One Belt One Road: What you need to know
Bill Banks CA has watched the development of China’s US$1 trillion ‘One Belt One Road’ initiative with fascination.
In his position as EY’s Global Infrastructure Leader and his unique point of view from having lived and worked in Australia for 16 years, Bill offers deep insight into an infrastructure investment program that will change the way the world works.
What is One Belt One Road’s reason for being?
I would describe it as the Chinese government utilising the experience of its state-owned enterprises (SOEs) to build global economic and trade corridors. This infrastructure will ultimately help facilitate the movement of goods to and from China.
Along the way it adds value to the countries that it passes through. There's a much-needed economic value capture for these countries too and therefore delivers a win/win outcome if structured properly.
It’s looking at all forms of transport: rail, roads, ports, airports, and also utilities such as power stations, water treatment, etc.; anything that facilitates economic growth.
Why is China embarking on such a bold initiative?
China has a huge scale of state-owned enterprises, massive capital reserves and a wealth of great technical expertise from projects carried out within the country.
They've achieved a fantastic amount in a very short space of time. Now the government is asking how they can export that experience and knowledge into overseas investment.
Historically, China has not been terribly big as an out-bound player, but we’ve seen the country’s government make significant investment in their own country.
Anyone who now visits China sees the mega-cities and the urbanisation and the high-speed rail links, etc. They've achieved a fantastic amount in a very short space of time. Now the government is asking how they can export that experience and knowledge into overseas investment with key trade partners.
Do you see it as a positive?
Yes, I do. Properly structured, it can absolutely raise the economic capacity of the countries that it passes through. Spreading capital and technical expertise around the globe, on a meaningful basis, is a good thing, especially into emerging markets that currently lack the financial capacity and technical expertise to deliver such projects.
Is it very much a matter of Chinese government and business working as one?
Absolutely. The Chinese government is trying to help its major players in the infrastructure market to export goods and services, and to present China as a ‘one-stop-shop’ for infrastructure investment, combining technical engineering expertise with financial capacity to deliver major infrastructure projects. This unique approach does provide Chinese SOEs with a compelling competitive advantage.
Will the initiative only target infrastructure investment in specific geographic areas through which the ‘belt and road’ travel?
I think ‘Belt and Road’ is a convenient catch-title, but I suspect it’s a global game, now. The initiative will invest anywhere.
They're looking at US markets now thanks to President Trump's talk about infrastructural investment.
The Asian Infrastructure Investment Bank (which will help to fund some of the infrastructure projects) has 71 member countries and is looking to get that number up to over 100.
Look at any One Belt One Road (OBOR) map and you’ll see it's moving more and more to the West. They're looking at US markets now thanks to President Trump's talk about infrastructural investment. I don't think Australia will miss out, either.
Does pivoting the initiative to the West provide a financial incentive for China?
Yes; emerging markets have significant infrastructure investment requirements but sometimes their ability to pay is the reason why these projects are not happening.
People keep talking about OBOR being a trillion-dollar play. There might be a trillion dollars of infrastructure required, but someone's got to pay for it.
Chinese SOEs are now adapting their delivery approach to comply with these local procurement requirements.
Whilst the Chinese and other international investors can clearly finance the required investment in infrastructure, the funding gap still remains as to who will ultimately pay to use or access this infrastructure.
Until this issue is resolved all that will happen is that the infrastructure funding gap will get larger and larger. That's the big conundrum.
Do pieces of Belt and Road infrastructure come with strings attached?
I’m not sure if it’s ‘strings attached’, but certainly the Chinese SOEs approach to OBOR is to utilise a fully integrated Chinese delivery model across all phases of the infrastructure lifecycle.
However, what we are now seeing, is as the Chinese SOE’s enter more developed markets such as Australia, the UK or US - with more refined procurement frameworks - they do need to be more inclusive in their approach to infrastructure delivery and engage with local market participants. Chinese SOEs are now adapting their delivery approach to comply with these local procurement requirements.
Should CFOs and other accounting professionals from the West keep their finger on the pulse of the changes being created by One Belt One Road?
One Belt One Road is here to stay and will continue to be a key driver of economic growth globally, not only for China but also for its trade partners on the OBOR. It's a major part of the economic platform globally, and therefore you really do need to embrace it.
For anyone in the infrastructure lifecycle, you ignore the impact of OBOR at your peril.
There are great opportunities for Western businesses to partner with Chinese businesses on projects, especially in these early stages as the global market transitions to accept the OBOR initiative.
For anyone in the infrastructure lifecycle, you ignore the impact of OBOR at your peril, as most industries and businesses will be somehow affected by this investment either as players in the infrastructure market or as trade partners to benefit from the investment in new economic infrastructure. As ever, major benefits will be realised by those that have the courage to move first.