 Ladies and gentlemen, welcome to the Louie Institute and also welcome to our first EMP China lecture series. And since I joined the Louie Institute, it's also my first public event, so please don't be too harsh. And today we're going to, before I start, I want to take this opportunity to acknowledge our very generous benefactor, EMP, who makes the China lecture series possible. So every year we hold us three events in Melbourne, Sydney and Canberra. So it's a bit of advertising that next month we're going to welcome, or in July, one of the China's most famous journalists, Hu Shuli, to come to Australia and she will speak, I think, in Melbourne, so stay tuned for that event. So today we're very fortunate to have Grant Dooley to be our lecturer on the first topic and is a very hot and a sexy topic. It's about one build and one road. If you go to China, either as a journalist or as a politician, you will get a one-build-one-road question. They will ask you, what do you make of this China's new grand strategy? I think our executive director, Michael Fulila, when he was in Beijing last year, to deliver the Boi lecture and he was asked the same question, what do you think of Oboe? So it is a bit of a mystery. So today we're having a decipher here to explain a mystery to everyone here. We have Grant Dooley, he's the executive director of the Hastings Infrastructure Fund in charge of Asia operation and before he became a fund manager, he was Australia's council general in Guangzhou and he also served as a senior diplomat in the Australian embassy in Jakarta. So he also had a China economic trade section and a DEFAT and also I believe Grant was also an officer in the Royal Australian Navy as well. So a very interesting background so he can talk about the foreign policy aspect and he can also talk to you about the risk premiums and the returns. I think it would be interesting for our business audience here in Sydney. So Grant, first question. One Belt One Road or Belt and Road, I think a lot of people object to the term One Belt One Road or what exactly it is. It has been described as a China's grand strategy or even Marshall playing China's equivalent to reshape the whole region or even the world. Francis Fukuyama described as a China's strategy to export as a development model and but we don't know much about Oboe. I mean he seems to be especially at an operational level, he's very patchy and very vague. Do you think why are they keeping us so vague? Is that a sloganing search of a strategy? Yeah, well first thanks for coming along today and I really do appreciate the opportunity to speak and being your first guest lecturer. I'm not sure I'm the 60 man to be talking about such a 60 subject though so I'll try my best. The One Belt One Road initiative and for those that follow this closely you would have noticed that from a Chinese perspective the name is being changed to Belt and Road and there's a very good reason for that and that is that when it was initially announced it was the One Belt One Road initiative but very quickly they realised as you said it's a strategy in search of some substance and to actually give it substance what they did was amalgamate a lot of existing development initiatives that they had at the time and hence you can't have One Belt One Road when you have many different development initiatives and many different economic corridors which is what they brought under the initiative so when you look at One Belt One Road or Oboe it actually is amalgamation of other initiatives one being the the new Eurasian land bridge from Royal Mochi that's got spreads right across Russia and Kazakhstan the idea for a rail line all the way to the Netherlands it also encapsulates the Mongolia-Russia economic corridor another corridor from Kashgar in Western Xinjiang down to Guadalaport in southern Pakistan which is the China-Pakistan corridor and also one in South East Asia which is from Nanning down through the Indochinese Peninsula called the Indochina Economic Corridor so what it actually is is amalgamation of a number of existing strategic initiatives that the government was trying to implement and when they thought of a name the One Belt One Road which literally stands for the One Belt being the Silk Road Economic Belt and the 21st century maritime Silk Road hence the Belt and Road name but it's actually it actually is a well thought through initiative when it was announced I think possibly didn't have a lot of substance but now they've been able to build a number of different things around it and amalgamate these economic corridors the other thing they've been able to tie it very closely to is a number of other initiatives like the Asia Infrastructure Investment Bank for instance and the Silk Road Fund so they've kind of been able to build up some substance to it through these other initiatives that they've got. Thanks for that so thanks for the explanation and also just the question is you mentioned Asia Infrastructure Investment Bank which you received a lot of immediate attention about whether Australia should join the Asia AIIB and there's a lot of discussion about what is China's intention behind to the Oble or behind AIIB is a plot to I don't know expand China's geopolitical influence or if you want basically to make a buck out of it export China's access capacity or more high value added products like high speed railway so there's a range of discussion there seems to be a lot of people in Washington DC maybe in Canberra I'm all worried about the geopolitical aspect is this China's strategy to counterbalance the US's pivot to Asia is that a counterbalance to TPP which China is not part of it and what do you make of this? Yeah I think it's actually a lot of those things and actually and more there's no doubt that there is a political overlay and there's an economic overlay from the political perspective when I dare say when prison Obama announced his pivot to Asia back in 2011 this obviously was caused for great consternation in various policy levels in the Chinese Communist Party and in the government so you know it was actually a natural reaction to them to come up with something which they perceived to counter that type of a grand plan for what they saw as US containment of China in Asia so I think at a geo strategic level yes there's no doubt that the one belt one road initiative was was I was in response to that but it'd be too from a political level to be too I think too shallow analysis to say that's the only reason you need to understand it from a political level most things head back internally everything goes back to the center in China and when you look at the amalgamation of some of those economic corridors I was talking about that the cash car water one for instance that's from Western Xinjiang the one that goes the new new Eurasian land land bridge goes from Wudu Mochi over to through Russia and over to Europe so in addition to the the broader geopolitical issue there was a need there from the Chinese government to develop these restive regions to generate growth economic growth in some of these western parts and southern parts of China the Indo-China the China Indo-China Peninsula economic corridor starts in