世界華商組織聯盟《華商世界》

繼美中兩國貿易戰的持續發燒，美國總統特朗普提出「印太倡議」以抗衡中國推行5年的「一帶一路」經濟倡議。此舉也揭開了太平洋兩岸國力競賽的序幕，各國如何維持與美、中的互動，各有各的盤算。

美國總統特朗普退出跨太平洋夥伴協定（TPP）後，就致力推動新的「印太」戰略，以強化對成長迅速的印度洋和太平洋地區的承諾。去年11月的亞洲行，特朗普提出「印太戰略」，要與日本、印度、澳洲等民主國家共同衛護太平洋與印度洋的自由與穩定。把亞太加上印度洋，成為跨越兩洋的民主國家安全合作，有抗衡「一帶一路」之意，此外，也是基於國安體系對中國定位的改變而定的策略。

美國認為，中國的「一帶一路」，是以中國主導的「開發銀行」，對高風險地區的鐵路、公路、水壩、發電廠、港口等基礎建設提供融資，藉此輸出過剩產品與設備，並由國企包攬工程，增加中國影響力。「一帶」的陸路經過中亞、中東極度不穩定地區，美國並不在意；印太戰略重點在牽制由廣州經南海、印度洋到非洲以至威尼斯的海線「一路」。中國規劃在這一路投資興建港口、碼頭當備用轉運基地，以防止麻六甲海峽被封鎖。

美國將投入4.13億美元打造「印太倡議」

美國國務卿蓬佩奧（Michael Pompeo）在7月底指出，特朗普政府初期將投入1億1300萬美元打造「印太倡議」，聚焦三大領域，包括數位經濟、能源及基礎設施，這是展現美國對區域的承諾。蓬佩奧表示，「自由與開放」的印太戰略在貿易上是追求真正以市場為主導的公平競爭。接著，美國國務卿蓬佩奧8月初宣布，美國將投資3 億美元，為美國與印太國家的安全合作挹注新的資金。這是美方對印太戰略下的印太經濟的近一步「加碼」。儘管蓬佩奧未點名中國，外界多將美國的「印太倡議」與中國的「一帶一路」相比。

2030中國超越美國

金融海嘯之後，中國大陸對於全球經濟成長率的貢獻不僅遠高於美國，且從2012年以來都大於美國、歐盟、與日本的總和。

經濟實力的快速增長讓中國大陸在2010年超越日本成為全球第二大經濟體，然後，逐步拉開領先日本的差距，縮短和美國的距離。世界銀行曾經在2013年出版一份名為《中國2030》的研究報告，假設的情境就是中國大陸在 2030年超越美國，成為世界第一大經濟體。這份報告同時向中國大陸官方提出了達成目標的興革建議，這些建議有許多被納入了「十三五規畫」中。

美國對於中國大陸趕超的可能顯然是忌憚的，所以，從歐巴馬時代的「重返亞洲」與「亞太再平衡」，到如今特朗普的貿易戰和「印太戰略」，都是鎖定了中國大陸作為戰略競爭對手，想要阻撓中國成長壯大。

103個國家和國際組織簽署118份「一帶一路」合作協定

美國國務卿蓬佩奧高調宣布設立「印太戰略」基金，被認為是針對大陸的「一帶一路」倡議，中國大陸商務部同一天公布的最新數據也顯示，今年上半年，中國企業對「一帶一路」沿線55個國家直接投資76.8億美元，僅占同期大陸對外直接投資總額12.3％，較去年同期下降15％，主要投向新加坡、寮國、馬來西亞、越南、巴基斯坦、印尼、泰國和柬埔寨等國家。今年上半年，中國大陸對外直接投資共624.3億美元，年增17.8％。

在中國的積極努力下，目前已經有100多個國家或國際組織對「一帶一路」持肯定態度，「一帶一路」建設在國際合作、項目合作、經貿合作、金融服務、文化交流等五個方面都取得了一定的成績。在國際合作方面，已有 103個國家和國際組織同大陸簽署118份「一帶一路」方面的合作協定，這也意味著全世界半數國家參與到「一帶一路」建設當中。

日前，習近平出訪阿拉伯聯合大公國等波斯灣與非洲國家時，展現與各國加強「一帶一路」合作的期望。中國國務院總理李克強6月底訪問歐洲國家保加利亞時，中方強調，中保兩國近年在「一帶一路」合作框架下，在貿易、投資、農業等領域合作成果豐碩。

中歐班列已開行1萬列 分散單靠美市場風險

「中歐班列」已累積開行達1萬列，初步達成重去重回，今年上半年返程班列占去程的69％，已成為一帶一路上的「鋼鐵駝隊」。代表中歐班列形成規模效應後，將帶動產業鏈的重新布局，從海洋轉向內陸，可分散只靠美國市場的風險。

中歐班列是指按照固定車次、線路、班期和全程運行時刻開行，往來於中國大陸與歐洲以及「一帶一路」沿線各國的國際鐵路聯運班列。日漸密集的班次和日漸豐富的貨物，連結了中國大陸和中亞及歐洲，更豐富了沿線民眾的生活。

中歐班列開行至今已取得十大主要成效。舉例來說：在去程的路上，目前中歐班列運輸貨物品類已從單一的IT 產品，擴大到衣服鞋帽、汽車汽配、糧食食品、葡萄酒、咖啡豆、木材、家具、化工品、小商品、機械設備等品類；返程已形成以汽配、機械設備、日用品、食品、木材為主的固定回程貨源。中歐班列的開行，不僅促進了中歐之間經貿往來，更拉近了歐亞的距離。

在運能保障上，根據大陸發運需求動態調整運行圖，  第三十九期∣2018∣華商世界 23 基本形成了65條中歐班列路線，統一從西中東三條通道出境與國外鐵路順暢銜接。在開行範圍上，逐步實現由大陸 48個城市開往歐洲14個國家、40多個城市。運行時間上，在大陸國內壓縮近 小時，寬軌段運行時間最快壓縮至135小時。

部分國家缺乏償債能力，陷入債務危機

又名「新絲路」的「一帶一路」計畫，由中國國家主席習近平在2013年首度宣布，目標鎖定環繞地球建設鐵公路和港口，北京則提供許多參與計畫國家數十億美元的貸款，來進行建設。然而5年下來，越來越多人擔憂，這些參與「一帶一路」的國家可能缺乏償債能力，反而陷入債務危機。

馬來西亞首相馬哈地（Mahathir Mohamad）8月訪問北京時便表示，馬國將暫時停止兩項由北京出資的「一帶一路」計畫，包括中國分別出借200億美元給馬來西亞興建的東海岸鐵路項目，及23億美元的沙巴天然氣管道項目。巴基斯坦因一帶一路的建設而積欠中國620億美元，正在尋求紓困方案。外界擔憂，為建設斥資數百億美元的「中巴經濟走廊」（China-Pakistan Economic Corridor，CPEC），巴國向中國借貸，但未來可能無力償還。

斯里蘭卡則已因積欠中國龐大債務，而付出沉重代價。由於無力償還斥資14億美元興建的戰略性港口相關債務，斯里蘭卡去年將港口出租給中方99年，讓中國在印度洋有一個重要立足點。

緬甸政府也表示，希望能壓低孟加拉灣皎漂深水港計畫的建造成本。中國參與這項造價達90億美元的計畫，這座港口對中國而言相當關鍵，是中國南部從印度洋取得石油距離最短的管道，避開麻六甲海峽戰略咽喉。

美國抗議--IMF介入紓困，等於間接助力中國

在中美貿易戰升溫之際，中國倡議的「一帶一路」戰略傳出導致多國債台高築，並準備向國際貨幣基金（IMF）求助。對此，多名美國參議員聯署向美國總統特朗普政府施壓，要求華府應明確表態讓「一帶一路」踩煞車，因為IMF一旦介入紓困，亦等於間接助力中國。

