By Sean Miner, Peterson Institute for International Economics (PIIE)

The role of Pakistan in China's large-scale One Belt One Road (OBOR) infrastructure push provides a clear illustration of the logistical and security challenges facing the project.  

In April of 2015, China's President Xi Jinping visited Pakistan and signed the China-Pakistan Economic Corridor (CPEC) Framework Agreement, one of the hallmarks of OBOR, or Belt and Road Initiative. Since, China has been pouring money into Pakistan, with more than $44 billion to be invested there relating OBOR. Politically, China has a lot riding on Pakistan’s success, the nation is one of China's strongest allies, and Pakistan borders one of China's most restive and underdeveloped regions, Xinjiang. But investing such large sums of capital into a single country can carry serious risks.

CPEC is a microcosm of China's efforts throughout its OBOR initiative in more than 60 countries. Part economic development and part geostrategic, CPEC hopes to bind China's and Pakistan's economies further, help ease some pressure on Pakistan's economic and security situation, and secure alternate access routes for natural resources. For Pakistan's Prime Minister, Nawaz Sharif, this is a very fruitful relationship, with a number of "early harvest" projects due to be finished in time for the next election in March 2018 – and many of the projects being built in his native Punjab. In fact, some in Pakistan are calling it the China-Punjab Economic Corridor. This would not be anything new, as this study of Chinese foreign aid to Africa shows: African political leaders' birth regions received substantially larger financial flows from China than other regions.

Due to the venerability of building infrastructure in remote regions of Pakistan, Sharif is not taking the safety of CPEC projects lightly, having created a "special security division for Pak-China economic projects," with more than 15,000 army and civil forces. With good reason – CPEC can help lift Pakistan's economy, at a time when growth prospects aren't so bright. The hope is that the scale of all this investment will help facilitate increased trade, lower unemployment, and increase economic development.

CPEC Projects

Pakistan's infrastructure is poor, including frequent power shortages and a number of badly maintained roads, so the Chinese are filling in a sizeable gap in financing and construction. Of the $44 billion, up to $35 billion is set for energy related projects. One of the first projects to begin construction is a hydropower dam in the Rawalpindi district of Punjab, which is expected to be completed in 2020 by the same Chinese firm that built the Three Gorges Dam.

China is also planning to enlarge Gwadar port in Balochistan province, having secured the land rights to the port and surrounding areas until 2058. The main objective of building up Gwadar is to connect it by highway and rail to Southwest China, giving China a way to bypass the Strait of Malacca, a major choke point for natural resources coming from the Middle East to East Asia. China Overseas Port Holding Co Ltd has plans to make the area a free trade zone, and build an airport as well as a fully operational port. The latter will have two oil terminals and a floating liquefied natural gas terminal with gas pipelines eventually expanding to Lahore.

In Karachi, the Chinese have been approved to build two nuclear power plants. ZTE Energy has constructed a solar power plant in the city of Bahawalpur, and HydroChina is building wind power projects. The Diplomat estimated energy projects tied to CPEC might eventually produce 16,400 megawatts of power, more than triple the 4,500 megawatts of power shortfall in Pakistan's electricity production, supposedly to meet the future needs of a rapidly rising industry stemming from CPEC. A large share of the new energy production, however, will come from coal fired plants.

The plans for highway construction and upgrades are extensive, the bulk of which are to connect Lahore and Karachi with at least a four lane highway, another highway extending from Gwadar to Islamabad along the western part of the country, and a third through the unforgiving Karakoram mountains, connecting to Kashgar in China’s Xinjiang province. A massive rail project to upgrade Pakistan’s Main Line 1 rail, stretching from Karachi in the south to Peshawar in the north was also recently approved (in total the railroad stretches more than 1,000 miles), with the vast majority of the $8 billion in financing coming from China.

Trouble ahead?

This month the International Monetary Fund's published its final review report for its three-year loan to Pakistan, and it touched on CPEC and sounded the alarm for a few reasons. The report noted that CPEC related imports (machinery and natural resources) could be so large as to push the current account deficit to 1.5 percent of Gross Domestic Product next year. Investment would likely boost growth in the short-term but medium-to-long term issues like increasing capital outflows "could arise from CPEC-related repayment obligations and profit repatriation," the report also noted.

