Sitting at the crossroads of Europe, Asia, Middle East and Africa, Turkey has long been regarded as a highly important strategic hub for global trade, logistics and manufacturing. That status has been enhanced by its customs union with the EU and extensive array of free trade agreements (FTAs) with nearly 30 countries, which have given it free or preferential access to a pool of some 900 million consumers.

Coupled with the linking together of the country’s Middle Corridor Initiative (MCI) and China’s Belt and Road Initiative (BRI), and a clutch of generous investment incentives, Turkey has become increasingly attractive to Hong Kong companies eager to trade and invest there. This is particularly true for those which are looking for business and relocation opportunities as a hedge against the problems caused by the lingering Sino-US trade spat.

China’s recent import tariff cuts – part of its shift towards a consumption-driven economy – are also creating Turkish-related opportunities for Hong Kong firms. As Turkish traders look to take advantage of the import control relaxations and enter further into the Chinese mainland market, Hong Kong’s service providers will expect to use their extensive knowledge and experience of the market to play a pivotal role in helping them do so.

Regional Connection

The link-up between Turkey’s MCI and China’s BRI is already bearing fruit. An early example of this is the Trans-Caspian International Transport Route (TITR), which forms the shortest land route between China and Europe, via South-east Asia, Central Asia and the Caspian Sea.

At its heart is the Baku-Tbilisi-Kars (BTK) railway route, which opened in October 2017. It starts at the Caspian Sea in Azerbaijan and runs through Georgia and eastern Turkey before merging with the Turkish and European railway systems.

The TITR is not just a shorter land route for Asian products to reach European, African and Middle Eastern consumers, but also a safer and cheaper one. The corridor is 1,500km shorter than the China-Mongolia-Russia Economic Corridor and is less exposed to extreme winter weather conditions. Cargo trains from North-West China now take as little as 8 to 14 days to reach the Black Sea coast and Turkey, whereas sea voyages between the destinations can take up to 60 days.

Turkey has also been upgrading and developing new maritime logistic infrastructure, most notably in İzmir. Dubbed the Pearl of the Aegean, Izmir is the nation’s third most populated city and home to the North Aegean Çandarlı Port, which when completed will rank as one of the top ten seaports in the world. With an additional annual capacity of up to 12 million 20ft shipping containers or TEUs, the port is expected to increase Turkey’s cargo handling capacity by 70%.

Izmir in western Turkey is a port city on the Aegean Sea.

Infrastructure Boom

In line with its ambitious vision to develop Turkey into a US$2 trillion economy by 2023, the Turkish government has been overseeing a spending spree on the country’s infrastructure. The aim is to lay a sound foundation for more dynamic economic development. Among the long list of projects is Istanbul’s new airport, which will replace the 93-year-old Ataturk Airport when it opens on 31 December 2018. It is projected to become the busiest air hub in the world with a planned yearly capacity of 200 million passengers – nearly double that of the current world leader, Hartsfield-Jackson Atlanta International Airport.

The Turkish government also aims to complete 11,700 km of high-speed railway lines linking 41 domestic cities by 2023, which would put Turkey behind only China in terms of the amount of railway construction. Other key projects among the 3,500 reportedly under development or in the planning stage include the Kanal Istanbul (an alternative waterway to the Bosphorus River, linking the Black Sea with the Marmara Sea), the Yavuz Sultan Selim Bridge (the world’s longest, highest and widest suspension bridge with a two-lane railway and eight-lane highway on the same deck), the Eurasia Tunnel, the Istanbul Finance Centre, and the Gebze-Izmir Motorway Project linking Istanbul with Izmir. All this is taking place alongside more than US$200 billion worth of building work and urban renewal across many Turkish cities.

