The document discusses several topics related to business and finance outlooks:
1) Major central banks are gradually shifting monetary policy towards normalization as economies strengthen.
2) Financial regulatory reforms in advanced economies and China are being implemented.
3) China is also reforming how it manages its financial system and economy to address high debt levels and vulnerabilities.
4) Infrastructure investment needs globally are large, and China's Belt and Road Initiative aims to help meet these needs through connectivity and cooperation projects."
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2018 OECD Business and Finance Outlook Key Findings
1. KEY FINDINGS
OECD BUSINESS AND
FINANCE OUTLOOK
2018
Directorate for Financial and Enterprise Affairs
3 SEPTEMBER 2018
2. The 2018 edition presents new
analysis and practical recommendations
to governments on:
Addressing the remaining
vulnerabilities in the financial system.
How supply-side and demand-side
policies can help ensure foreign
infrastructure investment is high
quality, sustainable and works for all,
with particular reference to China’s
Belt and Road Initiative.
OECD Business and Finance Outlook
3. Five broad factors will shape the business and finance
outlook over the next few years:
• The gradual regime shift in monetary policy towards
‘normalisation’ (though at different speeds) in
advanced countries
• Financial regulatory reforms coming into effect
• The handling of high levels of debt in China
• The opportunities China’s Belt and Road Initiative
provides for sustainable growth for the world
economy
• The governance of global trade and cross-border
investment
Overview
4. • Markets have become used to very easy policy with zero rates
(some negative) and quantitative easing (QE) (Fig.1 and Fig.2).
• The first phase of QE was about dysfunctional markets while
subsequent phases have been about supporting the economy and
avoiding deflation while rates are at the zero bound.
• The US economy is stronger than elsewhere and the US central
bank is leading the normalisation of policy. The caps on the Fed
buying maturing securities will see a shift in Treasury securities and
MBS back into the private sector portfolios.
• Portfolio theory suggests that risk premiums will rise as the private
sector has to hold more debt and this, together with higher short
rates, will see bond yields continue to edge up throughout the
process.
Financial normalisation
5. Fig.1 - Interest Rate Divergence
-2.00
-1.00
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
%
United States Euro Area Japan Switzerland
6. Fig.2 - Central Bank Base Money
0
2
4
6
8
10
12
14
16
USD tb
Bank of England Bank of Japan European Central Bank System Federal Reserve
7. • Fig.3 shows the ranges for the extent of the bond yield rise.
• But there is room for surprises along the way since normalisation does not
occur in a vacuum:
– Mortgage backed securities have not faced a rate rising cycle for a
while and this may raise volatility as maturities lengthen (the opposite
of what happens with refinancing in falling rate periods)
– Volatility may possibly test derivative positions which remain very large
– Volatility may test the liquidity of high-yield bond markets, especially
where large block trade may be concerned
– Brexit and trade protection frictions may cause significant market
volatility
– There is always the possible re-emergence of inflation pressures
– Asset allocation shifts with foreign holdings of Treasuries can occur if
funds are needed for issue in home countries
Potential surprises along the way
8. Fig.3 - Bond rates will rise: Portfolio
balance effect and higher Fed funds
0
5
10
15
20
25
30
35
40
0
1
2
3
4
5
6
7
8
% of US GDP%
Input scenario
US-3 month rate US-3 month rate "bearish" US-3 month rate "moderate"
FED holding of treasuries Foreign holding oftreasuries
0
1
2
3
4
5
6
7
8
%
US 10-year bondrate
US-10 year bond rate US-10 year bond rate estimate
Equilibrium bond estimate "bearish" Equilibrium bond estimate "moderate"
9. • The BCBS reforms for Basel III in the 1st stage consisted of: an improved the definition of capital;
a backstop 3% leverage ratio; a capital conservation buffer; a Higher Loss Absorption
Requirement for global systemically important banks (G-SIBs); a better framework for market risk,
securitisation and counterparty credit risk; a Liquidity Coverage Ratio; and a Net Stable Funding
Ratio proposal.
• A final stage of Basel III reforms was published in December 2017:
--Enhancing the standardised approach to credit risk;
--Constraining the inputs to internal models;
--A revision to the credit valuation adjustment (CVA) capital charge for derivatives;
--A revised method for operational risk;
--A leverage ratio buffer for GSIBs (above the 3% ratio; and
--Output floors when using internal models (limiting the regulatory relief models can provide)
• The G20, IOSCO and Dodd Frank collateral and derivative rules were added to the reform
process.