Indeed, China is taking a significant amount of risk, given a recent precedent for non- or late-payment of debt by certain countries. China has lent and invested even more capital in unstable Venezuela, around $65 billion in total, mainly through policy banks. Venezuela has had to renegotiate its debt, forgoing payments on the principal temporarily. China thought its investments were safe since Venezuela could always repay in crude oil, of which it has the world’s highest reserves. But with the price of crude having stabilized at much lower levels and the country in total disarray, Venezuela's government looks increasingly likely to default on its international debt. This could lead to the seizure of its overseas oil assets, further decreasing oil production, and putting repayment in peril.

Further, China risks upsetting India with CPEC for several reasons, the most prominent being that some infrastructure projects will run through Pakistan-controlled Kashmir, land India claims as its own. Moreover, CPEC's upgrades of the Gwadar port have created fears the facilities may one day be used to service the Chinese navy. For these reasons, India could try to place roadblocks in CPEC’s path.

Clearly, the China-Pakistan alliance is growing even stronger through CPEC and increasing trade and investment between the two countries, though the project entails both reward and risk. In the short-term CPEC will lead to notable benefits like markedly fewer power outages and increased employment. Over the longer-term, issues related to project financing suggest CPEC faces a rockier road to the shared prosperity that is commonly acknowledged.

Please click to read the full report.

HKGCC "The Bulletin"

Hungary's efforts to woo China investors seeking a hub for their European ventures are reaping dividends, and things are expected to get rosier as both parties are laying solid foundations to capitalize on the Belt & Road's potential.

Hungarian Minister of Foreign Affairs and Trade Peter Szijjarto has no disillusionment about Hungary's relationship with Mainland China and Hong Kong in President Xi Jinping's Belt & Road plan. "We are the two end points of the modern Silk Road," he told The Bulletin during his visit to Hong Kong in December. "Hong Kong is the Eastern end and we are the Western one. That gives us an opportunity to enhance our cooperation."

Many of the Mainland's leading companies, from Huawei to BYD, have chosen Hungary for their European headquarters. Attracted by its low corporate tax rate of 9%, as well as high labour productivity, Mainland companies have invested US$3.7 billion in Hungary since it started actively pursuing Chinese investment in 2013 under the "Eastern opening policy."

"We understand that as Chinese companies are becoming more and more successful in Europe, they want to have a firm European footprint. We would like to stop this investment flow of capital from East to West in Hungary," he said.

Hungary has come under fire from other members of the European Union about the rapidly growing number of Chinese investors heading to the country, but Szijjarto dismissed such concerns and staunchly defended the government's political line.

"It is a competition. Big countries usually worry when we deal with China and when Central European countries deal with China. We are all competing for investment so it is just a competition, but we are winning," he said. "Until they go out and actively look for business like we are doing, and until they put more emphasis on doing business with China we will continue to win."

He sees Hong Kong as having an important role to play in the flow of trade and investment from East to West, but realizes more effort will need to be put into increasing awareness of Hungary in Hong Kong. During his visit to Hong Kong on 1 December, Szijjarto signed an agreement to mark the establishment of a bilateral Working Holiday Scheme for young people from the two places. The scheme will commence operation on July 1 2017, and will allow up to 200 people between the ages of 18 and 30 to stay for a year and work for a maximum of six months to finance their stay.

"My intention for coming to Hong Kong was to sign the Working Holiday Scheme, which we have achieved. What I would like to conclude very quickly here is the ongoing negotiations for permission for more Hungarian food exports to enter Hong Kong," he said.

Hungary is predominately an agricultural country, but given the geographic distance from Hong Kong it is difficult to compete on quantity, but he believes there is huge potential to compete on quality.

"So far we have permission to export poultry and pork to Hong Kong, and that has been going very well. We have just agreed on the license for Hungarian exports of veal, and we are about to come to an agreement regarding rabbit and lamb meat," he said.

Increasing agricultural exports will be the icing on the cake. More significant will be reaching an agreement for the mutual protection of investments, which will make Hungary’s personal income tax rate of 15% and corporate tax rate of 9% all the more appealing to Hong Kong investors. This will be an important piece of the puzzle that will improve the success rate of Hungary's plan to be the end-point of the Mainland's Belt & Road ambitions.

Hungary applied to join the Asian Infrastructure Investment Bank (AIIB), and it is expected to be accepted in early 2017. "We think we can bring to the table infrastructure development as we have been preparing for the modernization of the railway from Budapest to Belgrade. Once completed, there will be no question which would be the fastest way to deliver Chinese goods from the Greek port of Piraeus to the Central and Western parts of Europe," he said.

