China January 9 2018
The Belt and Road Initiative (BRI), formally announced by Chinese President Xi Jinping in 2013, is China’s proposal to build a Silk Road economic belt and a 21st century maritime Silk Road in cooperation with related countries. This article discusses the need for localised legal services with international expertise stemming from the cross-border opportunities created by the BRI. The following article was first published on Law360.com on 3 January 2018.
The Belt and Road Initiative (BRI), which was formally announced by Chinese President Xi Jinping during his visits to Central and Southeast Asia in September and October 2013, is China’s proposal to build a Silk Road economic belt and a 21st century maritime Silk Road in cooperation with related countries. The belt refers to the land route starting in western China that crosses through Central Asia to the Middle East, while the road refers to the maritime route around Southeast Asia, the Persian Gulf and the Horn of Africa. The BRI is an immensely ambitious campaign, which aims to unlock massive trade potential and bolster economic development across Asia and beyond, especially China’s neighboring countries.
At its initial stage, the BRI’s focus is on the infrastructure, such as the construction of railways and ports, which has already created new markets for Chinese companies. In its long term, the BRI aims to boost not only trade and investment, but also transnational interactions in terms of culture, education, science and technology, tourism, and other “soft” areas.
In October 2017, the Communist Party of China (CPC) adopted a resolution during its national congress to incorporate pushing for the BRI development into its constitution. This further demonstrates that the BRI is one of the most important matters on the agenda of China’s leading party.
With the win-win cooperation at its core, the BRI is open to and also welcomes the participation of all companies that are keen to be involved in the international business arena, including both Chinese companies and those companies from other countries (not only those countries along the belt/road). The involvement of non-Chinese companies will not only bring great value to the success of the BRI, but will also generate many business opportunities for these companies, especially considering that most of the countries along the belt/road are still less developed and have great potential. For U.S.-based multinational companies, their advanced experience in international investments and projects will be of tremendous value to the BRI and enable them to be a key partner with Chinese companies and companies of other countries along the belt/road in a variety of sectors such as banking, financial support, consulting, construction, logistics, infrastructure engineering and manufacturing.
In fact, there are already some successful examples of cooperation between Chinese companies and U.S. companies in the BRI-related projects, including:
On Nov.9, 2017, General Electric (GE) and the Silk Road Fund (founded in December 2014 and jointly backed by China’s foreign exchange reserves, China Investment Corporation, the Export-Import Bank of China and China Development Bank) announced a joint energy infrastructure investment platform to invest in infrastructure projects in the fields of power grid, renewable energy, and oil and gas, in countries and regions along the belt/road.Since 2015, GE has been working closely with China National Machinery Industry Corporation (also known as Sinomach) on the “Power Africa” project. In 2015 and 2016, GE and China Machinery Engineering Corporation (CMEC), one of the member enterprises of Sinomach, both teamed up with Kipeto Energy Limited to develop plans to build a 100-megawatt (MW) wind park in Kenya's Kajiado County. Under this project, GE acts as the sole equipment supplier for the project and has sealed a $155 million deal to supply 60 of its 1.7-103 wind turbines. The contract also calls for GE to service the plant over a 15-year period.
Along with the business involvement and progress, it is foreseeable that the local presence of U.S. companies in countries along the belt/road may become inevitable. This will not only create jobs for people in these countries, but may also create jobs for people in the U.S. due to the need to send U.S. talent to the newly established local offices.
The BRI is also a rare opportunity for Chinese companies to go abroad and participate in this global phenomenon, and the U.S. is undoubtedly one of the most important and attractive destinations. Chinese and U.S. companies can share complementary advantages to make full use of their own capacities and build a more complete industry chain. The U.S. China Innovation and Investment Summit (UCIS), co-sponsored by U.S. China Innovation Alliance (UCIA) and China Science and Technology Exchange Center (CSTEC), has always provided a unique opportunity for U.S.-based technology companies to connect with investors, strategic partners, leading incubators/accelerators, and professional services firms from China. In May 2017, UCIS 2017 brought together more than 500 participants (approximately 150 representatives of technology companies and 200 investors from China, and 150 representatives of innovative technologies and companies from the U.S.) who were seeking cross-border opportunities across a range of focused industries.
Chinese companies working outside China also create an excellent platform for U.S. companies to leverage significant resources from China to accelerate their growth and to expand their market potential. For example, in early 2014, Fuyao Group, a well-known Chinese corporation founded in 1987 specializing in the production of automotive safety glass and industrial technological glass, invested $200 million in Ohio and established the automotive glass manufacturer Fuyao Glass America Inc. to purchase from PPG Industries all the assets of its Mount Zion, Illinois, glass manufacturing facility. Fuyao successfully rebuilt and retrofitted the facility’s two production lines to manufacture automotive glass to neighboring U.S. automobile manufacturers in Ohio, increased the tax revenue and created job opportunities for the local region.
With the business expansion of Chinese companies to the U.S. and other countries along the belt/road, as well as that of U.S. companies in China and in other countries along the belt/road, the need for localized legal services with international expertise would become more and more essential, especially considering that, most, if not all, BRI related projects are of great significance in economic, cultural and social aspects. For example, in terms of a certain involved country, there may be strict restrictions or requirements on foreign equity participation in certain business sectors, on foreign entities’ operation of public utilities or on the number/ratio of locally hired employees.
Hong Kong (SAR) also naturally appears to be in a prime position to be heavily involved in BRI projects in a number of ways, including financing potential and deploying professional skills into regions that are unsophisticated and largely untapped. In the last few years, the Hong Kong government has focused on expanding the local talent pool to include international talent and the immigration system, creating visa categories to enable such attraction and retention of global talent. So, for companies based in Hong Kong, there appear to be clear advantages to the "‘super-connector" tag that Hong Kong has gained.
Although the likelihood of increased employment opportunities introduced by the BRI projects is undeniable, some companies operating in Hong Kong are of the view that the initiatives will mostly center around Chinese exports. There is also a view that most projects are currently focused on the employment of Chinese nationals. For example, 85 percent of projects have primarily involved Chinese contractors with 27 percent of those using some U.S. national workforce and 17 percent using other foreign labor.
So, while a number of American observers recognize that China will be the main beneficiary of BRI initiatives, some Hong Kong-based U.S. companies are already involved in projects with China and see themselves well positioned to participate. Examples of such companies are U.S. leaders Caterpillar, Honeywell and GE, whose Asia-Pacific region growth strategies are all geared up to include collaboration with China and a focus on BRI initiatives.
Honeywell is a good example of why China may continue to tap into the expertise of U.S. companies because there are many technological areas where they still lead. However, both GE and Honeywell have had to focus on how to carry out more of their production in China because of China’s rules around minimum requirements on local production so there is a fine balance to be struck.
Any U.S. company with a serious growth strategy for the Asia-Pacific region may want to consider BRI initiatives but the need for caution remains, in particular around the funding/financing arrangements for projects.
To conclude, it is without a doubt that improvements in global trade inevitably impact labor, particularly as improvements in technology and infrastructure make the world smaller and increasingly interdependent. We would expect that BRI will undoubtedly impact labor conditions in the U.S., however, from a legal perspective, predicting how the law may evolve as a result of those changes is very difficult. From a geopolitical and macroeconomic point of view, enhanced globalization may force lawmakers in the U.S. to either turn inwards and become increasingly protectionist, or turn outwards, and modify labor standards in the U.S. to become more competitive globally. How this may play out is many years down the road, however, is yet to be seen and labor and employment practitioners may well have to wait and see how this evolves in the coming years