• The Financial Stability Board organised the Total Loss Absorbing Capacity (TLAC) framework
which formalises bail in mechanisms in the event of resolution.
• This new framework is to be tested in the regime change under way with the normalisation of
monetary policy and any volatility that may accompany the process.
Regulatory reform in advanced
economies
10. • The Chinese banking system (see Fig. 4) is made up of the Big 4 (Bank of China, ICBC; the China
Construction Bank; and the Agricultural Bank of China); 3 important policy banks (the China
Development Bank; the Agricultural Development Bank of China; and the China Export-Import Bank; a
large number of smaller state-owned commercial banks; and a small sector of joint stock banks. Unlike
advanced countries the interbank market with “pledged” securities (no ownership transfer) and a shadow
interbank market Dai Chi has emerged with contracts that are not legally enforceable.
• China’s attempts to tighten monetary policy after the vast 2009 expansion to support the economy in the
face of the financial crisis led to an increase in shadow banking activity and the growth of so-called
wealth management products (WMPs) as illustrated in Fig. 5. There appears to be some parallels here
with similar events in advanced countries that led to the 2008 financial crisis.
• Higher returns are available in shadow banking and WMPs than in the regulated banking system, and
banks are very much linked with the entities and the activities and products involved.
• There were important interactions between shadow banks and the leveraged buying into the stock
market, which peaked in 2014 and crashed in 2015 causing problems for banks linked with WMPs—this
led to a lot of government stock market interventions (mainly selling bans and suspensions), cuts in
interest rates and exchange rate devaluation.
• Following this some problems arose in in the interbank and Dai Chi market in the aftermath of this
volatility 2016, which required policy measures to avoid stresses (for example the issues related to
Sealand Securities).
• However, high levels of company debt and concern with these off-balance sheet issues is leading to
major policy reform measures.
China too is in the process of reforming the
ways it manages the financial economy
11. Fig.4 - Structure of Chinese banks
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Total assets harmonised IFRS
(USDbillion)
0
50
100
150
200
250
300
350
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Total assets harmonised IFRS (%
of China GDP)
Other Chinese Banks The 3 Chinese Policy Banks The 4 Chinese G-SIBs
12. Fig. 5: Chinese bank assets,
on- and off-balance sheet
0
50
100
150
200
250
300
350
400
450
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
%of ChinaGDP
Off balancesheet Bankassets (harmonisedIFRS)
13. • The China Banking Regulatory Commission (CBRC) and the China Insurance
Regulatory Commission (CIRC) have been merged in order to better coordinate
micro/institutional-level financial supervision functions.
• Macro-level financial regulatory functions have been fully centralised in the People’s
Bank of China (PBoC) which will take a leading role in gauging systematic risks and
financial regulatory reforms.
• China’s Macro Prudential Assessment (MPA) framework is being strengthened to
cover more financial products, as is required to crack down on shadow banking
activities and to provide safeguards against systemic risks. These have been used
already to control leverage and off-balance sheet activities in 2017.
• Reflecting President Xi’s desire to elevate risk prevention as a top priority, The State
Council is to oversee financial stability and development, with a new Financial
Stability and Development Committee playing a key role.
• President Xi and past and current central bank governors support: encouraging
capital market financing as an alternative to bank credit, reducing intervention in the
equity market; and pursuing capital account convertibility and the internationalisation
of the yuan.
• It remains to be seen if debt and off-balance sheet issues can be resolved without
significant slowing of the economy.
Financial policy developments in
China
14. “China will actively promote international
co-operation through the Belt and Road
Initiative. In doing so, we hope to achieve
policy, infrastructure, trade, financial, and
people-to-people connectivity and thus
build a new platform for international
co-operation to create new drivers of
shared development.”
President Xi on the Belt and Road
Initiative
15. • The Belt (BRI) is a development strategy that aims to build connectivity and
co-operation across six main economic corridors encompassing China and: Mongolia
and Russia; Eurasian countries; Central and West Asia; Pakistan; other countries of
the Indian sub-continent; and Indochina (Fig.6).
