Call to business – get on board China’s Belt and Road

Call to business – get on board China’s Belt and Road

Thu, 17/05/2018 - 14:40
0 comments
Construction

CONNECTION: China is seeking to unlock major trade benefits by upgrading transport infrastructure from Asia to Europe. Photo: Shutterstock

Jean Dong
Nick

Australian business has been urged to stop waiting for government and engage directly with the vast range of commercial opportunities available under the once-in-a-century infrastructure build.

For many countries, China’s ‘project of the century’ – the mammoth Belt and Road Initiative – also represents the opportunity of a century.

Hundreds of billions of dollars are flowing into developing nations across Asia, the Middle East and Africa, as China embarks on its ambitious plan to revive its historic Silk Road trading routes.

China’s grand plan is to link economic growth strategies across a large swathe of the globe by improving infrastructure and connectivity, and boosting trade and collaboration across borders.

To date, around 70 countries have officially signed up to the BRI plan, which was unveiled by Chinese President Xi Jinping in 2013.

The initiative involves the redevelopment of transport and energy infrastructure along the old Silk Road Economic Belt, stretching from the east coast of the People’s Republic, through South Asia and the Middle East to Europe.

Complementing the ‘belt’ component of the plan is a new Maritime Silk Road, establishing port infrastructure from China’s south coast to South-East Asia, Africa and southern Europe.

For those countries along the route, participation in the BRI is logical, and it brings obvious benefits.

China Import and Export Bank has committed to support more than 1,000 BRI-related projects worth up to $US100 billion ($133 billion), while China Development Bank has committed credit loans worth around $US130 billion for more than 600 BRI-related developments.

Private investment has also been substantial, with more than $US18.5 billion spent by Chinese enterprises in 56 economic trade cooperation zones across 20 BRI countries.

And last year, the Chinese government announced it would import $US8 trillion worth of goods and services over the next five years as part of its trade connectivity plans, opening its markets further.

But for Australia, which sits tantalisingly close to the maritime component of BRI, the potential benefit to business has not yet been well understood or articulated.

The BRI investments come at a time when China is increasingly restricting enterprises from investing outside the country’s borders, following a sustained outflow of billions of yuan as firms such as Dalian Wanda Group and Anbang Insurance Group sought foreign exposure.

International news agency Bloomberg reported last year Chinese outward direct investment had dropped by 45 per cent in the first six months of 2017.

In Australia, the restrictions resulted in Wanda Group selling off its planned Sydney and Gold Coast mega-developments, leading many to question whether the good times were over for a country that has relied on Chinese investment to boost its economy for decades.

Those fears have been exacerbated by the fact that the Australian government is yet to officially sign up to participate in the initiative, and has made little indication that the BRI is something it seeks to be involved in.

However, any suggestion Chinese investment in Australian business or projects is in danger of drying up completely would be unfounded, according to the chief executive of the Australia-China Belt and Road Initiative, Jean Dong.

The Australia-China Belt and Road Initiative was established three years ago, receiving startup funding from the federal government.

ACBRI has a high-powered board of advisers, highlighted by former Liberal-National government trade minister Andrew Robb, and Liu Jianxing, a director of China’s National Development and Reform Commission’s International Cooperation Centre.

The aim of ACBRI is to enable Australian businesses to understand, participate and benefit from the wide range of commercial opportunities under Belt and Road, Ms Dong said at a recent AsiaLink Business forum.

"From our perspective, this is all about commercial opportunities, so business could get ahead of government to secure commercial outcomes," Ms Dong said.

“That’s why we have taken 60 Australian CEOs to China over the past two years to actively understand the opportunities and find great partnerships.

“Right now, there are some great Australian companies actively involved in the projects and from the business level, there is lots of effort being done to understand and engage in the initiative.”

Former national president of the Australia China Business Council, Duncan Calder, said it made no sense for business to wait for an official green light from government to engage in the BRI.

“My sense is it’s almost easier for businesses to do it themselves without government, because that’s just creating more problems and more tension,” Mr Calder said at the forum.

“Engagement with government is best done back in Australia behind closed doors, rather than going up to China hat-in-hand with government, because there is a real sense that there has been a slap in the face to China for not engaging in this initiative.

“There is a huge opportunity for Australian business in Belt and Road, and the reason that there is a huge opportunity is because this isn’t primarily a geopolitical play.

“The main reason is the Chinese government’s first priority is to have internal harmony within its own borders and to maintain employment.

“Of course, there is a silver lining in terms of increased trade and geopolitical influence, but that’s never been the driver.

“The reason I am confident that Australia can still benefit through business is that Australia has some terrific projects that will fit in very well with the Belt and Road Initiative and will provide the employment opportunities back in China to generate the steel and the products that we need here in Australia.”

Ms Dong said that for the foreseeable future, the only way to secure substantial outbound investment from China would be through BRI-approved companies and BRI-approved projects.

In the resources sector, Ms Dong said there would be ample opportunity for Australian involvement in BRI, particularly for iron ore miners to supply an expected 150 million tonnes uptick in demand over the next decade for Chinese steel to support BRI projects.

"The opportunity is not only increased demand for commodities, but also in tapping into BRI funding for jointly developed new and existing mines," Ms Dong told Australia China Business Review.

