The One Belt One Road initiative is the key driver of
China’s economic, foreign and domestic policy. Its focus is to re-energize
ancient Silk Road trade routes to open markets both within and outside the
region. The Travel China Guide colourfully explains: “From the second century
BC to the end of the fourteenth century AD, a great trade route originated from
Chang'an (now Xian) in the east and ended at the Mediterranean in the west,
linking China with the Roman Empire. Because silk was the major trade product
which traveled on this road, it was named the Silk Road in 1877 by Ferdinand
von Richthofen - a well-known German geographer. This ancient route not only
circulated goods, but also exchanged the splendid cultures of China, India, Persia,
Arabia, Greek and Rome. Many great events happened on this ancient road, making
the trade route historically important. Famous travelers along the road were
its bright pearls, making it glorious. A great number of soldiers gave their
lives to protect it. These are some of the reasons the road is still a
time-honored treasure.”
“Sri Lanka too played an active role in the ancient Silk
route of the ocean. Situated strategically in the middle of the ancient Silk
route of the ocean between East and West, Sri Lanka functioned as an entreport
of trade for exchanging commodities. Archaeological excavations in many parts
of Sri Lanka have unearthed large hoards of Roman and Chinese coins, which
indicate that merchants from West and East met in Sri Lanka and exchanged
wares”, as Nipuni Perera detailed last month in Talking Economics. Now the
legendary Silk Road is one of Beijing’s most important international trade and
development initiatives - nicknamed: “One Belt One Road”, or OBOR as it is
frequently referred to. At present, China’s economy is the world’s second
largest behind the United States and ahead of Japan. The Silk Road was proposed
to sustain this economic growth and development. The modern iteration of the
Silk Road is the New Silk Road economic belt and the 21st century Maritime Silk
Road - which in the past linked Asia, Europe and Africa. The economic aim of
One Belt One Road is to correct infrastructure deficiencies and improve
connections between greater Asia and Europe. The new “Silk Road Economic Belt”
aims to more effectively connect China with Europe via Central Asia. The
“Maritime Silk Road” will link Chinese ports with Africa’s Coast through to the
Suez Canal and into the Mediterranean Sea. Beginning in China’s Quanzhou
province, the Maritime Silk Road continues through to Malacca Strait via Kuala
Lumpur and Kolkata to Nairobi. Over 900 deals worth more than $890 billion are
currently underway including a gas pipeline from the Bay of Bengal to Myanmar
through to southwest China and a rail link between Beijing and Germany’s
Duisburg transport hub.
China’s Xiamen is an example of a major hub on the Maritime
Silk Road as well as a part of a growing trans-Eurasia rail network with 35
routes connecting China with numerous European cities, as well as Central Asia
and the Middle East. Xiamen’s exports to other Maritime Silk Road countries
grew last year by 10.1 per cent, to more than US$14 billion. The Xiamen section
of the Fujian Free Trade Zone (FTZ) holds the overland and Maritime Silk Road
routes together. As Wade Shepard detailed in the South China Morning Post: “The
Fujian FTZ offers incentives, such as preferential tax policies, reduced import
tariffs, simplified customs clearance, two-way investment assistance,
liberalised policies for the borrowing and converting of foreign currency,
along with a “one-form application” procedure for establishing companies there.
It is also directly connected with “Fujian Commodity City” trade centres in
Russia, Poland, and Bahrain.”
The One Belt One Road and Maritime Silk Road combined will
economically connect the West and Central Asia to South and Southeast Asia.
China has established a US $40 billion dollar Silk Road Fund to help facilitate
this development. Among the goals of the One Belt One Road is the stimulation
of China’s domestic economy and the projection of Chinese strategic interests
both westward and southward. China also seeks to bolster the Yuan, thereby
increasing its acceptance as an alternative global currency. One Belt One Road
is proving a success Despite only having begun, One Belt One Road is already
demonstrating successes in Asia, Africa and Europe. As a result of China’s One
Belt One Road efforts, it has, as William T Wilson details, “redrawn Central
Asia’s energy economics.” He explains how Chinese companies “now own close to a
quarter of Kazakhstan's oil production and account for well over half of
Turkmenistan’s gas exports. Recently they signed $15 billion in gas and uranium
deal with Uzbekistan.” In high-speed rail, China has now taken its expertise
global. Having laid more than twelve thousand miles of track, China now has
more high speed rail than the entire rest of the world combined. The One Belt
One Road will see it take that expertise into connecting China with Southeast
Asia. Indeed, as Nipuni Perera recounted: “The first cargo train from China to
Iran, known as the Silk Road Train, arrived in Teheran in February 2016 after a
14 day journey travelling a distance of 10,399 kilometer s through Kazakhstan
and Turkmenistan from China’s Eastern Zhejiang province.” Chinese President Xi
has pledged $250 billion to South America over the next decade - including a
high speed rail system through Brazil’s rain forest and the Andean mountains.
