De­ci­pher­ing what is fact and fic­tion when it comes to China’s Belt and Road Ini­tia­tive.

De­ci­pher­ing fact and fic­tion when it comes to China’s Belt and Road Ini­tia­tive hasn’t al­ways been easy since it burst onto the scene in 2013.

Norway-Asia Business Review - - Contents - CHEYENNE HOL­LIS

Work has be­gun on sev­eral projects, but there is more to the ini­tia­tive than what is be­ing built. The Belt and Road Ini­tia­tive (BRI) is big. A re­port from credit rat­ings agency Fitch found USD 900 bil­lion in projects were planned or un­der­way with 68 coun­tries hav­ing signed up.

This to­tal has grabbed head­lines, but it doesn’t mean the Chi­nese gov­ern­ment has been spend­ing reck­lessly on ev­ery sin­gle project out there. In fact, the ap­proach from Beijing has been quite dis­cern­ing.

“BRI isn’t as big or grandiose as peo­ple think, es­pe­cially in places like South­east Asia where there is al­ready a lot of com­pe­ti­tion among for­eign in­vestors,” Mr Ja­son Chi­ang, Di­rec­tor at Royal Haskon­ingDHV ex­plains. “There has been BRI in­vest­ment, but for the gov­ern­ment it has been about find­ing the right as­set to in­vest in. The projects need to be com­mer­cially vi­able.”

The BRI is a de­vel­op­ment strat­egy that sees the Chi­nese gov­ern­ment in­vest in sea­ports, air­ports high-speed rail lines and other in­fra­struc­ture projects as well as in­dus­trial parks and eco­nomic zones. He notes Beijing is act­ing as a fi­nanc­ing gap provider that sup­ports fund­ing for the global in­fra­struc­ture projects. This is no dif­fer­ent than the fi­nanc­ing pro­vided by de­vel­op­ment banks, but this is one of the only sim­i­lar­i­ties the fund­ing meth­ods have in com­mon.

“The dif­fer­ence be­tween BRI and other de­vel­op­ment banks fi­nanc­ing in­fra­struc­ture projects is that China is tak­ing eq­uity. Banks don’t do this,” Mr Chi­ang states. “Ad­di­tion­ally, the con­struc­tion con­tracts are given al­most ex­clu­sively to Chi­nese firms giv­ing them op­por­tu­ni­ties to work over­seas that may have not been avail­able in the past.”

Mr Chi­ang ad­mits that the amount be­ing in­vested through BRI is im­pres­sive, but China un­der­stands the risk in­fra­struc­ture in­vest­ment can bring, es­pe­cially in some of the coun­tries BRI in­cludes.

Pres­i­dent Xi Jin­ping of­fi­cially launched BRI in hopes that the ma­jor in­fra­struc­ture in­vest­ment would boost trade and stim­u­late eco­nomic growth across Asia. It also al­lowed China to utilise its for­eign-ex­change re­serves which have been mostly tied up in Amer­i­can gov­ern­ment se­cu­ri­ties.

“BRI is a very out­ward look­ing move­ment. It has been a plat­form to unify fund­ing and re­sources and in­vest these over­seas,” Mr Chi­ang says. “From a pub­lic re­la­tions stand­point, this is a story the me­dia likes. But apart from the head­lines and mar­ket­ing of it, China has been in­vest­ing over­seas be­fore BRI.”

This in­vest­ment was some­thing Mr Chi­ang saw first hand work­ing at Royal Haskon­ingDHV. The en­gi­neer­ing con­sul­tancy was work­ing with Chi­nese com­pa­nies on over­seas in­fra­struc­ture projects years be­fore the gov­ern­ment of­fi­cially un­veiled the BRI. The firm has helped clients look at dif­fer­ent in­vest­ments and pro­vided them with a bet­ter un­der­stand­ing of the ben­e­fits and chal­lenges they bring.

“Com­pa­nies in the pri­vate sec­tor are and will con­tinue to be ac­tive in­vestors abroad. The BRI can pro­vide ac­cess to the var­i­ous pri­vate and pub­lic in­fra­struc­ture projects and help con­nect every­thing, but it is prob­a­bly get­ting too much credit,” Mr Chi­ang points out.

The re­al­ity of BRI is that it does not cover all Chi­nese in­fra­struc­ture in­vest­ment over­seas. But it has opened the door for the coun­try’s con­struc­tion

com­pa­nies, port op­er­a­tors and in­vest­ment funds to ex­pand their pres­ence glob­ally. A num­ber of state-owned en­ter­prises have ben­e­fited quite a bit from BRI, both di­rectly and in­di­rectly.

