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Shared growth and collaboration over the five-years on the Belt and Road: is China building a better world?


Navigator 2nd issue

In the last five years since the Belt and Road Initiative (BRI) was put forward, as a firm supporter for economic globalization, China has been committed to building an open and inclusive platform to promote mutual benefits and win-win results by developing complementary cooperation and boosting economic activities between the world and itself. Chinese companies that are involved in the BRI are effectively addressing their corporate social responsibilities (CSR), taking measures to balance economic, environmental and social benefits and seeking to maximize each, and furthering sustainable development.

I hope you will find this issue of Navigatorinsightful and that it will inspire Chinese companies to incorporate CSR into their business strategies. Also, it is our hope that EY will help you find the right balance between growth and the benefits of the country, the society and the environment to achieve sustainable and healthy development and build a better working world.

Albert Ng 
Chairman
China Managing Partner Greater China

Acknowledgement
EY deeply appreciates the support offered by numerous companies in compiling this issue of Navigator, in particular the contribution and inputs of the CSR case studies made by the executives of the Chinese companies. With their great help, EY completed this issue and would like to express our sincere gratitude to the following companies (in stroke order of Chinese characters):

Shanghai Geoharbour Construction Group Co., LtdChina Datang Corporation LimitedChina Communications Construction Company LimitedVPower Group International Holdings LimitedState Grid Corporation of China

Download the full report

EY believes CSR activities can help Chinese companies to obtain favorable business and investment environment and returns, build positive images overseas, enhance international influence and global competitiveness, expand global presence, and improve political and economic environments and people’s livelihood.

Executive summary

The 2nd issue of Navigator focuses on CSR of Chinese companies when implementing the B&R projects. In this report, EY explores how Chinese companies can achieve mutual benefits, win-win cooperation and sustainable development in host countries by conducting in-depth interviews with various Chinese companies and incorporating their experiences in fulfilling CSR as well as the difficulties and challenges they faced when investing in the B&R economies.

In the section of case studies, we will showcase some examples on how Chinese companies bring benefits to the B&R economies, including:

Shanghai Geoharbour Group - helping reduce the cost of infrastructure construction in Southeast Asia by transferring its competitive technologyChina Datang Corporation - providing power supply for the host country, actively protecting the local environment, and training local professionalsChina Communications Construction – helping to drive Kenya’s economic development by building the Mombasa-Nairobi railwayVPower Group - accelerating electrification in Southeast Asia through distributed power generation solutionsState Grid - whose power transmission project helps millions of people in Brazil get access to electricity

Loletta Chow
Global Leader of EY’s China Overseas Investment Network (COIN)

1. Five-year review and outlook on the B&R construction

The year 2018 marks the fifth year since the BRI was proposed. Over the past five years, the initiative has been pushed forward by all parties through coordination and cooperation, moving it from conception to implementation. It is beginning to take effect and injecting a fresh momentum into improving global economic governance and enhancing international development and cooperation. In recent years, breakthroughs have been made toward the five goals under the BRI, and the idea of achieving shared growth through discussion and collaboration has resonated with the world.

Policy coordination: promoting openness with sustainability consideration

In recent years, China is building an interconnected network with developing countries through the BRI to achieve mutual benefits and win-win cooperation in a complementary manner. Many developing countries have expressed their willingness to join the BRI, under which all parties will achieve consensus and promote coordinated and interconnected development. On the other hand, many developed countries see the BRI as a significant opportunity, under which all parties will work toward common development, prosperity and stability with a shared commitment to practical cooperation in addressing global challenges.

Source: State Council Information Office of China (SCIO), Ministry of Transport of China

Facilities connectivity: major regional projects are proceeding steadily

Based on the focus of cooperation and spatial planning for the B&R, China has proposed a framework including six corridors, six means of communication, multiple countries, and multiple ports (“the Framework”)1. By promoting facilities connectivity comprehensively in the areas of land, sea, air and internet in the regions, the BRI will further enhance political, economic and trade exchange and strengthen cooperation based on complementary advantages.

