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  2. About BFA

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  6. BFA Academy

  7. Areas of Focus

  8. Regional Cooperation

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Production Capacity Cooperation between Asia and Europe
Origin:Boao Forum for Asia      Time:2015-11-15 17:29:27    Views:320310

Moderator

Tian Wei,     Anchor, CCTV

Speakers

MT    Michael TRESCHOW, Chairman, Unilever

 

YW   Yibing WU, Senior Managing Director & Head of China, Temasek

 

MYE  Michael YEOH, CEO, Asian Strategy & Leadership Institute

 

ZX    ZHANG Xiaoqiang, Former Vice Chairman, NDRC, Executive Vice Chairman, China Center for International Economic Exchanges, a think tank

 

ZYA    ZHANG YAN, Chairman, CEFC Wanda Futures

 

Synopsis

 

 

Tian Wei opened proceedings by saying "this topic may not sound sexy but it is.  Some countries in Asia are experiencing industrialisation and urbanisation while in Europe it is about re-industrialisation.  The session was to look at the new mechanisms.  She began with an important topical concern in Britain.  The current closures in the UK steel industry and of Britain taking the issue to the EU, amid concerns and claims that the industry is suffering by the dumping of steel from China 

 

Michael Treschow said that every time there is a business case of this nature it is a disruption affecting the supply chain.  He said there are a lot of these bottlenecks for global companies: including sugar quotas in China, licences in Indonesia,  European issues with some foods from North Asia and climate change.  He said that only in multilateral agreements can solutions be found.

 

Zhang Xiaoqiang spoke about whether China exporting production capacity to developing countries could be causing a problem.  He said that the main exports were low end products like iron and steel  and that some countries needed this production facility as they could then create jobs and export equipment they produced.

 

Tian Wei asked  Michael Yeo how much opportunity there was for co-operation on production capacity.  He said it needs to be done on the global supply chain.  In times of strong economies this high production would be absorbed.  But now the economies are slow.    He said the same issues with steel were apparent in South west Asia.  The issue needed raising in order to find a co-operative mechanism and a win win situation.  He also said that another approach was to buy up supplies and sell them on to regions of high need, like the Middle East.

 

Yibing Wu said the focus should be on the complementary nature of China and Europe.  He said the developing world requires huge infrastructure investment, with long gestation periods.  And these are green fields projects which are very hard for investors.  Added to this were the different standards in project management, finance and politics. He pointed to three levels of collaboration.

1, Technology or component.  For example, many of Chinas high speed rail components come from Europe.

can have three levels of collaborationn

2, Project management.  Where some countries around China may even be stable, Europe has hundreds of years of managing projects

3, Financial collaboration.  With such great differences, Europes experience can be useful.

 

Tian Wei asks about financial support.mechanisms, like the Juncker Fund.  The funds are there but they dont get into projects.

 

Michael Treschow said issues like anti-dumping create questions for investors.  They say we cant do this and we cant do that.  When there are too many uncertainties, decisions are delayed.  Getting rid of bottlenecks is the way to get the funds to look at investments.  

 

Zhang Xiaoqiang pointed to large gap t between supply and demand is very big.  Where China, Japan and South Korea need $800nn for development each year,  the developing nations half that.  There was a need to mobilise more resources.  He said that if the commercial banks of Asia could take up this demand, it would give financial institutions much wider room for involvement in development. 

 

Yibing Wu agreed that the challenge was on financing greenfield infrastructure products.  He said the market was too shallow and more initiatives like the AIIB and the New Silk Road. For the moment, both public and private sectors should be participating so that the players can de-risk projects and standardise products.  Where equity returns would be low, there was a need to structure financial instruments to bring in sovereign wealth funds and banks.

 

Tian Wei asked Michael Yeoh who will assess these instruments and how can we make sure projects are financially viable.  Michael Yeoh said most commercial banks are short term but infrastructure is long term so long term instruments are needed.  this could be a job for the AIIB, public private initiatives, listing projects  or using , Islamic funds - sukuk. 

 

Zhang Yan pointed to their industrial finance model which also serves as a channel to pass down financial messages.  He said the market needed to set the prices and itself be given guidance on combining industrial and financial assets.  Other possibilities involved foreign exchange, the overseas issue of bonds and shares and the expanded  application of insurance guarantees.

 

Zhang Xiaoqiang said more countries now trust the renminbi. People can buy from China and avoid currency exchange risks.  

 

 

Tian Wei then raised another contentious issue in Britain: The co-operation between China and France on building a nuclear power plant in the UK. It raised the issue of what investments should be made abroad.

 

Michael Treschow said it depends of the product and a nuclear plant is amongst the most difficult.  He said the Silk Road project is fantastic for driving investment.  And he believed investment in hard infrastructure almost always pays off.  He thought high speed trains in China to be one of the better ones, which will pay off in the future.  If government takes the first step and gives a guarantee, then private finance can step in.  He said that if China developed a super digital network it would be a world leader.

 

Michael Yeoh said one of the key things in cooperation for China and ASEAN is connectivity.  Enhancing transport connectivity by road and rail and power which then fits into the Maritime Silk Road initiative. He spoke of Risk management, investment guarantees and organisations taking the lead on difficult to finance projects. One vision is the Kunming Singapore line.  At the moment there are missing links and those are very expensive.  They are not commercially viable but if organisations like AIIB provide funds for catalysing those links, it can be finished. 

 

Tian Wei asked about links with Europe and innovation.

 

Yibing Wu said the supply is in Europe, the demand in Asia.

 

Michael Treschow it boils down to capacity, knowledge and innovation.  He thought clusters of industrial parks like in Silicon Valley and Detroit will be a boon to development.

His company, Unilever and Alibaba werenow working together to advance each others needs.  But the future was, business by business, to see where to hook up.  

 

Yibing Wu said another key issue is the 30 year mismatch on banks needing returns and infrastructure.    He said Europe and Asia could co-operate on designing an appropriate 

infrastructure bond product.

 

Michael Yeoh said the innovation in small enterprises and start-ups was often neglected.  Focus there would spur growth but it needs the will of government and the support of the finance sector.  But they are often reluctant.  It needs 'angel investors' for new business and capital funding.

 

Zhang Xiaoqiang spoke of the need to to reform pricing systems and tariffs.  Getting the balance wrong can lead to lots of investment - but complaints from consumers.

 

Referring to the growing role of trade mechanisms in co-operation over capacity,  Michael Yeoh said free trade mechanisms like TPPA  can help.  It had the highest standards on employment and government procurement, with great transparency. It had resolved issues Doha stumbled on and opens up markets so production can be shared..

 

Michael Treschow  said trade agreements will make for common standards and level playing fields and will create a deeper market.

 

Tian Wei closed the session with a look at future trends.

 

Michael Yeoh saw opportunities for China in the Islamic world where there were a billion people and a need for infrastructure.  He spoke of developing a market in Islamic bonds - sukuk.

 

Michael Treschow  used the example of how textiles have travelled the world and are now coming from Africa.   He said it was a new continent, which would bring changes in the  supply chain of low cost goods.  And the biggest message was the impact of what digitalisation and robotisation will do.   Technology will shape the supply chain.  Deliveries will be by drone.