further added to the list so far: Panama (LatAm), Ethiopia (Africa), Madagascar (Africa),
New Zealand (Oceania), Republic of Korea (Asia) and South Africa (Africa), despite not
being geographically along the Belt and Road routes. More than 80 countries and
international organisations are now a part of the BRI and the list keeps growing.
Fig. 77: Summary of macro statistics of BRI countries

GDP per Trade Trade
China 11199.1 1378.7 8.1 1950.4 2200.0 249.6 37.1
East Asia Mongolia 11.7 3.0 3.9 3.9 4.5 0.6 71.8
Sum in the
11210.8 1381.7 8.1 1954.2 2204.5 250.2 37.1
Region
Indonesia 937.0 258.8 3.6 142.7 150.3 7.6 31.3
Thailand 409.7 69.0 5.9 195.7 213.6 17.9 99.9
Philippines 310.3 104.2 3.0 85.9 56.3 -29.6 45.8
Malaysia 309.3 31.5 9.8 168.5 189.6 21.0 115.8
Singapore 294.6 5.6 52.8 296.9 346.8 49.9 218.5
Vienam 201.4 92.6 2.2 191.0 186.5 -4.4 187.5
Southeast
Asia Myanmar 74.0 52.3 1.4 21.9 13.1 -8.8 47.3
Cambodia 19.5 15.8 1.2 14.2 13.5 -0.6 142.2
Brunei
9.1 0.4 21.5 3.2 6.3 3.1 105.3
Darussalam
Lao PDR 13.4 7.2 1.9 6.0 3.4 -2.6 71.0
Timor-Leste 2.1 11.9 0.2 0.6 0.3 -0.3 45.2
Sum in the
2580.2 649.2 4.0 1126.7 1179.9 53.1 89.4
Region
India 2288.7 1309.7 1.7 356.7 261.0 -95.7 27.0
Pakistan 270.0 189.9 1.4 44.0 22.1 -21.9 24.5
Bangladesh 226.3 161.5 1.4 39.2 35.5 -3.8 33.0
Sri Lanka 84.8 21.3 4.0 19.0 10.4 -8.5 34.7
South Asia Nepal 21.9 28.8 0.8 6.6 0.7 -6.0 33.2
Afghanistan 17.3 32.7 0.5 4.5 0.8 -3.7 30.8
Maldives 3.3 0.4 9.3 1.9 0.1 -1.8 62.5
Bhutan 2.5 0.8 3.1 0.5 0.2 -0.3 29.8
Sum in the
2914.7 1745.0 1.7 472.4 330.8 -141.6 27.6
Region
Kazakhstan 116.2 17.9 6.5 19.4 41.9 22.4 52.8
Uzbekistan 61.7 31.3 2.0 9.9 5.7 -4.3 25.3
Turkmenistan 35.4 5.5 6.5 5.5 9.3 3.8 41.7
Middle Asia Kyrgyz
6.0 6.1 1.0 3.9 1.5 -2.4 90.5
Republic
Tajikistan 6.3 8.7 0.7 3.5 0.8 -2.7 67.8
Sum in the
225.5 69.5 3.2 42.3 59.1 16.8 44.9
Region
Saudi Arabia 618.3 32.0 19.3 163.8 201.5 37.7 59.1
West Asia and Turkey 751.2 78.6 9.6 198.6 142.6 -56.0 45.4
North Africa Iran 386.1 80.5 4.8 43.9 38.3 -5.5 21.3
Egypt 330.8 90.2 3.7 65.9 21.2 -44.8 26.3
Source: Official BRI website (eng.yidaiyilu.gov.cn), World Bank, State Information Centre and Nomura Global Economics.
86
Fig. 78: Summary of macro statistics of BRI countries (continued)

