By Michal Romanowski (Program Officer, German Marshall Fund of the United States, Poland, in association with PASOS, Policy Association for Open Society, Czech Republic)

(This paper was commissioned by the European Parliament's Committee on Foreign Affairs)

Central Asia, located at the centre of the Eurasian continent and straddling the borders of some of the world’s most pressing hot spots, offers economic opportunities and natural resources but also remains insecure and troublesome. For the European Union, the region is not a priority. It is too distant and Brussels experiences difficulties in executing its democratic and value-based agenda on the ground.

Regional dynamics have been significantly influenced by many players present in the region; Russia, China and the United States are the most significant. Russia’s position relies on a holistic approach, including military might and the more recent Eurasian narrative. China, pursuing its Silk Road ideas, has no equal in trade and energy. The US has partially retreated from Central Asia and is reviewing its security-centered strategy.

Under these circumstances, what should the EU regional approach look like? What are the shared interests and divergent objectives of the actors present in Central Asia? With what actors could the EU co-operate and with whom should it abstain from regional rapprochement? Finally, what options does the EU have to strengthen its posture in the region from a regional and geopolitical perspective? ……

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By World Commerce Review

The Chinese President Xi Jinping mooted the idea of the New Silk Road and 21st Century Maritime Silk Road initiatives in 2013. Later, in November 2014, the One Belt, One Road (OBOR) concept was officially unveiled at the Asia Pacific Economic Cooperation (APEC) meet with the establishment of a $40 billion silk fund. The OBOR project has two parts. One Belt will be a land based economic corridor slated to run from Xian in Shaanxi province, China, traversing through Central Asia and Europe before terminating at Venice in Italy. The belt involves significant investments to develop road and rail infrastructure along this corridor along with other ancillary facilities like high speed fibre optic cables for better communication and energy pipelines.

The One Road, on the other hand, refers to the 21st Century Maritime Silk Road - a sea based route, originating from Quanzhou in Fujian province China, passing through the Strait of Malacca in order to reach Nairobi (Kenya), before merging with the land based route at Venice. Investments are likely to be undertaken in development of ports in the participant countries along with initiatives to simplify procedures of transporting goods across the borders……

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By DIIS - Danish Institute for International Studies

China’s Belt and Road Initiative remains a grandiose and abstract wish list rather than a coherent blueprint of interconnected international investments. Once it is set into motion many of the infrastructure projects will encounter financial uncertainties as well as political and security risks.

China’s “Belt and Road Initiative” is President Xi Jinping’s signature foreign policy initiative. First announced in 2013, the land-based “Silk Road Economic Belt” and its maritime twin, the “21st Century Maritime Silk Road” are ambitious plans aimed at placing China at the heart of regional trade networks and restoring it to a prominent geopolitical position in Asia. The combined Belt and Road envisage new transport infrastructure, industrial corridors, power lines, railways, ports and trade routes that will enable a two-way flow of goods, people and ideas that stretches from China to the Middle East and Europe……

RECOMMENDATIONS

• Western governments should engage China on global issues in order to shape rules jointly, rather than attempting to socialize Beijing or fearing newly created institutions.
• Western governments should engage Beijing in specifying how the Belt and Road Initiative will advance the interests of potential foreign partners.
• China and the international community can draw lessons on political and security risk, and labor and environment issues, from Chinese overseas investments in the past two decades……

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Prepared for Tekes by Enright, Scott & Associates

“One Belt One Road” is a Chinese initiative to connect more than 60 countries (64 at present) with physical, commercial, cultural, and other links. These countries have a combined population on the order of 4.4 billion. The “One Belt” refers to the “Silk Road Economic Belt,” a recreation of the old land-based Silk Road trade routes from China through Central Asia and on to the Middle East and Europe. This is also called the “Modern Silk Road.”……

Finally, we stress once again that Finland and Finnish companies should not be passive. China’s leaders have not fully defined the OBOR initiative or the full range of OBOR projects. Many countries and companies will wait until there is more definition before engaging. The trouble is that by the time projects are defined, they are often allocated. The best way to obtain business associated with the OBOR initiative is to help define the projects. According to Chinese officials, the OBOR initiative is supposed to be open and participative. Finland and Finnish companies should try to identify projects that they are well suited for and that are consistent with the OBOR initiative to present to Chinese counterparts.

