HKTDC Research | 23 Jul 2015

One Belt One Road: Yuxinou Railway Development

As the transport hub of the Silk Road economic belt and Yangtze economic belt, Chongqing connects China’s eastern and western regions with the European markets. Its functions as a shipping centre in the upper reaches of the Yangtze River and a national logistics hub will be further strengthened in China’s new round of economic reform and opening up and implementation of the “One Belt, One Road” strategy. Rail-sea intermodal transportation connecting Chongqing and the “Maritime Silk Road” also opens international trade routes to South Asia and Southeast Asia. According to the Opinions on Implementing the Belt and Road Strategy and Building the Yangtze Economic Belt issued by the Chongqing municipal government in December 2014, investment by the municipal government in infrastructure projects will reach Rmb1.2 trillion by 2020. Among these, the Chongqing-Xinjiang-Europe international railway will be the main Eurasian land bridge between western China and the European markets. The railway is also known as the Yuxinou railway, an acronym for Chinese characters Yu (which stands for Chongqing), Xin (Xinjiang) and Ou (Europe).

Shortening Transport Time between Chongqing and Europe

The Yuxinou railway has greatly shortened transportation time between western China and Europe after its official opening on 18 March 2013. In the past, Europe-bound Chongqing exports were first shipped to Shanghai on the Yangtze River, where they were loaded onto larger ocean-going vessels to continue their shipment to Europe. The entire journey of this river-sea intermodal transportation usually took 45-60 days. Using the Yuxinou railway, it only takes 13 days to export goods from Chongqing to Germany. Besides saving time, this also improves the liquidity of working capital. The Yuxinou railway is still working on the improvement of speed. According to China Railway, transport time between Chongqing and Germany will be further shortened to 12 days after the railway becomes fully operational at the end of 2015.

Up to the end of 2014, a total of 233 trips had run on the railway, with freight volume amounting to 5.4 billion tonnes and the value of imports and exports transported totalling US$6.8 billion. Today, it has more than four trains leaving Chongqing for Europe and one train or more returning from Europe each week. It is estimated that about 300 trips will run on the railway in 2015 with onward and return trips each accounting for 50% of the journeys. The Yuxinou railway operates with fixed stations, fixed routes, fixed train numbers, fixed timetables and fixed prices. A more stable train service will enhance Chongqing’s ability to solicit cargo sources from the surrounding areas.

Cargo Sources: Greater Diversity and Larger Catchment Area

Chongqing’s industrial development has always had electronics and automotive industries as its two pillars. Electronic products and auto parts also form the bulk of goods exported to Europe via the Yuxinou railway. As Chongqing’s industries have become more diversified in recent years, the sources of goods have also increased. Today, cargo carried on the Yuxinou railway also includes machinery equipment, food, textiles and light products. The origins of goods also extend from Chongqing to places beyond, with Chongqing itself and the surrounding provinces accounting for 50%, eastern China for 30%, and southern China for 20%. Chongqing’s imports from Europe mainly include cars and auto parts from Germany and high-end consumer goods, timber, machinery equipment, chemicals and instruments from countries like Italy and Spain.

In addition to a larger catchment area for goods, the destinations of cargo shipments have also been extended to cities beyond the Yuxinou railway line to form a unique “1+N” pattern of convergence and distribution network. Here, “1” refers to the main line of the railway from Chongqing to Duisburg, while “N” refers to countries chosen by consignors as their points of convergence and distribution. Today, this has developed into a network of dozens of convergence and distribution points, including Rotterdam in the Netherlands, Antwerp in Belgium, Moscow and Cherkessk in Russia, Kutno in Poland, Pardubice in the Czech Republic, and Almaty and Kostanay in Kazakhstan. From another prospective, these convergence and distribution points may be taken as centres of European exports to Chongqing. Greater diversification of European goods exported from Europe to Chongqing will in turn further enrich the varieties of imported goods in the mainland market.

Railway Transport Cost Drops Steadily

According to a logistics company in Chongqing, goods are mostly exported from Chongqing to Europe by means of river-sea intermodal transportation because both the buying and selling sides are accustomed to this practice. However, as freight rates on the Yuxinou railway keep falling, more companies may consider switching to railway transport. In general, transport costs from Chongqing to Europe on the Yuxinou railway are about 40% lower than by air, but about 100% higher than by river-sea intermodal transportation. For example, it costs about Rmb12/kg to transport ordinary goods from Chongqing to Europe on the Yuxinou railway, about Rmb20/kg by air, and about Rmb5/kg by ship.

The freight rate on the Yuxinou railway was US$1 per TEU/km in 2011, US$0.8 per TEU/km in 2012 and US$0.7 per TEU/km in 2013. It dropped to US$0.55 per TEU/km by April 2015. There should be room for further reduction as freight volume continues to rise. This will enhance Chongqing’s competitiveness as the logistics hub of western China.

Maritime Silk Road

Apart from the Yuxinou railway, goods may also be exported from Chongqing to Europe by rail-sea intermodal transportation to connect with the Maritime Silk Road for the onward journey to Europe. For example, goods may be sent to Shenzhen’s Yantian Port on the Chongqing-Shenzhen Railway, where they will be loaded onto ships bound for Rotterdam via the Maritime Silk Road. The whole journey takes about 27 days. The Chongqing-Guiyang Railway now under construction will run southwestwards to Guiyang. From there, goods will be exported via Kunming and Ruili to Sittwe port in Myanmar, where they will be loaded onto ships and transported to Rotterdam via the Maritime Silk Road. The whole journey is expected to take more than 30 days.

Besides relying on the “One Belt, One Road” strategy to promote port infrastructure and land-sea intermodal transportation, Chongqing is also exerting efforts to open international trade routes to South Asia and Southeast Asia and integrate with the China-Indochina Peninsula economic corridors. Chongqing will strengthen co-operation in the construction of the Chongqing-Kunming Railway[1] and the new Chongqing-Guiyang Railway[2], and encourage its leading car and motorcycle manufacturing, chemical and energy enterprises to expand to South Asia and Southeast Asia. As an important node connecting the Maritime Silk Road and the Silk Road Economic Belt and with its strong influence on the Yangtze River Economic Belt, Chongqing will invest more to further improve its infrastructure in future.

