What is China’s Belt and Road Initiative (BRI) – a briefing and understanding

|  What is China’s Belt and Road Initiative (BRI) – a briefing and understanding

Beijing’s multibillion dollar Belt and Road Initiative (BRI) has been called a Chinese Marshall Plan, a state-backed campaign for global dominance, a stimulus package for a slowing economy, and a massive marketing campaign for something that was already happening – Chinese investment around the world.

Over the five years since President Xi Jinping announced his grand plan to connect Asia, Africa and Europe, the initiative has morphed into a broad catchphrase to describe almost all aspects of Chinese engagement abroad.

What is the Belt and Road Initiative (BRI)?

Belt and Road, or yi dai yi lu, is a “21st century silk road,” confusingly made up of a “belt” of overland corridors and a maritime “road” of shipping lanes.

First launched in 2013 the BRI is a vast, interconnected infrastructure project spans at least 65 countries with a combined population of 4.4 billion and about a third of global economic output. According to China’s Ministry of Commerce, more than USD 1.3trillion of trade was conducted with countries via the BRI last year.

Phase one - is infrastructure, specifically transport, communications and power.

Phase two - covers e-commerce, healthcare, education and financial services.

The BRI aims to open markets to absorb China’s industrial capacity and boost trade, while also strengthening China’s diplomatic relations. It will also establish greater capability among Chinese companies for building and innovating in infrastructure.

The vast geographic reach of the BRI spans Asia, Europe and Africa. It comprises a corridor of shipping lanes through the South China Sea, South Pacific Ocean and Indian Ocean, and a belt of six land corridors as follows –

• Bangladesh-China-India-Myanmar corridor

• China-Central Asia-West Asia corridor

• China-Indochina Peninsula corridor

• China-Mongolia-Russia corridor

• China-Pakistan Economic corridor

• New Eurasian Land Bridge

Beijing has outlined five key principles which underpin the initiative and which feature heavily in China’s general rhetoric regarding global affairs and China’s international engagement.

1. Policy co-ordination – to be enhanced between countries to achieve collaborative policy solutions to problems and to drive long-term social and economic development.

2. Facilities connectivity – to support greater flow of people and goods through new infrastructure construction efforts and improvements to existing links.

3. Unimpeded trade – through reduced trade barriers and tariffs, lower trade and investment costs, and improvements to cross-border supply chains.

4. Financial Integration – through deeper monetary policy co-ordination between BRI countries, improved local currency settlement and exchange systems, and improved regulatory and risk management frameworks.

5. People to people bonds – to promote awareness and cultural understanding between the BRI countries through enhanced relations between the people

What kinds of projects are part of the BRI?

The BRI aims to incorporate leading-edge digital technologies, such as embedded sensors and data analytics, giving participating countries the ability to leapfrog current Western supply chain practices. From road and rail construction to huge new ‘dry ports’ in Central Asia aimed at replicating the success of maritime ports in the Gulf, the BRI holds the promise of developing some of the biggest projects in the world.

To date, construction projects are either being planned or already underway in more than 60 countries. Over 120 Memorandums of Understanding (MoU) have been signed with existing and prospective BRI partners and this includes 29 international organisations.

Does the BRI benefit smaller companies?

When it comes to the extent to which the ‘Belt and Road Initiative’ is generating opportunities for small- and medium-sized outfits across the route, opinions are divided.

Initiative” (BRI), provides great opportunities for large companies along the proposed overland and maritime routes, but small businesses appear to be missing out, according to some experts.

When first launched, the BRI seemed attractive to all types of businesses with small- and medium-sized enterprises (SMEs) looking forward to working with the bigger companies and state-owned enterprises (SOEs).

The drip-down effect of the initiative, which is aimed at fostering connectivity and cooperation in Eurasia has yet to be enjoyed in great volume by the SME’s.

Although Chinese companies will benefit from the initiative. For example, they will gain greatly by exporting manufacturing goods to new economies because China needs to sell its overproduction and expand to new markets. In addition, Chinese construction companies that experienced the boom over the past 10 to 20 years will need new markets to “build up”.

While the major projects will be managed by large companies, they will still need to subcontract part of the execution so smaller companies will also have a role. In addition, the belt and road is not a zero-sum game but rather a new opportunity in as far as one of its main objectives is to create new trade routes be [they] for goods or for energy pipelines. In other words, smaller companies are to benefit directly through subcontracting with a part of the pie or indirectly.

It is important for small business to become more international as many of [these] projects will be cross-border with associated risks. Thereby taking advantage of the BRI’s from the supply and demand sides.

It is hoped that big companies will not crowd out the small businesses and that there will be a market-oriented division of labour between companies of different sizes since they boast differentiated comparative and competitive advantages.

On the supply side, SMEs can forge partnerships with large companies and relevant local and government agencies to identify business opportunities. Even big companies cannot do everything on their own. As such SMEs should better position themselves in the supply chains of larger firms directly undertaking massive ‘Belt and Road Initiative’ projects.”

Although the BRI initially focuses on infrastructure, it will evolve into a multidimensional business ecosystem that demands more people-to-people connectivity that would spark opportunities in trade, services, logistics, catering, hospitality, tourism, education, production sharing and investment – all of which require SME involvement.

Considerations for companies getting involved with the BRI

1. Evaluate the project, but also the maturity of the economic corridor – the ecosystem might need to deliver assets such as power, ports and roads.

2. Evaluate supporting facilities – infrastructure, but also local workforce skills and capabilities for the project roll-out and future operation.

3. Consider how a project fits into your portfolio – delivering against your capabilities, risk profile and other infrastructure projects.

4. Choose the right local partners. Mutual trust and respect are needed to manage the inevitable challenges and crises.

5. Adopt a risk-sharing approach. Project owners may carry the cost of some of the equipment or agree to a revenue-sharing model.

6. Develop contingency strategies. Plan for disruptions. Establish an exit strategy and learn from each engagement.

7. As experts in international project management. Chinese state-owned enterprises in particular will need advice and guidance on how best to navigate local laws, regulations and business environments. Some companies are already creating advisory services to provide project management services based on their core capabilities.

8. As partners in engineering, procurement and construction. These can enable a company to gain not only access to new markets along BRI routes, but also credibility within the Chinese domestic market.

9. As investors, either by co-investing with Chinese players or by investing in partnership with existing financial instruments related to the BRI.

10. As suppliers – especially of advanced construction equipment and cutting-edge solutions.

11. As operators of new facilities. Chinese firms may need help managing stakeholders across multiple regions.

12. As sellers of assets. Companies can divest assets to Chinese or local enterprises along the BRI routes to generate financing and access to markets.

Have a question? Please get in touch with Stone Compass Associates at info@stone-compass.com