Feature Stories

10.07.2017

Seizing Opportunities Opened Up by the Belt and Road Initiative

As the China-led One Belt One Road (OBOR) initiative continues to draw world-wide interest, the HKUST Business School along with event partner United Overseas Bank (UOB) have launched a series of investment seminars, featuring prominent business leaders and scholars to provide a range of insights on how Hong Kong businesses and investors can seize the opportunities offered by the Belt and Road initiative.

In a series of seminars, experts from different industries were invited to highlight some of the opportunities and challenges OBOR created for three of Southeast Asia’s up-and-coming markets: Vietnam, Myanmar and Indonesia.

“The OBOR seminars provide a prime opportunity for HKUST faculty to share their research and business findings with the wider community,” says Professor Tam Kar Yan, Dean of HKUST Business School, during his welcome address.

The dean also notes the timely staging of the OBOR event, which started the day after high-ranking representatives from 130 countries gathered at the Belt and Road Forum for International Cooperation in Beijing.

In addition to promoting an informed discussion on the topic, faculty at the Business School have stepped up their research to examine how to design optimal trade and investment policies to bolster Hong Kong’s future development. Led by HKUST’s Institute for Emerging Market Studies (IEMS), a research project on “Trade and Investment under OBOR and Implications for Hong Kong” is underway. It is a three-year project funded by the Hong Kong Government’s Strategic Public Policy Research Scheme.

“We are identifying opportunities and challenges as they unfold along the Belt and Road countries,” explains Albert Park, HKUST IEMS Director and Professor of Economics, presenting at one of the HKUST-UOB seminars. “We are focusing on how the initiative and various proposals impact Hong Kong,” Park says. “Importantly, we are researching the opportunities and challenges that the Hong Kong business community and government need to be aware of to take advantage of OBOR developments.”

He adds that from a business standpoint, Hong Kong is a gateway between China and the rest of the world. Therefore, it stands to benefit from the numerous business opportunities which will arise out of the OBOR initiative. For instance, there is potential for Hong Kong's financial sector to provide capital and financial services for OBOR investments and transactions connected to infrastructure projects.

Openness to trade underpins the appeal of Vietnam

At the first seminar, Mrs Christine Ip, CEO of Greater China of UOB, explains how investment pathways in emerging markets usually progress. She points out that early stage OBOR investment and project participation opportunities can be expected to focus on energy resources and government-led infrastructure projects. “If the next phase follows usual trends, we can expect to see sectors including technology, media and telecommunications (TMT) and real estate opportunities emerge," says Ip.

Offering business and investment-related insights in Vietnam, Ms Vu Chi Mai, Deputy Consul General of the Consulate General of Vietnam in Hong Kong and Macau, says her government has been establishing special economic zones to support business-friendly policies and attract investment across a range of industry sectors. Incentives include lower corporate income tax, tax reductions or exemptions, land-rent reduction and import-duty exemption for eligible projects.

Mr Dickson Ho, Principal Economist (Asian and Emerging Markets) at the Hong Kong Trade Development Council, notes that Hong Kong and Vietnam share well-established trade links. He points out that Hong Kong’s super-connector capabilities are enhanced because the city is within five hours’ flight time to the majority of OBOR countries including Vietnam. He says Hong Kong’s status as a regional trading hub, its experience of providing logistics and maritime services, its ability to finance and build large-scale infrastructure projects and East-meets-West business are all competitive tools to be taken advantage of regarding OBOR opportunities.

A key speaker at the three seminars, Mr David Chao, Head of Foreign Direct Investment Advisory Unit at UOB Hong Kong, says the three markets that the seminars discussed offer a wide range of investment opportunities given their abundance in natural and human resources, strategic locations, large population and moderate- to-high economic growth rates.

Chao shares some real-life cases on how his clients tap into these new markets with, in addition to financing, the connections and advisory role the bank can provide. For example in Vietnam, he says its strategic geographic position, political stability and openness to trade underpin the appeal of the Vietnamese market for investors.

Opportunities for Myanmar

“Myanmar offers a lot more than the oil and gas investment potential people often associate the country with,” says Chao. However, he informs the audience that geo-political tensions have delayed some of the proposed reforms relating to foreign ownership of business, which had caused some uncertainty and prompted a wait-and-see approach from would-be investors.