To help finance this, the Turkish government hopes to secure US$350 billion foreign investment on a Public-Private Partnership (PPP) basis. So far, the country has completed a total of 225 PPP projects worth some US$135 billion. These include the İstanbul New Airport, built by the Limak-Kolin-Cengiz-MaPa-Kalyon Consortium, the Yavuz Sultan Selim Bridge and Northern Marmara Highway by the IC İÇTAŞ – Astaldi Consortium ICA and the Eurasia Tunnel by the Turkish-Korean joint venture registered as Eurasian Tunnel Operation Construction and Investment, or ATAŞ.

Manufacturing Powerhouse

Turkey’s growing economy and its rapidly improving transport connections have made the country attractive to international manufacturers looking to relocate. In order to ride this wave, the Turkish government has been trying to entice foreign export-oriented companies to move their production to the nation’s 19 Free Zones, 322 Organised Industrial Zones and 56 Technology Development Zones (TDZs).

The Aegean Free Zone (ESBAŞ) in İzmir, with its advantageous location and tax, legal and customs incentives, is becoming increasingly popular as a destination for international manufacturers looking to do business in Turkey and the surrounding region. ESBAŞ is home to nearly 180 investors and tenants, mainly in industries such as food processing and packaging, automotive, machinery, IT, medical devices, textiles, electronics and electrical, aviation, avionics and aerospace. These include world-class manufacturers such as US-based Delphi Diesel, which makes injector nozzles, valves and pump parts for diesel motors, France’s FTB Lisi Aerospace, luxury German fashion house Hugo Boss, Eldor Electronics from Italy, Ukrainian manufacturer DEZEGA, which specialises in respiratory protective equipment, and Lasinoch, a subsidiary of Japan’s Pigeon Corporation which produces breast milk feeding pumps, feeding bottles and pacifiers.

ESBAŞ, operating since 1990, was the first modern production and export-based manufacturing zone in Turkey.

ESBAŞ, with its concentration of high-value manufacturing operations, is considered one of the most successful free zones in Europe.

Sino-Turkish Co-operation

As a key part of the ancient Silk Road, Turkey is naturally an important partner in today’s Silk Road Economic Belt and Maritime Silk Road, or the BRI. Even before the development of the BRI, there had been a growing collaboration between Turkey and China. In 2010, China was a strategic partner in the financing and construction of Turkey’s national high-speed railway between the cities of Edirne and Kars, providing loans of US$28 billion, while the China Railway Construction Corporation and China National Machinery Import and Export Corporation are members of a Turkish-Chinese consortium (along with Turkey’s Cengiz Construction and Ibrahim Cecen Ictas Construction) which was behind the construction of the İstanbul-Ankara high-speed Railway.

The İstanbul-Ankara High-speed Railway

Source: Türkiye Cumhuriyeti Devlet Demiryolları (TCDD)

In 2015, the Chinese joint venture Euro-Asia Oceangate, controlled by Cosco Pacific, China Merchants Holdings (International) (CMHI) and CIC Capital, acquired the majority share of Kumport, the third-largest container terminal in Turkey. The port is close to İstanbul, Turkey’s biggest city and its key trading hub which accounts for over half of the nation’s total trade and serves as a transhipment hub for goods being transported via the Black and Mediterranean Seas. This investment also creates a natural synergy with the Chinese shipper’s investment and expansion plans in Piraeus – Greece's largest port.

This growing Sino-Turkish collaboration should ensure better co-ordination among the connecting nodes of the TITR and the Maritime Silk Road, while further strengthening the position of Turkey and its surrounding region as Asia’s maritime gateway to Central and Eastern Europe (CEE).

Investment Incentives

On the way to the 100th Anniversary of the Republic[1], Turkey is expected to continue its plans to develop and upgrade its infrastructure and – to make good use of the improved logistics and strengthen its role as a regional manufacturing powerhouse – expand its network of industrial parks in an attempt to grow local production capacity alongside rising domestic and external demand. This is good news for Hong Kong manufacturers who are considering relocation amid the fallout from the Sino-US trade dispute.