Nanning the capital of Guangxi province so it was actually it wasn't just about the geopoliticals a lot of it was actually about how do we tie this with trying to generate levels of economic growth in some of these very restive poor parts of China where you know from an NDRC perspective from a national development reform commission perspective they've been trying to do that for quite a long period of time so it fitted very neatly in with that overarching geopolitical plus internal stability narrative that's the political side of course the economic side of just what we all probably more associated with was to deal with a number of very large issues occurring in the Chinese economy and that is as we all know slowed down in growth internally excess capacity and key pretty much infrastructure related type industries so iron ore steel iron ore steel cement these type of bulk of these these type of skills and over capacity in these industries that they needed to export so having an initiative we build infrastructure in these markets obviously is a way of potentially dealing with those things you also had at the same time you've got the you know the desire to internationalize the R&B as a you know they can also facilitate that you also have a lot of excess liquidity sitting in the Chinese economy at the moment we have a lot of debt problems but we actually also have a lot of excess liquidity in the context that there's a lot of money that wants to leave China at the moment good for me what I do I'm a fund manager we manage a lot of Chinese money so but we see it in very little ways and in the Chinese money going into the real estate sector for instance in Australia and globally but a lot of that excess liquidity in the Chinese economy is searching for opportunities to be invested offshore to diversify their risk base so you have a lot of bent up demand for overseas assets within the Chinese economy because of this this this excess liquidity issue on top of that you also which is I think a potentially not strategic part of it from the economic side and that is China I think we'll try and use this initiative and build through these corridors to try and secure supply chains you know if they if they can help establish those and grow new trade routes through these markets it actually helps them with their actually longer-term you know trade issues and growing new markets for their goods as well so so you had a number of various different you know economic reasons in addition to the you know the exporting of of the excess capacity capacity and and high-speed rail and various other capital equipment type issues so I know this is a very complex projects involves a multiple motivation if I'm gonna ask you which one would you write as the most important overriding objective behind this oval initiative do you think is more central around the China's own economic development needs the developing Xinjiang Yunnan all this periphery province who are have been lagging behind in overall development in China or do you think is served primarily as a as a blunt weapon not a blunt weapon but as the weapon to counter us as a pivot to Asia look I think it would depend who within a Chinese bureaucracy you spoke to I mean if you're speaking to someone in the NDRC and they've been trying to develop the Western regions for last ten years and he'll very much see it as being that's a you know an opportunity to it to hit some very key you know KPIs for a better word or goals that he has if you're right the very top of the the Chinese Communist Party then anything that can grow through soft power means I mean this is a very effective tool from a soft power perspective making they can potentially grow relationships embed themselves with their near neighbors China's been trying very hard to improve a soft power outreach it has very good relationships with a lot of those central Asian countries that go through the Shanghai Cooperation Organization and other mechanisms so I think it depends where you sit if you're talking to a Chinese SOE really that stuff is all important and it's interesting but he just wants a good return on investment so if you're talking to State Grid or China Merchants Group or one of the big SOEs they're just looking for deal pipeline how do I get my money deployed how do I get opportunities to grow my my business they're very much businessman so I think it really depends on who you're speaking to within the government as to how they would view the overarching initiative yeah it can be many things to different people it can be many things to all people and just try to pick up on the economic theme and in the last kind of a year or so we haven't seen the kind of a invincibility the kind of a reputation of a China's economic planning and etc. management has been dentured the China's foreign reserve dropped significantly something like 800 billion dollars and also big Chinese banks and they have all the non-performing loans piling up on their books so do you think now we have an impact on China's ability to finance these very ambitious projects because I haven't heard the figures are truly mind-boggling people talking about the trillions and the trillions with all those of investment and you know some bankers love the figures and a quarter something like six trillion dollars one-third of the humanities and do you think Beijing has the the means and a resource to finance this project one thing having worked around the Chinese economy and Chinese government officials for way too long is it these figures just tend to after a while it's wash over your head they do like to talk in grand plans there's no doubt about it look I think from a from a funding perspective which is actually question they've already got a number of vehicles that they can use to look at funding some of these projects and I'll get back to the projects in a minute because that's probably the most important part you know they've got the AIOB the Asian Infrastructure Investment Bank has a hundred billion dollar vehicle we all know about that there's the new BRICS development bank again another hundred billion dollar vehicle which is being seeded by all the BRICNations there's a Silk Road fund forty billion dollar vehicle there's the Shanghai Property Organization Development Bank which is about to get off the ground apparently and you've got obviously China Development Bank and China Exit Bank as well so they have a number of different vehicles by which they could potentially fund what they're trying to achieve you know you talk about to go back a step and talk about foreign exchange reserves I mean they're still I mean very hard to work out exactly what their foreign exchange reserves are to be quite frank but they probably still somewhere around that three trillion mark and the overlay on that is that China still runs a trade surplus in April was about forty five billion dollars I think so while exports are going down imports are dropping quicker so they're actually got still got good capital inflows so you know I don't see that being a major issue but I think what the major issue won't be less won't be more it won't be about funding per se it'll be about actual projects they can invest