Infrastructure project collaboration across borders will yield mutual benefits. However, finding ways to work together will be vital for its success.
Since it was announced in 2013, the Belt and Road Initiative has promised an infrastructure bonanza for countries across Southeast Asia, Central Asia and beyond. The vast programme offers ambitious road, pipeline, telecoms, rail and port projects that aim to super-charge intra-regional connectivity and facilitate more commerce between China, the rest of Eurasia, and Africa. In the shorter term it also promises a construction boom.
China has spared no effort in laying the groundwork. It has poured resources into the new Asian Infrastructure Investment Bank, the Silk Road Fund, and the Shanghai Cooperation Organisation, and has inked trade and investment deals with numerous countries along the Initiative’s routes.
While there is no official data on the total number and value of expected Belt and Road projects, China Development Bank has already said it has reserved $890 billion for over 900 projects. The Export-Import Bank of China also said in 2016 that it had started financing over 1,000 projects in 49 Belt and Road countries.
Some investments are under way in East Africa and Southeast Europe, but most existing projects are concentrated in South and Central Asia and, notably, in Southeast Asia, which is lapping up the chance to fund its needs.
So how can global investors profit from this platform, what are the potential pitfalls, and how can they be avoided?
Belt and Road projects are no different to other Chinese mainland projects but they are fundamentally different to, for example, US-led ones. More international operators prefer a document first, which clearly states scope, obligations, process, legal frameworks etc. In certain parts of Asia relationships matter first, detail and contracts later – if anything goes wrong, the parties talk to resolve it.
Cautionary tales
Several recent projects in Europe and Asia suggest international players need to build effective partnerships.
In 2013 a deal was signed between China, Serbia, and Hungary to build a 350km high-speed rail line between Belgrade and Budapest — the first part of a broader project to connect the (China-run) Piraeus port in Greece with the heart of Europe.
By late last year it seemed the project was finally set to kick off – but the fact that EU member countries must publicly tender large-scale infrastructure projects was somehow overlooked. Hungary could not grant the project to the China Railway International Corporation, and in February 2017, the project was halted for review by Brussels.
“Working government to government has been okay in much of Asia,” Tony Regan, an energy expert and Managing Director at Data Fusion, explained. “But increasingly negotiating a large infrastructure project requires aligning multiple parties – politicians, financial institutions, NGOs.”
Getting the right people, which results in a mix of languages, skills and, above all, cultural attitudes, which requires far more supervision to ensure good outcomes is essential. Places such as Hong Kong play an important hand in this context. As a hub for international investment and financial services, it can facilitate long-term partnerships between investors and project owners.
Patience please
Still, potential investors troubled by prior missteps in Europe and Southeast Asia also know that Belt and Road is here to stay and that the value of patient collaboration goes well beyond today’s project.
Investor patience is critical. As the implementation of Belt and Road, and challenges related to it, become clearer, there will certainly be new opportunities for international firms to engage with partners seeking to mitigate local risk.
It follows that those able to demonstrate a strong track record in countries affected would be best placed to become powerful partners to Chinese mainland investors.
Encouragingly, Tony Segadelli, Managing Director of power engineering consultancy firm Owl Energy, sees evidence that countries such as China are also beginning to recognise the importance of greater rigour in contracting and accept that they have to work more to international models of governance, especially outside Asia.
Expect challenges in terms of compliance, operating standards, and work practices, be wary of departures from code or from plan, driven by ignorance or by a desire to cut costs and a poor understanding of the consequences, and invest in project management, advised Marcus Hand, Editor of Seatrade Maritime News and global shipping expert.
“There is a clear reputational risk in being associated with projects which fall foul of these issues – but, on the other hand, there is an obvious opportunity to bring new ways of thinking to your partnership with the Chinese, if you have the right relationship,” Hand said.
This feature was originally published in FinanceAsia and edited for the Belt and Road Global Forum newsletter.