Opportunities for Hong Kong Businesses

The “One Belt, One Road” initiative is China’s important development strategy during the 13th Five-Year Plan period (2016-2020). Under this strategy, Chongqing, which plays an important role as the main transport hub between western China and Europe, will find great scope and opportunities for development. In addition to the Yuxinou railway, Chongqing’s railway network may also help export goods to the European market via the Maritime Silk Road by means of rail-sea intermodal transportation. The “One Belt, One Road” routes that connect the Asia-Pacific economy with the European economy pass through more than 60 countries and regions in Central Asia, Southeast Asia, South Asia and eastern Africa, where 4.4 billion people live. As Chongqing’s external logistics and transportation costs drop, and with the municipal government’s policy of fostering industrial clusters with special advantages, Hong Kong manufacturers may consider extending their production lines to Chongqing not only for export purposes but also to market their products to consumers in China's central and western regions as well as in countries along the "One Belt, One Road".

Apart from manufacturing enterprises, Hong Kong’s logistics companies may also take the opportunity to expand their business in Chongqing and in countries and regions along the “One Belt, One Road”. As freight volume on the Yuxinou railway grows, the catchment area of goods and destinations of delivery will also increase. In particular, the formation of its unique “1+N” pattern of convergence and distribution network will increase demand for logistics and other supporting services (such as finance and insurance) on a local level. On the other hand, the “One Belt, One Road” strategy will generate plenty of room for co-operation in such fields as infrastructure and finance. Hong Kong’s service providers should look out for new opportunities.

 

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[1]  China Railway plans to start construction of the Chongqing-Kunming Railway in 2016. The project is slated for completion in four years. It will only take about 2.5 hours to travel from Chongqing to Kunming when the railway is completed.

[2]  The new Chongqing-Guiyang Railway is due for completion at the end of 2017, by which time it will only take two hours to travel from Chongqing to Guiyang.

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HKTDC Research | 28 Jul 2015

The Belt and Road and the Reshaping and Adjustment of World Economic Order

In the wake of the financial crisis, “de-globalisation” sentiments have spread worldwide and protectionism is on the rise. Not only are import controls proliferating, but highly exclusionary and non-transparent regional trade agreements are coming up one after the other, together with rising localism and increasing trade barriers, it is not surprising that the recovery of the global economy is simply anaemic. Seven years after the crisis, world trade (in terms of global output) and cross-border fund flows have yet to recover to their pre-crisis levels. Though the lesson from the Great Depression of the 1930s has been well learnt and the world economy has avoided the pitfalls of that episode, de-globalisation sentiments have been keeping anxiety over the Great Recession alive.

To revitalise the world economy, we have to thwart protectionism and suppress de-globalisation. Unfortunately, international economic coordination institutions set up after the Second World War, for example, the World Trade Organization, the World Bank and the International Monetary Fund, have all been ageing to one degree or another. In particular, as the gravity of the world economy shifts eastward, and as the growth of the main developing countries accelerates, what the world economy needs is not simple stimulations. What it needs instead is the reshaping of global order and adjustments in multilateral institutions. The Belt and Road initiative is China’s response to the reshaping of world economic order.

Transcending Regional Boundaries

Superficially, as the Belt and Road initiative encompasses mainly countries on the periphery of China and along the Silk Road, it has a strong regional connotation. But, just as stressed by officials repeatedly, the initiative “is designed to uphold the global free trade regime and open the world economy in the spirit of open regional cooperation” and “covers, but is not limited to, the area of the ancient Silk Road.”[1] In other words, it is a strategy with global significance.

Undoubtedly, with its current national strength and its global status, China still lacks the capability to reshape the world economic order by itself. Moreover, with the world becoming increasingly multipolar, it is also not possible for any one country to change the global order single-handedly. The crux is to introduce new elements, principles and momentum for the reshaping of the world economic order. Once such an initiative gains widespread support, changes will follow through naturally.

Three Key Elements

To me, the foremost element in the Belt and Road initiative is “open and inclusive”, which is of paramount importance in suppressing the development of exclusionary regional economic organisations and in upholding the free trade regime and the open world economy. Currently, a number of regional economic organisations, which are highly exclusionary, non-transparent and massive, are in the making. Though all of them are claiming to uphold free trade, they are perhaps more likely to build up trade barriers. In fact, according to WTO data, since the financial crisis, the number of new import restrictions introduced by the G20 has been increasing and now affects over US$800 billion worth of imports each year.

For sure, insofar that the Belt and Road initiative relies on multi-tiered bilateral and multilateral agreements to prompt countries along the Silk Road in opening up markets mutually, a certain amount of regional limitation is inevitable. The key is to uphold the principle of “openness and inclusiveness” so that the contents and membership of these bilateral and multilateral agreements can be expanded continuously. For example, the recently established Asian Infrastructure Investment Bank, which has 57 founding members, is a beneficiary of the “openness and inclusiveness” principle. Of course, it still takes much effort to determine how best to implement this principle.

A second important element of the Belt and Road initiative is “mutual benefit”. The reason for the spreading of the de-globalisation sentiment worldwide is that the balance and distribution of benefits in the course of globalisation have not been handled well. As a result, what one side has gained is what the other side has lost, and the negative impacts of globalisation have eclipsed its positive contributions. The reason that restructuring the world economic order has met a lot of resistance is also because of this “zero-sum game” mentality that presumes there is a life-or-death competition between the new and old orders. To free ourselves from the curse of de-globalisation and to restructure world economic order, we have to do a better job of handling the balance of benefits between the new and the old orders, and to maximise benefits by seeking common ground and shelving differences.

To achieve “mutual benefit”, it takes not only proper planning and actions by coordinating institutions that can fairly represent the interests of all parties, but also the availability and following of a set of practical, reasonable, commonly-accepted and transparent codes. It also requires another important element for the success of the Belt and Road initiative: abiding by “market rules and international norms”. The difficulty with this is that a lot of Belt and Road cooperation projects are infrastructure investments that require policy support and the input of public funds. As many of the countries along the Belt and Road are still developing, their market economies are immature and international norms may not be widely accepted. How best to use “market rules and international norms” to achieve “mutual benefit” would therefore be critical to the success of the Belt and Road initiative.

 

This article originally appeared in Hong Kong Economic Times (27 July, 2015)

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[1] Vision and Actions on Jointly Building Silk Road Economic Belt and 21st-Century Maritime Silk Road, jointly issued by the National Development and Reform Commission, the Ministry of Foreign Affairs and the Ministry of Commerce, March 2015.

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Royal Institution of Chartered Surveyors | 31 Jul 2015

RICS Indonesia Commercial Property Monitor Q2 2015

Q2 2015: Indonesia Commercial Property Monitor

Weaker macro climate weighs on occupier and investment sentiment

Key macroeconomic trends

Indonesia’s GDP growth softened to 4.7% year-over-year in Q1 from 5% in Q4 2014, the weakest pace of expansion since September 2009. The slower-than-expected growth was driven partly by weakening private consumption and government expenditure, which undermined positive contributions from exports and steady investment growth. More worryingly, some of the recent high frequency economic indicators point to a further moderation in growth. Going forward, private investments are likely to be negatively affected by the slow and disappointing pace of reforms. Furthermore, a weak rupiah and subdued sentiment will likely continue to weigh on the recovery in private spending. Current external uncertainties, including the impact of the Chinese slowdown, sluggish commodity prices and the ongoing turmoil in the euro area suggest continued weakness in external demand in the near term. On the policy front, while there is a clear need to boost growth momentum, Indonesia’s central bank will likely stick to its tight monetary policy stance for some time to come due to volatile conditions and rising inflation.

