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Jakarta Post

Belt and Road Initiative up and running

Despite current difficulties and challenges facing the global economy, China is well underway with its grand Belt and Road Initiative for further opening up its economy to the rest of the world

Peter Wong (The Jakarta Post)
Hong Kong
Wed, March 21, 2018

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Belt and Road Initiative up and running

D

espite current difficulties and challenges facing the global economy, China is well underway with its grand Belt and Road Initiative for further opening up its economy to the rest of the world. Over the past four years, we have witnessed this multibillion-dollar plan go from conception to expanding globally.

Launched in September 2013, the ambitious Belt and Road Initiative aims to link the ancient overland Silk Road Economic Belt connecting China to Europe, together with the Maritime Silk Road connecting Asia, the Middle East and Africa, through a vast logistics and transportation network. The initiative spans more than 65 countries, which together account for 29 percent of global GDP and 63 percent of the world’s population.

After more than four years, it is taking shape — not only are an increasing number of projects moving from plan to implementation, but opportunities beyond just infrastructure development are becoming evident.

The Belt and Road is, above all, about connectivity. We have seen the gradual emergence of a network linking East to West. From the Vakhdat-Yovon railway crossing the Central Asian hinterland, to Kunming-Singapore railway connecting China to Southeast Asia, the Hungary-Serbia railway through the heart of Eastern Europe, the Addis Ababa-Djibouti Railway stretching across the hinterland of Africa, as well as Gwadar Port in Pakistan and Piraeus Port in Greece join the junction of the Silk Road on sea and land. The initiative has entered regions as far as New Zealand, Britain and even the Arctic.

Large infrastructure investments are being made to ensure that goods, services and capital can flow easily on land and sea in order to increase cross-border trade. This has allowed China to be more connected with its trading partners and become integrated with the global economy more than ever.

Two-way trade between China and countries along the Belt and Road exceeded 7.4 trillion yuan (US$1.2 trillion) in 2017, surging 17.8 percent year on year.

Similarly, China’s non-financial Outbound Direct Investment (ODI) in Belt and Road countries totaled $14.4 billion in 2017, equal to 12 percent of the total, and up from 8.5 percent in 2016. This global push has been led by state owned enterprises — 47 centrally administered SOEs participated in 1,676 projects in countries and regions along the Belt and Road spanning energy, infrastructure and industrial cooperation.

Constructing a network of infrastructure is the first phase. Further down the line, the initiative will leverage opportunities for cooperation, access to new resources, markets, consumers and services and act as a catalyst for commercial opportunities along the newly-invigorated transport routes.

The other obvious progress is the multilateral financing platforms that have formed to implement the initiative.

Belt and Road’s ambition is matched in magnitude by the enormous sums of funding. The Asian Development Bank’s (ADB) latest estimate of infrastructure funding needed in developing Asia and the Pacific is $26 trillion between 2016 and 2030.

China has already pledged vast investments to lay the foundations for Belt and Road developments. China’s four major state-owned commercial banks have lent a combined $150 billion up to the end of 2016, over half of all current Belt and Road lending, while China Development Bank and Export-Import Bank of China have taken the lead on project financing for China-based companies.

Beijing has also taken the lead to set up several financing vehicles backing up its geo-economic ventures — allocating $50 billion to the Asian Infrastructure Investment Bank (AIIB), $41 billion to the New Development Bank and $40 billion to the Silk Road Fund. The AIIB has increased its membership to 84 countries and regions, up from its founding 57 members.

As the Belt and Road Initiative gradually enters the construction and operational phase, funding of projects could be raised through Hong Kong or cooperation with international institutions — sovereign wealth funds, pension funds and so on — to join them in lending to the Belt and Road projects.

A financial instrument China has tapped to support Belt and Road projects is green financing — encompassing bonds, loans, insurance and securities. China’s green bond market is among the largest in the world. Around $30 billion worth of Chinese green bonds were issued last year — over one-fifth of the global total — and up from just $1 billion in 2015. This is showcasing China’s green leadership abroad as well as at home.

The Belt and Road Initiative also plays an important role in facilitating China capturing the higher end of the global value chain.

Beijing considers its high-speed railway technology to be a jewel in its crown within its advanced manufacturing industry. China is home to around 60 percent of the world’s total constructed high-speed railways. If countries across the span of the Belt and Road accept Chinese high-speed railway technology as their national standard, it could become the de facto standard across a vast geographical area.

The Jakarta-Bandung High-Speed Railway project is a good example. Beijing won the bid to build the 142 kilometer high-speed rail line connecting the Indonesian capital and Bandung in West Java. For this project, the Indonesian Government agreed to adopt Chinese high-speed railway technology. This means the project will use Chinese standards, technology, equipment and engineering in every aspect of construction.

Over the past four years, the highlights have mainly focused on the two major prongs: The Silk Road Economic Belt and the 21st Century Maritime Silk Road. The often overlooked third prong of the plan — the “Digital Silk Road” has started to gain headway.

China envisions incorporating digital sectors like telecommunications, internet of things and e-commerce into the Belt and Road Initiative. This digital highway will once again put China at the epicenter of connectivity to pave the way for unprecedented trade volume in cross-border e-commerce. Small and medium-sized enterprises will be able to further engage in the global supply chain and reach out to international markets.
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The writer is deputy chairman and chief executive, The Hongkong and Shanghai Banking Corporation Limited.

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