• Transport infrastructure is important, but the BRI purports to be much more by
encompassing: sustainable development goals such as the environment, water
conservation, cultural exchanges, education and scientific cooperation; innovation;
energy and food security; and free trade zones along the Silk Road.
• The global economy needs between USD 50-80 trillion infrastructure investment to
meet sustainable growth needs to 2030 (see Fig. 7), and the Asian Development
Bank estimates that Asia alone will need USD 26 trillion over that period.
• China has already begun to provide large amounts of these needs. These
investments, by building infrastructure, have positive impacts on countries involved
by creating demand for industry and employment, while increasing connectivity.
• Countries participating in the Belt and Road are some 43% of the world economy
(see Fig. 8) while China faces internal financial constraints. This means that other
countries and multilateral institutions (such as the World Bank) will need to be
involved to meet the huge funding requirements.
Belt and Road Initiative (BRI)
17. Fig.7 - Global infrastructure needs
Source Sectoral scope
Actual / expected
annual investment
(USD trillion) 1
Investment need (USD trillion)
Time frame Total Per annum
Bhattacharya et al.
(2016)
Including power generation,
transmission and distribution,
primary energy supply, energy
demand and efficiency, transport,
water and sanitation and
telecommunication
3.4 (2015) 2015 - 2030 75–86 5–6
NCE (2014) - 2015 - 2030 96 6.4
OECD (2017a) 3.4–4.4 (2017) 2016 - 2030 95
6.3 (or 6.9 under a
2°C scenario)
GI Hub (2017)
Including roads, railways, airports,
electricity generation, transmission
and distribution, water and
telecommunication
2.3 (2015) growing to
3.8 (2040)
2015 - 2040 94
2.9 (2015)–4.6
(2040)
McKinsey (2016)
Including transport (roads, railways,
airports, and ports), water, power
and telecommunication
2.5 2016 - 2030 49 3.3
Investment needs in Asia alone are
USD 26 trillion to 2030, according to
Asian Development Bank estimates
18. Fig.8 - World GDP by major areas
20.1 20.6
26.6 30.2 32.3
2.3 4.1
7.4
12.1
18.3
21.8
22.0
20.6
17.6
15.3
3.8
3.7
3.1
2.7
2.3
7.8
8.9
6.8
5.3
4.3
24.6
22.7
19.0 15.8
12.6
19.6 17.9 16.5 16.2 14.9
0
10
20
30
40
50
60
70
80
90
100
1980 1990 2000 2008 2017
GDP based on PPP valuation of
country GDP (%World)
Other economies Europe 18 Japan United Kingdom United States China Economies identified in the BRI
19. • Issues of excess capacity and inefficiency in emerging economies and China
are illustrated by the rate of return on equity versus the cost of equity for listed
companies (close to zero) compared to advanced countries (in the 6%-8%
range) (see Fig.9).
• For this reason China has emphasised moving up in the value added chain by
buying foreign companies, undertaking joint ventures and promoting organic
productivity growth through the Digital Belt and Road and other initiatives.
• This is combined with a renewed commitment to reform state-owned enterprises
(SOEs) and to deal with their heavy levels of debts. Extending the life of older
industries by creating demand and shifting locations abroad helps debt-laden
SOEs and other companies to cover variable costs and thereby to avoid
defaults—though this does not solve global excess capacity and greenhouse
gas emission issues.
• For the longer term, gradual deleveraging policies are already underway
(including via debt-for-equity swaps and some asset transfers) and production
targets are intended to set in motion longer-term restructuring of SOEs.
• Combined with financial reforms under way, infrastructure investment efficiency
could begin to improve rise over the longer term.
Innovation and efficiency
20. Fig.9 - ROE minus Cost of Capital:
Private companies versus SOEs
-4
-2
0
2
4
6
8
10
12
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
%
Advanced SOE Advanced Non-SOE Emerging SOE
Emerging Non-SOE China SOE China Non-SOE
21. • The cumulative total of China’s spending on
construction is USD 480.3 billion for the BRI-
participating economies, which is some 59% of the
global total of USD 814.3 billion (see Fig.10).
• The next most popular destination for Chinese
construction is sub-Saharan Africa (USD 170.7
billion),
• Then Latin America (USD 63.4 billion) and the
Middle East and North Africa (MENA) countries
not in the BRI at USD 34 billion.
