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Belt and Road Insights - December 2016

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Summary: Welcome to BLP’s ‘Belt and Road Insights’ December 2016 issue – a selection of interesting Belt and Road news items, distilled into a monthly ‘speed read’.

Updates from the New Silk Road

The Belt and Road Initiative is a major development strategy launched by the Chinese government in September 2013 to sponsor and promote economic co-operation among countries along the proposed Belt and Road routes. With our focus on built environment and infrastructure development, we aim to keep you updated on the latest developments.

English law on China’s Belt & Road

Chinese outward-bound investment and trade is undergoing dramatic developments due to the great opportunities created by China’s massive Belt & Road initiative. As part of our focus on the initiative we have produced a new book which examine why English law is so widely used in Belt & Road deals and the competitive challenge from Chinese law as an alternative.

This book examines in detail:

  • the typical deal structures used on transactions under the initiative;
  • the many choices of governing law and jurisdictions for dispute resolution;
  • why English law is so widely used in Belt & Road deals; and
  • where issues can arise when different governing laws and jurisdiction clauses are, by necessity, being used together on projects and where the overlaps and gaps may lie in wait for the unwary party.

For a full summary and link to the book, please refer to the following article.

UK Autumn statement 2016

As reported back in August Chinese and British enterprises have already created powerful partnerships when working together on projects with a combined value of US$27 billion along the Belt and Road route. Our review of Phillip Hammond’s first Autumn Statement as Chancellor explores the implications for UK infrastructure. You can read the full article here by clicking on the following link.

New cities on the Belt and Road

China’s drive to strengthen land based trade routes across the Eurasian continent is seeing the rise of new cities in previously remote locations to service and staff burgeoning infrastructure.

In central Asia, the Chinese province of Xinjiang has, since 2012, seen increased investment in the expansion of established cities, the founding of new cities and the creation of transport infrastructure.

The city of Horgos which sits on China’s border with Kazakhstan, a short distance from the point of land furthest from any ocean, is emblematic of this trend. In just over 2 years, Horgos has risen from an inconsequential  village to an urban area ready for a potential population of 200,000 people, having received US$3.25 billion in Chinese government-backed investment.

Other Xinjiang cities such as Kashgar, and Alataw are seeing similar development.

Across the border in Kazakhstan is the Khorgos SEZ and dry port, covering 5,740 hectares and including a residential area able to house  50,000 people.

All this development is driven by Horgos/Khorgos’ growing role as a trade hub. China’s Jiangsu province is poised to invest US$600 million into a manufacturing operation in the area and both Chinese and international companies (including DHL and Alibaba) are investigating establishing potential distribution centres.

On the other side of the continent, the city of Terespol is similarly taking advantage of its geographical situation. Located on the border of Poland and Belarus, it is strategically located on the boundary between the EU and the Russian-led CIS. New developments in Terespol include the creation of “Kobylany New City” which is to have a population of 30,000, a 40 hectare duty free and bonded zone located near a major road shipping hub.

The Belt and Road is already having material impact on the economic and geographic landscape along its route, with previously under-developed areas seeing an explosion of new potential.

Gwadar Port plays central role in China Pakistan Economic Corridor

Described by the Pakistan Prime Minister Nawaz Sharif as a “break of a new dawn”, the ongoing development of the deep-water Gwadar Port located on the southwestern coast of the Balochistan province, forms the first stage of the wider USD51 billion China-Pakistan Economic Corridor (CPEC).

With the first trade shipment leaving the port in early November, the port is expected to have a larger trade volume than Karachi Port and Port Qasim combined, which are currently  Pakistan’s two main international operating deep-sea ports.

With the strategy of developing Pakistan into a major trade hub by improving foreign direct investment into the country and with growing interest in the CPEC, to date countries including Iran, Turkmenistan and Russia have already formally requested access to the port.

We first reported the development of the Gwadar port in the November edition of Belt and Road insights which you can read here.

Opportunities for the EU along the Belt and Road

From an initially reserved position on the prospects of China’s ‘Belt and Road’ initiative, commentators have noticed in a shift in the EU’s strance to gradually embracing the initiative, reflected in the institutionalisation of the China-led Asian Infrastructure Investment Bank (AIIB).  Increasingly, Brussels have warmed up to the prospect of the primary source of capital for infrastructure projects across Europe and Asia over the next decade will come from China. The initiative is also offering European manufacturers a new way to get their products across to the affluent consumer markets in the far East.

One such is example is the city of Lodz, in central Poland. Its government, alongside the Chengdu local government co-established one of the first regular rail lines between China and Europe in 2012. this rail line connects Dell’s manufacturing operations in Chengdu with those in the city of Lodz and facilitates the trading of local food products between two regions.

Alongside financing opportunities, the EU sees the initiative as a vehicle to promote its position on climate leadership. Since most Belt and Road destinations are parties to the Paris Agreement on Climate Change, it enables the EU to promote the use of green technologies in these economies and ensure compliance with the Agreement’s principles.

Latvia agrees to join the Belt and Road Initiative

Following a recent visit by Chinese Premier Li Keqiang, Latvia on 4 November officially agreed to participate in the Belt and Road Initiative by signing a memorandum of understanding with China covering sectors including logistics, infrastructure, trade, technology and finance. Five more agreements relating to transportation and small and medium-sized enterprises were also signed with China demonstrating its enthusiasm in investing in the Baltic Sea state which it views as an important logistics hub for the region.

The agreement signifies another important step by China to develop closer business ties with countries in Central Asia in order to further the Belt and Road Initiative. Several other projects, including the launch of  a new direct rail freight route between Riga, Latvia and Yiwu, Zhejiang, China in October 2016 and the construction of a high-speed railway between Hungary and Serbia, also show China’s determination to closely cooperate with the Central Asian countries with a focus on trade, logistics and infrastructure.

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