Turkey’s keenness to attract foreign investment means that it now boasts one of the most competitive investment incentive packages of any emerging economy. This includes a Project-Based Incentive Scheme, under which  projects involving at least US$100 million worth of investment that ensure sufficient supply levels of strategic goods and services, and boost technological capacity, research and development (R&D) efforts, competitiveness and added value in production, qualify for a pool of support measures that the investor can use to create whatever incentive package to make the investment most feasible and profitable.

A host of different schemes offering various support measures are available to suit investment size, region, sector and product. Measures include value-added tax (VAT) exemption, customs duty exemption, tax deductions, social security premium support for the employer’s share, interest rate support, land allocation and VAT refunds. For investments in the least developed regions of Turkey, income tax withholding support and social security premium support for the employee’s share are also available.

Hong Kong businesses looking to take advantages of these opportunities should also be helped by the presence in Turkey of major Chinese banks such as Industrial and Commercial Bank of China (ICBC), which has been operating there since May 2015, and Bank of China (BOC), which received its banking licence on 1 December 2017.

Turkey Trade

Hong Kong’s trade with Turkey is rising rapidly. In the first nine months of 2018, Hong Kong’s sales to Turkey grew by 15% year-on-year to US$775 million, which compares favourably with the 9% growth in Hong Kong’s total exports over the same period. Electronics and electrical goods such as telecommunication equipment and parts, computers, electrical apparatus for electrical circuits and semi-conductors, electronic valves and tubes, watches and clocks, toys, games and sporting goods, jewellery and pearls, precious and semi-precious stones are selling well in Turkey.

When it comes to Turkey’s exports, the country is becoming a leading global supplier in the field of agribusiness and is now the world’s seventh-largest agricultural producer. In 2017, Turkey sold more than 75% of the world’s total market of hazelnuts and exported nuts, figs and olive oil to as many as 140 countries. Other popular food and beverage products include high-quality tea, wine, honey, dairy products and seafood.

Turkey is also the world’s fourth largest home textile supplier, famous for its towels, furnishing and curtain fabrics bed linens, and Europe’s leading TV and white good producer, selling, for example, refrigerators to some 160 countries.

Online Potential

Online sales in Turkey make up a relatively low share of total retail sales at just 3.5%. This means that the potential in the online market is there to be tapped by global e-commerce players. Alibaba has already made a move, recently announcing its acquisition of Trendyol (Turkey’s largest online fashion retailer, with 90 million monthly visits and 16 million registered users) from the European Bank for Reconstruction and Development (EBRD) and several US investment funds. It hopes to expand and optimise its reach among the country’s growing pool of young, high-income, tech-savvy consumers.

There are also plenty of potential opportunities in Turkey for the provision of the sort of professional services and innovative business models at which Hong Kong excels. Given Turkey’s ambitious list of massive infrastructure projects, high demand is expected not only for project funding and financing, but other professional services such as project evaluation and consultancy, engineering, architecture, logistics, information and communication technology (ICT) and marketing.

However, these opportunities are not limited to those available in Turkey. Turkish businesses are especially keen to make inroads into the Chinese mainland market amid China’s recent import tariff cuts, as evidenced by their presence at the inaugural China International Import Expo (CIIE). This was the world's first import-only-themed national-level expo, which kicked off on 5 November 2018 at the National Exhibition and Convention Centre in Shanghai, bringing together more than 3,600 exhibitors and over 400,000 buyers.

Turkey's Showcases at CIIE

Displays of Turkish exports spanning agricultural and food and beverage products to machinery and services received a very warm welcome from Chinese buyers at the expo. However, while Turkish exporters and service providers seemed convinced that the Chinese market was ready for their products, most admitted that they were unfamiliar with mainland China’s laws and regulations, not to mention the market dynamics in terms of consumer preferences and distribution channels.

Given their language advantages, their extensive knowledge of the Chinese market and regulatory environment and their proximity to the mainland market, Hong Kong companies can play a pivotal role in helping prospective Turkish companies bring their products to the Chinese mainland market.

Hong Kong can also serve as a tailor-made business hub for Turkish enterprises looking to establish headquarters in Asia, offering them an extensive web of the value-added services from finance to branding and research and development (R&D) they will need.

