PROPOSED by China in 2013, “One Belt One Road”, now renamed the “Belt and Road Initiative” (BRI), is a global economic plan to create re-gional connectivity through infra-

structure development and promote world trade and economic growth. It plans to con-nect 65 countries across Asia, and the Middle East to Europe by land along the historic Silk Route and another maritime route, down the Pacific and Indian Ocean and up the Mediter-ranean Sea. It is arguably the most ambitious economic project in the 21st century in terms of physical and economic scale and geo-graphic spread.

The 65 countries make up 65 per cent of the world population, one third of the world’s GDP (gross domestic product), 40 per cent of global trade and one quarter of all goods and services the world moves.

In September last year, I mentioned at a conference that, amid the then pessimistic world economic outlook, there were only two possible major stimuli or drivers that could re-ignite global growth, namely the Trans-Pacific Partnership (TPP) and the One Belt One Road (OBOR) programme. The TPP is now as good as dead, although there have been recent at-tempts to revive it. The world is now left with BRI as the only potential global collaborative vision that can be the engine of the world’s economic growth. This BRI programme is sometimes likened to the US’ Marshall Plan, ex-cept that the BRI is 12 times larger.

I attended the “Belt & Road Forum for Inter-national Cooperation” held recently in Beijing. I wanted to personally assess the vibe and spirit at the forum and to listen to what parti-cipating countries had to say on the BRI. More than 1,500 guests from 130 countries atten-ded the forum. This included 29 state and gov-ernment leaders, as well as the heads of major world organisations like the UN secretary gen-eral, managing director of the World Bank and the International Monetary Fund, vice-presid-ent of the European Commission, as well as the heads of the WTO, ICAO and IMO. Initially, Western media reported that the US, Japan and Australia would not be attending the forum. But they were all there and mostly rep-resented by senior representatives.

In his opening speech, China’s President Xi Jinping spoke robustly in assurance of invest-ment in infrastructure to open up trade, pro-mote economic growth through globalisation, connectivity with other countries, win-win projects, inclusive development, and peace-ful economic collaboration. Other world lead-ers advocated peace and prosperity, bonding and friendship, good governance, sustainabil-ity, quality infrastructures, transparency of procurement processes, social and environ-ment impacts and standardisation of cross-border development. The mood was supportive and encouraging, but there was still a palpable reservation over whether China would lead and deliver this global eco-nomic initiative fairly and with transparency.

ECONOMIC SCALESo what is the economic scale of BRI? Asia-Pa-cific will need to spend US$26 trillion from now to 2030 on infrastructure, and Asia alone will need up to US$1.7 trillion in infrastruc-ture investment annually over the next 10 years to maintain growth. One estimate of the BRI’s cumulative investment over the long term is between US$4-8 trillion. BRI countries therefore gladly welcome and support BRI to accelerate their infrastructure-driven eco-nomic growth. Since 2013, China has poured in US$60 billion in B&R (Belt and Road) coun-tries. It has announced recently that total out-bound investment will reach US$120 billion to US$130 billion a year over the next five years giving it a total of US$600 billion.

So where will the funding be coming from? China in a show of leadership for BRI has initi-ated financial institutions like the US$100 bil-lion AIIB (Asian Infrastructure Investment Bank), US$40 billion New Silk Road Infrastruc-ture Fund and another US$100 billion New De-

velopment Bank to support these infra-structure projects. At the BRI Forum, Mr Xi pledged US$124 billion to finance BRI pro-jects, of which US$9 billion will go to assist BRI developing countries. China, as the pro-moter of BRI, wants to make it happen.

There have been doubts expressed, par-ticularly in Western media, on China’s abil-ity to orchestrate this ambitious undertak-ing successfully. In my view, whether it is China, US, Japan or any other world eco-nomic power, a global initiative of this scale will undoubtedly face implementa-tion challenges and obstacles. Funding is the first hurdle, because infrastructure pro-jects will always face issues over their bankability. In addition, where infrastruc-ture projects involve foreign investment, there will be issues such as the host coun-try’s political stability, local vested in-terests and possible resistance, as well as project management and execution risks. And finally, there would still be risks on the completed infrastructures’ perform-ance outcomes.