目前約有70個國家正在建設由中國資助的項目。斯里蘭卡已向IMF請求救助，預計巴基斯坦也將在今秋提出救助請求。巴基斯坦的債務危機主要是受到620億美元基礎設施升級專案影響，其中包括價值20億美元的空調地鐵系統等專案。

「美國國際開發金融公司」抗衡中國「絲路基金」

中國「一帶一路」經濟倡議邁入5周年之際，美國為了與一帶一路抗衡，正準備整併政府的海外投資單位，成立一個年度預算600億美元、名為「美國國際開發金融公司」的機構，專責處理海外的投資案件。新的機構將有廣泛的權力和中國針鋒相對。

特朗普原有意把尼克森1971年成立的「海外私人投資公司」（OPIC）裁撤，後來在國安會和行政管理暨預算局建議下，反而打算強化OPIC的功能，甚至把其它與海外投資相關的單位都整併到以OPIC為主體、名為「美國國際開發金融公司」（U.S. International Development Finance Corporation）的機構，預算也從原本OPIC的230億美元大增至600億美元。

OPIC雖是冷衙門，但過去40年來年年獲利，為削減赤字做出了85億美元貢獻。業務涉及貸款擔保、直接貸款以及政治風險保險。該機構投資或擔保的項目包括哥倫比亞一條收費公路、洪都拉斯一座地熱發電廠、烏干達多個蜂窩塔（行動通信基地台）以及烏克蘭一核燃料存儲設施。

此法案日前已在眾院通過，接下來只剩參院這一關。中國為推動一帶一路建設，2014年底在北京成立了「絲路基金」，以便向一帶一路沿線國家的基礎建設、開發、產業合作等項目提供融資。

中國政府在「絲路基金」成立之初出資400億美元，去年又宣布增資1000億人民幣，總計約1.7兆台幣，如今美國準備投入600億美元成立「美國國際開發金融公司」，與絲路基金對槓的味道相當明顯。

美國聯日澳印 推動印太戰略

美國推動印太戰略，要與日、澳、印度等國聯合遏制中國大陸，專家分析，日本澳洲是美國傳統盟友，印太戰略能否成功，很大程度要看印度。而近來中國大陸與印度回暖，可說是中國大陸應對印太戰略所採取的對抗策略。

此外，美國和印度首次外交與國防2+2對話已於9月初舉行，雙方會後發表聯合聲明指出，印度和美國簽署了具歷史意義的通訊相容與安全協定（COMCASA）。

這場2＋2對話，是由印度外交部長史瓦拉吉、國防部長希塔拉曼（Nirmala Sitharaman），與美國國務卿龐培歐（Mike Pompeo）、國防部長馬提斯（Jim Mattis）率領各自的團隊進行，對話的重點在確保印度太平洋地區的海洋自由與遵行國際法。史瓦拉吉說，四位部長在討論中對印度太平洋地區的觀念逐漸相同，「我們認為印太是一個自由、開放與包容的概念，且以東協為核心，並以（美印）兩國追求的共同規則為基礎來定義」。美印雙方認為，印太地區已成為美印雙邊合作重要的一部分，有必要對海上貿易維持開放。這場對話被視為美國印太戰略攜手印度，共同對抗中國在印太地區擴張的關鍵對話。

各國如何維持與美、中交往，各有盤算

儘管美國釋出1.13億美元，投入印太戰略的基礎建設，欲在經濟方面與大陸「一帶一路」倡議一較高下，補足印太戰略只有軍事、卻沒有經濟的缺點。但東協各國目前的反應明顯對此都存有高度疑慮，顯然仍希望依照傳統的「軍事安全靠美國、經濟利益靠中國」的路線。

分析家認為，由於東南亞國家和中國出口商的供應鏈密不可分，美國恐怕難以向他們推銷「印太倡議」，甚至還可能令美中緊張關係火上加油，因為中國也持續透過「一帶一路」開發計畫，在東南亞撒錢和擴大影響力。

新加坡7月已正式通過「跨太平洋夥伴全面進步協定」（Comprehensive and Progressive Agreement for TransPacific Partnership, CPTPP）。有的國家願意參與標準較高的CPTPP，有的國家則是選擇加入「區域全面經濟夥伴協定」（RCEP），至於美國要如何與區域內的成員交往，相信各成員會有自己的選擇。此外，新加坡作為東南亞國家協會（ASEAN）成員，今年又是輪值主席國，期待RCEP能有進展，讓ASEAN更強大。

美中貿易情勢緊張之際，對區域國家來說，如何維持自身最大利益，尤其是美國退出跨太平洋夥伴協定（TPP），尋求以雙邊協定拓展關係，各國要如何維持與美、中交往，各有盤算。

原文刊載於世界華商組織聯盟《華商世界》第三十九期2018年10月至12月號，請按此閱覽原文。(P.22-25)

A Central Government-Led Initiative

The Hainan Free Trade Zone (FTZ) is expected to play a major role in the Chinese government’s development strategy, as the Overall Plan of the China (Hainan) Pilot FTZ announced on 16 October 2018 makes clear. In order to facilitate this, the central government has set up a top-level body to shape and coordinate the policies of the various departments involved. The National Development and Reform Commission (NDRC) has put together the Hainan Leading Group for Deepening Overall Reform and Opening Up, under the leadership of State Council vice premier Han Zheng.

In recent years, the NDRC has been involved in setting up a number of high-level groups responsible for coordinating regional strategic development. Others include the Leading Group for the Development of the Guangdong-Hong Kong-Macao Bay Area, the Leading Group for the Coordinated Development of the Beijing-Tianjin-Hebei Region, the Leading Group for Advancing the Belt and Road Initiative, and the Leading Group for the Development of the Yangtze River Economic Belt, all under the leadership of Han Zheng.

This would suggest that the strategic importance of the Hainan FTZ is on a par with that of the Guangdong-Hong Kong-Macao Bay Area, Beijing-Tianjin-Hebei Region, Yangtze River Economic Belt, and the Belt and Road Initiative. However, it is also significant that the Hainan Leading Group for Deepening Overall Reform and Opening Up is the only one of these leading groups that covers only one province or region. This shows how important the establishment of the Hainan FTZ is to regional and national economic development.

Central Government Policy Moves

Since the central government promulgated the Guiding Opinions of the CPC Central Committee and the State Council on Supporting Hainan’s Comprehensive Deepening of Reform and Opening Up (also known as Central Document No. 12) on 11 April 2018, the central government departments involved have introduced a series of policies setting out the direction for the Hainan provincial government. As of January 2019, these include:

Provincial Government Presses on with Reform

As China’s central government looks to streamline government functions and administration and delegate powers, the provincial government in Hainan is beginning to enjoy greater autonomy over the development of the FTZ. It has already introduced policies designed to improve the business environment in the province and open it up further to the outside world by 2020.

Among these policies is the provincial government’s Action Plan for Attracting 1 Million Talents to Hainan (2018-2025), unveiled in May 2018. It’s aimed at bringing in foreign talent of all kinds and strengthening training in the province. In June, measures to provide guaranteed housing for foreign talent and offering employment to their spouses were also introduced.

Another – announced in December 2018 -- is the Action Plan of Hainan Province for Optimising the Business Environment (2018-2019), which expands the measures listed in the Overall Plan for the opening up of key industries, cuts the time required to register a new business to a maximum of three working days, and enlarges the programme for separating business licences from operation permits to 130 sectors.

