New Silk Road a boon for en­ter­prises

China Daily (Canada) - - FRONT PAGE - By SHI JING in Shang­hai

shi­jing@chi­nadaily.com.cn

China’s lat­est Belt and Road Ini­tia­tive will pro­vide more op­por­tu­ni­ties for State-owned en­ter­prises and pri­vate­ly­owned com­pa­nies in over­seas mar­kets as it ex­pands in­fra­struc­ture links from the main­land to Europe via Southeast Asia and Africa.

Due to their am­ple fund­ing, large SOEs will be able to em­bark on large in­fra­struc­ture projects which in­cur longer in­vest­ments and lower profit mar­gins, said Gabriel Wong, head of cor­po­rate fi­nance at PwC Shang­hai.

In con­trast, pri­vately-owned en­ter­prises mostly fo­cused on in­vest­ments with shorter term re­turns and will fully lever­age their ex­ist­ing re­sources. Some of them will make good use of their ad­vanced tech­nolo­gies and com­pet­i­tive ad­van­tages to pen­e­trate spe­cific sec­tors, which may pro­vide bet­ter shorter term re­turn, he said.

“As coun­tries in­cluded in the ini­tia­tive have dif­fer­ent devel­op­ment sta­tuses, their needs will vary,” Wong said.

“Coun­tries like In­done­sia may have a huge de­mand for in­fra­struc­ture projects, whereas oth­ers will re­quire con­sumer prod­ucts like air-con­di­tion­ers, re­frig­er­a­tors, cheaper cell phones, and so forth.”

China’s equip­ment man­u­fac­tur­ing in­dus­try has strug­gled with over­ca­pac­ity and a sup­ply glut of raw ma­te­ri­als since the global fi­nan­cial cri­sis of 2008, re­flect­ing how its devel­op­ment has been bot­tle­necked.

This makes the Belt and Road Ini­tia­tive a more cru­cial re­gen­er­a­tor of th­ese in­dus­tries be­cause it can help trans­fer ex­ces­sive ca­pac­ity. A lot of the coun­tries in­volved of­fer cheap premises, raw ma­te­ri­als and la­bor.

“Many have limited

fis­cal bud­gets, so even ba­sic sec­tors like trans­porta­tion, health­care and ed­u­ca­tion are un­der­de­vel­oped,” said Wong.

“This ob­vi­ously makes it harder for them to de­velop their high-end in­dus­tries. Chi­nese com­pa­nies must be care­ful to do their re­search be­fore rush­ing in.”

One area that stands to ben­e­fit is China’s tex­tile in­dus­try, which has faced prob­lems of over­sup­ply in the af­flu­ent cities lining China’s east coast for a long time, ac­cord­ing to Jenny Chong, head of tax ser­vices at PwC Shang­hai.

The in­dus­try will find many op­por­tu­ni­ties to trans­fer in­ven­tory to coun­tries like Bangladesh, she added.

One State-owned tex­tile com­pany in Shang­hai has al­ready helped to build an industrial park in the densely pop­u­lated coun­try of over 250 mil­lion peo­ple.

“Bangladesh has

a

quite well-de­vel­oped tex­tile in­dus­try. It ac­counted for large part of the coun­try’s GDP last year. But the lack of a high-end industrial park has ham­pered fur­ther growth,” she said.

“In projects like th­ese, SOEs can be the key driver in build­ing the industrial park as the in­vest­ment size is very large. How­ever, Chi­nese pri­vate com­pa­nies such as tex­tile man­u­fac­tur­ers can move their pro­duc­tion plant into the industrial park once built to take ad­van­tage of the lower la­bor and ma­te­rial cost of the lo­cal mar­ket,” she added.

“This is a good ex­am­ple of the dif­fer­ent roles that SOEs and pri­vately-owned com­pa­nies will play in prac­tice vis-à-vis the new ini­tia­tive.”

Also re­ferred to as the Silk Road Eco­nomic Belt and 21st Cen­tury Mar­itime Silk Road, the plan was pro­posed by Xi in 2013. The idea is to re­ju­ve­nate the two an­cient trad­ing routes and fur­ther tap mar­kets along the way in a mu­tu­ally ben­e­fi­cial man­ner.

The “belt” part of the plan was an­nounced dur­ing Xi’s visit to Kaza­khstan in Septem­ber 2013. It in­cludes coun­tries lo­cated on the orig­i­nal Silk Road through Cen­tral Asia to Europe, ex­tend­ing to some parts of South Asia. It en­vi­sions a co­he­sive eco­nomic area with in­creased cul­tural ex­changes and broad­ened trade.

The 21st Cen­tury Mar­itime Silk Road is aimed at in­vest­ing and fos­ter­ing col­lab­o­ra­tion in Southeast Asia, Ocea­nia and North Africa. Xi first raised it dur­ing a speech to In­done­sia’s par­lia­ment in Oc­to­ber of that year.

To sup­port the projects, the China-backed Asian In­fra­struc­ture In­vest­ment Bank was set up last year with the par­tic­i­pa­tion of 56 other coun­tries.

Last Novem­ber, Xi an­nounced plans to cre­ate a $40-bil­lion devel­op­ment fund, partly to give the ini­tia­tive strong fi­nan­cial back­ing.

Gabriel Wong

Jenny Chong

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