A new future for the world economy

The Belt and Road Initiative (BRI) is an ambitious strategy designed to drive trade and capital flows between the east and west.

HSBC

  • The goal of the Belt and Road Initiative is to improve the infrastructure of overland and maritime routes as well as financial and policy conditions in China to drive trade and capital flows between the east and the west
  • By connecting more than 65 countries across Europe, Asia and Africa – the initiative will cover 63 per cent of the world’s population and 29 per cent of global GDP, and ultimately make it easier for goods and services to reach the growing middle classes whose disposable income is increasing
  • There are opportunities for both Chinese-based companies as well as those outside the region doing business in China

The Belt and Road Initiative (BRI) is an ambitious strategy designed to drive trade and capital flows between the east and west. This large-scale initiative will connect cities in more than 65 countries across Europe, Asia and Africa via two trade routes – an overland route connecting Europe and the Middle East to China by way of Central Asia and a maritime route that connects China, South East Asia, India and Africa.

These routes alone represent approximately 4.4 billion people, or about 63 per cent of the world’s population and 29 per cent of global GDP. With an overall objective of increasing regional trade and encouraging economic cooperation, China has also made it clear the initiative is open to all countries – not only those along the Belt and Road – and in January of 2018 invited Latin American and Caribbean countries to join.

At the outset, BRI has focused on building or improving the physical infrastructure along the routes including rail lines, ports, power grids and telecommunications networks, which will facilitate the flow of goods and services. As Helen Wong, HSBC Chief Executive for Greater China, explains, as the infrastructure improves cities and countries will become better connected. That connectivity will lead to other economic activity and development, which will increase regional trade.

Outlook for China

The purpose of BRI is to simplify and increase cross-border trade – ultimately creating opportunities for Chinese companies by generating more demand for what they have to offer. It is, in essence, an extension of China’s “Going Out” strategy, which encourages mainland companies to do business outside of China to boost outbound growth.

The impact is already being seen. Trade between China and BRI countries was US$1.1 trillion in 2017 – up 15 per cent from the previous year. Based on this, the annual trade volume between China and countries along the Belt and Road routes is expected to exceed US$2.5 trillion in the next ten years.

This shifting climate is leading to more outbound deals as well. In 2017, HSBC acted as Lead Financial Adviser to ChemChina on its full cash tender offer for Syngenta, the Swiss-listed world leader in crop protection. Valued at US$46 billion, the deal is the largest overseas acquisition by a Chinese company.  

Opportunities Outside of China

Companies inside China are not the only ones who will gain from the initiative. That’s because BRI is not just a Chinese initiative, but a global effort that will involve developed and developing countries and international organisations and could result in new prospects throughout the infrastructure supply chain, from sizable construction firms to small specialist providers. Those who stand to realise an immediate benefit include:

  • Equipment manufacturers who provide components for high-speed railways, ports, engineering machinery, high voltage power grids and nuclear power 
  • Companies who supply steel, aluminium, cement and other construction-related materials 
  • Bulk shipping and logistics services as demand for raw materials increases with the progression of infrastructure projects 

Many of the more significant projects may also serve as a catalyst for commercial and real estate developments along the newly-invigorated transport routes.

As BRI continues to grow and reach its full potential, it is likely to have a meaningful impact on the 21st-century global economy in several ways – creating jobs and opportunities for people and businesses along the routes as well as companies and investors around the world. If you’ve been considering doing business in China or investing in BRI to diversify your holdings, the right time to start is now.

Belt and Road is about opportunity. For construction, logistics and energy companies the world over; for exporters who will be able to get their goods to market more quickly and cheaply; and for local and international investors, by galvanising fundraising and financial-markets activity across dozens of countries housing hundreds of millions of people in the coming years.

Peter Wong, Deputy Chairman and Chief Executive, HSBC Asia Pacific

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