into so the biggest constraint will be the lack of investable or potentially bankable projects because you might have the desire I mean even in Australia right now not Australia but even in Asia more broadly there's a lot of liquidity looking for infrastructure investment and a lot of countries looking to attract that investment but there's a dearth of investable projects so you have you might have all the money in the world you want we've got nothing invested into that it's very hard to actually make the investment so so I don't see it I don't see the constraint on this execution of this strategy being funding I see it more being actually identifying types of projects that actually are actually investable themselves that would be a kind of that's a very interesting observation and what does it mean let's say if China's intention is more geopolitical will they just push through the projects irrespective whether they will make a return on art or whether they are bankable and arts in your you know kind of a professional investment terminology do you think that that's what Beijing's intentions are or do you think there's investment entities like a China development bank or AIIB what are they a risk appetite like are they happy to fund the political projects yeah that's that's a really good question I look I think the the biggest issue they're going to have I mean you just try these companies will invest to make a return like any other company I mean I think there's a bit of a sure that sometime there might be a strategic overlay but generally speaking they've got their own benchmarks internal benchmarks they want to make a return on any investment when you get to the development banks and the XM bank it's slightly different different objectives for those vehicles the AIIB though here's an interesting thought the AIIB is being promoted as a as an investment bank that will only invest in best practice projects it's funded by you know various different agencies and governments around the world they might want to invest in something that they don't see as generating a decent return to meet the actual over return benchmarks of that bank so some of these vehicles will be constrained by the nature of the vehicles CDB and XM bank I believe will probably be more constrained by the fact that on their own balance sheets right now and it's very hard to know this because there's not a lot of detail out there but given the slowdown in economic growth in China and given some of the bad loans and some of the projects they've invested into in other markets like Africa it's hard to see that have a lot of appetite to go and repeat that process in other markets in in Central Asia for instance or in Pakistan or places like that so I think there'd be a pretty big stretch and it'd have to be a pretty big push to make them do that the other thing too is I don't think from a soft power perspective you know the the Chinese could quickly undo a lot of that really good gains they're getting in those markets if they do invest into projects which are not perceived to be very very good projects and and the projects themselves fail it'll undermine confidence in AIB, it'll undermine broader confidence in what the initiative stands for so again I do believe that whether the OBOR strategy is really going to struggle is actually identifying those type of projects that meet those near-term investment criteria for them to automate those type of investment decisions. Oh that's very interesting if I can draw back to perhaps the lessons here in Australia in the last perhaps a decade we have seen so many fail the China's investment projects in Australian resource sectors do you think now they have learned to the lessons in how to invest abroad you know for example not to jump into a battle with someone like Palmer and I think you're probably going to come out on top of that and do you think there's they have kind of had a very sharp learning curve now they can replicate their experience seeing Southeast Asia or Central Asia? I'd like to say yes but I still think they're learning yeah look you're right they've a number of the very marginal resource projects particularly in the iron ore sector are still untouched undeveloped mine sites in various parts of Australia. The I think they have learned but this is a listen in the market you only really learn if you've if you've borrowed money you've invested into something and you can't get it up and five years later you've lost your money and the bank comes back and says well I need my money back and you can't pay them and then your bank erupt that's when you learn unfortunately the Chinese system these a lot of these organizations have borrowed money from various different banks back in China those banks themselves keep rolling over a lot of that debt hence they've got the debt issues in China we've got you know bonds being rolled over we've got a lot of these various big debt issues being rolled over so you've got so you've got companies have made bad investments who haven't learned the lesson from the bad investments so they actually are still learning that process until you know risk is properly priced until these various other things that we do in a normal market are done it's hard to see how they learn the real lesson of bad investment decisions now they'll understand they've got a bad investment and they will learn but until that financial impact you kind of wonder how how much that message sinks in and we if I take it another step forward is that what they've they are learning very quickly you know even in my sector in the infrastructure sector the state grids of the world are very savvy investors they've invested in Portugal invested in Brazil they've invested in the Philippines they've invested in Australia already through Gemina and Electronet they understand how these markets work they've they've learned through the process of investing what we're seeing though with the excess liquidity in the Chinese market and looking at trying to get out the speed of it at this point in time is so great that you're getting a lot of other people getting caught in a tailwind who don't have that level of experience investing in overseas markets and they're the ones that are potentially going to make the mistakes that the state grids in the China merchants now the more sophisticated investors have already learned so you've got this bit of catch-up because these other more I suppose less sophisticated or developed investors who are potentially going to make the same mistakes that the role the brothers made a couple of years ago and they did those earlier investments in the resources sector. Thanks for that I think at a law institute we're having to ask very important questions about soft China Z. So it's also for the benefit of our friends who travel from Canberra and also for the for the diplomats who are here in Sydney watching very carefully what is unfolding in South China Sea when we see escalating tension between China and some of the the climate states from Southeast Asia and given Southeast Asia a subgroup is a very important part of China's Oval Strategy which cuts through the Southeast Asia the 21st century maritime Silk