_ Bejing, 6 January 2019.
Following the inaugural Forum in May 2017, President Xi Jinping announced last month that the Second Belt and Road Forum for International Cooperation will be held in April 2019. Exact dates are yet to be confirmed, but the Forum will very likely be the major event for the Belt and Road Initiative (BRI) in 2019. The Chinese government are predicting that around 40 Heads of State will attend the Forum versus 29 in 2017. The first batch of guests have already been confirmed, and Russia’s President Vladimir Putin has unsurprisingly been confirmed as the most important foreign guest. Philippines President Duterte has also confirmed his attendance.
What can we expect
The Forum will provide an opportunity to take stock of the Belt and Road Initiative five years on and lay out a new roadmap for the coming years. Much has happened since the inaugural Forum, including the BRI being enshrined into the constitution of the Chinese Communist Party and Xi Jinping removing Presidential term limits. Both moves ensure the longevity of the BRI. The Forum will also present an opportunity to refute growing international criticism of the initiative and garner further support. Based on conversations with our sources, we are expecting the following from the Forum:
1) A more concrete roadmap for Belt and Road’s development
The inaugural Belt and Road Forum in 2017 certainly gave BRI global attention, but was short of details and instead packed with high level and ambitious statements. Xi spent a significant proportion of his speech romanticizing over the old silk road and stressing the importance of connectivity and globalization. The speech was full of ‘we should do this’. In 2019, because BRI is by now well-known globally, there is less of a need to engage in self-promotion. As a result, we expect the Forum to focus more on implementation of BRI and to include more of ‘we have done this’ and ‘we will do this’.
This focus on implementation and accurately setting expectations will help to mitigate risks around the realities of BRI not living up to the rhetoric; something which recipient countries have often complained about. They sometimes claim that China promises large sums of investment, and brands BRI as a panacea in global development, but the actual sums invested are only a fraction.
We expect this specificity to extend to individual economic corridors and projects, outlining their future trajectories with more concrete (and quantitative) targets that they can be assessed against.
2) An evaluation of Belt and Road 5 years on
In its first five years, the BRI has progressed through an evolutionary process, and we have seen its metamorphosis from an initiative solely focused on infrastructure to one which now also incorporates industry, technology, cultural, legal and environmental components. At the same time, the BRI has been increasing its geographical scope by shifting its focus from the historic Silk Road region to the entire globe. Chinese policy makers have also been setting increasingly ambitious goals for BRI; from economic development to constructing a community of “shared destiny for all mankind”.
Our sources who have been invited to participate in the Forum tell us that there will be a focus on evaluation of the BRI in its first five years. Think tanks and governmental departments have been asked to put together country and sector specific evaluations, identifying areas of success and areas for improvement. Rankings on the countries most aligned with the BRI are likely to be published.
3) Focus on implications for business
When Xi announced that the second Forum will be held in April 2019, he was at the APEC Summit in Papua New Guinea. Xi specifically mentioned that members of the Asia-Pacific business community would be welcome to attend the Forum. This marks a change from 2017 where attendees came mostly from governments and think tanks.
There has been a growing appetite from business, both Chinese and foreign, to tap into the commercial opportunities that BRI presents. The Chinese government says over 80 State Owned Enterprises have undertaken 3,116 investment projects in Belt and Road countries to date. But the scale of BRI has also led more and more foreign firms thinking about how they can benefit from the BRI. For example, Western banks have also been betting big on BRI. Following HSBC, Citigroup announced it had appointed a veteran investment banker its head of Belt and Road Initiative-related banking and origination businesses.
We expect the Forum to stress that the BRI is open to foreign company involvement and highlight examples of foreign companies already benefiting from BRI.
4) The direction of globalization
With the backdrop of the US-China trade war, Chinese companies have become increasingly anxious and are trying to understand what an internationalization strategy excluding the US might look like for them.
While negotiations between the US and China are ongoing, we are not sanguine about the prospects for a meaningful deal being reached by the March 1st deadline that both sides have agreed. As a result, China will likely use the Forum as another opportunity to reiterate the importance of continued globalization and the dangers of protectionism; and if a deal does fail by March 1st, then we can expect China to double down on the BRI and encourage its firms to accelerate their search for new markets.
5) Direct response to criticisms around BRI
2018 was a year in which perceptions of the BRI became increasingly polarized. China will look to use the Forum to directly respond and refute to some of the criticisms made of BRI.
The primary criticism frequently made by Chinese citizens is that China is spending too much money abroad when it could instead be spending it at home. This was particularly visible in the aftermath of the China-Africa Summit held in Beijing in September 2017. China pledged new funds to invest in Africa, much to the annoyance of Chinese netizens. This is a view shared by some government officials too; for example, officials at the Chinese Embassy in Ethiopia recently remarked that Chinese investments were overextended in the country and not properly accounting for the financial risks that came with them. As a result, we can expect the Forum to stress that BRI investments will be undertaken with more thorough risk assessments; financial, environmental and social.
Much of the international criticism on BRI has focused around the debt incurred by countries as they take on loans from China. Mahathir’s election in Malaysia followed by the cancellation of key BRI projects worth over $20 billion have been the most visible manifestation of these concerns. Pakistan, Sri Lanka and Nepal have all postponed projects too, with excessive debt and unfavorable project terms oft-cited reasons. Part of the issue is that BRI projects lack transparency, which has resulted in some foreign countries inferring that deal terms are unfavorable for the recipient of Chinese loans.
In response to this, we expect the Forum to be used as an opportunity to announce new measures to improve the transparency of BRI projects, align them with high quality international standards and open up BRI to third party involvement. This can involve foreign governments, investors and companies. Up to now, foreign participation has been limited as the BRI has been monopolized by Chinese companies. Going forward, in response to international pressure, and to ensure a greater pool of capital going into BRI projects, we expect China to further open the initiative to foreign involvement. We have already seen rumblings of this through Saudi Arabia’s participation in the China-Pakistan Economic Corridor.
An opportunity to gauge perceptions of BRI, and a chance to reset them
Several countries are expected to send representatives to the Second Belt and Road Forum for International Cooperation. We will be able to gauge from the seniority of that representation how different countries perceive the BRI. In particular, looking at how the seniority of a particular country’s representatives have changed since the 2017 Summit will speak volumes for how that country’s stance on BRI has evolved over the last two years. Xi and China will be hoping for an upgrade in countries representations; when officials had been sent in 2017, Xi will be hoping for Ministers. When Ministers had been sent in 2017, Xi will be hoping for Presidents and Prime Ministers. The greater the seniority of representation at the Forum, the greater the interest the international community has in BRI.
The Forum also presents an opportunity to reset perceptions where there might be problems; especially around debt, transparency, specificity and third country involvement. Unlike 2017, we do not think that the Forum will be judged on how much additional funding China pledges, but instead on whether China can respond constructively to the concerns raised by both recipients of BRI investments and other developed economies. Only by doing so, will China secure the long-term buy-in it needs to make BRI a success. All eyes on 2019’s main event…