After so much cynicism, the plan by the world’s second biggest economy could be beneficial to Partner Countries.
In 2016, the Chinese Government reintroduced its ambitious development strategy, the Belt and Road initiative (BRI). In the pipeline since 2013, the BRI has one aim: to enhance trade across overland corridors (the Belt) and maritime shipping lanes (the Road) in over 70 countries, improving infrastructure networks and developing mutually beneficial economic partnerships along the way.
Bilateral ties with the Middle East date back 60 years and collectively, the region is known to be China’s biggest supplier of oil and its seventh most prominent trading partner. To further cement the relationship, China released its China Arab Policy Paper in 2016.
The policy outlines China’s plans to cultivate China-Arab cooperation, building on political, trade, economic, education and cultural strategies already in place.
Recognising the region as a significant partner in the BRI, China established a “1+2+3” cooperation pattern to build the 21st century Silk Road together with the Middle East. Energy, the core of the pattern, is bolstered by two supporting arms, infrastructure and trade and investment facilitation. Both aim to culminate in successful high-tech, nuclear energy, satellite and new energy projects.
The investment plan laid out by China at the 2018 China-Arab States Cooperation Forum for Middle East, BRI projects include $20bn in loans and $106m in financial aid to Middle East countries.
Despite the progressive strides BRI projects have made globally, the initiative is still widely misunderstood among economic and political critics. Here we debunk some common BRI myths:
Myth 1: BRI Agenda is focused on Resource Acquisition, Extraction & Export back to China
Renewables and sustainability are the backbone of the BRI. China is currently leading the way in the development and utilisation of solar photovoltaic (PV) technology.
A number of BRI projects are leading green initiatives, focusing on sustainability and leaving a positive ecological footprint. Chinese firm Jinko Solar Holding Co is set to launch the world’s largest solar PV plant in Sweihen, Abu Dhabi in 2019. The 1,177MW project will not only positively impact the UAE, but will also benefit other partner countries, such as the Sultanate of Oman.
Myth 2: The Quality of Chinese Products does not meet International Standards
While products made in China have come under close scrutiny, through enhanced research and development and innovation, Chinese products have undergone a transformation, closing the gap in terms of quality and durability with its G7 counterparts. Officials within the UAE oil and gas, petrochemicals and utilities sectors, among others, are now willing to back the purchase and use of Chinese-manufactured products due to increased quality and warranties.
Myth 3: China Intends to Grow Food in Africa to Combat Food Scarcity
Prior to the BRI, China has long been known as a powerhouse influence in Africa. State-owned and commercial Chinese companies were prematurely coined ‘land grabbers’ by critics, who were not in possession of China’s long-term strategic plans for investment into the continent.
Chinese-led projects continue to lay the foundations for sustainable, grass roots agricultural development in rural Africa through collaborative land acquisition. In the book Will Africa Feed China?, Deborah Brautigam highlights that China not only makes significant investments into infrastructure, mining and oil, but it is also contributing to stabilising food prices and providing education opportunities for African citizens looking to study in China.
Myth 4: ‘Opaque’ Funding Fuels the BRI
China announced its global construction investments will reach $34bn globally for BRI projects. To facilitate the funding within each country, Chinese state-owned and commercial banks are joining forces with local banks and financial institutions to ensure transparency and security.
In the UAE, these partnerships are instrumental for China due to the intricacies of Islamic Finance and the key role it plays in project fund raising.
Further afield, Italy has become the first G7 country to pledge support to the BRI and the Memorandum of Understanding recently signed between the two countries is a testament to the governance in place for China’s plans in Europe.
China’s alliance with Italy marks a pivotal milestone for the BRI, as without government support in each country, the proposed BRI completion date of 2049 may not become a reality.
Myth 5: China is not looking for collaboration Partners in BRI Countries
China recognises integration is fundamental to the growth and ultimate success of the BRI. In each BRI country, it is building relationship capital through strategic partnerships and aligning project plans to support the economic objectives of each region. The Middle East is a crucial juncture for China and in recent years, the UAE’s participation in the China-Arab Cooperation Forum reinforces this partnership.
According to Consultancy firm McKinsey, trade between the Middle East and China is expected to reach $500bn by 2020. This influx of Chinese FDI into the region continues to bring with it enhanced project governance and the increased utilisation of locally-based suppliers and contractors.
A milestone investment project is the China-UAE industrial food park in Dubai Wholesale City. Chinese-owned Ningxia Forward Fund Management Company signed the investment agreement with the UAE in 2017 and construction is already underway on the 406,915 sq m project. A project of this magnitude not only demonstrates the collaborative efforts being made by China, but its support for the UAE’s long-term economic diversification plans.
Last year, Abu Dhabi Ports announced investments of up to $1bn were to be made by Chinese state-owned and commercial companies into KIZAD, the industrial park based in Abu Dhabi’s Khalifa Port Free Trade Zone. This move opens more doors for the UAE to boost non-oil GDP and allows China to cement its position in a strategic region of the BRI.
Neither of these deals would have been possible without the collaboration and support from the UAE government and key industries such as construction, oil and gas and renewables. The China-UAE bilateral relationship is unique in comparison to other BRI countries.
Understanding the nuances of the decision making process of state-owned Chinese enterprises will give those companies considering a BRI project collaboration the opportunity to assess and mitigate any risk from the outset.
To aid the due diligence process, carefully selecting a legal practice that is well versed in China’s business landscape is crucial for any potential BRI company.