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US$15 billion China-invested refinery and petrochemical complex seen as having essential part to play as Brunei looks to reinvent itself in the face of stubbornly-stalled international oil prices and its own rapidly-dwindling gas and oil reserves.

Photo: Bridge-building: Closer China-Brunei ties set to deliver the massive Pulau Muara Besar refinery project. (Shutterstock.com)
Bridge-building: Closer China-Brunei ties set to deliver the massive Pulau Muara Besar refinery project.
Photo: Bridge-building: Closer China-Brunei ties set to deliver the massive Pulau Muara Besar refinery project. (Shutterstock.com)
Bridge-building: Closer China-Brunei ties set to deliver the massive Pulau Muara Besar refinery project.

The news that work on a 2.7km bridge connecting Bandar Seri Begawan, the Brunei capital, with the neighbouring island of Pulau Muara Besar (PMB) had been completed late last month marked the successful conclusion of the country's first Belt and Road Initiative (BRI) project. It is, however, only one small element of the far wider-reaching China-backed development that will transform the island into one of the region's primary refining and petrochemical hubs.

Once completed, the US$15 billion refinery and petrochemical complex is expected to provide up to 10,000 jobs and play a crucial role in weaning the Brunei economy off its traditional dependence on its crude oil and natural gas exports. Although work on the bridge was led by the China Harbour Engineering Company, a Beijing-headquartered subsidiary of the huge China Communications Construction civil engineering conglomerate, the construction of the plant proper is down to the Hangzhou-based Zhejiang Hengyi Group (Hengyi). Under the terms of its agreement with the Brunei government, the company, one of China's largest suppliers of raw materials for the textile industry, funded the $3.4 billion facility and will be responsible for its day-to-day operations once it comes online late next year.

Another Chinese company, Lanzhou LS Heavy Equipment, a specialist in the provision of petrochemical systems, meanwhile, has been contracted to build a number of the refinery's key production units. These include an aromatics facility with a capacity of 1.5 million tonnes per annum and a 2.2 million TPY (throughput yield) hydrocracking unit.

Overall, the refinery is shaping up to be both China's largest, privately-owned facility outside the mainland and, by far, the most expensive overseas-backed project in Brunei's history. Once operational, it will have the capacity to process 160,000 barrels a day, while also providing feedstock for Hengyi's terephthalic acid production, an intermediate material required to make polyester. It is also hoped that, in time, it will produce a sufficient level of fuel to allow Brunei to successfully compete with Singapore, currently the dominant regional oil hub.

Back in March, in order to finance the project, Hengyi Petrochemicals became the first company to issue BRI corporate bonds – a financial instrument newly approved by the China Securities Regulatory Commission – and successfully raised US$79 million on the Shenzhen Stock Exchange. It is money that the company is clearly going to need.

Earlier this year, it was announced that the second phase of the PMB project will cost some $12 billion. This will see the refinery's capacity expanded to 280,000 barrels a day and will also fund units capable of producing an annual TPY of 1.5 million tonnes of ethylene and two million tonnes of paraxylene.

The scale of the project is a sure indication of its importance to Brunei. Although the country is the second-richest per capita in the ASEAN bloc, after Singapore, low oil prices have seen its economy contract significantly over recent years, while also driving up the level of unemployment. Although, after four years of contraction, the country's economy rallied slightly last year with its GDP growth estimated at 1%, it is still being far outstripped by many of its fellow ASEAN states.

As well as the currently stalled oil prices, the country's oil and gas reverses – long its economic lifeline – are expected to be exhausted within 20 years. In anticipation of this, many of the global petrochemical companies have already cancelled plans for further investment in the country.

The PMB facility, then, is therefore clearly a key initiative and will help the country maximise profits from its dwindling reserves. At the same time, it will also nurture the capability and expertise required to service the increasing number of oil and gas fields coming online across the wider region.

Some institutions, however, are not hanging around to see if Brunei can successfully reboot its economy. Back in 2014, Citibank shuttered its branches and pulled out after 41 years in the country. A year later, HSBC followed its example, again ending its ties to the country. Widely seen at the time as swimming against the tide, the Bank of China opened its first Brunei branch in 2016. Given recent events and current forecasts, that might not have been quite the reckless move it seemed at the time.

According to the International Monetary Fund's recently published Regional Economic Outlook for Asia and the Pacific, the country's economy may expand by up to 8% in 2019, maintaining average growth of 5% for several years thereafter. Significantly, one of the cited reasons for this likely resumed growth was the imminent completion of the PMB facility.

While climbing aboard the BRI bandwagon is clearly in Brunei's interest as the country seeks to reinvent itself in economic terms, Beijing's interest in its 3,900km distant trading partner is far from altruistic. Back in 2014, the two countries pledged to work together on the development of the Brunei-Guangxi Economic Corridor (BGEC) as a means of developing mutual trade, particularly with regard to halal products, tourism and shipping. Over recent years, the BGEC has been subsumed into the overall BRI project.