Occupier Market

• The headline Indonesia Occupier Sentiment Index recorded a value of –15 in Q2.
• Occupier demand varied substantially between sectors. Sharp contraction was seen in the office segment, there was no change in the retail sector and demand increased slightly in the industrial segment.
• Available space for occupancy declined modestly in the retail sector, while increasing across office and industrial units.
• Near term rent expectations remain negative at the headline level, largely as a result of a weak office sector sentiment. By way of contrast, healthy growth is projected in the industrial and retail segments.
• Over the next twelve months, the prime and secondary office units are anticipated to be the weakest areas of the market.

Investment Market

• The Investment Sentiment Index was in broadly neutral territory at –1, which signals little change occurred over Q2.
• Investment enquiries declined slightly in the office sector, but rose in the industrial sector and in the retail segment. Demand from foreign buyers was broadly flat.
• Supply of retail units to the market tightened while availability of office and industrial properties for sale grew, although the office sector experienced the sharpest rise.
• Both over the three and twelve month time horizons, capital values are expected to edge up in the industrial and retail sectors while office property prices are anticipated to decline.

 

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HKTDC Research | 3 Aug 2015

Israeli Technology: Targetting the Emerging Markets

Facilitating Technology Transfer to Asia: The Hong Kong Bridge

Accounting for 57% of the world’s GDP[1] , developing countries are becoming the new investment and export destinations for many global corporations. In view of the rapid economic growth in developing Asia, many multinationals are progressively expanding into Asia’s emerging markets. With its technology-dominated export sector, Israel is looking beyond the developed markets and increasingly targeting emerging markets. In particular, it is focussing on the Chinese mainland and a number of countries in Southeast Asia, looking to provide technologies as well as high-tech products to cater to their needs.

As the premier business and financial hub in Asia – and as a technology marketplace – Hong Kong is the ideal partner and gateway for Israel’s technologies and high-tech exports when they come to enter the region’s emerging markets, particularly the Chinese mainland. Thanks to its strong intellectual property (IP) rights protection, Hong Kong is in a good position to facilitate technology transfer from Israel to the emerging markets in Asia, while providing full-fledged professional services, including legal and financial services, and assisting in the customisation and localisation of Israeli technologies. 

Israeli Technologies – Addressing Global Environmental Issues

In recent years, climate change and abnormal weather conditions have increased the demand for environmental technologies, including renewable energy and water management systems. With developed disaster-proof facilities found to be immature, developing countries are relatively vulnerable to adverse natural conditions. In this regard, Israeli cutting-edge R&D in environmental and clean-tech sectors is in a good position to meet the technological demand in the emerging markets. Israel is a global leader in environmental technologies for water conservation and greenhouse gas reduction, which are important for addressing global environmental issues, such as drought and water treatment.

 

Israel’s Cutting-edge Water Technologies With its scarcity of water resources, Israel has striven hard to develop water preservation and wastewater treatment technologies. Israel has the world’s highest water recycling rate (80%), and it is home to the world’s largest seawater reverse osmosis desalination plant[2]. In terms of agriculture, Israel is home to the world’s largest company for drip irrigation, a process which sees water and fertilizers delivered directly to the root system, rather than to the entire field surface, thereby saving water and fertilizers. Drip irrigation has been in use in Israel since the mid-1970s, and currently Israel exports more than 80% of its drip irrigation products.

Continued urbanisation of developing countries has driven up water and energy consumption by the household, commercial and industrial sectors. To an extent, such demand has been strengthened by the growing number of infrastructure projects in those developing countries that are supported by official development assistance (ODA). This has induced more government and private sector procurement needs for projects in energy, water, telecommunications and agriculture. In particular, ODA inflow in the East Asia and Pacific region registered double-digit growth in 2012-2013, surpassing that of other regions.

Complementing existing multinational institutions, such as the World Bank and Asian Development Bank, the establishment of the China-led Asian Infrastructure Investment Bank (AIIB), along with the "One Belt, One Road" initiative, is expected to accelerate infrastructure construction in developing Asian countries. In this regard, urbanisation in emerging markets presents great potential for the Israeli technology sector to help establish modern infrastructure in those expanding cities. Hong Kong has a large pool of world-class services providers in engineering, surveying and project management. These, along with the city’s legal professionals who can provide comprehensive legal advice on construction, financing and environmental issues, place Hong Kong in the ideal position to connect Israeli technology exporters with those Asian countries that need appropriate technological solutions for infrastructure development.

Targeting the Consumer Markets in Developing Countries

The opportunities arising from the fast-expanding consumer markets in developing countries are also being recognised by the Israeli business community. Despite the increased focus on the growing middle-class in the emerging markets over the past decade, Israel has yet to make significant inroads into these consumer markets. Since the 2008 financial crisis that weakened the economic performance in the West, Israeli exporters have started to develop emerging markets in Asia. In 2014, Israeli exports to Asia totalled US$10 billion, accounting for 21% of the country’s total exports. The EU market accounts for a 32% share, and the US for 22%. China was Israel’s largest export destination in Asia, accounting for about a quarter of Israeli exports to the region. Currently, the bulk of exports to Asia are dominated by industrial inputs - in particular, electronic components shipped to Intel’s assembly plants across Asia. 

According to a number of Israeli technology industry players interviewed during a recent HKTDC field trip to Israel, many local SMEs and exporters are not familiar with the distribution networks in Asia and are unable to engage in the mass-production of technological products that is necessary in order to be price-competitive in Asia’s emerging markets. As a result, they are neither targeting nor developing products for the consumers in this region. In this regard, Hong Kong intermediaries could play a useful role in linking Israeli technology entrepreneurs with those multinationals that have a presence in developing Asia, or to help them partner with local firms in the development of products targeting the emerging markets.