In January 2019, the Hainan Free Trade Account was launched, a convertible accounting system which uses RMB as its base currency. Clients can open an independent Free Trade Account with a number of financial institutions in the province, including the Hainan Branch of the Bank of China, and use it to convert their money between RMB and foreign currencies.

The provincial government also published documents promoting the development of the agricultural products processing industry, improving the ecological environment, and making examination and approval services easier to use, during the second half of 2018.

Work has also begun on the construction of infrastructure projects related to the FTZ. The first batch of projects includes the extension of the Hainan International Convention and Exhibition Center, designed to allow it to host large-scale international exhibitions, and the Sanya Science and Technology Complex, which is projected to become an internationally recognised first-class deep-sea science and technology innovation platform.

Hainan International Convention and Exhibition Center (Phase II). Phase I can be seen to the left.

The second batch includes an international school in Jiangdong New Area, Haikou, and an internet headquarters project, both of which are aimed at attracting foreign talent to work in Hainan and providing facilities for the internet economy. Meanwhile, work to upgrade duty-free shops in Haikou and Sanya Airport should be finished soon, which will allow Hainan to receive and attract more tourists.

Due to come into operation soon: The boarding bridge at Sanya Fenghuang International Airport.

Opening soon: The duty-free shop in Riyue Square in Haikou’s central business district.

In January 2019, the Ministry of Finance announced that Hainan will be allowed to issue additional bonds worth RMB16.6 billion in 2019. This will help the province guarantee financing for key projects such as poverty relief, pollution containment and transportation. The development of Hainan’s infrastructure is set to become a major focus of the province’s economic activity this year.

Opportunities for Hong Kong Companies

The Hainan FTZ will increase market access for foreign-funded services. The table below lists the measures on the liberalisation of market access for the services industry contained in the Overall Plan, compared to those offered by the Mainland-Hong Kong Closer Economic Partnership Arrangement (CEPA):

It can be seen from the table above that, in parts of the telecommunications, cultural and construction sectors, the Hainan FTZ will grant foreign investors the same market access as that currently enjoyed by Hong Kong companies; while in parts of the insurance, maritime transport, freight forwarding and agriculture sectors, the liberalisation measures go even further than those set out in CEPA. While these generous market access measures are likely to encourage more foreign investors to Hainan and thus intensify the competition faced by Hong Kong companies in the province, it may also encourage other mainland regions to open up further, which may in turn create more new opportunities for Hong Kong companies.

The Overall Plan specifically promotes an increased role for Hong Kong companies in the development of Hainan, stating that the pilot free trade zone has been authorised to formulate administrative measures for Hong Kong and Macao professionals, allowing practitioners in the financial, architecture, planning and patent agency service sectors who possess qualifications to practise in Hong Kong and Macao to provide professional services for enterprises in the pilot free trade zone upon filing records with the competent department. This clearly shows that the Hainan FTZ will grant special access treatment to Hong Kong and Macao residents. With the Hainan FTZ offering generous market access liberalisation measures to foreign investors, professionals in the construction, planning and patent agency sectors can expect to find development opportunities in Hainan.

At the same time, the Hainan FTZ is also set to liberalise its financial sector further. This will include measures such as expanding cross-border RMB settlements, reforming foreign exchange control, and exploring the feasibility of making currency conversion easier in investment and financing. Given that Hong Kong is the largest offshore RMB business hub in the world, Hong Kong companies should be exploring how they can provide financial services in the Hainan FTZ within its policy framework.

Hainan FTZ Opens up to the World

The Hainan FTZ is set to open up even further to the world through its development of tourism, new tech and hi-tech sectors and modern services, as well as by improving its business environment through adjustments to the relationship between the government and the market. At the Boao Forum for Asia on 10 April 2018, President Xi Jinping said, “China’s open doors will not close but will only open wider and wider.” The Hainan FTZ is the latest move China has taken to promote comprehensive, deep-level reform and “opening up”. As the FTZ launches more new policies and plans in the future with this aim in mind, continued attention should be paid to its development.

By Md Nazirul Islam Sarker, School of Public Administration, Sichuan University, Chengdu, China

Md Altab Hossin, Department of Information Management and Ecommerce, University of Electronic Science and Technology of China, Chengdu, China

Xiaohua Yin, School of Automation Engineering, University of Electronic Science and Technology of China, Chengdu, China

Md Kamruzzaman Sarkar, Department of Zoology, National University, Gazipur, Bangladesh

One Belt One Road (OBOR) initiative is a historical initiative which connects the people over the world and facilitates various opportunities for global peace. The main purpose of this study is to explore implication of One Belt One Road initiative for global future development. It also analyzes the reasons of origin, strategy, opportunities and challenges of OBOR initiatives on the basis of business, economic, political, social and environmental aspects. This study uses qualitative approach and secondary data particularly journal articles, conference proceedings, various documents of government, books, newspaper articles, magazine articles, and various websites of internet have been extensively used to determine the objectives. This article argues that partner countries and agencies will get economic and political benefits from these initiatives. It facilitates to connect people through road ways, air ways and water ways, coordinating policies of various governments, financial integration through cross border business, productivity and regional energy security. This study also analyzes risks and challenges associated to OBOR initiative implementation. It suggests that strong coordination among partners of OBOR is necessary to get full fruits of OBOR through supportive law, policy, rules and regulations, proper strategy implementation, transparent procurement system, sincere consideration on political, financial, environmental and social factors……

Implication for Future of Global Development

The philosophy of OBOR is not to threat the other nations but bring a sustainable economic growth by combining some key development initiatives. OBOR can influence the Chinese major policy, development strategy, foreign relations and investment in future which will be helpful for regional and global economic development. It also helps to connect its partners in terms of physical, political, cultural, financial, and psychological interactions. It is actually a way for future economic development through developing infrastructure from Asia to Africa and Europe and promoting economic flows among all partner countries. The six economic corridors of OBOR initiative connects the geopolitically important part from Southeast Asia, Central Asia, South Asia and Europe which helps to promote the business, economics, and influence of china over other countries. China already made success to make land links from Southeast China to Southeast Asia which was intended target of Asian Development Bank and others for making land connection. It is happened because of making economic corridor of OBOR initiative. Another corridor connects China from Kunming to Vietnam, Laos, and Myanmar. The economy of central Asia is very smaller than China. Due to OBOR initiative, China will be the top supplier of manufactured goods to Central Asia as well as top consumer of agricultural output and resources of Central Asia. Some geopolitical places would be economically viable after proper implementation of OBOR strategy.

Challenges Related to Implementation of OBOR

1)   Absolute size and scale of understanding in case of infrastructure development is one of the major challenges for OBOR initiative. Private funding is necessary alongside with the funding from Chinese government and AIIB for accomplishment of the infrastructure of OBOR initiative.

2)   A huge amount infrastructure development requires enough time to accomplish. No infrastructure will be effective for economic return before full accomplishment. Since china is now facing an economic slowdown, challenge of finance from local government and bad debt so in near future funding for infrastructure development may face difficulties and under pressure. So, it is necessary to invite some potential financial partner to improve the situation.

3)   The infrastructure of OBOR is not enough for bring proper economic benefits from OBOR initiative. The infrastructure of partner countries should be considered during infrastructure development for effectiveness of OBOR initiative. Some advanced countries have no requirement for infrastructure development but some developing countries require enough infrastructure to connect with other partners.

4)   Geography and topography of all partner countries are not same. It is very difficult to make smooth transportation way connecting high topography to low topographical region. Long distance, high and low topography, densely forest areas and high-mountain should be considered during planning and construction of land routes.

