How will China deliver on One Belt, One Road initiative?

China’s One Belt, One Road initiative aims to build links across Asia to Europe, and many companies are excited by the partnership opportunities it will open up.

For certain types of business activities between Chinese digital advertising companies and foreign partners in key trading countries, the cumbersome joint venture model is no longer necessary. Instead, there are harmonised rules governing the collaboration between partners, making it easy to form most types of business relationships outside of an outright acquisition.

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For this easing of paperwork and process, Humphrey Ho, a managing director at Hylink, one of China’s largest digital agencies, credits China’s One Belt, One Road initiative, or OBOR, as it is often called.

Thanks to OBOR, he says, Hylink was able to form a partnership with one of Russia’s largest advertising agencies, AVV. “It was one of the first instances of a digital services company making a connection because of the Silk Road,” says Mr Ho.

Spreading influence

‘Silk Road’ and ‘Belt and Road’ are other names for what is perhaps China’s most ambitious economic and political initiative to date.

Chinese president Xi Jinping endorsed the scheme, which encompasses some 68 countries, in late 2013. Its goal is to develop infrastructure along a modern day version of the ancient Silk Road trading route, connecting China by both land and sea to Asia, the Middle East, Europe and Africa. Reading between the lines, many see a larger goal of building political capital among the world’s countries.

OBOR is using a combination of financing, free-trade agreements and huge infrastructure projects to develop ties and relationships among the 68 countries and the deals seem to accelerate with each passing year.

For instance, Chinese acquisitions in the countries associated with OBOR totalled $33bn by mid-2017, according to Thomson Reuters data, outpacing the $31bn total for the whole of 2016.

So far the focus (at least by the media) has been on hard infrastructure projects. For example, earlier in 2017 China and Malaysia broke ground on a $13bn rail project within Malaysia, the largest project in the country.

But as Mr Ho notes, OBOR is also facilitating trade and business relationships among companies that are not directly involved in the process. He says Hylink is now able to form solid, legally binding partnerships with companies in many of these countries.

Pakistan trial

The initiative also offers investment opportunities for companies outside of China. Simon Calton is CEO of the Carlton James Group, a private investment group in the UK specialising in diversified portfolios across different global asset classes for a number of global funds. He says OBOR is high on the company’s investment agenda for many reasons.

“I think it is a game changer when it comes to the world,” he says. “Among other things, it is forcing certain countries to negotiate and work with their neighbouring countries in more detail when it comes to trade.”

The Carlton James Group is looking to invest in Pakistan and is currently in negotiations with several groups in the country about sites along the China-Pakistan Economic Corridor (CPEC). “Our model is to fund the initial development of the land and then look for the local partner to buy us out as quickly as possible by getting the land to a position where they can get further investment or borrowing elsewhere,” he says.

“Essentially Pakistan is our trial for OBOR. If we can make what we do in Pakistan work, then we can make it work for pretty much any of the 68 countries in OBOR.”

A road to nowhere?

Unsurprisingly, an initiative of OBOR’s size has its share of sceptics. Richard Farrell, associate portfolio manager of the RBC Emerging Markets Equity Fund, says much of the details have not been made public. “That suggests China might not be making decisions based purely on the economic return from the investment,” he says. “There are political considerations that could be going into these decisions.” Companies should be aware of that as they make their own investment decisions, he adds.

Others question the longevity of the project. “It is a lot easier to start a giant, multi-decade initiative than it is to finish it,” says Joel Moser, founder and CEO of Aquamarine Investment Partners, and an adjunct professor at Columbia University’s School of International Public Affairs.

Also, many industries, including transportation and energy, are at inflection points as technology disrupts their business models. It may not be wise to engage in such an ambitious plan when current assumptions about these industries may not hold, says Mr Moser.

“When you look at the value of an infrastructure asset, you’re not thinking about the next couple of years but the next couple of decades or century,” he adds. “And it is wrong-headed to imagine that decades from now goods will ship around the world in the manner that they are being shipped right now. They could be locally manufactured with 3-D printing, for instance.”

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