China’s Belt and Road initiative is providing much-needed impetus to infrastructure development in emerging Asia, but investors and businesspeople should stay focused on the fundamentals.
In 2013, China’s Belt and Road initiative was announced. It may not have garnered much attention in the west when it was first mentioned, but like many noteworthy addresses, it has ultimately served to focus minds. In this case, the focus has been on the need for substantial investment in infrastructure in emerging Asia.
There has been much publicity and discussion about the Belt and Road initiative, and plenty of effort to understand what it actually means. For Hong Kong investors of all stripes, there is potential upside to this initiative, but like any investment, it must be approached with an appreciation of the risks involved.
If you look at Belt and Road from a high level perspective, with maps of trade and investment corridors, as well as corresponding road, rail and port construction, it looks very bold indeed. It is part of a strategic initiative to connect China with Europe and parts of Africa. It is also part of a greater plan by Beijing to develop China’s less economically advanced regions in the southwest and western hinterlands, and put some spare capacity to use. It may also be seen as part of the broad shift by China towards a service-oriented economy, rather than one revolving around manufacturing and export.
Even without the Belt and Road initiative, there is an enormous need for infrastructure development throughout Asia, a need that can be measured in the trillions of dollars’ worth of investment already announced. Now that the initiative has been announced, the impetus is there to get on with it. That means plenty of business and investment opportunities for Hong Kong, initially in areas such as professional and financial services, transport and logistics, power and utilities, and communications. Moreover, I get the sense that the policy is deliberately flexible and that it’s open to whichever country or company that wants to get involved, which potentially widens the scope of opportunity further still.
However, it’s when you try to categorise a particular plan or project as Belt and Road, that things can get a bit tricky, and it is on this point that investors need to focus their attention. Some countries, such as Kazakhstan, are specifically tied to the initiative. Aside from the fact that Kazakhstan sits astride the proposed Eurasian Land Bridge – a rail transportation route from Russia and China to Europe – the Chinese are also keen to access natural resources there. Other countries, such as Indonesia, may fit into Belt and Road in a more tangential way, albeit still standing to benefit strongly.
There is a massive diversity in the countries around the many corridors of Belt and Road – some with very advanced business environments and some that are undeveloped. Infrastructure projects in the less developed nations will likely find their funding from multilateral organisations such as the new Asian Infrastructure Investment Bank and the Asia Development Bank, or state-controlled financial institutions. Other projects, in suitable business environments, will likely be drawing private capital; particularly institutional investors keen on long-term, stable returns. The scale of the initiative is so large that it will require significant private sector investment, and there is a lot of private sector capital looking for such investments. The key question is: which markets can truly support such largescale private investment?
The opportunities stemming from Belt and Road will manifest themselves over the course of years, possibly decades. This is not an overnight endeavour, nor will it go away in a flash. This initiative is underpinned by a genuine need for infrastructure investment, as much as by any grand scheme from China.
At the moment, there are substantial infrastructure programmes in the Philippines and Indonesia, which also sit on the Belt and Road. Both are ahead of other Asean nations in that they can attract private capital, and for investment purposes, that is something I’d be looking at. There is also a big opportunity here for Myanmar, which does sit on a corridor.
Given the current state of its infrastructure, Myanmar has the opportunity to really develop and move up the investment curve.
One should also consider the broader business and investment opportunities that may arise from Belt and Road, besides investing in a construction company. New infrastructure can spur investment in other businesses and industries, simply by first building the infrastructure, and then by its existence. Everything from financial services to logistics and supply chain management opportunities exist with the growth of carefully planned and properly executed infrastructure. Your investment ideas could even be around natural resources or power plants, in places where this activity might not have been feasible before.
There are risks, of course. But no investment or business decision is without risk, nor are investments in projects that are supposed to be part of Belt and Road. Some individual governments may handle infrastructure better than others. Some projects may (literally) lead nowhere – a bridge that spans a valley with no roads on either side, or a container port where no shipping has ever been needed. I think there is a risk that some countries will promote projects that don’t necessarily see the outcome that investors are looking for.
Of course, some projects may have a very specific interest from China, such as setting rail and port infrastructure that links southeast China to the Indian Ocean. Some projects are fundamentally government or multilaterally funded, rather than privately.
Overall, Belt and Road is a very grand scale initiative from China. The impetus for investment in infrastructure should not be ignored by businesspeople and investors wanting seeking stable, long term returns. Be encouraged by the talk, but stay focused on the project’s merits.
THE OPPORTUNITIES STEMMING FROM BELT AND ROAD WILL MANIFEST THEMSELVES OVER THE COURSE OF YEARS, POSSIBLY DECADES