The "non-investment grade" sovereign rating assigned by a domestic credit ratings agency to most of the nations involved in the "Belt and Road Initiative" underlines the potential risks of investing in those countries, experts said on Wednesday.
In a report that analyzes the credit risk for the "Belt and Road" strategy, an initiative proposed by President Xi Jinping to strengthen connectivity among Asian, European and African countries, China Chengxin International Credit Rating Co Ltd found that half of the nations have a sovereign rating below BBB, a rating that is considered to be "junk-level".
The agency found a vast disparity among the ratings of the 28 nations that it had studied: Top-rated Singapore (AAA, a stable outlook, the only country that got the rating) coexists with the most poorly rated, including Greece and Pakistan (both CCC, with a negative outlook).
Most of the Central Asian nations got a rating below BBB-, except for Kazakhstan and Uzbekistan. Nearly half of the Southeast Asian nations got a rating below B. Most of the South Asia, Middle East and African countries got a rating below B+, except for India (BBB, stable outlook). China Chengxin assigned a AA+ rating for China.
Different countries also carry vastly different risks. For example, though most European nations have low economic risks, they have high fiscal risks. Central Asian nations generally have low debt risks, but high political risks. The report urged investors to factor these aspects before making investment decisions.
The report noted that except for European nations, most of the countries on the "Belt and Road" are transitional economies, which usually face unstable domestic politics, single dependency on certain industries, high public deficits and current account deficits, and are vulnerable to external shocks such as political unrest and commodity price volatility.
However, the picture is not all that grim. Mao Zhenhua, founder and chairman of China Chengxin, said considerable returns might correlate with the seemingly high risks, as long as investors take care of specific risks in each nation.
Mao said it is critical for investors involved in the "Belt and Road Initiative" to adhere to the "market-oriented" principle. Investors should align infrastructure investment with sound industry development in a certain country, and set a boundary between commercial-oriented investment and policy and aid-oriented investment.
The view is echoed by another report from advisory firm McKinsey & Co. The firm said instead of pursuing the "State-led, resources-oriented and unilaterally benefiting" model, China should go after another "commercially-driven, industry fostering and mutually beneficial model".
"Chinese investors should fully consider the concern of other countries. Infrastructure projects are needed, but investors should also help those nations foster industries that cater to their resource endowment. Infrastructure spending should align with software exports, such as administration capacity, talent and expertise," the report said.