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By IAI Working Papers

The European Council has mandated the High Representative of the Union for Foreign Affairs and Security Policy, Federica Mogherini, to draft a Global Strategy by June 2016. Given Europe’s status as a global power, such a strategy must respond to Europe’s own challenges as well as to the new grand strategies of other major players in world politics, like China. To better understand the central tenets of the Chinese leadership’s strategic thinking, two keywords are most important – the “Four Comprehensives” and the “One Belt and One Road” (OBOR). As an initiative mainly focusing on promoting Eurasian integration and reshaping Chinese geoeconomic advantages, the OBOR is highly consequential to China’s interactions with Europe and the rest of the world at large in the decades to come. How to take advantage of the OBOR, create new EU-China synergies, and tackle relevant challenges are questions the EU leaders should be attentive to.

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By Hong Kong General Chamber of Commerce

In 2013, Chinese President Xi Jinping visited Central and Southeast Asia. During his visit, he had proposed joining hands to build a “Silk Road Economic Belt” and a “21st-Century Maritime Silk Road” (Belt and Road). Since then, this innovative concept of Belt and Road has attracted a great deal of attention from both China and even the rest of the world. Similarly, this concept has sparked discussions among industry insiders in Hong Kong. As an integral part of the Mainland, Hong Kong can play a role in the Belt and Road plan.

“Going Abroad”

Some target countries and regions are emerging economies or developing countries whose legal systems are not that sound. This might lead to challenges for investors. These host countries would usually impose higher tax rates on foreign investment, or in terms of international tax, e.g. definition of Permanent Establishment, they may disregard international practice, or even apply more stringent policies than the international common practice.

Chinese businesses “going abroad” might be treated unfairly, and thus could run into tax disputes. In this regard, we suggest that enterprises should think through the tax policy of host countries and multilateral tax regulations applicable to the “going abroad” projects, in order to minimize any tax burden.

Many developing countries along the Belt and Road roadmap have a less than favourable investment environment. Large-scale PRC enterprises may act as the leading force, jointly with other PRC enterprises, in an attempt the test out the unfamiliar investment environment.

Taking China-Belarus Industrial Park as an example, it will offer preferential taxation by the 10+10 formula to investors, i.e. exemption of 100% corporate income tax for the first 10 years from the date of registration in the park and 50% reduction of corporate income tax for the next 10 years of operation in the park. In addition, employees joining companies in the park also enjoy tax benefits, as well as “one-stop” services during the setup and post-establishment of the enterprises in the park. To date, six enterprises, including YTO Group, ZTE, Huawei, and China Merchants Group, have confirmed and signed an agreement to set up in the park. Around 10 other enterprises have indicated interest, and are considering the options of entering the park.

Hong Kong as a “Super-connector”

Despite financing from the Asian Infrastructure Investment Bank, Silk Road Fund, China Development Bank, and other institutions led by the PRC Government, financing in respect of Belt and Road related infrastructure remains a major shortfall – around US$8 trillion according to market estimates.

Currently, there are already some Hong Kong finance and insurance institutions who have actively participated in Belt and Road projects, and have utilized their experience and strength in the financial services sector. Through cross-border M&A project financing, construction project financing, international factoring, and the combined use of general debt, preferential debt, and other investment and financing combinations, enterprises are presented with a multitude of financing options.

On the other hand, due to its unique economic position and geographical location, Hong Kong plays a vital role as a super-connector in the Belt and Road roadmap. As an investment hub, the tax treaty benefit under the PRC-HK Double Taxation Arrangement would provide investors with higher tax efficiency.