Photo: Brunei: Will the BRI rally to the rescue as the country’s oil and gas reserves near exhaustion?
Brunei: Will the BRI rally to the rescue as the country's oil and gas reserves near exhaustion?
Photo: Brunei: Will the BRI rally to the rescue as the country’s oil and gas reserves near exhaustion?
Brunei: Will the BRI rally to the rescue as the country's oil and gas reserves near exhaustion?

In terms of its BRI significance, Brunei also has the benefit of being set at the very heart of the Brunei-Indonesia-Malaysia-Philippines East-Asian Growth Area (BIMP-EAGA). Given the surging prosperity of this region, the BRI may allow Brunei to resume its classic role as a preeminent trading hub, boosting China's hopes of facilitating international trade to a scale never before seen.

More prosaically, China and Brunei have both staked a claim to the 370km-long Louisa Reef, one of the disputed areas of the South China Sea. It is now hoped that the close co-operation the two countries currently enjoy will allow them to jointly explore the reef's potential economic benefits, rather than remaining a continuing source of tension between the two.

Marilyn Balcita, Special Correspondent, Bandar Seri Begawan

Editor's picks

As well as boosting Pakistan's power generation, deal establishes China as key nuclear technology exporter.

Photo: Nuclear power plants: Closing Pakistan’s energy gap and promoting China’s technology exports. (Shutterstock.com)
Nuclear power plants: Closing Pakistan's energy gap and promoting China's technology exports.
Photo: Nuclear power plants: Closing Pakistan’s energy gap and promoting China’s technology exports. (Shutterstock.com)
Nuclear power plants: Closing Pakistan's energy gap and promoting China's technology exports.

In perhaps one of the more politically sensitive Belt and Road Initiative (BRI) developments, last month saw China and Pakistan agree terms on the installation of an 878-km power transmission line. Once in place, this will link Lahore with southeastern Matiari, a hub city for the electricity generated in many of the China-backed power plants already operational within the China-Pakistan Economic Corridor, the massive infrastructure redevelopment and energy generation programme at the heart of Pakistan's bid to address its acute logistical problems and its vast power undersupply, as well as the BRI, China's own hugely-ambitious infrastructure and trade facilitation programme.

While – aside from a few environmental concerns and suggestions that China's largesse represents a form of financial colonisation – the developments have largely found approval within Pakistan, they have become something a flashpoint with neighbouring India. The relationship between the two countries has long been fraught, with distrust and recriminations dating back to well before 1947, when they emerged as independent states amid the gradual dismantling of the British Empire.

Now, in addition to several territorial issues, India – one of the few major economies not to embrace the benefits of the BRI – is known to be unhappy that China is effectively wooing a number of countries, such as Pakistan and Nepal, that it sees as rightly within its own sphere of influence. Perhaps most gallingly, China is seen as helping Pakistan further develop its nuclear-power sector, a hugely sensitive issue given the long-term nuclear-weapons standoff between the two South Asian countries.

While this latest development does not relate to Pakistan's rapidly expanding nuclear-power sector, with the electricity set to be transmitted via the new power transmission line actually sourced from several China-backed, coal-fired facilities in the west of the country, that is not to say that China's isn't heavily committed to helping Pakistan boost its nuclear-power generation capacity. Indeed, much of the basis of the present and continuing China-Pakistan economic co-operation revolves around power generation – both conventional and nuclear – as the Pakistan government looks to solve its longstanding energy-generation shortfall.

As recently as 2013, with the country's demand topping 15,000 MW, Pakistan only had a total generational capacity of 11,000 MW. With the gap between demand and supply only set to grow, the country has since set about accelerating the expansion of its nuclear-power programme, with China acting as financial backer, technical consultant and lead contractor. Ultimately, it is hoped that this tactical alliance between the two countries will result in Pakistan having a domestic power generation capacity of 40,000 MW by 2050.

That is not to say that China sponsored Pakistan's introduction into the still relatively small number of nations with nuclear-power facilities. Predating China's initial involvement by more than 20 years, 1971 saw Toronto-headquartered GE Canada install and then manage KANUPP1, the Karachi-based facility that produced Pakistan's first nuclear-derived electricity. Although Canada cut all ties to the plant in 1976 after Pakistan refused to sign the Non-Proliferation of Nuclear Weapons Treaty, the plant continued in service until 2002. Following a four-year upgrade, it resumed operation and continues to produce electricity, albeit at a reduced level.

China's involvement with the country's nuclear programme began in August 1993, when the two countries jointly developed the Chashma Nuclear Power Complex in Punjab, Pakistan's most populous province. Marking the first time China had exported its nuclear technology, the installation initially comprised two 300 MW generating units and two subsequent 340 MW units, all of which are now connected to the national grid.

In 2013, China and Pakistan agreed to add a fifth unit to the Chashma facility, which is due to go online in 2020. That same year, construction also began on two state-of-the-art 1,000 MW+ reactors – KANUPP-2 (K-2) and KANUPP-3 (K-3) – close to the original reactor site, with both due to be operational by 2021. Acting under the auspices of the International Atomic Agency, the sector's global regulator, three of the mainland's leading nuclear-power companies – the China General Nuclear Power Group, the China National Nuclear Corporation (CNNC) and the China Atomic Energy Authority – co-operated in the development of the two new facilities, with CNNC covering at least US$6.5 billion of the costs of the $10 billion project through a series of low-cost loans.

