OBOR Insights - February 2016

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China’s One Belt, One Road (OBOR) programme is a significant development strategy launched by the Chinese government to sponsor and promote economic co-operation among countries along the proposed Belt and Road routes. The Belt refers to the “Silk Road Economic Belt” across Eurasia – a programme of land based infrastructure development to establish an economic corridor from China to Western Europe. The Road refers to the “21st-Century Maritime Silk Road” - a maritime route connecting China with ports on the South China Sea, the Indian Ocean and the South Pacific, again supported by Chinese-backed infrastructure development. The initiative represents an ambitious and exciting opportunity for all participants in international infrastructure.

With offices spanning key locations in Europe, the Middle East and Asia and a core focus on the built environment and infrastructure development, we at BLP are excited by OBOR’s promise.

To help you keep track of OBOR’s progress, BLP is pleased to present a selection of key OBOR stories, distilled into a monthly ‘speed read’.

Welcome to BLP's 'OBOR Insights' February 2016 issue.

1. Asian Infrastructure Investment Bank open for business

The Asian Infrastructure Investment Bank officially opened its doors on 15 January 2016, with an opening ceremony attended by President Xi Jinping.

The bank will be a major player in infrastructure development in Asia, financing large scale infrastructure projects across the region and being a key financier for projects falling under the umbrella of OBOR.

The bank’s headquarters are in Beijing, with cities such as Hong Kong, Jakarta, Kuala Lumpur and Singapore being touted to be the host of a regional subsidiary office.

2. Rail is key to building OBOR connections

China invested 820 billion yuan in railway infrastructure in 2015, with total investment for the last five years expected at 3.5 trillion yuan. Railway investment could also surpass 4 trillion yuan during the next five years.

The Export-Import Bank of China is one of the banks funding rail construction projects. It recently signed a lending agreement with China Railway Corporation granting a loan of 500 billion yuan for major infrastructure projects.

A high-speed rail route connecting China’s northwest region to West Asia via Central Asia has been proposed, while in December 2015, China and Laos announced a 430km railway connecting Boten (on the Laos border) with its capital, Vientiane. The US$6 billion project will create a new freight and passenger route into emerging markets in SE Asia. Eventually this could extend all the way to Singapore.

In a further round of capital raising, HK-listed company China Railway Group will issue 4 billion yuan in corporate bonds providing further capital to underpin foreign expansion for OBOR initiatives.

3. High speed rail to connect Russia and China

In a good sign for Russian-Chinese infrastructure cooperation, plans for the construction of a high-speed railway connection from Moscow to Kazan in Russia’s Tatarstan region continue apace. China has already invested US$5.2 billion in the project, which will extend over 770 kilometres and reduce a 12 hour journey to just 3.5 hours.The longer term plan is that this railway connection will be further extended into China.

China Railway Group will design and build the rail connection, while Chinese company, CRRC Corporation Limited, will supply the rolling stock.

4. OBOR to boost Sino-Russian trade and cooperation

Russia must be a key partner if China is to realise its OBOR ambitions. With falling oil prices and continuing Western European sanctions, Russia’s relationship with China is vital to its future development.

Economic development zones

Russia plans to establish 14 economic development zones in its inland regions. These are subject to pro-business laws/policies encouraging foreign investment from Chinese-owned businesses, particularly infrastructure companies.

Russia and Central Asia

Central Asia sits within Russia’s geo-political sphere of influence and the region is economically dependent on Russia too. For China, Central Asia is a key region for OBOR; it provides the gateway to establishing economic links to Europe. If the relationship was to degrade, Russian interference could wreak havoc with China’s plans.

To succeed, management is key; both for Russia to continue to benefit from increasing Chinese economic engagement, and for China to realise its infrastructure goals.

5. More planes in the air over OBOR

China intends to add another 200 international air routes in 2016, focusing on flights to nations involved in the OBOR initiative. This should boost its growing aviation industry, which recorded its highest ever profits (54.8 billion yuan/US$8.5 billion) in 2015.

Aviation is key for strengthening connectivity between China and OBOR nations. A shortage of relevant infrastructure is being addressed with Beijing committed to investing 77 billion yuan (US$11.7 billion) this year on the construction of civil aviation infrastructure, but more can be done.

  • If this happens, two things might result an increase in the number of international air routes resulting in the creation of new airlines; and
  • Established airlines expanding fleets.

This will provide exciting opportunities for investors, in particular ever hungry leasing companies looking to increase investment in aviation.

6. President Xi Jinping tours the Middle East

During a visit in late January, President Xi Jinping pledged that China would provide financial support to Iran, which has recently had longstanding international sanctions lifted, to construct a domestic high-speed train connection between Tehran and Mashad as part of OBOR.

During a stop in Cairo earlier on the same trip, the Chinese President reportedly signed a number of agreements with Egypt under which China will provide financial support for Egyptian infrastructure projects. The total investment in these projects will amount to US$15 billion.

In a joint statement, the leaders of the two countries said that the deal would offer new impetus to the economic development of Egypt.

7. OBOR in Europe

OBOR is already having tangible and important effects far beyond China’s immediate borders.

In November 2015, China hosted the fourth China-Central and Eastern Europe (CEE) summit attended by 16 leaders including those from Hungary, Czech Republic, Poland, Romania and Serbia. Here, China announced its intention to assist Poland in establishing itself as a logistics hub for CEE.

Also, a consortium led by China Railway Group has recently been awarded a 10 billion yuan (HK$12.1 billion) contract to build the Hungarian section of a railway linking Budapest (Hungary) with Belgrade (Serbia).

This could be followed by additional projects in the area. China’s Premier Li Keqiang has said that China is looking to cooperate with the upgrading and improvement of port facilities/areas in countries including Croatia, Slovenia, Poland, Latvia and Bulgaria.

8. OBOR and the development of international arbitration

Hong Kong’s Secretary for Justice, Mr Rimsky Yuen, SC, speaking in Shenzen, has said that OBOR and its role in promoting regional integration, trade and investment has far-reaching significance for the future development of international arbitration in Hong Kong. Shenzhen and Hong Kong should cooperate to promote international arbitration.

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