How can European companies benefit from the megaproject.

The "New Silk Road" - opportunities for European companies?

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Mag. Linda Michalech
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Sberbank Europe AG
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The "New Silk Road" - opportunities for European companies?

The "New Silk Road" - opportunities for European companies?The 'New Silk Road' or Belt and Road Initiative is an economic and geopolitical megaproject that has dominated China's foreign trade policy agenda since 2013 under the leadership of President Xi Jinping. Its aim is to strengthen connectivity and commercial cooperation between Eurasian countries. Originally known as 'One Belt, One Road (OBOR)', the project's official title was subsequently changed to 'Belt and Road Initiative (BRI)'. In the long term, the Chinese government envisages that the initiative will engender closer economic cooperation, reduce physical and regulatory barriers to trade and investment, strengthen financial collaboration and intensify personal and cultural exchange among the countries along the New Silk Road. To create the required framework for this win-win situation, investment is needed in infrastructure such as roads, railways, airports, seaports, telecommunications and the power grid. China's vision is structured around six corridors, which are essentially based on existing transport routes.

From vision to reality

China envisages the Belt and Road Initiative as an open, multipolar, collaborative project. Its future is therefore strongly dependent upon political will and on the active involvement of other countries and economic partners. Estimates of the required capital investments for the Belt and Road Initiative range between $0.9 trillion and $5 trillion, which far exceeds the authorized capital of $100 billion held by the Asian Infrastructure Investment Bank (AIIB), specially created for this purpose in 2016, and the $40 billion at the disposal of the Silk Road Fund. In other words, without massive contributions from other development banks such as the World Bank (WB), the Asian Development Bank (ADB), the European Bank for Reconstruction and Development (EBRD), etc., as well as government and private investors, chiefly from the countries along the corridors, it will only be possible to complete the project in rudimentary form. China's state-owned banks have shouldered the bulk of the funding burden to date, with President Xi Jinping pledging to make available a further CNY 780 billion ($113 billion) at the first Belt and Road Forum for International Cooperation held in May 2017.

Europe and the New Silk Road

Virtually all the states of Western Europe, including Austria, support the Belt and Road Initiative as members of the AIIB. The CEE countries are involved within the framework of the 16+1 initiative (11 EU member states, five non-EU countries from the Balkans, and China), within which they are supposed to act as bridgeheads to the industrial centers of the EU. The current focus is on infrastructure investments related to the Belt and Road Initiative in the Western Balkans, as well as in Hungary and Romania. According to EBRD estimates, the volume of projects in the region financed, realized or planned with Chinese backing amounts to over €10 billion, the greater part being power plants (in Romania, Serbia and Bosnia-Herzegovina) and investments in transport infrastructure. The latter include major highway projects in all countries of the Western Balkans along with the planned modernization of the rail link from Piraeus to Budapest. A high-speed section is planned between Belgrade and Budapest, though the EU Commission had some reservations regarding the project's compliance with EU public tender regulations. It was put out to tender in November 2017. The EU as such generally takes a positive stance towards the Belt and Road Initiative, provided that the EU competition rules are complied with and the individual projects are financially, socially and ecologically sustainable. In this spirit, the EU and China established the "Connectivity Platform" in 2015, a policy forum that aims to promote cooperation on linking infrastructure and create synergies between EU programs such as the EU Investment Plan for Europe and China's Belt & Road Initiative.

How can European companies benefit from the Belt & Road Initiative?

It goes without saying that a total investment volume of between $900 billion and $5,000 billion, even though the time horizon extends over years and indeed decades, opens up new market opportunities for European businesses, especially with regard to major infrastructure projects.

Likewise, the shorter and more efficient trade routes will reduce transport costs and the associated risks and open up new commercial avenues. This will generate new business segments for European logistics enterprises, who are already signaling great interest in the Belt & Road Initiative.

In the long term, however, the decisive factor is the likelihood that the improved transport, telecommunications and energy supply infrastructure will trigger the development of attractive new industrial regions and hence new sites for investment, e.g. in the extractive and primary industries in Central Asia. Also, the newly created special economic and industrial zones could be of interest to companies in the manufacturing sector. Within the framework of the Belt & Road Initiative, China has already concluded a number of bilateral agreements to eliminate trade barriers (e.g. a free trade agreement with Georgia), and more will be concluded in future – this could also be of benefit to Chinese subsidiaries of European corporations. Last but not least, the tourism sector could benefit from improved accessibility of travel destinations along the Silk Road and potentially tap new markets for travel to Europe.

Waltraut Urban, freelance economist and China specialist

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