At the core of the two new facilities is the third generation HPR1000 Hualong One reactor, the model at the forefront of China's bid to export its nuclear technology. One such model is currently undergoing acceptance tests in the UK, while another has been earmarked as the centrepiece for Argentina's fifth nuclear facility with work on the project scheduled to begin in 2020. In the meantime, as well as helping Pakistan meet the shortfall in its electricity supply, while tying the country into wider goals of the BRI, the Punjab nuclear facility is also acting as China's calling card as it looks to establish itself as a world leader in safe and cost-effective nuclear-power generation.

Geoff de Freitas, Special Correspondent, Lahore

Editor's picks

By Deloitte

China-proposed Belt and Road Initiative (BRI), which has been a large part of the investment landscape across a swathe of the world for four years, will become increasingly important. This paper summarises Deloitte’s key BRI insights for 2018, and also explains how industry players can best position themselves to seize the ever-widening range of BRI investment opportunities...

Winners and global resonance

BRI 2.0

In May 2017 at the BRI Forum in Beijing, President Xi told attendees that the vision underpinning BRI “is becoming a reality and bearing rich fruit,” adding that “a solid first step has been taken.”

Naturally some regions and industries have done better than others. Southeast Asia and South Asia remain key beneficiaries and, our research shows, remain the most favored by SOEs (figure 9). For the former, that is partly due to proximity to China and a higher state of development, and partly due to the demand for better infrastructure. For the latter, the size of their populations and vast market potential are important draw cards.

Europe is also popular, as are Russia and Central Asia. We expect that will remain the case over the coming years, although given that BRI’s sustainability is aligned with China’s economic and political interests, it is likely that the initiative’s priority will continue to be areas that are geographically close to China.

We saw earlier why infrastructure attracted more funding than other sectors, with China’s SOEs the key winners. As BRI’s global ecosystem builds, it will encompass investments in manufacturing and trade, as well as softer investments in tourism and culture. That will create opportunities for MNCs with the technology, skills and connections that Chinese firms, whether SOEs or POEs, often lack.

In addition, we expect increasing numbers of Chinese POEs, many of which view BRI as a venue for SOEs, will become more active in areas such as M&A, which is what Beijing wants. Although some POEs are cautious, others have committed.

Bigger pool of opportunity

This goes to the heart of BRI’s phase 2, which is widening the pool of opportunity. And although many MNCs have yet to reap benefits, some have. Take ABB, for example. The Swiss-based firm has been involved in dozens of EPC deals undertaken by Chinese companies, for which it aims to become “the partner of choice.” In 2016 alone, it helped 400 Chinese firms to resolve inter-country differences in design and industrial standards.

Caterpillar says it regards BRI as a long-term opportunity. For its part, GE recorded orders worth $2.3 billion in 2016, most under BRI projects, up from just $400 million in 2014; over the next year or so, GE will bid for business worth another $7 billion of business. Honeywell and Siemens have also benefited from their technological offerings, while Citibank and Zurich are among others getting more deeply involved.

We believe phase 2 will bring greater global resonance, and that MNCs that position themselves strategically now stand a good chance of benefiting.

Phase 2 is being driven by the ready funding provided by China―and increasingly by others. In May 2017, President Xi announced a further $124 billion for BRI, including $14.5 billion for the Silk Road Fund, and special lending schemes for the China Development Bank and the Export-Import Bank of China, worth around $36 billion and $19 billion, respectively. He also called on financial bodies to establish a BRI fund worth $43 billion.

The involvement of the Asian Infrastructure Investment Bank (AIIB)―which is expanding its influence and in June welcomed its 80th member―in BRI projects will prove increasingly important. As it builds credibility and experience, and enjoys the backing of China and dozens of other governments, it should have little trouble raising funds on global capital markets. This internationalisation of the AIIB should also increase the sensitivity of sponsoring governments, not least China, to perceptions of political influence in BRI.

In short, BRI is benefiting from initiatives that have increased the amount of financing, its sourcing (including from developed nations such as the United Kingdom and Germany) as well as the cofunding of projects between, say, the AIIB and other multilateral organisations.

MNC Opportunities

Not only has MNCs’ opportunity to get involved in BRI never been better, it is likely to keep improving. Why? Not least because Beijing wants to boost BRI’s inclusiveness. China’s leaders describe BRI as an initiative, not a strategy. While that might seem a low-value distinction, it informs an important difference: It means Beijing views BRI as a global program that was initiated by China, and not as a Chinese project.

China stands by its assertion that BRI is for all, and needs to show it means that by keeping BRI open. That will not hold up if MNCs can participate in only a showcase fashion.

Phase 2’s very nature will also afford MNCs greater opportunity, because many enjoy competitive advantages over Chinese firms in areas such as manufacturing, trading and tourism.

There are other pointers too. Firstly, more funding will come from outside China, including from monetary financial institutions (MFIs) such as the World Bank and the ADB; this will bring with it increased transparency as well as rules with which MNCs are more familiar.

