According to the Haitian Press Agency (AHP), China plans to invest $30 billion in Haiti’s infrastructure as part of its Silk Road initiative. This marks the first time to my knowledge that China’s trade and investment program will extend to North America, and makes a very interesting signal about the breadth, scope and ambition of the project.
According to the Huffington Post:
The agreement includes the construction of a 600 megawatt power plant to electrify Port-au-Prince, the construction of a new City Hall, markets, thousands of apartments, and eventually a railway from Port-au-Prince to the countryside. The center of the discussion was “the reconstruction of the main building of the Town Hall and the construction of several public contracts on the territory of the commune of Port-au-Prince,” according to LoopHaiti.
20,000 workers will begin work before the end of 2017, backed by an initial infusion of $5 billion. The Chinese Government has a deadline of September 30, 2017 to unblock the funds. In the meantime, Bati Ayiti, the City of Port-au-Prince and their partners continue to work on the recruitment of staff.
For any honest observer, I think the move highlights one of the potential upsides of the risk-taking currently making analysts like Bloomberg and Fitch nervous. For the Silk road to be commercially successful, Chinese banks will have to be better at identifying offshore investment opportunities than their Western contemporaries. And certainly this seems like a tall order in light of the less than market-based environment in which many banks operate and the poor record of success Chinese banks have had at allocating capital to their most efficient uses on the Mainland. Moreover, to the extent to which the Silk road is not just an economic development program, but also a foreign policy foray, resources may be allocated that do not conform with market supply and demand necessities.
That said, I think that the intervention in Haiti highlights a potential upside of inefficiency: that resources might be allocated to many worthwhile projects that otherwise might not have been financed by Western institutions, and which could dramatically improve the economic performance of countries trapped in a low savings/high debt credit cycle.
Of course, these same advantages could prove to be sources of financial risk if they contribute to the already historically high levels of non-performing loans on the books of many of China’s banks. But it is hard to not at least see at least a potential silver lining for some least developed nations.