Road. Given all this tension that is happening do you think that we have an impact on Beijing's ability to to roll out those projects in this country or do you think we'll come to a point some of the country for example like a Vietnam or some some other country just basically no given the bad relationship we have in a moment I don't want your investment and especially in a critical infrastructure what do you think have we reached that tipping point yet. Yeah look I don't think there's any doubt that it will be an issue the impact though I think is can be in the context of the whole Borrudo one-but-one road strategy could be somewhat more limited given that the strategy itself is encompasses a lot of you know economic corridors that don't go through those parts of the world. So when I see this I mean it's a very significant issue it's it's obviously growing in steam which is obviously all very concerning so I do see it as more complicating rather than directly impacting that strategy so when you've got the Indochina China Peninsula Economic sorry the China Indochina Peninsula Economic Corridor yeah that runs down through Vietnam and parts of those claimants states so you'd expect that that may have they'd be less willing to be part of that process if they're having you know very testy hostile relations with with China. But for the the countries that lie further west and you know the Central Asian countries it's it's it's obviously not as big an issue as it doesn't directly impact them. What it probably can do though which is you know negative type of negative issues like the South China Sea and what's happening there will no doubt though raise issues around confidence I mean if you're sitting in one of those other countries not directly related and you're reading the media seeing what's happening it does just raise questions it does question your you know the China's intentions in those markets so why wouldn't have a direct impact it will just undermine some of the soft power issues we're trying to talk about and some of the soft power gains that they're trying to achieve through the the OBOR strategy. But for that part of the world being the South China Sea in those climate countries and you know the Indonesia's of the world I mean if you talk to Indonesia for instance and I spent a lot of time in Jakarta and still have a lot of friends in Deplu the Ministry of Foreign Affairs there you know three years ago they didn't see the the South China Sea issues really impacting them in the Antuna Seas quite south there was a crossover of claims but it wasn't as big an issue but as we all know quite recently there's a big confrontation between Chinese fishermen and the local Indonesian Coast Guard which has raised that that issue and made it now a substantial issue in relations between India and China so you know the Indonesians have been courting quite actively Chinese investment for the power sector they do see you know the Chinese when I attended to build this high speed rail between Bandung and Jakarta all these type of things that happen in the South China Sea all I do is chip away at the confidence that exists between governments between people between entities and just undermines over the longer term undermines that level of confidence and if what is happening in the South China Sea was to continue ramping up in intensity then you think it would have to have a more direct impact at some point. Thanks for that with that question with answer I think I want to take an opportunity to get an audience to ask great questions this is I think a fantastic opportunity to ask someone with a combination of a founder management and a foreign policy expertise. So any a Robert sitting in the front with the great jacket Robert do you mind too and also just a bit of a House rule and that even though we welcome comments but we like to use this foreign as a place where you can ask questions. So I don't want to do a Tony Jones and say that I will take as a comment. So please just ask a direct a question and try to keep it short and sharp. Thank you. This from a man who's here I've already talked off on numerous occasions. I do have a simple question though you talked about the the fact that that investable projects would probably be the biggest barrier and I think that's a sound conclusion of the sort of general areas that you outlined as being in the we are what where do you think those investable projects will be found or where at least will be more likely than others. That's a really good question because my view is those projects will be found in China and it might sound a bit strange but we'll talk about this before that we started but now that they've actually undertaken this this grand strategy like everything in China if you're sitting as a provincial level official sitting in Kashgar or or in Nanning or whatever part of China or Kunming for instance in Yunnan province all of a sudden there's this big bucket of money that's been opened up that you can actually reach out to and use to fund another one of those lovely projects that you've always been adding another 16 platforms to your high speed train station and things like that. So I see an immediate term because of the lack of investable projects in some of these other countries that the real problem will be perceived you know the perception that they're actually not getting on with it and as such you'll see some of that short-term money flow into more infrastructure related projects that actually are inside China. So you'll have high speed rail up to the border with Vietnam or and I think we're talking about this your experience in Kunming where there's a high speed rail station up to the border with Burma and then all of a sudden there's nothing and so unfortunately in China those things do happen and I do see my fear is that some more money will go to projects which don't actually need to have money spent on and you'll get more of this waste around some of the infrastructure developments. I will add one other thing though that and that is that the rule you probably heard my theme now my big issue around OBOR is more about the execution of the strategy around being able to invest the money rather than the strategy itself and if you look at the OBOR countries that it covers more than two-thirds of those countries have sovereign debt which is which is rated below investment grade. The reason it's below investment grade is because of political stability, economic instability all these type of issues. So straight away you're actually looking at investing in the countries people will invest don't get me wrong people will invest into those markets but finding bankable projects is so much more harder. Sorry the end in front just wait a minute thank you. Thank you. Jeff Miller from the Institute of International Affairs. Some time ago I heard an Indian comment on the one belt one road which was yes but it's a Chinese belt and a Chinese road and I wonder to what extent is cooperation with governments and firms in the countries beyond the Chinese border seen as an important part of this strategy. Yeah I was just on your note I was in India quite recently and I had had discussion on the one belt one road and