• Chinese construction projects are smaller in
OECD countries, with Australia being the most
significant at around USD 17.1 billion
China’s global construction projects
from 2005 to 2017
22. Fig.10 - Outward investment by China in the
construction sector (2005-2018 Q2, USD millions)
480 290
2 890
170 660
63 380
9 190
34 020
17 130 2 680
BRI-participating economies
North America
Sub-Saharan Africa (excluding Sub-Saharan African economiesidentified in the BRI)
Latin America
European Union (excluding EU economies identified in the BRI)
Middle East & North Africa (excluding MENA economies identified in the BRI)
Australia
Other economies
The cumulative total
of China’s spending
on construction is
USD 480.3 billion for
the BRI-participating
economies, which is
some 59% of the
global total of
USD 814.3 billion
23. • The China Development Bank has supported 400 projects in
37 economies worth USD 110 billion and is tracking more
potential projects.
• The Industrial and Commercial Bank of China is involved in
212 projects worth USD 67 billion, and is expected to arrive at
around USD 159 billion.
• The Bank of China is pledging USD 100 billion for the period
2016-2018.
• China Exim Bank supported 1000 projects in 49 economies
worth USD 80 billion.
• The China Construction Bank also supports BRI projects
• Energy projects across the belt and road are showing off
China’s leadership in many technologies in this area (Fig.11).
Finance for the infrastructure goals
of the BRI is already well underway
24. Fig.11. China energy development
projects in 2017
Entity
Notional amount
(USD billion)
Projects 2017 Country
China Three Gorges 6 Karot Hydro (USD 2 billion) / two Hydro Corporations / 3 Solar Projects Pakistan
China Genzhouba / China Power 5.8 3GW Mambilla Hydro Development Nigeria
CK Infrastructure (consortium) 5.3 Acquisitions of Ista Energy Solutions (Meters/Management) Germany
Shanghai Electric (with ACWA Power) 3.9 Construct 700 Mega Watt CSP Solar in Dubai United Arab Emirates
China Energy Investment Corporation 3.5 75% Stake in 4 Greek Wind Farms Greece
SCIG / CXIG / QYEC 3 1 Giga Watt Hydro Project Developments Nepal
State Power Investment Corporation 2.4 Sao Simao Hydroelectric Project Brazil
China Genzhouba Group 1.8 Suki Kinari 870 Mega Watt Hydro Project Pakistan
China Three Gorges 1.6 West Seti Hydro 750 Mega Watt Hydro Project Development Nepal
State Grid Corporation 1.5 Matiari to Lahore Power Transmission Line Pakistan
State Grid Corporation 1.5 Matiari (Port Qasim) to Falsalabad Transmission Line Pakistan
SANY Group 1.5 Wind Energy Developements in Punjab Pakistan
China Three Gorges / Hubel Energy 1.4 Purchase of 456 Mega Watt Chagila Hydro project Peru
Pacific Hydro (SPIC) 1.3 Houghton Solar Farm in Queensland Australia Australia
Power China 1 EPC for 500 Mega Watt AWA Pumped Hydro and Storage Project Philippines
State Grid Corporation 1 2nd Phase of Egypt Transmission Development Egypt
Shanghai Electric 1 Takeover of Rio Grande Do Sul Transmission project Brazil
CIC Capital 0.5-1.0 10-20% of Equis Energy (Solar/Wind) Singapore
Total, 38% Year-on-Year Growth 44.3
25. • China’s investment in established foreign companies adds up to a
total larger than for construction projects.
• The BRI-participating economies together amount to only
USD 278.5 billion, or around 26% of the total of USD 1090.3 billion
(see Fig.12).
• The United States, Canada and Europe together amount to
USD 522 billion, or 48% of the total.
• Australia alone, at USD 95.4 billion, accounts for 9% of the total,
mainly in energy, mining and agricultural companies related to
China’s resource, energy and food security goals.
• From 2005 to 2013, energy and metals were the main focus (USD
317 billion), and total investments amounted to USD 468 billion.
Since 2014, this has accelerated with USD 622 billion invested in a
shift away from energy and metals. The main beneficiaries in recent
years have been technology (e.g. Ingram Micro Technology;
Motorola Mobility Kuka robotics); agriculture (e.g. Syngenta,
Weetabix); transport (Pirelli, Avolon), entertainment (e.g. Playtika);
and tourism and real estate.