Also speaking at the Myanmar seminar, Ms Shirley Chan, Head of Transaction Banking at UOB Hong Kong, says Myanmar’s industry sectors attracting attention include food and beverage, hospitality, logistics and healthcare. “Some uncertainty remains regarding labor laws, operating regulations and an employee skills gap, but progress is definitely being made,” says Chan, who works closely with multinational organizations and companies from Hong Kong and the mainland which have established operations in Myanmar.

Professor Albert Park says apart from finance Hong Kong has a rich source of top professionals in a wide range of services including accounting, law, construction, engineering and business and project management. However, noting the enthusiasm for OBOR opportunities shown by potential investors and companies, Park cautions there are no shortcuts to investment success and the normal rules of business apply.

“It is important that every project goes through the process of identification, appraisal, implementation and evaluation,” Park advises. He also adds that, despite the large sums of finance set aside by the Beijing Government and the Asian Infrastructure Investment Bank, there are no guarantees that projects along the Belt and Road countries will develop at the same pace or have a similar amount of impact.

The day of the RMB and Indonesia

Mr Tri Tharyat, Consul General of the Republic of Indonesia in Hong Kong and Macau, presents at the final seminar, where he introduces the 30 priority projects which his country opens up for foreign investors, in particular in the infrastructure and tourism sectors. He says the OBOR initiative will contribute to the world’s stability and security.

At the discussion session moderated by HKUST Professor Edwin Lai, Mr Ben Chan, Head of RMB Solutions of UOB Hong Kong, agrees that the RMB will play an increasingly important role not only in Indonesia, but across the region.

Chan sees a vast potential for the RMB being used as an invoicing currency in countries like Singapore, Malaysia, Indonesia and Thailand.

Professor Lai predicts that some of the OBOR projects will be financed in the form of offshore RMB bonds, which is another move that will further enhance RMB internationalization. “With the growing volume of trade and financing activities driven by OBOR, Beijing will gradually relax capital controls and make the RMB more convertible,” says Lai.

The three seminars held in May and June have attracted participants from a broad business community and offered some vision on the three potentially fastest-growing markets along the Maritime Silk Road.

Belt and Road: New World Order

Experts from China, Russia and Hong Kong agree that OBOR will have major ramifications for countries around the globe, especially those in Eurasia and the Asia-Pacific, but they differ on the Initiative’s ability to transform development in OBOR economies. The experts spoke at a forum held during China’s Belt and Road Summit in Beijing on 15 May, organized by the HKUST Institute for Emerging Market Studies (IEMS).

Professor Justin Lin, former Chief Economist of the World Bank and current Director of the Center for New Structural Economics at Peking University, strikes an optimistic tone, pointing out that China can provide developing countries not just with financing but also with the technology and know-how that led to China’s own development success. Given rising wages in China, many Chinese firms are also poised to make investments that move labor-intensive production to OBOR countries.

Mr Alexey Kalinin, Director of the Institute for Emerging Market Studies at the Moscow School of Management SKOLKOVO, takes a more balanced stance in describing the impact OBOR may have on countries in Central Asia and the Caucasus. He emphasizes that countries in the region are highly diverse politically, ranging from liberal democracies to stringent autocracies, and also economically, especially in terms of energy resources. Kalinin recognizes that the OBOR initiative provides tremendous opportunities, but warns that successful investments will require an awareness of each local context.

“Who will pay for it?”, asks Professor Alicia Garcia-Herrero, Chief Economist (Asia Pac.) at NATIXIS and HKUST IEMS Faculty Associate. The infrastructure needs of OBOR countries are so great, that they cannot possibly be financed adequately by China and the multilateral development banks. If the potential of OBOR is to be fully realized, much more progress needs to be made in devising new global financing arrangements that involve major commercial banks and public-private partnerships. Hong Kong banks could play a leading role, but only if they are proactive in responding to the opportunities of OBOR.

The “One Belt One Road: Global Perspectives” luncheon was co-sponsored by the Center for New Structural Economics at Peking University and Moscow School of Management SKOLKOVO.

More insights: http://iems.ust.hk/oborglobal