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Dec 09, 2020

The future of the Belt and Road Initiative

China’s massive infrastructure project to connect multiple continents will cost trillions of dollars. But how do Covid-19 and diplomatic relations affect the future of the project, and what does it mean for issuers that stand to benefit?

The Silk Road was a transformational network of roads and maritime routes that ran through much of Asia, into the Middle East, around East Africa and into Europe. It spanned continents, lasted for roughly 1,500 years, had a profound effect on international trade and facilitated giant strides in technology, commerce, infrastructure and economics until its eventual demise in the 18th century.

Its legacy was echoed in 2013 when Chinese leader Xi Jinping unveiled the Belt and Road Initiative (BRI) – formerly known as the One Belt, One Road Initiative – so much so that the government’s project is also known as the New Silk Road.

The ambitious, decades-long initiative aims to address an infrastructure gap that exists across much of Asia, by creating connectivity, trade routes and economic opportunity between China, Mongolia, Russia, central and west Asia, Pakistan, India and Eastern Europe.

An official plan for the project was unveiled in 2015, which emphasized five broad goals:
1.  Co-ordinating economic development strategies and policies
2.  Infrastructure connectivity
3. Lowering trade barriers and improving investment and trade relations
4. Deepening financial co-operation
5. Strengthening people-to-people links.

At the time it was estimated the project would cost more than $1 tn and have a transformative effect on the region, although estimates vary widely: a 2018 report from Moody’s placed the overall cost at between $2 tn and $8 tn.

Indeed, between 2013 and 2018, China invested $614 bn in the project, with 38 percent of that going toward the energy sector, 27 percent to transport, 10 percent to real estate and 6 percent to metals, according to an analysis by Moody’s. More than half of that investment was in Asia, while 23 percent of it was in Africa and 13 percent in the Middle East.

With such a huge undertaking and such significant amounts of investment required to deliver on the BRI, IR Magazine set out to find examples of companies that stand to benefit from the project. For such a long-term initiative, we wanted to know how public companies communicate their involvement to the investment community. Throughout this article, you’ll see examples of how companies around the world discuss their involvement in the BRI.

Chinese focus on domestic issues

We didn’t find as many examples as we were expecting, however. A spokesperson for the Hong Kong Investor Relations Association (HKIRA) tells IR Magazine that the BRI is not getting much attention from listed companies in HKIRA’s jurisdiction.

Further, searches of a number of regulatory filing databases throw up a shorter list of companies than expected. The trend among those companies that do discuss the BRI is to address it vaguely and as a business opportunity for the future.

Joanne Wong, senior managing director in the strategic communications segment of FTI Consulting in Hong Kong, says the BRI is less of a priority for the Chinese government right now, as it focuses on issues such as the Covid-19 recovery, diplomatic relations with the US and India, and a refocused five-year plan (set to be unveiled next year).

‘What we understand via our sources and networking with the Chinese government is that [the BRI] is not a current top priority,’ she says. ‘The circular economy initiative to boost the domestic economy post-Covid-19 is the most important priority now.

'And the upcoming announcement of the next five-year plan is also likely to focus on domestic growth and innovation. Not only because of Covid-19, but also because of the current tension between China and India, the [BRI] is now becoming a bit too politically sensitive, as India needs to be a key player within this initiative.’

Ronald Chan, chief investment officer at Chartwell Capital, adds that the Greater Bay Area – another massive infrastructure project designed to connect nine southern Chinese cities through a network of train, air and sea transportation – could be taking greater focus because it’s ‘more concrete’.

He says the Hong Kong Trade Development Council has merged two committees that individually intended to focus on the BRI and the Greater Bay Area Initiative separately.

This is an extract of a feature from the Winter 2020 issue of IR Magazine. Click here to read the full article

Ben Ashwell

Ben Ashwell was the editor at IR Magazine and Corporate Secretary , covering investor relations, governance, risk and compliance. Prior to this, he was the founder and editor of Executive Talent , the global quarterly magazine from the Association of...