Summary: Welcome to BLP’s ‘OBOR Insights’ April 2016 issue – a selection of interesting OBOR news items, distilled into a monthly ‘speed read’. This month's OBOR Insights highlights Hong Kong’s developing role in the OBOR initiative; China’s increasing engagement with Myanmar; and China’s investment in power infrastructure – focusing on LNG and nuclear energy.
China’s One Belt, One Road development strategy aims to increase economic cooperation across Asia, Africa and Europe. With offices spanning key locations in Europe, the Middle East and Asia and a core focus on the built environment and infrastructure development, at BLP we are excited by OBOR’s promise.
1. China’s Nuclear Market growing on the Road
China aims to grow the market for its nuclear technology and infrastructure along the “Belt and Road” including in South East Asia and the Middle East. It aims to build around 30 nuclear power units throughout One Belt One Road countries by 2030.
China has identified the nuclear industry as a key method of enhancing economic integration and cooperation as part of the OBOR Initiative.
China National Nuclear Corp, the largest state-owned nuclear company, has reached a number of energy cooperation agreements, including the US$14 billion contract with the Argentinian government to build two nuclear reactors.
China currently operates 30 nuclear power units producing 28 million gigawatts with another 24 units under construction. Its nuclear industry will face strong competition from other developed countries (notably the US and Japan), and will likely require and enjoy strong government support to ensure its continued expansion.
2. Chinese-Myanmar consortium looking to invest in Dawei Special Economic Zone
Chinese state-owned enterprises and private companies are reportedly looking to form a consortium with Myanmar Industrial Estate, a subsidiary of Italian-Thai Development, to invest in infrastructure projects in Dawei Special Economic Zone (DSEZ).
Dawei is a port town located in the south close to Myanmar’s border with Thailand. The Dawei location would allow it to become an important sea port along the Maritime Silk Road.
These developments come at a time when Myanmar is witnessing a massive inflow of foreign investments and when Chinese companies are looking for overseas investment opportunities as part of the One Belt One Road plan.
DSEZ arose out of a memorandum of understanding between the Myanmar and Thai governments in 2008. The DSEZ is intended to include port facilities, power plants, and an LNG terminal. These projects have previously been stalled by a lack of financing, only recently resuming in 2015.
3. China invests in Siberian LNG plant
China’s Silk Road Fund Co. Ltd. has completed a US$1.2 billion deal through which it obtained a 9.9% share in the Yamal LNG project in northwestern Siberia.
The Yamal project is expected to produce 16.5 million tonnes of liquefied natural gas each year from 2021. The US$27 billion project will start operating in late 2017 and China will be its main export market.
The holding was purchased from Novatek, a large producer of oil and gas. Novatek continues to hold a majority share in the project. Other interest holders include France’s Total S.A. and state-owned China National Petroleum Corp.
4. Hong Kong to have role as One Belt One Road liaison
Speaking at an investment seminar on 18 March 2016, Hong Kong secretary for commerce and economic development, Greg So Kam-leung confirmed his view that the city has an important role as liaison between China and countries forming part of the OBOR initiative, saying:
"The Hong Kong government is also strengthening cooperation with [OBOR countries] in commerce, professional services and new industries, in which Hong Kong has a competitive advantage,"
Hong Kong’s assistant commerce minister Liu Haiquan similarly suggested that the city could provide services to support the offshore yuan market in One Belt One Road countries, as well as the activities of the AIIB and the Silk Road Fund.
To ensure Hong Kong was able to bring its strength to bear, it was important that Hong Kong businesses monitored China’s reform policies and assisted in the development of the country's free-trade zones, in particular the one in neighbouring Guangdong.
5. Hong Kong to be a key player in OBOR’s related debt funding
The One Belt One Road initiative will require large scale capital investment to come to fruition.
It has been suggested that Hong Kong should avail itself of its longstanding experience and expertise in financial services and reinforce its role as a debt finance centre by issuing infrastructure bonds denominated in RMB.
While much of the funding will be provided by new and established financial institutions, including the Asia Development Bank, the New Development Bank and the Silk Road Fund, there is still likely to be a significant funding gap even accounting for such funding as the individual nations may be able to raise themselves.
The Hong Kong dollar debt market has demonstrated a growth of 12% per year with a market cap of over US$180 billion in 2014. However, despite the fact that the RMB has seen increasing use in trade settlement and financing, there does not yet exist a significant liquid offshore market for RMB-based debt. Hong Kong is well placed to provide that market.
In 2015, Hong Kong issued more than 68 billion worth of RMB denominated bonds. Hong Kong financial service providers should encourage the development of this market as a key part of Hong Kong’s support of the OBOR initiative.