that was the deputy finance minister he said in India we just want to be the braces which I thought was interesting why I'm looking at it. But yeah look the what will underpin this is I mean the governments can put in place frameworks and various other things but even from a Hastings perspective my company we see an opportunity there to work with Chinese capital to try and find opportunities and how we can invest that money as well so people at business levels will see the opportunity they'll try and use it I mean the Chinese are very good at following national strategic initiative so you can you know you'll find a Chinese company will come up to you now and because if they can tie it to it they can get access to capital from banks by saying it's part of an overarching initiative that's quite an attractive thing if you're an Australian company looking at doing something in China or you're looking at doing something in one of those other Oboa countries so yeah there's a real opportunity for Australian companies I think Oboa provides two opportunities we're already seeing Oboa in action in Australia and that's coming through the Port of Darwin we had land bridge acquire that port the Northern Australia Development Policy needs capital there's an opportunity for Chinese who see obviously Northern Australia is a great food bowl for you know protein for cattle through other bulk commodities so land bridges investment very much was based upon the view that that port will become a very integral part of the Maritime Silk Road the Port of Fremantle when it's sold again I would see that you know if Chinese companies there they can see that as being part of that particular issue as well so we're already seeing in Australia the One Belt One Road play out even our own market even though we're not on those economic corridors the other way that Australian companies can benefit is that by accessing opportunities through the AIIB through the Silk Road Fund people like ourselves like Hastings now competitors Macquarie how do you how do you invest alongside some of those large institutions because if I look at investing into a market like Pakistan or India we've been looking at India for quite a while now if I go in alongside the AIIB and I go in alongside the Silk Road Fund it's a straight away at de-risking some of those sovereign risk issues because the Indian government is not going to want to upset the big the big member countries who are partnership to that including India so that's actually provide funding options for Australian companies to look at going into markets and can de-risk some of the investment decisions about investing in those markets I think that's the real opportunity for Australian businesses how do you use the One Belt One Road how do you use China and some of these initiatives to de-risk your market entry into some of these markets that you wouldn't probably invest into Just a little note on the imagination of a Chinese investor I think there's a plane to build an education sitting in the Melbourne it's been pitched as a One Belt One Road projects so everything is possible so everyone has got a question Thanks Grant Aaron Conley from the Institute I'm curious two countries where there has been a backlash against Chinese investment are Myanmar and the Philippines and in both cases that was related to governance issues in Myanmar the dam on the Irrawaddy that was being built by China North Chinese defense contractor was seen to have been approved because of a close relationship between the previous military regime and that defense contractor in the Philippines as ETE was accused of having bribed the husband of the president Gloria Macapagaloroyo and that led to this big backlash you mentioned earlier that China is learning from its investment experiences in countries is it also learning that higher standards of governance are also important to the long term survivability of those investments or should we expect more of these kinds of activities to continue and maybe not Australia where they know that there are high standards of governance but in other countries say in Southeast Asia Central Asia Yeah that's a very good point I mean the from my experience of China's investors I think I mentioned before about the sophistication of the investors if you're dealing with a state grid or one of the 100 odd centrally based state enterprises that it's such a sensitive issue now corruption such a sensitive issue internally you know you don't want to be seen to be anywhere near anything that's going to have a backlash like that you know my friends at China Merchants Group talk about this all the time they've got if you even to go to the website they go very proud they've got their own ESG policy they've got all these you know what they call best practice Western standards those type of things you know they're really focused on it to a great deal some of the more less sophisticated provincial based SOEs and even POEs you know private companies I'm not a believer in any real private companies in China but even those POEs at that level they you know they don't quite have that experience and I think in the case of the one but one road the type of companies they're going to be investing using that strategy they're going to need to have extremely close links to government which does raise questions and to your point can you invest in Kazakhstan can you invest in Kyrgyzstan can you invest in Pakistan without that nexus the reality is you probably can't and this will go to the whole question around the investability of these projects because to my point I was trying to make earlier if it's only a Chinese company investing into these projects and no one else goes along with them then very quickly people are going to see it for what it is and it'll undermine all that great momentum that have been able to generate behind the AIIB the AIIB is very critical in this the AIIB is a institution it's a multilateral institution it's China's first foray into such organisations it has member you know of which Australia is member countries capital you know tied up in it and they've made a big song and dance which I think is fantastic about making sure that this thing works in a way best practice standard invest into projects for all the right reasons you know financially viable economically responsible socially responsible projects if that gets undermined in any way shape or form this could go very very badly for the Chinese and my view is that I think they get that so I don't you know you'll always have people doing bad things around investments around you could even need to argue in Australia we've had some you know some bribery issues related as well so it's not just the Chinese but I think on this particular anything associated this particular initiative I would I would have thought the damage could be so bad to the Chinese that I think the NDRC which will end up being the clearing house of all these investments would be paying a lot of close attention to it gives me hope just that nature of it yeah Any more questions Professor Dupont thanks Thank you Hello Dupont I'm a non-resident fellow at the Low Institute Grant I'd just like you to give us your