[1] Turkey will celebrate the 100th anniversary of the foundation of the Republic in 2023.

Five years on from the launch of the Belt and Road Initiative, the second part of a report on the implications for Turkey of China's economic masterplan focuses on the likely long-term geopolitical transformation of the wider Eurasian region.

Turkey: A vital BRI Europe-Asia crossing point or a bridge too far?

China's Belt and Road Initiative (BRI) presents a number of opportunities for Turkey, many of which will have wide-ranging implications for the country's economy and geopolitical standing. Naturally enough, many within its business, academic and governmental sectors have strong views as to its possible benefits and likely pitfalls.

With a particular emphasis on the broader geopolitical issues that may influence Turkey's view of China's mega-project, a number of senior Turkish figures were asked to give their assessment of the current state of play. Perhaps unsurprisingly, given the unprecedented scale and nature of the BRI, it was clear, overall, that no real consensus has yet emerged.

Stabilising Influence

While the BRI's primary effect will be economic, the shift in trading routes and patterns it is set to cause will, inevitably, lead to changes in political relationships across Eurasia. While it is a long-held maxim that improved trade and improved stability go hand-in-hand, not everyone in Turkey seems wholly convinced.

There is, however, a widely shared belief that the BRI will transform far more than just trade arrangements. One Turkish businessman who is convinced of that is Şahin Saylik, General Manager of Kırpart, a leading automotive-parts company with operations in China. Seeing its implications as potentially very broad indeed, he said: "The BRI will definitely have a major geopolitical effect in terms of bringing peace to unstable regions, for instance.

"Good trading partnerships will force countries to have more understanding of, and be more sympathetic with, the region's political relationships. Stabilisation and security are must-haves if the project is to succeed.

"It is a gigantic undertaking that involves considerable economic, cultural, social and political development, as well as stabilisation and peace in the region. As a geographically important player, Turkey can only benefit from the positives the project offers."

Turgut Kerem Tuncel, a senior analyst at Ankara's Center for Eurasian Studies, is another who believes the BRI will be a stabilising influence throughout the Eurasian region, saying: "Potentially, the BRI will have a great geopolitical effect on the region. Liberal internationalist experts view the BRI as a driver for peace, arguing that enhanced trade ties among countries will inevitably aid stability. Certainly, there is some truth to that view."

Iran's Importance

One Eurasian nation that could particularly benefit from an increase in regional trade and stability is Iran. It is currently facing a renewal of US sanctions after the Trump administration pulled out of the Joint Comprehensive Plan of Action (JCPOA) nuclear agreement between Tehran and the US, UK, France, Germany, China and Russia. Coupled with the recent anti-Iranian rhetoric from Israel and the US, the move may mean the BRI takes on an even greater significance within its borders.

Highlighting the importance of Iran to Turkey, Salih Işik Bora, an International Trade Analyst at the Center for Eurasian Studies, said: "Turkey has many good reasons to proactively address the geopolitical challenges that could negatively impact on the BRI. Perhaps the most important is the advancement of collaboration with Iran, as the two countries will together form a critical juncture between Central Asia and Europe.

"Tehran is currently moving towards wider integration with the world economy. A major indicator of this trend is Iran's improving ties with Europe, as illustrated by French oil company Total's recent signing of a $4 billion treaty with Tehran. At the same time, Beijing is clearly interested in enrolling Iran in the BRI, as was shown by Xi Jinping's 2016 announcement that China wants to increase its bilateral trade with the country to $600 billon over the next 10 years."

Pointing out that even the end of the JCPOA nuclear agreement and the threat of fresh sanctions may not halt Iran's progress towards greater international economic integration, he added: "Even the American business community seems eager to lift the current sanctions. Boeing, for instance, recently signed a $3 billion deal to supply civilian aircraft to Iran."

Afghanistan: A possible BRI transit hub.