Secondly, the AIIB recently brought its decision making more in line with that of the World Bank and the ADB, and said it would take account of issues such as the environment; this should have a similar effect given that MNCs have more experience in meeting such requirements.

And thirdly, richer countries are benefiting from BRI, and are better able to ensure that projects are of the highest standard, and that the companies carrying out such work are the best available. Again, that ought to benefit non-Chinese MNCs...

Conclusion: Three key insights and predictions

Our experience with BRI projects over the years has allowed us to develop three key insights and predictions, all of which have appeared in this report in some form.

Firstly, BRI is much more than a Chinese-funded infrastructure project. And although SOEs have undertaken the bulk of BRI projects to date, we expect many more POEs and MNCs will become involved in the near future. Linked to this, many projects are underpinned by strong bilateral relationships between China and the countries concerned, which makes these investments more secure than outsiders might imagine. And while most participants are developing countries, it is also true that developed nations are increasingly involved.

Secondly, BRI’s opportunities will become increasingly plentiful, but a longer timeframe is needed when measuring returns―10–15 years rather than 3–5. And although many projects involve higher risks than conventional investments, it is important to keep those risks in perspective and deal with them dynamically.

Thirdly, BRI is a collaborative ecosystem that to date has focused on energy and infrastructure, but that over the next five years and beyond will evolve to concentrate on trade, manufacturing, the Internet, tourism and other aspects.

It is worth saying, too, that Beijing’s view of BRI is not well understood abroad: It sees this initiative as comprising a different interpretation of globalisation, one that is about optimising returns, not about maximising them in solely financial or commercial terms. This is encapsulated in the principle underpinning BRI: 共商共建共享, which translates as, “Trade together, build together, enjoy together.”

And so, while BRI is in part an initiative designed to push China’s economy to the next stage, to Beijing it is more too: a way to create a more equitable global economic system. MNCs that manage to position themselves well should find BRI a striking, multiyear opportunity.

Please click to read full report.

Editor's picks

Visit by Foreign Minister sees transport and hydropower prioritised, with India urged to participate.

Photo: Nepal Railways: Possibly unsuitable for high-speed, high-volume freight throughput.
Nepal Railways: Possibly unsuitable for high-speed, high-volume freight throughput.
Photo: Nepal Railways: Possibly unsuitable for high-speed, high-volume freight throughput.
Nepal Railways: Possibly unsuitable for high-speed, high-volume freight throughput.

Recent high-level talks between China and Nepal seem to have breathed new life into long-planned Belt and Road Initiative (BRI) co-operation between the two nations. Although landlocked, severely underdeveloped Nepal is among the countries with the most to gain from the BRI, China's ambitious international infrastructure development and trade facilitation programme, progress on a number of fronts has been stalled by political, logistical and contractual concerns in recent years.

Following a successful visit to Beijing in April this year, however, which saw Pradeep Kumar Gyawali, Nepal's Foreign Minister, sit down with his mainland counterparts in order to agree a co-operative forward strategy for the two countries, progress on the BRI front is expected to shift-up several gears in the months to come. In particular, it is expected that the development of a long-mooted railway link between Kerung (on the Nepal-China border), Kathmandu (the capital of Nepal) and Lumbini (on the Nepal-India border) is to be prioritised.

Given Nepal's strategic location as a nexus between two mighty economic powerhouses – China to the north and India to the South – it has long been seen as a prime candidate for mainland-backed infrastructure investment. This is viewed as particularly important as its current road, rail and air resources are woefully inadequate and incapable of sustaining the heavy throughput required of such a conveniently-sited trade conduit.

Ironically, though, it is its geographical situation that has acted to stymie any such investment, with India – upon which Nepal has historically relied for much of its economic / security support – somewhat prickly with regard to all things BRI. In practice, this has seen Nepal engaged in a prolonged spell of political and economic brinkmanship, with the 24-million strong nation striving to maximise inward investment without making the kind of unreserved commitment to the BRI that would alienate India. Following the recent official visit, however, during which both parties called on India to actively participate in both the BRI project and in shaping Nepal's future development, it could be that things will now move forward at a more dynamic rate.

One of the first signs of renewed commitment came last month when Nepal's Investment Promotion Board approved a US$128 million mainland-sourced investment package for the development of the Super Sanjen project, a 78MW hydropower facility sited in the north of the country. Under the terms of the deal, China Harbour Engineering, the lead contractor, will have a 92% stake in the completed facility.

In addition to transport infrastructure improvements, solving Nepal's ongoing energy crisis was identified as an early BRI priority. The issue came under the spotlight again last month when the Nepalese government published its medium-term energy strategy.

Among its key aims is that the country should have a domestic energy generation capacity of 3,000MW by the end of 2021, a 300% increase on its current level. Even more ambitiously, it aims to take the overall level to 15,000MW by 2030, with 10,000MW allocated to meeting domestic requirements and the remainder sold on to China's national grid.

Nepal is unlikely to be able to deliver on its energy-generation targets without the aid of one – or both – of the economic behemoths it is sandwiched between. At present, it looks as though China is in pole position to help the mountain kingdom make good on its proposed hydropower development programme. This is despite the series of false starts that dogged earlier energy projects – most famously in the case of the massive 1,200MW Budhi Gandaki Hydropower Project, on which Nepal pulled the plug in 2016, dismissing the China Gezhouba Group Corporation (CGGC), the Wuhan-headquartered lead contractor, in the process.

