Chinese ex-official says "New Silk Road" faces difficulties

BEIJING, April 22 (Reuters) - China may be facing big financial losses from its high-profile programme of overseas investment but the policy is necessary as an outlet for excess industrial capacity, a former top government tax official has said.

The comments from Xu Shanda mark a rare public airing by a Chinese official, current or retired, of difficulties facing the “New Silk Road” programme, a key policy of President Xi Jinping aimed at helping countries build energy and transport links with the Middle East and Europe.

“In previous years, China made large investments in the energy sector. Looking at it now, these investments were useful in ensuring energy supplies, though financial losses were large,” Xu wrote about the New Silk Road initiative in an article published in an online journal by the website

“If we do not go this route, external demand will shrink, which will put tremendous pressure on domestic production and exacerbate the over capacity problem. So, despite the difficulties, we need to stick to this overseas economic strategy.”

Xu, a former deputy director of the State Administration of Taxation, first proposed a plan for China to invest in neighbouring countries in 2009 as a way to promote demand for its goods and services.

Under the initiative, announced by Xi in 2013, and also known as the “One Belt, One Road” programme, China aims to invest in infrastructure projects including railways and power grids in central, west and southern Asia, as well as Africa and Europe.

China has dedicated $40 billion to a Silk Road Fund and the programme was the driving force behind the establishment of the $50 billion Asian Infrastructure Investment Bank.

Xu also said cutting excess capacity was the most difficult challenge for China’s supply-side reform agenda due to an insufficient social safety net in the face of a rise in unemployment and the problem of how to deal with shrinking state-owned assets due to moth-balled production facilities.

Xu said China’s strategy to increase the proportion of household income in national income had been “soft” as there were no details on how that proportion would be increased and at whose expense.

The adjustment was going on but progress has been slow, Xu said. (Reporting by Elias Glenn; Editing by Robert Birsel)