Belt and Road Initiative: Opportunities for Dutch Companies
What is the Belt and Road Initiative (BRI) about, and what businesses and sectors may benefit from tapping into the opportunities BRI offers?
BRI was introduced by President Xi Jinping in 2013 and is a call for infrastructure investment and upgrading. It consists of the Belt (land) and the Road (maritime). Both the Belt and the Road obviously have their ‘starting point’ in China. The BRI is broad conceptual framework for projects that aim for greater economic integration between China and the rest of the world.
To participate, Dutch industries and professions need to capitalize on a strong trading relationship with China. It’s important to note that the BRI is not a comprehensive strategy but rather a large rhetorical umbrella term. The focus for companies should be on identifying smaller and concrete projects on a case-by-case basis.
The Belt and Road initiative is a global initiative which goes beyond merely outbound investments into core infrastructure such as the development of roads, railways and ports. It will also involve airports, power plants, pipelines, waste and water management facilities and telecommunications. These projects will facilitate later BRI projects which aim at consumer focused sectors such as Education, Healthcare, Retail and Financial Services.
Prospective sectors and opportunities
As mentioned above, there are many sectors included in the Belt and Road Initiative. Opportunities may be in the field of:
- Infrastructure – in particular water management, smart cities and ports and airports.
- Investment opportunities: financial institutions and private equity.
- Suppliers of equipment and solutions to construction.
- Logistics and transport.
- Financial and professional services. For example project management consultancy services.
- Operators of finished assets such as Port and Airport operators.
- Advanced manufacturing, equipment and solutions firms.
- Energy and resources (in particular clean energy and sustainability, in line with the Paris Accord that China is committed to).
Important considerationsAre you looking for involvement in BRI projects? These tips will offer you some guidance.
How to engage
Stakeholder management is essential: So far, more than 90 percent of China’s foreign investment has been done through state channels and state-owned enterprises (SOEs). Since SOEs answer to government organizations whilst also being (co)financed by the state, the incentive for these Chinese companies to carefully assess cost, benefits, and risks has been small. As a result, investment returns and commercial viability have been low. Therefore careful assessment of the commercial viability of a prospective project is an important step in the first stages of engaging with BRI.
It is important to keep in mind that Chinese state-affiliated enterprises will often be in the lead on large BRI projects. Hence, for Dutch players it is important to look carefully what supplementary role Dutch firms can play when large projects are conceded to Chinese banks and firms.
Hence, companies that wish to participate need to engage with and understand three levels of management of BRI projects: government agencies, which pinpoint the regions and the economic corridors which will receive priority; the policy banks such as EXIM bank and China Development Bank, which will provide the debt financing; and the state-owned and private companies responsible for implementing projects on the ground. Without connections with all three, it will be difficult to engage with BRI opportunities.
Large firms and multinationals
Because BRI projects are, generally speaking, big projects which entail a high amount of risk, it is not rational for most small and medium companies to become involved at the front line. However, there is a chance large(r) BRI projects will offer opportunities for large multinationals with extensive experience in cross-border infrastructure construction, operation and management.
Small and medium firms
In terms of small and medium sized companies, while they should defer from operating at the front line, they can become involved through subcontracting; specialized services and products for construction and infrastructure projects can be delivered as part of the supply chains. Moreover, firms with extensive experience in cross-border logistical organization, or those that offer services or products that are useful in the operation and management of BRI projects might be able to participate in certain ventures.
- Investing in foreign countries and cross-border projects can be risky, both economically and politically. Make sure you engage in proper risk assessment before venturing into BRI projects.
- Lack of transparency is always an issue when operating abroad. Make sure that your business engages with the legal and accounting standards of the country you want to engage in. Simultaneously, make sure that the authorities and partners you work with are as transparant as possible.
- Lack of uniformity in terms of standards and quality assurance.
- Take appropriate measure to protect your IP. Make sure you safeguard patented technologies and that your company protects its IP.
- Being involved in cross-border operations means that you operate in a variety of legal frameworks, both domestically and internationally. This creates a complex legal framework to navigate. When it comes to contractual engagements, it is advised to make use of professional services. A much relied upon legal system for international deals is UK law.
- Corruption takes place in every country. Even more so when operating in an unfamiliar region with a differing culture and diverging legal frameworks. Be aware of this when investing in BRI projects, both in procurement and in later phases of involvement.
- There are standard macro-economic risks in a wide array of countries which encompass the Belt and Road. These increase the relatively high levels of (corporate and national) debt and related risks such as sovereign credit risks.