GDP per Trade Trade
United Arab
325.1 9.9 33.0 222.2 153.4 -68.8 115.5
Emirates
Israel 306.2 8.5 35.9 62.1 64.1 2.0 41.2
Syria 185.0 3.4 54.1 4.5 0.5 -4.0 2.6
Qatar 170.9 2.6 66.3 32.6 78.0 45.4 64.7
Iraq 148.4 36.1 4.1 31.5 53.1 21.6 57.0
Kuwait 106.2 4.2 25.1 31.9 55.2 23.3 82.0
Lebanon 52.8 4.6 11.5 16.2 2.1 -14.0 34.7
West Asia and Oman 51.7 4.0 13.1 29.0 31.9 2.9 117.9
North Africa
(Continued) Palestine 47.1 27.0 1.7 0.8 0.1 -0.6 1.8
Jordan 39.8 7.0 5.7 20.0 7.9 -12.2 70.1
Yemen 37.3 29.1 1.3 6.3 2.0 -4.3 22.0
Azerbaijan 35.1 9.5 3.7 10.1 16.1 6.0 74.4
Bahrain 30.1 1.3 22.8 16.3 13.7 -2.7 99.8
Georgia 13.9 3.7 3.8 8.8 1.8 -7.0 76.0
Armenia 10.8 3.0 3.6 3.2 1.8 -1.5 46.5
Sum in the
3646.8 435.0 8.4 967.6 885.1 -82.5 50.8
Region
Russia 1132.7 146.3 7.7 182.8 343.9 161.1 46.5
Poland 473.5 38.0 12.5 188.5 196.5 7.9 81.3
Czech
185.3 10.6 17.5 142.2 162.8 20.6 164.6
Republic
Hungary 117.7 9.8 12.0 87.8 96.1 8.3 156.2
Slovak
89.8 5.4 16.5 70.2 72.7 2.5 159.1
Republic
Romania 181.9 19.9 9.2 69.9 59.9 -10.0 71.3
Ukraine 83.6 42.5 2.0 35.1 38.4 3.3 88.0
Slovenia 43.8 2.1 21.2 28.5 31.0 2.5 135.7
Lithuania 43.0 2.9 15.0 27.2 24.9 -2.3 121.2
Belarus 45.9 9.5 4.9 27.5 23.4 -4.1 110.9
Europe Bulgaria 49.4 7.1 6.9 26.8 23.5 -3.4 101.8
Serbia 37.4 7.1 5.2 19.2 14.8 -4.4 91.1
Croatia 49.9 4.2 11.9 20.2 13.0 -7.2 66.4
Estonia 23.9 1.3 18.2 15.0 13.2 -1.8 117.9
Latvia 28.2 2.0 14.3 13.1 11.3 -1.8 86.5
Bosnia and
16.3 3.9 4.2 6.8 4.8 -2.0 70.7
Herzegovina
Macedonia 10.4 2.1 5.0 6.4 4.5 -1.9 104.5
Albania 12.3 2.9 4.3 4.3 1.9 -2.4 50.9
Moldova 6.1 3.6 1.7 4.0 2.0 -2.0 98.0
Montenegro 4.2 0.6 6.7 2.3 0.4 -1.9 62.4
Sum in the
2635.2 321.6 8.2 977.6 1138.8 161.3 80.3
Region
Sum of 65
23213.1 4591.3 5.1 5540.7 5798.1 257.4 48.8
BRI countries
Source: Official BRI website (eng.yidaiyilu.gov.cn), World Bank, State Information Centre and Nomura Global Economics.
87
Appendix 3: China’s trade balance with BRI countries

