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BRI Update 2019 Recalibration and New Opportunities

By Deloitte China

Executive summary

China’s massive global development project, the Belt and Road Initiative (BRI), now includes more than two-thirds of the world’s countries. It has also come a long way from its initial conception as a massive infrastructure project connecting Asia, Europe and Africa. A range of new international opportunities will arise as Beijing works to address these issues. Our key findings include:

  • Participation in BRI projects will be more international and inclusive, with greater private-sector involvement. Furthermore, the term “Belt and Road” is no longer synonymous with developing countries, and opportunities will increasingly emerge in more advanced economies, such as Italy.

  • The focus on quality projects will lead to more transparency and less risks, with a greater emphasis on due diligence. In this regard, international consultancies are well positioned to help their clients assess overseas opportunities and navigate differing regulatory and cultural landscapes.

  • The range and geographical scope of BRI opportunities will continue to expand, with the fast-growing Digital Silk Road poised to spur several technology-led projects.

Expanding participation and purview

China has called on US and European MNCs to participate in the BRI, with Zhou Xiaofei, deputy secretary general of the National Development and Reform Commission, saying it hopes to combine its manufacturing and construction expertise with the advanced technology of Western firms to take the Initiative forward. Beijing’s push for greater international involvement is also seen as stemming from a desire to counter the perception that the BRI is an attempt to project China’s influence across the world, and to make the Initiative more inclusive.

MNCs are already widely involved in BRI projects. General Electric, for instance, has cooperated with Chinese partners on 37 gigawatts of power generation projects since 2013, providing equipment in countries including Kenya, Pakistan and Saudi Arabia.

BRI’s five key goals remain the same With the BRI characterized as a “moving target, loosely defined and ever expanding,” it can be difficult to keep track of its evolving nuances and scope. Its key goals, however, remain the same, as we detailed in our comprehensive overview, “Embracing the BRI ecosystem in 2018”, namely policy coordination, facilities connectivity, unimpeded trade, financial integration and people-to-people bonds.

Also at the heart of BRI is the construction of infrastructure to improve connectivity between Asia, Europe and Africa along two main conduits: the Silk Road Economic Belt of six land corridors and the 21st Century Maritime Silk Road sea route linking the three continents.

Recently, China has strived to emphasize that the connectivity it seeks to engender through the BRI extends beyond transport infrastructure and more generally entails bridging gaps between countries to enable them to interact freely and trade on equal terms.

The Alliance of International Science Organizations in the Belt and Road Region was established in 2018, charged with building technology transfer platforms to serve developing countries. To date, China has also built 82 overseas economic cooperation zones in BRI countries with investment of more than USD30 billion. In addition, China is keen to stress its cultural cooperation agreements with BRI members, including the setting up of overseas cultural centers.

The vast digital dimensions of BRI

In 2018, there was steady progress on the digital components of the BRI, dubbed the “Digital Silk Road,” which currently amounts to an estimated USD79 billion worth of projects around the world, according to RWR Advisory Group, covering optical fiber cables, 5G networks, satellites and devices that connect to these systems. The Digital Silk Road is estimated to require total investment of USD200 billion.

Chinese President Xi Jinping, the architect of the BRI, has said the Digital Silk Road will also encompass quantum computing, nanotechnology, artificial intelligence, big data and cloud storage —areas in which China is on track to become the world’s leading innovator and filer of patents. China’s Vice-minister of Information Technology, Chen Zhaoxiong, last year said China intends to create “a community of common destiny in cyberspace.”

The most tangible infrastructural components of the Digital Silk Road encompass two major undertakings. The first is the upgrading of internet connections across the Belt and Road regions in the form of new undersea cables linking east and west, and rolling out broadband in dozens of countries where such infrastructure is either underdeveloped or non-existent.

The second component of the Digital Silk Road is a massive expansion of China’s BeiDou navigation satellite network to rival the US-owned Global Positioning System. Some USD25 billion will be spent on expanding the BeiDou network from 17 satellites covering the Far East to 35 covering the entire world. The new satellites were launched last year ahead of schedule and the system is on track for completion by 2020.

