Leveraging international platforms - Repaving the ancient Silk Routes

2017年10月30日

By PwC

The role of international platforms in the Belt and Road initiative

Besides adopting a risk-sharing approach, planning contingency strategies, and strengthening capabilities with key partnerships and government relations, foreign companies can leverage existing international platforms to further position for success. For one, such international platforms help to connect organisations with similar commercial interests, and to facilitate business collaborations and complementary partnerships. Second, they are a resource to gather more knowledge, especially in the case of the B&R initiative, for which portals have been set up to offer more information.

Platforms have been set up by various government bodies and business associations to cater specifically to B&R activities, such as those in Hong Kong and Singapore. In these cities, the platforms are run by government bodies, business associations and non-profit public organisations. In Hong Kong, platforms are offered by the Hong Kong Trade Development Council (HKTDC), a statutory body, and the Federation of Hong Kong Industries (FHKI), a business association. In Singapore, they are organised by government entity International Enterprise (IE) Singapore, and the Singapore Business Federation (SBF), a business association. In United Arab Emirates, the Dubai Chamber of Commerce and Industry, a non-profit public organisation, facilitates B&R partnerships, while the Dubai International Financial Centre (DIFC), a government administered financial hub, provides investors with expertise, legal and regulatory certainty. From the United Kingdom, its business association, the China-Britain Business Council (CBBC), organises events to encourage companies to take up opportunities stemming from the B&R initiative.

Local business communities are well represented at these platforms, as are many global companies, and they play a key role in connecting players across value chains. Their wide international networks often comprise international chambers of commerce, professional services companies and media companies through to infrastructure management consultancies, and private investors and financiers, including venture capital firms and private equity funds, among others. The network of professional services available via these bodies work to provide services from deal making, due diligence and tax structuring to post-deal integration and management.

With a global network of international businesses and professionals, these platforms are meeting points for companies with similar commercial interests. As such, foreign companies that want to establish contacts and look for partners to collaborate in B&R opportunities can leverage these platforms to connect with other global organisations, private investors and local companies from the B&R countries, or network with Chinese enterprises.

Especially with the B&R initiative being led by the Chinese government, international platforms can further play the role of bringing together public and private sector stakeholders ‘with a view to facilitating more efficient and sustainable investment flows into the B&R countries.’

Perhaps more importantly, these platforms are free of government influence and are purely driven by commercial interests and shaped by market demand. Given that the B&R initiative is a strongly China-centric plan, international platforms play a crucial role which is uninfluenced by political interests. In return, this undivided focus then attracts more international participants.

Hong Kong and Singapore as attractive international platforms

Hong Kong and Singapore have positioned themselves as regional hubs for B&R activities. In fact, both countries are already very actively involved in facilitating China’s B&R plans.

Both cities have also traditionally been recognised as excellent gateways for international businesses wanting to do business in their respective regions. This also means that they would have much experience to share in connecting and facilitating a wide established network, having played the role of an international platform and regional hub for many years.

Established international networks of business communities are further key strengths of both Singapore and Hong Kong, in addition to being highly business-friendly, free trade, economically open, low tax regimes, with an absence of foreign exchange controls, a level playing field, a diversified talent pool, world-class infrastructure, and sound and independent legal systems.

They are both strong financial services hubs – with Hong Kong being stronger in RMB currencies while Singapore has the largest foreign exchange centre in Asia Pacific. Also, the Hong Kong Monetary Authority (HKMA) has set up an Infrastructure Financing Facilitation Office (IFFO) to facilitate infrastructure investments and their financing. Singapore already manages about 60% of infrastructure project finance transactions in Southeast Asia.

Despite sharing many of the same strengths, Hong Kong and Singapore also each bear unique propositions as B&R activity hubs.

Hong Kong

Hong Kong’s proximity to mainland China has supported its role as a gateway with access to mainland cities for many global businesses. In the same way it has also been serving as a springboard for Chinese outbound investments and expansion into international markets.

China and Hong Kong have historically had close economic and investment ties, and are bound together by the Mainland and Hong Kong Closer Economic Partnership Arrangement which has boosted trade in the industrial, energy, technology, infrastructure and tourism sectors. According to the HKTDC, about 60% of outbound investments were directed to, or channelled through, Hong Kong. Hence the largest source of foreign direct investment into China in 2015 came from Hong Kong, to the value of US$1.24tn, or 48% of total investment.