So does China have the capability to de-liver this grand plan? Over the past few decades, China has convincingly demon-strated its capability to deliver large scale projects successfully. I first visited China in 1982. China was then in abject poverty. At US$200 GDP per capita, it was the largest but one of the poorest countries in the world. Within 35 years its GDP per cap-ita gained 40 times to over US$8,000 per capita. In 1981, 88 per cent of Chinese and 96 per cent of rural Chinese lived below the poverty line. By 2010, less than 10 per cent were that poor. Now ranked as the world’s second-largest economy, it has mi-raculously built up, at one time, more than US$4 trillion in reserves. No one could have forecast China’s dramatic transforma-tion.

China isn’t bestowed with oil or other rich natural resources, yet it managed to lift more than 700 million people out of poverty and grew its urbanised population from 16 per cent to 55.5 per cent. It is the most successful story of migration in man-kind’s history. I have been travelling to China very regularly over the past 20 years dealing in the real estate business in vari-ous cities – and I am still at it. Initially, I was less than sanguine about the mammoth projects China chose to embark on. In the last 30 years, China has succeeded in deliv-ering several gigantic transformational in-frastructure projects. This includes Shang-hai’s Pudong district; the Three Gorges Dam; more than 20,000 km of railway in-cluding the Qinghai-Tibet high altitude rail-way; the Beijing-Shanghai high speed rail-way, which is the world’s longest high-speed line ever constructed in a single phase; the Hong Kong-Zhuhai-Ma-cau Bridge; as well as the Beijing Capital Airport, just to name a few.

I have seen too many of China’s ambi-tious dreams at work and how they have all become reality in an incredibly short time. I have therefore learnt not to underes-timate China and to not doubt their pro-claimed ambitious plans.

Of course, these were largely domestic projects and I am mindful that cross-bor-der undertakings, such as the BRI, will pose dramatically different challenges.

Such a massive undertaking will certainly face a myriad of uncertainties surrounding the plan caused by political, financial, tech-nical, environmental and social, and/or other collaboration issues. These are a “given” in global infrastructure businesses, whether it is promoted by China or by any other economic powerhouses. Having said that, I believe China will need to move this initiative in partnership and collaboration with other countries, as well as commer-cial and multi-lateral development organ-isations to ensure its ultimate success.

So how do I view BRI and the perceived growing influence of China in the world?

With rising protectionist sentiments in the US and the European Union (EU), world growth and global trade is crucial to help prevent such views from escalating. Jobs are a key political problem in all these countries, especially in the EU and among the lower middle class in the US. The imple-mentation of the BRI itself has the poten-tial to create growth, demand and jobs, and can therefore help to dampen protec-tionist sentiment globally.

For developing countries, growth is even more critical. Most developing coun-tries like those in Asean, Central Asia and South Asia are facing what demographers call the “youth demographic bulge”, caused by a rising number of young people. Joblessness will be highly destabil-ising for these countries. Any global im-petus and initiative to foster economic growth and create jobs in these regions can only be a positive.

There have been some initial questions raised on the mutuality of benefits between China and the host countries. It has been claimed that trains that travelled to China fully loaded returned empty, sug-gesting an imbalance in the trade equa-tion. In an apparent attempt to address such concerns, the Chinese ambassador to the UK, Liu Xiaoming wrote recently in Fin-ancial Times that in the first quarter this year, China customs cleared 62 trains, 2,850 containers and 35,027 tonnes of cargo carrying industrial products and only 11.4 per cent returned empty. Con-tainers almost doubled and empty contain-ers halved. Since 2011 China trains made 3,000 trips to Europe linking 27 Chinese cities in 21 provinces to 28 cities in 11 European countries. China is expected to make 5,000 such trips every year by 2020. From 2014 to 2016 total trade between China and the BRI countries exceeded US$3 trillion. Trade in services is also rising in proportion.

Chinese investment in BRI countries now amounts to US$60 billion with an-other US$14.5 billion signed during the BRI Forum. In the next five years, Chinese outbound investment is forecast to reach a total of US$600 billion to US$800 billion and it will largely go to BRI countries.