5)   Geopolitical challenges are the major challenge for implementation of OBOR initiative. Relationship between India-Pakistan is not good and favor to OBOR initiative. Since China-Pakistan corridor passes through Pakistan controlled Kashmir which is extremely opposed by the Indian government. Dispute between Russia and Ukraine, civil wars in Syria, Iraq and Afghanistan are not favorable for OBOR initiative. Some other partner countries are suffering from political instability, and sanctions, corruption, expropriation and inefficiencies which affect the success of OBOR initiatives.

6)   Security challenges are the major challenges for partner countries. Some scholars think that it is very difficult to manage the internal and external national security of partner countries. In some cases, it may be influenced by Chinese military or navy.

Conclusion and Recommendation

The study analyzes the suitability of OBOR for future of global development in terms of economic sustainability, political stability and cultural exchange. The study argues that OBOR initiative has a great potential for future of global development. It also analyzes the context of origin, vision, strategy, challenges and opportunities of OBOR initiative considering its applicability for global development. It also argues that China has a great influence on the OBOR initiative as an initiator and encouraging China’s Go-West policy at all but it has a good impact on the economy of its partner as a whole. The article finds out some major challenges of OBOR like absolute size and scale, large infrastructure development, various geography and topography, geographical challenges and security challenges within the region. It suggests that strong coordination among partners of OBOR is necessary to get full fruits of OBOR through supportive law, policy, rules and regulations, proper strategy implementation, transparent procurement system, sincere consideration on political, financial, environmental and social factors. This study contributes to the ongoing debate on the positive and negative effect of OBOR initiative through exploring the context of origin, strategy, challenges, opportunities and implication for global future development.

Please click to read full report.

Central Government Designates Hainan as Latest FTZ

Last year, Hainan Island of Hainan province was designated as the site of the country’s newest Free Trade Zone (FTZ). A medium-income province with a population of about 9.34 million and a GDP of RMB483.2 billion (RMB51,955 per capita) in 2018 [1], Hainan has a diversified economy, with industries ranging from agriculture to tourism and professional services. Long a major tourist destination, it was designated by the State Council as an International Tourism Island back in 2009.

The Central Government unveiled its blueprint for Hainan’s development in the Guiding Opinions of the CPC Central Committee and the State Council on Supporting Hainan’s Comprehensive Deepening of Reform and Opening Up issued on 11 April 2018 (also known as Central Document No. 12). This was followed by a speech in Hainan by General Secretary Xi Jinping (known as the “4.13 Speech”), in which he announced the decision to develop Hainan Island into a pilot FTZ [2]. The blueprint envisaged Hainan gradually moving towards becoming a free trade port with Chinese characteristics. Specific proposals were set out by the State Council in its Overall Plan of the China (Hainan) Pilot FTZ on 16 October 2018, and Hainan’s development has been in full swing since then.

Crucial Role in Reform and Opening Up

Since 2013, the Central Government’s focus has been on streamlining the relationship between government and the market so that the latter can play a bigger role in the allocation of social resources [3]. Under this initiative, Shanghai became the first pilot FTZ in 2013, followed by three others in 2015 and seven more two years after that. Besides promoting trade in goods through measures such as bonded zones, FTZs are designed to speed up the transformation of government, expand the areas of the economy being exposed to “opening up” reforms and investment, explore institutional innovation, and provide a testing ground for measures aimed at improving the country’s business environment. Each of the 11 pilot FTZs has its own role in the regional economy and helps the country to try out various new systems, such as the negative list for market access.

Unlike these 11 FTZs, which are further divided into several zones, the Hainan FTZ covers all 18 counties and cities of Hainan Island. According to Central Document No. 12, Hainan is designed to help China participate in globalisation and become an open economy at a higher level. Establishing the Hainan FTZ, therefore, is not just about improving the economy of Hainan province, but is also designed to contribute to China’s development as a whole.

At the same time, the establishment of the Hainan FTZ can create synergies with the Belt and Road Initiative (BRI). The South China Sea is China’s key artery for international shipping. If Hainan province can tap the advantages generated by the FTZ and help strengthen China’s maritime economy, it will be of great benefit to the utilisation of resources in the South China Sea and the development of ties with ASEAN and other neighbouring countries. The Overall Plan even designates the Hainan FTZ as China’s “key gateway to the Pacific and Indian Oceans”.

Building a Free Trade Port

The ultimate goal of the Hainan FTZ is to become a free trade port. In Central Document No. 12, there is a road map for the FTZ’s development:

Tax Incentives

In his “4.13 Speech”, Xi Jinping described free trade ports as having the highest level of openness in the world. The Hainan FTZ will explore a more flexible fiscal policy regime to try to build a more open business environment. In order to encourage trade, it may try out tax policies that have proved viable in other FTZs. For example, a selective tariff collection policy may be tried out in special customs supervision areas. Detailed fiscal policies will be announced by the provincial government in due course. Among the key policies recommended for trial implementation in the plans of other FTZs are the following:

Priority Industries

In Central Document No. 12, it is proposed that the Hainan free trade port should not focus on entrepot trade and the processing industries. Instead, the Overall Plan says that the Hainan FTZ will prioritise the development of three sectors - tourism, modern services and hi-tech industries.

Tourism

Hainan Island plans to develop itself into an international tourist centre. Tourism is an important industry on Hainan Island and cities like Haikou and Sanya are very popular with tourists. At present, Hainan’s tourism industry is supported largely by domestic tourists. Among the 67.45 million tourist arrivals recorded by the province in 2017, 66.33 million (98.3%) were made by domestic tourists [4].  The Overall Plan outlines the following policy direction for attracting more overseas tourists to Hainan:

1. The government will promote air services between Haikou and Sanya and BRI countries and will encourage domestic and foreign airlines to open new international routes to Hainan Island or increase the frequency of their existing services.

2. The Hainan FTZ will ease market access and allow foreign companies to invest in cultural and art organisations, with the mainland party holding the controlling share. It will also host more international exhibitions and other festivities to attract overseas visitors to Hainan Island.

3. International medical tourism and high-end medical services will be developed.

4. The capacity of high-end tourism services will be enhanced by launching new cruise lines, simplifying the entry procedures for yachts, and offering visa-free entry to visitors arriving on cruise liners.

Modern Services

Having an open, efficient and international business environment is the core feature of every free trade port. The Overall Plan focuses on accelerating the development of an open economy and stimulating the innovative development of the service industry in the following ways:

1. Full implementation of the system of pre-establishment national treatment with a negative list, and allowing foreign investors to have wider access in a number of key areas including medical services, telecommunications, internet business, finance and the manufacture of new-energy vehicles.

2. The Hainan FTZ will explore the establishment of a negative list management system for cross-border trade in services to promote the transformation and upgrading of trade.

3. Support will be given to multinational corporations and trading companies to establish and develop global or regional trade networks and build regional offshore trading centres.

4. Global planning and professional services institutions will be introduced in a number of professional services sectors, such as construction, arbitration, accounting, intellectual property rights (IPR), and convention and exhibition.

5. Hainan’s access to the South China Sea will be used to develop shipping insurance, shipping arbitration, shipping transactions and other high-end shipping services and build a modern international shipping services platform.

6. Financial opening up and innovation will be accelerated to serve the real economy of the FTZ. For example, steps will be taken to expand the cross-border use of RMB, deepen the reform of foreign exchange management, explore the facilitation of investment and financing exchanges, and expand the opening up of the financial sector.

Hi-Tech Industries

Hainan’s tropical climate is conducive to the development of agriculture and related studies. Agriculture is already one of the province’s leading industries. In 2017, it provided 21.6% of the province’s GDP and 40.3% of its employment, far higher than the national averages of 7.9% and 27.0% respectively [5].