The railway line will be used mainly for cargo trains up to 740 meters long and with a speed of 160 km per hour. Direct flights between Beijing and Budapest first took off in May 2015, which resulted in a 30% increase in Mainland Chinese tourists visiting the country, and a 22% increase in Hungarian exports.

"I have raised the issue of direct flights with the secretaries of the Hong Kong Government and I have received some promises that they will bring it to the attention of Cathay Pacific, so of course we would be very happy if we could start direct flights between Hong Kong and Hungary," Szijjarto concluded.

This article was firstly published in the HKGCC magazine "The Bulletin" January 2017 issue. Please click to read the full article.

Netherlands Institute of International Relations (Clingendael)

This Clingendael Report analyses the relevance of China's 'One Belt, One Road' (OBOR) initiative for China's relations with Greece, Turkey, Cyprus and the Balkan countries. The Greek port of Piraeus, in particular, is at the heart of China's strategic involvement in the wider region of Southeast Europe and Turkey. Piraeus is a major connector between the Maritime Silk Road (the maritime dimension of OBOR, which connects East Asia to Africa and Europe) and Europe. COSCO's acquisition of the Piraeus Port Authority in August 2016 accelerates the port's growth into a leading container, car and cruise harbour in the Mediterranean. In the Balkans, China is promoting the concept of a 'Land Sea Express Route', a north–south transport corridor that links Piraeus with Central Europe and Germany. Turkey and Cyprus, respectively, are part of the Silk Road's overland and maritime approaches to Greece. COSCO's long-term presence in Piraeus provides the Chinese government with a firm basis for its relations with Greece and facilitates further OBOR-related activities throughout the region. The Balkans, Turkey, and Cyprus all welcome investment from and trade with China, and China's economic relations with all the Balkan countries are increasing. While economic relations are mainly approached on a bilateral basis, the CEEC 16+1 platform provides an extra avenue for China–Balkans cooperation.

In the short term, the geopolitical impact of expanding Chinese interests in Southeast Europe and Turkey – for which OBOR has become the main engine – will probably remain limited to making regional countries somewhat less dependent on their relations with the European Union, the United States and Russia. In the longer run, however, China may develop into a more significant geopolitical actor in the region. As the New Silk Road develops, regional countries will become more dependent on China for their trade and investment relations. At the same time, the strategic importance of these countries for China will also increase. The greatest geopolitical significance, however, of Chinese activities in the region results from Beijing's relations with the other great powers at the interregional or global level. If China's security relations with the United States, Russia and the European Union, or some of these, become more strained and competitive in the coming decades, this may well have a negative impact on regional stability in the Southeast Europe–Turkey region.

Please click to read full report.

By Dentons

The "One Belt One Road" project (OBOR) is one of China's key initiatives as part of its plan to assert its position as one of the world's strongest economic powers. OBOR was initially launched by China's President Xi Jinping in late 2013 as one of the Asian superpower's ambitious plans to accelerate outbound investment and to consolidate its position generally across the globe. This article explores what OBOR is, its objectives, current investment in OBOR, key challenges OBOR faces and how the PPP project model can be utilized to support OBOR projects .....

Conclusion – is the Silk Road paved in gold?

Whichever way one looks at it, the OBOR initiative is arguably the most globally far-reaching and impactful economic strategy since the US Marshall Aid Programme, which was implemented after WWII. Many commentators have and will continue to share their theories as to whether OBOR will be as successful as Beijing is hoping. As with anything of this nature, it will ultimately be judged and its legacy will be formed based on the results it achieves. What can be said at this point, however, is that China will not be found wanting in terms of the resources and planning it is throwing behind OBOR. The tenure of President Xi will to some extent be judged on the level of success OBOR achieves and, where many might shy away from this kind of pressure, he and his administration have made it clear that they are not of that ilk. This certainly bodes well for those along the belt and road and other stakeholders who are pinning high hopes on the success of this mega project.

Despite the best of intentions and efforts, it is without doubt that there are numerous challenges which lie in OBOR's path. Some of these which we have touched on can be considered somewhat obvious and inherent in a project of this scale. Others will emerge and evolve, as OBOR itself emerges and evolves in the years and decades ahead.