thoughts about success or failure of the of oboe Optimists say that it could be the most transformational thing we've seen in this century that if China succeeds in essentially running a 21st century version of the old Silk Road including this maritime dimension it's going to not only link China and integrate it into Central Asia but also with really half the world so that's the the optimistic forecast that will be transformational skeptics will argue that the chances that are happening are virtually nil and they focus on the risks that you've already touched on when there are many more of course so could you just give us your you know your best judgment about what do you think the likely outcome of oboe is going to be looking forward 10 or 20 years? Do you think it's going to be some kind of mixture of local successes? It's not going to disintegrate but it's not going to be it's not going to actually meet the grandiose designs of Xi Jinping and the Chinese leadership or where do you see it's something on that spectrum? Yeah it's a really good question because I've actually tried to I thought it might come up actually you know what I want to say no yeah look history's taught me in China that quite often it always ends up being somewhere generally speaking in the middle we very rarely have a you know and that's purely because unfortunately the Chinese love grand visions and grand visions are very very very hard to to implement this strategy is even more even harder you get argued intimate because it's so reliant upon what happens outside its own borders so for that for it to be successful China has to be able to either influence or somehow be able to form relationships of these countries that allow them to actually go through and do these things that is severe limitations because at any given point in time over the course of the next decade the relationships of those countries can be anything from very strong and very positive to very weak and very fractious we just got to look at the South China Sea to understand that to use again the Indonesian relationship which has been quite a good relationship you know Yudiyono and even Jokowi also China's capital is a way of meeting that short-term infrastructure deficit issue only defined that came in strings attached and various other things and it's caused those issues in that relationship so I'm have to say that and it's based on just how I've seen other things like this play out I'm probably more pessimistic I think China's really and I'm just based on something I might read of the situation but I think that the whole OBOR initiative was very much while there was a number of different economic corridors being undertaken there's a lot of things happening in various different parts of China as I said at the beginning OBOR is an amalgamation of a lot of those strategies under one umbrella under one overarching you know one grand vision and that is the economic corridors it's also the western development strategy of China it's the need driven by economic policy to deal with a lot of excess capacity in industry so I think and then then what lit that was the pivot to Asia of Obama back in 2011 which we need something and we've got all these things out there we bring it under the one Rubik we can actually look at it and when you make those type of decisions they're invariably rushed and to go to your question way back at the beginning is it a slogan in search of a strategy well I think they've built a strategy as they've gone the AIB and various other things under that one Rubik they've got a leading group in in Beijing headed by Zhang Gali who's a very very capable senior official in the Chinese government but I just think the one thing that's going to undermine this to go back to my point and maybe it's because I work in funds management now but the lack of investable opportunities in the region to make this happen I mean the idea of building a railway from Wodemuchi all the way to to Rotterdam through Kazakhstan Russia it's it's great in theory in practice it's extremely difficult the the idea of building a a railway from Kashgar to to Guadarport in in southern Pakistan did I go through Bluchstan you know northwestern frontiers tribes in in Pakistan again it's it's a great grand vision but the implementation of these are going to be extremely difficult so I think in in in 10 20 years time I think unfortunately we may have a lot of development in the western regions of China associated with this because of the ability to source capital to fund new projects in those in Xinjiang and Xijiang and and Guangxi and other parts of China but I don't think you're going to have a lot of outstanding new railways linking various different parts of Asia I'd I'd I'd find it hard to see that any more questions yet Leon thank you Leon Berchelman's from the Lowe Institute so you gave pretty pessimistic take on the on the prospects for success how does the Chinese leadership then sell it in 2010 or 20 years time when it looks like a bit of a dud if that's what it becomes yeah be careful yeah pessimistic it depends what you see is the outcome to go back to the earlier question if the outcome is a grand Marshall plan and and I mean in the perfect world to be great if it did because a lot of those things would lift economic growth and people have poverty and and I'm not saying that yeah some of those things may happen I mean there's that many different initiatives that some may get off the ground particularly the greatest opportunity would be you would have thought in Southeast Asia where you do have economies that are actually a lot more developed but then the South China see overlay complicates that but for the Chinese government what is there what are they trying to achieve I mean so what is success you could argue that from a soft power perspective through the AIB they've already received or achieved a slimming in amount of success in trying to play this you know role as a as a as a global citizen as someone that's trying to support global growth taking more responsibility all things we've been wanting China to do for quite a while I'm a big supporter of the AIB I think the initiative itself has the potential to be more transforming than the whole the overall strategy as long as the actual investments and the way it's dispersed and the way it's deployed stick to what we've been talking about and you know Chris Leigh from Treasury who's been an Australian rep on the AIB he gives me a lot of confidence when you speak to him he says how they've been really trying to do best practice around that particular bank that one bank itself a hundred billion dollar bank I mean if that can make if that can disperse half its capital on the next five years into well-funded well-resourced bankable type projects then you could say that in itself that's a success so it depends on what you know what type of levels you're trying to talk here I think the AIB itself if it's done right can really can really lift China's standing globally because it's a real test for them if it's done wrong I think it can actually quite damage you know the Chinese brand because they've put so much into it diplomatically they've put so much into it lobbying