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Thread: CPEC and Developments

  1. #121
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    Quote Originally Posted by Double Edge View Post
    OK, so the same game when they make incursions wherever and dare whomever to resist. Few can, some bandwagon aka Phillipines. China win

    What disincentives do the Chinese have in place to prevent a country from refusing to pay ? they can stagger development where completion of projects means more to come or none. But if the payment terms are in decades why did Hambantota get taken over. It was developed only in 2010. So its not that.
    The only legal way is to take the defaulting country to court. Military tactic won't work, as the local population would go against the Chinese.

    The interesting part is when the infrastructure building gets over, then the payments stop. The host gets the infrastructure and doesn't have to pay for it. This is what happened in SLanka, but the SLankans had to pay. The port got taken over because earlier the interest compound was $60 million per year. They have to run their country too. So they got around by giving the lease of the port for 99 years, and paying much less interest rate.

    Quote Originally Posted by Double Edge View Post
    The Chinese can't threaten war. What effect would imposing economic sanctions have ? all these countries they are in buy from them not the other way around. shooting themselves in the foot.

    Would like a credible answer to what if one does not pay

    My guess is state capture. Take over 20% and more of the debt and get state capture. There will not be a single refusal in that case as you own the decision makers. Exceptions are always possible though and then we will have a test case
    Economic sanctions never work. There will always be smugglers who would bring in the goods via a 3rd country. To capture the state and have a say, the Chinese need 51% which would put them in control, which they have in the case of SLanka (70%).

    Quote Originally Posted by Double Edge View Post
    Can you explain further
    Most countries that matter are watching the Chinese very closely. China is building weapons, picking up stakes globally, building infrastructure in other countries as it's in their economic as well as strategic interest. The problem here is the Chinese have been very loud and aggressive, without having the necessary military build-up to meet it's objectives. This has made many stable governments to look for and seek alliances. China is alone in this fight. Now that the prelude is over, what I guess is that the first country that refuses to pay would be an African country with the backing of another country. Then there would be other countries following that test case. No bullet is fired and China loses a substantial amount of its reserves crashing markets worldwide. Heck, even the Paks would smell blood.

    Quote Originally Posted by Double Edge View Post
    India is investing with the help of the Japanese and by extending the chabhar road to central asia that then connects with the russians
    And Africa too. The issue here is, even with a majority government, reforms are slow and project implementation are not visible on the gound. The Iranians are pissed off because of this approach.

    Quote Originally Posted by Double Edge View Post
    No narrative just me questioning the negativity. If all they talk is negative that tells me the majority could actually succeed. If all you hear is good news then its the opposite.
    Look at it the other way. All talks coming from Pak and China are mainly positive, with few dissenting Pak voices. And most talk from India or the west focusses on the debt trap because the example (SLanka) is for all to see.

    Quote Originally Posted by Double Edge View Post
    No one figured out how to do dry aged in the north east yet ? Only a matter of time what with no legal hassles to deal with.
    Beef (cow, bull meat is banned in Assam, though not enforced, buffalo is not banned) that is consumed in India is not reared for meat production. They are skinny and after their useful life (cow=milk, bull = agriculture) they are sold in the meat markets. That meat is like rubber and there is no concept of steak there. The tribals do dry meats of various animals like cow, buffalo, hog, deer, goat, lamb and even fish, but they do fire drying over charcoal for months. So much so that every tissue get reduced to a very fine flake of meat, in which dried garlic and ginger, dried pepper, cumin etc is added and turned into a dry pickle for use during winter.

    The dry aging in the west is done in a temperature controlled room with cold air blowers. For a USDA prime beef (top notch in quality), the norm that is followed is to age it for a minimum of 28 days to 45 days. Though now, some chefs are aging it for as many as 400 days. 45 days is okay, as the flavour intensifies and reaches the centre of the meat piece. Much like how cheese and wine are made. In places like Bangalore, it's buffalo, and the butchers don't trim the connective tissues and hence the meat most of the time gets chewy and hard. Butchering is an art, and I have never come across a single one in India who does it the right way, not even the Qureshi Muslims who have been butchers for centuries.
    Last edited by Oracle; 16 Sep 17, at 08:14.