Furthermore, as the province with the largest maritime area in the whole country, Hainan is ideally suited for the development of the maritime economy and related scientific studies. The FTZ policy will also facilitate the importation of medical devices and drugs and benefit studies in the medical sphere. The Overall Plan puts forward the following policy priorities:

1. Agriculture: The Hainan FTZ will open its agricultural market further, build a global transit base for animal and plant germplasm resources, and encourage co-operation with foreign countries in the field of agricultural science and technology as well as the development of training bases for agricultural personnel.

2. Maritime economy: An international platform for deep-sea scientific and technological innovations will be established through the introduction of international research institutions, universities and other frontier scientific and technological resources in deep sea areas.

3. Medical research: International medical tourism and high-end medical services will be developed in the Boao Lecheng International Medical Tourism Pilot Zone, which will be given support in stem cell clinical research and the testing of new drugs. Tariffs on medical devices that need to be imported into the pilot zone will be cut.

Meanwhile, the Hainan FTZ will also implement some of the measures adopted in other FTZs, such as reforming the administrative system, optimising administrative functions, establishing IPR protection systems, providing easier access for foreign talents working in China, and strengthening the system of prevention and control of major risks. In other words, the Hainan FTZ will continue the approach of the other 11 FTZs while advancing towards the goal of building a free trade port through the development of key industries.

Policy Continuation

China has established 11 FTZs since 2013, each with its own positioning and advantages. When the first FTZ was established in Shanghai in 2013, the plan focused on the use of the international economy, finance, trade and shipping to serve Shanghai’s urban economy. When the second batch of FTZs were established in Tianjin, Guangdong and Fujian in 2015, the focus was extended to the regional economy (such as the coordinated development of Beijing-Tianjin-Hebei region, the development of the Greater Bay Area and cross-straits co-operation). With the establishment of the third batch of FTZs in 2017, more industries were targeted for development, such as advanced equipment manufacturing, the cultural industries, commodity trading and agriculture. For example, the Northern Zhoushan Island Area of the Zhejiang FTZ focuses on the trading of oil products, while the Yangling Demonstration Zone of the Shaanxi FTZ was given support to develop a BRI modern international co-operation centre for agriculture.

The Hainan FTZ will have tourism, modern services and hi-tech industries as its development priorities. At the same time, it will boost China’s maritime economy and facilitate the country’s economic development through the creation of a free trade port aligned with the international system. According to the Overall Plan, the Hainan FTZ is “a major measure demonstrating China’s determination to expand “opening up” and actively promote economic globalisation”. The importance of the Hainan FTZ in China’s long-term economic and policy development should not be under-estimated.

[1]  Source: Hainan Statistical Yearbook 2018
[2]  The Hainan FTZ covers Hainan Island alone and does not include the other islands that are part of Hainan province administratively.
[3]  Source: Li Keqiang: Several Issues Concerning the Deepening of Economic Structural Reform, www.people.com.cn, May 2014.
[4]  Source: Hainan Statistical Yearbook 2018
[5]  Source: Hainan Statistical Yearbook 2018

Inauguration of new Khalifa Port terminal seen as likely precursor to new tranche of Middle East BRI developments.

The expanded Khalifa Port: Welcomed as geographically strategic and somewhat timely.

Earlier this month, the official inauguration of the CSP Abu Dhabi Terminal marked the successful completion of yet another major Belt and Road Initiative (BRI) project. Representing a significant expansion to the existing facilities of the Khalifa Port – the principal marine cargo-handling facility serving the United Arab Emirates (UAE) – this new semi-automatic terminal was jointly developed by COSCO Shipping Ports (CSP), the port-operating division of Shanghai-headquartered China COSCO Shipping, and Abu Dhabi Ports.

The new terminal will be operated by CSP in line with a 35-year agreement signed with Abu Dhabi Ports in 2015. The Chinese developer is estimated to have spent about US$300 million on the terminal's construction, as well as having invested a further $130 million in a connected container freight station.

As well as its strategic and logistical significance, the success of the terminal is seen as paving the way for further China-UAE co-operation within the overall BRI framework. Acknowledging this as part of his address at the inauguration ceremony, Ning Jizhe, Deputy Director of China's National Development and Reform Commission, said: "This is not only a milestone in terms of Belt and Road Initiative co-operation, but it is also an auspicious prelude to further China-UAE partnerships across a variety of key areas. I have no doubt we will continue to co-operate on many other strategic fronts, while working together to deliver the broader aims of the BRI."

Sounding a similar note in his speech at the inaugural event, Dr Sultan Al Jaber, the UAE Minister of State and the Chairman of Abu Dhabi Ports, said: "The expansion of the Khalifa Port in partnership with CSP will only further enhance the UAE's role as the key trading link between the East and the West, while promoting our own economic diversification and contributing to the global connectivity promised by the Belt and Road Initiative."

Such optimism, indeed, seems more than justified for both parties, as the two countries should clearly benefit substantially in economic terms from the expansion of the port. The new facility – a deep-water, semi-automated container terminal – has been designed to handle an annual throughput of 2.5 million TEUs, while its 16.5-metre depth should allow it to accommodate the most mammoth of mega-vessels, including those with a freight capacity in excess of 20,000 TEUs.

For its part, the new container freight station, which extends across a total area of 275,000 sq m, offers full and partial-bonded container-shipment facilities. It will also operate a wide range of container-packing services, provide warehousing for de-consolidated cargo and have optimised connectivity with other Khalifa Port terminals.

In addition to its strategic geographic advantages, the enlarged capacity of the port is also said to be somewhat timely. In part, this is down to increasing concern over the US use of trade tariffs to drive foreign policy and the resulting scramble among those nations affected to find alternative trading partners.

The UAE, though, is already one of China's primary trade partners in the Middle East. In 2017, bilateral trade between the two countries increased by 15%, reaching more than $53 billion for non-oil trade and accounting for 14.7% of the UAE's total foreign trade. In terms of trade flowing the other way over the same period, the UAE accounted for nearly 30% of total Chinese exports to the Middle East and about 22% of total Middle East-China trade. In terms of future developments, bilateral trade is expected to rise to $70 billion a year by 2020.

In addition to facilitating a higher level of trade between the countries that developed the facility, the new terminal could also take on much of the regional transshipment business currently funnelled through other parts of the Middle East and Africa. With its upgrade now in place, the Khalifa Port has moved from being the 89th largest container port in the world to becoming one of the top 25. Over the next five years, its ranking is set to rise even higher, with plans already in place to increase the port's total throughput capacity to 9.1 million TEUs per annum.

The new terminal should also help accelerate the level of global investment in the adjoining Khalifa Industrial Zone Abu Dhabi (KIZAD), the region's largest industrial, manufacturing and logistics hub and Free Trade Zone. The Zone, which extends across 410 sq km, is already home to more than 200 tenants and has attracted $17.7 billion in investment.

In a supplementary development, 19 Chinese companies have already signed land-lease agreements within the newly created Khalifa Port Free Trade Zone. Officially launched in August 2017, the site is being developed by the Chinese Jiangsu Provincial Overseas Cooperation and Investment Company (JOCIC).

Geoff de Freitas, Special Correspondent, Abu Dhabi

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.

With funding for phase one finally agreed, the development of the Kyaukphyu Port no longer seems remote prospect.

The Kyaukphyu deep-sea port: A win-win prospect mired in contractual wrangling.

After two long years of negotiations, one of the key Myanmar Belt and Road Initiative (BRI) projects reached a significant approval milestone early last month. This saw CITIC, the Beijing-headquartered investment group, commit to underwriting the US$1.3 billion cost of developing phase one of the Kyaukphyu Deep-Sea Port project.

