summary: china's "one belt one road" initiative: insights for finland. team finland...

CHINA’S “ONE BELT ONE ROAD” INITIATIVE:INSIGHTS FOR FINLANDTEAM FINLAND FUTURE WATCH, JANUARY 2016

Team Finland Future Watch Report, January 20162

What implications on business in shorter and longer term does the largest infrastructure initiative of our time - China’s “One Belt One Road” - provide for Finnish companies and for Europe in strategic terms? Team Finland Future Watch is contributing to the discussion by providing two studies on the subject: one for China and one for Kazakstan. The following summary is about the China’s OBOR initiative. Full report is available via the link above.

Team Finland Future Watch on käynnistänyt hankkeen, jonka tavoitteena on ymmärtää mitä tämä vuosisadan suurin infrahanke One belt One Road (OBOR) merkitsee käytännössä ja millaisia bisnesmahdollisuuksia suomalaisille yrityksille voi aueta lyhyemmällä ja pidemmällä aikajänteellä. Hankkeessa tehdään kaksi selvitystä: toinen Kiinan ja toinen Kazakstanin näkökulmista. Tämä esitys on kooste Kiinaa koskevasta selvityksestä, joka löytyy kokonaisuudessaan ao linkistä.

One belt one road – Insights for Finland. Team Finland Future Watch

INTRODUCTION


1. “One Belt One Road” Defined2. Countries covered by obor3. The main OBOR routes4. Key OBOR Provinces in China5. Goals of obor6. Some OBOR Agreements /

Implementation Plans 7. Key OBOR Provinces in China8. OBOR background9. Institutions Related to OBOR10.Founding Members of the AIIB11.Wider Implications of OBOR12.Types of Opportunities created by

OBOR13.What to do?

CONTENT

CONTACT DETAILS

Professor Michael J. EnrightEnright, Scott & Associates, Ltd.


Sari Arho HavrénTekes Asia Pacific, Future Watch Asia

4

• “One Belt One Road” is a Chinese initiative to connect more than 60 countries (64 at present) with physical, commercial, cultural, and other links

• “One Belt” = the “Silk Road Economic Belt,” a recreation of land-based trade routes from China through Central Asia and on to the Middle East and Europe. This is also called the “Modern Silk Road.”

• “One Road” = the “21st Century Maritime Silk Road,” also called the “Maritime Silk Road,” which recreates and expand on traditional sea routes.

• Both “One Belt” and “One Road” were personally announced by China’s President Xi Jinping during overseas trips.

• A related initiative the “Digital Silk Road,” which attempts to foster international cooperation, cooperation in 5G, cloud computing, the Internet of Things, big data, e-commerce, digital investment, smart cities, and smart energy has received less attention


“ONE BELT ONE ROAD” DEFINED

COUNTRIES COVERED BY OBOR

• China• Southeast Asia: Brunei, Cambodia, Indonesia, Laos, Malaysia,

Myanmar, Philippines, Singapore, Thailand, Timor-Leste, Vietnam

• South Asia: Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, Sri Lanka

• Central and Western Asia: Afghanistan, Armenia, Azerbaijan, Georgia, Iran, Kazakhstan, Kyrgyzstan, Mongolia, Tajikistan, Turkmenistan, Uzbekistan

• Middle East and Africa: Bahrain, Egypt, Iraq, Israel, Jordan, Kuwait, Lebanon, Oman, Palestine, Qatar, Saudi Arabia, Syrian Arab Republic, Turkey, United Arab Emirates, Yemen

• Central and Eastern Europe: Albania, Belarus, Bosnia & Herzegovina, Bulgaria, Croatia, Czech Republic, Estonia. Hungary, Latvia, Lithuania, Macedonia, Moldova, Montenegro, Poland, Romania, Russia, Serbia, Slovakia, Slovenia, Ukraine



COUNTRIES COVERED BY OBOR

Source: Xinhua


THE MAIN OBOR ROUTES

Source: Xinhua; Enright, Scott & Associates

OBOR ECONOMIC CORRIDORS

• New Eurasian land bridge to run from Jiangsu Province to Rotterdam: China –Mongolia- Kazakhstan-Russia- Belarus- Poland- Germany-Netherlands would extend existing route to Kazakhstan freight railways

• China-Mongolia-Russia Corridor: High speed rail and road links, freight trains are already running along this route

• China-Central Asia-Western Asia Corridor: mostly for energy, China-Central Asia gas pipeline already exists (world’s longest) Turkmenistan, Uzbekistan, Kazakhstan, Xinjiang plans to link Middle East with this pipeline as well

• China-Southeast Asia Corridors: three lines Kunming through Vietnam, Laos, Myanmar also connect through Nanning to Guangdong Province

• China-Pakistan Corridor: note passes through Kashmir and Indian Government is opposed to this

• Bangladesh-China-India-Myanmar Corridor: rail construction, road construction, industrial parks