What is clear, however, and has been since OBOR was announced, is that the potential benefits for all involved are immense to the point of being immeasurable or accurately estimated at this point in time. Not only will these benefits be in favour of China and its people, but also to those along the OBOR route who choose to engage with China and its vision. The benefits will be economic, political, strategic, cultural and social. In the case of some countries these benefits are likely to be "game-changers" in their own modern history. Crucial infrastructure which otherwise might take decades to deliver is now seemingly in a position to be delivered on an accelerated timetable and the consequential benefits this can bring about are endless.

So yes, it is submitted that the Silk Road is potentially paved in gold, both for China (for the reasons stated), and for those countries that embrace this initiative and the potential benefits that it brings.

Please click to download the full report.

By Coface

World trade under the threat of protectionism

Following two consecutive years of slower world growth, the outlook should improve slightly in 2017 (up from 2.5% to 2.7%). This will be driven by a rebound in business in emerging countries (4.1% growth), due to the recoveries in Brazil and Russia offsetting the slowdown in China. Advanced countries will see stable growth of 1.6%.

The lacklustre development in world trade (forecast at 2.4% for 2017, compared to an average of 2.2% between 2008 and 2015 and to an average of 7.0% between 2002 and 2007) could be further compounded by the resurgence of protectionist measures, following the election of Donald Trump. In the short term, these measures will have a lesser effect on America’s economy at the end of the cycle (+1.8%) than they will have on other countries that export heavily to the USA: Central America (notably Honduras, El Salvador, Mexico and Ecuador) and some Asian countries (such as Vietnam and Thailand).

Given Mexico's strong reliance on exports to the USA (which represent 7% of its GDP), against a backdrop of higher inflation and falling investments, Coface is downgrading its country risk assessment to B. Argentina, however, will be relatively immune to the "Trump" effect and, after a difficult year, should start to reap the benefits of its reforms. Coface is therefore upgrading its country risk assessment for Argentina to B.

Global political risks at a record high in 2017

Political risks will continue to be a major concern in 2017.

Among the advanced economies, it is Europe which is facing the greatest political uncertainties, as it awaits the outcome of a number of decisive electoral battles, as well as details on the exact terms of Brexit. Over the last year, Coface's European political risk indicator has increased by an average of 13 points for Germany, France, Italy, Spain and the United Kingdom. If there is a further major political upset, on a similar scale to that of the British referendum, European growth could slow by an average of 0.5 points.

Political risks in emerging countries are higher than ever, driven by social discontent and heightened security risks. The CIS (because of Russia, with a score of 63% out of 100% in 2016) and North Africa/Middle east regions (with Turkey and Saudi Arabia both at 62%) show the greatest risks among the major emerging economies. The rise of political and social frustrations in South Africa is partly to blame for the downgrade of its assessment to C, within a climate of very poor growth.

Security risks, which include terrorist attacks, conflicts and homicides, are a new factor in the emerging political risk indicator. Unsurprisingly, these are highest in Russia and Turkey.

Credit risks: high levels of company debt are a threat to the banking sector in emerging countries

These increased credit risks can assume different forms, depending on the country.

The level of company insolvencies should continue to fall in advanced economies. The negative aspect is, however, that the amount of company creations is often lower than pre–crisis levels (a variation of -19.8% in Germany, -5.1% in the United States and -4.1% in Italy between 2015 and pre-crisis peak levels). Loans granted to highly-indebted companies are straining the resources available for fast-growing younger companies.

Excessive company indebtedness is another problem for emerging countries. Companies in China have the highest levels of debt (equivalent to more than 160% of GDP) and this debt rose by 12 GDP points between the second quarter of 2015 and the second quarter 2016. The rate of bad debt in the banking sector is rising sharply in Russia, India, Brazil and China, while credit conditions are becoming stricter.

Upgrades in Europe and sub-Saharan Africa

This is the first time since mid-2015 that Coface has made more upgrades than downgrades in its country risk assessments.

Spain has been upgraded to A3, while Iceland and Cyprus (where risks related to capital controls are decreasing), are now assessed A2 and B respectively. Central European countries are continuing to improve in the ranking, among the 160 countries assessed by Coface. Estonia (A2), Serbia (B) and Bosnia-Herzegovina (C) have all seen improvements in their business environments and growth in these countries is reaching comfortable levels. Bulgaria (A4) has confirmed its recovery, thanks to moderate growth and the continued consolidation of its banking sector.