China spends even more on foreign companies and, in
recent years, is switching away from energy
26. Fig.12 – Investment by China in foreign
companies (2005-2018 Q2, USD millions)
18990
7530
228500
4020
36450
1730
3320
88810
5730
37730
8430
1840
23670
1220
2005-2013: 467.97 billionUSD
61450
4310
128580
36680
39640
13980
2942041910
31910
62810
43990
37420
86420
3860
2014-2018: 622.38 billionUSD
Agriculture Chemicals Energy Entertainment Finance
Healthcare Logistics Metals Other Real estate
Technology Tourism Transport Utilities
27. • Sovereign credit ratings are calculated by scoring the ratings
from Moody’s and S&P/Fitch from 21 (for AAA and Aaa) to the
low of 1 (for D and C) (see the grey area in Fig.13). The
investment by China in construction projects for each
economy is also shown in Fig.13.
• There are 24 economies with investment grade at or above
BBB- with a score of at or above 12). There are 26 rated
economies below investment grade and 18 with no rating at
all (economies to the right of Afghanistan in the graph).
• Investment in construction infrastructure projects in these
latter economies constitutes well over half of the cumulative
totals since 2005, i.e. USD 253.8 billion compared to a total
cumulative investment of USD 480 billion since 2005.
• It remains to be seen how viable these projects in below-
investment-grade economies will prove to be.
Potential problems: Financing construction in
economies with a low credit rating
28. Fig.13 - Credit rating score by BRI-participating
economies versus construction project investment
0
5000
10000
15000
20000
25000
30000
35000
40000
0
5
10
15
20
Singapore
NewZealand
UnitedArabEmirates
Qatar
Kuwait
SaudiArabia
CzechRepublic
Israel
Oman
Malaysia
Poland
Thailand
Latvia
SouthAfrica
Kazakhstan
Bulgaria
Hungary
India
Panama
Croatia
Morocco
Romania
Azerbaijan
Philippines
FormerYugoslavRepublicofMacedonia
Indonesia
Turkey
Montenegro
Jordan
Serbia
VietNam
Bangladesh
Egypt
Georgia
Mongolia
Kenya
SriLanka
Cambodia
Ethiopia
Kyrgyzstan
Maldives
Ukraine
Belarus
BosniaandHerzegovina
Pakistan
Iraq
Afghanistan
BruneiDarussalam
IslamicRepublicofIran
LaoPeople’sDemocraticRepublic
Myanmar
Nepal
Korea
RussianFederation
SyrianArabRepublic
Tajikistan
Timor-Leste
Turkmenistan
Uzbekistan
Yemen
Cummulative notional amount from 2005
to 2017 (USDmillion)
Average score over the period 2005-2017
Investment grade score Cummulative China investments in the construction sector (RHS)
Below investment grade
29. • Problems occur when collateral value of the investment is
below its liabilities; where loans are not performing; where the
deal has been cancelled; or where projects are delayed.
• Troubled programmes are estimated to be associated with
around USD 369.5 billion worth of transactions globally (see
Fig.14).
• The largest problem area concerns the BRI with USD 101.8
billion of troubled assets. The BRI includes economies in less
stable parts of the world, where deals get into trouble
because of political violence, war, sanctions (e.g. those
against Iran) and excessive dependence on single
commodities such as oil and gas which are subject to price
volatility.
• Problems appear to be greatest in the energy, metals,
transport and finance sectors (see left hand side of Fig.14).
Potential problems: Projects and
acquisitions running into difficulty
30. Fig.14 - Troubled assets in past BRI/SOE corporate
investments (2005-2018 Q2, USD millions)
101780
78860
34850
28690
41980
13220
58060
1520
10550
BRI-participating economies
North America
Sub-Saharan Africa (excluding Sub-Saharan African economiesidentified in the BRI)
Latin America
European Union (excluding EU economies identified in the BRI)
Middle East & North Africa (excluding MENA economies identified in the BRI)
Australia
Japan
Other economies
9670
1980
130890
1630
42130
4201300
75930
5000
17830
28280
7360
46900
190
Agriculture Chemicals Energy Entertainment
Finance Healthcare Logistics Metals
Other Real estate Technology Tourism
Transport Utilities
31. • Chinese exports to the BRI-participating
countries have been rising as a share of
the total to some 34% (see Fig.15).
• Some regions are held back by poor
infrastructure and OECD research shows
there is great scope for this to be unlocked
in the future.