Healthcare Market Gaining Heed

Growing concerns over health and fitness, an aging population and an expanding middle-class in the emerging markets are all driving the demand for more advanced medical devices, pharmaceuticals and healthcare services. In 2014, consumer expenditure on health products and medical services in developing countries reached US$318.7 billion, up by 60% compared to 2009. In particular, the figure for Chinese consumers doubled during the same period. To seize opportunities in the fast growing healthcare markets, Israeli healthcare exporters have become more active in penetrating Asia. For example, Teva Pharmaceutical, the world’s largest generic medicines producer, has expanded to China, Japan and Korea over the past decade. Moreover, during that decade, the number of life science companies in Israel has grown fivefold to about 1,000, with about half of them engaged in exports. Many international healthcare and pharmaceutical companies, including GE Healthcare, Siemens and Phillips Healthcare, have established operations in Israel and are developing advanced medical equipment, medications and healthcare IT solutions.

According to industry experts in the Israeli healthcare and medical sector, several challenges are hindering the growth of Israel’s health goods exports to the emerging markets, notably China and India. Constantly changing regulations, for example, make it hard for Israeli products to comply with the latest standards and requirements. In addition, there is a lack of well-trained professionals and advanced facilities to perform R&D activities. In this regard, Hong Kong is the ideal platform for the marketing and distribution of Israeli healthcare products in Asia.

Notably, the 2015 edition of the Hong Kong International Medical Devices and Supplies Fair welcomed more than 250 exhibitors from 11 countries and regions, all showcasing a wide range of healthcare equipment and household medical products. With solid market knowledge and strong experience in developing the China market, Hong Kong companies make ideal partners for Israel when it comes to developing healthcare goods to meet local needs and in compliance with the relevant regulations. In addition, Hong Kong companies could find opportunities to collaborate with Israeli counterparts to conduct R&D and develop new healthcare products.

Strengthening R&D Collaboration with Emerging Markets

Israel has been active in fostering technological R&D collaboration with developing countries in recent years. The Israeli government has entered into bilateral Industrial R&D Support Agreements with a number of major emerging markets, such as India and the Chinese mainland. The first Israel-China bilateral R&D co-operation programme was launched in 2009 with Jiangsu Province. Since then, more than 200 applications have been submitted by joint companies from both countries, with total funding of more than US$20 million as of 2014. Israel has signed a Memorandum of Understanding (MoU) with the Chinese mainland and Hong Kong respectively, providing the framework for bilateral programmes to promote joint R&D and innovation activities. The MoU enhances Hong Kong’s role as a springboard for those Israeli companies aiming to expand in Asia (more details can be found in “Israel: Technology and R&D Collaboration Opportunities”).

Through collaborative research and product development with Israeli companies, Hong Kong could serve as the bridge for Israeli innovations to the technology markets in Asia. Israeli technology firms could leverage the strong production capacity and distribution network of Hong Kong manufacturers on the mainland to establish a foothold in China and the rest of Asia. Notably, Hong Kong is one of world’s top five exporters of technological products, including telecoms devices and equipment, electronic integrated circuits, and computer parts and accessories. With well-established global networks and close business ties with the Chinese mainland, Hong Kong companies may partner with Israeli high-tech firms to facilitate the production, sales and distribution of technological products, as well as any necessary customisation and repackaging to cater for local market preferences across Asia. In addition, Hong Kong could be a platform for technology transfer and commercialisation, and act as a springboard for Israeli R&D services providers, including engineers and scientific researchers, to market their technical know-how and expertise in the region.

Useful Contacts

 

The Israel Export & International Cooperation Institute (China Unit)	Tel: +972-3514 2866 Email: peggym@export.gov.il Website: www.export.gov.il/eng/Branches/Technologies/TargetMarkets/
The Israel Industry Center for R&D (China-Israel R&D Co-operation programmes)	Tel: + 972-3511 8166 Email: talia@matimop.org.il Website: www.matimop.org.il/china.html
Federation of Israeli Chambers of Commerce	Tel: +972-3563 1020 Email: chamber@chamber.org.il Website: www.chamber.org.il
The Office of the Chief Scientist (OCS), Ministry of Economy	Tel: +972-02-6662456 Email:  Aviram.Zolti@ocs.moital.gov.il Website:  economy.gov.il/RnD/pages/default.aspx
Hong Kong Trade Development Council (Tel Aviv Consultant)	Tel: +972-52633 3644 Email:  tel.aviv.consultant@hktdc.org Website: http://hkmb.hktdc.com/en/contact-hktdc/TEL-AVIV
Consulate General of Israel in Hong Kong and Macau (Economic and Trade Department)	Tel: +852-2821 7509 Email:  winkie.lui@israeltrade.gov.il Website: embassies.gov.il/hong-kong/Departments/Pages/economic-affairs.aspx

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[1]  According to IMF’s estimate for 2014, World Economic Outlook Database (April 2015)
[2]  A cost-efficient water purification facility built by Israel’s IDE Technologies , producing more than 200 million cubic metre annually and accounting for 20% of the household water consumption.

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HKTDC Research | 5 Aug 2015

“The Belt and Road” and Hong Kong’s Economic Transformation and Challenges

To Hong Kong, the Belt and Road initiative is in one way a cause for joy, but in another, a matter of concern. The reason for rejoicing is that business opportunities brought about by the initiative may allow Hong Kong a chance to embark on a whole new course of development. The reason for concern is that the epochal changes that may be triggered off by the initiative may further marginalise Hong Kong. Yet nothing is absolute in the affairs of the world; whether it is a cause for joy or a matter of concern is not predestined. From past records, I believe it is more likely joy than concern; but the key is to grasp and respond to situations flexibly.

Capitalise on strengths by leveraging geographic and sector advantages

The notion of marginalisation is not a new one: as early as the 1980s when the local manufacturing sector relocated northwards en masse, there were already worries about a “hollowing out of industries”. Later, as the mainland opened up, intermediary sectors such as trading and logistics had also been under the threat of “dis-intermediation”. It turned out that old and outdated industries were “hollowed out” in no time, while related but higher value added industries in business services such as design, finance and marketing emerged quickly. Of course, in the process of conversion there was much suffering, but being such a tiny place, if Hong Kong had not changed with time, the outcome would have been much worse.

At first glance, the Belt and Road initiative presents Hong Kong with two predicaments. The first is geography: along the Belt and the Road are many regions such as Central Asia, Western Asia and Central and Eastern Europe, with which Hong Kong does not have strong ties. The second is industry sectors: high-speed rails, resources development, mining and metallurgy do not play into the strengths of Hong Kong.

