China’s massive infrastructure project to connect multiple continents will cost trillions of dollars. But how do Covid-19 and diplomatic relations affect the future of the project, and what does it mean for issuers that stand to benefit? Ben Ashwell and Tim Human report
The Silk Road was a transformational network of roads and maritime routes that ran through much of Asia, into the Middle East, around East Africa and into Europe. It spanned continents, lasted for roughly 1,500 years, had a profound effect on international trade and facilitated giant strides in technology, commerce, infrastructure and economics until its eventual demise in the 18th century.
Its legacy was echoed in 2013 when Chinese leader Xi Jinping unveiled the Belt and Road Initiative (BRI) – formerly known as the One Belt, One Road Initiative – so much so that the government’s project is also known as the New Silk Road.
The ambitious, decades-long initiative aims to address an infrastructure gap that exists across much of Asia, by creating connectivity, trade routes and economic opportunity between China, Mongolia, Russia, central and west Asia, Pakistan, India and Eastern Europe.
An official plan for the project was unveiled in 2015, which emphasized five broad goals:
1. Co-ordinating economic development strategies and policies 2. Infrastructure connectivity 3. Lowering trade barriers and improving investment and trade relations 4. Deepening financial co-operation 5. Strengthening people-to-people links.
At the time it was estimated the project would cost more than $1 tn and have a transformative effect on the region, although estimates vary widely: a 2018 report from Moody’s placed the overall cost at between $2 tn and $8 tn.
Indeed, between 2013 and 2018, China invested $614 bn in the project, with 38 percent of that going toward the energy sector, 27 percent to transport, 10 percent to real estate and 6 percent to metals, according to an analysis by Moody’s. More than half of that investment was in Asia, while 23 percent of it was in Africa and 13 percent in the Middle East.
With such a huge undertaking and such significant amounts of investment required to deliver on the BRI, IR Magazine set out to find examples of companies that stand to benefit from the project. For such a long-term initiative, we wanted to know how public companies communicate their involvement to the investment community. Throughout this article, you’ll see examples of how companies around the world discuss their involvement in the BRI.
Chinese focus on domestic issues We didn’t find as many examples as we were expecting, however. A spokesperson for the Hong Kong Investor Relations Association (HKIRA) tells IR Magazine that the BRI is not getting much attention from listed companies in HKIRA’s jurisdiction.
Further, searches of a number of regulatory filing databases throw up a shorter list of companies than expected. The trend among those companies that do discuss the BRI is to address it vaguely and as a business opportunity for the future.
Joanne Wong, senior managing director in the strategic communications segment of FTI Consulting in Hong Kong, says the BRI is less of a priority for the Chinese government right now, as it focuses on issues such as the Covid-19 recovery, diplomatic relations with the US and India, and a refocused five-year plan (set to be unveiled next year).
‘What we understand via our sources and networking with the Chinese government is that [the BRI] is not a current top priority,’ she says. ‘The circular economy initiative to boost the domestic economy post-Covid-19 is the most important priority now.
'And the upcoming announcement of the next five-year plan is also likely to focus on domestic growth and innovation. Not only because of Covid-19, but also because of the current tension between China and India, the [BRI] is now becoming a bit too politically sensitive, as India needs to be a key player within this initiative.’
Ronald Chan, chief investment officer at Chartwell Capital, adds that the Greater Bay Area – another massive infrastructure project designed to connect nine southern Chinese cities through a network of train, air and sea transportation – could be taking greater focus because it’s ‘more concrete’.
He says the Hong Kong Trade Development Council has merged two committees that individually intended to focus on the BRI and the Greater Bay Area Initiative separately.
Green Investment Principles The huge investment and construction demands of the BRI have also raised obvious concerns about the potential negative effect on the environment, climate change and local communities. To mitigate the impact of the project, green finance experts from China and the UK met in London two years ago and launched a set of principles to encourage sustainable, low-carbon developments in BRI countries.
Since then, the Green Investment Principles (GIP) have attracted 37 signatories with assets under management of around $41 tn, according to the GIP 2020 annual report, which was released in September. The signatories include major financial institutions from China and overseas, such as Bank of China, China Construction Bank, Deutsche Bank, HSBC, Standard Chartered, BNP Paribas and UBS.
At time of writing, there are also 12 official supporters of the GIP. They range from environmental disclosure groups such as CDP Worldwide to professional services firms and data provider Refinitiv.
The list of seven principles aims to cover three main areas: strategy, operations and innovation. They are:
The GIP 2020 annual report says one of the code’s main objectives is to support BRI development while also keeping the world on track to meet the Paris Agreement climate change goals.
In light of the economic damage caused by Covid-19, the principles can also help support a ‘green recovery’ where investments are focused on areas such as environmentally friendly transport systems and clean energy, according to the report.
With the principles now two years old, the GIP steering committee says it wants to make signatories more accountable. With this in mind, it recently launched a three-year plan with new reporting obligations. For example, by 2023 it expects signatories to have begun making environmental information disclosures.
Despite the existence of the GIP, environmental groups remain critical of many developments taking place in BRI countries. In April this year, more than 250 organizations signed a letter calling on China’s trade minister to exclude ‘high-risk’ projects from any Covid-related financial relief unless concerns are addressed.
The international coalition lists 60 projects – such as dams, coal power plants and copper mines – that it says civil society groups had identified as having ‘major environmental, social, biodiversity or climate risks’.
‘By conducting a thorough assessment of projects seeking financial support to offset the impacts of the Covid-19 pandemic, Chinese state actors and financial institutions can play an important role in realizing China’s commitment to build the ‘Green Belt and Road’ while potentially supporting host countries in meeting the UN Sustainable Development Goals,’ notes the letter.
China’s 14th five-year plan The Chinese government plans to unveils its 14th five-year plan in March 2021. While meetings took place in October 2020 to determine and finalize the plan, the contents will remain unconfirmed until next year.
Experts, including Wang Tao, UBS Investment Bank’s chief China economist, are predicting more conservative GDP growth of 5 percent, rather than the 6 precent to 7 percent outlined in the prior five-year plan. We will watch with interest to see how the next five-year plan factors in to a more domestically focused government policy and the effect that may have on the BRI and China’s other significant infrastructure investments.
