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One Belt, One Road One Unprecedented Opportunity

Randall MangComment
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By Randall A. Mang

Two years ago, the Mandarin saying “yi dai yi lu” –“One Belt, One Road” would have likely left Hatch executive Martin Doble nonplused. Today, like other executives worldwide, Hatch’s Global Managing Director, Infrastructure would tell you a different story: China’s “OBOR” grand Eurasian infrastructure and economic development strategy is redefining business opportunities not only in China, but virtually anywhere in the world this unprecedented land and maritime initiative leads.

Announced in September 2013 by Chinese President Xi Jinping, OBOR, otherwise known as the
“New Silk Road Economic Belt” is steeped in historical relevance. At its heart, this vast infrastructure effort harkens to the original Silk Road launched by China’s Han dynasty in 138 BC,
which ultimately led to 1,000 years of Chinese gains achieved through a flow of goods and influence across Central Asia and the Middle East.

Similarly, OBOR, which includes a complementary “Maritime Silk Road” that will expand
marine linkages between China and Southeast Asia, is designed to extend China’s geopolitical influence across Eurasia.


Everyone should have a China strategy in their plan, because in 10 years you won’t have a choice
in terms of China’s importance in the global economy

According to an article published earlier this year by the World Financial Review, “Chinese
analysts say that the territory encompassed by the New Silk Road Economic Belt and the Maritime Silk Road contains 4.4 billion people (63 per cent of the world’s population), with an aggregate GDP of $2.1 trillion (29 per cent of the world’s aggregate wealth).”

Domestically, OBOR’s focused, large-scale construction of all manner of infrastructure – roads,
airports, rail and telecom links and more – across China’s largely undeveloped western flank, intends to modernize and unleash this region’s untapped
economic potential.

To achieve sustained growth, however, OBOR will encourage and facilitate development beyond China’s borders, extending further westward to include Iran, Turkey, as well as Eastern and Southern Europe’s developed markets, and through South Asia and into emerging markets – from India through to Africa.

For Joe Lombard, Hatch’s Global Managing Director, Metals / Light Metals, the immediate opportunities are obvious. Fulfilling OBOR’s infrastructure needs alone will mean natural resource project development – not only in China, but in other countries that will aim to meet Chinese demand for everything from minerals to energy, areas in which the Mississauga-based engineering firm excels.

Hatch is well positioned to capitalize. Resident in China for more than 20 years, Hatch has
extensive operations, as well as a strong network of trusted suppliers across the nation that help it meet global procurement demands for everything from structural steel to sophisticated heavy duty mining and transportation equipment, gas treatment, integrated plant facilities and more, “mostly destined for projects outside of China,” says Lombard.

But Hatch sees even broader opportunity in helping the Chinese further evolve their capabilities and become even more efficient and technologically savvy.

“The Chinese possess the necessary business savvy and vision to make a quantum leap in terms of technology sophistication and use,” says Doble.

“To get money flowing and industry going and be truly sustainable you need greater efficiencies, particularly on the environmental front. They have the vision to make a quantum leap in terms of technology sophistication and use. We can bring the strategy, skills, execution discipline and technologies that they are hungry for – that will make the Chinese economy more efficient and sustainable.”

To help fulfill its goals, Hatch established a design institute in Beijing, the only one of its kind led by a Western company. The investment is already paying off; Hatch has earned a licence to design, build,procure and construct projects in China, making it unique among its global peers.

THINK BROADLY
While Canadian firms like Bombardier Transportation, Hatch and other Canadian majors are well positioned to help China execute infrastructure projects, Denis L’Heureux, Export Development Canada’s chief representative in Shanghai, encourages Canadian firms to take a broader view. “Think about public services, healthcare, education, theme parks – virtually everything and anything that links to urbanization. These opportunities exist today in China and they are only going to grow through OBOR.”

Among the examples, L’Heureux cites Winnipeg-based healthcare provider Seven Oaks, which is now opening a preventative cardiology clinic in North China. “These kinds of services are in demand. OBOR projects will urbanize central and northern China and fuel the growth of a middle class that will continue to seek lifestyle-driven services.”

Martin Doble says that strategic corridors envisioned by OBOR will not only allow materials to flow and GDP to be created, but inherently invoke multi-user environments created around supply chains, with connections required at every level – “standards, transportation, living spaces, and venues that facilitate human interactions.