The key in turning these predicaments into opportunities lies with responding flexibly to situations, capitalising on strengths and avoiding weaknesses. In terms of geography, Hong Kong should focus on regions with which it has stronger economic and business ties, such as Southeast Asia, South Asia and the Middle East. Particular attention should be paid to countries such as India, Indonesia, Vietnam and hub cities like Dubai, which are either among Hong Kong’s top export destinations or ones with great potential. There is a need to tighten ties with relevant countries; to participate actively and enter into bilateral and multi-lateral economic, trade and taxation agreements; and to intensify our promotion efforts and encourage multi-level exchanges and training. For regions such as Central and Western Asia and Central and Eastern Europe, to better build a strong foundation for more extensive economic and trade exchanges we should concentrate on developing official and civilian exchange channels and facilitate tourism, trade and investment by improving convenience in visa granting, transportation, customs clearance, certification and tax matters.

In terms of industry sectors, we should provide support to the Belt and Road initiative by leveraging our advantages as a service centre along the Belt and Road routes that are most internationalised and most familiar with Chinese matters. We should zero in on four sectors in particular:

1. Finance: Including raising funds, financing, foreign exchange, insurance, treasury and risk management, and renminbi internationalisation.
2. Shipping and logistics: Including regional distribution, intermodal transportation and value chain management.
3. Business and trade promotion: Including conventions and exhibitions, business matching, quality inspection, design, property right transactions and brand management.
4. Cross-border investments: Including services such as helping the “going out” of Chinese enterprises through mergers and acquisitions, as well as legal, arbitration and regional headquarters related services.

Market-oriented and Global Approach

In addition to the above-mentioned regional and sector focuses, Hong Kong also has two roles in the development of the Belt and Road initiative that should not be ignored. The first is its grasp of international market rules, and the second is its connections to regions outside the Belt and the Road.

To a large extent, the success of the Belt and Road initiative depends on whether or not it can align organically to the long-term economic development needs of the countries along the Belt and Road routes and achieve mutual benefit. This requires giving maximum play to market functions and doing things according to economic needs and international practices. The Belt and Road initiative, however, involves a large number of infrastructure projects that require the planning and participation of public sectors. So how to integrate market planning with balancing the interests of public and private institutions would be the key to success. In Hong Kong, many infrastructure areas such as power, harbour, telecommunication, bridges, tunnels, railways and airports are invested or operated either by private companies, or through public-private partnership or statutory corporations. Many local examples of such infrastructure are run very efficiently and have attained a high level of international standards. They can serve as important references, and help with the development of Belt and Road infrastructure projects.

Another key factor to the success of the Belt and Road initiative is that it should eventually reach beyond the Belt and Road and evolve into a global development strategy that drives the new world economic order. This requires a super connector that can convey the message of the Belt and Road to places outside its realm, particularly to the main industrial centres of North America, Europe and Japan. With its extensive economic and trade connections in developed markets, Hong Kong fits squarely into this indispensable role and can contribute towards extending the Belt and Road concept to the whole world. This way, Hong Kong not only can leverage the strengths of the Belt and Road initiative to consolidate the advantages of its own pillar industries, expand into markets along the Belt and Road routes and accelerate its transformation and upgrading. It can also play a more important role in the new world economic order.

 

This article originally appeared in Hong Kong Economic Times (4 August, 2015)

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HKTDC Research | 6 Aug 2015

Post-Soviet States Jostle For Role in One Belt One Road Initiative

Following an initially cool reception, many former USSR republics have been lured by the sheer size of China's investment in the OBOR project, with a number of them now keen to capitalise on the wider initiative in line with their own domestic interests, according to Alexander Gabuev, Chair of the Russia in Asia-Pacific Program at the Carnegie Moscow Center.

When Xi Jinping, the Chinese President, made his now famous speech in Astana [the capital of Kazakhstan] in September 2013, announcing the launch of the Silk Road Economic Belt, few post-Soviet leaders took notice. The language of the speech was too vague and the content of Xi's proposals too imprecise to create any meaningful response. As the project matured, however, more attention was paid in all 15 capitals of the former USSR republics.

Questions were raised, though, both about China's internal motivation and about the future routes. Chinese officials' general responses to direct requests and the frequently changing maps of the future routes (published by Xinhua, China's state-owned news agency) didn't offer much in the way of transparency with regard to the initiative.

At the March 2015 Boao Forum, the Chinese National Development and Reform Commission finally presented a blueprint of the One Belt One Road (OBOR) initiative, together with a declaration of its guiding principles. This, coupled with the establishment of the US$40 billion Silk Road Fund, saw the initiative taken much more seriously by officials and business communities across the post-Soviet space.

The reaction of each individual state, though, was largely determined by three factors – the size and structure of their economy, their membership of supranational communities, such as the EU or the EEU (Eurasian Economic Union – Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia), and the level of expertise inside their respective governments and business communities.

The EEU Link

When it was first mooted, Russia's reaction to the OBOR was mixed. Following the initial 2013 announcement, the Kremlin was reluctant to engage in any meaningful negotiation as to how Xi's initiative would coexist with the EEU, the pet project of Vladimir Putin, Russia's President. A number of people in Moscow, concerned over Russia's fading status as a regional superpower in Central Asia, regarded OBOR as an intrusion into Russia's sphere of influence. They, therefore, argued that the Kremlin should pressure the Central Asian states into not participating in the Chinese project. This kind of reaction was one of the major concerns among Beijing's Russia-watching community.

Chinese officials were clearly relieved when Igor Shuvalov, Russia's First Deputy Prime Minister, announced at the Boao Forum that the EEU was ready to cooperate with the OBOR project. He then personally undertook to negotiate a framework document with Chinese leaders on Putin's behalf.

On 8th May this year, during an official visit to Moscow, Xi and Putin signed a joint statement formally linking OBOR with EEU. The document pledged to create a "joint economic space" in Eurasia. China has officially recognised the EEU and has indicated its willingness to deal with this body rather than talk directly to individual member-states. Similarly, the Eurasian Economic Commission, the supranational body of the EEU, has now been mandated to start negotiations on a trade and investment agreement with China. The question of a free trade agreement with China – a sensitive problem for both Russia and Central Asian states given their high levels of protectionism – was declared a distant goal and effectively postponed to a later date.

For the Russian leadership, the agreement came as the result of painful internal discussions. In the end, the Kremlin concluded that the benefits of coordinating the EEU alongside the Chinese initiative outweighed the risks. It is now understood that it is inevitable that China will become the major investor in Central Asia and the major market for the region's vast natural resources.

The only way Russia can maintain its influence, then, is to recalibrate its role in the region to accommodate its own ambitions and Beijing's quest for raw materials, as well as the region's appetite for Chinese money. What the Kremlin is hoping for is a division of labour between Moscow and Beijing in Central Asia. In this grand scheme, China will be the major driver for economic development, while Moscow will remain the dominant hard security provider in the region through its Collective Security Treaty Organization.

