1.Since the Belt and Road Initiative (BRI) was launched by President Xi Jinping in 2013, it has become a pivotal feature of China’s domestic as well as its foreign policy. The BRI has the opportunity to surpass the Marshall Plan in terms of the scale and scope of its ambition.
2. When the BRI was first announced, there was a palpable sense of excitement over how the grand-scale investment plans would reshape global trade and relations. This was especially true in Asia, a fast growing region in dire need of investments for infrastructure. Estimates vary between US$1 trillion and US$8 trillion in terms of infrastructure demand for Asia up to 2030.
3. The demand for infrastructure development dovetailed with the launch of the BRI. Unsurprisingly, many countries welcomed the BRI. In terms of delivery, some high profile projects were delivered while others were met with challenges.
4. I am sure that many of us have seen viralled videos of the reconstructed Karakoram elevated highway (KKH) in Pakistan. The reconstruction of the Karakoram Highway (KKH) will not only ease the flow of trade between Pakistan and China but it has also raised hopes for a comeback in the tourism industry. The British Backpacker Society rated it as the top destination in the world, citing that “mountain scenery is beyond anyone’s wildest imagination”. The number of foreign tourists have tripled to 1.75 million from 2013 to 2016, according to the Pakistan Tourism Development Corporation. The total contribution of the tourism industry to the country’s GDP in 2017 was 7.4%. This is forecasted to rise by 5.8% in 2018.
5. Another example of a country that has experienced an economic shift as a result of the BRI is Greece. As a result of the acquisition of management rights by the China Ocean Shipping Company (COSCO), the Piraeus port is brimming with economic activity. In the span of 7 years, the port has catapulted from the world’s 93rd largest container port in 2010 to 38th position in 2017. 10,000 jobs were been created in Greece as a result, a much needed boost to an economy faced with high unemployment. This example showcases the win-win partnership potential for the BRI.
6. However, for all its achievements, concern over debt, sustainability and transparency have arisen amongst participating countries. A number of countries have fallen into the debt trap, including Pakistan, Laos and Maldives, just to name a few. In hopes of reducing its debt burden, Pakistan has leased its Gwadar port to China for 43 years. Similarly, Sri Lanka handed over its Hambantota port via a 99-year lease to China Merchants Port Holding in 2017. Experiences such as these have sparked a debate about national sovereignty.
7. In reaction, Myanmar reviewed a USD$10 billion project to build a deep sea port in Kyaukpyu. Finally, on 8 Nov 2018, Myanmar and China signed a framework agreement to continue the project, but on much smaller scale, with US$1.3 billion for the first phase. Undoubtedly, allegations of the debt-trap diplomacy have created a counter narrative the positive benefits of the BRI.
8. Malaysia is also in the process of reviewing some of the infrastructure projects which were given to Chinese companies. The East Coast Rail Link (ECRL) is still being reviewed. The RM9.4 billion gas pipeline project has already been shelved because of transparency issues.
9. Despite this, I would like to take this opportunity to assert that Malaysia continues to be supportive of the BRI and Chinese investments in Malaysia. The delay of the ECRL is due its cost and the lack of transparency in negotiations by the previous government. The Prime Minister Tun Dr Mahathir Mohamad has maintained that the ECRL will only continue as long as the cost of the ECRL is within the government’s financial capabilities. While a final decision has yet to be announced, we note that China has already offered to cut construction costs by as much as half.
10. It would not be fair to place the blame of the debt incurred as a result of these projects solely on the Chinese parties involved. After all, these projects were approved by the respective sovereign governments. The Chinese government was also not in a position to control all the negotiations that were made by the companies involved in BRI projects. The lesson from past BRI projects is the need for recipient countries to strengthen its evaluation and institutional frameworks when approving any large infrastructure projects. For that matter, the foundation of any successful project is good governance and a transparent procurement process.
11. At the same time, China also realizes that the BRI is in need for a new narrative. From my recent visit to Hong Kong, there is a prevailing sense that the BRI is entering a new phase of development. While the mandate to act as an impetus for improved connectivity and growth will remain, how this is achieved will likely change. As we approach the 2nd Belt and Road Forum in Beijing on the 25th to the 27th of April, what can we expect from the BRI 2.0? More importantly, how should Malaysia position itself to take advantage of the BRI? Tonight, I would like to share three points on the future trends for the BRI and suggest the way forward in capitalizing on these developments.
12. Firstly, there will be a focus on better governance and control. As countries continue its discussions on the BRI, there is a clear need to rein in corruption, commit to environmental sustainability and promote inclusivity.Previously, Chinese companies expanded too quickly and ventured abroad without learning how to adapt to the business cultures and regulatory environments of other countries. This resulted in the backlash against some BRI projects. However, recognising some of these shortcomings of BRI projects, it is likely that China will push for the adoption of universally accepted international norms and standards in terms of project financing. In terms of anti-corruption, there is room for increased global cooperation in line with international conventions, such as the UN Anti-Corruption Convention. The Chinese authorities appear eager to exchange best practices and provide their cooperation in fugitive repatriation, asset recovery, commercial bribery prevention, anti-corruption policy study and capacity building.