Strong scope for trade success…
provided financial concerns are dealt with
33. • Economies linked to the Belt and Road Initiative need help to maximise the longer-term
benefits of infrastructure projects. To do this it is important to ensure an open and
transparent environment for international investment.
• This means ensuring a level playing field for investors from both emerging and advanced
economies. Asia’s longer-term infrastructure needs will require much more investment than
any one country can ultimately provide so efficient and cost effective solutions are
essential.
• Host countries are likely to benefit most, with positive spill-over effects for global trade and
investment, when the process is based on level playing field considerations.
• Five broad areas that need attention are:
--the role of SOEs, given their growing presence in the international economy;
--fair competition and integrity in the processes of procurement of construction projects;
--mitigating corruption risk and ensuring responsible business conduct;
--governments supporting RBC goals by incorporating environmental impact
assessments for construction projects; and
--ensuring openness to international investment.
OECD standards provide useful guidance for both infrastructure-recipient economies and
supplying countries in all areas.
Governance: Towards levelling the
playing field for sustainable growth
34. • China, the United Arab Emirates, Russia, Indonesia, Malaysia, Saudi
Arabia, India, Brazil, Norway and Thailand are the ten economies with the
highest SOE shares of GDP.
• Over 20% of the Fortune 500 companies are state owned. Of the 109
Chinese companies in the group, 75 are state owned (see Fig.16).
• An uneven playing field can emerge as the simple result of state support for
SOEs. This can lead to cross-border distortions in trade and investment.
• If SOEs are properly separated from other public sector functions, held to
high standards of governance and accountability and operate on a “level
playing field” with private competitors, they should not give rise to concerns.
• The OECD guidelines for SOEs provide a framework for achieving this.
Santiago-Principles-like arrangements have proved effective in resolving
these problems where sovereign wealth fund investments were concerned,
and similar arrangements based on the OECD guidelines would help allay
concerns reflected in the move towards tougher national security reviews, in
cases where SOEs are involved.
• Recipient economies also need to examine and clarify the applicable law on
sovereign immunities in advance where cross-border activities involving
SOEs are concerned in order to reduce uncertainty about gaps in legal
accountability.
The need for a Santiago-Principles-
like framework for SOEs
35. Fig.16 – Location of the headquarters of Fortune
500 companies (changes, 2000-2017)
2000 2017 Change
United States 179 132 -47
China 10 109 99
Japan 107 51 -56
France 37 29 -8
Germany 37 29 -8
United Kingdom 38 24 -14
Korea 12 15 3
Netherlands 10 14 4
Switzerland 11 14 3
Canada 12 11 -1
Other economies 47 72 25
of which SOEs 27 102 75
of which Chinese SOEs 9 75 66
36. • Strong empirical evidence shows that infrastructure projects in emerging
markets tend to under-estimate costs to win projects; experience serious
cost overruns and long completion delays; and, where deadlines are met,
they are often at the expense of quality and the environment.
• Developing economies are constrained in their capacity to borrow and
therefore need to be sure they obtain the most cost effective solutions to
their infrastructure requirements.
• These aims can be served by embracing clear principles of open
competition in procurement based on OECD procurement
recommendations, the OECD arrangement on export credits and the WTO’s
general procurement agreement.
• These principles have proven to be effective in the past in preventing trade
and investment distortions between signatories.
• Where gaps still exist, clear standards for procurement in infrastructure
investment projects will need to be established. This applies equally with
respect to investment in developing economies by investors from either
advanced or developing economies.
• Detailed OECD toolkits enable the assessment of competition frameworks
within countries that also condition cross-border activities (e.g. M&A
approvals, breaking down barriers to entry, and bid-rigging).
Improving procurement in global
infrastructure construction
37. • OECD data show that public officials of 39 out of 72 economies that
participate in the BRI were bribe recipients in 226 of the 270 bribery
schemes monitored by the OECD.
• Corruption is most closely linked to SOEs, not least in large scale
infrastructure projects where the bribery of public officials is
commonplace. Officials of SOEs were the recipient of bribes in 86 of
the 226 OECD cases involving the BRI (see Fig.17).
• Many of the 226 bribes in the sample were part of bribery schemes
straddling large numbers of countries with sophisticated multi-
national companies involved.
