Belt & Road: long on interest, short on money

Transit operators like Hong Kong's MTR see huge opportunities in Beijing's masterplan, but high risk means private funding is stuck in the sidings ... and some projects could go off the rails entirely.

China's grand Belt and Road Initiative is doubtless causing a stir of excitement across Asia's financial community. But the question of backing the hyperbole with cold, hard cash is perplexing not just government officials but also corporate executives.

At the second Belt and Road Summit in Hong Kong on Monday, representatives of firms including Hong Kong transit operator MTR Corporation, state-run China Railway Construction Corporation (CRCC) and Philippine conglomerate Ayala Corporation set out their stall on Belt and Road. All are anxious to find growth opportunities from Chinese President Xi Jinping's mega-initiative, but were also concerned about the shortage of private sector involvement and risks associated with some of the countries covered by the masterplan.

“As the ‘older child’ of the People’s Republic of China, CRCC cannot be absent in Belt and Road projects; neither can Hong Kong’s rail company,” said Meng Fengchao, chairman of CRCC, one of the world’s most powerful and largest integrated construction group which was transferred from military.

Speaking at a panel on Monday, Meng said CRCC was now present in 41 Belt and Road countries with more than $5 billion of contracts signed in the three years since Xi launched the scheme.

MTR chairman Frederick Ma Si-hang, who sat on the same panel, said the Hong Kong group signed a memorandum of understanding with CRCC last year to jointly expand overseas. The duo is now on a shortlist of three to run the future high-speed rail line between London and Birmingham in the UK.

Another big builder, state-owned China Communications Construction Company, is also a Belt and Road participant. In Southeast Asian countries alone, the group is working on more than 190 projects that involve $23 billion in value of the contracts, according to panellist Wen Gang, vice-president of the firm.

But many of the projects CRCC and China Communications Construction are involved in are government led, or at least backed. Government cash alone will not be enough to deliver the spectacular boost to infrastructure setup to connect the region and achieve all Xi envisions.

Infrastructure financing

“There is a gap between what the government can finance and what the private sector could do,” said Jaime Augusto Zobel de Ayala, chairman of Ayala Corporation, the oldest and biggest conglomerate in the Philippines.

He cited a recent report from the Asian Development Bank, which found meeting the infrastructure needs for developing the Asia-Pacific region would cost more than $26 trillion, or $1.7 trillion per year – adjusted for climate change mitigation – if the region is to maintain its growth momentum. Public funds could meet no more than 40% of the costs, according to the ADB study.

Chairul Tanjung, chairman of Indonesia's CT Corp, agreed with the finding.

“Before Belt and Road came in, Asean [The Association of Southeast Asian Nations] already had a plan, what we call the Asean Connectivity. The goal is similar – it’s [about] how to increase trade, investment, [and] connectivity…but frankly speaking, we understand this master plan [Asean Connectivity] is very difficult to implement. It needs a lot of money,” said Tanjung.

MTR’s Ma, although supportive of Belt and Road, was explicit that his firm had so far not put one cent of its own money into the developing countries on Belt and Road.

“We have been receiving a lot of requests to expand to developing countries in Belt and Road; so far we haven't committed any of our own capital there, because we have to look at a lot risks,” said Ma, adding MTR has been operating in the UK, Sweden and Australia for around 10 years.

While floated on the Hong Kong Stock Exchange, MTR remains 70% owned by the Hong Kong taxpayer.

That is on the radar of many corporate executives and investors – other than the ones at state-owned Chinese institutions – when they look at the master agenda from China.

“To us, it is very important that we pay attention to political and legal risks because our projects are typically quite long-term. So we cannot afford to have those risks,” Ma told FinanceAsia in an interview on the sidelines of the event.

In Ma’s case, he shared the experience of once looking at the likelihood of expanding the company’s “rail plus property” business model in Myanmar. The model works by exploiting the property granted to the company to develop its railways to construct homes, commercial schemes and offices.

However, in Myanmar, he learned that religious concerns would make building impossible in certain areas.

This cultural factor, among other issues and differences in many of the Belt and Road countries, is deterring private sector money from flowing in. As Keith Griffiths, chairman of international architecture practice Aedas, puts it: “You need to have local knowledge; you need to understand what’s going on.”

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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