• China-Myanmar Corridor: pipelines, highways, rail



OBOR ECONOMIC CORRIDORS

Source: Hong Kong Trade Development Council; Enright, Scott & Associates

GOALS OF OBOR

• STATED• To achieve policy co-

ordination across OBOR nations

• To build the infrastructure to enhance connectivity among OBOR nations

• To increase trade and investment flows

• To promote financial integration

• To foster better relations among the peoples of the OBOR nations

• With respect to Europe: to foster greater economic cooperation and integration so China and Europe can be two engines of global growth and development

• UNSTATED• To enhance China’s energy

security• To expand markets for Chinese

industries (including those with overcapacity)

• To increase the competitiveness of Chinese companies

• To enhance China’s hard and soft power

• To extend China’s economic and geopolitical influence

• To shift the balance of power within Asia

• To enhance China’s status as a great power

• To recycle some of China’s international reserves

• To enhance the development of China’s peripheral regions


To re-assert the notion of the ”middle kingdom”


NASA: THE EARTH AT NIGHT –EASTERN HEMISPHEREShows centers of economic development

Source: NASA. Prepared for TEKES by Enright, Scott & Associates

SOME OBOR AGREEMENTS / IMPLEMENTATION PLANS (1)


Joint Communique on the 14th Meeting of the Council of Heads of Governments of the Shanghai Cooperation Organization Member States (15 Dec 2015)Henan’s Implementation Plan for Participating in the Building of the Silk Road Economic Belt and 21st Century Maritime Silk Road (1 Dec 2015)Co-operation between China and the CEE Countries: The Medium-Term Agenda and The Suzhou Guidelines (24 Nov 2015)

Action Plan for Harmonization of Standards Along the Belt and Road (2015-2017) (22 Oct 2015)NDRC Approves Infrastructure Projects Serving Belt and Road (15 Sept 2015)Sino-Kazakhstan Joint Declaration on a New Stage of Comprehensive Strategic Partnership (31 Aug 2015)Hunan’s Belt and Road Action Plan (2015-2017) (14 Aug 2015)

Mid-term Roadmap for Development of Trilateral Co-operation between China, Russia and Mongolia (9 July 2015)Joint Ministerial Statement: Fostering Pragmatic Cooperation towards the Future of GMS Economic Corridors (11 June 2015)

SOME OBOR AGREEMENTS / IMPLEMENTATION PLANS (2)


Guangdong’s Implementation Plan for Participating in the Building of the Belt and Road Initiative (3 June 2015)Joint Statement on Cooperation on the Construction of Joint Eurasian Economic Union and the Silk Road Projects (8 May, 2015)Joint Statement on Establishing All-weather Strategic Co-operative Partnership between the People’s Republic of China and the Islamic Republic of Pakistan (20 April 2015)

Announcement on the Reform of the Integrated Regional Customs Clearance Along the Silk Road Economic Belt (30 March 2015)Vision and Actions on Jointly Building the Silk Road Economic Belt and 21st Century Maritime Silk Road (28 March 2015)The Belgrade Guidelines for Co-operation between China and the CEE Countries (16 Dec 2014)The Bucharest Guidelines for Co-operation between China and the CEE Countries (26 Nov 2013)


KEY OBOR PROVINCES IN CHINA

Source: Enright, Scott & Associates. Prepared for TEKES by Enright, Scott & Associates, Ltd

• Infrastructure needs in OBOR nations • ~USD 1 trillion per year• Not being met by existing mechanisms

• China more prominent role globally• Active in multilateral organizations• Seeking to counter TPP

• Extend relationships and connections in strategically important regions• Southeast Asia• South Asia• Central Asia• Middle East• Africa• Central and Eastern Europe• Western Europe

• China’s resource security• Protect oil and resource trade routes• Invest in resources in critical regions

• Extend and link up China’s existing investments in trade routes in OBOR nations• Ports, railways, highways• Other infrastructure

• Extend China’s “Go Global” company internationalization scheme• Increase international activities of Chinese firms• Improve competitiveness of Chinese firms• Severe overcapacity in key industries at home, so

seek international markets

• Extend China’s “Go West” program to develop underdeveloped areas of China. • Large regional disparities in China• Many key OBOR provinces are in lesser developed

areas


OBOR BACKGROUND


• Asian Infrastructure Investment Bank (AIIB)• Announced 2014, opened 2016• Multilateral development bank

modeled on WB, ADB, etc. and focused on infrastructure

• Initial capital USD 100 billion ~50% from China

• New (“BRICS”) Development Bank (NDB)• Announced 2014, to be opened

2016• Multilateral development bank,

but BRICS countries (Brazil, Russia, India, China, South Africa) to have >55% of shares

• Initial capital USD 34 billion to go to USD 100 billion (41% of the 100 billion to come from China)

• Silk Road (Investment) Fund (SRF)• Announced 2014, already

investing• Funded and managed by

China’s policy banks (CDB, Ex-Im Bank)

• USD 40 billion allocated

• Note: while not an “OBOR institution” per se, the China Development Bank is the world’s largest development bank, with outstanding loans greater than the capitalization of the AIIB, NDB, and SRF combined

