Updates from the New Silk Road

The Belt and Road Initiative is a major development strategy launched by the Chinese government in September 2013 to sponsor and promote economic co-operation among countries along the proposed Belt and Road routes. With our focus on built environment and infrastructure development, we aim to keep you updated on the latest developments.

Hong Kong Government’s sets out its Belt and Road aspirations at latest summit

The Hong Kong Government recently hosted its second Belt and Road Summit on 11 September, with the Government emphasising its key message that Hong Kong has the capability to become the regional financial hub for funding Belt and Road infrastructure projects. In her opening address, Chief Executive Carrie Lam reinforced this message by outlining Hong Kong has been proactively engaged in discussions with the Central Government on a new cooperation agreement would take full advantage of Hong Kong's unique advantages under 'one country, two systems' in support of the Belt and Road Initiative.

Also on the agenda during the conference was the drive for closer collaboration on Belt and Road projects between Hong Kong and ASEAN, with Hong Kong pledging to provide its expertise in developing public-private sector cooperation, in order to support the financing of ASEAN’s major infrastructure investment requirements.

Construction begins on the $13bn Malaysian East Cost Rail Link, a key Belt and Road project

Hailed as a ‘game-changer’ by the Malaysian Prime Minister Najib Razak, construction works for the East Coast Rail Link ("ECRL") began on 9 August 2017, designed to link the eastern border town of Kota Bharu with Kuala Lumpur. When completed, the 688km rail link is expected to cut shipping times from the South China Sea to the Indian Ocean through faster rail transshipment. Funded 85% through a loan from the Export-Import Bank of China, the ECRL is seen as one of the key pieces of the Belt and Road puzzle.

However, the project is not without some controversy, with the opposition party criticizing it as overpriced and promising to review and re-negotiate the project if elected. The business case for the ECRL also heavily relies upon demand for the east-west rail transshipment, which looks far from certain in the face of recent developments, such as the decision of Ocean Alliance to shift operations to Singapore.

Thai PM visits China to sign contracts for Belt and Road project

Prayut Chan-o-Cha, Prime Minister of Thailand, recently visited China during the BRICS summit to sign the design and supervision contracts for one of a number of proposed high-speed rail lines in Thailand. The line will connect Bangkok with Nakhon Ratchasima, some 250km Northeast of the capital.

The signing of the THB3.5bn (US$105m) contracts follows the agreement, last year, of a framework of cooperation between the Thai and Chinese governments to develop high-speed railways. The Bangkok-Nakhon Ratchasima rail line is expected to be extended to Nong Khai, on the border of Laos, where the construction of a US$6bn high-speed rail line is currently underway. These latest contracts therefore represent another significant step forward for China’s ambitions to develop rail connections throughout Southeast Asia.

China's banks leading the way in raising funds for Belt and Road deals

As part of an initiative to internationalise the yuan and strengthen support for Silk Road trade routes, China’s largest state-owned commercial banks are raising billions to fund investment for the Belt and Road initiative.

China Construction Bank, the country’s second biggest bank by assets, aims to raise at least RMB100bn (US$15bn) whilst Bank of China is aiming to raise at least RMB20bn, both through private equity and alternative investment platforms.

These announcements are timely after China’s State Council issued new guidelines, in August, in an effort to reduce outbound spending on investments unconnected to the Belt and Road Initiative. Private dealings in overseas mergers and acquisitions have since reduced, whilst investment by Chinese companies in countries forming part of the initiative has seen an exponential increase, with source data showing a total investment of US$33bn as of mid-August as compared to US$31bn for all of 2016.

Arab International Bank to become the first beneficiary of China Development Banks’ special lending programme

China Development Bank ("CDB") has agreed with Arab International Bank to issue RMB260m denominated in renminbi with the goal of facilitating the funding of infrastructure projects across Egypt. The agreement marks an important milestone as it marks the first loan granted by CDB, under its RMB250bn Belt and Road lending programme.

The announcement follow on from recent meetings between President Xi Jinping and Egyptian President Abdel-Fattah El-Sisi at the 9th Brics Summit held in Xiamen in early September with both leaders agreeing for greater cooperation between the two nations.

Egypt is viewed by China as crucial partner for the Belt and Road Initiative in its capacity as a major gateway to Africa. In 2016 China invested over US$10bn into Egypt, making it Africa’s third largest trade partner with China.

Budhi Gandaki Hydropower Project set to improve Nepal’s longstanding energy issues.

China Gezhouba Group Corporation has agreed to engineer, procure, construct and finance the Budhi Gandaki Hydropower Project in Nepal. The US$2.5bn, 1,200 MW scheme will be the country’s largest, and its recent designation as a priority project under the Belt and Road Initiative should ensure swift completion, helping to resolve Nepal’s longstanding energy issues.

Not previously considered a high-profile part of the Belt and Road Initiative, the timing of the announcement for this project, and a wider framework of Belt and Road Initiatives in Nepal, is intriguing. Following the Sino-Indian standoff in Doklam earlier this year, geopolitical tensions remain high and this projection of soft power will be watched carefully by India, Nepal’s traditional benefactor.

For Nepal, sandwiched between two economic heavyweights, to prosper as a bridge between both countries will require precise political maneuvering, a lesson they could learn from their neighbour to the North.