Broader cooperation opportunities among companies

Having calibrated BRI and the enormous opportunities it entailed, Deloitte expects broader cooperation among companies. MNCs, POEs and SOEs will leverage their respective strengths, deepen their collaboration, boost efficiency in project implementation and aim for higher rate of return, making joint efforts to promote the high-quality development and inclusiveness of the Belt and Road Initiative.

Funding: As discussed earlier, BRI project funding is shifting towards a mix of private capital, multilateral banks and foreign governments. This will offer opportunities to MNCs with expertise in raising funds for large projects.

Deloitte’s research shows more than half of the state-owned enterprises (SOEs) know they must boost their ability to attract finance. This could see MNCs involved in various ways, from debt or equity financing to M&A, build operate transfer (BOT) contracts, public private partnerships (PPPs) and even engineering, procurement and construction partnerships.

Technology transfer/licensing: Projects in high-technology sectors will bring opportunities, as will those that need to meet high local compliance standards—for instance in the realms of environment, energy-saving technology and health and safety.

In following China’s “Go Global” strategy, its SOEs and private-owned enterprises (POEs) are catching up with their Western counterparts in terms of technology, but most still lag behind. MNCs can leverage this, either by collaborating to provide technology or by being acquired.

Quality products: International MNCs have a comparative advantage over Chinese firms in certain areas, placing them in a strong position to offer key middleware or elements of end products to meet the needs in another participants’ global supply chain.

Advanced management experience: Some MNCs have greater expertise in managing infrastructure, real estate and joint ventures, as well as experience in running operations in a range of countries. GE, for example, is on the ground in nearly every BRI country, giving it valuable local knowledge.

Deloitte’s research found that talent is one of four key areas SOEs identify as necessary to boost their chances of success in expanding overseas. The others include improving long-term strategy and better controlling risk.

Integrated solutions: MNCs can cooperate with Chinese companies in areas that encompass two or more segments. An MNC might provide quality products as well as the related technology and management skills needed to run them.

Conclusion: three key insights and predictions

The recalibration of BRI and China’s calls for more international participation in the Initiative present clear opportunities across a range of sectors, from infrastructure and energy to technology and telecommunications. From our experience with BRI projects to date and our analysis of the evolution of the Initiative, we have developed three key insights and predictions for the years ahead:

  1. Although the bulk of BRI projects undertaken to date have been funded and developed by Chinese firms, and SOEs in particular, participation in BRI projects will become more international and inclusive, featuring much greater private-sector involvement. It is also clear that the term “Belt and Road” is no longer synonymous with developing countries, and as the Initiative continues to spread across the world, opportunities will increasingly appear in more advanced economies, such as Italy. At the same time, the opportunities in Asia and Africa will continue to deepen beyond sectors such as energy, resources and infrastructure.

  2. China’s focus on quality projects will also lead to more transparency and a concurrent reduction in the risks involved. In this regard, consultancies are well-placed to conduct due diligence of opportunities to help their clients avoid “buying wrong” or “buying expensive” when making investments. Consultancies with a wide international presence across BRI countries are especially suited to help navigate differing tax and regulatory requirements, as well as assess political and policy risks, not to mention the potential impact of cultural differences, to safeguard and maximize their clients’ overseas investments. Indeed, Zhou Xiafei, deputy secretary general of China’s National Development and Reform Commission, has stressed that BRI projects would benefit from involvement by international professional services, and management and financing firms. This can help MNCs and China’s SOEs navigate the various challenges and find the most suitable BRI opportunities.

  3. Finally, BRI opportunities will continue to emerge in new sectors and geographies, with technology an area to watch as the Digital Silk Road progresses. The official “Belt and Road” portal, for instance, lists a slew of recent technology-led projects, including a self-driving tractor run on Chinese technology being trialed in Tunisia, and foreign companies being linked with Chinese suppliers through Chinese B2B platforms such as Osell and Alibaba, dubbed “matchmakers” along the Belt and Road.

The focus now is very much on assessing each project on its individual merits, mindful of the overarching goal of spreading prosperity and inclusiveness.

To be sure, BRI is the most ambitious geo-economic vision in recent history, although it has also been described as the “best-known, least-understood” foreign policy effort underway. China is striving to address the need for greater understanding by devoting considerable time and effort to organizing BRI events and conducting outreach. In the process, a better understanding of BRI’s motives and potential has been spreading, and greater participation has naturally followed. This, in turn, will take the Initiative even further.


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