INSTITUTIONS RELATED TO OBOR

FOUNDING MEMBERS OF THE AIIB


AustraliaAustriaAzerbaijanBangladeshBrazilBruneiCambodiaChinaDenmarkEgyptFinlandFranceGeorgiaGermanyIcelandIndiaIndonesiaIranIsrael

ItalyJordanKazakhstanKuwaitKyrgyzstanLaoLuxembourgMalaysiaMaldivesMaltaMongoliaMyanmarNepalNetherlandsNew ZealandNorwayOmanPakistanPhilippines

PolandPortugalQatarRepublic of KoreaRussiaSaudi ArabiaSingaporeSouth AfricaSpainSri LankaSwedenSwitzerlandTajikistanThailandTurkeyUAEUnited KingdomUzbekistanVietnam

WIDER IMPLICATIONS OF OBOR


For Europe:Potential economic growth in important regions

Europe may lose some centrality in some trade routes

May increase EU’s trade deficit with China

Increased Chinese investment and influence in Europe

May influence European policy toward China (such as market economy status)

The OBOR initiative is nothing less than an attempt to re-establish the notion of China as the Middle Kingdom with all roads leading to China

The OBOR initiative provides an overarching vision that combines several of China’s key initiatives in a way that it believes is not threatening to other nations. The OBOR initiative will undoubtedly bring the various parts of Asia closer together through physical, psychological, economic, cultural, and political linkages. The OBOR initiative will also substantially expand China’s influence in Southeast Asia, Central Asia, South Asia, Africa, and Europe.

Since the main new linkages will be land linkages, there will be something of a shift in relative importance of sea transportation and land transportationAttempt to re-create the “Middle Kingdom”

FURTHER IMPLICATIONS


How OBOR may affect investments

Funding for investments that are strategic as well as economic (may reduce financial hurdle for some investment)Failure of OBOR is not an option for China’s leadersOther governments may keep commitments to China more than to others

ChallengesSize and scale of undertaking, will supplementary funding be available?Lack of development in many OBOR countriesGeography and topographyPolitical and geopolitical challenges and potential backlashPotential reputational risks for some governments and companies

Who will get contracts?Chinese firmsNon-Chinese firms with needed technical capabilitiesFirms from countries in which projects are builtFirms from other countries that fund OBOR activitiesLikely to be a more open process for AIIB funded projects than others

TYPES OF OPPORTUNITIES

Infrastructure Development, Operation, and Maintenance:

This will include planning, design, engineering, construction, materials, construction equipment, utilities, project logistics and management, related goods and services, operations, maintenance.

Financial and Professional Services:

This will include fundraising opportunities through organizing bond issues, loan syndication, IPOs, public-private-partnerships, special purpose vehicles, Islamic finance; legal, accounting, and related services; trade finance, trade settlement, commodities trading, commodities futures, marine and aviation financing, insurance, leasing; payments and treasury arrangements for OBOR projects.


Transportation and Logistics:

This will include trucking, rail services, port activities, pipelines, transportation equipment (as well as parts and maintenance), fuel, transportation management, logistics, and logistics management.

TYPES OF OPPORTUNITIES

Information and Communication Systems:

This will include communications systems for OBOR institutions, project management systems, control of transport systems, integrated information systems, 5G, cloud computing, Internet of things, big data, e-commerce, digital investment, smart cities, smart energy.

Commerce, Manufacturing, and Supply Chains:

This will include expanded trade, new manufacturing locations, new supply chains, industrial parks, e-commerce.


Energy, Natural Resources, and Agriculture:

This will include energy and resource transport, energy and resource investment, agricultural investment, cold chain operations, and related activities.


OPPORTUNITIES FOR FINLAND

“One Belt Two Roads” with the second road being the Arctic route in which Finland would be less peripheral than in the existing OBOR plans.

WHAT TO DO

• Be outwardly supportive but inwardly analytical and opportunistic

• Develop or find projects that can be put under the OBOR rubric

• Find areas in which Finnish companies have distinctive capabilities to contribute to OBOR projects

• Seek opportunities in which Finland / Finnish companies might be favored

• Look beyond the initial stages of the OBOR initiative to operations, maintenance, and improvement

• Redirect or re-brand existing efforts to fit the OBOR rubric

• Explore where consortia involving Finnish companies may contribute

• Seek out the right Chinese partners

• Explore the indirect implications of OBOR (including market developments, shifting economic geography, changing competitive positions, development of new supply chains)

• Seek guidance where appropriate

• Avoid being passive in addressing OBOR opportunities.


Sari Arho HavrénConsul (Innovation)Head of Tekes, Hong Kong Consulate General of Finland, Hong KongTEKES, The Finnish Funding Agency for Innovation Tel (852) 2525 5385 • Fax (852) 2810 1232Mobile: (852) 6895 5221, (358) 40 9111 22610/F, Club Lusitano • 16 Ice House Street • Central, Hong [email protected] • www.tekes.fihttps://twitter.com/SariArhoHavren

summary: china's "one belt one road" initiative: insights for finland. team finland...

Technology