In sub-Saharan Africa, smaller countries are faring better than the larger economies. Two of the best performers in the region are Ghana (B), which passed its democratic maturity test in December, and now has a good level of public finance management, and Kenya (A4), which has seen a boost in tourism and increased public investments.

Please click to read the full report.

By Coface

Starting with falling oil prices and financial markets in the winter, the Brexit referendum in the summer and the election of Donald Trump in the autumn, 2016 was punctuated by a series of upsets. Can we hope for more calm – or even improvements in 2017?

Although the end of 2016 was marked by the upsets in the US, with the unexpected outcome of the US presidential elections and the Fed’s long-awaited raising of key lending rates, neither of these events triggered a collapse in the financial markets. In emerging economies, there has even been a detectable uplift in recent months – but can this last?

The fog of uncertainty dominating the economic sphere is unlikely to lift in 2017. The forecasts on the repercussions of the events of 2016 remain unclear. Among these uncertainties are (i) the as yet unknown and unpredictable policies of Donald Trump, both internally and in terms of spillovers (such as the impact on Mexico, where activity is already slowing, with a lowering of Coface’s assessment to B); (ii) the lack of visibility on the future of the United Kingdom, where the terms of its exit from the European Union are yet to be defined; and (iii) the dominance of political risks linked to upcoming elections1 (namely in the Netherlands, France and Germany). In addition to these undetermined risks, are “conventional” hazards, such as concerns over the slowing and rebalancing of economic activity in China and questions on how quickly the prices of raw material will rise. One new factor, however, will be the expected return of inflation, if only as a mechanical reaction from the reaching of the lowest point for raw materials prices in 2016, and even though domestic demand remains relatively restrained.

Despite these risks a number of countries (such as Spain which has been upgraded to A3) are back on track. In Central Europe, Estonia, Bulgaria, Serbia and Hungary are continuing to see their risk assessments improving. In Africa, Ghana (upgraded to B) and Kenya (to A4) are looking more positive, while there are continuing rays of hope for Brazil and Russia. Other countries have adopted good resolutions for the new year. Clearly, voluntary and often painful adjustments will need to be made, but the outlook for the medium term looks much sunnier. Following a difficult year, Argentina, looks likely to start harvesting the fruits of its labours (hence the raising of its assessment to B). Subsequent to a devaluation of its currency and the receipt of an IMF loan, Egyptian companies are expected to see an easing of payment problems, even though a slowdown in growth is anticipated. Turkey, however, remains on watch, as does South Africa, (which has been downgraded to C). Finally, this is the first time since June 2015 that Coface has upgraded more assessments than downgraded.

Please click to read the full report.

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

Peter Wong considers how China's belt and road initiative is truly linking up Asean, and the wider region

In the wake of more isolationist political thinking in the West, with many developed economies turning inward, China is reaching out, seeking stronger trade and investment links with its economic partners.

China's "One Belt, One Road" is a prime example of this reaching out policy. Under the initiative, China aims to trigger demand for materials and goods at home by investing in strategic infrastructure projects abroad, developing economic ties along its old Silk Road to Europe and along newer maritime links in and around Asia and as far away as Africa.

At its heart, the plan is to enhance global supply chains, primarily though debt-financed infrastructure projects, across more than 60 countries. China expects annual trade with these countries to be worth US$2.5 trillion within a decade – up from US$1 trillion in 2015.

Given the economic importance of the Association of Southeast Asian Nations to China, and its geographical proximity, a key focus of the belt and road initiative is Asean’s burgeoning economies. Formed in August 1967, the bloc is one of the most developed economic zones in Asia and beyond.

The year 2016 marked the 25th anniversary of the open-dialogue relationship between China and Asean. Economic relations between China and Asean economies have been growing strongly. By the end of May 2016, the two-way investment had exceeded US$160 billion, with Asean remaining a major destination for Chinese companies.

Bilateral trade has also increased massively, from US$7.96 billion in 1991 to US$472.16 billion in 2015. Asean and China are seeking to double their trade value, setting a target of US$1 trillion by the end of 2020.

The belt and road initiative will play a key role in this, further bringing together two of the world's most dynamic economic regions by strengthening economic linkages among the 10 members of Asean, as well as between Asean member countries and China.

If major Western economies are really going to roll back on their traditional global economic links, China's belt and road policy is set to fill some of the openings that will develop.