Highlighting Afghanistan as another potential beneficiary, Selçuk Çolakoğlu, Professor of International Relations at Ankara's Turkish Center for Asia Pacific Studies, said: "In order to be successful, the BRI is reliant on a wide range of co-operative efforts across a host of different sectors, from infrastructure to developmental aid. This is hugely significant, given that the BRI projects put forward by other countries have largely concentrated just on developing their transportation infrastructure and improving their integration into the world market through trade liberalisation.

"All these efforts aim to build up regional integration through economic and political co-operation. Afghanistan, as one of the heartlands of Asia, could theoretically become a key hub for transit transportation, regional trade and economic and political co-operation with the help of BRI-related initiatives."

Increased Competition

While improved trade may enhance peace and security, a freer flow of goods and services is not without its potential downside. Addressing this particular issue, Tuncel said: "The BRI may well trigger competition among countries. Eurasian nations could compete with one another to try to ensure that various trade routes pass through their own territories as a way of elevating their own geopolitical significance and maximising their own economic benefits. Nevertheless, as long as the competition remains healthy, it may also facilitate the overall modernisation of the region.

"There may also be competition among the major powers. For example, while the EU seems to have a broadly positive view of the BRI, some indicators show the US is somewhat more cynical.

"Russia's view of the BRI is also worth considering. While the Kremlin wants to create a closed regional economic zone, with the Eurasian Economic Union evolving into a political bloc, the success of the BRI depends on openness. As China is likely to become a dominant force in the region, that may cause problems in its future relationship with Russia."

Looking East

As the EU, the world's largest single market, is on its doorstep, Turkey has long been reliant on exporting its goods to Europe. Its attempts to actually join the bloc have been fruitless and, given the current political climate, look set to remain just that.

For some, though, the BRI gives the country an opportunity to turn away from the west and seek new trading relationships in the east. Clearly an advocate of this particular strategy, Nicol Brodie, an analyst with the Australian National University in Canberra, said: "The BRI is an opportunity for Turkey's President Erdoğan and his government to reduce its economic dependence on the European economies and hedge against deteriorating relations with the United States and NATO. It provides Turkey with trade, foreign direct investment and is a vehicle through which it can establish its economic and cultural footprint across central Asia.

"Turkey's relations with the United States, its long-term security partner, and Germany, its major economic partner, have been frosty for some time. The BRI, though, provides Turkey with a way to explore alternatives to these existing economic and strategic partnerships and simultaneously helps China create its own economic architecture.

"Crucially, it allows both nations to strengthen their relationship without entering into direct opposition with the US. It would be difficult, for example, to find specific reasons to support any claim that the Sino-Turkish relationship undermines the latter's NATO membership."

Tuncel also saw distinct benefits in Turkey potentially pivoting from the west to the east, saying: "Obviously, Turkey's deteriorating relations with the US and the EU, which dashed its hopes of accession to the EU, has generated additional interest in the BRI.

Russia: Likely to blow cold on BRI expansion.

"In Turkey, a visible section of the intelligentsia and political class has voiced support for Turkey's looking east at the expense of its historical inclination attachment to the west. For them, deeper relations with China, Iran and Russia are needed to counter the west's perceived hostility.

"The BRI is a potential lever that can allow Ankara to become the ultimate kingmaker in the Eurasian arena, while increasing its economic and political sphere of influence. If Beijing and Ankara can reach a suitable accommodation, Turkey may well become the backbone of the BRI."

Problems for the West

As Turkey increases its focus on its Eurasian connections, the relevance of western institutions is likely to decrease. This may create difficulties for the US and NATO, given Turkey's key position in relation to the Middle East, the Balkans and the Black Sea states.

Focusing on this particular problem for the west, Brodie said: "This will inevitably put the United States and its NATO partners in a difficult position. While they cannot oppose a trade relationship, they will still be worried about Turkey's attempts to slowly decouple itself from the west's economic and strategic embrace.

"Overall, Turkey's engagement with the BRI and its growing relationship with China is likely to become one of the more permanent fixtures of Turkish politics. The BRI, after all, is compatible with Turkey's defence and economic integration with NATO and Europe."