  2. #122
    Senior Contributor DOR's Avatar
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    Sovereign debt is most vulnerable to (a) default, which is rare; and (b) the inability to find ANYONE willing to buy the debt, which is almost nonexistent.

    If China were to drop the majority of, say, Sri Lanka's sovereign debt onto the markets, as "punishment" for some slight, what would happen?

    1. The price would collapse, making it historically cheap for the issuer to buy up her own debt at fire sale prices.
    2. The seller (China) would incur large financial losses.
    3. The market would recognise a bargain ("mispricing") and step in to correct the anomaly.
    4. The issuer would be in a much stronger position to borrow anew.
    5. The market would scratch its collective head and wonder where China would next drop a windfall in its lap.

    Now, given the last 40 years of China's economic decision making, who here thinks dumping debt on the market is something likely to happen?
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  3. #123
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    DOR,
    By issuer, if you mean SLanka, then who would trust that country again for investments? The condition of Greece was very bad in the last financial crisis. Markets might gain, but China still loses money. Am I correct in undertanding your post?

  4. #124
    Turbanator Senior Contributor Double Edge's Avatar
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    Quote Originally Posted by Oracle View Post
    By issuer, if you mean SLanka, then who would trust that country again for investments?
    Defaulting means the cost of borrowing in the future goes up across the board. Sovereign debt ratings get a low score. This in itself is a strong disincentive not to default let alone refuse because future becomes very uncertain.

    What happened in Greece was the ECB prxy for Germany was insisting on austerity measures which the Greeks refused. There was talk of Grexit, then a far left govt entered office and renegotiated the terms.

    The port got taken over because earlier the interest compound was $60 million per year. They have to run their country too. So they got around by giving the lease of the port for 99 years, and paying much less interest rate.
    Am just surprised it happened in less than a decade. That's what white elephants are. This was bad planning on the Sri lankan part. But the present administration gets to blame it on the previous guy.

    To capture the state and have a say, the Chinese need 51% which would put them in control, which they have in the case of SLanka (70%).
    No need for 51%, little over 20% of GDP is enough to be at high risk of political & economic state capture. See executive summary, page xi about bulgaria in this report

    No bullet is fired and China loses a substantial amount of its reserves crashing markets worldwide. Heck, even the Paks would smell blood.
    Which acts as a disincentive right. Nobody wants crashes.

    Look at it the other way. All talks coming from Pak and China are mainly positive, with few dissenting Pak voices. And most talk from India or the west focusses on the debt trap because the example (SLanka) is for all to see.
    The only positive i hear is from the Pak govt but i sense its more to counter the negative media coverage within Pakistan. It isn't entirely disingenious

    Beef (cow, bull meat is banned in Assam, though not enforced, buffalo is not banned) that is consumed in India is not reared for meat production. They are skinny and after their useful life (cow=milk, bull = agriculture) they are sold in the meat markets. That meat is like rubber and there is no concept of steak there. The tribals do dry meats of various animals like cow, buffalo, hog, deer, goat, lamb and even fish, but they do fire drying over charcoal for months. So much so that every tissue get reduced to a very fine flake of meat, in which dried garlic and ginger, dried pepper, cumin etc is added and turned into a dry pickle for use during winter.

    The dry aging in the west is done in a temperature controlled room with cold air blowers. For a USDA prime beef (top notch in quality), the norm that is followed is to age it for a minimum of 28 days to 45 days. Though now, some chefs are aging it for as many as 400 days. 45 days is okay, as the flavour intensifies and reaches the centre of the meat piece. Much like how cheese and wine are made. In places like Bangalore, it's buffalo, and the butchers don't trim the connective tissues and hence the meat most of the time gets chewy and hard. Butchering is an art, and I have never come across a single one in India who does it the right way, not even the Qureshi Muslims who have been butchers for centurie
    There are steak houses in the city. They use wet aged. About 30 days and its not hard or chewy. Dry aged requires some investment that's all. The demand is there. You won't get corn fed but the stuff we get here when done right isn't bad. Dry aged is a new thing in any case.

