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White House Optics Keep Chinese Investments Front and Center

The Trump Administration attended meetings in China with deals in hand creating anticipated optics (Image: South China Morning Post). Equities looks at an important company in this space.

The Trump Administration attended meetings in China with deals already in hand creating anticipated optics. Global investment in China and US relations have not been this strong since the Nixon era. This positions companies like Yangtze River Development Corp (NASDAQ:YERR) for growth as relations between the two countries evolves in this new era of globalization. Have a look at the information about this Nasdaq stock already positioned for improved Chinese and U.S. relations.

One Belt and One Road

In 2013, President Xi Jinping of the People’s Republic of China proposed two new international trade routes – the New Silk Road Economic Belt and the New Maritime Silk Road – that would connect China with European, Middle Eastern and other Asian countries. This modern equivalent of the great Silk Road – established more than 2,100 years ago during the Han Dynasty by the imperial envoy Zhang Qian – calls for the creation of a vast network of roads, railroads and the attendant supportive utility infrastructure.

This grand initiative, known as One Belt and One Road (OBOR), has attracted the interest of 68 countries with a combined GDP of US$21 trillion and an aggregate population of over 4 billion. President Xi “aims to create the world’s largest platform for economic cooperation, including policy coordination, trade and financing collaboration, and social and cultural cooperation.”[1] OBOR is considered to be a watershed event in President Xi’s term as China’s leader, “the clearest expression so far of Mr. Xi’s determination to break with Deng Xiaoping’s dictum to ‘hide our capabilities and bide our time; never try to take the lead.’ ”[2]

Source: University of Oxford, Faculty of Law

Substantial Progress by Chinese Government and Corporations

In a February 2016 report, PricewaterhouseCoopers estimated that OBOR will result in “up to US$1 trillion of outbound state financing from the Chinese government in the next 10 years.” Among the government’s specific vehicles to help allocate this money are the US$40 billion “New Silk Road Fund, the establishment of the Asian Infrastructure Investment Bank and the government directing large sums of its foreign exchange reserves and several of its largest state-owned banks to the initiatives.”[3]

At a forum in Beijing hosted by President Xi in May 2017, he pledged US$124 billion toward OBOR. Additionally, Chinese companies have been making significant investments in countries involved in OBOR, with 175 acquisitions totaling US$31 billion in 2016 and 109 deals valued at US$33 billion in 2017 (through August 14), according to data from Thomson Reuters cited by Fortune.[4]

While Chinese regulators have been increasing their scrutiny of cross-border transactions, “companies enjoy a relatively smooth approval process for deals along [OBOR] as regulators tend to put them in a different basket when reviewing outbound investments, according to lawyers and dealmakers. ‘If you are doing One Belt, One Road, that becomes the first sentence in the document’ to the regulators, said a senior investment advisor at a Chinese company that has acquired several overseas businesses.”[5]

American Companies Eager to Participate in OBOR

In 2014, General Electric sold only US$400 million of equipment to Chinese construction and engineering companies to install in the OBOR region. Last year, those orders totaled $2.3 billion, and General Electric will bid for an additional US$7 billion in orders for natural-gas turbines and other power equipment in roughly the next 18 months. GE has even reorganized its marketing staff for global power equipment to give Chinese orders priority. Rachel Duan, CEO of General Electric China, said, “We have a laser focus on winning these… When the roads are built, when the ports are built, when the power plants are built, I think the other opportunities will come”[6]

Citibank won a competitive bid over the Bank of China to handle a complex $3 billion bond offering in April 2017 to raise money for opening branches across Asia, Eastern Europe and East Africa, and Honeywell International is selling equipment to Central Asia for processing natural gas.

Wuhan Yangtze River Newport Logistics Center

Yangtze River Development, through its wholly owned Wuhan Newport unit, primarily engages in the business of real estate and infrastructural development with a port logistics center located in Wuhan, in the Hubei Province of China. Situated in the middle reaches of the Yangtze River, Wuhan Newport is a large infrastructure development project implemented under OBOR. We believe Wuhan Newport is strategically positioned in the “Pilot Free Trade Zone” of the Wuhan Port, a crucial trading window among China, the Middle East and Europe.

Source: Yangtze River Development Corp.

The Logistics Center will have six operating zones:

  • Port operations
  • Warehouse and distribution
  • Cold chain logistics
  • Rail cargo loading
  • Exhibition
  • Business activities

The Logistics Center is also expected to provide a number of shipping berths for cargo ships of various sizes. Wuhan Newport is expected to provide domestic and foreign businesses direct access to the Pilot Free Trade Zone in Wuhan. The project will include:

  • Commercial buildings
  • Professional logistic supply chain centers
  • Direct access to the Yangtze River, Wuhan-Xinjiang-Europe Railway and ground transportation
  • Storage and processing centers, IT supporting services and other critical services

Sources of Income

Our main source of expected income will be generated from the use of the warehouses, cargo loading and unloading, railway and highway transportation and logistics services and other logistics supporting services. It is also expected that income from real estate sales and leasing would be a relatively minor portion of our expected income, as we are planning to sell or lease only a small portion of our real estate properties such as office spaces.

Timeframe of Investment and Construction

The Logistics Center is expected to occupy approximately 1,918,000 square meters, for which the construction and development are expected to be completed in three phases in three years and reach its target annual profitability by the end of 2021, assuming the entire funding required for construction of the Logistics Center is in place by 2020.

Source: Yangtze River Development Corp.

Port Operations

The operational area of the port is expected to consist of a riverbank of 1,039 meters with eight 5,000-to-10,000-ton berths, two of which are multi-purpose berths and the other six are general cargo berths. It is designed to be able to handle up to 5,000,000 tons of cargo annually, including up to 100,000 TEU (twenty-foot equivalent units) for annual container throughput (including 20,000 TEU in freezer areas), 1,000,000 tons of iron and steel and 3,000,000 tons of general cargo.

Wuhan Newport has signed a twenty-year lease agreement, the maximum number of years permitted by law, and with rights to renew at our sole discretion to lease approximately 1,200,000 square meters of land for building logistics warehouses in support of the Logistics Center. The warehouses will connect the port terminal along the Yangtze River and the railway leading to Europe, satisfying the requirement of One Belt and One Road.

[1] Tian Jinchen. “One Belt and One Road: Connecting China and the World.” McKinsey & Company.

[2] Parker, John, “What is China’s belt and road initiative?” The Economist.

[3] Van der Leer, Yeroen, and Yau, Joshua. “China’s new silk route: The long and winding road.” PricewaterhouseCoopers.

[4] Reuters. “China’s Investment China’s Investments in Countries Along Its ‘Belt and Road’ Project Are Soaring.” Fortune.

[5] Ibid.

[6] Bradsher, Keith. “U.S. Firms Want In on China’s Global ‘One Belt, One Road’ Spending.” The New York Times.

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