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OBOR Insights - July 2016

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

UPDATES FROM THE NEW SILK ROAD

China’s One Belt, One Road development strategy aims to increase economic cooperation across Asia, Africa and Europe. With offices spanning key locations in Europe, the Middle East and Asia and a core focus on the built environment and infrastructure development, at BLP we are excited by OBOR’s promise.

1. AIIB’s first annual conference

On 25-26 June 2016, the AIIB held its first annual meeting of its Board of Governors in Beijing. Jin Liqun, President of AIIB reported on the AIIB’s progress during its first six months of operation since 16 January 2016. President Jin advised that four loans with a total amount of US$509 million have been approved by the Board of Directors, three of which are to be co-financed with other multilateral development institutions.

The Board of Directors also approved the establishment of the AIIB Project Preparation Special Fund on 24 June 2016. The Fund is expected to provide loans to the AIIB’s low and middle income member countries for preparation activities, including environmental, social, legal, procurement and technical assessments and analysis. The Chinese Government has made its first commitment to the fund with US$50 million contribution.

For more details on the annual conference and the AIIB, please refer to the following article, in which we look back at AIIB’s progress to date and analyse its set-up, governance, operations and activities.

2. AIIB’s Push into Pakistan

AIIB is to make its first ever loan on a Pakistan based project, financing the construction of 64 kilometre long four-lane segment of a highway in the Punjab region. The AIIB will be a co-financier of the project along with the Asian Development Bank. AIIB are the ADB are each providing $100M in financing.

While the AIIB is independent of China, its move is consistent with China’s continuing interest in cultivating Pakistan both as a key ally in the region and an infrastructure and transport hub. For Pakistan, the project is hoped to better connect the north and south regions, providing a boost to the country’s economic development.

3. Brexit debate – the Chinese perspective

Since the result of Britain’s vote to leave the EU, the Chinese administration has largely maintained its official policy of non-interference in domestic affairs of other countries, stressing the UK government has enough financial reserves to limit the fallout.

However the result has come at a sensitive time given the UK’s position as a strong ally and advocate for China in building up EU political ties which are key to developing its One Belt, One Road Strategy. As an example, Cameron has previously advocated a multi-billion dollar China-EU trade deal to open up EU markets to Chinese exports. Inevitably Britain’s exit is likely to curtail China’s lobbying efforts on this front.

The implications of Brexit goes beyond the immediate concerns over political and economic ties to Europe through the UK. There is an overriding concern the decision will usher in an era of long term instability and uncertainty which will be far more challenging for China to operate within, something the administration is clearly interested in avoiding.

4. Qualitatively new approach in Chinese-German trade relations

German Chancellor Angela Merkel and Chinese Premier Li Keqiang co-chaired the fourth round of intergovernmental consultation held on June 13th in Beijing.

China-EU trade was on top of the agenda during Merkel’s three day visit. Li encouraged the EU to drop the Surrogate Country approach as scheduled by the end of 2016, with Merkel expecting the European Commission to consult with China on the issue as soon as possible, to seek a solution that both accords with WTO rules and will solve trade disputes.

The bilateral trade relations between Germany and China have been strong to date and during the consultations the two sides were demonstrating their interest to create a fair and open environment for two-way investment, with aims to work closer in intelligent manufacturing, finance, automobile manufacture, information technology and aviation.

24 cooperation deals were signed, among them economic agreements totalling a volume of EUR 2.73bn including several third country projects for example Siemens and the China Railway Rolling Stock Corporation who agreed to support the development of high-speed railway projects in third-country markets. Merkel highlighted the engagement in third country projects as a qualitatively new approach.

5. China and Russia to sign a cross-border e-commerce platform agreement

China and Russia will establish the largest cross-border e-commerce platform for Russian goods to be sold in China. The internet platform was created in the O2O segment — online-to-offline, which will attract internet consumers to the physical storefront. Residents in Beijing would be able to directly buy authentic Russian food such as caviar and vodka.

This O2O platform for Russian goods will be established by around 300 online and offline suppliers and stores. 20 million yuan ($3.1 million) has already been spent to ensure Russian goods become more popular in China. Projected sales over the course of the next five years, is estimated at 1 billion yuan.

6. China-Malaysia “Two Countries, Twin Parks” initiative

Following the signing of several memoranda of understanding between investors from China and Malaysia, the twin industrial parks, Qinzhou Industrial Park in China and Kuantan Industrial Park in Malaysia, are set to have attracted USD 395 million worth of new investments. The investments include an aluminium component manufacturing facility by Guangxi Investment Group Co., Ltd and a high-tech production-based centre to produce concrete panels for construction industries and activated rubber powder by LJ Hightech Material Sdn. Bhd.

The twin parks initiative has been seen as an ‘Iconic Project for Bilateral Investment Cooperation’ between China and Malaysia. It is expected that the long standing business relationship between the two countries will continue to grow under the One Belt One Road initiative, with increasing connectivity with the other Belt and Road countries.

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