    Quote Originally Posted by Oracle View Post
    There is no single authentic source claiming the real interest rate. Some Pak analysts say that it is as high as 17%.
    17% is for early harvest projects which the Pak development minister in a talk made clear. These are commercial to get the ball rolling. I would be surprised if there is a default here as it wont be good for future development. Not all will be commercial as the payment terms are not interesting for commercial banks who want faster payback. Not that this distinction matters to journalists they still write as if every project is commercial and at 17%. No wonder the pak fin min has a rebuttals section. Don't be cynical and ignore it. Take it into account and figure out the mean. Scary, attention seeking rhetoric sells. Why are only the journalists right. example. Also look at the Banglas. What terms are they getting from the CNB. Will be similar. We should be talking about Bangla deals here too to get some perspective.
    Last edited by Double Edge; 16 Sep 17, at 21:31.

  5. #125
    Turbanator Senior Contributor Double Edge's Avatar
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    Digging further into this Hambantota business

    Within the arc of Chinese influence | Hard news | Sept 15 2017

    it looks like Sri Lanka were unable to make even the first payment that came due in 2017, this was known at the time the deal was made when Sri Lanka was growing at 6.4%. Its dropped near 3% now. So why borrow ? To reconstruct after the war and to win his second term as president in early 2010

    The big question is why did the coalition government of the SLFP and UNP, which came to power on the promise of stopping corrupt deals allegedly transacted by the previous government in the Colombo Port City project and Hambantota, end up clearing the same deals with China on terms that hurt its credibility? There are many versions, primarily due to the opaque nature of the agreements that the previous government signed with China to bring in funds to develop the country. No other country wanted to invest money in Sri Lanka because of Rajapaksa who had become an international pariah after the manner in which the Tamil Tigers challenge was brutally extinguished. China, besides Pakistan, supplied arms and provided support to fight this ethnic conflict. Beijing also offered loans for reconstruction which the controversial President sought to leverage to consolidate support amongst the masses.

    Rajapaksa got loans from China to build the road network and infrastructure in Hambantota, which happens to be in his neck of the woods. The total loans that he took to build these infrastructure projects, including Colombo Port city, was around $8 billion. At the time, there were fears that the government may find it difficult to service these expensive Chinese loans and they could be heading into a debt trap. On the flip side, the Chinese companies, too, did not really ask tough questions, like many lenders do, about Colombo’s ability to pay. This is the major reason why detractors of the deal like ousted minister Rajapakshe claim that the intentions of the Chinese were not honourable.
    He takes loans from the Chinese to win his election but when its time to repay says the Chinese are not honourable.

    There is a layer of banking and lending is an evil conspiracy to be stripped off here.

    Then there is the domestic politicking between opposition and ruling party layer to strip out get some sense out of this story.

    Rajapaksha can't be President because his two terms are up but he can always run for PM and by the looks of it he's getting ready. Imagine we will be hearing more from him soon. So expect more hot air and whosoever wins the next election does exactly what the previous did and the cycle continues. Chinese will get bashed each way to Friday but will get their rightful dues for loans made

    The Hambantota project, like Colombo Port city, also promised ownership of the land to the Chinese which raised issues of sovereignty, with some of Rajapaksa’s critics claiming that he was turning the island into a Chinese colony. Those allegations, interestingly, have surfaced again after Sri Lanka was compelled to renegotiate the Hambantota port deal. As the Sirisena government stared at the ballooning debt which was a result of its predecessor’s profligacy, it was compelled to renegotiate the Hambantota port deal by turning debt into equity and giving it on a 99-year long lease. Colombo, it seems, did not have much of an option to ward off the Chinese when contractors of the southern port, China Communication and Construction Co. Ltd, demanded $143 million as compensation for stopping of work. The government of Rajapaksa was forced to walk the thin line between saving the country from default and pursuing development with little resources.
    Now they have to relocate people on the land that China leased except the locals living there won't leave their ancestral land, without a fight. They want compensation.

