Projects

The winds of change are pragmatic and commercial

Day two of the One Belt and One Road Summit (OBOR), also described as the Belt and Road Initiative (BRI), exceeded expectations. This is the day for projects and their spruikers to strut their stuff. Unsurprisingly, my focus is on clean energy projects which came from as close as Sarawak in Malaysia and as far as from Provence in France.

We now have more than four years of experience on what OBOR means and what can and has been delivered. What OBOR means is becoming clearer, and it is clearly changed. OBOR impacts 66% of the world’s population that they have only 30% of the world’s GDP.

There is a clear backdrop that large-volume and low-cost production which was the backbone of China’s growth for the last 40 years is now considered history. The destiny of China is seen to be higher in the value chain. This means China needs to recognise that it’s a high cost producer for many items and that its manufacturing infrastructure is old and costly, and as a result of this they have excess capacity.

China has recognised that there are four key factors which contribute to global prosperity they are the flow of 1) people, 2) goods, 3) information and 4) finance.

Today there are 636 million people in the Asia-Pacific area with an average GDP of USD 2800 per annum. China has 1300 million people with an average GDP of USD 9500 per annum. China is a costly place to do the business.

A time to speak and it was said :

For me the most controversial events the day was a speech by the former Deputy Director-General of NATO Sir Richard Shirreff. Sir Richard spoken very clear terms of the good and bad of
 
  1. The emergence of an recognition of China as a major player in the geopolitical mix.
  2. The retreat of the US from its role as the leader of the international community.
  3. The re-shifting of the centre of economic power from Europe and its centres of influence back to Asia after nearly 400 years.
  4. The growing social unrest in many countries and specifically of the need for Hong Kong to get its own house in order.
For me what was amazing was that Sir Richard was heard in silence and received applause. At least in Hong Kong and in this forum there was free-speech. I also think his views would have been known at the time he was invited.

Delivering Belt and Road

As someone who is passionate about energy I was drawn to the project “pitching” sessions on “energy, natural resources and public utilities”.

Later in the day I attended in a breakout session on Belt and Road opportunities for SMEs” which meshed in wonderfully with yesterday’s session on green energy financing and the role medium and small companies can pay in providing infrastructure and business support in the emerging markets.

China sees a significant role for SMEs in delivering OBOR, they are nimble, flexible, pragmatic, cost-effective and politically savvy – they live in the community in which they work. SMEs have a strong commitment to their strategy and protecting their investment. They do worry about issues of currency and sovereign risk they need assistance from the banking and insurance (including SinoSure) sectors who will enforce upon them healthy financial discipline. These disciplines are to be found in Hong Kong.

SMEs are tech savvy they quickly adopt new technologies looking for fastest way to sell new products at the lowest cost. China is a huge market which needs to import products for less than they can produce them.

Where and why

The current wave of OBOR initiatives are clearly associated with the old Silk Road and the sea trade routes which linked China to the world more than four centuries ago supplemented by extending these trading links across the Pacific and stepping up to the plate where the US has failed in delivering the Trans-Pacific Partnership.

These new trade lines open opportunities for new, socially responsible, efficient, environmentally friendly, sustainable, low cost and flexible production. (Yes you need to tick all the boxes.)

Investment will only be made where independent people can confirm that each of the above criteria is met in making the investment decision.

It is important to again state that the criteria for investment by modern China is that of communism with Chinese characteristics – and these characteristics are changing as they receive feedback, they have done. It is clear China does not want to repeat of issuing loans which could not be repaid and resulted in the forfeiture of assets – it is well known that these include ports, rail and power.

With deep sincerity, it was repeatedly said, that the independent assessment of such investments needs to be truly independent, the role for Hong Kong was clearly to be this place where people from the international community would make the independent assessment that the investment assessment.

Nick Wright on behalf of Sarawak Energy delivered a very powerful pitch on the ability of his company to deliver another 9000 MW of power to mineral processing and industry at less than USD 0.05 a kilowatt hour.

The main beneficiary of this cheap power would be the mineral sector in North Kalimantan in Indonesia.

The state of Sarawak requires that the plants use best proven technology and as such a are low emissions. Jointly Malaysia and Indonesia will supply China with a low-cost source of processed industrial metals.

Similarly, Mme Ngan of Mainland Headwear Holdings, spoke of the need for resilience in her business which had been impacted by changes in the tariff regime in the United States. Mainland Headwear last year sold 80% of its production into the United States market it has now been impacted by a 30% tariff all of which cannot be passed on to consumers.

The company had some resilience based on having substantial operations in Bangladesh. Bangladesh is some 3 ½ hours by plane from Hong Kong or Guangdong. Mainland Headwear has 6000 employees in Bangladesh, but is designers financial controllers, marketing managers et cetera are all close to the consumer.

Ms Lena Ng of AMATA Corporation PCL spoke where she saw the future opportunities for clothing manufacture and why. The locations were Laos, Myanmar, Vietnam and Thailand. The why was growing domestic demand, the need for food, willingness to innovate and their acceptance that they needed more energy and that power had to be funded.

Hong Kong continues to be seen as its global centre of town with independent professionals delivering unbiased professional services supported by the rule of law, speaking and documenting in English, and compliance with global governance standards.

OBOR continues to have a commitment to working in the infrastructure and energy sectors. It has independent investment criteria and perhaps is ahead of the game and meets the requirements of long term strategic investors who internationally are increasingly looking like ethical investors. It is seen as common sense that a good investment needs to be ethical and sustainable to remain a good investment in the long-term. Given the political actions around the world this too may be common sense.

The exhibition hall was not only filled with projects from around the world but with stands from financiers and service providers, mostly based in Hong Kong, who could meet the criteria of independence demanded by the criteria for our OBOR investment.

At the end of day two we left with a lot of new contact names, email addresses and phone numbers not only of people with projects but those who could help and fund anywhere in the world.

Looking at what Projects RH does in Australia, and Tabatinga does internationally, I came away from the conference with the view that OBOR itself is sustainable, it will attract hell investors, and that a number of our clients in Australia and offshore will be the beneficiaries of it directly and indirectly.

We will be back next year.
 

Paul Raftery

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