Chinese firms and their partners will invest an estimated US$350 billion in the next five years in new projects in countries along the New Silk Road trade routes from Asia to Europe and Africa, according to a new report. While China’s Belt and Road trade and infrastructure initiative will create opportunities for foreign companies too, there are also political and legal risks in some countries involved with the project, said the report published on Tuesday by law firm Baker McKenzie and Silk Road Associates consultancy.
The Belt and Road Initiative (BRI) – a brainchild of President Xi Jinping – seeks to increase trade and connectivity through massive infrastructure investmentin over 60 countries across Eurasia and Africa. While Chinese outbound investment is increasingly directed to the Belt and Road countries, the initiative itself was boosted as a political priority this week when the ruling Communist party incorporated it to its party charter.
“A tangible shift in Chinese commercial activity in the BRI region over the past six months should now leave no doubt about China’s intention to see BRI become a defining force in the global economic landscape, for decades to come,” said Ben Simpfendorfer, Founder and CEO of Silk Road Associates.
Next wave of Chinese investment
The report said that 50 Chinese state-owned companies have already invested or participated in nearly 1,700 projects in Belt and Road countries since the initiative was launched in 2013. These projects have typically involved companies like China Road and Bridge Corp or China Harbour Engineering building roads, ports, power plants and other infrastructure financed through loans from Chinese policy banks such as Exim Bank of China and China Development Bank.
The number of new Belt and Road projects is however expected to jump significantly in the next five years as private Chinese companies, such as internet giant Tencent or smartphone maker Oppo, and foreign firms step in to take benefit from opportunities created by improved infrastructure. The report identified sectors including technology, manufacturing, real estate, logistics and warehousing playing a bigger role in the Belt and Road initiative in the next few years and beyond.
“While BRI was seen at its inception as predominantly the preserve of Chinese SOEs, funded by Chinese banks, and staffed by Chinese workers, the sheer scale and ambition of the initiative means there will be plentiful opportunities for those local and multinational companies that can work hand in hand with Chinese organisations,” said Stanley Jia, Chief Representative of Baker McKenzie’s Beijing office.
The report said that the biggest new commercial opportunities outside of China will be in 10 countries that account for two-thirds of the combined GDP of the Belt and Road region: India, Indonesia, Iran, Korea, Poland, Russia, Saudi Arabia, Taiwan, Thailand and Turkey. Foreign companies have opportunities to supply products to Chinese contractors where environmental standards are high or projects demand more advanced technologies, or compete with Chinese firms in the mature markets in Southeast Asia and the Gulf.
While the report by Baker McKenzie and Silk Road Associates did not look into the political factors driving the Belt and Road initiative, it warned that risks to investments under the initiative included foreign investment restrictions, antitrust regulations, tax, local employment and environmental laws, as well as political risks in some countries.