China’s Belt & Road Initiative: Opportunities and risks for ASEAN

The Belt & Road (B&R) Initiative, a development strategy proposed by Chinese President Xi Jinping that focuses on connectivity and cooperation – with investments of billions in railway lines, pipelines, and ports, could provide a boost for international trade, and also for insurance. 
Dr Shen Yiming of Marsh explores.  The land-based “Silk Road Economic Belt” and the ocean-going “Maritime Silk Road” will affect 4.4 billion people with a collective GDP contribution of US$2 trillion. The Belt & Road initiative underlines China’s push to take a larger role in the global economy, and the desire to coordinate manufacturing capacity with other countries.     At the belt and road asean in Beijing on 14-15 May 2017, President Xi pledged to funnel an additional CNY100 billion (US$14.5 billion) into the Silk Road Fund, while the China Development Bank and the Export-Import Bank will set up new lending schemes of CNY250 billion (US$36.2 billion) and CNY130 billion (US$18.8 billion) respectively.     The most obvious winners from China’s new strategic move are banks, construction companies, infrastructure investors, consultants, professional services firms, equity fund managers, and exporters.  

 Asian companies will get more opportunities as the Chinese government, banks, and enterprises invest in B&R countries, especially for infrastructure projects. Based on the Center for China and Globalization (CCG) survey, most Chinese companies venturing into overseas markets prefer to partner with local enterprises in the host countries. By doing so, Chinese companies gain access to employees with suitable skill sets, assistance around cultural differences, and partners who are familiar with local regulations and policies. 

Opportunities for ASEANThe Chinese government places a strong emphasis on directing the Maritime Silk Road towards the Association of South East Asian Nations (ASEAN). Even though ASEAN is rich in resources, it lacks construction funds to develop its infrastructure and lags in levels of industrial development. Hence, strengthening infrastructure in ASEAN countries would allow these resources to be tapped into.     B&R strives to promote Chinese capital and technological investment into these ports, transport routes, and other infrastructure in order to improve resource distribution, market integration, and allow for better facilitation of trade and investment within ASEAN. 

Malaysia and Singapore will benefit from B&RIn high-speed rail, China has now taken its expertise global. B&R will see it take that expertise into the rail connection between China and Southeast Asia.     On 1 November 2016, China Communication Construction Company (CCCC) signed a business contract with Malaysia Rail Link for a railway project on the east coast of Peninsula Malaysia, with a contract value of some MYR46 billion (US$10.8 billion). This is the largest overseas project signed by CCCC, as well as the largest economic and trade cooperation project between the two countries.    Singapore will also benefit from the initiative by attracting businesses to operate out of this trading and investment hub and tap on growth opportunities in the Asian region. The island-state has also established itself as the second leading offshore hub for RMB trading. The country is expected to rise in prominence as the shipping and aviation hub of Southeast Asia, in addition to witnessing an increase in trade and personnel exchange across the region as a result of the construction and development of infrastructures, such as ports, airports, and other facilities.    China is ASEAN’s largest trading partner, with a trading volume double the size of Japan-ASEAN trade. However, Japan’s total investment amount in ASEAN is three times larger than China’s. It is expected that China will increase its investment in the region in the next five years, to close the gap. 

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