The biggest problem now is the actual linking process. Moscow still sees it as a bureaucratic project and has created a team of officials, led by the Ministry of Foreign Affairs (MFA), to write the rules. The reality, though, will be more complicated as China has no masterplan for prioritising land-based routes to Europe and possibly wants to build them all simultaneously – partly in order to secure more projects for its stagnating domestic infrastructure industry. What the terms of the Chinese financial loans will be and how much Russian companies will be involved remains to be seen.

The first project, which both have sought to position as a consequence of linking the EEU and OBOR, is the construction of a high-speed rail between Moscow and Kazan. The Russian Railways initiated the project back in 2012, hoping for government money and a German contractor. In the wake of the Ukrainian crisis, the Railways changed tact and agreed a loan-for-contract scheme with the Chinese.

Another issue for Russia is its concerns that that land-routes through Central Asia and the European part of Russia will undermine the chances of the Trans-Siberian Railway becoming the major land link between the markets of Europe and Asia. As a result, Moscow will be pushing Beijing to include the Trans-Siberian Railway and the northern Baikal-Amur Railway as part of the OBOR project. At the same time it will looking for pledges to improve the infrastructure and regulatory issues regarding the ports of the Russian Far East. Vladivostok, for instance, was declared a free port this year by President Putin. Moscow hopes that Chinese investment, coupled with efforts to facilitate the required transit procedures, will strengthen Russia's position as a bridge between the East and West.

Belarus is also hoping to secure its own role in the project by emphasising (together with Russia) the strengths of the Customs Union, under which a cargo coming from China will need to cross just two customs borders (China/Kazakhstan and then Belarus/Poland) to get into the EU. Previously, Ukraine had some hopes of participating in OBOR, with former President Victor Yanukovich seeking to include Crimean ports in the scheme. Following Russia's annexation of the peninsula and the military conflict in the east of the country, however, Ukraine is now unlikely to be included.

The Stans and the Baltic States

Overall, the Central Asian states – the five "Stans" – may be most affected by the OBOR initiative. Kazakhstan will play an important role as three of the planned Silk Road routes are passing through the country. The Northern Route will be going through northern Kazakhstan, crossing into Russia, then proceeding to the EU either via Belarus or through the Baltic ports.

The Central Route, meanwhile, is intended to cross the Caspian Sea through the ports of Aktau and Baku and then continue to Turkey through Azerbaijan and Georgia. The Southern Route will go through Turkmenistan and then on to Iran. Astana was quick to realize the potential of OBOR and presented its own national infrastructure development plans ("Nur Zhol") as a part of the initiative that needs to be financed. Kazakh officials and entrepreneurs, however, do have a number of private concerns, particularly that China's dominance in all contracts will leave no place for local companies, as well as Russia's likely anxiety about its status and the role of the EEU.

Many of the other Stans have less to offer the OBOR and are, consequently, unable to lobby Beijing for participation in their domestic projects. There are two countries, in particular, which are unlikely to benefit from the OBOR initiative – Tajikistan, due to its worsening security situation, and Uzbekistan, due to the growing isolationism favored by its President, Islam Karimov. Among the Baltic States, OBOR has been most welcome in Latvia – a country that is the principal transit destination in the region, largely thanks to its combination of developed seaports and well-managed railways.

Above and beyond that, a number of problems exist outside of Russia' sphere of influence. A number of big players inside the EU, including both Germany and the Brussels-based European Parliament, haven't decided on their policy and regulatory standing with regard to OBOR-sponsored projects within the EU. The other concern is the EU's worsening relationship with Russia, which may lead to Moscow lobbying for the Baltic States to be bypassed by the OBOR initiative.

Alexander Gabuev is Senior Associate and Chair of the Russia in
Asia-Pacific Program at the Carnegie Moscow Center

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HKTDC Research | 6 Aug 2015

Sri Lanka: A Key Node on the 21st Century Maritime Silk Road

According to Vision and Actions on Jointly Building the Silk Road Economic Belt and the 21st Century Maritime Silk Road, a key strategy document produced by the Chinese government, the “maritime silk road” will consist of two routes, one of which will run from China's coastal ports to Europe via the South China Sea and Indian Ocean. As the key Eurasian shipping route, the Indian Ocean plays a major role in facilitating China’s overseas trade and the transportation of fuel and raw materials. Sri Lanka, an island country in the Indian Ocean, is seen as one of the vital nodes along the maritime Silk Road. In line with this, the Chinese province of Guangdong will ally with Sri Lanka to build the proposed sea-rail multi-modal transportation corridor as part of its participation in the “One Belt, One Road” initiative and the plan of developing the Guangdong-Hong Kong-Macau Big Bay Area into an international logistics hub as part of the Silk Road Economic Belt.

Sri Lanka’s Logistics Strengths

Situated in the Indian Ocean, along some of the world’s busiest shipping routes and close to India, Sri Lanka has a distinct locational advantage, which should see it develop into a key shipping centre and logistics hub in South Asia (See Sri Lanka: An Emerging Logistics Hub in South Asia). Despite being a small economy, with a total trade amounting to about US$31 billion in 2014 (only 4% of India’s US$778 billion), Sri Lanka is an important transhipment hub in the region. It is a site where many shipping companies consolidate and deconsolidate cargo for transhipping to other destinations. In 2014, the Port of Colombo reported a growth of 12.3% in container traffic to 4.88 million TEUs, of which transhipment cargo accounted for 75% of total container throughput.

World Shipping Council statistics show that the Port of Colombo – Sri Lanka’s major container port on the west coast – was the busiest port in South Asia in 2013, handling 4.31 million TEUs. This puts it ahead of India’s largest container port, Jawaharlal Nehru (4.12 million TEUs in 2013).

Port of Colombo

Amid the growing demand for international logistics services, Sri Lanka has launched the Colombo Port Expansion Project (CPEP). Prior to the project, there were three terminals in the Port of Colombo: Jaya Container Terminal, Unity Container Terminal and South Asia Gateway Terminal, with seven main container berths and four feeder berths.

Following the completion of the CPEP, three more terminals will be available. The first of these, the South Container Terminal (developed by Colombo International Container Terminals Limited, a joint venture (JV) between China Merchants Holdings (International) Co Ltd and SLPA) has already commenced operations. This is the first terminal in South Asia that can accommodate a mega-sized vessel. The SLPA-owned East Container Terminal (ECT) will come into operation in late 2015, while the West Container Terminal is still at the planning stage. It is expected that the container handling capacity of Port of Colombo could be increased from slightly more than 4 million TEUs to 12 million TEUs per year, making it one of the world’s largest container ports.

Hambantota Port

In order to further expand the country’s logistics sector, the Sri Lankan government is developing a new port and economic zone in Hambantota, a southern coastal district. Significantly, the designated contractor for the whole project is a JV between China Harbour Engineering Co and Sinohydro Corporation Ltd.

