announcer: brought to you by standard chartered. one belt, one road, one bank. ♪ stephen: expansive and expensive. an empire-building exercise or the creation of a new world trade order? ♪ >> it is not a program dominated by china. it is a program by which china works with other countries. stephen: tentacles that stretch from china through central asia to europe to the middle east and africa.

to india and southeast asia, over land and sea to some of the world's most unchartered economic territories. >> defaults can always happen. infrastructure is a risky business. stephen: a project that, when it is finished, that will have cost china and its partners trillions of dollars unfinished. >> these countries need infrastructure and at the end of the day, money will drive this process forward. ♪ stephen: hello. i'm stephen engle. welcome to a look at how the economic future of the world's oldest continuous civilization is evolving, a new dynasty being built from beijing on the foundations of a project that is china's belt and road initiative. fast trains are one of the symbols of modern china. and so too is the pace at which the networks are being built. top speed for the train? more than 300 kilometers per hour. and rightly or wrongly in the

eyes of some, perhaps, a reflection of china's belt and road ambitions. >> contrary to some other people's misconceptions, it is not a program dominated by china. it is a program by which china works with other countries, working with international financial institutions, multilateral development banks. so it is a kind of cooperation. unfortunately, some people misunderstood this as kind of a china program. china wants to take advantage of this to promote its own interests. nothing could be further from the truth. >> views on china are often mixed. again, china builds up enormous amounts of goodwill by building infrastructure. these markets are desperate for better metro systems, road systems, especially in these small to midsize economies where it is not easy building infrastructure. but at the same time, there are some concerns. one refrain you often hear from

locals, whether it is individuals or companies, is that chinese companies will often win or come out on top. >> in the next 10 or 15 years, or the next 15 years, the world will invest about $90 trillion in infrastructure, mostly in emerging markets and developing countries. so whilst that sum is a very large sum, it is only a couple of percent or less than the world's infrastructure investment, and it might be 3%, 4%, 5% of the infrastructure investment in asia. so it is very big, but we shouldn't overdo the magnitude of this in the context of infrastructure investment. ♪ stephen: in its simplest form, china is looking to revive the roots of the ancient silk road with modern infrastructure. economic corridors by road and

rail, linking major ports, dry and wet, to a maritime silk road that circles back to china, but the reality is much more complicated. >> when we have 86 countries, it is very hard for me to say, which country is not part of the belt and road initiative. and also, for instance, traditionally when we think trade ways, it could be westbound. but given the increased relationship between asia and latin america, it could be eastbound, or southwest bound africa. so you see, this is really an effort to promote regional and global integration. >> it has started out as a unilateral policy, a focus on infrastructure, a focus on relieving excess supply back home, but it has evolved significantly since then. what we have seen is a growing ecosystem emerge around those infrastructure projects. a growing number of chinese firms, not just state firms, private firms, all looking to

participate, not just from belt and road but simply because of the business opportunities as a result of the infrastructure expenses that are beginning to grow and expand. so the policy today is very different to what we saw five years ago. >> the development initiative is still very much in its early stages. being designed, crafted -- of course, there are some projects already through to central asia and the road down to gwadar in pakistan. but it is in the early stages. what we have seen so far is there is a basic idea here, which is connecting the world to east asia, particularly china. ♪ stephen: make no mistake, china's leadership is serious. the project has been enshrined in the communist party's constitution. and rise or fall, the belt and road initiative will be seen as one of the great legacies of president xi jinping's rule. jinping saidxi

very, very clearly, we are not going to build a garden in our backyard. we are interested in building the beautiful garden with beautiful flowers which will be enjoyed by all the nations in this world. the ri is central to the strategy of china and xi jinping. it is about the story of the rise of china and the reality of the size of china's economy and and the reality of the size of china's trade. china is now almost equal in size to the economy of the united states. it depends on how you measure it. in some measurements, it would be bigger, much more trade than the united states, so the bri is a story of the rise and openness in china. >> in china, we say, you aim high and you achieve something a little bit lower. you aim middle, you may achieve the lowest. so the chinese people are very ambitious.