Since the BRI was launched, projects including the China-Thailand railway, Jakarta-Bandung high-speed railway and Gwadar Port are accelerating the construction processes. This will help facilitate international economic and trade cooperation, personnel exchange and reduce transportation costs. Many projects employ local people in the construction process, thus will help create job opportunities and transfer advanced technologies to achieve win-win cooperation.

Source: SCIO, Ministry of Transport of China, MOFCOM

Unimpeded trade: promoting trade liberalization and facilitation

Since the BRI was implemented, China has expanded open markets, improved trade facilitation and endeavored to eliminate trade barriers and promote open economy.

Trade transformation and customs clearance integration are priority tasks in recent years. China has boosted production capacity cooperation through a network of overseas economic and trade zones and free-trade areas to accelerate industrial upgrading and industrialization in relevant countries. In addition, the Belt and Road Customs Clearance Co-operation Action Plan (2018-2020), released by China's General Administration of Customs (GAC), has proposed to develop international cooperation on customs clearance integration to enhance clearance efficiency at border ports.

Source: SCIO, General Administration of Customs of China (GACC)

Financial integration: exploring innovative ways for project investment and financing

In recent years, China’s financial market has been exploring new ways to invest and finance B&R projects, doing its part to enable the projects to proceed smoothly and build a diversified, risk-controlled system with long term stability. Such system is key to project sustainability, since the B&R construction is featured with long payback periods and huge funds appetite.

Up to now, China has developed various forms of financial cooperation with B&R countries and relevant organizations as a diversified investment and financing platform has taken shape. With further improving the financial markets, financial institutions have also provided B&R projects with financial support steadily to enable project sustainability.

Source: China Banking and Insurance Regulatory Commission, AIIB, NDRC, CDB, CEXIM, China UnionPay, Xinhua News Agency, People's Daily, EY analysis

People-to-people bond: concerted support in promoting inclusive development in local economies

The people-to-people bonds among B&R countries can establish a solid social foundation for the B&R construction. In recent years, China has deepened cooperation with B&R countries in the fields of education, culture, technology, tourism and healthcare to promote personnel exchange. China has launched a variety of scholarship programs to attract students from B&R countries to study in China while encouraging Chinese students to choose B&R countries as their overseas study destinations.

Furthermore, many Chinese companies and private institutions launch CSR programs through the BRI. In consideration of governance, business models and social and environmental impacts, they have boosted local economic development and help local people address their difficulties.

Source: SCIO, China’s Ministry of Education

Note:
1. The “six corridors” are the New Eurasian Land Bridge Economic Corridor, the China-Mongolia-Russia Economic Corridor, the China-Central Asia-West Asia Economic Corridor, the China-Indochina Peninsula Economic Corridor, the China-Pakistan Economic Corridor, and the Bangladesh-China-India-Myanmar Economic Corridor. The “six means of communication” are rail, highways, seagoing transport, aviation, pipelines, and aerospace integrated information network. “Multiple countries” refer to a number of countries along the B&R that first joined the initiative. “Multiple ports” refer to a number of ports that foster safe and smooth sea passages.

2. CSR and Chinese companies “going global”

CSR now becomes a new standard to evaluate a company’s internationalization in the social area2. As Chinese enterprises have set a higher level of internationalization and international operations as their long-term strategic goals, it is particularly imperative to incorporate CSR standards into their development.

BRI presents a great opportunity to drive CSR

As a result of the volatile situation and significant disparity in the economy, culture and society among different B&R countries, the region still faces great uncertainty and latent risks. By fulfilling CSR, Chinese enterprises will gain acceptance from the local community and reduce investment risk, they will also build up a responsible image in the world and enhance their international influence and competitiveness.