Last year, Xinhua news agency detailed how Beijing had already completed over
1,000 infrastructure projects in Africa, including rail and highway
construction. Plans are in the works for railroads, bridges and roads linking 55
African countries. In Europe, China’s largest trading partner, the Greek port
of Piraeus is being upgraded and a Belgrade to Budapest bullet train is being
built with Chinese finance. In the planning stages is a network of pipelines,
roads and railway lines beginning in Xian in China’s center stretching as far
as Belgium. And construction has already begun on a cargo rail line between
Yiwu and Madrid. Indeed, China is now competing for high-speed rail contracts
in regions as far afield as California and Southeast Asia.
Efforts in South Asia include the China-Pakistan Economic
Corridor (CPEC), which will connect Kashgar to Gwadar, the Bangladesh-China,
India, Myanmar Economic Corridor (BCIM) and the Colombo Port City Project in
Sri Lanka. The aim of the project is to turn Sri Lanka into a trade hub in the
Indian Ocean. China has promised more investment in Sri Lanka beyond this
project. Munza Mushtaq, writing in Asia Times detailed that the project: “Will
house a star class hotel, shopping and entertainment centers, offices, a marina
and yacht club, a central boulevard, apartment complex, and a mini golf course,
on 252 hectares of reclaimed land off Sri Lanka’s west coast.”
Expanding trade and investment across continents
The expansion of trade and economic cooperation, however, is the prime focus of
One Belt One Road. As The National Interest detailed: “It launched in February
2014 with $40 billion - mostly drawn from Beijing’s bountiful foreign exchange
reserves. Since then, One Belt One Road has begun attracting other foreign
investors. Singapore’s state-owned development board has agreed to partner with
China Construction Bank, committing about $22 billion to finance OBOR projects.
International pension funds, insurance companies, sovereign wealth funds and
private equity funds have also thrown in on One Belt One Road projects in
search of higher financial returns. Chinese infrastructure investment projects
now span the globe.” 58 countries are now involved in the project, accounting
for $21 trillion in aggregate economic activity, amounting to 29% of global
trade. Where the traditional Silk Road facilitated the exchange of goods and
technology, the New Silk Road will link policies, infrastructure, trade,
finance and people. As Wade Shepard details in Forbes: “China is in the active
process of outsourcing its low-tech manufacturing capacity, and all through
South Asia and the rest of the Belt and Road network, local manufacturing is
rising. In some places, such as in Poland and Georgia, this is part of an industrial
revival; in others, such as in Azerbaijan and Kazakhstan, it’s a strategy to
diversify economies that are dependent on oil and gas; while in others, like
Bangladesh, it’s a way of securing the building blocks of investment and
capital to modernize. Whatever the case, these supercharged trade routes and
improved infrastructure networks are enabling a more even distribution of
manufacturing enterprises across the Eurasian landmass”. These opportunities
are in clear focus in Europe. Indeed the UK Foreign and Commonwealth Office
along with the China-Britain Business Council recently authored an extensive
study on One Belt One Road where they detailed how: “UK companies can play an
important role by supporting the development and connectivity of China and
beyond, thereby contributing to continued strong and sustainable growth in
China while simultaneously benefiting from new commercial opportunities.” Over
the past 10 years, China’s foreign trade has grown 19% while its foreign
investment has grown 46%. Trade value between China and One Belt One Road
countries reached almost RMB7 trillion in 2014, accounting for one quarter of
its overall trade value. At the same time China’s trade with Japan, the US and
the Eurozone was 34% of its overall trade value. 5 In the first five months of
this year, as The Economist reported, “more than half of China’s contracts
overseas were signed with nations along the Silk Road - a first in the
country’s modern history.” While agriculture and mining are expected to benefit
from One Belt One Road, China will also see its imports and exports diversify
because of the initiative, particularly in high-end technology. China expects
to invest more overseas and see its supply of energy increase via One Belt One
Road. With improved connectivity as a result of One Belt One Road, countries
participating in the initiative are likely to see an expansion of trade and
investment with China. For example, Europe is likely to see greater cooperation
with West African markets and a balancing of its transatlantic trade and
investment relationship. One Belt One Road is also expected to connect resource
and commodity rich West and Central Asia to emerging economies of South and
Southeast Asia, facilitating infrastructure development to help power consumer
markets. In April, for example, a Chinese shipping company, Cosco, as the
Economist detailed, “took a 67% stake in Greece’s second-largest port, Piraeus,
from which Chinese firms are building a high-speed rail network linking the
city to Hungary and eventually Germany.” China’s cement industries and freight
movement by road are likely to see long term benefit from ASEAN and Central
Asian infrastructure development. New industries to support this increased
trade are also anticipated to be created. The entire One Belt One Road project
is projected to take 35 years. Challenges to and prospects for continued
success As One Belt One Road involves large scale infrastructure development in
developing economies, time and potentially more investment will be needed to
see success achieved, even while China’s economy is currently facing headwinds.
