The China Proposed Belt and Road Initiative and the Potential Opportunities for the International Practice Group
This article explores the ‘Belt’ and ‘Road’ initiative which is currently being put into motion across Asia, Europe and Africa. The main considerations are what the initiative is, the key qualities and fundamental aims which are proposed to ensure its success and how it is being funded. Meanwhile, the article explores the opportunities which are available for the International Practice Group to take advantage of during the infrastructure stage and operation stage of the initiative, in terms of obtaining further clients, expanding practice areas and recruiting further members into the group.
The Belt and Road Initiative (BRI), termed ‘the new Silk Road’ was first introduced in 2013 by the President of the People’s Republic of China (P.R.C.), Xi Jinping. The essence of the initiative at a fundamental level increases the functionality of trade routes between China, the rest of Asia, Europe and Africa.
The BRI has two key elements to it – the ocean based ‘21st Century Maritime Silk Road’ which develops key shipping routes and the land based ‘Silk Road Economic Belt’ which builds on the ancient Silk Road.
The BRI is an extensive and ambitious plan of connected transport routes, as can be seen from the diagram below:
What can be ascertained from this is that the BRI has an ambitious remit in its approach in terms of how it aims to connect the many of the countries situated within Asia, Europe and Africa to China. The land route will focus on jointly building a new Eurasian Land Bridge and developing the China-Mongolia-Russia, China-Central Asia-West Asia and the China-Indochina Peninsula economic corridors. This will be achieved by taking advantage of international transport routes, relying on core cities along the Belt and Road. The oceanic route will focus on jointly building smooth, secure and efficient transport routes connecting major sea ports along the Belt and Road. The China-Pakistan Economic Corridor and the Bangladesh-China-India-Myanmar Economic Corridor are closely related to the Belt and Road Initiative, and therefore require closer cooperation and greater progress.
The BRI is a necessary investment in infrastructure if China is to develop by being able to access to the economic opportunities which can be found within Asia, Africa and Europe. An example of this is provided by the Assistant Editor of the Daily Star, which states that ‘with wages on the rise on mainland China, the country is hoping to export some of its manufacturing base abroad to countries like Bangladesh (for garments). While Bangladesh is moving ahead with special economic zones for countries like China, the finished products will have to be transported back for sale in the domestic Chinese market. This is where road and sea connectivity, as envisioned by China and participating countries in the proposed economic bloc will come into play’. Indeed, it is clear to see from this example how such connectivity will be mutually beneficial not only for China but other countries, and within this example, Bangladesh.
A project on the scale of the BRI crosses many borders and as such invariably mixes with multiple cultures and beliefs. Therefore, in order to ensure that cultural differences are respected and the initiative is a successful, the BRI adheres to the United Nations Charter, which advocates: mutual respect for each other’s sovereignty and territorial integrity, mutual non-aggression, mutual non-interference in each other’s internal affairs, peaceful coexistence and equality and mutual benefit. These principles in theory will provide a stable basis on which to progress with infrastructure and the day to day operations of the BRI. However, it should be noted that with such cultural differences and multiple parties at play, opinions will invariably become a matter for debate and as such the five principles above may be rendered hard to practice in reality.
A further area which may prove to be problematic in practice is that the BRI seeks to accommodate ‘the interests and concerns of all parties involved’ , yet in practice this is an ideal which may struggle to be achieved due to vast interests and concerns each party will have. The barriers are likely to be substantial in practice, as such methods of overcoming these barriers will need to be developed and implemented. One particular method will be in the form of alternative dispute resolution, indeed mediation may be needed at times between conflicted parties.There are some key priorities which must be considered, acted upon and adhered to, for the BRI to be a success.
Policy coordination is one, as it is necessary for the countries along the Belt and Road to understand and appreciate the importance of intergovernmental cooperation and act in accordance with that understanding. Communications will also need to be unified across the BRI countries, along with expanding shared interests and enhance mutually agreed political trust. The countries situated along the BRI also need to coordinate their economic development strategies with each other, not least to ensure the accuracy and viability. They will also need to negotiate to solve any cooperation related issues. The effect of these requirements will make the planning, construction and operation of the BRI a much smoother and productive process.
Facilities connectivity is a further priority, as it is key that the BRI countries improve the connectivity of their infrastructure construction plans and technical standard systems. This improvement will allow the BRI to jointly push forward the construction of international trunk passageways, and form an infrastructure network connecting all sub-regions in Asia, and between Asia, Europe and Africa step by step.
A further interesting part of the facilities connectively priority is the creation of an ‘Information Silk Road’. The key elements to this would be the creations of bilateral cross-border optical cable networks at a quicker pace, plan transcontinental submarine optical cable projects, and improve spatial (satellite) information passageways to expand information exchanges and cooperation. This is an ambitious, yet essential investment in the 21st century.
