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OBOR Insights - May 2016


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

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 announces first One Belt, One Road funding

The Asian Infrastructure Investment Bank (AIIB) has announced its intention to fund projects in Pakistan, Tajikistan, and Kazakhstan. AIIB is initially focusing on projects led by more established international development banks.

In Pakistan, the AIIB will be joined by Japan’s Asian Development Bank (ADB) and the UK-based Department for International Development to fund a motorway connecting Shorkot and Khanewal. AIIB and ADB are expected to finance approximately US$300M each following their recently signed memorandum of understanding for the joint financing of projects on 1st May 2016.

In Kazakhstan, the AIIB is expected to provide finance alongside the European Bank for Reconstruction and Development (EBRD) and the World Bank for the construction of a ring-road in Almaty, Kazakhstan.

Following the signing of a co-financing framework agreement back in April 2016, the AIIB will fund a road project in cooperation with the World Bank in Tajikistan’s capital city, Dushanbe.

Reports indicate that all three projects will shortly receive preliminary approval from the AIIB’s Investment Committee.

By cooperating with other development banks AIIB, which was only established in January 2016, aims to gain important experience and institutional knowledge from its funding partners and to accelerate AIIB's growth as a major player in development funding.

2. Update: Chinese state-owned shipping company locks down important deals in Greece and Singapore

Chinese state-owned shipping company COSCO continues to make waves.

Since the March edition of OBOR Insights, COSCO has completed its purchase of the Greek Pireaus, leaving COSCO holding a controlling 67% interest in the port.

COSCO’s purchase of Pireaus aligns with China’s One Belt One Road plan to streamline maritime trade between China and Europe and to boost China’s access to global markets.

It is expected that COSCO’s purchase of Pireaus will help push forward European rail projects falling under the OBOR banner by increasing the need to move Chinese goods arriving in Europe by sea around the continent.

In related news, Cosco-PSA Terminal, a joint venture between Cosco Pacific, a subsidiary of COSCO and PSA Corp (The Singaporean Port Authority Corporation), has decided to increase their footprint at the bustling Singaporean port, taking management of three new mega container berths. The new berths will begin operation in 2017. 

3. Country focus: Kazakhstan - A transit bridge to Europe

Since the announcement of the One Belt One Road initiative in 2013, the Chinese and Kazakh government have signed agreements strengthening the countries’ political, economic and business ties with a value of around US$50bn. In early 2015, the Chinese government announced that it would invest over US$20bn in Kazakh infrastructure projects.

China is Kazakhstan’s second largest trading partner and largest export market, especially for Kazakhstan’s major exports of oil, gas and uranium.

Recently, Chinese companies have been in consultation with the Kazakhstan government about potential investments in the construction of a railway line in the east Kazakhstan region. Chinese companies such as Aiju Corporation, Rifa Holding Group, and Guangdong Xinyin Fund Management Co. are seeking to invest in agricultural and food projects in Kazakhstan.

Kazakhstan is part of Eurasian Economic Union (EAEU). This, paired with the country’s location in Central Asia makes Kazakhstan a convenient gateway for Chinese companies to deal with the Eurasian economic community.

From 24 May 2016 to 26 May 2016, the Chinese organisation “Boao Forum for Asia” and Kazakhstan’s “Astana Economic Forum” will jointly hold the “Silk Road national forum”. Governmental officials, entrepreneurs and scholars from countries along the OBOR route will attend the forum to share ideas on how to best move the OBOR project forward. 

4.Increased investment in OBOR projects through China-Russia fund

Economic cooperation between China and Russia is expected to increase after the Russia-China Investment Fund (RCIF) (which holds assets in excess of US$2bn) announced its intention to invest in projects that will increase connectivity among countries along the Belt and Road.

The RCIF launched in 2012 as a 50/50 joint venture between China Investment Corp and Russia Direct Investment Fund. Its projects have included the development of Vladivostok airport catering to Chinese tourists travelling and doing business in the Russian Far East and a telecom network connecting China and Europe.

The RCIF’s current investment pipeline is valued at about US$3bn.

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