The Economist observes that while, “Asia needs new infrastructure - about $770
billion a year of it until 2020, according to the Asian Development Bank.
[However] Bert Hofman, the World Bank’s chief in Beijing, [recommends]
individual countries will benefit more [by] aligning their plans with one
another and with China.” To meet the financial needs of investors, China has
established a $40 billion dollar Silk Road Fund and a $100 billion dollar Asia
Infrastructure Investment Bank (AIIB). The AIIB is not 6 formally part of One
Belt One Road but its first loans were for infrastructure development in Silk
Road countries Pakistan, Tajikistan and Uzbekistan. Some analysts predict
funding levels three to four times this amount may be needed. China’s
Development Bank may issue bonds or create low-cost finance to help facilitate
One Belt One Road. Planning and coordination among member countries is seen as
essential as a means by which to successfully implement One Belt One Road. How
your law firm can play a part in OBOR “Whether your firm is a global giant or a
local boutique - you can build a new client base around these infrastructure
initiatives,” as John Grimley outlined in Asia Law Portal. He details how “a
number of the larger law firms, including Baker & McKenzie and DLA Piper,
have begun producing reports on One Belt One Road and related developments
around China’s comprehensive infrastructure development activities including
the Asian Infrastructure Investment Bank (AIIB) and the Silk Road initiative.
And Herbert Smith Freehills recently worked with Baker Botts to help the
Chinese Silk Road fund on a project.” Grimley further explains: “Study your
jurisdiction to design and implement your unique approach. Each jurisdiction
will have a unique, local public and private sector ecosystem which supports
infrastructure development. Study that ecoystem to determine how to uniquely
design a One Belt One Road/infrastructure client development initiative. What
practice areas are ideal for One Belt One Road work? The types of work law
firms are seeking to generate around these initiatives include project finance,
construction related arbitration and joint ventures, among others. Firms can
also develop dedicated consulting practices around advising multinational
companies identify and secure prime or subcontracts. Here, legal and consulting
practices can work together to increase law firm opportunities to generate more
work and more fees. Firms can, [therefore] seek to generate [OBOR] work around
the following efforts: 1. Since AIIB and related Chinese infrastructure efforts
will be closely intersecting with national governments and local infrastructure
development communities - interfacing with key decision-makers in some very
specific ways will make your firm a gateway into your market and a key advisor
on work related to this development - if your efforts are designed and
implemented properly. 7 2. Your firm can seek to learn as much as possible
about this system and build relationships with those in the system. Well
designed efforts will generate work from those relationships. Firms can then
also take the information about this system and the legal specialisms required
to help make the deals happen - and become both a key provider of services to
these deals - as well as a conduit of information to the outside world about
opportunities, pitfalls, and informed guidance about these systems. 3. In order
to draw attention from foreign infrastructure companies interested in
opportunities in your market and the markets you serve - produce articles about
local infrastructure updates and opportunities - then use those articles to
creatively and proactively contact companies and referral sources - to facilitate
discussions around how you might help them secure the work and navigate the
local legal and political/regulatory ecosystem. 4. Also vital will be building
relationships with Chinese law firms that advise on these new infrastructure
initiatives, as well as Chinese government officials directly involved in these
infrastructure efforts. All these efforts combined would create a 360 degree
effort permitting your firm to not only be readily available for work locally
coming from companies and governments, but also a key source of information for
foreign companies seeking to enter or expand into your local infrastructure
economy. A combination of law practice and consulting - these efforts - if
properly designed and implemented - will see your firm build an entirely new
and lucrative client base around One Belt One Road.” Looking forward One Belt
One Road is China’s core foreign and domestic economic strategy. China is
seeking to both provide and seek key economic, financial and technical
assistance to help facilitate successful economic connection across continents.
China’s investments in several infrastructure projects and continued drive to
advance the project are likely to meet with continued success going forward-----------------------------------------------------------------------------------------------------------------------------
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