China’s outbound investments fell by 35% in the third quarter of 2016, with a 90% decline in direct government to government loans.

Just 12 government-related loans (including those by policy bank and China’s multilateral agencies) were signed in Q3, worth US$14.7bn. This represents a 40% decline in overall state-backed lending volume and value compared to Q2.

Overseas lending last quarter consisted of nine policy bank loans, one government loan, one New Development Bank (NDB) loan and just one loan from the Asian Infrastructure Investment Bank (AIIB).

Analysts from Grisons Peak, a merchant bank that compiled the data, attribute the slump in part to the G20 Summit which took place in Hangzhou in September. During this, China’s President Xi Jinping met with more than 30 national and organisational leaders, entering into 33 multi-deal agreements.

These will expect to filter through in the next few months and should boost overseas lending in the quarter to come.

“In this quarter, China entered 33 multi-deal G2G agreements, up 83% from Q2 (18 agreements) and an all time high in our eight years analysing this component,” analysts write, adding that significant amounts can expect to be disbursed from Q4 as a result.

The decline, however, runs counter to an expansion in domestic lending in China. China’s banks issued new loans worth Rmb1.22tn (about US$181bn) in September, an increase of 29%.

However, the veracity of the official data has been questioned by some analysts. Capital Economics’ China expert Julian Evans-Pritchard says that overall credit growth has, in fact, not picked up.

“The figures are no longer the best guide to credit trends as they omit government bonds, whose share of total credit has increased sharply in recent years. Outstanding government bonds are still growing rapidly, thanks to the local government debt swap program.

“But growth has slowed somewhat from a peak of 70.2% in May to 57.9% last month. Adding government bonds to the total social financing (TSF) figures, our augmented TSF measure suggests broad credit growth actually slowed from 16.8% year-on-year to 16.7%,” he says.

He adds that while the growth of direct financing slowed slightly in September, general growth remains relatively strong.

Belt and road

Grisons Peak data does show that seven of 12 government-related loans in Q3 were to countries involved in China’s One Belt One Road (OBOR) initiative, mainly in Africa and Asia.

OBOR was first presented by President Xi in 2013 and aims to develop two corridors linking China to the world. The ‘Belt’ refers to the historic overland Silk Road trading routes connecting China via central Asia to Europe and the Middle East. The ‘Road’ refers to the maritime equivalents to the south, linking China, Southeast Asia, India and Africa.

There are 65 countries involved and the huge base of projects is designed to spur US$2.5tn of cross-border trade every year. This year, it’s estimated that Chinese companies have signed 4,000 engineering contracts connected to OBOR worth US$70bn.

However, HSBC has warned that western companies are failing to take advantage of the opportunities that OBOR presents to them, despite the fact that many are already versed in using the Chinese currency.

According to a survey the bank conducted of 1,600 decision-makers in 14 countries, 24% are using renminbi (Rmb), but just 41% are aware of the opportunities OBOR presents.

Most of the public announcements around OBOR have been involving Chinese players, with the China Development Bank (CDB), for instance, going public with its plans to lend US$895bn to projects along both spokes.

A HSBC spokesperson tells GTR that the bank is involved in “at least half a dozen belt and road projects” outside of China, and that “it’s commonplace for Chinese companies to partner with local companies in a local market”.

A report authored by British construction giant Arup, meanwhile, states: “We are already active in projects along the OBOR. Our portfolios range from mega infrastructure projects such as airports, railways and seaports to smaller scale community projects such as residential buildings, arts and cultural venues and mixed-use developments.

“Through these projects, we have established long-term relationships with key clients and collaborators and also obtained a good understanding of the local culture and business environment.”

Since OBOR’s inception, companies have struggled to develop a strategy to meet the opportunity, according to Ben Simpfendorfer, the founder of Silk Roads Associates, an advisory firm.

Speaking to GTR earlier this year, he said: “Belt and Road is interesting. There’s a huge amount of scepticism around it but that’s because people are focused on the strategic implications rather than the commercial implications, they tend to get to wrapped up in the big picture, perhaps rightly so given that it is spread over 60 countries.

“Policymakers may not necessarily understand the markets they’re dealing with; every country is different. But the reality is we need to focus on the commercial implications: what does it mean for me as a company, for my partners, my competitors and my suppliers.”