In 2013, the Chinese Government first initiated the "One Belt One Road" development strategy and framework; an initiative that focuses on connectivity and cooperation among countries along both the land-based "Silk Road Economic Belt" and oceangoing "Maritime Silk Road" which run from China through the continents of Asia, Europe and Africa.
Notwithstanding the ever evolving political and regulatory landscape, having worked with clients on numerous OBOR projects, we are of the view that 2017 is likely to see the OBOR initiative maintain its upward trend and continue to gain momentum. This is supported by recently published official data as detailed below.
Opportunities for international companies along the OBOR
It should also be remembered that China's OBOR initiative is intended as a two-directional initiative. Whilst a key aspect of OBOR is to promote Chinese outbound investments, it is also aimed at encouraging international investment into China and along the OBOR route. The OBOR initiative (and the funding behind it) offers the opportunity for foreign companies and institutions to partner with Chinese companies in developing projects along the route. Opportunities for international companies may include joint-venturing alongside or subcontracting to Chinese corporations seeking to implement OBOR projects, or Chinese firms seeking local partners to develop opportunities within host countries along the routes. With financing specifically established for OBOR projects, when speaking with interested Chinese counterparties - as compared to discussing general investment opportunities - foreign enterprises are likely to find a more receptive audience in China when speaking about OBOR projects.
End of the Trans-Pacific Partnership ("TPP")?
The election and inauguration of the President Trump has seen the USA withdrawing from its commitment to the TPP. With China not part of the TPP, the TPP (previously championed by the USA) was seen by some as an alternative platform to the China-backed OBOR. This turn of events has led some commentators and media outlets to suggest that the USA's withdrawal from the TPP is "a boon for China". The full effects of this development will take some time to emerge, however it is clear that the more amorphous and largely project-led OBOR has a brighter future ahead than the (apparently now terminal) TPP.
One consequence of these developments is that they have breathed new life into Asia's Regional Comprehensive Economic Partnership ("RCEP"). The RCEP would involve the 10 members of the Association of Southeast Asian Nations (ASEAN) plus the six countries with which ASEAN has free trade agreements: China, India, Japan, South Korea, Australia and New Zealand. Whilst different in scope and ambition from the OBOR (and the TPP), the RCEP, first mooted in 2011, has already completed its 16th round of negotiations (the TPP took 32 rounds, by comparison) and would span territories that are all largely consistent with the OBOR routes. With President Xi also recently delivering a strong defence of globalization and free trade in his speech at the World Economic Forum in Davos in January, the OBOR is expected to be a key avenue for China to promote, participate in, and develop international trade going forward.
Driving Forces for OBOR in 2017
Despite the evolving political and regulatory landscape as described above, it is clear that the OBOR initiative is gaining increasing momentum on track to an even brighter future, and that this will continue into 2017. The recently announced Chinese regulations referred to above, whilst important in their own right, are not expected to adversely affect the forward trajectory of OBOR. The highest levels of the PRC Government have continually and unwaveringly expressed strong support for the OBOR initiative and this support has been repeated and amplified at all levels of the Chinese Government. Likewise the Chinese corporate sector has keenly embraced the initiative and remains keen to grasp the opportunities the initiative presents.
It remains the case that successfully implementing projects along the OBOR will not be without risks and challenges. Overcoming these risks will require thorough due diligence exercises and robust partnership and joint venture arrangements. More importantly success will depend on enterprises finding the right partners and having the right support networks providing a thorough understanding of local conditions, regulators, market players and, more generally “ways of doing business” in both China and the foreign host jurisdictions. This will be essential to be able to adequately identify, quantify and overcome risks and opportunities; to achieve this, an on the ground presence and knowledge of suitable partners and relevant contacts (both for foreign parties in China; and for Chinese parties in the foreign jurisdiction) is a perquisite.
Importantly, whilst China has allocated significant capital and resources towards implementing OBOR, China cannot implement the OBOR alone. Success of this initiative requires co-operation between Chinese enterprises and foreign counterparties in a raft of sectors and regions, covering everything from small scale trade and investment, to the delivery of large scale multi-jurisdictional game-changing infrastructure. The year of 2017 is expected to have many opportunities for both foreign companies and Chinese companies to jointly develop, and build upon the momentum behind, the OBOR.
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