Post Gyawali's successful Beijing expedition, which was seen as laying the groundwork for an official state visit to China by Khadga Prasad Sharma Oli, Nepal's recently re-elected Prime Minister, it could be that a number of these stalled hydropower projects will be dusted down and rebooted. In all likelihood, this would see Oli – a politician seen as having far greater partiality towards China than many of his predecessors – reappointing many of the mainland contractors initially tied to these projects.

Despite this, it does still leave a question mark over India's response to the increasingly chummy relationship between Nepal and China. It also won't have eluded the attention of the New Delhi government that, at $8.3 billion, China's investment in Nepal is now more than four times its own. In many ways, negotiating the political and diplomatic challenges occasioned by its foray into Nepal may prove far trickier for China than any of the civil engineering undertakings it has now signed up for.

Geoff de Freitas, Special Correspondent, Kathmandu

Editor's picks

China is actively promoting economic and trade co-operation with countries and regions along the Belt and Road routes. This includes expansion of the China-Europe Railway Express (CR Express) network running between the Chinese mainland and Europe, providing express rail freight as an alternative to sea and air transport.

Since the 2011 launch of the CR Express service from Chongqing in western China to Duisburg in Germany, freight volume has risen considerably. Not only are western region Chinese manufacturers making greater use of CR Express trains to replace Europe-bound sea freight, coastal cities in the eastern region are also launching railway services, one after another.

Against this backdrop, logistics companies have begun to integrate rail freight services with sea and air networks in order to provide a more comprehensive international logistics service to clients. For example, Nippon Express (Shanghai) Co Ltd[1], a Japanese-funded company located in the Waigaoqiao Free Trade Zone, plans to provide rail freight services to Europe through the CR Express lines running from China’s coastal and inland cities. This is intended to support Nippon Express clients in capturing trade development opportunities between China and Europe, as well as the BRI. (For further details, see Leveraging CR Express to Tap “Belt and Road” Markets.)

Photo: Rail service has become a freight shipping option for China-Europe trade.
Rail service has become a freight shipping option for China-Europe trade.
Photo: Rail service has become a freight shipping option for China-Europe trade.
Rail service has become a freight shipping option for China-Europe trade.
Photo: NE Group hopes to utilise CR Express to provide services of freight transport from Japan to Europe.  (Photograph provided by NE Group)
NE Group hopes to utilise CR Express to provide services of freight transport from Japan to Europe.  (Photograph provided by NE Group)
Photo: NE Group hopes to utilise CR Express to provide services of freight transport from Japan to Europe.  (Photograph provided by NE Group)
NE Group hopes to utilise CR Express to provide services of freight transport from Japan to Europe.  (Photograph provided by NE Group)

Nippon Express (Shanghai)’s parent company is Nippon Express Group (NE Group), a global logistics company, providing comprehensive logistics and supply chain management and related services. It serves the Chinese market through international transport networks in the Yangtze River Delta (YRD) and Hong Kong.

According to the NE Group, it is necessary to keep up to date with mainland economic development and trade policies. It has, therefore, actively set up logistics operating points in various bonded areas and pilot free trade zones to provide clients with faster and more convenient services through customs facilitation. The group also uses Hong Kong facilities to support the mainland network to optimise logistics. It relies on Hong Kong to handle financial dealings and investment, as well as manage its information technology for the East Asia region.

Seizing opportunities presented by the rapid development of rail freight through the CR Express network in recent years, NE Group is targeting higher-value goods from the coastal and western regions of China to Europe. As freight trains between the mainland and Asia as well as Europe are on the increase, the group plans to launch a rail freight service between Japan and Europe via the mainland in 2018, providing Japanese clients with an alternative to sea and air.

Under the current trend of industrial transformation and upgrade on the mainland, many high-tech or high-value-added enterprises have become more demanding of logistics services. For example, most electronics manufacturers require logistics providers to have specialised logistics facilities and valuables storage systems for handling higher-value goods, enabling reduced shipping time. In view of this, some logistics service providers, such as NE Group, have not only upgraded logistics facilities to meet client requirements, but have also integrated sea and air freight with the CR Express network. This takes advantage of the relatively fast service and convenient customs clearance offered by the CR Express.

At present, areas served by the CR Express network have already been expanded from the mainland’s western region to the YRD and other coastal cities. CR Express is less costly than airfreight. While not as cheap as sea transport to Europe, it is faster and therefore suitable for higher added-value and shorter life span goods. Suitable items include machinery, high-value electronics, and fast-moving consumer goods where a short delivery lead time is more important than transport costs. Undoubtedly, the CR Express would provide an additional cost-effective option to enterprises with time sensitive shipping needs.

Capitalising on China’s promotion of Belt and Road development, the NE Group has taken the lead among Japanese freight agencies, providing logistics solutions to Europe through the CR Express network since 2016. Its service area has already expanded to cover 14 mainland cities and six European cities. With an intermodal rail freight service from Shanghai or Shenzhen to Europe, it has also integrated with European transport networks to expand coverage.