The deal, agreed with representatives of the Kyaukphyu SEZ Management Committee (KSMC), represents a major leap forward in terms of clearing the way for work to begin on the port, a vital component of the BRI, China's ambitious infrastructure development and trade facilitation programme. Perhaps just as significantly for CITIC, it also marks the company's first substantial venture into China's relatively undeveloped neighbour.

One completed, the Kyaukphyu Deep-Water Port, set in the western coastal state of Rakhine, will join Pakistan's Gwadar, Bangladesh's Chittagong and Sri Lanka's Hambantota as one of the region's four primary, BRI-backed marine cargo-handling facilities. Its geographical advantages see it ideally positioned to connect to western China, while it could also function as an effective interchange hub for goods in transit to and from Bangladesh, India, the Middle East and East Africa.

In another plus, it will substantially cut the volume of shipping obliged to round the Malay Peninsula in order to service China's Southern and Eastern ports via the South China Sea. With China already operating two oil and gas pipelines between Kyaukphyu and Kunming, the capital of the southwestern Yunnan Province, the logistical significance of the new facility is more than apparent.

From Myanmar's point of view, the port should prove to be a further boon to its already booming economy. With its year-on-year growth expected to hit 6.8% for 2018, the country – albeit from a relatively low base – is now home to one of the fastest-expanding economies in Asia. Even before it comes on line, the port is expected to make a considerable contribution to the country's ongoing success story, with 100,000 new local jobs in the offing, while CITIC has also promised that 90% of managerial roles will be filled by Myanmarese staff.

Given the clear win-win nature of the project, it is perhaps surprising that it has taken so long to come to fruition. In truth, though, it is a proposal that has been dogged with problems, with a number of them yet to be resolved.

To date, the most obvious issue has been cost. As originally envisioned, the total bill for redeveloping the site would be somewhere in the region of $7.5 billion, a figure that the would-be Chinese investors understandably baulked at. To circumvent this particularly thorny problem, the project has now been broken down into four more easily-fundable chunks.

Similarly, rather than committing to develop the whole site simultaneously, a more sequential approach has been agreed. This will see one, somewhat scaled-down, terminal completed first, while plans for two further terminals – on Made and Ramree, two nearby islands – have been put on indefinite hold.

Aside from budgets, the other hugely-divisive issue was ownership. As originally envisaged, CITIC would have had an 85% stake in the completed project, with only the remaining 15% state owned. A subsequent change of government saw it politically expedient for CITIC to cut its expected stake to 70%. This will give the Myanmar government the facility to sell on 15% of the project to local, privately owned businesses – some 50 of which are said to have already expressed an interest – while still retaining 15%.

Despite the progress made on both of these former sticking points, there are still a number of contractual issues that need to be resolved before CITIC breaks ground. The issues relate both to the port proper and to the adjacent industrial park that forms part of the overall development scheme. In each instance, separate investment, shareholder and leasing agreements need to be signed, while the port also requires a mutually acceptable concession agreement putting in place. Given the structure of the deal, nothing can be finalised until everything is finalised, meaning it may be a while before the first Chinese supertanker drops anchor in Kyaukphyu.

Geoff de Freitas, Special Correspondent, Naypyidaw

China-backed SEZ set to transform transport and manufacturing ties between China, Laos, Thailand and Myanmar.

Bridge-building: BRI backing is boosting interconnectedness across Southeast Asia.

Late last month, the Thai government announced plans to develop a cross-border Special Economic Zone (SEZ) in the Chiang Khong district of Chiang Rai, the country's northern-most province. Once established, it is believed that the new SEZ will act as a nexus for a number of Belt and Road Initiative (BRI) related projects under way in the country, as well as in neighbouring Laos and Myanmar.

More specifically, the SEZ will connect with the existing Mohan-Boten Economic Cooperation Zone (MBECZ), which straddles the Laos-China border. Ultimately, it is anticipated that the zone will act as a hub for the growing economic interconnectedness between Thailand, Myanmar, Laos and China.

Laos' own economic zone development programme has met with considerable success to date and the MBECZ is proving to be no exception. A recent update from the Ministry of Planning and Investment showed that the country's 12 SEZs were already home to 350 Lao and overseas companies, representing total registered capital of US$8 billion, with $1.6 billion of that having already been actively invested.

At present, the SEZ programme has created 14,699 jobs, with 7,564 of these going to local workers. That number is expected to rise imminently following the announcement that a further 40 companies are to set-up within the Boten Specific Economic Zone, which forms part of the MBECZ's core offering.

The Mohan-Boten project, a joint venture between China and Laos, was established in September 2015 at a cost of about $500 million with a remit to focus on agriculture, biotechnology, logistics and cultural tourism. The site was originally developed by the Yunnan Haicheng Group and the Hong Kong Fuxing Tourism and Entertainment Group.

In addition to Mohan-Boten, there are a further two large-scale China-backed clusters in Laos – the Vientiane Saysettha Development Zone and the Vientiane Thatluang Lake Specific Economic Project. The MBECZ, though, has a unique significance in that it interconnects with the border crossing point of the China-Laos Railway, a major BRI project that will ultimately provide the backbone for high-speed train connectivity throughout much of Southeast Asia.

As a consequence, the MBECZ's international trade and finance areas have already attracted investment from many of the companies that are engaged in infrastructure construction activities throughout the country, as well as those actively working on the development of the country's hydropower facilities. It is, however, those businesses that are directly involved with the roll-out of the China-Laos rail link that are most widely represented.

Given the size and prominence of these businesses, it is perhaps reassuring that work on the rail link seems to be proceeding with few notable hindrances. As of March this year, the project was said to be already more than 25% complete and well on course for its officially scheduled 2021 completion date.

Since then, a number of other major project landmarks have been passed, including the completion of the construction work on a 1 km tunnel – the line's longest subterranean stretch – at the end of October. On top of that, the primary construction work on the 7.5 km Nam Khone Bridge – the widest-spanning structure along the course of the route – has also been completed.

In a sign of further progress, October saw China begin to export petroleum products to Laos via the Mohan-Boten border crossing for the first time. Amid much official fanfare, PetroChina delivered 64 tons of diesel to the local importer – the Nationwide Trading Petroleum Public Company – at the China-Laos border. Prior to this first batch arriving, all oil and petroleum shipments to landlocked-Laos had been routed via Vietnam or Thailand.

The opening of this new conduit was given added significance by its clear importance to the future of the recently sanctioned, BRI-backed Laos-China Economic Corridor. Given the numerous construction projects this will entail, demand for fuel across Laos is only set to soar over the coming years.

Geoff de Freitas, Special Correspondent, Vientiane

Gansu-Islamabad road and rail connection boosts local economy and facilitates rapid transit to upgraded port.

Express delivery: New road / rail link set to cut transit time by more than 50%.

One of the key stretches of the classic Silk Road returned to the forefront of international trade in late October, when the new China-Pakistan road and rail freight link entered active service. Although the project's origins date back to 2005, well before the Belt and Road Initiative (BRI) – China's ambitious international infrastructure development and trade facilitation programme – was unveiled to the world, the link has latterly been co-opted into the wider scheme, with its success seen as a vital part of the mainland's overall economic masterplan.

As it stands, the new 4,500 km road and rail link sees regular train services connecting Lanzhou, the capital of China's north-western Gansu province, with the city of Kashgar, one of the key trade conduits in the Xinjiang Uygur autonomous region. From here, freight can travel onwards to Islamabad, the capital of Pakistan, via the largely restored Karakoram highway. Ultimately, the route will extend to the Port of Gwadar, the cornerstone of the China-Pakistan Economic Corridor (CPEC) and a major BRI project in its own right.

Until now, the transit time for China-origin goods destined for the Pakistani capital and the country's other affluent consumer hubs has been a minimum of four weeks, with sea links accounting for the bulk of such trade. The new land link cuts the travel time by more than 50%, with items expected to reach Pakistani retailers within 13 days of exiting mainland factories.