13. With respect to environmental sustainability, China appears to be supportive of efforts to build a green silk road, and will encourage the development of green financing for the BRI. This shows that China is cognizant of the environmental impact that BRI has had in the past, and China would like to see increased good governance for the sake of the global climate.
14. In acknowledging the need for inclusivity in BRI 2.0, China also invites the collaboration of local and international financial institutions to provide long-term and sustainable financing support. To this end, international financial institutions like Standard Chartered Bank can play a part in supporting future connectivity projects especially in the area of ensuring sustainable project financing.
15. This shift in approach is an opportunity for multinational banks such as Standard Chartered Bank to structure deals in ways that meet international standards. Compared to Chinese banks which are still new entrants in foreign markets, Standard Chartered has the advantage of a longstanding global presence. It possesses the right ingredients for sustainable financing: local knowledge, an ability to facilitate local currency settlements, and familiarity with international best practices. This will undoubtedly benefit everyone involved in BRI projects.
16. Secondly, the BRI is likely to see a diversification of the Chinese supply chain. As a result of global expansion, high operational costs in China, and the US-China trade war, Chinese companies are more aware of the need to have alternative manufacturing lines around the globe. Countries in the region including Malaysia, may be the recipient of such investments. Malaysia definitely welcomes these investments, especially those with high value propositions that utilizes automated processes and relies on skilled labour.
17. However, instead of attracting individual companies to the nation, Malaysia should strategically target a critical mass of companies to form an overseas supply chain. Take, for example, potential electrical and electronics (E&E) clusters. As it is, Malaysia is heavily involved in components manufacturing and testing for electronic devices such as smartphones. Malaysia’s value proposition to E&E companies situated in Shenzhen, for example, would be to attract clustered investments from various parts of the manufacturing value chain in order to create a one-stop destination for electronic components manufacturing. This will inadvertently create synergies within the local E&E ecosystem.
18. In addition, many of these foreign companies / investment clusters will bring innovation and ideas, and sow the seeds for R&D and product development. A decade ago, Chinese companies were known as mere copycats. Alibaba was likened to eBay, and Baidu was China’s Google. Today, these Chinese companies are at the forefront of innovation and ideas. Similarly, my hope is that strategic joint ventures and partnerships between Chinese and Malaysian companies can result in innovations and ideas that will spread beyond our own borders.
19. In my visit to Penang last month, I had the privilege of witnessing homegrown companies expand its capabilities to at first support the growing demands of multinational companies. Since then, these companies have risen to become a strong competitor in the global industry. One such success story is Pentamaster International Ltd, which makes and designs high end automated machines for components testing in the E&E sector. In fact, the KLSE listed company recently successfully listed in the Hong Kong Stock Exchange in order to expand to China and the Asia Pacific. Pentamaster is only one example, as there are many other companies in the E&E ecosystem in Penang that have achieved similar heights. Similarly, as Chinese investments flow into the country, my hope is that the exchange of ideas will produce an environment that encourages healthy competition, cooperation and innovation.
20. Thirdly, the BRI will also indirectly create opportunities for non-Chinese companies to invest and enter into the Chinese market. For example, the recent announcement of the development of the Guangdong-Hong Kong-Macau Greater Bay Area (GBA) (which covers nine municipalities in the Guangdong province) has brought a great deal of excitement to the Pearl Delta area. The identification of Hong Kong as the gateway destination into and out of China allows for other countries to use this opportunity to identify strategic investment areas according to the GBA framework.
21. To enhance the value adding capabilities of the region, the GBA will leverage on the existing strengths of each city. For example, Hong Kong’s status as a global financial centre; Shenzhen as China’s “Silicon Valley”; Guangzhou as a manufacturing and logistics hub; and Macau and Zhuhai as top leisure and tourism destinations. To reduce travelling time within the area, key infrastructure projects have been completed, including the recently opened Hong Kong-Zhuhai-Macau Bridge and the Express Rail Link which connects Hong Kong, Shenzhen and Guangdong. The GBA presents numerous opportunities in the BRI; not just for Chinese companies but for other companies as well.
22. For example, we can potentially match the synergies between the E&E cluster in Penang with the Science and Technology Parks in Hong Kong as well as Shenzhen’s IT sector. In addition, HR executives can benefit from the reduced travelling times to access a wider talent pool. As the ASEAN-Hong Kong free trade agreement enters into full force in Malaysia this year, I strongly urge Malaysian companies to seek opportunities to tap into this supply chain.
23. Before I end, I want to thank Standard Chartered for the invitation to discuss many possibilities of the BRI and how all can play a part in progressing economic development. Thank you for your kind attention and have a wonderful evening.