but i like to say, china will be ambitious for the rest of the world. >> the 10 economies by themselves account for nearly 70% of the belt and road gdp. chinese firms have won some deals in these economies, but not too many. they are struggling, and in order to compete with the koreans, japanese, american, europeans -- all of the local firms, whether indian or turkish companies or chinese companies, chinese firms will have to adapt, which means collaborating with foreign or local partners. >> if infrastructure is built in southeast asia or pakistan, or kazakhstan, or linking up with africa, first and foremost, that infrastructure should be shaped by the country in which it is. and that, i think, is extremely important in the whole execution of the idea. it is not that china dictates, not china saying, this is what your infrastructure must look like. that would be a failure. stephen: new maritime routes, new roads, new railways, new

pipelines, new ports, china's superhighway is taking shape, moving its product to markets and bringing the world's offerings into china. up next, we weigh the risks versus rewards of doing business through uncharted territory. ♪

stephen: one of china's greatest challenges in realizing its belt and road initiative will be paying for it. the capital scope for targeted projects ranges from $4 trillion to $8 trillion. but it is how it manages money across country with high risk and poor credit profiles that provide one of the biggest unknowns. of the 70 or so china list is as -- lists as partners, the sovereign debts of 27 them are rated as junk, or below investment grade. another 14 of them, countries like afghanistan, iran, syria, are not rated at all. >> defaults can always happen. infrastructure is risky in the early stages, and that is why it is so important to have the right kind of finance in the right place on the right scale at the right time. that is what multilateral development banks try to do, to get involved in the early stages where it is risky, and manage that risk.

>> see, the policy is very clear. the bank is inclusive. we do not intentionally try to grab some people into this bank, because it is ultimately the decision-making of the sovereign governments, and the door is open. and we are inclusive. if they are interested in joining and working with other members, they are most welcome, but each and every sovereign government has its own ideas. >> too many government-to-government deals will be a concern, but again, the belt and road initiative is evolving. in its early stages, there were many government to government deals. increasingly these deals are profit driven. not just between state owned firms and local firms, but private firms. we are seeing chinese firms beginning to move into the belt and road market and looking to tap what is a market driven consumer opportunity. >> what role should and will commercial banks play,

because they are risk-averse as well but they are being driven by policy in many places? >> these banks have a very important world to play, particularly the foreign commercial banks. they provide a robust due diligence process to project selection, project screening, and ultimately financing. chinese affiliate jewels -- chinese officials recognized this. my conversations at the highest level often echo sentiments around, well, we need the private banks to participate, we need the foreign banks to participate. we will not fund on these projects, but more importantly, we don't want to see white elephants. we want the project to be viable. stephen: transparency and good governance, they are among the biggest challenges facing supporters of the belt and road initiative. in malaysia, a new government has seen the new prime minister pare back some of the deals signed by his predecessor, and in countries like sri lanka, a debt default is steering the project somewhat off course. >> a couple of countries, sri lanka is a good example. the chinese financed a big port, but it is actually not very

useful, not economic, so now the chinese have taken it over. and i think we will see that in some smaller, more vulnerable countries. infrastructure sounds nice, but if it does not generate a lot of business it is not good infrastructure. >> you can see that, the hambantota port was taken up without any proper economic feasibility study. sri lanka ended up getting in a debt trap. as a result, the government of sri lanka had to hand over the port on a nine year lease. not just the port, but a vast area of nearly six to seven square kilometers around it. stephen: for india, which is the single biggest critic of the belt and road project, it is also a question of national security. china's biggest project to date runs the length of neighboring pakistan to the port of gwadar on the indian ocean. >> when you talk about the

maritime silk road, the fact that today, china has come to acquire control or controlling 75 ports in 35 countries. clearly, that is not being done just with commercial objectives in mind. >> if you are very close to china, then there is more nervousness. india was a great example. but some of the asean countries, they have to worry there is a strategic element to this. china is lending a lot of money to cambodia and laos. it is clearly buying friendship from those two countries. and they provide a kind of veto. asean operates on a consensus basis. so if you are worried about south china sea, for example, you can count on laos and cambodia sticking with china and preventing asean from doing anything which china might find objectionable. >> we are witnessing a rapidly expanding presence of china in

the indo ocean region, and we understand that china has a desire to emerge as a major maritime power. we don't quarrel with that, but what is happening has implications for us. >> i think that when you have a rising power like china, countries which are close neighbors, like india, or countries that were predominately economic powers, like the united states, have to think about their position. they might get a bit uneasy because of the strength of china and the way in which china wants to, quite understandably in -- and rightly, link up with the rest of the world. stephen: and the rest of the world means much more than just the routes along the ancient silk road. globalization, conductivity, 21st century transport and finance. to gets still very hard clarity around the financing of

these projects. so even in countries such as pakistan, for instance, many of these deals, the financing arrangements around the deals are not made clear, so there are some concerns there that the chinese, the local governments are overpaying for chinese contracts. david: the initial set of chinese loans over the last few years, a lot of it has gone to countries with very poor governance. venezuela is a big borrower, sudan, angola, iran, pakistan, these are countries that may very well run into debt problems. but -- here is an important but, indonesia is a big borrower, south africa, eastern africa countries. so i think china has some good clients, some bad clients, and what you would expect is that the project would work out in the better managed countries. >> at the same time i would say that there is a tendency for people to focus on deals that were done five years ago but have only just come to market, whether it is a port or a rail project. when you are deeply involved, as we are, in these projects, you

see some of the deals being done today, they look no different to those than any other multinational, any other large country would execute on. so that part, and it is a most exciting part, it is the one that promises the most over the coming years, that part has been overlooked. stephen: for port operators, like hong kong's modern terminal, the opportunities are massive. an estimated uplift of $2.5 trillion in trade over a 10 year period. coming up after the break, we are going to get the word from apm terminals as we continue to navigate the belt and road initiative. ♪

stephen: we are here in xi'an, the oldest of china's four great ancient capitals, home of the han dynasty and the terracotta warriors. but more importantly, on this trip, the easternmost point of the ancient silk road.