Specifically, the key offerings of Hong Kong include a few areas. First, it provides services in global offshore RMB trade settlement, financing and asset management service centres which ‘connect regions along the B&R’ with experience in assisting Chinese mainland enterprises, project sponsors, lenders and private equity funds in structuring and financing public-private partnership projects such as ports, highways and power plants.

Another area is in legal services including arbitration centres and platforms. Also, Hong Kong offers access to information via access to Google Search and channels that may be restricted in China. In some cases, its organisations such as HKTDC have connections to Chinese business stakeholders based outside China. The presence of professional service firms that provide accounting, consulting and tax advisory services is also vital to any B&R project. To date, the HKTDC has connected over 6,100 mainland investors, more than 5,700 overseas project owners and Hong Kong service professionals, and organised close to 4,000 business matching meetings.

Another lesser-known involvement of Hong Kong in the B&R initiative is its expertise in infrastructure management. For example, along the Eurasian Land Bridge economic corridor, a Hong Kong company that originated in Canada was involved in traffic facilitation and logistics management for part of the China–Europe transnational train.

Hong Kong currently plays a key role in B&R activities, which is somewhat overshadowed by other major infrastructure projects in faraway developing countries along the B&R routes. It is almost playing a ‘subject matter expertise’ role in the B&R, and caters to more ‘mature’ B&R activities.

Singapore

With respect to the B&R initiative, Singapore plays a pivotal role as gateway to the Southeast Asia region, which is a key part of the Maritime Belt route. The route connects southern China to Southeast Asia, then connects by sea to South Asia, the Middle East and North Africa.

In addition to being located in the heart of Southeast Asia, Singapore and its corporate enterprises have also always been highly involved in many Chinese-led activities overseas. The country has also been one of China’s largest investors, and had invested up to US$5.8bn in over 700 projects by 2014. On the other hand, it is also one of the top overseas investment destinations for Chinese companies.

Singapore possesses an outstanding business environment that enables it to facilitate investments into Southeast Asia, into which many B&R investments are flowing. As such the Singapore government is positioning the city as an infrastructure financing hub for the region, where a critical mass of international banks is based with project financing capabilities. An estimated 60% of ASEAN project finance transactions are arranged by Singapore-based banks.

Complementing its role as financing hub, Singapore hosts a full suite and increasingly growing ecosystem of players across the infrastructure supply chain – from project developers and EPC firms to professional services providers and development finance institutions. For these Singaporebased businesses, the B&R initiative also presents collaboration opportunities with Chinese companies for infrastructure, logistics, and other projects in the region.

In fact, Singapore itself is an investor in the B&R initiative, having committed about S$90bn (roughly US$64.5bn) worth of financing services for B&R projects across the region, signing off on an MOU with some of the largest Chinese banks last year.

As part of the B&R initiative, Singapore and China have launched a joint project, Chongqing Connectivity Initiative (CCI), which aims to ‘catalyse the development’ of Chongqing in Western China, as well as in Singapore. The initiative focuses on four areas for bilateral collaboration including finance, aviation, transport and logistics, and infocommunications technology. In the financial sector, more than US$6bn-worth of deals were concluded in 2016. In the aviation sector, Changi Airport will work with Chinese authorities in the development and operations of the new Chongqing Jiang Bei Airport. The plan also includes building a transportation and logistics ‘multi-nodal’ hub in Chongqing.

Knowledge and expertise exchange is another key area of collaboration in the B&R initiative. Being renowned worldwide as a clean and green city that has well-integrated urban skyscrapers and highways with greenery and nature, Singapore can work with China to exchange urban planning expertise, complementing China’s strengths in construction and financing.

Evidently, Singapore and Hong Kong are well positioned to facilitate and help companies navigate through the B&R activities, also offering ideal business environments to support business transactions and having set up entities specifically catered to B&R activities. This could greatly support a foreign company in its risk mitigation strategies and to better position itself for success in B&R activities.

This article was first published in the PwC report “Repaving the ancient Silk Routes” June 2017 issue. Please click to read the full article.

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