Fig. 79: China’s trade balance with BRI countries (USD bn, as of 2016)
India 47.1
Vienam 24.3
United Arab Emirates 20.4
Singapore 19.5
Pakistan 15.5
Turkey 14.0
Bangladesh 13.6
Philippines 12.7
Poland 12.6
Indonesia 11.1
Egypt 10.0
Syria 9.9
Kyrgyz Republic 5.6
Russia 5.3
Czech Republic 5.1
Israel 5.1
Myanmar 4.1
Sri Lanka 4.1
Kazakhstan 3.5
Cambodia 3.1
Jordan 2.8
Lebanon 2.1
Romania 2.0
Hungary 2.0
Slovenia 1.9
Ukraine 1.8
Tajikistan 1.7
Iran 1.6
Yemen 1.5
Lithuania 1.1
Latvia 0.9
Croatia 0.9
Nepal 0.9
Estonia 0.8
Bahrain 0.7
Georgia 0.7
Belarus 0.7
Bulgaria 0.5
Slovak Republic 0.5
Afghanistan 0.4
Uzbekistan 0.4
Albania 0.4
Brunei Darussalam 0.3
Maldives 0.3
Serbia 0.3
Timor-Leste 0.2
Montenegro 0.1
Palestine 0.1
Moldova 0.1
Macedonia 0.0
Bosnia and Herzegovina 0.0
Bhutan 0.0
Azerbaijan -0.1
Armenia -0.2
Lao PDR -0.4
Thailand -1.2
Qatar -2.5
Mongolia -2.6
Iraq -3.0
Kuwait -3.3
Saudi Arabia -4.5
Turkmenistan -5.2
Oman -9.8
Malaysia -10.9
-20 -10 0 10 20 30 40 50 USD bn
Note: Positive numbers refer to China’s trade surplus with BRI countries, while negative ones refer to China’s trade deficit with BRI countries. Source: State Information Centre of
China and Nomura Global Economics.
88
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Structural Adjustment Program, NBER, October 1991.
Hongjoo Hahm and Selim Raihan (2018), “The Belt and Road Initiative: Maximizing
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Initiative: Impact on Trade and Growth”, 19th Annual Conference on Global Economic
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John Hurley, Scott Morris and Gailyn Portelance, “Examining the Debt Implications of the
Belt and Road Initiative from a Policy Perspective.” CGD Policy Paper. Washington, DC:
Center for Global Development, 2018.
Le Hong Hiep, The Belt and Road Initiative in Vietnam: Challenges and Prospects,
ISEAS, 2018.
Long Term Plan for China-Pakistan Economic Corridor (2017-2030), Ministry of
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of Commerce (2015), Vision and Actions on Jointly Building Silk Road Economic Belt
and 21st-Century Maritime Silk Road.
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One belt, one road: An economic roadmap, Economist Intelligence Unit, March 2016.
Peter Cai, Understanding China’s Belt and Road Initiative, Lowy Institute, March 2017.
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89
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90
Appendix A-1
Analyst Certification
Each research analyst identified herein certifies that all of the views expressed in this report by such analyst accurately reflect his or her
personal views about the subject securities and issuers. In addition, each research analyst identified in this report hereby certifies that no part of
his or her compensation was, is, or will be, directly or indirectly related to the specific recommendations or views that he or she has expres sed in
this research report, nor is it tied to any specific investment banking transactions performed by Nomura Securities International, Inc., Nomura
International plc or any other Nomura Group company.
Issuer Specific Regulatory Disclosures
The terms "Nomura" and "Nomura Group" used herein refers to Nomura Holdings, Inc. and its affiliates and subsidiaries, including Nomura
Securities International, Inc. ('NSI') and Instinet, LLC('ILLC'), U. S. registered broker dealers and members of SIPC.