2.1 B&R case study 1: Shanghai Geoharbour Construction Group: export advanced techniques, reduce project costs, and enhance engineering efficiency

Shanghai Geoharbour Construction Group Co., Ltd. (hereinafter referred to as “Shanghai Geoharbour Group”) is a Chinese private enterprise providing services such as riverside and seaside soft soil process, land reclamation and developing harbor infrastructure. Since 2009, the company has responded to China's “going out” strategy, with the guiding principle of "patents advancing and standards making", providing solutions to a number of the B&R infrastructure projects, involving ports, airports, railways and power generation, becoming a model for Chinese privately-owned enterprises participating international competition and entering the international market.

Exploit technological advantages and participate in the B&R development

In 2003, Shanghai Geoharbour Group successfully had developed a new technique called “high vacuum densification method” (HVDM) for the soft soil consolidation process and obtained national invention patents. To a certain extent, the series of technologies have minimized the drawbacks of high cost, long construction period and poor quality control of the traditional soft soil foundation reinforcement methods, effectively breaking through the original technical limitations and providing new impetus for soft soil foundation reinforcement.

With the implementation of the BRI, Shanghai Geoharbour Group has paid more attention to opening up overseas markets. The difference is that it mainly participates in the international market from a technical perspective. Every time it enters a market, the company does not undertake business up front, but learns and familiarizes with the laws and market rules of local countries, and improves the overall plan of related patents first.

To adapt to the trend of professionalism and continuity in technology in the export market, Shanghai Geoharbour Group mainly focuses on establishing technical cooperation with local companies to achieve technical output and seek to avoid conflicts. In developing countries, Shanghai Geoharbour Group will give priority to cultivating local professionals and accelerating the transformation of research results.

Note:
2. Source: The United Nations Global Compact

2.2 B&R case study 2: Datang Group participates in overseas power and environmental projects seeking to protect local ecology

China Datang Group Co., Ltd. (hereinafter referred to as “Datang Group”) is a large-scale power generation enterprise directly managed by the central government. When “going out”, Datang Group not only provides power supply for the economic and social development of the host country and is aware of the importance of protecting the local ecological environment, realizing the mutual and sustainable development of overseas enterprises and host countries.

2.2.1 CDTO Power Project in Cambodia promotes regional economic development

In 2007, Datang Group established China Datang Overseas Investment Co., Ltd. (hereinafter referred to as “CDTO”) to promote the development of international business. The construction of the 230kV transmission and transformation line in the Phnom Penh-Buddha-Battambang project, in which CDTO has participated, was Datang’s first overseas power grid BOT3 project. It was also the grid engineering with the highest voltage level and the longest transmission mileage that Chinese power companies have invested in BOT mode in Cambodia.

As one of the main power grids of Cambodia's national power planning, the project stretches from the east of Phnom Penh City to the west of Battambang Province, with a total length of 294km. The project sends low-cost, high-quality and clean energy to energy-poor areas, which has not only effectively improved the shortage of power grids in Cambodia, but also increased local fiscal revenues.

Datang Group reports that given the achievement of the project and its contribution to the coordinated development of primary, secondary and tertiary industries in Cambodia, the project was recognized as "a model for cooperation between Chinese enterprises and the Cambodian government":

Source: Datang Group

2.2.2 Datang Environment Desulfurization Project in India actively improves local environment

Datang Environment Industry Group Co., Ltd (hereinafter referred to as “Datang Environment”) is one of the leading enterprises in the field of environmental protection and energy conservation in China's power industry. In 2014, its subordinate body China Datang Technologies & Engineering Co., Ltd (hereinafter referred to as “Datang Technology”) , as the general contractor and executive body, undertook the general contracting project for the desulfurization EPC project for coal-fired power plants in Cuddalore, India.

Reduce sulfur dioxide emissions by 20,000 tons

As a key local environmental protection project, the Cuddalore Desulfurization Project has played a key role in improving the surrounding environment and achieving energy conservation and emission reduction. Datang Technology reports that it adheres to the principle of energy conservation and environmental protection in the construction area and employee dormitory, and has repeatedly made recommendations to the owning company on the unit energy-saving plan, which have been adopted by the owners and achieved positive results. In addition, Datang Environment has recycled water resources and slurry through the use of various technologies.