Inevitably, given this massive logistics upgrade, trade between China and Pakistan is expected to soar. The impact will be all the greater, however, once the planned extensions to the rail link are in place. Eventually, it is anticipated that freight-train services will run directly from Lanzhou to Gwadar, as well as to other ports serving the Arabian Sea. The next phase of the project, however, is still at the planning stage, with work on it not expected to be completed before 2030.

Its final implementation, however, will be truly transformational for the region. All trade between China and Pakistan currently has to pass along the Karakoram highway, a route rendered impassable by the extreme weather conditions prevailing in the country's December-March winter period. Even though this historic route, which wends its way across the Pamir Plateau and the Karakoram Mountains, has been substantially upgraded in the past 20 years, it still functions as something of a bottleneck, a problem that the extended rail link will play a key role in alleviating.

Among the previous upgrades to the existing highway was the US$510 million reconstruction of the 336 km stretch from the Pakistani city of Raikot to Khunjerab by the Chinese border, a move necessitated by cumulative flood damage over an extended period of years. Then, in 2015, construction work was completed on the two large bridges and five kilometres of tunnels that constitute a 24 km section of replacement roadway, which had originally been swept away by the 2010 landslide that led to the formation of the nearby Attabad Lake. With the cost, as with the Raikot-Khunjerab work, underwritten by China, the final bill was said to be in the region of $275 million.

At present, only one section of the highway still has an upgrade pending – the 136 km stretch linking Raikot to Thakot, a relatively small but geographically significant town on the banks of the Indus. Although a $64 million investment deal for the project was agreed with China last year, concern over local financial irregularities has put the backing temporarily on hold.

Even prior to the full implementation of the proposed rail link, the upgraded Karakoram highway is already driving local economic growth. As the primary land conduit between China and Pakistan, it has become an essential link in the supply line that is fuelling the massive BRI-backed infrastructure and power generation projects in the south of the country, many of which are at the heart of the wider $60-billion-plus CPEC initiative.

At the same time, the BRI-backed links have also delivered more tourists to the region, a development bolstered by the opening of the nearby Ruoqiang Loulan airport earlier this year. Close to the Khunjerab border crossing, the new air terminal has also proven to be a shot in the arm to many local towns, notably Tashkurgan, one of the most westerly settlements in China.

Geoff de Freitas, Special Correspondent, Islamabad

By Viking Bohman, coordinator of Stockholm Belt and Road Observatory, and
Christer Ljungwall, affiliated professor in the Asia Research Centre at the Copenhagen Business School

Key points

• The Belt and Road Initiative (BRI) provides an opportunity for China to remedy some of its most significant geostrategic vulnerabilities and steer capital-poor countries on to a development path that could transform them into a support structure for the Chinese economy. In the absence of an active response from other parts of the world, this could encourage a more assertive Chinese foreign policy and facilitate China’s attempts to unilaterally shape the future of global economic flows.

• If the European Union (EU) adopts a proactive approach and insists that China respect EU unity and live up to criteria of transparency, sustainability and economic reciprocity, the BRI will provide opportunities for both economic gain and the promotion of democracy and free market models.

• A precondition for such efforts is the development of interdisciplinary European expertise on the BRI. To this end, individual member states, including Sweden, should mobilise and streamline national capacity. As an initial step, we suggest the setting up of a Swedish BRI working group.

One project, many purposes

The main focus of the BRI is to connectAsia and Europe through an extensive web of infrastructure, both “hard” and “soft”. Launched in 2013, the development scheme has come to involve hundreds of billions of US dollars and is now the centrepiece of Chinese foreign policy. Beijing’s principal message thus far has been that the BRI will be beneficial to all – a gift from China to the world. In some ways this is true, especially for developing countries in Asia which are in dire need of infrastructure. Nonetheless, most countries are rightly questioning China’s claim that “win-win” outcomes are the only goal of the project. In reality, the BRI is a way for China to forward its own economic and the political interests, even if this sometimes comes at the expense of its partners.

Out of the economic rationales which underpin the BRI, four stand out as particularly important. The first one concerns overcapacity in the steel and heavy equipment sectors. Since the financial crisis of 2008, after which China introduced an impressive economic stimulus package, investments in infrastructure has saturated the domestic market. This explains the push to create international alternatives under the BRI.

Second, China seeks to access new markets. New BRI infrastructure and the resulting reductions in transaction costs are expected to increase international trade. Many markets along the BRI are already growing quickly and in the long term could significantly benefit Chinese export industries. While underdeveloped countries are unlikely to provide markets for high-end goods any time soon, the EU market, which is the final destination of the BRI, holds great promise for China.

Third, China is attempting to restructure its economy and move away from its traditional investment- and export-led approach to a model in which domestic consumption plays the leading role. This is a painful process, however, and drastic changes in policy can generate unwanted consequences such as temporary spikes in unemployment. In this regard, the BRI serves as a way to continue to rely on the existing investment-export model while slowly restructuring the domestic economy – with the crucial difference that China is now investing abroad instead of in its saturated domestic market.

Fourth, China is struggling with a problem of geographic disparities between western inland provinces and eastern coastal areas. Coastal cities have long benefited from their geographic position and special government treatment, while landlocked regions such as Tibet and Xinjiang have been left out. By stimulating growth on the Eurasian landmass and redirecting economic flows to the west, the BRI could help to compensate western regions for decades of comparatively slow economic development.

Beyond economics, the BRI serves several geostrategic purposes. One crucial longterm impact of the project is that it is likely to reduce China’s vulnerability to coercive economic pressures from the West while increasing Chinese economic leverage over smaller states. The BRI has the potential to achieve this primarily by constructing a more industrially self-sufficient Eurasia and by building land-based trade routes across the continent which can serve as “lifelines” in case of supply disruptions or economic isolation, possibly linked to a trade war, economic sanctions or a conflict in the South China Sea. China’s economic resilience will also be strengthened by efforts to increase international use of the Renminbi (RMB) and to establish financial institutions that operate outside of the Western-led economic system.

These efforts could make China less vulnerable to economic sanctions by creating a type of regional self-sufficiency within a future Chinese sphere of influence. Ultimately, as Western economic deterrent capabilities lose their potency, China will have fewer incentives to abide by those international norms which it perceives as running counter to its interests – the reason being that China could withstand any possible repercussions from the West. In the South and East China Seas, the Chinese military has already shown an increased willingness to push the limits of what is considered acceptable by Western powers and Japan.

The case for engagement

For states that are interested in preventing scenarios in which China becomes more assertive in regional territorial disputes, the objective should be to make sure that China is well integrated into the global economic system and maintains a close, interdependent relationship with the West. This would ensure that Chinese leaders think twice before embarking on controversial geopolitical ventures similar to that of Russia’s incursions into Ukraine. Economic interdependence would ensure that the costs to China of such action, as a result of Western repercussions such as economic sanctions, remain high.

The economic side of the BRI, meanwhile, also has a strategic dimension. As the project unfolds in the coming decades, China’s increased presence in Eurasia will have a significant impact on regional commercial and financial regimes. As China is offering to connect capital-poor countries to the world economy, it can – in the absence of economic alternatives – largely dictate the terms of this process. Countries such as Pakistan and Laos risk becoming heavily indebted and dependent on China, and their markets remodelled to support the Chinese economy. This is likely to increase Beijing’s leverage over these states, not least in allowing it to shape the norms and rules for future economic flows. Although China could in theory use this influence to develop a fair multilateral system, there is evidence from along the BRI to suggest that China will attempt to shape the initiative in a way that maximises its own economic and political advantage, even if to the detriment of others. If liberal democratic countries remain passive, there will be little to counteract and bring to light exploitation and misconduct.