From an economic standpoint, many companies from developed countries such as the US, the EU and Japan can also benefit from BRI. China and the host countries will certainly need to tap global industries and service providers from the developed countries in the whole value-added chain, ranging from master planning, design, ar-chitectural services, consulting, project management, legal and financial services, etc. Big players in the construction in-

dustry and machine and equipment suppli-ers such GE, Siemens, Caterpillar, Rolls Royce, Airbus, Bouygues, EDF will have po-tentially huge roles in BRI projects. Finan-cial firms like Goldman Sachs, UBS, JP Mor-gan can also be involved in infrastructural financing. Such industry players will wel-come the potential of such big jobs outside their own countries, where the infrastruc-tural developments typically have reached a more mature stage. The knock-on effects of the implementation of BRI and the po-tential benefits to industry players from developed countries cannot be denied.

With BRI and increasing growth and de-velopment, today’s developing countries like Asean, Central Asia and central Europe can develop, industrialise and urbanise. As income levels in these regions increase and the middle class expands, they can also become future markets for developed countries. It may be true that the BRI will in-crease China’s dominance and influence. Any country which invests and/or trades heavily with another country is bound to have some degree of political and even sub-conscious cultural impact on the host country. To me, that is inevitable. Whether that is positive or negative is subjective, and obviously, different countries will have different geopolitical considerations. China’s dominance and influence in world trade is already being felt worldwide, with or without BRI.

PRAGMATISM AND BENEFITSChina realises that the BRI must be open and inclusive to succeed. They should also surely be aware that such a plan cannot succeed without the cooperation of the host countries and the support of other de-veloped countries. For the host countries, the potential direct and indirect benefits of the BRI will likely outweigh any concerns of China’s global dominance, political or otherwise. I foresee that pragmatism will prevail and they will embrace the BRI for its economic benefits. For other countries that are not directly involved, they can still benefit by participating in the implementa-tion process and partake in the growth op-portunities. Non-participation and non-en-gagement, in my view, is not an option!

In conclusion, I would like to say that the world now lacks a key growth engine. I see the BRI as the main locomotive for the global economy over the next decade. This is a plan designed for global infrastructure development to improve connection between Asia and Europe. Having a plan or vision is better than having no plan or vis-ion. Trying to make it work is better than speculating over why it will not work. Emerging countries, with their limited re-sources, may not have the means to grope around to seek their own vision for global expansion. China, with all its capabilities and experience, cannot fully deliver the plan in its entirety without the participa-tion and collaboration of all the host coun-tries. It will also need support in services and expertise from other developed coun-tries.

If all parties concerned do go on board and work with China in this plan, the imple-mentation of BRI will likely transform the world economic landscape for the better. It will result in a “win-win-win” situation for China, developing as well as developed countries. While economic growth and wealth creation by themselves cannot solve all the geopolitical problems that plague this world, it can certainly help to eliminate poverty and improve the quality of the lives of the mass population, reduce the problems of unemployment and indir-ectly, encourage political stability, particu-larly in vulnerable and less developed re-gions.

❚ The writer is chairman of Surbana Jurong and of Changi Airport Group. He delivered this at the “Global Infrastructure Initiative 2017” Forum on May 25.

By Andrew Hammond

BRUSSELS hosts on Thursday and Friday the European Union-China political and business summit. Premier Li Keqi-

ang will lead the Chinese delegation meeting with European Council president Donald Tusk, European Commission president Jean-Claude Juncker, and other top European officials.

The important meeting, held in the frame-work of the jointly agreed 2020 strategic agenda for cooperation, will focus on bilateral political and economic relations, in addition to global and regional issues, with climate change at the fore of this.

Among the other key items on the table are mobility and migration, foreign policy cooper-ation, and an ongoing human rights dialogue between Brussels and Beijing. There will also be preparatory talks for the G-20 summit, to be held in July in Germany.