Complacency Concerns

While many in Turkey are optimistic about the opportunities the BRI presents, there is a growing feeling that this very confidence may present risks, with Turks assuming that the country's advantageous geographic position ensures its advantageous participation. Sounding a warning note in this regard, Tuncel said: "Over-confidence among the majority of Turkish experts and policy makers over the country's geostrategic position is a worry. While it is true that Turkey is in a strategically very important location, this only becomes meaningful if the relevant economic and infrastructural projects are actually implemented.

At the crossroads: Will Turkey pivot East or West in the new world order?

"This requires deeds rather than bombastic rhetoric. In brief, over-confidence, idleness and the possibility of falling behind with infrastructure modernisation seem to be the major obstacles that have to be overcome to ensure that Turkey can both be fully engaged with the BRI and subsequently benefit from its involvement."

George Dearsley, Special Correspondent, Ankara

For further analysis of Turkey's likely role within the BRI, see part one of this report: "While Concerns Linger, Turkey's BRI Commitment Remains Steadfast", 14 May 2018.

Five years on from the launch of the Belt and Road Initiative, China's economic masterplan, the first of a two-part report considers how Turkey, one of the programme's key partners, is coming to terms with the developmental realities.

Turkey: A vital trade conduit bridging Europe and Asia.

For centuries Turkey has been seen as a link between East and West, a vital crossroads for cultural and economic exchange. More recently, it has come to be seen as one of China's key partners as it rolls out the Belt and Road Initiative (BRI), its ambitious international infrastructure development and trade facilitation programme.

Inevitably, given the size and scope of the programme, the BRI has inspired evangelical zeal among some of its proponents across the world, while others have been more reticent and, on occasion, wholly critical. For its part, Turkey has seen both points of view widely aired as business leaders, academics and political figures seek to come to terms with the huge impact the initiative is set to have on this 80-million strong country.

Setting the scene for the debate that has divided many of his countrymen, Salih Işik Bora, an International Trade Analyst with the Ankara-based Center for Eurasian Studies, said: "Today, 16% of the European Union's $1,720 billion imports come from China, making it Europe's largest trading partner. Along this trading route – historically known as the Silk Road – are many of the world's major economies. Unlike the practice of classic times, however, 96% of these products now reach Europe by sea, largely because of the poor land infrastructure found in much of Eurasia.

"As one of its key objectives, the BRI seeks to remedy this and, indeed, has already had some success in doing so. The volume of rail freight between China and Europe, for instance, has increased from 57,000 tonnes in 2013 to 311,000 in 2016.

"At least in this regard, the BRI has been positively received across Eurasia, with many countries along the route having made large contributions to the Asian Infrastructure Investment Bank, the project's key financial conduit. On top of that, a number of European nations, including France, Germany and the United Kingdom, as well as those further afield, such as India, Russia, Iran and Saudi Arabia, have also contributed."

Turkish Support

By and large, the BRI has attracted considerable support in Turkey, with the government embracing it as hugely complementary to its own infrastructure development programme. Acknowledging this close alignment between the political leaders in both countries, Şahin Saylik, the General Manager of Kırpart, an automotive-parts company based in Bursa, one of the largest cities in Northern Turkey, said: "With firm support from both the Chinese and Turkish governments, the success of the BRI is all but assured, especially as Recep Erdoğan, our President, has publicly committed to it.

"For our part, we were previously focused on our own Middle Corridor initiative, a development that was expected to benefit from some US$8 billion of investment. In order to ensure that this can be integrated into the BRI, the Turkish government has already contributed $40 billion in development funding.

"In terms of BRI-related projects already under way, there is the Marmaray Rail Network, the Ormangazi Bridge, a third Istanbul airport and a railway link between Edirne and Baku. More recently, it has also been proposed that a third bridge be built across the Bosporus [a strategic waterway marking the boundary between Europe and Asia] as a way of optimising the trade flow."