At the same time, it is crucial that the involvement of liberal democratic states does not become a tool for China to legitimise its more dubious activity. China is known to have used economic pressure against smaller states to secure political favours, extract resources and acquire beneficial ownership rights over strategically important infrastructure. Adding to that, corruption is still rampant in China and there are few reasons to believe that such practices will not travel along the BRI. To counteract and avoid becoming complicit in misconduct, the West and its partners need to be clear that they will not support the BRI unless it lives up recognized criteria on transparency, equal say of stakeholders, and environmental and labour standards.

Beijing may be reluctant to accept such demands, but in the coming decades the BRI is likely to hit more than a few bumps in the road. Beyond the sheer unprofitability of many projects, the initiative involves significant risks associated with corruption, environmental degradation and political backlash in host countries. China’s statebacked financial institutions will not be able to sustain unprofitable projects indefinitely – especially when their lending to sustain the domestic economy is approaching its limits.

These troubles are already beginning to impede projects, and there are few reasons to believe that the situation will improve without a change in strategy. As problems grow dire, Chinese leaders are increasingly likely to come to the realisation that the initiative is in need of help from wealthy and respected outsiders to garner financial funds, build institutions and shore up legitimacy among a broad range of stakeholders. In this regard, struggling Chinese projects could provide Europe with an opportunity to influence the course of things. If EU member states manage to establish a joint presence in these areas, they could step in and offer their help to China, with clear demands for increased transparency, sustainability and joint ownership. Even if China refuses, a European presence would help host countries guard against Chinese domination. With credible economic competition, China will have to offer fair deals to developing countries.

Actively participating in the BRI with hopes of influencing China might seem naive, but other options are limited. One alternative approach is to remain passive. This is detrimental because it would facilitate Chinese attempts to unilaterally reshape the economic and political landscape in Eurasia to its benefit. The project is likely to struggle, but given President Xi Jinping’s personal commitment to the project, China’s efforts to shape its neighbourhood would probably continue – albeit at a slower pace.

A second option would be for the West and states such as Japan to become active in BRI areas but on a competitive, rather than cooperative, footing with China. This would have the benefit of making BRI states less vulnerable to Chinese coercion but might lead to heightened geopolitical competition. Economic competition is good, but the creation of two opposing political camps would not be conducive to international cooperation and global interdependence.

A European response

When approaching the BRI, the first concern of the EU should be to safeguard its own unity. In the absence of a common European China policy, additional BRI investment schemes could deepen cracks in EU cohesion by enticing member states to run political errands for Beijing. Greece and Hungary, which have both been promised Chinese economic support, have on several occasions showed their willingness to adapt their policies to China’s liking. Greece most recently refused to sign an EU statement on human rights in China.

Chinese influence in Europe has not gone unnoticed by European leaders. At the 2018 Munich Security Conference, Sigmar Gabriel, Germany’s foreign minister at the time, noted that China, alongside Russia, was “constantly trying to test and undermine the unity of the European Union”. Similarly, Angela Merkel has warned that Chinese economic ties should not come with political strings. While such messages might temporarily strain EU–China relations, they capture the essence of what the EU should be communicating to China: the political positions of EU member states are not for sale.

Additionally, demands should be made that Beijing respect the sovereignty of other states along the BRI which risk falling into a vicious circle of economic dependence on China. Speaking of the BRI, French President Emmanuel Macron has already made clear that “these roads cannot be those of a new hegemony, which would transform those that they cross into vassals”.

Another point of importance in the EU–China relationship is economic reciprocity. China aims to spur economic flows along the BRI but is actively limiting foreign access to its own market. Such policies shield Chinese industries from competition and often deprive other states of trade and investment opportunities in China. The EU Ambassador to China has made clear on several occasions that China is not fulfilling expectations of reciprocity. To continue to insist on this, and possibly make it a condition for EU endorsement of the BRI, would increase the prospects of gaining access to Chinese markets and could serve the EU’s strategic interests by nourishing economic interdependence.

In sum, like-minded EU members states should communicate clear demands on economic reciprocity and respect for EU unity in their relationships with China. These two  requirements, in combination with an insistence on the transparency and sustainability of BRI projects, should guide the EU’s approach. To whatever extent possible, efforts should be made to shore up support for this stance among EU member states and other countries along the BRI. Smaller states have an interest in supporting a common stance on China not only because it would guard against Chinese primacy, but also because it is likely to increase chances of making the projects in their countries more successful and distribute the gains more evenly. It is not inconceivable that consensus could be found within the EU for a common approach toward the BRI, especially given that an internal EU report which strongly criticises the BRI recently gained the approval of 27 out of 28 of the EU ambassadors in Beijing.

An opportunity to influence

Observers often emphasise that the BRI will seek to spread Chinese influence by propagating an alternative authoritarian model and by disseminating Chinese values. This is true in many respects, but it is equally true that if the EU can come up with a coordinated response, the BRI provides an opportunity for Europe to spread democratic ideals and market economy models. On the one hand, the EU should not support the BRI unless it is transparent and fair, which in a best-case scenario would lead China to adapt its projects. On the other hand, participating in the BRI will have the benefit of demonstrating that projects designed according to liberal market economic models are more efficient and sustainable. Indeed, projects which lack transparency and joint ownership structures are more likely to be corrupt, face a popular backlash and cause environmental degradation.

In addition, deeper economic integration and people-to-people contacts with China will naturally intensify the Chinese people’s exposure to ideas from the outside world (even Beijing’s sophisticated censorship apparatus has limitations). Many observers have seen the recent authoritarian turn in China as conclusive evidence that economic integration with the West has failed to influence China. Such claims, however, fail to recognise the changes in Chinese society which have taken place since Deng Xiaoping’s reforms were first introduced in 1978. Xi Jinping has ushered in an era of political repression, but this does not necessarily mean that the population is becoming less critical in their thinking. They might very be influenced in a “liberal” direction through their interactions with the West.

A Swedish response

Sweden has clear gains to make from developing a forward-looking strategy for the BRI. The long-term prospects for opening new markets should not be neglected. Nor should opportunities to influence the direction of economic development in Eurasia and other places. The Swedish government is deeply committed to the United Nations Sustainable Development Goals and has a clear interest in making sure that the BRI meets sustainability criteria. To this end, Sweden could at the EU level push for efforts to mobilise and streamline European development and aid programmes in BRI countries. The combined mass of European projects could then be nudged toward Chinese projects in order to create synergies and cooperation wherever possible. Again, a precondition for such active participation in the BRI should be a common understanding with China regarding environmental standards, transparency, joint ownership and monitoring mechanisms. In such settings, Sweden should leverage its comparative advantage in environmental science and technology to influence projects in a sustainable direction. As of now, however, Sweden, like most other EU member states, lacks the detailed interdisciplinary knowledge that is needed to engage with China in an appropriate fashion. Expertise from disciplines such as environmental science, security studies, political science and development economics needs to be consolidated to create a comprehensive understanding of the BRI. One way to achieve this would be to fund policy relevant research projects and organise interdisciplinary expert groups which would advise the Swedish government on how to approach BRI projects.

To better organise Sweden’s approach, a permanent working group should be established to serve as a knowledge-sharing and coordination platform for ministries, government agencies, civil society organisations and the Swedish business sector. The Ministry of Foreign Affairs would be a natural place to host such a mechanism. This group could also act as a focal point for international exchanges and might serve to organise cooperation within the Nordic region. As a next step, the government should consider institutionalising Sweden's capacity to deal with the BRI through the establishment of an office for Belt and Road issues.

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