Materially mentioned issuers
Issuer Ticker Price Price date Stock rating Previous rating Date of change Sector rating
Airports of Thailand PCL AOT TB 71 THB 12-Apr-2018 Buy Neutral 24-Nov-2016 N/A
Astra International ASII IJ 7525 IDR 13-Apr-2018 Reduce Neutral 12-May-2016 N/A
Ayala Land ALI PM 40 PHP 16-Apr-2018 Buy Not Rated 14-Feb-2017 N/A
BDO Unibank BDO PM 137.9 PHP 16-Apr-2018 Not Rated Reduce 31-Jan-2014 N/A
Bumi Serpong Damai BSDE IJ 1770 IDR 13-Apr-2018 Buy Not Rated 07-Oct-2014 N/A
Carabao Group CBG TB 62 THB 12-Apr-2018 Neutral Buy 23-Feb-2018 N/A
Cebu Pacific CEB PM 90.8 PHP 16-Apr-2018 Buy Neutral 23-Aug-2016 N/A
Cemex Holdings Philippines CHP PM 3.53 PHP 16-Apr-2018 Buy Neutral 15-Nov-2017 N/A
Central Pattana CPN TB 80.5 THB 12-Apr-2018 Neutral Buy 21-Jun-2017 N/A
Chularat Hospital CHG TB 1.99 THB 12-Apr-2018 Buy Reduce 02-Feb-2018 N/A
CIMB Group Holdings CIMB MK 7.21 MYR 13-Apr-2018 Buy Neutral 21-Sep-2017 N/A
DMC Holdings DMC PM 12.14 PHP 16-Apr-2018 Neutral Buy 04-Aug-2017 N/A
Doosan Infracore 042670 KS 8720 KRW 16-Apr-2018 Buy Not Rated 06-Mar-2018 N/A
Drb-hicom DRB MK 2.32 MYR 13-Apr-2018 Not Rated Not Rated 02-Aug-2006 N/A
Erawan Group ERW TB 8.25 THB 12-Apr-2018 Not Rated Not Rated N/A
Gamuda GAM MK 5.12 MYR 13-Apr-2018 Neutral Reduce 10-Mar-2017 N/A
GD Express Carrier Bhd GDX MK 0.535 MYR 13-Apr-2018 Neutral Buy 24-May-2017 N/A
Genting Malaysia Bhd GENM MK 5.08 MYR 13-Apr-2018 Buy Neutral 13-Jul-2010 N/A
Genting Singapore GENS SP 1.18 SGD 13-Apr-2018 Buy Neutral 23-Feb-2017 N/A
Globe Telecom GLO PM 1576 PHP 16-Apr-2018 Neutral Buy 23-Sep-2016 N/A
Home Product Center PCL HMPRO TB 14.4 THB 12-Apr-2018 Neutral Buy 31-Jan-2018 N/A
Hyundai Construction
Equipment 267270 KS 168000 KRW 16-Apr-2018 Buy Not Rated 06-Mar-2018 N/A
IJM Corp IJM MK 2.74 MYR 13-Apr-2018 Neutral Buy 10-Mar-2017 N/A
Indocement Tunggal
Prakarsa INTP IJ 18875 IDR 13-Apr-2018 Neutral Reduce 03-Apr-2018 N/A
Indomobil Sukses
International IMAS IJ 1400 IDR 13-Apr-2018 Reduce Not Rated 27-Oct-2014 N/A
KNM Group Berhad KNMG MK 0.22 MYR 13-Apr-2018 Not Rated Strong Buy N/A
Malayan Banking MAY MK 10.54 MYR 13-Apr-2018 Buy Reduce 28-Feb-2018 N/A
Malaysia Airports Holdings
Bhd MAHB MK 9.12 MYR 13-Apr-2018 Buy Neutral 28-Jul-2016 N/A
Matahari Department Store LPPF IJ 10700 IDR 13-Apr-2018 Neutral Buy 01-Aug-2017 N/A
Megawide Construction
Corp. MWIDE PM 22.4 PHP 16-Apr-2018 Neutral Not Rated 17-Nov-2017 N/A
Metropolitan Bank & Trust
Company MBT PM 83.55 PHP 16-Apr-2018 Buy Not Rated 11-Apr-2017 N/A
PLDT Inc. TEL PM 1440 PHP 16-Apr-2018 Neutral Reduce 08-Mar-2017 N/A
Pos Malaysia Berhad POSM MK 3.7 MYR 13-Apr-2018 Reduce Buy 24-May-2017 N/A
PT Pembangunan
Perumahan PTPP IJ 2800 IDR 13-Apr-2018 Buy Not Rated 03-Feb-2015 N/A
Ramayana Lestari Sentosa RALS IJ 1430 IDR 13-Apr-2018 Neutral Buy 31-May-2016 N/A
Semen Indonesia SMGR IJ 10125 IDR 13-Apr-2018 Buy Neutral 08-Aug-2017 N/A
91
Siam Cement PCL SCC TB 488 THB 12-Apr-2018 Buy Not Rated 29-May-2015 N/A
Summarecon Agung SMRA IJ 995 IDR 13-Apr-2018 Buy Not Rated 07-Oct-2014 N/A
UEM Sunrise Bhd UEMS MK 0.935 MYR 13-Apr-2018 Neutral Buy 27-Mar-2017 N/A
Wijaya Karya WIKA IJ 1700 IDR 13-Apr-2018 Buy Not Rated 03-Feb-2015 N/A
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92
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Global Markets Research