very very aggressively around the world so that that AIB I think is is is quite critical to the overall perception of how successful the one but one one road strategy is going to be so a question in the back Kip Hi I'm Eric Lewis I'm City Excelist say you mentioned that Erbor is now looking south as well towards Australia how do we make it officially into Erbor as one of the countries that's on that new maritime list perhaps and how do we tap into that capital that's available because it seems like it's a much easier investment to make in Australia than some of these Southeast Asian countries and also how do we respond in terms of FERB which is a big issue for Chinese investors in Australia Yeah you don't you don't apply to be part of the Erbor strategy you kind of global domination now just joking Now look I think Australia where it lies you could even look at the mapping to say geographically the trade flows and all those things but the reality is we're part of Asia we're integral part of Asia we have the ability to generate a lot of economic produce agricultural produce that can go to meet a lot of China's own internal needs so there's a lot of complementarities there in in the trade flows and the commodities so it kind of makes sense that we would be part of the maritime silk road from a Chinese perspective the that is what's driving a lot of that interest I mean Landbridge saw the port of Darwin for those reasons how to develop a port into being a major transshipment point from Northern Australia into China that was the thesis of their investment not having seen a business case but I would assume that would have been it so from a Chinese investment perspective and coming to Australia which is something that Hastings the first transaction I did at Hastings when I joined Hastings was the port of Newcastle and we we invested 50-50 with China Merchants Group into that port when I get asked this question around Chinese investment what concerns me is the show on this of the debate in Australia and the fact that Chinese investors have exactly the same and you'd know sitting CLSA I mean they have this the same overriding reasons for making an investment that's to generate a good return to meet their benchmarks yeah they've got exactly the same reasons for making an investment as I do they may have in the approval process going back through China they may have to go back to the NDRC or SAFE and when they get their final approvals if it's got a strategic overlay and somehow you can say it's attached to the oboe then big tick but but the principal reason for making that investment will be based on fundamental fundamentally sound commercial reasons in Australia we had this overlay around concern around land being owned and ports being owned and critical infrastructure being owned strategic overlay and all these various other things I won't go into that but from a FURB perspective we have a very very good and very well established regulatory regime around foreign investment one of the reasons the Chinese like investing here is because we have that regulatory regime the FURB itself is very good you know you engage FURB early it's a very set you've got the FATA the Foreign Acquisitions and Takeovers Act out yeah very clearly what you need to do the problem we have around that investment though is there's a political overlay that comes on top of it which somehow then can muddy the waters and obviously things become more emotional and then I mean because in the end under the FURB the final decision is made by the by the Treasurer from where I sit maybe from where you sit as a person trying to facilitate capital into this market the only thing I'd argue is that we need to engage the Chinese investors early enough as the government does I'm talking here about the FURB and sell side advisors like yourself well you know you need to actually engage early enough to tell them what the likely implications are going to be of 100% ownership of a critical infrastructure asset I think we need to give them early enough guidance I think the government just needs to sometimes come out and say on this particular asset from day one Chinese need a partner they need a partner with Hastings or QIC or AMP or Macquarie or whoever it might be they need an Australian partner it's critical infrastructure there's national interest at stake just all the Chinese want to know is what's the where's the goalposts they're there who are over here is that big is this big I just want to know I just want to know what the goalposts are I don't want to spend my three million on due diligence only to find the goalposts that I thought were over there or all of a sudden over here you know what do I do and it's the same as when I go if I'm looking investing in China I say the same thing in the Chinese government where are the goalposts what are the what are the issues investors just want a transparent process where they know what they're getting themselves into when they start that process that simple as that Yes question in the front Hello, Peter Green how does Russia view this one-built one-road and what does it see as the opportunities and challenges That's a very good question I wish I wasn't a Russia expert no I think well what do I think I think the Russia and China have again one of those relationships that can be at any given time fractures are very close we've seen that over history a very big part of China's particularly northern energy reliance now comes through Russia so there's very much as we know they've recently signed a very large deal I think about two and a half years ago three years ago so a lot of the gas flow from Russia and China's becoming more heavily dependent upon I think the Russians are quite pragmatic around the relationship with China they've been doing this for quite a while now they know we're both stand they have what the Russians wouldn't want is the perception that China this is my personal view Kazakhstan, Kyrgyzstan, Tajikistan and all the Stans are Chinese satellite states and have been Central Asia was China's background sorry Russia's background or playground I should say you don't have to go back to the days of the great game and you know there's a little finger of Afghanistan that sticks out and touches the Chinese border that was ever separate the British and Russian empires I mean that part of Russia they see it as part of Russia so anything that puts greater Chinese influence through those the Kazakhstan, Kyrgyzstan, Tajikistan Uzbekistan whatever I think Russia would feel very very very nervous about they'd say it's pretty much playing in their own backyard the overlay on that though is the anything that stimulates economic growth and anything that actually facilitates the trade and facilitates for a very pragmatic level they would actually encourage I think they know that they need new more customers they've got China's a very big customer they wouldn't want to endanger that at all but if they perceive there's any level of political interference or any type of strategic interference going into those those particular countries I think that would make them very very nervous so I think my own perspective that they would be quite watching