It is global warming, however, on which the most fruitful bilateral dialogue could be held, and leaders will be assessing the imple-mentation of the 2015 EU-China climate change declaration. Under this, agreed shortly before the Paris deal was concluded, both parties decided to cooperate on develop-ing a cost-effective low-carbon economy.

At this week’s summit, both parties now want to issue a strong statement in support of

Paris. They think this is especially important after last weekend’s G-7 meeting failed to is-sue such a declaration because of United States President Donald Trump’s refusal to back it.

Collectively, the EU and China account for around one-third of global greenhouse emis-sions (which grows to one-half when the US is added into the picture).

And the 2015 bilateral climate change de-claration was one of the key drivers, along with US diplomacy, of the Paris deal.

The reason why EU-China discussions on climate change are so cooperative is that, fun-damentally, both share a vision of a prosper-ous, energy-secure future in a stable climate and recognise the need for bilateral collabora-tion on this agenda. Their 2015 agreement, for instance, agreed to intensify cooperation in domestic mitigation policies, carbon mar-kets, low-carbon cities, greenhouse gas emis-sions from the aviation and maritime indus-tries, and hydrofluorocarbons.

With appropriation vision, both sets of leaders recognise that there is a massive “win-win” opportunity on the horizon from ac-celerating the transition to a low-carbon fu-ture, and bolstering economic growth in both China and Europe at a time of uncertainty about the global economy. And this collabora-tion looks set to only deepen in coming year,

including on emissions trading, with Beijing’s plans to establish a nationwide emissions trading system by 2020.

China’s planned investment in the green economy is staggering, a fact that the EU is in-creasingly recognising. For example, Chinese domestic investment is already planned at more than £200 billion (S$356 billion) in re-newable energy and £380 billion in “smart grids”, not to mention the £170 billion com-mitted to tackling chronic air pollution.

STRATEGIC DIRECTIONThis investment is buttressed by Beijing’s policy commitments on the climate, clean air and energy agendas. In recent Five Year Plans, for instance, a strategic direction has been set for the economy with determination to change the country’s development model from low-grade labour-intensive manufactur-ing toward a greater emphasis on services and innovation.

For instance, China has expressed its ob-jective of achieving up to a 40-45 per cent re-duction in the carbon intensity of GDP, a mam-moth ambition that may not be fully realised. Another signal of the seriousness of Beijing’s climate ambitions is the fact that it is using the experience of its sub-national pilot trad-ing schemes to inform development of its fu-ture national model. Here, Beijing is proving

open and willing to learn from Europe’s exten-sion experience in this area, while adapting its models for China’s domestic circumstances.

Europe has clear strengths in an area that China (now the world’s largest emitter of greenhouse gases) needs here. As the latter continues on a trajectory to potentially be-come the world’s largest economy, there are thus substantial commercial opportunities for EU-based players.

European technology and science firms are leaders in much of this clean technology agenda. For instance, as the United Kingdom renews its own energy infrastructure, the op-portunities for its companies in China are enormous.

Importantly, this collaboration will not just be one-way traffic. Indeed, China is already the world’s largest manufacturer and user of solar panels and the largest investor in renewable energy, and it is increasingly pos-sible that technology transfer will be a two-way process.

To be clear, there is still a way to go before China has a fully-fledged carbon market, and both parties have yet to develop new low-car-bon standards in key industrial sectors. How-ever, the direction of travel is clear: coopera-tion could build low-carbon industries in a range of sectors, and also align Europe more closely to the world’s future largest economy.

In this context, it is important for Europe, a key architect of the Kyoto Protocol before the Paris agreement, to continue to lead the fight against climate change. EU heads of state have signed up to a deal which will see a 40 per cent cut in greenhouse gases by 2030 com-pared to 1990 levels.

However, numerous parties have high-lighted that, welcome as these commitments are, they may need to be enhanced further. This is reflected in the fact that some EU coun-tries, including Germany, are potentially will-ing to go further than the 40 per cent figure.

Critics of Europe’s current position are not just the obvious suspects like environmental groups. For instance, the European Trade Union Confederation has asserted the EU tar-gets need to be higher to reap the full eco-nomic benefits, including jobs, of a cut-ting-edge, clean energy economy.

