China’s Belt and Road Initiative offers new growth opportunities for Canadian companies

 Major infrastructure projects including ports and road and rail networks across Asia are planned for China’s ambitious Belt and Road Initiative. iStock.com/chuyu

Major infrastructure projects including ports and road and rail networks across Asia are planned for China’s ambitious Belt and Road Initiative. iStock.com/chuyu

China’s multi-billion-dollar Belt and Road Initiative (BRI) is one of the most ambitious multinational infrastructure and trade development projects ever undertaken and offers major opportunities for businesses globally, but many Canadian companies are unaware of the initiative, says Linda Seymour, executive vice president and head of commercial banking, HSBC Bank Canada.


There are many opinions on the role of RMB, but what can’t be challenged is that China is the world’s second-largest economic power and the world’s number one trading nation, and it’s growing.
— Linda Seymour is executive vice president and head of commercial banking for HSBC Bank Canada

“While there are Canadian companies already pursuing BRI opportunities and actively engaged in some of the infrastructure projects, what’s striking to me is the number that are not even aware of the Belt and Road Initiative and the greater opportunities in China’s Five-Year Plan,” she says.
Ms. Seymour adds that there’s an imperative for Canadian companies that want to be more globally minded to assess how they may take advantage of new opportunities in China.
“Research we’ve done over the years continually shows evidence that companies that trade do very well, and this goes beyond China,” she says.

First laid out by Chinese President Xi Jinping in 2013, the Belt and Road Initiative aims to develop two corridors linking China to the world. The Belt refers to the historic overland Silk Road trading routes connecting China via central Asia to Europe and the Middle East. The Road refers to the maritime equivalents to the south, linking China, Southeast Asia, India and Africa.

An HSBC research report published last October noted that Chinese enterprises invested US$14.8-billion in 2015 in 49 countries that are participating in the BRI, including an Indonesian railway, a Greek logistics hub and Bangladeshi power facilities. The state-run China Development Bank has said it plans to contribute US$895-billion of project funding.

Even though Canada is not on the BRI path, Canadian companies are well positioned to not only participate in the major infrastructure development projects associated with the initiative – such as road and rail networks and ports – but also to benefit from longer-term trade opportunities that will flow from the BRI in years to come, says Ms. Seymour.

Apart from opportunities tied directly to China’s infrastructure spending, such as engineering and architectural services, Canadian companies should also be looking at any ancillary opportunities around infrastructure projects.

“It’s important to remember that the BRI spans more than 65 countries, so opportunities exist not just in China, but also in all those other countries in Asia, the Middle East and Europe,” she adds.
Ms. Seymour says another important consideration for Canadian companies doing business in China is the use of renminbi (RMB), the Chinese currency, to settle trades. Although HSBC research showed that there was an increase from 3 per cent in 2015 to 7 per cent in 2016 in the number of Canadian companies using RMB to settle trades in China, the figure was still well below the global average of 24 per cent.

“There are many opinions on the role of RMB, but what can’t be challenged is that China is the world’s second-largest economic power and the world’s number one trading nation, and it’s growing,” she says. “The RMB is what they use to settle trade. You can use U.S. dollars, which have historically been the currency of satellite trade. However, you expose yourself to currency risk and potentially increased cost.”


BY THE NUMBERS

$85-billion
Value of Canada’s bilateral trade with China in 2016

$34.7-billion
Canada and China’s two-way foreign direct investment at the end of 2016

$21-billion
Value of Canada’s merchandise exports to China in 2016. This is an increase of 4% since 2015, with the top exports being forest products, agricultural products, ores and motor vehicles

4.5%
The percentage Canada’s population who are people of Chinese descent

120,000  
The number of Chinese students currently studying in Canada, more than the number of international students from any other country

Source: Global Affairs Canada