Further shaping the Belt and Road Initiative

Further shaping the Belt and Road Initiative

Portrait of Denis Depoux
Senior Partner, Global Managing Director
Shanghai Office, Greater China
June 6, 2017

In Beijing in the last few days, a major multilateral consultation has taken place to further shape, after three years of existence, the Belt and Road Initiative. More than 30 heads of States, as well as many institutional, academic and economic leaders, have shared their perspectives, hopes and fears regarding the initiative, hopefully brightening the road ahead. After these consultations, 7 recommendations could be formulated to go beyond the forum itself:

  1. The Belt and Road initiative participates in the re-invention of globalization in a new model: contrary to the previous wave of liberal globalization, the Belt and Road initiative pledged to be multilateral, inclusive, and fostering faster and more balanced development in the economic space it defines, between Europe and East Asia. This will not go without institutions, like AIIB or NDB, investment and trade rules and regulations, reciprocity to ensure fair competition. We have so far seen the political impetus and the inception of some institutions. Multilateral and bilateral trade and investment agreements have to define frameworks that can vary depending on regional requirements, and companies, public or private, must then have the freedom of entrepreneurship and competition in a sound Europe-Asia economic space.

  2. Europe is at the end, and at the beginning of the road! This is why more engagement by the European Union and European countries individually is needed, to make the initiative a truly multilateral one. This is paramount to create a common future for Europe and Asia, at a time when the United States remains hesitant as to the role it intends to play in global trade. Let's not pass on this window of opportunity for European nations as well as their companies, to benefit from this new space. European companies have not waited for the initiative to be active in Central Asia, South East Asia, Africa or Central and Eastern Europe. But better financing conditions, stabilized country risks, more solvable demand, more demanding Chinese and local clients going for productivity and competitiveness will fuel new opportunities for sophisticated European companies, which also have a stronger cultural and geographic proximity to these markets. What has worked in the ancient Silk Roads can revive.

  3. A strong financial backbone to the initiative is paramount. The Belt and Road starts with the development of infrastructure, which will require long term financing. Large balance sheet, state guarantees, better understanding of political and economic conditions across the very diverse national environments along the route, will be key. This of course is the role of the AIIB and NDB, but their efforts should be bridged with European institutions such as the European Investment Bank, as well as European private banks. The Belt and Road Initiative, the underlying political impetus and support, and the associated economic agreements should in turn work as an enhanced safety net ensuring financing and guarantee on long term returns and pay back.

  4. The ancient Silk Roads had not developed in one day. The Belt and Road initiative needs time. Some observers have stated that after 3 years, while Chinese activities in the Belt and Road geographical space are developing, this is "business as usual" labelled as Belt and Road. This is for the best. The Belt and Road Initiative can only be successful through a staggered approach, starting with political alignment, building of trust, feasibility studies, development of the adequate trade agreement, contractual and financial infrastructure, before the physical (ports, railroads, industrial parks, …) and digital infrastructure (underlying broadband, mobile, internet, e-commerce and payment infrastructure) can be developed.

  5. The Belt and Road has to be as innovative, green and digital as possible, as stated by President Xi and other leaders during the forum. Modern, inclusive and multilateral globalization is not about allocating capital and labor resources across geographies, and leveraging competitive advantage only stemming from lower cost countries, at a less advanced stage of development. The initiative is about increasing productivity and competitiveness through state of the art technology and innovation, as well as entrepreneurship in less advanced countries. Westerners often regard innovation as disruption or displacement of traditional businesses. The Chinese internet giants insist on the connectivity potential of new technologies: Alibaba and its various avatars is not about disrupting traditional commerce, but creating more opportunities by connecting manufacturers and brands to consumers, otherwise secluded. The Belt and Road countries and their companies are another space for connectivity. Hence, the Belt and Road has to be at least as virtual and digital as it is about physical infrastructure.

  6. The Belt and Road initiative also has to invent new forms of partnerships: between Chinese and European companies, between State Owned and Privately owned companies, between Financial institutions and private banks, between very large companies and smaller entrepreneurs, etc. Reinventing globalization in the Belt and Road space entails creating ecosystems where companies are mutually benefitting from each other's specialty and competences. This is where European companies, that still have a headway in industrial process improvement, productivity improvement, management of complex infrastructure projects, management of cultural differences, can bring not only products, components or systems, but also know how and management capabilities. In China and elsewhere along the route, this ecosystem approach should gradually replace the legacy JV, technology transfer approach.

  7. Chinese companies have to exercise caution in the Belt and Road journey. All of them; in particular State Owned Enterprises, have systematic plan to develop in some or all regions along the route, following the strong political impetus. But as the road takes time to be built, they also need to follow a patient learning curve. Transforming and modernizing at home, while internationalizing in relatively difficult markets (access, cultural differences, technical complexity, …) will create challenges. Again, these challenges can be overcome by partnering with more experienced, European and international players in the respective industries. This may not be needed in some, more mature industries like ports, railroad, oil and gas or hydro power plants, but certainly is the approach followed by prudent Chinese companies in the aerospace, or nuclear industries. This partnership will also help embed added value, innovation, technology and productivity at the heart of the initiative, as opposed to a pure volume / marketshare approach, that may result in additional overcapacities. The Belt and Road political momentum should not encourage a "do-it-all-alone" approach.

The Belt and Road Initiative rejuvenates globalization and moves its center of gravity in the continuum between Europe and Asia. This is a unique opportunity for Europe, its Nations and its companies. Let's encourage "Esprit de conquête" or "Spirit of conquest", as advocated by President Emmanuel Macron of France. This will contribute to economic enthusiasm and optimism, confidence in the future, which so important to restore global growth.