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Can Chinese Money Save Turkey? #TurkeyEconomy

Can Chinese Money Save Turkey? <a class="hashtagger" href="">#TurkeyEconomy</a>

It is not certain, but Ankara’s plan to resist US pressure to release Pastor Brunson and other American detainees appears to be to gravitate East.

That is to forge closer alliances with Russia, Iran and China. US has the capacity to shut the door on Turkey’s banks and corporates in global financial markets, but Ankara may have a plan for that eventuality, too. It’s Central Bank  has already signed a TL3 bn  swap deal with that of Qatar, while the Emir of the latter promised a $15bn investment package to aid the loyal ally. Now, Ankara hopes to lure Chinese money. Chinese banks are huge investors in countries which may be connected to the Belt and Road  project. Can Chinese money save Turkey from the “tutelage of the West?”

“Tensions with US provide opportunity to expand Belt and Road ambitions”, Mr MASANORI TOBITA, a Nikkei staff writer, who adds that “Turkish President Recep Tayyip Erdogan said Aug. 11 that his country was preparing to trade through national currencies with partners like China, bypassing the U.S. dollar”.

According to Tobita’s research, spurned by one of the world’s economic giants, Erdogan naturally turned to another, China, for much-needed financial backup.  China is coming to Turkey’s aid during its economic crisis with $3.6 billion in funding for infrastructure projects, leveraging Ankara’s conflict with Washington to expand its Belt and Road Initiative in the key country that links Asia with Europe.

The Turkish president had met with his Chinese counterpart, Xi Jinping at the end of July at the BRICS summit in South Africa. Xi called Beijing and Ankara “natural partners” for his Belt and Road Initiative to create a vast economic zone spanning from China to Europe, and pushed for an early launch of major cooperation projects.

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Meanwhile, Yui Huiman, chairman of the state-owned Industrial and Commercial Bank of China, visited Turkey to approve funding for two major infrastructure projects. The bank will furnish $2.4 billion to refinance major highway and suspension bridge projects in the country’s west. It will also provide $1.2 billion to improve a gas storage facility at Turkey’s state-run gas and oil shipper.

China’s state-owned banks are actively investing in developing Belt and Road infrastructure projects, and there appears to be more room to invest in Turkey.

Ankara is thought to require more than $200 billion in the next year for such obligations as paying off short-term debts and plugging the current-account deficit. The country’s bonds are already speculative grade, and its credit has fallen significantly. The U.S. Congress is also considering legislation that would restrict loans from international financial institutions to Turkey.

Diversifying the country’s financing has become an urgent task for Erdogan, who said earlier this month that Turkey plans to issue yuan-denominated bonds for the first time.

Overseas investors are shunning the country, not only because of its soured relations with Washington, but also due to concerns about human rights and press freedom under Erdogan. Foreign direct investment in 2017 fell for a second straight year, sinking 16% to $10.9 billion.

Without the prospect of American and European funds, Turkish companies are now relying on Chinese money. Chinese companies are also interested in the opportunity to expand into the country.

Turkey’s leading e-commerce website, Trendyol, agreed in June to accept a $728 million investment from China’s Alibaba Group Holding. In the same month, Turkish Airlines said it would set up a home delivery joint venture with China’s ZTO Express and others. ZTE, China’s embattled smartphone maker, completed a takeover of Turkish peer Netas last year. Huawei is also working with Turk Telekom Group to build a next-generation 5G network in the country.

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China supports the Turkish government’s efforts to safeguard security and economic stability and believes that it will overcome its “temporary difficulties”, China’s top diplomat, State Councillor Wang Yi, told Turkey’s foreign minister on Saturday.

China’s foreign ministry said in a statement that Wang had made the comments in a phone call with the Turkish minister, Mevlut Cavusoglu, according to Reuters.

Cavusoglu spoke about the current situation in Turkey during the phone call and said his government was willing to strengthen strategic communication with China, the statement said.

Beijing first commented on the issue on Friday in a foreign ministry statement in which it offered moral support to Turkey.

So far, no sign of financial lending

Turkey’s immeidate problem is foreign lenders’ reluctance to roll-over maturing syndicated loans and extend new lending limits to finance the current account deficit, expected to finish the year at $55 bn. So far there is no sign that Chinese banks are interested in bankrolling Turkey’s foreign financing needs.

While Russia and Iran, too, expressed sympathy for Turkey’s  plight, neither have demonstrated concrete solidarity with any offer of loans. Russia will sell its S-400s in 2019, but not for dollars.

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