Phase one of the projects has already been completed, delivering a port capable of berthing four vessels and a bunkering terminal that started operation in 2014. The current plan will see the second phase of the port’s development add a container terminal with seven berths, while a dockyard will be added in third phase. It is expected that the construction of phase two will be completed by the end of 2015. While a vast proportion of the project is still under construction, the Hambantota port has already made good progress, handling a total of 388 ships in 2014 - more than double its 2013 throughput.

Although Sri Lanka does not manufacture automobiles, Hambantota is now becoming a transshipment hub for finished vehicles. Given its desirable location, augmented by its deep-water port, carmakers from Japan, Korea and India are increasingly using Hambantota as a nexus for transshipping vehicles built in India, Thailand, Japan and China to markets in Africa, the Middle East, Europe and the Americas. According to SLPA, the port handled 254 Ro-Ro vessels (i.e. ships carrying vehicles) in 2014, an 85% increase on the previous year. The total number of motor vehicles handled approached 190,000 in 2014, compared to about 65,000 in 2013. Aside from vehicles, the Hambantota port is also set to become a transshipment hub for a range of other merchandise, similar to the Port of Colombo. In particular, it is looking to service goods manufactured in OEM plants in other Asian production bases.

Foreign Participation

Despite heavy public and private investment in infrastructure – long considered an essential ”tangible factor” for a logistics hub - Sri Lanka is encountering challenges in terms of “intangible factors”, including access to a sufficient number of qualified professionals and international participants in the field. Not surprisingly, the country’s logistics and transport industry still lags behind a number of the region’s other leading hubs, including Hong Kong, Singapore and Dubai.

Sri Lanka was ranked 89th out of 160 countries in the World Bank’s 2014 Logistics Performance Indicator (LPI). Notably, Sri Lanka scored 2.91 on competence and quality of logistics services, compared to India’s 3.03, UAE’s 3.5, Hong Kong’s 3.81 and Singapore’s 3.97. This indicates a need for Sri Lanka to improve the quality of its logistics services, as well as a requirement for greater investment in “hardware” - ports, roads and railways.

The participation of foreign logistics service suppliers, many of whom could bring in the level of services that meet international standards, is important for the future development of Sri Lanka’s logistics industry. Currently, the permitted foreign shareholding of a shipping agency in Sri Lanka can be up to 40%, while requests for a larger share has to be approved by the Board of Investment (BOI) on a case-by-case basis.

Apart from its locational benefits, Sri Lanka has other advantages likely to appeal to foreign logistics companies. Unlike a number of other developing nations, Sri Lanka seldom experiences port congestion or large-scale industrial unrest. In addition, the relevant costs involved in undertaking international trade in Sri Lanka are cheaper than when carrying out comparable activities among its regional peers. According to the World Bank’s Doing Business Report 2015, the per-container cost for exporting and importing to and from Sri Lanka are, respectively, US$560 and US$690 – much lower than the South Asian average (US$1,923 and US$2,118) and in Mumbai (US$1,120 and US$1,250).

During a HKTDC Research field trip to a Hong Kong-based shipping and logistics services provider operating in Sri Lanka in early 2015, it was pointed out that an increasing number of liner and barge transport companies are moving to the country. This is gradually helping Sri Lanka achieve the economies of scale required to succeed in the logistics industry. APL Logistics, one of the world’s largest logistics companies, for example, has announced it will set up a regional consolidation hub for South Asia in Sri Lanka this year. Its company statement said that the logistics service provider will operate container freight stations, warehouses and other logistics-related businesses in the country. In a similar vein, Hong Kong logistics services suppliers who are considering expanding their business further afield can work with their Sri Lankan counterparts to access the opportunities in South Asia.

Useful Contacts

 

Sri Lanka Ports Authority (SLPA)	Tel: (+94 11) 2421201 Fax: (+94 11) 2440651 Email: webmaster@slpa.lk Website: www.slpa.lk
The Chartered Institute of Logistics and Transport	Tel: (+94 11) 5657357 Fax: (+94 11) 2698494 Email: admin@ciltsl.com Website: www.ciltsl.com
Sri Lanka Logistics & Freight Forwarders’ Association	Tel: (+94 11) 4943031 Fax: (+94 11) 2507577 Email: secretary.general@slffa.com Website: www.slffa.com
Ceylon Association of Ships’ Agents (CASA)	Tel: (+94 11) 2696227 Fax: (+94 11) 2698648 Email: info@casa.lk Website: www.casa.lk
Shipper's Academy Colombo	Tel: (+94 11) 3560844 Fax: (+94 11) 2874065 Email: enquiries@shippersacademy.lk Website: www.shippersacademy.lk
Sri Lanka Shippers’ Council	Tel: (+94 11) 2392840 Fax: (+94 11) 2449352 Email: slsc@chamber.lk Website: www.shipperscouncil.lk

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13 Aug 2015

The Silk Road Economic Belt and the 21st Century Maritime Silk Road

By Fung Business Intelligence Centre

While the Belt provides ample opportunities for sourcing resources and commodities from the West and Central Asia, the emerging South and Southeast Asian countries along the Road are potentially vast consumer markets. It was estimated that countries along the Belt and Road would create an “economic cooperation area” that jointly account for 64.2%, 37.3% and 31.4% of the world’s population, GDP and household consumption respectively. The report also pointed out that in implementing the “One Belt One Road” initiative, business opportunities would be seen in sectors such as infrastructure construction, finance, trade and logistics, distribution and retail.  

Please visit the Fung Business Intelligence Centre website for the full report.

 

 

 

 

HKTDC Research | 20 Aug 2015

Turkey's Business Leaders and Academics Welcome Belt and Road Plan

Despite concerns over the continuing trade imbalance between Turkey and China, the Turkish business community has given a cautious welcome to the Chinese blueprint for streamlining 21st century trade and boosting market access.

Turkey is one of the key stopping-off points along the Belt, and Road Initiative, China's ambitious plan to upgrade the world's trading routes and streamline access to many of the key global markets. The foundations for Turkey's involvement in the scheme were laid as long ago as 2010, with the signing of The Framework Agreement on Further Expanding and Deepening Bilateral Trade and Economic Co-operation Between Turkey and China.

This agreement was designed to facilitate the development of high value building and infrastructure projects for public utilities, telecommunications companies, railways, energy companies, airports, ports and Turkey's highways network. It was also geared to boosting Sino-Turkish trade, then worth around US$28 billion a year, to 50 billion by 2015 and 100 billion by 2020.