Datang Environment reports that, in terms of reducing pollutant emissions, the Cuddalore Project was the first desulfurization environmental protection project in India to treat 100% of flue gas. The availability and desulfurization efficiency of the desulfurization equipment exceeded the local average. Since becoming operational, the annual emission of sulfur dioxide has been reduced by nearly 20,000 tons4, which has played a positive role in improving the local environment. The desulfurization unit is equipped with a wastewater workshop, which adopts the environmental protection measures of “first process, then discharge”. Due to Datang Technology’s relatively mature wastewater processing technology, the negative impact on the environment of processed wastewater has been significantly reduced.

Note:
3. Note: BOT refers to Build-Operate-Transfer
4. Source: Datang Environment

2.3 B&R case study 3: CCCC helping to drive Kenya's economic growth, resulting in logistics costs falling by 40%

China Communications Construction Co., Ltd. (hereinafter referred to as “CCCC”) is a large-scale integrated infrastructure service provider in China. It is mainly engaged in the investment and construction of transportation infrastructure, equipment manufacturing, real estate and comprehensive urban development. In recent years, CCCC has actively promoted its internationalization strategy. With the deepening of internationalization, actively fulfilling CSR overseas has become an important mission of the company.

The construction of Mombasa–Nairobi Railway to promote the development of Kenya

The Mombasa–Nairobi standard gauge railway project (Mombasa–Nairobi Railway), built by CCCC, is located in Kenya, Africa, connecting Mombasa, one of Africa’s largest ports and Kenya’s political, economic and cultural center and Nairobi, the important transportation hub in Africa. The Mombasa–Nairobi Railway had started construction in December 2014 and was officially opened to traffic in June 2017. The main line of the railway is 480km long. It is the first new railway built by Kenya in the past century5. It is also the core of the East African railway network and the major project of connectivity in East Africa. It is the iconic project of China’s advancement of “Africa’s cooperation in road, railway, aviation networks and industrialization”.

The entire line of the Mombasa–Nairobi Railway was designed and constructed under the advanced technical and management standards of the China National Railway. It is a landmark project for the transformation and upgrading of CCCC6. In the construction process, CCCC has emphasized the implementation of CSR and promoted local economic growth.:

The Mombasa–Nairobi Railway can provide Kenya with safer, more reliable and faster passenger and cargo transportation services. As the largest infrastructure project since Kenya gained independence7, the Mombasa–Nairobi Railway is conducive to further promoting the key objectives and tasks of economic growth, infrastructure connectivity, employment promotion, and adaptive talent development in Kenya's 2030 vision, helping Kenya enhance its independent development capabilities and further achieve its prospective planning.

Note:
5. Source: Xinhua News Agency
6. Source: CCCC
7. Source: People’s Daily

2.4 B&R case study 4: With innovative power generation solution narrowing the power supply gap, VPower has accelerated the electrification process in Southeast Asia

VPower Group International Holdings Limited (hereinafter referred to as “VPower”) is a Hong Kong-based private enterprise engaged in the design, assembly and sale of gas and diesel-fired engine generator sets and power generation systems, and regards CSR and sustainable development as its long-term goals. In the future, VPower intends to improve the energy efficiency of power generation systems and solutions, and actively explore different clean solutions to create a low-carbon, clean and sustainable environment for the world.

Flexible solution to solve the power supply gap and promote economic growth in Myanmar

VPower reports that, at present, Myanmar has the lowest level of electrification in ASEAN countries, with the official estimation at only about 30%. Power coverage is very limited and the supply is unstable. On the other hand, due to the rapid development of the Myanmar economy, local industries and commerce have a great demand for electricity. To bridge the gap between power supply and demand, the distributed power station solution provided by VPower plays an active role.

