China’s new Silk Road to Europe runs straight through junk bond territory

CHINESE PRESIDENT Xi Jinping’s new Silk Road to Europe traverses territory where most bond investors fear to tread.

Of the 68 nations China lists as partners in its Belt and Road Initiative, the sovereign debt of 27 are rated as junk, or below investment grade, by the top three international rating firms. Another 14, including Afghanistan, Iran and Syria, are either not rated or have withdrawn their requests for ratings.

President Xi’s vision, first proposed in 2013 and this week elevated to an official policy enshrined in the Communist Party’s constitution, involves spending as much as $ 1.2 trillion on railways, roads, ports and power grids over the next decade, according to Morgan Stanley. The intent is to open new business opportunities for domestic companies and extend China’s reach — even though the route cuts through multiple conflict zones and some of the world’s most corrupt countries.

Outlining a road map for his nation through 2050 at this month’s 19th Party Congress, Xi said the Belt and Road Initiative is pivotal. “We hope to make new ground in opening China further through links running eastward and westward, across land and over sea,” Xi said.

The National Development & Reform Commission, China’s top planning body, and the Ministry of Commerce didn’t respond to written requests for comment on the financial risks in the Belt and Road Initiative. — Bloomberg