The Jade Belt Road Bridge – Beijing, China

Executive summary ..................................................................................................................................4

Sri Lanka: Infrastructure lifeline amid sovereignty concerns ................................................................49

Introduction: The Belt and Road

How to invest on the BRI theme

Fig. 1: Key BRI infrastructure projects

Fig. 2: China stock basket with meaningful BRI exposure

Globalisation, China style

Fig. 4: Ports operated by China along the Maritime Silk Road

Box 1: The six economic corridors

Fig. 5: An overview of major BRI participants (data as of 2016)

Expected investment amounts

China's commercial USD200bn of outstanding loans in BRI countries

Progress so far is ahead of expectations

A ripe time for China-led fiscal activism

China’s economic reasons behind the BRI

The risks facing China

However, we believe the debt burden posed by BRI-related investments should be

The direct winners outside China

The geopolitics behind the BRI

China’s geopolitical and geostrategic reasons

Response to the BRI

Will the BRI succeed geopolitically?

Box 2: The BRI and the Marshall Plan

Recipient economies: Fast tracking growth

A new impetus to growth

Four-lane highway: Dhaka-Sylhet Bangladesh government 1.6

A mega boost to regional trade integration

A growth bonanza for smaller economies

Mongolia 0.0 0.1 0.3 South Asia 0.66

Southeast Asia 0.0 2.3 19.1 Pakistan 0.53

The big beneficiaries

The risks from BRI

Fig. 17: Public debt and BRI lending pipeline

Overcoming the challenges

Fig. 18: AIIB projects

Box 3: The risk of debt distress

Indonesia: Not so fast

China’s participation in developing Indonesia’s industrial estates will likely encourage

Malaysia: Ahead of the pack

Fig. 21: MOUs between Malaysia and China

Philippines: The pivot is proving prescient

Fig. 22: Key China-funded infrastructure projects in the pipeline

Source: NEDA, Nomura Global Economics.

Thailand: EEC does it

Fig. 23: Eastern Economic Corridor

Source: BOI, Nomura Global Economics

Singapore: Playing the intermediary

BRI ventures by Singaporean and Chinese firms

CLMV: A mixed bag

Laos: From land-locked to land-linked

Myanmar: A strategic partner

Vietnam: Staying cautious

New Siem Reap airport 0.9 60

South Asia: Gains for all, but India wary

Fig. 28: Highways network of China Pakistan Economic Corridor

Source: CPEC and Nomura Global Economics.

Fig. 29: Railways network of China Pakistan Economic Corridor

Source: CPEC and Nomura Global Economics.

Fig. 30: Fiber Optic Project of China Pakistan Economic Corridor

Source: CPEC and Nomura Global Economics.

Fig. 31: China Pakistan Economic Corridor – Chinese Finance Projects

Source: CPEC and Nomura Global Economics.