• Countries cannot fight these issues alone. They are encouraged to
address this by adherence to the OECD’s Anti-Bribery Convention
which comprises both principles and, more importantly, rigorous
monitoring and peer-review processes.
• Using the OECD Integrity Framework for Public Investment is a
useful adjunct to the OECD Anti-Bribery Convention.
Bribery and corruption
38. Fig.17 - SOE officials as recipients in
sanctioned bribery transactions involving BRI-
participating economies
86
98
42
0
20
40
60
80
100
120
SOEinvolvement No SOE involvement SOE involvement not known
39. • While infrastructure investments are generally intended to provide
improvements to societies, in terms of access to energy, transport and
connectivity, they can also bring the risk of large-scale negative impacts
from participating multinational companies. Responsible business conduct
(RBC) is critical to ensuring sustainable development and avoiding serious
social and environmental harms.
• Principles for RBC are set out in the OECD Guidelines for Multinational
Enterprises, and a complaints notification and resolution process is
provided by the associated network of National Contact Points (NCPs) in
adhering countries.
• Of 389 complaints filed with NCPs, 148 concern issues arising in BRI-
participating economies , or 38% of all complaints (see Fig.18). The main
issues raised in all countries concern employment and industrial relations,
followed by human rights and the environment (see Fig. 9).
• Countries are encouraged to promote corporate due diligence in addressing
social and environmental risks associated with infrastructure and consider
adhering to the OECD Guidelines for Multinational Enterprises.
• Governments themselves need to lead by example and integrate
environment impact assessments in infrastructure projects they sponsor.
Responsible business conduct and
environmental impact assessments
40. Fig.18 - Of 389 complaints filed with NCPs,
148 concerned BRI-participating economies ,
0 50 100 150 200 250 300
Both
BRI-participating economies
Non BRI-participating economies
41. Fig.19 - Main sectors involved in
complaints to NCPs (2000-2017)
0%
10%
20%
30%
40%
50%
60%
70%
Employment andindustrial relations Human Rights Environment
BRI-related economies NonBRI-relatedeconomies
42. • The OECD’s FDI regulatory restrictiveness index covers statutory measures
discriminating against foreign investors (e.g. foreign equity limits, and
screening and approval procedures).
• Fig.20 shows significant recent liberalisation has been achieved in several
BRI-participating economies ,mostly on a unilateral basis (where the bars
for 2016 lie below the markers for earlier years). However, foreign investors
still face relatively higher barriers to entry and discriminatory treatment in
non-OECD economies in various sectors, including: agriculture; mining;
construction; distribution; transport; media; and business services.
• Cost-effective solutions based on a diverse universe of investors, including
from OECD countries, will be essential to: meet infrastructure needs in Asia;
contain debt burdens for developing economies to a cost effective minimum;
and avoid handing unreasonable amounts of equity to foreign governments
in strategic infrastructure assets.
• Countries are encouraged to adhere to the OECD Code of Liberalisation of
Capital Movements. The Code fully recognises different levels of economic
development and provides a sound framework for improving openness
between OECD and developing economies to enhance investment and
trade linkages.
Levelling the playing field for
international investment
43. Fig.20: OECD FDI Regulatory
Restrictiveness Index (2016)
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
NewZealand
Korea
Israel
Poland
Turkey
SlovakRepublic
Hungary
Latvia
Estonia
CzechRepublic
Slovenia
Philippines
SaudiArabia
Myanmar
People’sRepublicof…
Indonesia
Jordan
India
Malaysia
LaoPeople’s…
RussianFederation
Ukraine
VietNam
Kazakhstan
Mongolia
Kyrgyzstan
Morocco
Egypt
SouthAfrica
Cambodia
Lithuania
Romania
Mexico
Iceland
Canada
Australia
Austria
UnitedStates
Norway
Switzerland
Sweden
Chile
Italy
Japan
France
Ireland
Belgium
UnitedKingdom
Denmark
Greece
Germany
Spain
Finland
Netherlands
Portugal
Luxembourg
Tunisia
Brazil
Peru
CostaRica
Colombia
OECD BRI-participating
countries
Non-OECD BRI-participating economies Other OECD countries Other
economies
FDI restrictivnessindex
(open=0; close=1)
2016 1997 2006 Average 2016
44. Thank you
Find the OECD Business
and Finance Outlook online
www.oecd.org/daf