The multinational nature of the Belt and Road is invariably going to create trade barriers, however, the countries involved must work together to dismantle these barriers and allow trade to be unimpeded. This will create a sound business and commerce environment for the BRI to be based upon; indeed discussions are to be had regarding opening up free trade areas, in an effort to create further cooperation. There are other requirements which will assist the effort for unimpeded trade, these include: enhancing customs cooperation such as information exchanges, mutual recognition of regulations and mutual assistance in law enforcement. There is also a need to improve bilateral and multilateral cooperation in the fields of inspection and quarantine, certification and accreditation, standard measurement, and statistical information; and work to ensure that the WTO Trade Facilitation Agreement takes effect and is implemented.
There is also a need to speed up investment facilitation, eliminate investment barriers, and push forward negotiations on bilateral investment protection agreements and double taxation avoidance agreements to protect the lawful rights and interests of investors. A key element is financial integration and stability, indeed it would appear one key aim is to build a building a currency stability system, investment and financing system and credit information system in Asia. Financing the BRI is also key, development of the Asian Infrastructure Investment Bank and BRICS New Development Bank is integral to the success of the initiative. There is also the need to improve the system of risk response and crisis management, build a regional financial risk early-warning system, and create an exchange and cooperation mechanism of addressing cross-border risks and crisis.
The need to foster people to people bonds is key to encourage public support. The methods used to create such bond and support are very broad, and include, but are not limited to, student exchange programmes, festivals, cruises along the maritime road, sport fixtures and establishing emergency aid for with illnesses and living in poverty stricken areas along the Belt and Road.
These are very positive efforts made by the BRI, but they must be genuine, and not used to gain support through any form of deception or unethical motive. The cost of the BRI is going to be substantial; indeed Want China Times estimates it is likely to cost at least 1.2 trillion USD. This figure would seem to be astronomical, and would raise questions about the reliability of the source. However, when one considers that The Independent reports that it has cost a staggering 50 billion USD for infrastructure and energy deals in Central Asia alone, the 1.2 trillion USD can be seen in context.
It stands to reason, even as an economic superpower, China cannot withstand the cost of BRI alone. Therefore, alternative funding options also need to be explored other than just the “in house” funding from the Chinese government.
A key source of funding is via the Asian Infrastructure Investment Bank (AIIB). The AIIB is an international financial institution, which was first proposed by the Chinese government. The bank currently has 57 prospective founding members, as of June 29th 2015, the members also include the BRIC countries. The United Kingdom and Australia have also become members, as has every Asian country, but North Korea and Taiwan who had their applications rejected. It should be noted that the United States remain sceptical about the operations of the bank in terms of its governance and as such have not signed up.
The bank has an initial authorised capital stock of $100 billion USD, $50 billion USD of which will be provided by China. Mr. Li Keqiang, the Premier of P.R.C., stated that the AIIB has grown due to the ‘recognition of the importance of infrastructure to the development of Asia and the need for significant additional long-term financing for infrastructure in the region’. The fund continues to be a valuable source of capital in regard to the BRI and welcomes investors from beyond China, similar to the AIIB.
From the above explanation of the BRI, it is clear to see that BRI is an ambitious and reasonably well funded initiative, with a clear remit and principles to abide by. This therefore presents certain opportunities the International Practice Group may choose to capitalise on and take advantage of, should they wish to do so.
As we know, the IPG is made up of independent lawyers, accountants, tax advisors and other professionals, from all over the globe, all of whom have the ability to work cohesively together. This allows for international business transactions to take place cost effectively and to high professional standards. This combination of professionals, on a global level, allows for the key services in law, taxation and accountancy that the IPG specialises in to be offered to the BRI – as they will invariably need to utilise these services from building the infrastructure to the day to day operations of the Belt and Road.
The opportunity which has now been presented by BRI represents a key time in which the IPG can seek to raise further awareness of the organisation, especially in countries along the Belt and Road, and expand its portfolio of members. A good way of trying to access and expand in countries would be targeting key firms and businesses that would fit well within the IPG and by advertising in professional magazines. The more members the IPG recruits, the further the group can extend to in terms of connecting clients from all over the world in international transactions.
Finally, the ‘other professional’ category of the IPG could be developed further by expansion and new members, making the professionals an even more integral part of the IPG.
In conclusion, the BRI is the largest and most exciting expansion of infrastructure that can be identified in the 21st century today. It is supported by key moral codes and a strong ethos, with substantial funding to ensure it gets off to a good start and is completed successfully. The initiative brings with it a key opportunity for the IPG seize upon and develop from, it is not suggested that it will be an easy market to break into, but successful establishment within the BRI will bring with expansion and profit the members concerned.
LONGAN LAW FIRM
Jia Hongwei (David)
Unit 802, New World Center, 6009 Yitian Road
Futian District Shenzhen, Guangdong
0086 755 23982682