that quite closely and that would actually make them feel quite unsettled I would have thought so we have one last question sorry in the middle sorry Aurya Weigold from the University of Canberra I want to ask a similar sort of question to the last one about Russia but in this case about India now when and if the Kashgar Guadal is a complete link China virtually encircles India I think this has some effect on India's own regional pushes in various directions and India's not always and India's not always the quickest off the mark I'm just wondering what you would think about India's view of what China's doing in the same way as you commented on Russia's view Yeah there's no secret that India's been very concerned about the relationship between China and Pakistan going back 20 odd years definitely if not longer if you sit in the Indian perspective or if you sit in their seat well I should go say you're sitting in the Chinese seat how the Chinese view the ring of pearls as ace they call it the containment of India the US, Australia, Japan that's one of their ways strategic geopolitical reasons for doing the One But One Road is to try and chip away at that so they're trying to chip away at this what they see in encircling of their own interest I mean they see India as being part of that now again no secret that India has been having a creating great closer links with the US and with Australia and with Zolkomov countries so that's of concern to the Chinese without doubt so there's a couple of things playing out here so from an Indian perspective anything at all that leads to a potential strengthening of the relationship between China and Pakistan which could lead to greater more militarily than anything else and Guadalport is actually military port you know Chinese ships being based just across their border is obviously serious concern for the Indian government again we're all nothing if not very pragmatic around economic needs though and you only have to sit and talk to the Indian government and their approach to Chinese investment has become quite a lot more positive probably in the last three years when it was previously and I just noticed from my own experience I've had Chinese investors who we have as clients come with me to meet Indian government officials around investing in India extremely positive rolling out red carpet we need Chinese investment again on our terms a lot of these you know discussions you have with the same as Australian government we've got our own national interests we've got our own views on our terms welcoming investments how can we use it to meet both countries needs if you're in India right now they look to China as a model that they're A they respect and they also wish they could follow to a degree given the speed by which people have been lifted our poverty of course you've got a very different political situation and different architecture but there is a grudging respect for the Chinese as to what they've done from an economic perspective and they want to learn and they can see big pools of capital that can help them in what they're trying to achieve as well so they see the OBOR in that context they see there's something that they could potentially work with they could work with the AIIB they could help unlock some of the infrastructure deficit use that capital to deal with these issues but again a little bit weary of the relationship with Pakistan the growing relationship you speak to actually Indian officials what's worrying them even more is the growing relationship with Cambodia and Myanmar that is because that is encircling and that's people forget that quite often is how much the Chinese have been actively involved in those two relationships in Cambodia and Myanmar so if you're an Indian official it's not just about Pakistan it's also about the other the other side as well here and also actually on that note to make it feel real it's totally petrified Colombo Port in Sri Lanka is being developed by China Merchants Group and by a lot of Chinese capital and potentially the word has been to be used as a staging post for Chinese forces into the Indian Ocean and potentially on their anti-piracy roles over in over in the western Indian Ocean so you really are feeling quite quite enclosed if you look at that way Hannah is my neighbour so I have to give her the one opportunity to ask a grander question so Hannah I'm Hannah we're also from the Lowe Institute I just had a question about going back to bankable projects because obviously we've talked about China's initiatives but the World Bank and the Asian Development Bank of which China was also part of are also trying to unlock these bankable projects in the same region where do you see the established multi-lateral development banks are fitting into Oboe Yeah the AIIB has been quite open about its desire to work with the ADB and look I think this is really good and ADB is very much a Japanese institution and anything that brings those two institutions together is obviously good for all of us if they're talking at that level so the AIB has been talking about how do they the AIB I don't think will because given the political nature of its first investment it they'd have to nearly do it alongside another reputable multi-lateral like the IFC the ADB I mean the IFC is the investment arm of the World Bank so the IFC, the ADB are the two logical partners that they would look at investing alongside The other interesting thing is the AIB also would like to invest alongside other institutional investors and they could be you know we've had discussions with them I dare say that the big Canadian pension funds who are now looking at investing in Asia PSP, CEPQ, CPPIB you've got some very large Middle Eastern sovereign wealth funds now like the Katari Investment Authority the Kuwait Investment Authority so you've got a lot of very large institutional investors now who are looking at investing in Asia Asia from where I sit at Hastings is becoming more and more of an interesting market and people want a club as a way of de-risking political risk and execution risk you want a club you want to actually invest alongside others that have a very similar view of the market and a very similar risk tolerance that's the key issue here how do you mitigate risk so I think the AIB will be looking when it makes that first investment to invest alongside one of those large multilaterals whether it be the ADB, the IFC or some of those other large institutional investors and sovereign wealth funds Thank you so much I think this is the end of the event I think we'll have a very informative session and do we have another representative on EMP? Oh yes, oh Matthew, sorry Of course there are competitors Yeah Ah, good afternoon everyone On behalf of you all I'd just like to thank Grant for a most erudite and informative presentation I'm sure we're all leaving today much better equipped So thank you Grant I think it'd be very remiss not to thank Peter for asking such excellent questions Thank you Matthew Definitely showing your journalistic background And most of all to a fabulous audience who was so engaged and really stimulated a great discussion Would you please join me in thanking Grant