For Asean member countries, the initiative will help address an infrastructure deficit, and lift industrial development. While the formation of the Asean Economic Community in 2015 is bringing Southeast Asian economies together as a single market and production base, the belt and road initiative will offer further integration by developing physical infrastructure and a robust trade regime. The region will be ideally positioned to sit at the centre of global value chains.

For China, the belt and road initiative will provide an ideal platform to develop ties with neighbouring Asian countries while fostering the development of its own extensive high-speed rail network as a means to export high-end technology and services. With more than 20,000km of track laid, China has more highspeed railway than the rest of the world combined.

The effort has already made some practical achievements. Among the countries of Asean, Malaysia, Thailand, Laos and Indonesia have joint belt and road deals with China, mainly in railway construction.

There will be a new high-speed rail line running from southern China through Laos to Thailand's industrial eastern coast.

China has given a new pledge to cash-starved Laos for the construction of a US$6 billion railway project linking Laos' capital Vientiane to China's southern Yunnan (雲南) province by 2020. Once operational, the railway will be Laos' longest and fastest line, with an average speed of 160km/h and 60 per cent of the line being bridges and tunnels.

The network of rail links that will connect Singapore and Kunming (昆明) in Yunnan is already taking shape.

Beijing has also won the contract to build Indonesia's first national high-speed rail link – a US$5.1 billion, 150km rail project connecting the capital Jakarta to Bandung, Indonesia's third-largest city.

Infrastructure financing, until now, has been a challenge for most Asean countries. With the exception of Singapore – which has a highly developed infrastructure base – and to a lesser extent Malaysia, the nations of Southeast Asia are by and large confronting major infrastructure financing deficits.

Indonesia, for example, the largest economy in Southeast Asia, now spends just 2-3 per cent of its gross domestic product on its infrastructure. The need for better roads and railways for long-distance distribution and improved urban transport is quite evident.

Fortunately for China's belt and road goals, seed funding for infrastructure projects along the initiative has mainly come from the Chinese government, with support from the Chinese commercial banks.

China has also set up three new financial institutions to help fund the belt and road infrastructure goals: the Asian Infrastructure Investment Bank, the New Development Bank and the Silk Road Fund. Between them, these three institutions have a registered capital of US$240 billion, and they are starting to become active investors along the belt and road routes.

In addition, more than 300 Chinese- funded enterprises have been set up in 26 economic cooperation zones in eight Asean countries, investing a total of US$1.77 billion by October 2016.

Even these combined funding capabilities cannot fully meet Asia's immense need for infrastructure financing. The Asian Development Bank estimates that US$750 billion a year will need to be invested in Asia between now and 2020 as developing nations strive to raise their economic productivity and deal with rising urbanisation.

However, Beijing's drive and financial commitments are sizeable, and will have a significant impact across Southeast Asia. China's belt and road initiative is colossal in scale and ambition, setting out a vision for China’s investment in the coming years.

Implementing the belt and road agenda will require a high level of mutual cooperation, understanding and trust. But with careful analysis and handling of the regulatory, political and financial risks involved, it will provide Southeast Asia and China quality and longlasting economic growth – especially in these times of global uncertainty.

This original article was published on the HSBC web site. Please click to read the full article.

By Wong & Partners, a member firm of Baker & McKenzie International

Background

Malaysia recently concluded negotiations on the Trans-Pacific Partnership Agreement (“TPPA”) with 11 countries, namely United States of America, Singapore, Japan, Australia, New Zealand, Brunei, Canada, Chile, Mexico, Peru and Vietnam. The motion to sign and ratify the TPPA was passed by Malaysian legislature most recently on 28 January 2016. This is in advance of the proposal by the 12 nations to sign the TPPA in Auckland on 4 February 2016. The TPPA seeks to promote greater economic integration, as well as lift entry and trade barriers between the member countries. In particular, the TPPA requires member countries to adhere to commitments to develop the financial sector, unless a member country has negotiated exceptions to such commitments. We have set out the key areas of significance and the potential implications on the Malaysian financial market. …

Please click to read full report.

