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Dispelling fears of China’s capital flight control measures

 | May 7, 2017

Economist says China won't stand in the way of projects under the One Belt One Road initiative.

Lee-Heng-Guie-china-belt-roadPETALING JAYA: An economist says China’s “aggressive” capital controls is unlikely to result in major Chinese-led projects in Malaysia being shelved, amid concerns over the impact of Beijing’s fight against capital flight.

Speaking to FMT, Socio Economic Research Centre executive director Lee Heng Guie said China’s One Belt One Road (Obor) initiative was vital to Beijing’s geo-economic and trade strategy and that it wouldn’t stand in the way of the completion of such projects.

He said China’s capital controls would make it more difficult for foreign acquisitions by Chinese companies and add “higher hurdles” for foreign exchange (forex) purchases by individuals, but isn’t expected to derail the Obor initiative.

“China’s capital flight control measures aren’t blanket measures. They are aimed at discouraging mergers and acquisitions of a certain amount, particularly investments in non-core sectors of Chinese companies.”

Lee said forex restrictions will only have a “limited” impact on Obor and projects within the initiatives as these infrastructure-oriented projects were critical to China’s geo-economic strategy.

“Obor’s success will hinge on Beijing’s firm commitment to see it through and China’s economic conditions, as will policy, operational and implementation risks.”

Aside from these, what could also derail Obor are the economic situation and policy environment of participating countries.

“As an example, if a new party takes over the government or a country’s new leader decides to scrap projects which are part of the bigger Obor initiative, then it will derail Obor.

“These are more of the factors which could derail Obor rather than capital flight control measures.”

Lee added that China must continue to engage participating countries and dispel concerns over territorial and sovereignty issues, to ensure that participating countries realise the mutual benefits of Obor.

Beijing has signed some US$926 billion in projects along the Obor route, including railway networks, highways and ports in areas like Laos, Malaysia, Pakistan and Vietnam among others.

It has also developed over 50 overseas economic and trade cooperation zones along the Obor route, aimed at boosting trade and investments.

In Malaysia, one of the notable projects along the Obor route, include the RM43 billion Melaka Gateway project.

The Melaka Gateway project, seen as an attempt to compete with Singapore, features a deep-sea port to be built by 2019 on Pulau Melaka off the coast of Melaka. There’ll also be a cruise terminal and a waterfront district with hotels and a giant observation wheel.

Earlier, veteran economist Hoo Ke Ping voiced concern that the Melaka Gateway project may not materialise due to China’s strict capital controls and that even if it was completed, it may not be viable.

Economist foresees doom for Melaka Gateway

China’s port project in Malacca under scrutiny

Analyst: Is RM43b Melaka Gateway for China trade or military?


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