The legal sector should be excited about One Belt, One Road, the ambitious project that will define China’s future economic and trade relationships with neighbours far and near, writes Boase Cohen & Collins Senior Partner Colin Cohen.
Hong Kong, 1 February 2017: Many of us love the open highway and the taste of adventure – so the “road trip” outlined by Chinese President Xi Jinping in 2013 and now firmly underway in 2017 is the sort of challenge any ambitious professional should embrace.
It is a journey spanning continents and cultures, bringing together friends old and new and creating countless opportunities to foster relationships and build businesses. It is a trek with one foot in history and the other planted firmly in the future.
China’s One Belt, One Road policy – sometimes called the Belt and Road Initiative – is a gargantuan project that presents a once-in-a-lifetime opportunity to numerous professions and industries, including our legal sector.
Understandably, Asia has been quickest to react to this ambitious undertaking while Europe and North America are still on a learning curve. I have been giving presentations on the subject to law firms in the UK and US – firms which, like Boase Cohen & Collins, are members of global legal services platform Ally Law – and it is fair to say they are vaguely aware of One Belt, One Road rather than fully conversant with it. Not that they are slow to see the possibilities – at the end of each presentation I am usually bombarded with questions.
It can be summarised thus: One Belt, One Road is a far-reaching strategy to foster economic co-operation among Asian, European and African countries. This increased “connectivity” focuses on five areas: infrastructure; resources development; industrial co-operation; financial integration; and cross-cultural bonds.
The title refers to the Silk Road Economic Belt and 21st Century Maritime Silk Road – in other words, China’s major land and sea routes to the West. And here are the headline figures: this initiative spans more than 60 nations with a combined population of 4.4 billion and economic output worth US$21 trillion.
The land and sea routes are both two-way. Chinese enterprises are being encouraged to “go out” and seek business opportunities and co-operation in countries along the Belt and Road and beyond. At the same time, China aims to improve and take measures to further open up its own economy with such innovations as special economic and free trade zones, eliminating investment barriers, negotiating bilateral investment protection and double taxation avoidance agreements, and improving financial regulation.
One Belt, One Road augments China’s well-established and considerable overseas investment. In 2015, the mainland was the third largest investing country worldwide (US$128 billion invested overseas), after the US (US$300 billion) and Japan (US$129 billion).
Where does China invest? Principally in developing economies in Asia and Africa. However, it is also looking increasingly to Europe and North America. In Europe, especially, there has been a seismic shift in Chinese investment – it was less than US$1 billion in 2005, 10 years later that figure had leapt to US$23 billion.
Among the European nations, it is the UK where China is really making an impact. The two nations enjoy a close relationship, as highlighted by President Xi’s state visit in October 2015. A recent report by financial data company Dealogic said China’s investment in UK businesses and infrastructure had increased 470 per cent in the past six years. Meanwhile, consultants Baker McKenzie estimated US$3.3 billion of Chinese money was invested in the UK in 2015.
Over in the US, Chinese corporations have made some headline-grabbing takeovers in the past two years. These include Haier’s acquisition of GE Appliances for US$5.4 billion and Wanda Group’s acquisition of Legendary Entertainment for US$3.5 billion.
As for incoming investment, in 2015 China was the third largest recipient of foreign investment worldwide (US$136 billion), after the US (US$380 billion) and Hong Kong (US$175).
Yes, Hong Kong ranks second worldwide – a reminder of this territory’s potency. Hong Kong has traditionally been the gateway for business in the mainland and it continues to be extremely significant. It is not only one of the world’s leading financial and business centres, it is also close to China in both the physical and political sense. Consolidating Hong Kong’s position as an international financial, shipping and trade centre is part of China’s plan in implementing its two-way opening up and the Belt and Road Initiative.
Amid all of this, Chinese firms are crying out for overseas expertise. In May last year, the Hong Kong Trade Development Council conducted a survey of local enterprises in western China, comprising trading companies, manufacturers and service suppliers, to ascertain some of the challenges they faced. These included financing difficulties; lack of local demand; rising local labour and production costs; lack of capability in product design and technological research and development; inefficient production technologies and automation; lack of competitive local brands to assist in developing international markets; and a volatile RMB currency.
It is significant that 60% of the enterprises in the survey indicated they would seek assistance from Hong Kong and overseas in improving their products and services.
In summary, clearly the Belt and Road Initiative is hugely important for all of us. Here are four key points to take away. First, government support and financing are in place. The Asian Infrastructure Investment Bank, driven by China, has 57 member states and capital of US$100 billion. The Silk Road Fund, meanwhile, is China’s state-owned investment fund with reserves of US$40 billion.
Second, the only missing ingredient is human capital. It is envisaged that most of the One Belt, One Road projects will be led by large Chinese enterprises. Professionals with multi-jurisdictional experience and an international network will be in great demand. Legal service providers will play a vital role in bringing the infrastructure projects to fruition.
Third, it is obvious that Hong Kong is well placed to play a key role in the One Belt, One Road programme. The Hong Kong Government has been promoting our city’s unique competitive edge, its established status as the gateway to and from China and possible roles it can play, such as acting as an international dispute resolution venue and a debt-issuing platform as a source of financing for the Asian Infrastructure Investment Bank.
And finally, the Belt and Road Initiative is an opportunity for all, irrespective of geography. A more developed region will create a bigger economic pie for everyone, including Asian, European and US businesses and workers. It is time to hit the road.