When facing challenges arising from multi-locations operations, multiple currencies and multinational supply chains, enterprises can leverage Hong Kong’s position as a transport hub, international finance centre and window to the West. Doing so can raise enterprises’ international management standards, as well as expand their global market network. In reality, many Chinese enterprises have set up a finance platform in Hong Kong, or are targeting Hong Kong as a “going abroad” platform.

With the high profile of the Belt and Road policy, the “going abroad” of Chinese enterprises has already evolved into a mechanism that integrates economic, political and cultural factors. In the complicated external economic environment, there is an increasingly difficult international tax environment along with products, projects, investments and personnel “going abroad.” Properly handling these problems requires the wisdom and collaboration of entrepreneurs, governments and professionals.

This article is firstly published in the magazine The Bulletin of the Hong Kong General Chamber of Commerce (January 2016 issue). Please click here to view the full article.

By IAI Working Papers

With the One Belt One Road (OBOR), arguably Beijing’s major diplomatic outreach in decades, a process towards greater Sino-European connectivity has been put in place. The implementation of the OBOR in Europe has focused so far on financing infrastructure projects, in particular railways in Southeast Europe and ports in the Mediterranean Sea. This has been complemented by growing monetary linkages between the People’s Bank of China and European central banks through the establishment of currency swap agreements and yuan bank clearing – so-called “offshore renminbi hubs” – with the aim of lowering transaction costs of Chinese investment and bolstering the use of the Chinese currency. While there are undoubtedly great economic opportunities, China’s OBOR initiative also presents the EU with a major political challenge. There is the risk, in fact, that a scramble for Chinese money could further divide EU member states and make it difficult for Brussels to fashion a common position vis-à-vis Beijing. Furthermore, China’s economic penetration into Europe may lead – if not properly managed – to a populist backlash as well as a strain in relations with Washington. All these elements should be taken into consideration by EU policymakers, as China’s OBOR makes inroads into the Old Continent.

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By McKinsey Global Institute

The McKinsey Global Institute (MGI) launched a major initiative two years ago to study the evolution of urbanization of China and to derive insights into how this process will develop. More than 20 consultants and experts have explored the global economic and social implications of the unprecedented expansion of China's cities and how national and local policy makers can shape China's urban development to 2025 and beyond. Preparing for China's Urban Billion describes the findings of our research and is available to download for free at our website www.mckinsey.com/mgi.

The views presented in this two-volume work are based on long-term macroeconomic trends in China. While the recent downturn in the global economy is bound to impact China in the short term, we believe the long-term fundamentals on which we have based our study are likely to hold out.

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By McKinsey Global Institute

Providing decent housing for citizens is a perennial challenge for nations around the world. From slum residents in the developing world to middle-income households in expensive global capitals, hundreds of millions of people struggle to find decent housing that they can afford without severe financial stress. The economic and human toll of the housing affordability gap is enormous. We estimate that 330 million households are affected around the world and, under current trends, by 2025 the number of households that occupy unsafe and inadequate housing or are financially stretched by housing costs could reach 440 million—or 1.6 billion people.

In this research we identify ways to narrow the affordable housing gap in the next decade. This will require clear aspirations by policy makers to improve housing affordability and the use of four levers that we identify to unlock land in appropriate locations, reduce construction and operations costs, and improve access to low-cost financing. Together with an integrated and city-specific delivery approach, these measures can put housing within reach of households making 50 to 80 percent of their city’s median income. The levers also can make housing more affordable and improve housing outcomes for households earning less than 50 percent of median income…

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By McKinsey Global Institute

The Association of Southeast Asian Nations (ASEAN) is a coalition of ten diverse nations: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam. The region has posted strong growth since 2000, lifting millions out of poverty — but many gaps and disparities remain.

As Southeast Asia pushes to deepen its ties by completing the ASEAN Economic Community integration plan, the region is starting a new chapter in its economic development. But it will take the right set of catalysts to ignite more dynamic and inclusive growth. MGI’s analysis finds that global trade flows, urbanization, and disruptive technologies could provide the keys to unlocking the region’s full potential and creating wider prosperity…

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