Silk Road: A way out of overcapacity woes?

An illustration of the One Belt, One Road megaproject at the Asian Financial Forum in Hong Kong, on Jan 18, 2016.
An illustration of the One Belt, One Road megaproject at the Asian Financial Forum in Hong Kong, on Jan 18, 2016. PHOTO: REUTERS

BEIJING • China's Silk Road programme was announced by President Xi Jinping more than two years ago and has been cast as a solution to several of China's most vexing challenges, from reducing reliance on oil shipped through Pacific ports to converting economic strength into geopolitical might.

The project, also known as the One Belt, One Road initiative, is aimed at diversifying the country's trade options and exporting the excess industrial capacity that is dragging down its own economy. China's glut of industrial materials such as steel and cement is fuelling deflation at the nation's factory gates and contributing to the country's economic slowdown.

Hong Kong-based brokerage CLSA and China's Citic Securities said in a report published last year that the One Belt, One Road project could "help solve China's over-investment problem by exporting production of materials such as steel, cement and aluminium in the construction of overseas infrastructure such as roads, railways, seaports and airports".

With the One Belt, One Road plan still being ramped up, Chinese steelmakers, who produce about half the world's steel, are already exporting at record levels.

Outbound cargoes soared 20 per cent to more than 112 million tonnes last year, an all-time high. But it remains to be seen whether exports could make up for the shortfall in domestic demand. Chinese steel now sells for about a third of the price at the 2008 peak.

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A version of this article appeared in the print edition of The Straits Times on March 03, 2016, with the headline 'Silk Road: A way out of overcapacity woes?'. Print Edition | Subscribe