More than just a “road”

Peter Wong

Deputy Chairman and Chief Executive, The Hongkong and Shanghai Banking Corporation Limited

 

To really understand what the “Belt and Road” initiative is all about, it’s best to stop thinking of it as being purely about “roads” and infrastructure “belts.”

True, “Belt and Road” will involve building a lot of highways, railways, bridges and other infrastructure – the physical building blocks that will facilitate greater trade flows not just with China’s immediate neighbours, but also with countries as far afield as Europe, Africa and the Middle East.

The overall goal is to facilitate regional trade and cooperation by smoothing the passage of goods and services across borders. China expects its annual trade with the more than 65 countries along the “Belt” and “Road” routes to surpass USD2.5 trillion in the next decade, up from about USD1 trillion in 2015.[1] This will bring a welcome boost at a time of anaemic global trade growth. It also ties in with China’s efforts to boost the international usage of the renminbi.

The huge amounts of infrastructure spending involved will have an impact well beyond mainland China, notably in poorer countries that lack the funds and expertise to execute big infrastructure projects themselves. Projects under the “Belt and Road” umbrella include a high-speed rail link between the Indonesian cities of Jakarta and Bandung, for example, and a rail link between China and Laos.[2]

Belt and Road-related spending will also generate business opportunties for companies in sectors ranging from construction and transportation to alternative energy and telecommunications.

Skeptics who argue that “Belt and Road” lacks detail, and risks falling short of its ambitious goals need to bear in mind two important aspects of the initiative.

First, “Belt and Road” is a marathon, not a sprint. It is not a detailed list of imminent spending plans and due-by dates that should by now have delivered a flurry of construction starts and ribbon-cutting ceremonies. Rather, it is a multi-year, perhaps even multi-decade vision that will evolve over time, adapting to circumstances and local priorities. Many of the envisioned projects take years to plan, let alone implement; we are still only at the beginning of a long journey.

Second, “Belt and Road” is about more than constructing ports and highways. It is also about building out the financial building blocks that will oil the wheels of trade and investment, and help fund the physical aspect of the initiative.

To that end, Beijing has spearheaded  the Asian Infrastructure Investment Bank (AIIB), the Silk Road Fund and the New Development Bank, which have a combined financial firepower of USD240 billion, and are starting to become active investors in Belt and Road projects.

In May 2016, for example, the AIIB and the Asian Development Bank said they would team up to co-finance a series of projects, including a 64-kilometre stretch of motorway in Pakistan.[3]

Still, even the combined funding capabilities of these and other public-sector lenders cannot meet the immense demand for infrastructure financing.

In February, the ADB said it expected developing Asia to need more than USD 26 trillion of infrastructure investment between 2016 and 2030 – USD 1.7 trillion a year -- to maintain its growth momentum, eradicate poverty, and respond to climate change. [4] In the six biggest economies of ASEAN alone, we estimate that USD2.1 trillion of infrastructure spending is needed through 2030 – but that current spending trends cover only USD 910 billion.[5]

This is where Belt and Road comes in again. By setting ambitious goals, the initiative provides a powerful impetus to galvanise both the construction itself and the fund-raising activity that is required for it.

It is this two-pronged approach – and the determined political backing from Beijing -- that lends the Belt and Road initiative its extra heft: Because it spans both physical and financial initiatives, it has the potential to boost not just business opportunities and the flow of goods, but also to invigorate financial-markets activity across dozens of countries housing hundreds of millions of people in the coming years.

With time, this will create an impetus that is bigger than the sum of its parts, and is more powerful than the many kilometres of railway track and asphalt that will be laid down in the name of “Belt and Road.”

-ENDS-

[1] Xi Jinping in 2015 Boao Forum, Xinhuanet, 29MAR15 (http://news.xinhuanet.com/english/2015-03/29/c_134107329.htm), and http://www.gov.cn/xinwen/2016-04/07/content_5062049.htm

[2] see HSBC booklet business-talks-new-silk-road-e

[3] http://www.adb.org/news/adb-aiib-sign-mou-strengthen-cooperation-sustainable-growth

[4] https://www.adb.org/news/asia-infrastructure-needs-exceed-17-trillion-year-double-previous-estimates 

[5] HSBC Global Research: Asean Perspectives: Filling the infrastructure pothole, 29 July 2016

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