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Belt and Road Insights - February 2017


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Summary: Welcome to BLP’s ‘Belt and Road Insights’ February 2017 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.

Chinese outbound investments facing tighter restrictions

The Chinese government has signaled its intention to implement new proposals to tighten its control over outward foreign investment, with recent concerns over capital flight and to reduce pressure over its reduced foreign exchange reserves.

The announcement comes in light of a weakened domestic currency and investment flowing into China remaining relatively static over the past 12 months. It is reported one of the reasons for the measures coming into effect is in advance of the renminbi further depreciating in the first quarter of 2017 due to US rate hikes.

Proposed measures include the State Administration for Foreign Exchange informing banks on changes to requests for approvals for outbound deals. Under most scrutiny will be M&A transactions valued over USD$10 billion or deals that fall above USD$1 billion if they fall outside of an investors core business. In addition SOE’s will be restricted from real estate deals which are valued over USD$1 billion.

Despite the implementation of these new regulations, it is widely regarded that this is not an attempt from the Chinese government to curb the Belt and Road Initiative, or the activities of Chinese companies with a sound investment strategy; which are perceived as driving legitimate outbound projects. The restrictions are intended to increase scrutiny of the growing trend of companies making questionable sizeable investments outside of their core-business.

2016 saw Chinese outward bound investment reaching over USD$170 billion, which was calculated as a 44% increase over 2015. The past 12 months saw a diverse array of Chinese targets including a Hollywood film studio and The Plough at Cadsden, the pub where David Cameron and Xi Jinping met for a drink.

The role of sport in the Belt and Road Initiative

For many, the Belt and Road Initiative conjures images of grand infrastructure projects: ports, railways, motorways and power stations. Undoubtedly, infrastructure projects are likely to form the backbone of the Belt and Road Initiative. However, as a trade and investment initiative, the scope of the Belt and Road is intended to be wider than just concrete and steel; more broadly, it is an expression of China’s growing soft power.

One medium through which this soft power is expressed is sport. In our recently published legal insight, we examine the role of sport in the Belt and Road Initiative. In particular, we look at the ways in which Chinese companies are using investment in sports in various parts of the world to complement wider commercial and geopolitical strategic objectives.

We also examine potential developments in this less-explored area of the Belt and Road Initiative. Whilst there is considerable scope for further Chinese investment in sport, there are signs that the regulatory environment in China is tightening. As mentioned in the previous summary China is facing higher levels of scrutiny of “irrational” investments outside of a company’s core business, as well as more strict pre-approval of outbound capital flows. These changes could result in a reining-in of current investment levels, which may signal the end to the likes to the football transfer of Argentine striker Carlos Tevez, who in early January joined Shanghai Shenhua, and is estimated to earn USD$750,000 a week.

You can access the full article by clicking on the following link.

Belt and Road Initiative looks to benefit from China's new satellite navigation services

Countries along the Belt and Road are targeted to benefit from China’s new satellite-navigation services, according to a recent white paper produced by China’s State Council . In 2015, Beidou’s satellite network helped Chinese companies generate around USD$29 billion in revenue. As the network’s coverage area expands, neighbouring countries such as Thailand and Vietnam are beginning to use Beidou to deliver navigational data. With the launch of 18 satellites this year the Chinese Beidou-2 satellite network, is expected to provide full coverage for all nations connected to the Belt and Road ranging from the South Pacific to East Africa benefiting an estimated 4.4 billion people.

Beidou’s network which is described as China’s version of GPS is expected to help support China’s initiative by providing accurate positioning services between nations in specific areas including power distribution, transportation and customs clearance.

The total market for satellite services in telecommunications and other associated sectors is estimated to be worth approximately USD$60 Billion within the next few years. By 2020 Beidou aims to have 35 working satellites and an improved network of ground augmentation stations in order to provide global coverage.

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