it is here in the muslim quarter that you can really get a sense, and quite literally, a taste of the past. much of the population here are descendents of arab traders who traveled for months to get to china along the silk road. >> it is no surprise to us that china is the world's largest trading nation, wants to promote world trade, and we see very much that belt and road is an initiative that supports that. i think the overall goal is to develop an additional $2.5 trillion of trade in a 10 year period. some of these projects could be very interesting to us as a transport and logistics provider. broadly speaking, if the growth does come, that is more cargo for our ships. it is more throughput for our terminals. it is more units in our warehouses. >> we have been in the shipping and cargo business for decades, where do you see the biggest infrastructure gaps? >> you have to keep building the connectivity.

a lot of academic research shows that when transport connectivity improves, the cost of doing trade comes down, and that has a beneficial impact on growing trade. our analysis is a 10% improvement in connectivity reduces trade cost by 3% and increases volumes by 5% to 9%. so we see a direct connection between these two things. stephen: and apm terminals should know. the transport and logistics arm of the seafaring giant has 78 port facilities in 58 countries, many of them passing along routes of the ancient silk road. >> very much we are looking and have some advanced projects actually within the belt and road scope. for example, in vado, in italy, we have co-invested with costco and another group to build a new container terminal. we are also working with chinese companies to build new ports in africa where we have some interest in investing together, so we are seeing opportunities not just in asia, but the whole scope of the belt and road, to collaborate. stephen: what do you think should be the priorities in the

opening days or years of this belt and road initiative? >> i think for us, it is a transparency, that is the area where we would like to see the improvement come. very often today, projects are done, we only find out about them after the main players have already reached an agreement. i think that is probably where the international companies would like to get involved more. the eu, i think, is very much communicating along the same lines in its feedback to china, that this is an area where improving the transparency is critical to the future success of belt and road. stephen: so, plenty of roadblocks along the way, but there is also a sea of opportunity. trillions are to be spent. so who along the belt and road stands to benefit the most? >> i think they are shifting toward better managed countries and it is a more general financing of infrastructure, so countries such as brazil, south africa, east africa, they have vast infrastructure needs and there is a lot of potential for this to work out. if you think of it as a chinese

master plan for where infrastructure should be, it will not work out. that is not realistic. >> at the end of the day, money is the ultimate driver. so if chinese firms can provide elevated, or construct elevated light rail projects. for example in india, whether it is construction companies, there is an opportunity to make money by partnering up with chinese companies, and they will do so. so at the end of the day, money will drive this process forward. >> i think the closest neighbors to china and those nations on the route to europe will be beneficiaries. that means central asia and southeast asia. but i hope very much that the links to south asia will strengthen. particularly to india. the china-india relationship is the most important relationship in the world. and secondly, i hope there will be strong benefits for africa to link up with the big,

fast-growing markets in the world, which are now asia. >> actually, if you read president xi jinping's, i would say, monumental statement in the the first meeting, he said, the belt and road initiative would connect with the other initiatives proposed by many other countries. so, we are very supportive of the belt and road initiative. of course, when we are approached for financing the project, we will have to see whether they meet our standards. for us, the three basic standards are as follows, financial sustainability, environmental protection, and and the protection of local people's interests. stephen: by the mid-15th

century, due largely to more efficient seaborne trade as well as squabbles between the participating states, the original overland silk road began its decay. it was about the same time the forbidden city behind me was being completed to serve as the home to chinese emperors for the next 500 years. now the revival of the old route is indicative indeed, of china's reemergence as a global trading power. i am stephen engle. thanks for watching. ♪ announcer: brought to you by standard chartered. one belt, one road, one bank.

jonathan: from new york city for our viewers worldwide, i'm jonathan ferro with 30 minutes dedicated to fixed income. this is "bloomberg real yield." coming up, the federal reserve is not returning to read a fourth rate hike in december. even as global growth concerns are increasing, fueling a bit es andid into treasuri crude oil falling into a bear market. we begin with of the big issue, the fed staying the course. >> i would expect to the fed's -- i would expect the fed's projection of gradual increases