“More demand for mining products will lead to more demand for new mines and increased investment in existing mines.

“The Australian mining sector and developers could utilise BRI funding to attract investment into a project and also to use BRI funding to reduce political and financial risk.

“And also in the mining sector, services and equipment will also benefit from the increased demand from the infrastructure and mining products, especially as Australian companies are seen as a natural partner for Chinese companies to open this third market opportunity.

“In Mongolia, Central Asia, the Middle East and the UK, that’s a unique advantage that Australian companies could capitalise on.”

However, while the Australian resources sector is poised to benefit from an uplift in commodities demand, AsiaLink Business China Practice director Nick Henderson warned businesses in other parts of the economy not to be complacent and wait for the benefits of BRI to simply trickle down to them.

Mr Henderson said while China was a large buyer of Australian resources and agricultural products, the intention of the BRI was to give it more choice in terms of where it produced and where it procured from.

“We need to be on the ball as it were to make sure that we maintain our competitiveness, and to ensure that we are actually engaging with the market and not taking a reactive approach to realisation of some of these projects like Belt and Road,” Mr Henderson told Australia China Business Review.

“At a high level, at the top end of town, a lot of larger ASX-listed corporates are getting more informed and are more aware of the opportunities, but there is still a large swathe of the Australian business community that needs to be a little bit more proactive, otherwise it will be the same mid-sized US, UK or German companies that are going to take the opportunities rather than us.

“Having those strategic conversations and working out potential areas of collaboration with those state-owned companies and making them aware of the possibilities on the Australian side, which they may not be aware of, and to continue to explore collaborative opportunities along the Belt and Road is the clever approach.

“There are quite a few Australian companies that have either strategic or ownership relationships with Chinese state-owned enterprises, or large Chinese enterprises, which certainly would be worth having an investigation or strategic discussion of that.”

Mr Henderson said Australian businesses looking to engage with China on BRI would be well served by understanding the policy narrative provided by the Chinese government’s five-year plans.

With investment and policy focus relatively centrally controlled, Mr Henderson said the five-year plans, which were broken down by sector and geographic regions, provided a roadmap of sorts for opportunities for engagement.

“The more that Australian companies understand the policies and the agenda framework in China, whether that’s Made in China 2025, whether that’s five-year plans or whether that be Belt and Road Initiative, the more targeted those conversations are going to be and the chance of finding those opportunities is going to be higher, because it’s a very complex market,” he said.

“Australia is going to benefit significantly from the Belt and Road and we need to think of this as much broader than just a line going through a map.

“If you look at some of the projects that some of Australia’s largest engineering and construction firms are engaged with, they are not only big road rail and tunnel projects in Australia, they are also very large infrastructure projects in Indonesia, in Singapore and in other parts of the world.

“There are companies already engaged in those regions, and Belt and Road enables a lot more of those types of projects which Australian companies are going to benefit from, first hand from the services side of things, then again from materials.”

Part of ACBRI’s mission, Ms Dong said, was to assist in dispelling some misconceptions around BRI, with many Australian businesses not yet understanding that the initiative was much more than investment from China into Australia, or Australian businesses operating in China.

Ms Dong said the most effective way for Australian business to embrace the BRI would be to cooperate, collaborate and partner with their Chinese counterparts, whether state-owned enterprises or otherwise.

"Interestingly, when we took our first study to China two years ago, we met with Chinese vice-minister Wang Shouewn, he made two interesting points," Ms Dong said.

“One, he said there is no one asking companies to go to risky regions for BRI projects, and from the Chinese company perspective, they don’t see that Australian companies would be very strong going to a region like Kazakhstan for example, which is a very risky region.

“What Chinese companies want is to partner with Australian companies to go to English-speaking regions, and that’s where Australian companies know best about the legal systems, the operating systems and are very familiar with the culture and the language, where Australian companies have a unique operating advantage.

“There are so many countries that are all very risky, but if you think about where Australia has a very strong competitive advantage, so business can leverage that to work with China.”

Ms Dong said Mr Wang’s second point was that Australian services companies needed to be proactive to dispel typical Chinese thinking that the country was purely a provider of mineral resources or agricultural and food products.

“Chinese companies looking at Australia, they think about commodities, they think about milk powder, but they don’t necessarily think about looking for services and knowledge,” she said.

“That’s a wake-up call because Australia has world-leading engineering companies, risk management companies and excellent legal firms.

“How do we get a better profile for the services sector and how do we raise the profile of Australia as a knowledge economy?

“Normally when Chinese companies look for services, they go to the US, Germany, the UK straight away, they don’t necessarily put Australia on the radar.

“Australia needs to better articulate its global capability as a service industry to unlock new opportunities.”

Mr Henderson said another frontier for BRI involvement would be in education, leveraging Australia’s status as a preferred destination for Chinese students.

“As you embark on such a large project like this there is going to be a need for skills, there is going to be need for training, and one of the elements of Belt and Road is on cultural and educational exchange,” he said.

“Bearing in mind that one of Australia’s top services exports is education, and that includes research and collaborations between Australian universities and Chinese companies, there are huge areas of opportunity to explore.”