China’s Belt & Road plan
Unprecedented infrastructure investment
China’s ambitious Belt and Road initiative aims to connect it via land and sea routes to a market comprising half of the world’s population – spread across 65 countries and 3 continents. To achieve this, Belt and Road calls for Chinese investment in infrastructure ranging from transport links to telecoms and energy, stretching from Asia Pacific and East Africa through a revived Silk Route in Central Asia to Western Europe.
Opportunities abound in Belt and Road. As a domestic economic slowdown pushes Chinese companies to explore opportunities abroad for the first time, international companies are well placed to lend their expertise as consortium partners.
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Local risk, strategic impact
Financing will not be a major hurdle for Belt and Road, as Chinese state institutions step in to drive through the strategic display of soft power. A plethora of local risks do however have the ability to disrupt projects, meaning that investors need to be mindful of how each country’s risk profile differs.
Companies considering participating in Belt and Road should be particularly mindful of:
Construction projects, which lie at the heart of Belt and Road, are prone to corruption. State tender processes are often beset by a lack of transparency, and with mega-budgets like those of Belt and Road, the temptation for contractors to inflate prices for their own gain will be particularly high.
Cash-flow shortages mean that many governments in target countries have been unable to pay public sector workers in the last year. A similar risk of non-payment exists for potential participants in public private partnerships or similar project structures.
- Contract risk
Partners or subcontractors may not have the same respect for contract sanctity as your organisation, meaning that legal agreements cannot be relied upon to mitigate risk.
- Security challenges
Whilst direct threats to foreign business activities are often unlikely, the threat of Islamist terrorism will persist. Securing complex supply chains across regions with disputed borders and contested land ownership will require an in depth understanding of local power dynamics.
Governments in Central Asia in particular are likely to pursue protectionist policies by imposing spurious tariffs, taxes and bureaucratic delays on trade partners in the year ahead. Supply chains will also be undermined by tit-for-tat border incidents and closures, fuelled by regional disputes about access to water and agricultural land.
- Power transitions
Key stakeholders at the national and local level are likely to change in various countries along the route. Building relations with new administrations or elites that enter office will incur additional costs and can delay projects.
- Soft power entanglements
Russia has long had influence over Central Asia. Will Russia be happy to see China edging it out from the region and how it will react using its leverage in the EEU states?
Your strategic partner
Control Risks has helped investors operating in the countries touched by Belt and Road become secure, compliant and resilient for decades. Our regional expertise is buoyed by offices on the ground in China, India, Russia and throughout Europe, along with significant project experience in Central Asia. All of this leaves us well equipped to support you in understanding the challenges across the length and breadth of the Belt and Road route.
Interested in how Control Risks' risk management tools can help you?