With the Belt and Road Initiative seen as the logical progression of this earlier undertaking, a number of Turkish businessmen and academics have cautiously welcomed China's plans. There are, however, several reservations and concerns on the part of the Turkish contingent.

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HKTDC Research | 27 Aug 2015

Infrastructure Projects Mount as Africa Readies for Belt and Road

East Africa clearly plays a key role in China's Belt and Road Initiative, with its clear endgame of accessing new markets and additional natural resources, but many nations across the continent are now asking what exactly is in it for them…

In 1896, the British colonial government began construction of a narrow-gauge railway line from the Kenyan port city of Mombasa to Nairobi. Back then, it took three decades to extend the line to Uganda. The initiative, however, did establish a transport corridor, allowing the landlocked British protectorate's natural resources to be shipped out for the good of the Empire.

Today, the railway builders are back. This time, though, it is China's economic integration strategy in East Africa that is behind the construction of a new rapid rail link between Mombasa and Nairobi. The new line, due to reach the Kenyan capital by 2018, will eventually extend to Uganda, Rwanda, Burundi and South Sudan. This is where China's Maritime Silk Road ends and where its trade connectivity with the East African region begins.

The Maritime Silk Road, part of the mainland government's Belt and Road Initiative, will change the way China engages with its trading partners in East Africa – particularly Kenya and Tanzania and, to a lesser extent, Uganda and the Horn. Africa, in general, is a growing consumer market for Chinese products and, at the same time, a prime source of essential mineral commodities.

Developing closer trade ties with Africa, via the Belt and Road, underpinned by investment in new regional infrastructure, is clearly a priority for China. It forms a key part of its broader international drive to restore momentum to its slowing economic cycle, primarily by deriving greater efficiency from its trade links.

Tellingly, a number of China's current infrastructure projects are focussed on East Africa. There are also clear indications that China is prioritising infrastructure investments in the region. In terms of enlightened self-interest, this will provide it with more efficient trade connectivity in the region and allow it to take advantage of Africa's improving economic conditions.

In addition to the East Africa Railway, China is also financing a number of essential port developments, including a US$10 billion deepwater harbour in Bagamoyo on the eastern coast of Tanzania. With many African ports already approaching capacity, China sees port upgrades across the continent as a critical part of its strategy of cementing further trade agreements and opening up trade lanes.

Although the funding sources for specific projects are not always clear, China is financing many of these facilities through a small number of institutions – the Asian Infrastructure Investment Bank, the Silk Road Fund and, specific to Africa, the Forum on China-Africa Co-operation (FOCAC) and the China-Africa Development Fund (CAD Fund). At times, projects are funded from a combination of sources and it's unclear as to the extent to which any such agreements are bilateral or continental in nature.

A number of analysts and scholars believe, however, that there is a direct connection between China's maritime trade strategy and its military plans for the region. It has been widely reported, for example, that China is considering setting up a naval base in Djibouti – already home to the only US naval base in Africa. It is also believed to have plans for Walvis Bay in Namibia.

Assessing the likelihood of this covert agenda, Yu-Shan Wu, a researcher with the South African Institute of International Affairs, said: "Understandably, as Chinese economic engagement expands in Africa, it will inevitably intersect with security issues. The question is whether China's presence could create areas for co-operation on peace and security issues in Africa, or whether it will be perceived as competition. At present, it is too soon to tell."

As its economy slows, China may also be looking to Africa as a cheaper manufacturing base for its more labour-intensive industries. In 2012, the Chinese-owned Huajian Shoes opened a factory in Ethiopia, a country keen to boost its level of industrialisation and attract foreign investment in manufacturing. The project is now often cited as a case study of China's interest in offshoring elements of its production to Africa. Over recent years, there has been a notable increase in the number of funding sources for Chinese businesses looking to expand abroad. In Huajian's case, it was the CAD Fund that backed its Ethiopian venture.

The successful implementation of Chinese offshore manufacturing projects would very much depend on the development path adopted by the African countries concerned. It would be influenced, for example, by whether individual nations were looking to move away from a resource-intensive growth model to more of a manufacturing-based economy. Certain African countries, it could be argued, need the necessary environment and investment that China is willing to provide in order to facilitate such industrialisation. The long-term impact of all these projects, however, will need to be assessed by all of the participants.

It is clear that East Africa is a key part of China's ambitious integration strategy and its bid to engage its Belt and Road trading partners. What is less clear, however, is the particular emphasis that China will place on Africa in the long term or the degree to which its economic drive in Kenya and the region will be of benefit to the wider continent.

Seeing it as a two-way process, Yu-Shan Wu said: "Regional integration is a priority for Africa, and China seems to be addressing those concerns. It is up to individual African countries, however, to determine just what they want from China's engagement. There could, for example, be potential for collaboration between Africa's own regional initiatives – such as the North-South Corridor, an integrated continental transport programme – and the Belt and Road Initiative."

It could, indeed, be argued that while China knows what it wants from Africa, Africa doesn't know what it wants from China. Addressing a conference in Cape Town earlier this year, Nkosazana Dlamini-Zuma, Chair of the African Union, however, left delegates in no doubt as to her stance on the benefits of China's greater economic integration with Africa, saying: "China is putting its relationships with Africa at a different level."

Speaking at the same event, Dlamini-Zuma, a pan-Africanist with a hugely ambitious vision of an economically integrated, connected continent, clearly welcomed China's greater participation. She said: "African states are benefiting from their partnership with Chinese companies in a number of areas, including transport infrastructure integration, energy, broadband technology, and healthcare and disease control."

This kind of ambitious Sino-African co-operation has also been reflected in an agreement between the African Union and China, signed earlier this year. This aims to connect Africa's capital cities through a vast network of road, rail and air transport routes – all of which are to be built by China. The deal has been hailed as the "most substantive project the African Union has ever signed with a partner".

Professor Lin Jiang, Chair of the Department of Public Finance and Taxation at Hong Kong's Lingnan University, believes that both parties can benefit from China's activities in Africa. He said: "The African component of the Belt and Road Initiative offers a new type of opportunity. This is not just open to Chinese private enterprises, but also those African countries that are able to collaborate when it comes to infrastructure development and manufacturing."

China's greater economic integration with Africa, though, is not without its challenges. Many of the countries in the region are among the poorest in the world, raising the question as to whether China will ever be able to make a return on its investment.

Nonetheless, if China's policy solely succeeds in developing infrastructure in the region, it will still make a clear impact. A number of these initiatives – notably the East Africa Railway, which will see high-speed freight trains replacing a 120-year-old colonial railway line and massively reducing the cost of regional transport logistics – will undoubtedly help to support economic growth and trade. For China, and Africa, it could well be a strategic win-win outcome.

Mark Ronan, Special Correspondent, Cape Town

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