NE Group has recently launched sea-rail and air-rail multi-modal freight services in Japan, Taiwan and Korea, with the CR Express network at the core. A brand-new logistics service has also been introduced, where the fastest freight transport from Japan to Germany could be completed in 23 days.

Note: For details of the company interviews conducted jointly by HKTDC Research and the Shanghai Municipal Commission of Commerce, please refer to other articles in the research series on Shanghai-Hong Kong Co-operation in Capturing Belt and Road Opportunities.

 


[1] Nippon Express Shanghai was interviewed jointly by HKTDC Research and the Shanghai Municipal Commission of Commerce in Q1 2018.

Editor's picks

Modern logistics aims at providing efficient freight services and comprehensive solutions by charting the best freight course in the light of all factors to meet the needs of clients from various industries. In respect of air freight, not only should the transportation speed and shipping cost be taken into consideration, but steps must also be taken to ensure timely delivery to client specified destinations. A customised professional air freight logistics solution is particularly important to enterprises engaged in high-value and high-tech operations with a short production process and delivery cycle.

Photo: Modern logistics must ensure timely delivery to client specified destinations.
Modern logistics must ensure timely delivery to client specified destinations.
Photo: Modern logistics must ensure timely delivery to client specified destinations.
Modern logistics must ensure timely delivery to client specified destinations.
Photo: Modern logistics offers comprehensive freight services by air, sea, rail and multimodal transport facilities.
Modern logistics offers comprehensive freight services by air, sea, rail and multimodal transport facilities.
Photo: Modern logistics offers comprehensive freight services by air, sea, rail and multimodal transport facilities.
Modern logistics offers comprehensive freight services by air, sea, rail and multimodal transport facilities.

In an interview[1] with Best Loader Logistics (Shanghai) Co Ltd, its representative pointed out that logistics service providers should fully understand the specific requirements of their clients, including the cargo types, trading terms, senders’ preparation of goods and related documentation, as well as the required port arrival time. A comparison can then be made with the pricing and freight schedules of different contractors (such as shipping companies, airlines, truck companies or rail operators), as well as the port service and customs clearance process of customs declaration, inspection and quarantine at the destinations. Only upon consolidation of all factors can the best logistics solutions and contingency budgeting be drawn up for the clients to provide precise, safe, timely and cost-effective freight logistics services.

Businesses operating in the Yangtze River Delta, Pearl River Delta and other regions may come from different positions on the supply chain, and their import and export operation may involve different locations, giving rise to different logistics requirements. When logistics service providers on the mainland are to customise the freight routes and transportation modes for their clients on the basis of cost-effectiveness, they should take into account various factors. These include the characteristics of different product types, such as dangerous goods and temperature-sensitive goods, the facilitation measures of different ports, their customs clearance speed for different product types, and the convenience of local logistics and distribution services for the mainland and international markets. If service providers lacking a comprehensive network only rely on a single port for completing the customs clearance process, they can hardly provide efficient and comprehensive logistics services for a wide range of businesses on the mainland.

Take Best Loader Logistics as an example. With its headquarters set up in Hong Kong, the company is supported by a global flight information system and a comprehensive network of airlines in contract. It has operating bases in multiple locations, including Shanghai, Guangzhou, Shenzhen and Hong Kong to offer freight services by air, sea, rail and multimodal transport facilities.

Apart from providing round-the-clock global air freight import and export services with customs clearance support at Pudong International Airport in Shanghai, it also taps into the markets of Southeast Asia, India, the Middle East and other regions along the Belt and Road routes through its network in South China. It has also set up an air freight service platform for its two international trading routes serving the mainland and Hong Kong. Warehousing and supporting services are also provided in multiple areas to satisfy clients’ day-to-day logistics needs, such as the use of integrated or exclusive freight loads and the handling of specific goods that are oversize/overweight.

Note: For details of the company interviews conducted jointly by HKTDC Research and the Shanghai Municipal Commission of Commerce, please refer to other articles in the research series on Shanghai-Hong Kong Co-operation in Capturing Belt and Road Opportunities.

 


[1] Best Loader Logistics was interviewed jointly by HKTDC Research and the Shanghai Municipal Commission of Commerce in Q1 2018.

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US$57 billion of Belt and Road Initiative funding is set to help remedy Pakistan's chronic energy shortages.

Photo: A big blow to Pakistan’s energy shortages: China-backed wind farms. (Shutterstock.com)
A big blow to Pakistan's energy shortages: China-backed wind farms.
Photo: A big blow to Pakistan’s energy shortages: China-backed wind farms. (Shutterstock.com)
A big blow to Pakistan's energy shortages: China-backed wind farms.

The selection of Karachi, Pakistan's largest city, as the location for the 17th World Wind Energy Conference and Exhibition (held earlier this month) was far from random. Over recent years, Pakistan has invested heavily in wind-power, while also enlisting Chinese backing, under the Belt and Road Initiative (BRI) framework, in order to bring its new environmentally-friendly facilities online.

