China’s Belt and Road Initiative (BRI): your expert briefing

What is the Belt and Road Initiative (BRI)?

Chinese President Xi Jinping launched the BRI in 2013. This vast, interconnected infrastructure project spans at least 65 countries with a combined population of 4.4 billion and about a third of global economic output. According to China’s Ministry of Commerce, more than $1.3trn of trade was conducted with countries via the BRI last year.

Phase one is infrastructure, specifically transport, communications and power.

Phase two covers e-commerce, healthcare, education and financial services.

The BRI aims to open markets to absorb China’s industrial capacity and boost trade, while also strengthening China’s diplomatic relations. It will also establish greater capability among Chinese companies for building and innovating in infrastructure.

What kinds of projects are part of the BRI?

The so-called ‘East Wind’ train, a milestone transcontinental land corridor project, made history in 2017 by retracing the ancient Silk Road from eastern China’s Zhejiang Province all the way to London. It’s just one of six economic corridors, four land routes through Central Asia and two maritime initiatives.

The BRI aims to incorporate leading-edge digital technologies, such as embedded sensors and data analytics, giving participating countries the ability to leapfrog current Western supply chain practices. From road and rail construction to huge new ‘dry ports’ in Central Asia aimed at replicating the success of maritime ports in the Gulf, the BRI holds the promise of developing some of the biggest projects in the world.

Is the BRI evidence of an expansionist China?

Many commentators see the programme as an effort to gain geopolitical and economic leverage at the expense of rivals such as the US, India and Germany – the political dimension ought to be on the risk radar of any project manager. China has a reputation (deserved on not) for limiting access to lucrative markets, forced partnerships with Chinese companies, pressure to yield technological knowledge and intellectual property, and restrictions on information flow.

At the start of this year, as questions were raised about China’s economic performance and President Trump’s trade war started to create doubts about its ongoing growth, further tensions have surfaced in the BRI.

For example, Malaysia has cancelled two huge BRI projects, including a $20bn railway, worried about costs. Pakistan’s new government wants to review the China-Pakistan Economic Corridor – a $60bn project on its own. Several countries – including Kenya, Zambia, Sri Lanka and the Maldives – that have borrowed money for BRI projects are fending off suggestions that they will cede infrastructure and even elements of sovereignty as a result of the BRI. As a result, perceptions of the programme vary markedly around the world.

Inside China, foreign currency reserves that rocketed at the start of the millennium – from $1trn in 2007 to $4trn by 2014, according to the People’s Bank of China – have drifted down to a ‘mere’ $3trn, easing the pressure to convert cash into infrastructure and reducing available resources to fund it. Some observers say talk of a de-prioritisation of the BRI is overdone, however.

How can project managers get involved with the BRI?

There are huge contracts available for BRI projects. Foreign companies such as GE and Alstom have already become meaningfully involved. According to David Wijeratne and Mark Rathbone, partners at PwC Singapore, there are six key ways in which foreign companies can participate in the first phase.

As experts in international project management. Chinese state-owned enterprises in particular will need advice and guidance on how best to navigate local laws, regulations and business environments. Some companies are already creating advisory services to provide project management services based on their core capabilities.
As partners in engineering, procurement and construction. These can enable a company to gain not only access to new markets along BRI routes, but also credibility within the Chinese domestic market.
As investors, either by co-investing with Chinese players or by investing in partnership with existing financial instruments related to the BRI.
As suppliers – especially of advanced construction equipment and cutting-edge solutions.
As operators of new facilities. Chinese firms may need help managing stakeholders across multiple regions.
As sellers of assets. Companies can divest assets to Chinese or local enterprises along the BRI routes to generate financing and access to markets.

How is risk managed in BRI projects?

Nervousness about the future viability of some of the projects is causing many in Beijing to look again at feasibility and future costs and benefits of projects. Risk management is now, according to Chatham House, the order of the day.

For companies getting involved, that means a BRI project is far from a risk-free proposition, underwritten by China with no questions asked. The host states bear much of the risk, but participating companies will increasingly be responsible for engagement with local communities, delivering on time and to budget – working often with Chinese contractors expecting high levels of efficiency – and working with third-party stakeholders such as banks and insurers.

The association of the BRI with ‘Xi Jinping thought’ suggests that Chinese companies are being encouraged to focus on quality growth and profitability, not just growth at any cost. Further, the BRI’s association with global funding entities such as the World Bank and the Asian Development Bank demonstrates its commercial focus.

And as projects start to come to fruition, more questions are now being asked about issues such as environmental risk

Tips on getting involved in the BRI

PwC’s Wijeratne and Rathbone point out that a joint venture with a Chinese company is the norm for these projects. Companies should build good relationships, not only in China, but also along the BRI path, with commercial partners and governments. Here are their six strategies that for success:

Evaluate the project, but also the maturity of the economic corridor – the ecosystem might need to deliver assets such as power, ports and roads.
Evaluate supporting facilities – infrastructure, but also local workforce skills and capabilities for the project roll-out and future operation.
Consider how a project fits into your portfolio – delivering against your capabilities, risk profile and other infrastructure projects.
Choose the right local partners. Mutual trust and respect are needed to manage the inevitable challenges and crises.
Adopt a risk-sharing approach. Project owners may carry the cost of some of the equipment or agree to a revenue-sharing model.
Develop contingency strategies. Plan for disruptions. Establish an exit strategy and learn from each engagement.

APM members can read the full article in the winter edition of PwC Singapore.