2 May 2017
Opportunities Arising from the Belt and Road
By E Zhihuan, Chief Economist, Bank of China (Hong Kong)
In light of the recent global economic landscape, the Chinese government launched the Belt and Road Initiative, a national strategy that represents a new form of cooperation. The initiative is expected to turn a new page in international cooperation, create new synergy for the world’s economic growth, and provide Hong Kong with new opportunities for development.
Four innovations of the Belt and Road Initiative
Regarding international cooperation, the initiative presents four key new ideas:
Driven by multiple cooperation mechanisms, the initiative aims to build a community of shared interests through improving infrastructure and connectivity. This innovative concept and type of economic cooperation is significantly different from the traditional ways of regional cooperation.
The initiative focuses on building six major economic corridors, including the New Eurasia Land Bridge, China-Mongolia-Russia and China-Pakistan Economic Corridors, to enhance the flow of capital and talent around the world.
Under the “One Country, One Policy” principle, China has signed Memorandums of Understanding and formulated roadmaps with countries along the Belt and Road, which sets a new example of international cooperation.
Multilateral financial institutions such as Asian Infrastructure Investment Bank and New Development Bank have been established to raise capital for construction projects.
If the Belt and Road Initiative is implemented smoothly, the region will account for half of the world’s GDP in 20 years’ time, becoming the new driver for global economic and wealth growth.
Five opportunities for development under the Belt and Road
In driving the Belt and Road projects, Hong Kong can play to its collective strength and grasp new opportunities:
Hong Kong can serve as a platform for infrastructure investment and management. The Belt and Road will bring about strong growth in infrastructure investment along the route. When choosing partners in infrastructure investment and management, Hong Kong can give priority to countries with close trade ties with China, or countries which are politically stable, having good cross-border cooperation and strong industrial complementarity.
Countries along the Belt and Road are rich in natural resources with huge reserves in oil and natural gas, presenting high utilization potential. The development of industries such as petrochemical, metallurgy, deep processing, mining, mechanical manufacturing and electronics will accelerate, creating business opportunities for Hong Kong enterprises.
Over the next ten years, bilateral trade between China and countries along the route will exceed US$2.6 trillion. Hong Kong can leverage its advantages in trade, bonded trade, offshore trade, re-export and transshipment trade, with a view of facilitating the flow of trade and goods along the Belt and Road.
The Belt and Road initiative encourages Chinese enterprises to invest along the Silk and Road. Last year, related direct investment reached US$14.8 billion. Hong Kong enterprises can provide professional services such as financing, consultancy, accounting and engineering to Chinese enterprises. As such, enterprises from both sides can capitalize on their own advantages and collaborate on the success of the investment projects.
There will be advantages and opportunities for Hong Kong’s financial sector. Hong Kong can accelerate the establishment of an integrated financial platform serving the six major economic corridors and draw up an integrated financial solution. With a pool of talent from around the world, Hong Kong should strive to become a major overseas operational centre of organizations such as the Asian Infrastructure Investment Bank and a leading international financing platform. As the world’s largest offshore renminbi centre, Hong Kong can offer a range of renminbi financial products and asset allocation tools to the Belt and Road, thereby further enhancing its function as an offshore market.
While capitalizing on opportunities, businesses should not ignore the potential risks. To enhance their core competitiveness, they have to effectively manage the political and economic risks under the Belt and Road Initiative.
This article was firstly published in the HKGCC magazine “The Bulletin” August 2016 issue. Please click to read the full article.