Belt & Road: Foreign investors seek greater clarity

Beijing has to address the role of private capital if its massive infrastructure investment plan is to fulfil its potential, a Hong Kong conference was told.

The Chinese government needs to be clearer about what it expects from private capital if its hugely ambitious Belt and Road initiative is to succeed, a conference in Hong Kong heard on Wednesday.

The warning that foreign investors need more policy guidance before committing comes four years after the colossal investment programme was formally launched by Chinese President Xi Jinping. 

Encompassing 66-countries, the Belt and Road initiative aims to create a modern Silk Road connecting the world’s second-largest economy with Central Asia, Europe and Africa, and another route linking China to Southeast Asia and east Africa by sea.

“There is actually no blueprint on the One Belt One Road initiative, and that is atypical for the Chinese government to set it that way,” David Percival, managing director of international business development at Deloitte, told the well-attended gathering hosted by Cambridge University.

Typically, the way it works in Communist China is that policymakers in Beijing set out the broad parameters of an idea and then either follow up with more detailed plans or give out signals to the market as to what’s important to follow and what isn't.

But that hasn't happened yet, to the frustration of those sensing the potential investment opportunities. 

“There is certainly a limited opportunity for the private sector in the hardware part of the Belt & Road,” Ilan Freiman, a partner at Berwin Leighton Paisner, a law firm. There could also be opportunities to invest in vehicles controlled by the state-owned enterprises and involved in the work, he added.

Diplomatic goals

As it is, most Belt & Road investments to date seem more motivated by China's desire to promote its image, promoting a diplomatic agenda at the expense of commercial viability, Johnny Zhang, managing director of Zenity Holdings, a family office, said. 

“For state-owned enterprises, it is more important to follow Beijing’s ideas,” said Zhang, a former general manager at Ping An, China’s second-largest insurer. “Private-sector investors [in contrast] care about [the] profitability of their investments and associated risks.”

The scale of the programme is vast. With over $1 trillion of investments planned, from ports in Pakistan to railway projects in Africa, the Belt & Road initiative spans about 4.4 billion of the world’s population and about 40% of the global economy.

But only 10% of the associated mergers and acquisitions, totaling a cumulative $500 billion last year, involved privately run companies, according to a study by PwC.

That said, for a country that is run purportedly along planned economic lines modern China also has some strong capitalist traits. 

As Sam Crispin, a China veteran of 23 years and chief executive of ABP Hong Kong, put it at the conference: “I want to reminder everyone that the distinction between a private and a state-owned enterprise in China has always been very blurred, and will remain very blurred.”

For information about our forthcoming supplement “Belt & Road - Driving Asia’s growth”, please contact Keith Frith on [email protected] or (T) +852 2122 5266. 

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