By Gisela Grieger (European Parliamentary Research Service)

Summary

In 2013, China launched its 'One Belt, One Road' (OBOR) initiative. OBOR is China’s broadly sketched vision of how it plans to boost regional integration in its wider neighbourhood. The initiative is unprecedented in terms of China's financial engagement and the innovative network-based project design which is intended to contribute to a more inclusive global governance. It contrasts sharply with existing treaty-based integration concepts where the geographical scope, partner countries, strategy, principles and rules were clearly defined at the outset. China's new development vision has been seen as an alternative to regional trade agreements which do not include it; as a strategy for asserting its leadership role in Asia in response to the US pivot to Asia; as an economic outreach towards Asian countries for resolving territorial and maritime disputes by exporting China’s domestic development policies; as a means of tapping into new sources of growth to check the marked downturn in its economy; as a tool for tackling the socio-economic divide between its inland and coastal provinces; and finally, as a venue for addressing security challenges on its western periphery as well as energy security issues. The response to China's regional integration vision has been mixed. While the idea of enhancing connectivity has drawn considerable interest, given the huge infrastructure gaps across Asia, scepticism regarding China's potential hegemonic ambitions has prevailed notably among regional rivals India and Japan as well as the USA. Whether OBOR will be mutually beneficial for China and the EU will depend on the two sides agreeing on the 'rules of the game', including for joint projects in third countries. Potential synergies between OBOR and the EU connectivity initiatives are being explored under the EU-China Connectivity Platform.

In this briefing:
• Geopolitical and economic drivers of China's regional integration strategy
• The One Belt, One Road (OBOR) regional integration initiative
• OBOR's significance for China
• OBOR's significance for the EU
• Outlook
• Further reading

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By CGCC Vision

Following the Chief Executive’s repeated mention of the development of “One Belt and One Road”, the related topics have been the subject of considerable public discussion. The new policy bears endless opportunities for all, and Hong Kong’s legal profession is, of course, no exception.

Elsie Leung, Deputy Director of the HKSAR Basic Law Committee, believes that as a world power, China should pay close attention to its cultural standing, political and legal systems, and the quality of its people. The “One Belt and One Road” national policy advances the democratic rule of law, deepens the cultural system reform and improves people’s livelihood, which is fully in line with the rise of a world power.

The Uniqueness of “One Belt and One Road”
Leung noted that since the “One Belt and One Road” has no preset rules, it enables China to become proactive. Moreover, the concept has a win-win approach without any threshold and is open, inclusive, mutually beneficial and non-exclusive.

Thus, the areas of cooperation between China and other countries along the “One Belt and One Road” are much diversified, while the Silk Road Fund, AIIB, TPP, international financial institutions and development-oriented financial funds can provide the capital and skills for these countries as required.

Embodiment of One Country, Two Systems
Under the principle of “One Country, Two Systems”, Hong Kong is a part of China while having different systems. It has also become an international financial centre as well as a bridge between the Chinese and Western cultures. On this basis, Leung is convinced that China’s “One Belt and One Road” development initiative and “going global” strategy present major opportunities for Hong Kong’s legal profession.

Hong Kong’s Laws have Obvious Advantages
The country’s development will inevitably involve a large number of contracts. Leung believes that by relying on its existing legal status, Hong Kong can strive to make its laws as the applicable law for the contracts and for its courts and other institutions to become the place for contract dispute resolution, thereby contributing the wisdom and efforts of its lawyers.

She added that Hong Kong’s lawyers are not only adept at the details of both Chinese and Western laws, but also gaining deeper understanding of the legal systems and financing methods of Islamic countries. Furthermore, as Hong Kong’s lawyers are bilingual, they are able to accurately analyze the different requirements of the contracting parties, and share their analyzes with Chinese customers to help them make accurate judgements.

Leung also pointed out that because Hong Kong’s lawyers are in constant contact with a large number of businesspeople from around the world and understand their needs, they are high-quality intermediaries whose participation can prevent misunderstandings and effectively contribute to the negotiations between the contracting parties.

She also commended Hong Kong’s sound and fair international legal dispute resolution mechanism, complete procedural rules, and stringent by-the-book disposal of cases, which are fully in line with international practice. Therefore, Hong Kong is well-positioned to build a legal dispute resolution centre that is generally accepted by the international community. She suggested that Hong Kong should establish a legal dispute resolution centre specialised in serving the “One Belt and One Road” initiative.

Looking Ahead to Seek Opportunities
Looking into the future, Leung looks forward to the various sectors submitting recommendations to the HKSAR Government for inclusion in the Policy Address; she also requested the Central Government to include the recommendations in the “13th Five-Year” Plan for implementation. As in the case of the CEPA, it depends on our proactivity to seek opportunities.

This article was firstly published in the magazine CGCC Vision 2016 July issue. Please click to read full report.