Is China’s ambitious Belt and Road Initiative a risk worth taking for foreign investors?
Five years after it was first unveiled, questions remain about whether foreign participants can actually benefit from the world’s most ambitious infrastructure plan
China’s Belt and Road Initiative (BRI) has aroused almost as much scepticism as it has raised expectations. The US$900 billion project to recreate the old Silk Road trading routes between Asia and the rest of the world, first outlined by China’s President Xi Jinping in 2013, heralded an extraordinary programme of power, transport and infrastructure construction.
“The BRI is a manifestation of China’s re-globalisation ambitions, especially its commercial and economic engagement with neighbouring countries. There is no defining blueprint, it is not a specific, discrete strategy and nor is it a type of Marshall Plan,” says Nicholas Kwan, director of research at Hong Kong Trade Development Council. The Marshall Plan, a US economic aid scheme, helped rebuild Europe after second world war.
According to the Chinese government, there are more than 100 separate agreements that make up the BRI. These agreements and projects are cross-border, bilateral and multilateral and include many types of enterprise, not just infrastructure schemes.
However, doubters contend the BRI is simply a way for China to export its excess industrial capacity, while some geopolitical rivals and neighbours fear it is an instrument of strategic and economic hegemony.
Just as the motivations of BRI are ambiguous, so the achievements are as yet unclear. Perhaps even more nebulous is how foreign companies can participate and how investors can get involved.
“BRI is progressing fast if you value the number of projects that China has financed, some of which are extremely relevant in terms of improving physical connectivity at a global level. So far there are around US$350 billion worth of projects financed, the bulk by Chinese development banks and only marginally by foreign banks or international financial organisations,” says Alicia Garcia Herrero, chief economist Asia-Pacific at investment bank Natixis.
CHINA AT A GLANCE
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At the outset in 2013, there were five stated objectives: policy coordination, facilities connectivity, unimpeded trade, financial integration and communication between different people and communities. Subsequently, a final communique at the Belt and Road Forum for International Cooperation in Beijing released on May 16, 2017 emphasised dialogue, consultation and cooperation between about 70 participant countries.
Its signatories pledged “to oppose all forms of protectionism, including in the framework of the BRI” while “promoting a universal, rules-based, open, non-discriminatory and equitable multilateral trading system”.
The Ministry of Foreign Affairs also released a list of 270 commitments, including two-way agreements with countries ranging from Switzerland to Afghanistan.
According to Kwan, perhaps the closest to an official declaration of BRI’s objectives came in a paper published by China’s National Development and Reform Commission in March 2015, which affirmed BRI’s globalisation intentions, with official policymakers guiding commercial and financial enterprises. “Interpreted in this way, BRI covers myriad projects and it is all-encompassing,” he says.
Headline projects include a US$5 billion China-Belarus industrial estate, a US$3.1 billion bridge and railway project in Bangladesh, the US$5.8 billion China-Laos railway, a US$10 billion refinery in Saudi Arabia, a new city next to Colombo’s port in Sri Lanka that will have a total investment of US$13 billion over the next 25 years, and a freight route that now links China’s eastern coast and London.
Outweighing everything is the China-Pakistan Economic Corridor, a US$60 billion effort consisting of numerous projects. For Pakistan, the investment amounts to about 20 per cent of its GDP.
This activity will drive demand for raw materials, including iron ore. BHP Billiton said it looked at 400 core projects that will require US$1.3 trillion of spending. Those projects could lead to an a