Infrastructure Improvements

While the improvements to Turkey's transport infrastructure are clearly apparent and widely welcomed, redeveloping the country's overland transport links is still seen as something of a challenge. The sheer scale of the work that needs to be done, however, has been seen as representing a real opportunity for Turkish businesses.

Sivas: The eastern Turkish city in line for a massive BRI windfall.

Emphasising the depths of the country's own redevelopment resources, Turgut Kerem Tuncel, a Senior Analyst with the Center for Eurasian Studies, said: "Turkish companies have long been partners and project leaders within the construction sector, having completed a wide variety of projects in many of the former Soviet countries, the Gulf and North Africa. With their significant experience in large and mid-scale cross-border business projects, many Turkish businesses are keen to participate in the BRI development programme.

"To date, there has already been some co-operation, most notably with regard to the construction of the Baku-Tiflis-Kars Railroad (BTK), which went into operation in October 2017. At the time, it was claimed that it finally provided an overland link between China and London. This, however, was something of an exaggeration.

"If Turkey is ever truly to become a bridge between the Pacific and the Atlantic, its rail network and its supporting infrastructure will need a massive upgrade. At present, there is not even a mainline rail connection between the two sides of the Bosporus."

Maritime Transport

Some, however, remain sceptical that Turkey will ever be able to fully capitalise on the potential of its overland transport routes. Expressing the sentiments of many, Professor Selçuk Çolakoğlu, Director of the Ankara-based Turkish Center for Asia Pacific Studies, said: "A number of China-led initiatives, such as the BRI and the China-Pakistan Economic Corridor (CPEC), have sought to revive the overland routes as an alternative to the maritime corridors.

"At present, it's hard to be sure whether the land routes will ever provide a viable alternative to the maritime routes that already link Europe and Asia. What is clear, though, is that China wants to reduce its current over-dependence on sea freight."

While some question the practicality of rebooting the land transit facilities, some go further still, openly wondering just how closely aligned China and Turkey's long-term objectives really are. Expressing his own scepticism, Çolakoğlu says: "It is still not entirely clear how the Middle Corridor will be integrated into the BRI. Initially, China was proposing to use the Southern (Iranian) Corridor as its primary conduit to Europe, while wholly bypassing the Turkish Middle Corridor. These initial fears were allayed, however, in light of China's commitment to investing in the development of the Edirne-Kars High-speed Railway Link, a key component of the corridor.

"Perhaps more worryingly, at present, Turkey has been excluded from the BRI's proposed maritime routes. As it stands, China sees the northeast Greek port of Piraeus as its preferred hub for accessing Europe.

"Overall then, while there are reasons to be optimistic about Sino-Turkish BRI co-operation, some concrete agreements need to be in place before it can genuinely be considered a success story. Despite that, let's say I remain cautiously optimistic."

Economic Gains

Such concerns aside, many in Turkey are bullish about the economic opportunities likely to emerge from the BRI. Clearly convinced as to the benefits on offer, Bora said: "Given Turkey's central geographical positioning within this proposed trading network, it may well emerge as one of the big winners. Based on current projections, the BRI should account for per annum GDP growth of at least 0.22% in the case of the Turkish economy.

"These gains, however, may not be evenly distributed. While, at present, western Turkey accounts for the largest proportion of the country's international trade, the BRI could act to rejuvenate the currently neglected eastern region. This would see such cities as Sivas and Erzurum once again becoming significant trading hubs, bringing much needed stability and redevelopment to the wider region."

For Çolakoğlu, the benefits are somewhat more prosaic, with the Professor saying: "Fundamentally, Turkey believes that the BRI will foster closer bilateral relations with China, with new railway lines carrying significant quantities of passengers and freight in both directions."

Some, though, remain concerned that, while the BRI will open up international trade, the key beneficiary will be China, with other countries – including Turkey – likely to see their trade deficit with their mighty eastern neighbour only set to widen. Kırpart's Saylik, however, is philosophical about any such eventuality, saying: "As long as Turkey is politically astute, it has no need to worry about the BRI. The trade deficit with China is a separate issue and one that that will need to be addressed regardless of the BRI.