For ex­am­ple, China Com­mu­ni­ca­tions Con­struc­tion Com­pany ( CCCC) has built roads, bridges, sea­ports and rail­ways in BRI re­gions, ac­cord­ing to fi­nan­cial ser­vices firm North­ern Trust. How­ever, not all of these are BRI-re­lated projects. Some of the USD 15.3 bil­lion in over­seas in­fra­struc­ture con­tracts won by CCCC in the first half of 2017 have fund­ing guar­an­teed by the China De­vel­op­ment Bank and the Ex­port-Im­port Bank of China, two ma­jor fi­nanciers of the BRI. Other con­tracts have no con­nec­tion to the ini­tia­tive apart from be­ing in a coun­try that is par­tic­i­pat­ing and have been fi­nanced from other sources.

BRI and South­east Asia With its prox­im­ity to China and grow­ing mar­kets, many be­lieve South­east Asia would be a prime can­di­date for BRI in­vest­ment. The re­gion is im­por­tant from a strate­gic sense, but BRI in­vest­ment won’t be at the same level as other ar­eas such as Cen­tral Asia.

“There is al­ready a lot of com­pe­ti­tion among for­eign in­vestors for projects in South­east Asia,” Mr Chi­ang notes. “There will be BRI projects in the re­gion, but there are other coun­tries also ac­tively in­vest­ing in in­fra­struc­ture projects such as Ja­pan. The in­creased com­pe­ti­tion makes these projects less at­trac­tive.”

Among the most no­table BRI projects in the re­gion will be high- speed rail lines that are go­ing to pro­vide a con­nec­tion from South­east Asia to China. Work on the rail links has al­ready be­gun. Mr Chi­ang adds that the fi­nanc­ing for the projects is there and with Chi­nese com­pa­nies work­ing on these, the like­li­hood of every­thing be­ing built and com­pleted is quite high.

There are three planned high-speed rail­way routes with all them orig­i­nat­ing from Kun­ming in south­ern China. There will be a cen­tral line go­ing through Laos, Thai­land, and Malaysia, an east­ern route con­nect­ing the main­land to Myan­mar and a western route link­ing China to Hanoi and Ho Chi Minh City in Viet­nam.

There are also plans for BRI deep sea­port projects in Malaysia with these set to be con­structed in Kuan­tan and Port Klang. An oil pipe­line be­tween Kyauk Phyu in Myan­mar and China has been com­pleted. Another gas pipe­line, this one be­tween Gw­dar, Pak­istan and China, is un­der con­struc­tion and the plan calls for the project to even­tu­ally ex­tend all the way to Iran.

All of the projects show the clear fo­cus of BRI. That’s trade. Im­proved land and sea­ports make it eas­ier for China to ship its goods to the grow­ing mar­kets of South­east Asia while power projects pro­vide the coun­try with an op­por­tu­nity to im­port en­ergy.

“Trade is what is driv­ing BRI. The as­sets them­selves aren’t as im­por­tant for China,” Mr Chi­ang re­ports. “The US and China aren’t fight­ing an in­fra­struc­ture war. They are wag­ing a trade war. Trade makes the dif­fer­ence and this is what ul­ti­mately is driv­ing BRI.” The Im­pact on Ship­ping The ship­ping in­dus­try has been try­ing to get a read on BRI since it was first an­nounced in 2013. New ports and im­proved sea routes would be ben­e­fi­cial to most firms re­gard­less of who con­trols them.

“It is hard to say what the over­all im­pact of BRI on the ship­ping in­dus­try will be. The ef­fect prob­a­bly won’t be as large as some peo­ple in the in­dus­try think,” Mr Chi­ang says. “If there is an im­pact it will be be­cause of trade flows and not nec­es­sar­ily the in­fra­struc­ture be­ing built.”

He con­tin­ues, “Con­cern from ship­ping coun­tries about China con­trol­ling routes and ports is overblown. Never has there been a com­pany that could call all the shots for global ship­ping through con­trol­ling port in­fra­struc­ture. There will al­ways be an al­ter­na­tive. Some­one will build a new port if terms are un­favourable.”

The new ports has al­lowed China’s port builders and op­er­a­tors a chance to es­tab­lish them­selves on a global stage. Cosco Ship­ping Ports and China Mer­chant Port Hold­ings are ex­am­ples of Chi­nese port op­er­a­tors which have ac­tively in­vested and are op­er­at­ing ports out­side of China. Shang­hai In­ter­na­tional Port Group (SIPG) has a 25-year lease to op­er­ate a pri­vate ship­ping ter­mi­nal in Is­rael while China Har­bour, a sub­sidiary of CCCC, has been heav­ily in­volved in port con­struc­tion projects out­side of China.

It is this global recog­ni­tion that could ul­ti­mately be the legacy of BRI. Not just for the ship­ping in­dus­try, but in all as­pects of the ini­tia­tive. The re­al­ity of BRI is that it is al­low­ing Beijing to con­trib­ute some­thing mean­ing­ful that will also help it com­pete in­ter­na­tion­ally.

“In 50 years time, the idea of BRI won’t be what re­mains. It is the legacy of these in­fra­struc­ture projects that will live on. This is al­low­ing China to show it can con­trib­ute on the global stage. This is pro­vid­ing them with a plat­form they may not have had other­wise,” Mr Chi­ang con­cludes.



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