To bridge the power gap in Myanmar in the short term, VPower's fast-track solution has significantly shortened the construction time through a flexible and easy-to-transport containerized unit technique. Taking VPower's past projects in Myanmar as an example, it reports that it only took about five months from contract signing to operation, which effectively filled the power supply gap in a short period of time. In addition, to cope with the impact of local seasonal changes in power supply, VPower adopts a modular design to allow adjustment in the number of units at any given time to adjust the power supply flexibly. For example, the Myanmar hydropower station generates much power in the summer when rainfall is abundant. But in winter, the local hydropower station has limited power generation. Distributed power stations are required to ensure the power supply to the commercial sectors and residents.

Compared with the traditional power generation systems that take a long time and are expensive, VPower's distributed power station project can effectively provide relatively stable and sufficient power supply to the local area in a short period of time, so as to alleviate the problem of structural power shortage and accelerate the electrification process in Myanmar.

2.5 B&R case study 5: State Grid’s Brazil power transmission project to meet the electricity demand of tens of millions of people

State Grid Corporation of China (hereinafter referred to as “State Grid”) is a giant SOE with power grid investment, construction and operation as its core business. During its overseas operations, State Grid has tried to take active CSR practices to bring host countries a better economy, more jobs and improved livelihood. It also has released its CSR reports for 12 consecutive years - all these actions help State Grid win global recognition.

Export UHV technology, help Brazil transmit power to the south

In December 2017, the Belo Monte ultra-high-voltage (UHV) transmission project (Phase I) in Brazil, China’s first UHV transmission project overseas, came into commercial operation. With State Grid and Eletrobras winning the contract hand in hand, this project marked a new milestone of the cooperation between China and Brazil in the electricity industry.

Located in the Pará state of northern Brazil, the Belo Monte hydropower station is Brazil’s second largest and the world’s fourth largest hydropower station5. Its UHV transmission line is the first UHV transmission project in the Americas. This was also the first time that China’s leading UHV technology was used in a foreign country. The stage one project, 2,077 km long ranging from the north to the southeast of Brazil, involved the construction of transmission lines, convertor stations at the two ends, earth electrodes and their grounding lines with an installed capacity of 11 million kilowatt and a transmission capacity of 4 million kilowatt. This would significantly improve the power supply in Brazil and ease the electricity pressure of more developed regions.

Brazil has a long history of power shortage. Its national electricity generation in 2015 was 550 billion kilowatt, less than 10% of China’s overall power generation8. And most of Brazil’s electrical load is concentrated in the southern and southeastern regions that have a more developed economy while the northern part where the Amazon River contains the greatest resources for power generation is less developed.

The Belo Monte Phase I project could transmit clean hydropower to the southeast in large capacity and low loss to benefit over 69 cities and meet the power demand of 22 million Brazilians9. The second phase of the project could further solve the electricity shortage and improve the social development and living standards there.

Note:
8. Source: MOFCOM
9. Source: Economic and Commercial Counselor's Office of Chinese Embassy in Brazil

(Included herein is information collated from interviews conducted with the individual enterprises and information supplied by the enterprises. Neither global EY organization nor its member firms make any guarantees about the completeness and accuracy of the information. Moreover, it should be seen in the context of the time it was made. This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice.)

Contacts


Loletta Chow
Global Leader
China Overseas Investment Network +852 2629 3133
Hong Kong


Michelle Ho
China Overseas Investment Network
+852 2846 9660
Hong Kong


Nina Zhao
China Overseas Investment Network
+86 10 5815 4954
Beijing


Bianca Gao
China Overseas Investment Network
+86 10 5815 3105
Beijing

About COIN

The China Overseas Investment Network (COIN) links EY professionals around the globe, facilitates collaboration, and provides consistent and coordinated services to our clients with overseas investment from China. Building on the existing China Business Group in the Americas, EMEIA, Asia-Pacific and Japan areas, COIN has expanded our network in 66 countries and territories around the world.

Our globally integrated structure enables us to deploy dedicated teams with strong local experience, and profound industry knowledge to provide our clients with one-stop professional service from planning stage to execution stage to integration stage, helping our clients navigate through global markets.

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