As a result, in September 2017, the country's National Electric Power Regulatory Authority announced that the share of wind power in the nation's overall energy mix had increased by 0.46% to 1.23%. This has ensured that the country is well on track to meet its 2030 target of having 5% of its overall electricity derived from wind-power, a goal set back in 2006.

Pakistan's ambitious energy-development program has been driven by its long-overdue need to address its chronic electricity shortfall. Although the bulk of its enhanced supply is expected to be derived from domestic coal reserves, the development of wind, solar and hydro sources has also been prioritised in recent years. This has been spurred by growing environmental awareness in the country and, crucially, a steady fall in the cost of renewable-energy generation.

The first commercial wind project in the country came online in 2009 as part of the initial development phase of the Jhimpir Wind Power Plant. The project was overseen and managed by Zorlu Energy Pakistan, a subsidiary of Turkey's Zorlu Enerji. With additional wind turbines coming into operation, the plant's capacity reached 56.4MW in July 2013, all of which was fed into the country's national grid.

To date, though, this is a seen as only scratching the surface in terms of what could ultimately be delivered. Set in the Gharo-Jhimpir Wind Corridor, a 180km strip of coastal land, the Pakistan Meteorological Department sees the facility as having the potential to produce up to 11,000MW of wind-derived electricity.

Following the success of this first plant, a number of additional wind-power projects were swiftly commissioned. By the end of 2015, according to the Alternate Energy Development Board (AEDB), the Pakistani government's renewable-energy agency, there were more than 40 wind-energy projects under development across the country. Once online, they are expected to contribute about 2,050MW to the national grid. By mid-2017, 13 such projects had become operational, representing a net grid contribution of 200MW.

Subsequently, once the China-Pakistan Economic Corridor (CPEC) – one of the key BRI conduits – was established, some US$57 billion of mainland funding was earmarked for investing in the development of Pakistan's infrastructure, with much of this allocated to energy-related projects. Of these, four wind-farm investments were prioritised – Sapphire Wind Power Plant, Sachal Wind Farm, Dawood Wind Farm and Jhimpir Wind Farm.

The first of these to be completed was the 52.8MW Sapphire Wind Power Plant, which became operational at the end of November 2015. Beijing-headquartered HydroChina, a subsidiary of the Power Construction Corporation of China, was the lead contractor on the project, its first such installation in Pakistan.

The company also took the lead on the 50MW Sachal Wind Farm, which came online in April 2017 and is, again, based in the Jhimpir Wind Corridor. The farm is owned by Sachal Energy, a wholly-owned subsidiary of the Arif Habib Corporation, one of Pakistan's leading investment groups. Debt financing was provided by the Industrial and Commercial Bank of China (ICBC) and the estimated cost of the project was $134 million.

The third priority project, the 50MW Dawood Wind Farm, was developed on tidal flats near the city of Banbhore, about 80km east of Karachi. Also coming online last April, the project was backed by a $78.8 million ICBC credit line, while its turbines came courtesy of Guangdong's China Ming Yang Wind Power Group in association with Aerodyn Energiesysteme, a German wind-power specialist. The final project – the UEP 100MW Jhimpir Wind Farm – was also developed by HydroChina. Following investment of about $250 million, it became operational in June last year.

At present, there are nine more Chinese-backed wind-power projects at various stages of completion across Pakistan. Once operational, they will feed an additional 445MW into the country's national grid.

Geoff de Freitas, Special Correspondent, Karachi

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AliExpress logistics centre set to be built close to country's border with Germany as overall e-commerce levels soar.

Photo: Allegro: The Polish eBay likely to be brought down to earth by a heightened AliExpress presence.
Allegro: The Polish eBay likely to be brought down to earth by a heightened AliExpress presence.
Photo: Allegro: The Polish eBay likely to be brought down to earth by a heightened AliExpress presence.
Allegro: The Polish eBay likely to be brought down to earth by a heightened AliExpress presence.

Poland is set to be the site of major new AliExpress logistics centre, serving its host country as well as online shoppers in neighbouring Germany and the Czech Republic. The new centre is to be a joint venture between the Alibaba-owned online marketplace, the Shanghai-headquartered Worldwide Logistics Group (WWL) and ATC Cargo, a multi-modal Polish freight delivery company.

The move is seen as recognition of AliExpress' success in building its customer base in eastern and central Europe. Although Allegro – Poland's take on eBay – remains the most popular e-commece site in the new centre's host country, the Chinese online platform has made huge strides in terms of building market share and consumer awareness. As a sign of this, in an October 2017 survey conducted by PayU, the Dutch fintech company, AliExpress was namechecked by 62% of Poland's online shoppers when they were asked to identify e-commerce market leaders.

Another factor in the choice of Poland as the site of the new centre is its strategic geographical advantage with regard to the aims of the Belt and Road Initiative (BRI), China's ambitious international infrastructure development and trade facilitation programme. This would see Poland function as the primary land conduit between China and the mega-markets of Europe, particularly Germany's 81-million strong consumer base. As a wider acknowledgement of the country's geographical advantages, Amazon has already begun work on its own US$876 million logistics facility in Szczecin, a city in northwest Poland set close to the German border.