“We are very interested in these things. It is in spiring us to move from being a company that was initially interested in extractive industries to being very involved in building these corridors. They need everything.”

Mary Boyd, Director, Shanghai Corporate Network for The Economist Group, says that beyond China’s borders, companies are well advised to focus on related commercial opportunities in “areas within the Pacific where you have strong emerging markets with large populations along the OBOR pathway – Vietnam, Indonesia, Myanmar, etc.

“This is where we are seeing companies that are well established in China relocating their operations. There has to be a hard look at the speed and expansion strategy to determine how much significance there will be in terms of commercial opportunity.”

FOLLOW THE MONEY
To help finance and build international participation in its plans, China is pulling a number of financial levers. Beyond earmarking $40 billion US from its foreign exchange reserve to create the Silk Road Fund, China is also a greater-than-equal partner in the new BRICS Bank, which was announced in Shanghai in July and is financed by China along with other BRICS nations. While each partner kicked in an initial $10 billion US to launch the institution – otherwise known as The New Development Bank– China is a 40 per cent stakeholder in its $100 billion contingency fund.

China has also played a potentially game changing card in the world of international finance by forming – and injecting $100 billion US of its capital into – the Asia Infrastructure Investment Bank (AIIB), an institution to help fund OBOR projects. Widely touted for its stated intention to reflect world-class transparency, governance and procurement standards, the AIIB has garnered the participation of some 60 nations worldwide, despite U.S. efforts to discourage other Western nations. Canada remains on the sidelines, leaving some observers concerned about the potential impact on Canadian businesses.

“If you use the World Bank as a comparator, our executive director is there as part of governance and over sight but also to know about project and procurement priorities and facilitate information flows to Canadian companies.” says Boyd.

She states that the federal government should recognize the strategic importance of institutions like the AIIB and the opportunities implied by the OBOR vision. Otherwise, “our companies are on their own.”

Boyd adds, “Canada has been an active member in the Asia Development Bank. The hope is that Canada would be able to replicate that level of participation in AIIB, and push on behalf Canadian companies for a more comprehensive view of the opportunities, as it does through institutions like the WTO, G20 and APEC.”

Hatch’s Joe Lombard cautions that Canadian firms seeking opportunity in China must first understand that doing business in China is a relationship-based enterprise. “Many people in China have innovative ideas. A successful business partner can distinguish the serious players who have what it takes to see a project through, so they can focus their investments and resources accordingly.”

Boyd adds that regardless of whether a company is already in China or is contemplating a presence, it should be thinking about how to leverage the region’s advantages through effective supply chain management. Doing so requires an understanding of various trade agreements China has in place with other players such as the ASEAN nations, Australia, New Zealand and South Korea.

“It is important to understand that the work on free trade, bilateral and multilateral agreements - the architecture that supports trade – is ongoing. You have to have the shipping infrastructure in place, but also the supply chain management systems to take full advantage of the infrastructure improvements that appear to be on the horizon.”

Similarly, in a recent article published in Horizons Journal of International Relations and Sustainable Development, editor David Dollar addressed the relationship between the Trans Pacific Partnership and OBOR by writing, “The kind of infrastructure financed by the Chinese initiatives is the ‘hardware’ of trade and investment, necessary but not sufficient to deepen integration. TPP, on the other hand, represents the ‘software’ of integration, reducing trade barriers, opening up services for trade and investment, and harmonizing various regulatory barriers to trade.”

L’Heureux says, “OBOR is just one demonstration of how China will continue to be more and more important to the global economy. We are still at the beginning of China’s impact on the world. Every one should have a China strategy in their plan, because in 10 years you won’t have a choice in terms of China’s importance in the global economy.”

Hatch executive Joe Lombard adds, “China will get to where it wants to be with or without our assistance. We have made the choice to participate.”


One Belt, One Road’s Big Five Aims

• Connective infrastructure — airports, rail lines, roads, highways, telecom and more linking western China with central Asia through to Europe. New ports and other maritime facilities will enhance China’s reach across the Indian Ocean and into the Mediterranean basin via the Suez Canal.

• Expanded trade volumes between China and Eurasia.

• Stimulate use of local currencies in cross-border exchange and reinforce the growing popularity of China’s renminbi as a preferred currency for international trade.

• Promote cultural exchange and human contact among participating OBOR countries.

• Encourage policy coordination among OBOR participating governments.


For more related to this story visit CCBC’s Business Forum magazine.