Turkey's rail resources may need a massive upgrade if they are to meet the challenges of the BRI.

"In general, though, I believe the BRI will have a positive impact on Turkey's bid to close its overall trade deficit, although maybe not so much when it comes to China in particular."

George Dearsley, Special Correspondent, Ankara

For further analysis of Turkey's likely role within the BRI, see part two of this report: "Turkey Set for Eastward Pivot as Potential BRI Benefits Beckons", 4 September 2018.

Highlights

Country Overview

Turkey, with a population of around 75 million, is situated at the junction of Asia and Europe. Turkey began to open up the economy in the 1980s, expanding production in the automotive, construction, and electronics industries beyond the traditional textiles and clothing sectors. Over the past decade, GDP per capita has nearly doubled and now exceeds US$ 10,000. Although growth has been promising, Turkey's relatively high current account deficit and its reliance on short-term financing leave the economy vulnerable to capital flows. On-going turmoil in neighboring Syria and Iraq, especially the rapid rise of the extreme jihadi group Islamic State (IS), also represents risk to the country’s stability.

Source: Economist Intelligence Unit (www.eiu.com)

Political Trend

In August 2014, Erdogan became the country's first directly elected president, by winning about 52% of the votes in the first round.

While his supporters say he has improved Turkey's economy and given a political voice to the country's conservatives, his critics accuse him of having Islamist leanings and an autocratic style. Externally, Turkey began accession membership talks with the European Union in 2005. However, progress has so far been limited amid opposition from countries like Germany, fearing that cultural differences will make it difficult to integrate.

Economic Trend

* Estimates ^ Forecast
Source: Economist Intelligence Unit (www.eiu.com)

Following a strong rebound in in the aftermath of the global financial crisis, the Turkish economy has been growing at a more moderate pace in recent years. While private consumption remained the major growth engine, high inflation and sluggish wage and employment growth have constrained household spending. In the second quarter of 2014, real GDP growth slowed to 2.1% year-on-year, in the wake of tightening fiscal and monetary conditions. It is expected growth would pick up next year, supported by stronger private consumption and investment.

The country’s chronic current account deficit reflects structural issues related to its heavy dependence on imported energy – almost all oil and gas were imported. Meanwhile, Turkey’s industry imports intermediate goods to produce final goods. The country’s current account deficit could only be narrowed at the expense of higher growth, if a significant change in its trade composition is not to happen. The Turkish government has introduced various measures to address the issue. However, the plan will not have an impact on Turkey’s energy dependency in the short term.

Hong Kong - Turkish Trade

Turkey was the 35th largest trading partner of Hong Kong in 2013, the value of Hong Kong exports to Turkey accounted for 0.2% of Hong Kong’s total trading value. Total exports from Hong Kong to Turkey increased by 6.4% from HK$6.3 billion in 2012 to HK$6.7 billion in 2013.  The top three export categories to Turkey were: (1) telecommunications, audio & video equipment (-6.6%), (2) electrical machinery, apparatus & appliances & parts (+2.3%), and (3) Photographic apparatus, equipment and supplies and optical goods, watches and clocks (+19.6%), which represented 55.5% of total exports to Turkey.

ECIC Underwriting Experience

The ECIC imposes no restrictions on covering Turkish buyers. Currently, the insured buyers in Turkey range from small and medium-sized companies to large-scale listed companies. For 2013, the number and amount of credit limit applications on Turkey increased by 10.7% and decreased by 9.4% respectively, while insured business rose by 2.1%. Major insured products were chemical products (+89.6%), electronics (+23.9%) and metallic products (+84.3%), which represented 52.0% of ECIC’s insured business in Turkey. The Corporation’s underwriting experience on Turkey has been satisfactory, with three payment difficulty cases of small amounts reported from September 2013 to August 2014, involving electronics goods and jewellery.