One of the advantages of the new AliExpress facility is that, for the first time, it will allow businesses in the region to buy goods in small batches rather than by the container-load, as has been the previous practice. It will also help to manage the increased traffic between China and Poland, with some 500,000 parcels handled in 2017, a 200% increase on the previous year.

One negative aspect of this increased throughput, however, is that the huge surge in the volume of trade has spurred moves by the Polish government to clamp down on VAT avoidance on the part of the country's e-shoppers. Poland, unlike most other European countries (with the exception of France), does not waive the duty on imported e-commerce items valued at up to $55. To date, though, the Polish treasury has taken no action to enforce payment on such items.

In light of the increasingly large sums involved, however, actions are now being taken to ensure that such payments are processed. The most likely solution will see buyers permitted to specify the value of each delivery online, with the government's own system verifying this with the relevant e-commerce platform.

● In other moves, the Polish Financial Supervision Authority (KNF) has now signed a fintech cooperation agreement with the Hong Kong Monetary Authority (HKMA). This will see the two bodies working together on a range of fintech-related research projects, while also facilitating a wider exchange of information, mutual consultation and a greater overall level of knowledge and expertise interchange.

Anna Dowgiallo, Warsaw Consultant

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US$1.7 billion of Chinese backing set to deliver Karnaphuli Tunnel Project, a key Belt and Road component.

Photo: Chittagong Port: Heavily congested and in desperate need of a deep-water upgrade.
Chittagong Port: Heavily congested and in desperate need of a deep-water upgrade.
Photo: Chittagong Port: Heavily congested and in desperate need of a deep-water upgrade.
Chittagong Port: Heavily congested and in desperate need of a deep-water upgrade.

Construction work on the China-backed Karnaphuli Multi-Channel Tunnel Project in southern Bangladesh is now well under way. The tunnel is seen as a key component in several projects related to the Belt and Road Initiative (BRI), China's ambitious international infrastructure development and trade facilitation programme. Once completed, the tunnel will connect the port city of Chittagong to the far side of the Karnaphuli river, the site of a new Chinese economic zone.

Due to be completed in 2020, the tunnel will slash the travel time between Chittagong and Cox's Bazar, one of the country's leading tourist destinations, and ease the heavy congestion on the existing two bridges across the river, while also connecting-up with the Korean Export Processing Zone and Shah Amanat International Airport. It will also feed into two other projects that are currently under way – the Asian Highway and the Dhaka-Chittagong-Cox's Bazar Highway.

At present, it looks as if all of the required funding for the tunnel is now in place. According to government sources, US$1.02 billion of initial backing was secured from the China Exim Bank, with a further $663 million facility – repayable over 20 years at an interest rate of 2% – subsequently confirmed. The outstanding balance was then provided by the Bangladesh government.

The project has been jointly managed by the Bangladesh Bridge Authority (BBA) and the China Communication Construction Company, with the Hong Kong branch of Ove Arup & Partners providing additional design and technical support. With a total length of 9km – of which 3.4km will run below the river – it will be the first tunnel in Bangladesh to facilitate simultaneous road and rail transit.

The tunnel is just one of a range of China-backed projects currently underway in the region. Foremost among these is the Special Chinese Economic Zone – formally known as the Anwara 2 Economic Zone – which was officially established in June last year following the signing of a Memorandum of Understanding (MoU) between the Bangladesh Economic Zones Authority (BEZA) and the China Harbour Engineering Company (CHEC).

According to Paban Chowdhury, BEZA's Executive Chairman, the zone will have the capacity to house 150-200 industrial units and will focus on a range of different industrial sectors, including shipbuilding, pharmaceuticals, electronics, agro-business, IT, chemicals, power and textiles. With up to 75,000 jobs set to be created, the zone will not exclusively rely on Chinese businesses, with Chowdhury saying: "As per our initial agreement, while Chinese investors will get preferential treatment, other local and overseas businesses will also be welcome."

In the case of both the tunnel and the economic zone, their success is heavily reliant on the Chittagong port's facilities being substantially upgraded. The port currently handles a staggering 92% of Bangladesh's ocean freight, with the country's surging economy seeing the required throughput growing by about 14% a year.

The port, however, is heavily silted and extremely congested, while also lacking the depth required for the current generation of tankers. As a result, it is widely accepted that a deep-water port upgrade is a priority for the country.

Over recent years, though, attempts to implement such an upgrade have fallen foul of a series of international disagreements. Back in 2010, China agreed to put up the money for the port's expansion, as well as for the development of a deep-water port on the nearby Sonadia island. Then, in February 2016, in something of an abrupt about-turn, the project was scrapped in favour of a Japanese-funded port development at nearby Matarbari, the proposed site of a massive coal-fired power station.

Such wrangling, however, has not lessened Bangladesh's strategic significance to the overall BRI project. The country is a key component of the proposed Bangladesh-China-India-Myanmar corridor (BCIM), one of the programme's six priority routes.

Overall, Bangladesh is also seen as a vital conduit between the semi-industrialised ASEAN countries and the highly populated Indian sub-continent. Its strategic location between South Asia and Southeast Asia also makes it an essential link in the BRI's mission of trans-regional integration.

Geoff de Freitas, Special Correspondent, Dhaka

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