Taken overall, and with the Paris agree-ment still bedding in, it is clear that both the EU and China have much to gain from a deeper partnership on this agenda, but the window of opportunity to collaborate may not remain open indefinitely. Now is thus the time to intensify cooperation to bolster growth, and define the landscape of the 21st century clean energy economy.

❚ The writer is an associate at LSE IDEASat the London School of Economics.

By Baldev Bhinder

THE steel market continues to surprise ob-servers. Despite a global overcapacity in steel, the prices of iron ore and coking

coal, the key ingredients in producing steel, staged one of strongest rallies in the commodit-ies world in 2016. Much of the rationale behind the price surge has been attributed to the world’s largest steel producer and consumer in the world, China. The Asian giant’s measures at cutting steel overcapacity last year contributed to a sharp rise in prices as demand for coking coal and iron ore imports jumped. 2017 has seen a retreat of these prices but with elevated prices in a market already swamped with over-supply, is the writing on the wall for the steel market?

Coking coal, a vital material needed to make steel, enjoyed bumper profits last year on the back of a price rally that made it 2016’s best per-forming commodity. Prices skyrocketed to US$300 a tonne in the second half of 2016 as China increased coal imports by over 40 million tonnes in response to its policy of cutting the number of coal mining operation days from 330 to 276 in a year. The rationale behind China’s policy of reducing mining operation days has mainly been linked to the government’s drive to reduce emissions notoriously associated with the coal and steel industry and driven in part by the need to increase prices to enable domestic miners to repay their loans to state banks. How-ever, while China sought to tighten its supply tap one way, another branch of the government ramped up the demand for steel by introducing a credit stimulus which spurred construction projects hungry for steel.

China interventionThe result was that Chinese domestic supply could not meet the increased demand, resulting in a spike of prices. The faltering global market for iron ore and coking coal at the time was un-able to respond quick enough to this sudden Chinese demand, resulting in prices doubling in 2016. The jump in prices attracted speculators into the foray and their flurry of activity on the futures exchanges propelled prices to new re-cord highs. The relentless snowball has seen panic purchases intensified by brief periods of supply problems such as when Australian mines were disrupted by Cyclone Debbie in April 2017.

At present, prices of coking coal and iron ore show poor correlation with demand and supply fundamentals. Elevated prices of these commod-ities have only incentivised major producers to ramp up production; for example, in the next two to three years, a further 200 million metric tons of low cost iron ore from Brazil and Aus-tralia is expected to pour into the market.

There are real questions about whether the Chinese steel market can absorb this tidal wave of supply. At present, port inventories of these materials remain at a record high with some Chinese steel mills having overstocked supply in fear of volatile prices. The Chinese govern-ment has also reversed its policy of reducing mining operation days but these changes would take time to impact the market. On a longer-term basis, there are signs that the Chinese govern-ment is looking to cut steel production in a bid to reduce emissions and as part of its move away from its slowing construction industry which is responsible for almost half of the steel produced.

With a wave of oversupply heading into the market on the back of elevated prices, there are real concerns whether China’s refocus on a ser-vices economy can support the market. There has been much talk about whether the “One Belt, One Road” initiative by President Xi Jinping will be a game changer for the steel industry as large-scale construction projects are envisaged but detractors have long suggested that the policy is aimed at reducing China’s own overca-pacity of steel rather than generating a new mar-ket for it.

At present, the demand and supply dynamics affecting the iron ore and coking coal market just do not add up and when prices are no longer reflective of fundamentals, the writing may very well be on the wall.

❚ The writer is a commodities lawyer and partner at Singapore law firm Joseph Tan Jude

Benny LLP.

Belt and Road Initiative is the main global growth engine over next decade

Landmark EU-China summit to bolster Paris climate deal

Steel market at risk of running afoul of price fundamentals

For the host countries, the potential direct and indirect benefits of the BRI will likely outweigh any concerns of China’s global dominance, political or otherwise.PHOTO: AFP

Implementation of the plan will likely transform the world economic landscape for the better. BY LIEW MUN LEONG

The Business Times | Wednesday, May 31, 2017OPINION | 25