    I don't know to what extent the leased area of Hambantota compares to Hong Kong but the brits made that place rich, they did such a good job that its inhabitants did not want to join China, 99 years later. Could the Chinese repeat that feat at Hambantota ?

    Was chatting with someone earlier who told me Dubai sees Gwadar as a potential competitor. I can't quite figure that one out yet. Are there any advantages to sharing shiploads at Gwadar instead of Dubai, what gains are there to be had here

    Gwadar and Hambantota becoming PLAN ports is all well and good but if they could be self financing it would be even better otherwise they are a cost centre
    Last edited by Double Edge; 17 Sep 17, at 15:03.

  6. #126
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    Quote Originally Posted by Oracle View Post
    DOR,
    By issuer, if you mean SLanka, then who would trust that country again for investments? The condition of Greece was very bad in the last financial crisis. Markets might gain, but China still loses money. Am I correct in undertanding your post?
    Exactly what part of "China dumps the debt on the market for purely political reasons" implies some inability to repay on the part of Sri Lanka?

    Bear in mind I am not focused on Sri Lanka; this is about the utility of using debt as a political tool.
    Last edited by DOR; 17 Sep 17, at 08:10.
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  7. #127
    Turbanator Senior Contributor Double Edge's Avatar
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    First test case with defaulting to repay China. Venuezuela

    Were the Chinese being reckless with their money to the tune of $60bn or is this a product of circumstances beyond their control. Oil prices were much higher in 2007 compared to today. Trump seems to have indirectly contributed to the problem. But it shows how the Americans can endanger CPEC too

    Chinese Private Sector Has Lost Billions in Venezuela | Sina | Aug 31 2017

    Well-known Chinese news site Sina recently reported that, so far, based on the latest statistics, investors from China’s private sector have lost US$3 to US$5 billion in Venezuela. Venezuela is China’s biggest investment destination in Latin America. After years of an unstable situation in that country, most of the Chinese investments were already in deep trouble. Only some projects that resulted from government agreements are still enduring.
    This experience is only going to make chinese deal even more with govts in the future at the expense of the local private sector.

    Since it can no longer obtain loans on the open market, due to the recent Trump sanctions against Venezuela, that nation is sliding deeper into chaos.

    In 2007, China and Venezuela established the Joint Chinese-Venezuelan Fund. Over the past decade, the overall funds totaled around US$40 billion, with the investments focusing on infrastructure as well as economic growth.

    In 2010, China provided an additional US$20 billion loan to Venezuela to obtain a sustained oil supply. Most of the private Chinese investors did not participate in the projects that these funds financed. As of now, nearly all the companies in this category have completely withdrawn from that market. According to a 2015 study that the Chinese Academy of Social Sciences (CASS) did, Venezuela is the riskiest investment destination for China. It is worse than Iraq and Sudan.
    Now what does China do ?
    Last edited by Double Edge; 17 Sep 17, at 15:20.

  8. #128
    Senior Contributor DOR's Avatar
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    I don't see any "defaulting to pay China" here.

    Sina says, "Investors from China's private sector;" and the oil deal is for, um, oil?

    When Venezuela can't supply the oil, that's when there might be a default. If the oil is now over-priced vis-a-vis the spot market, that's not a default.
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  9. #129
    Turbanator Senior Contributor Double Edge's Avatar
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    How to interpret 'lost billions' ?

  10. #130
    Senior Contributor DOR's Avatar
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    Quote Originally Posted by Double Edge View Post
    How to interpret 'lost billions' ?
    Bought high, sold low?

    It is quite common to contract to buy oil or some other commodity at a given price, and then have the price move against you.

    Let's say today's spot price is $100/bbl.
    Buyer and supplier sign a 10 year contract for 1,000 barrels a year at $90 (discounted, since seller get a guaranteed transaction and buyer is stuck with the price).

