Australian companies looking to develop or invest in energy and infrastructure projects across Asia, the Middle East, Europe and Africa should be prepared to partner with Chinese organisations under the auspices of China's Belt and Road Initiative (BRI), according to a new report by Baker McKenzie and Silk Road Associates: Belt & Road: Opportunities & Risks. The prospects and perils of building China's New Silk Road.
In fact, new BRI-related projects will be worth an estimated US $350 billion* over the next five years, with private Chinese interests and international partners begin to invest in the wake of the Chinese SOEs that have already invested or participated in nearly 1700 projects in Belt and Road countries since the initiative was launched three years ago.
For Australian companies, the opportunities for partnership with Chinese investors and developers is huge, with a combination of Chinese financing and Australian experience, know-how, and now environmental credentials, an attractive option for those agencies and governments considering BRI projects in the jurisdictions they cover.
One way to do this is through multilateral banks such as the Beijing headquartered Asian Infrastructure Investment Bank (AIIB), which is a major financer of BRI-related projects. The AIIB has recently funded a range of projects including road projects in India and gas pipelines in Azerbaijan.
Australian companies can more easily bid for such opportunities as tendering and procurement processes are open and transparent.
One further, major advantage many Australian companies can bring to the table when tendering for these projects is their environmental credentials, which are often more considered and developed than those of organisations from other countries.
Martijn Wilder, Partner, Sydney, Baker McKenzie, said: “Multilateral banks are increasingly focusing their investments on projects that deliver ‘green’ outcomes. For example, one of the AIIB’s three thematic priorities is sustainable infrastructure. Its Sustainable Energy for Asia Strategy seeks to align support with member country, nationally determined contributions under the Paris Climate Agreement and sets out a clear framework for the bank to invest in energy projects that will increase access to clean, safe and reliable electricity for millions of people in Asia.”
While BRI (also know as OBOR) is primarily divided between the overland 'Belt', the classically defined Silk Road that stretches from China to Europe, and the new, maritime Silk Road, that covers much of Asia, the Middle East and Eastern Africa, there are actually six different BRI trade corridors developing at present, which collectively cover 69% of the world's population and 51% of its GDP.
Ben Simpfendorfer, Founder and CEO of Silk Road Associates, said: "A tangible shift in Chinese commercial activity in the BRI region over the past six months should now leave no doubt about China's intention to see BRI become a defining force in the global economic landscape, for decades to come."
While infrastructure development has been the primary driver of BRI activity to date, this new report identifies sectors including technology and telecommunications, manufacturing and eventually consumer goods and retail as all starting to play a larger role in BRI over the next five years and beyond.
The report encourages companies to begin exploring BRI opportunities on offer now, while international partners including those from Australia are being widely sought by Chinese investors.
Stanley Jia, Chief Representative of Baker McKenzie's Beijing office, said: "While BRI was seen at its inception as predominantly the preserve of Chinese SOEs, funded by Chinese banks, and staffed by Chinese workers, the sheer scale and ambition of the initiative means there will be plentiful opportunities for those local and multinational companies that can work hand in hand with Chinese organisations for mutual benefit, particularly as the next wave of Chinese investment arrives."
BRI is also not without risk for those companies that are investing in and working on BRI projects. Those risks include foreign investment restrictions, antitrust regulations, tax, local employment and environmental laws, as well as political risks in some jurisdictions.
Baker McKenzie is uniquely placed to support organisations with BRI ambitions, with an on the ground presence in more countries than any other law firm along the Belt, and the Road.
* Silk Road Associates has developed proprietary data analytics on China-linked infrastructure projects in BRI economies. This dataset includes over 500+ projects that involve Chinese parties, SOE and private firms. The US $350 billion figure is estimated by looking at the pattern of infrastructure-related projects by sector and country in the BRI region since 2013, and other factors such as expected government commitment and geopolitical trends; then, forecasting an expected increase in activity over the next five years by sector and country.