China’s 'One belt one road' initiative was first introduced by President Xi Jinping during his visits to Central and Southeast Asia in September and October 2013. With the dawn of 2016, it is appropriate time to take stock and review what has been done so far in implementing the initiative, and its future direction.

Set out below is an overview of the One Belt One Road (shortened to OBOR) initiative. As detailed further below, with the initiative successfully launched, key funding institutions established, a regulatory framework deployed and eager diplomats entering into multiple bilateral agreements across the globe, 2016 is now likely to see a rapid acceleration in the uptake of OBOR projects. The potential now exists for powerful partnerships to be established between international and Chinese enterprises to leverage off this initiative.

'One belt, one road' in a nutshell'

'One belt, one road' is a development strategy and framework, proposed by the highest levels of PRC Government that focuses on connectivity and cooperation among countries along two main routes, the land-based 'Silk road economic belt' and oceangoing 'Maritime silk road' which run through the continents of Asia, Europe and Africa, connecting vibrant East Asian economies at one end and developed Western European economies at the other, while encompassing more than 65 countries along the route. The OBOR initiative covers countries as diverse as Singapore, Georgia, Kenya and the Netherlands.

Click here to view map.

Map showing the OBOR route (both the 21st Century Maritime Silk Road and the New Silk Road Economic Belt).

The strategy underlines China's push to take a bigger role in global affairs, and its need to export China's production capacity in areas of overproduction such as steel manufacturing and infrastructure construction. However, the OBOR initiative is a broad initiative and captures everything from regional arts festivals and book fairs through to the establishment of the $100 billion Asian Infrastructure Investment Bank (AIIB), the $100 billion BRICS New Development Bank and the $40 billion Silk Road Infrastructure Fund. In March 2015 China’s National Development and Reform Commission (NDRC), Ministry of Foreign Affairs and Ministry of Commerce jointly issued the Visions and Actions on Jointly Building Silk Road Economic Belt and 21st Centruy Maritime Silk Road ('Visions and Actions Plan') for the OBOR initiative, which, similar to a strategy paper, acknowledges that the OBOR is a pluralistic and open process of co-operation which can be highly flexible and does not seek conformity. 

However, at its core OBOR demonstrates a high level political commitment in China to work with participating countries to facilitate an increase in trade and investment flows and interconnections. A key focus of this is on reducing barriers to trade – both overcoming literal barriers (such as inadequate port, rail and road infrastructure) and also overcoming less tangible barriers (such as enhancing trade liberalisation and easing customs and quarantine processes). 

OBOR calls for an improvement on the region’s infrastructure, with a call for greater energy and power interconnections and to establish a secure and efficient network of land, sea and air passages across the key routes. Additionally, the initiative calls for greater policy co-ordination (such as opening free trade areas and improving co-operation in new technologies) and financial integration (such as carrying out multilateral financial cooperation in the form of syndicated loans and supporting foreign countries to issue RMB denominated bonds). Furthermore, whilst the OBOR is firmly rooted in the Silk Road’s thousand year old heritage, it also clearly looking to the future – greater e-commerce interconnectivity and advancing the construction of fibre optic cables is encouraged. 

OBOR: 2+ years down the road

Since OBOR’s 2013 launch, we have seen the successful launch of the Asian Infrastructure Investment Bank (AIIB), the $100 billion BRICS New Development Bank and the $40 billion Silk Road Infrastructure Fund (SRF). The former two institutions (AIIB and BRICS New Development Bank) are not exclusively directed towards the OBOR (although they are indeed relevant), but the latter, SRF, as the name suggests, has OBOR projects as a prime focus. Moreover the SRF has already started being a particularly active investor along the OBOR routes. For example, in April 2015 the SRF announced its first OBOR investment project – Pakistan’s 720-MW Karot hydropower project. In June 2015, the SRF (together with one of China’s largest chemical enterprises, ChemChina) announced agreements to seek to acquire Italian tyre manufacturer Pirelli. In September 2015, SRF concluded a framework agreement with one of Russia’s leading independent gas producer, Novatek, on the acquisition by SRF of a 9.9% equity stake in the Yamal LNG project. The SRF has also been an active investor in recent Hong Kong initial public offerings, taking cornerstone stakes in each of China International Capital Corporation’s October 2015 IPO and China Energy Engineering Corporation’s November 2015 IPO. 

Other projects announced in connection with the initiative include a number of private Chinese companies’ foreign expansion and joint venture plans in a OBOR countries, such as the strategic cooperation agreement between Anhui Conch Cement and the Bank of China to see Anhui Conch Cement investing to establish new project sites in South East Asia; and machinery maker XCMG Group’s opening of new joint venture factories in Uzbekistan. 

Additionally, Chinese regulators have continued to lay the regulatory and diplomatic foundations to support the OBOR initiative. Domestically, under the guidance of the March 2015 of the Visions and Actions Plan (which lays out the broad strategy of the initiative (see above)), 2015 saw other key Chinese regulators issue supporting guidance. This included China’s State Administration of Taxation releasing the 'Notice Regarding the Tax Services and Administration to Implement the Development Strategy of the ‘One Belt One Road’' regarding tax services and improvements contemplated for the OBOR route and the Ministry of Transport drafting supporting plans and measures. Additionally a number of Chinese provinces have published guidance notes and plans relevant to their local areas, for example Guangdong (June 2015); Hunan (August 2015); and Henan (December 2015). Each of these localised plans focuses on the geographical benefits and respective strengths of each province. For example the Guangdong plan focuses on developing shipping and cross-boundary infrastructure in the Pearl River Delta (covering the Guangdong-Shenzhen-Hong Kong and Macau bay area); whilst the inland province of Henan plans on positioning itself as an access point for the opening up of China's inland regions to the outside world. 

On the international front, China’s diplomats have been busily engaging with relevant counterparties, with international agreements or memoranda issued jointly with countries as diverse as India, Hungary, Kazakhstan and Russia. 

Successfully utilising OBOR opportunities

A large portion of China’s foreign investment and trade going forward are expected to take place in OBOR countries. However, the OBOR is not only outward looking from China - it is a two-way street, with the Visions and Actions Plan specifically welcoming companies from all countries to invest in China whilst also encouraging Chinese companies to participate in infrastructure construction and undertake other investments in other countries along the route. 

Key industries for the OBOR initiative include: infrastructure and projects; energy and power; transport and logistics; information technology and industrial development; and financial markets. 

Successfully implementing projects along the OBOR will not be without risks and challenges. Overcoming these risks will require thorough due diligence exercises and robust partnership and joint venture arrangements. More importantly success will depend on enterprises finding the right partners and having the right support networks providing a thorough understanding of local conditions, regulators, market players and, more generally “ways of doing business” in both China and the foreign host jurisdictions. This will be essential to be able to adequately identify, quantify and overcome risks and opportunities; to achieve this, an on the ground presence and knowledge of suitable partners and relevant contacts (both for foreign parties in China; and for Chinese parties in the foreign jurisdiction) is a perquisite. 

Importantly, whilst China has allocated significant capital and resources towards implementing OBOR, China cannot implement the OBOR alone. Success of this initiative requires co-operation between Chinese enterprises and foreign counterparties in a raft of sectors and regions, covering everything from small scale trade and investment, to the delivery of large scale multi-jurisdictional game-changing infrastructure... and consequently the OBOR initiative offers countless opportunities for foreign companies to partner with Chinese companies, enterprises and financial institutions.