Summary: Welcome to BLP’s ‘Belt and Road Insights’ August 2017 issue – a selection of interesting Belt and Road news items, distilled into a monthly ‘speed read’.
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.
The UK urged to engage with the Belt and Road Initiative to revitalise its economy after Brexit
With the UK in the midst of renegotiating its relationship with the EU as consequence of Brexit, there are question marks as to who it should be targeting as potential new trade partners, to make up the deficit caused by the rewriting of its relationship with Europe. Improved ties with China and greater cooperation with the Belt and Road initiative is viewed as one significant opportunity for Britain to maintain its reputation as leading global financial centre. Britain for example has the capacity to play a leading role in raising finance for the Belt and Road as majority of western banks using London as their Renminbi trading hub.
Whilst a free trade deal with China being advocated by the UK Government, and stronger ties with the Belt and Road, concerns still remain that such formal arrangements will lead to the UK being burdened by greater levels of debt with a significant proportion of Belt and Road Projects being financed by loans as opposed to grants.
China Ocean Shipping Company ramps up its investment portfolio along the new silk road
The shipping state-owned enterprise China Ocean Shipping Company ("COSCO") has recently announced plans to bolster its activities along the new silk road route by investing in the new Khorgoz Eastern Gates special economic zone ("SEZ") which is situated on border of the western Xinjiang region and Kazakhstan.
The investment comes in the form of a 24% acquisition signed with Kazakhstan’s national railway company. The SEZ was established by the Kazakhstan Government and includes logistics, dry port and production zones. The SEZ acts a central railway hub connecting China to over 11 cities across Europe.
COSCO have been accelerating their presence globally and have been a huge proponent of the Belt and Road Initiative having already secured a 180 billion yuan loan in January from the China Development Bank to support financing Belt and Road focused projects.
The announcement follows on from COSCO having already secured a 51% stake in the Spanish port operator Noatum Ports in June this year.
The Belt and Road Initiative accounting for a rise in global adoption of the Renminbi
In a report published in July by the Society for Worldwide Interbank Financial Telecommunication ("SWIFT"), the Belt and Road Initiative was recognised as a leading reason to account for the increased adoption of the use of the Renminbi, despite a recorded decline in the currency being used in international payments.
According to the report the Renminbi currently lies is sixth place in the tables for international currency payment, as reflected in a 1.98% drop in its usage between June 2015 to June 2017.
Nonetheless, the report casts a positive forecast for the Renminbi with the Belt and Road Initiative included in SWIFT’s list of five “enablers of long term RMB internationalisation”.
The report in particular noted significant growth of the use of the Renminbi in South East Asian countries along the Maritime Silk Road, as well as a steady increase in its usage among four of the five “Stans” including Kazakhstan and Tajikistan. However, these figures are still relatively low in comparison with recorded transfer payment between China and certain Western European countries such as Germany and Poland.
Belt and Road linked projects under increased scrutiny in light of greater controls on capital outflows
With tighter restrictions being imposed on domestic companies as the Chinese government looks to tackle issues with its control on capital outflows, opinion is generally coalescing around the view that the controls will have less impact on ‘genuine’ Belt and Road projects, although some commentators have suggested that Belt and Road projects may nevertheless face a greater level of scrutiny before they are given the greenlight to proceed.
This comes in light of the Chinese Commerce Ministry citing that up to 65% of Chinese Investments abroad (which also factor in projects which are considered to fall within the Belt and Road initiative) had incurred losses.
Current data still makes a strong case for Belt & Road projects not being dramatically hindered by Beijing’s crackdown on capital outflows. Between January and August of this year Chinese M&A activity within the 68 countries formally linked to the Belt and Road, was valued at US$33 billion, which has already overtaken the US$31 billion recorded for the entirety of 2016.
Belt and Road is opening trade routes for halal products
Countries such as Malaysia and Indonesia are opening up to the reciprocal benefits of Belt and Road Initiative in areas which fall outside of the more widely publicised transportation, energy and infrastructure deals which are frequently reported in the media. One such growth area are opportunities to promote halal products to China’s 30 million Muslim community.
Food and beverage product in China have come under increased scrutiny in light of several well reported food safety scandals and Halal products are proving to be a popular choice with consumers with its perceived higher hygiene standards.
Chinese based companies are also gradually seeing the potential in investing in Halal products with companies including Shineway Group having invested US$310 million into developing its own halal production base. Several other companies have also established trade agreements to export halal products to countries including Turkey and Kazakhstan.