WHAT’S THE PROGRESS?
Based on the Belt and Road three-year progress report published by Renmin University of China, solid progress has been made by the Chinese government.
By end 2016, China had signed free-trade agreements with 11 countries and bilateral investment agreements with 56 countries along the Belt and Road.
Facilitating more trade and investment is one of five key priorities. Based on MOFCOM’s statistics from 2014 to 2016, China recorded $US3.1 trillion worth of commodity trade along the Belt and Road, which account for 26 per cent of its total trade volume.
Over the same period, China had invested $US42 billion in total in these countries, accounting for 11 per cent of China’s overseas direct investment.
Chinese companies have also signed $US305 billion worth of international contracts in Belt and Road countries, accounting for 47 per cent of total international contracts signed during the same period.
These figures were enormous when put in an Australian context. Two-way trade between Australia and China for the same period was around $US350bn and net direct investment made by Chinese companies in Australia was around $US11 billion, according to the Australian Bureau of Statistics.
WHO ARE THE KEY PARTICIPANTS?
One key rationale for BRI is to boost trade. China is targeting annual trade with Belt and Road countries to reach $U2.5 trillion by 2025.
As a result, the early participants are large state owned engineering and construction companies winning major contracts to build ports, railways, tunnels, power plants and gas distribution networks.
If you want to look for the world’s tallest building, biggest airport, longest bridge and high speed railway systems, you will find them in China - and they have all been built by China International Contractors Association (CHINCA) members.
The association has 1,300 members, including names such as China Communications Construction Company (CCCC), China State Construction Engineering Corporation (CSCEC), China Rail Construction Corporation (CRCC), China Railway Group (CREC) and China Rail and Rolling Stock Corporation (CRRC).
Not only do they all start with a ‘C’, but they are also all huge. Based on latest financial information, the aggregated revenue and total asset of these five companies are $US426 billion and $US598 billion respectively.
Put in an Australian context, those five mega contractors can generate a similar amount of revenue as Australia’s entire stock market and hold half as much assets on their balance sheet.
CHINA’S FINANCIAL INSTITUTIONS
The Asian Infrastructure Investment Bank (AIIB) approved $US509 million loans in power, transportation, and urban development projects along the Belt and Road in June 2016.
However, looking beyond the headlines, it was China’s policy banks providing active support to the BRI.
Based on the three-year progress report, China Development Bank’s Belt and Road project pool involves more than 900 projects.
The Export-Import Bank of China also recently signed over 500 projects and provided more than $US80 billion loan in total last year with 49 countries.
By June 2016, China Export & Credit Insurance Corporation had supported export, domestic trade and investment with a total value of U$2.3 trillion.
As of March 2016, nine Chinese commercial banks had set up 56 branches in 24 Belt and Road countries. In addition, 56 commercial banks from 20 Belt and Road countries have set up 7 subsidiaries, 18 branches and 42 representative offices in China.
SHOULD AUSTRALIAN COMPANIES PARTICIPATE?
Other than joining the AIIB as a founding member, Australia’s engagement with BRI has been lukewarm. Some put it in the too-hard basket due to uncertainty around sovereign risk, project economics and execution risk.
Others may critique the real agenda behind the BRI is China’s infrastructure diplomacy. However those engaged surprisingly found their interests have been welcomed, with letters sent to each participant.
Although the Chinese contractors and banks have made solid progress, this ambitious initiative can’t be implemented exclusively by Chinese companies or financed solely with Chinese money.
China will need international companies to participate to bring their special expertise and capital to the table.
Australian companies should engage - or risk falling behind companies from Japan, Korea and Europe. If Australia sits on its hands, it may well miss a golden opportunity to benefit from another miracle in the year of the rooster.
Jason Qi is a director in Client Insights and Solutions at ANZ