    Next year, the spot price goes to $110 and the buyer is happier than the seller.
    In Year 3, the price goes to $50 and the buyer "lost billions on the deal," because he could be buying on the spot market at half the price.
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  11. #131
    Turbanator Senior Contributor Double Edge's Avatar
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    Ah you're referring to oil futures and in that case there will be others who also lost. The mandarin translation has this to say

    In 2010, PetroChina and China National Development Bank signed a loan-for-oil agreement with Venezuela. China will provide Venezuela with a total of US $ 20 billion in financing for 10 years. The National Oil Company signed a petroleum purchase and sale contract with PetroChina as a repayment guarantee.
    That's the futures oil deal

    However...

    In 2007, the two sides established the "Joint Chinese-Venezuelan Fund" (hereinafter referred to as "the Central Committee Fund"), by the China Development Bank to inject funds in the form of loans. According to official data, as of July 2014, the Central Committee Fund rolling total of 40 billion US dollars. About 90% of the fund focuses on Venezuela's infrastructure and economic development, investing in oil, mining, electricity, agriculture, transportation and other fields, about 5% -10% for import trade, procurement services from China and machinery, equipment, And other materials.
    That's the development bit

    But as economic conditions worsened the Venezuelans appropriated the central committee fund

    Chinese Academy of Social Sciences Institute of Latin American researcher Xie Wenze told the "financial" reporter that the Venezuelan government has full autonomy for the loan and the Chinese government has no right to interfere, "it became Venezuelan money the moment the loan was made"

    Since the collapse of oil prices in 2015, Venezuela got into a serious recession, the Commission may temporarily use the Central Fund to improve foreign exchange reserves, may also partly use to repay the external debt to other countries, and for the import of much-needed livelihood materials.
    Private investors lost, because of poor security conditions work could not be continued on some projects

    Prior to 2014, high oil prices, rich and powerful government developed a large number of economic and social development projects. Many Chinese private enterprises hold two expectations - Venezuelans are rich, the Chinese Communist Party relations are good, and so entered nto the Venezuelan market. "Private enterprises are characterized by short, flat, fast, in order to get the project contract regardless of the risk, regardless of the price." Xie Wenze said.
    The arrears built up and we learn

    Xie Wenze said that for the project not included in the cooperation of the CPC, the Chinese side is of very limited help,
    So some have lost their shirts here. The venezuelans introduced price controls which ignore the cost of production

    it looks like no bailout from the CNDB is possible here
    Last edited by Double Edge; 19 Sep 17, at 13:09.

  12. #132
    Turbanator Senior Contributor Double Edge's Avatar
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    Looking at how Hambantota got taken over, my take is Rajapaksha was playing with a weak hand and the Chinese were the only game in town. He got into a deal that could not be tenable for his own selfish political reasons and landed the country in a mess. In other words there were a unique set of circumstances at play here. Generalising Hambantota to elsewhere and everywhere isn't so cut and dry. Just because it happened there doesn't necessarily imply it will also happen everywhere.

    If leaders are weak and self interested then chances increase so blame Rajapaskha for hambantota

  13. #133
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    Quote Originally Posted by Double Edge View Post
    Ah you're referring to oil futures and in that case there will be others who also lost. The mandarin translation has this to say


    That's the futures oil deal

    However...


    That's the development bit

    But as economic conditions worsened the Venezuelans appropriated the central committee fund



    Private investors lost, because of poor security conditions work could not be continued on some projects



    The arrears built up and we learn



    So some have lost their shirts here. The venezuelans introduced price controls which ignore the cost of production

    it looks like no bailout from the CNDB is possible here
    I confess I'm not following this story, so it isn't clear to me who is the private investor.
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  14. #134
    Turbanator Senior Contributor Double Edge's Avatar
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    Quote Originally Posted by DOR View Post
    I confess I'm not following this story, so it isn't clear to me who is the private investor.
    Private Chinese infrastructure and other companies that jumped on board over time after the deal with venuezuela was struck ?

    They don't mention any company names in the sina article though

  15. #135
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    Victimless crime?
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