Op/Ed By Rob Krawczyk
“In short, while it is true China dominates Engineering, Procurement and Construction (EPC) contracts on many BRI early stage investments — these are with financial returns well below 5% — for the projects with much higher financial returns (real estate, manufacturing, consumer, tourism), China had a minority position behind such countries as Japan, Korea, Singapore, France etc — just as the BRI model was intended to do. Many western — particularly US and European countries remain “stuck” on the 89% win ratio — except no one bothered to explain these are on projects with low financial returns — designed to facilitate economic development for such countries to higher level returns.”
This conversation — which unfolded two months ago — corroborates with Chris’s recent Op-Ed in noting the EU’s fixation with BRI contract wins to the detriment of carving out longer-term positions to the new industries and economies the Belt and Road Initiative is opening up. Indeed certainly by reports that all EU Ambassadors to China — with the sole exception of Hungary — signed a letter condemning the BRI this month, short-termist thinking hangs over the initiative from a European perspective. Yet for all European letterheaded unity, the picture is also more complex when it comes to the individual subtexts of government envoys vying privately for position in OBOR’s long-term chrysalis games. Nowhere may this be evident more so than in Europe’s perennial outsider exiting.
In the UK as such parallel to the official government position in not signing a Memorandum of Understanding with Beijing is Douglas Flint’s Special Envoy to the Belt and Road. I heard Douglas give his keynote address at the China Britain Business Conference in London in March, he noted that ‘the larger prize of BRI is not in the cashflows of individual projects but in the economies opened up” and called for a growing body of evidence — proof of concept and benchmark projects — to inform how UK government can support UK business on the BRI. In similar conversations that day, the onus was placed on UK business providing bespoke EPC, legal and financing activity at the BRI’s primary hard infrastructure stage (throughout BRI was framed in three distinct stages: 1. Building hard infrastructure; 2. Developing technological hubs; 3. Developing cultural linkages).
Notably, aside Douglas Flint on the BRI panel were representatives from ARUP and JLT Specialty Europe Ltd, the former of which signed an MoU with COVEC (China Overseas Engineering Group Co Ltd), and STEC (Shanghai Tunnel Engineering Co. Ltd) in February to ‘drive the Belt and Road Initiative’ and ‘unlock business opportunities to support the development of critical infrastructure along the routes.’ In August, the team will arrive in Shanghai’s Hongqiao district whose innovative low carbon structural designs are being implemented by ARUP and whom we hope to connect with to understand the development of the BRI from its experimental step-by-step approach: ’groping for stones to cross the river’ (mozhe shitou guohe).
In the legal space, another representative noted the primacy of London’s corporate law and arbitration institutions in underpinning OBOR-related hard infrastructure contracts which although many, if not most, are state supported, are often entered into between private companies, which makes them relatively opaque. In Nicolas Groffman’s recent article in the South China Morning Post — Why English Law could rule on China’s Belt and Road disputes — he notes how while China has been pushing to set up BRI dispute courts in Beijing, Xi’an and Shenzhen (the Xi’an court handling the land route across Central Asia; the Shenzhen court managing Southeast Asia and Africa) the UK and more particularly London has been marketing the merits of its own legal system for activity in BRI arbitration and dispute resolution. ’This is not as absurd’, Nicolas notes, ‘as it may seem; English law is common for contracts involving Russian companies and central Asian companies’ such that even on ‘contractual disputes where both parties are Russian English law is still elected to govern the contract [due to its] peculiar flexibility and ability to adapt equitably to the commercial situation at hand.’ The development of Astana International Financial Centre (AIFC) — Kazakhstan’s new planned financial free zone which will provide capital market access and asset management services to Central Asia countries, supplementing and capitalising the OBOR initiative — is a good example where OBOR contracts are expressly made subject to English and common law principles. In late June, we will arrive in Almaty and will aim to connect on this AIFC/London dyad and its position as a proposed stone quarry in the initiative’s bridges.
The cases of ARUP, JLT and the AIFC/London legal dyad obviously do not countenance the hard evidence that Chinese companies are winning the majority of early stage BRI projects as CSIS Reconnecting Asia’s study published in the FT this year suggests. What they do do however is tell us that the picture is more complex than its distilled infographic might give and that behind official government posturings on BRI, envoys and private business are vying for functional position in OBOR’s long-term evolution. In the UK context, short-termist ambivalence to the initiative is tempered in this sense by a lobby of strong UK-Chinese business and government representation, cognisant of the requirement for longer-term stone setting. Indeed in a recent article I came to via Stephen Perry whom advises UK government and business on UK-China trade, the BRI’s evolution over the longue durée was re-stressed from a report from deep within the Chinese academic support system for BRI at Chongyang Institute for Financial Studies, Renmin University which placed the three-step strategy of BRI within a time span of 35 years and a predicted completion date of 2049. The positions of ARUP, JLT and London’s legal arbitration institutions in providing bespoke EPC, legal and financing activity at the initiative’s primary hard infrastructure stage might offer much more in this way as stepping stones into its eventual soft economies. Indeed the hope by such logic, is that ’groping for stones to cross the river’ (mozhe shitou guohe) continues to press on both UK and Chinese pragmatism in the matter.