The logistics of China’s Belt & Road Initiative – Interview with Adam Rush of Cushman & Wakefield
We are entering an age where it no longer makes sense to think of a distinction between Europe and Asia, argues Bruno Maçães, Portuguese politician, political scientist, business strategist and author, in his book The Dawn of Eurasia.
This Eurasian supercontinent described by Maçães is emerging as connectivity and communication roll out on a global platform. A key example of this is China’s US$8tr Belt and Road Initiative (BRI), spreading across more than 80 countries.
Launched five years ago, the BRI, with its massive infrastructure and trade expansion projects, is dubbed the modern Silk Road, with reference to the ancient trade routes that connected China with the west.
Six main BRI economic corridors, as well as one maritime corridor, fan out across Asia, and link into the Middle East, Africa, Europe and beyond.
When it comes to finance, a key player is the Beijing-led Asia Infrastructure Investment Bank (AIIB). Set up in 2016 with headquarters in Beijing, the bank now has 87 approved members worldwide.
The roll-out of the BRI has not been without a push back. In August, the Malaysian Prime Minister, Mahathir Mohamad, fresh in power, accused China of a “new version of colonialism”. In most instances, the push from local government is at least in part about renegotiating projects; such is the allure for BRI participants of much-needed infrastructural investment.
Interview with Adam Rush of Cushman & Wakefield
MIPIM World spoke with Adam Rush, Cushman & Wakefield’s Regional Director, Consulting, in Greater China, about the BRI. In particular, we touched on the logistics market, which is seen to offer some of the most potential opportunities for global investors, developers and businesses. Here are some excerpts from the interview:
Five years after it was launched, broadly, where is the BRI at?
Adam Rush: The AIIB is in place and is funding projects, some of which are nearing completion. Specific Chinese funding arrangements, such as the Silk Road Fund, are also operating as well as bilateral agreements setting out the framework for BRI investment in individual countries.
The most advanced logistics projects are the ports, such as the ports of Gwadar in Pakistan, Hambantota and Colombo in Sri Lanka, and Djibouti in East Africa, which are either finalised or at various stages of near completion, as well as some of the railway lines in East Africa.
How is the BRI changing the global logistics map?
Many of the big BRI projects, the first ‘cabs off the rank’, are not in areas on the radar of global investors. Having said that, the BRI is beginning to impact on intra-regional trade, so trade flows in particular to East Africa, and between Southeast Asia and the Indian Sub-Continent.
What you will also see is some linkage between the BRI and other broader trends, such as the transfer over the last ten to 15 years of simpler manufacturing processes from China to lower labour-cost regions and countries. The BRI, if not accelerating that process, is at least facilitating it, with manufacturers retaining a back-stop capacity in China.
What opportunities are opening up for the global investor?
The BRI is creating investment-grade opportunities in frontier markets where there might have otherwise been almost none; in places such as Kenya, Tanzania, Sri Lanka, and to a certain extent the former Soviet republics, such as Kazakhstan and Uzbekistan.
At the same time, European businesses from countries with a colonial history could have an advantage where regulatory systems are similar.
And for the logistics market in particular?
Chinese groups have a strong desire to partner with local developers and failing that with third-country developers with in-country experience.
Many Chinese groups leading the BRI charge are construction businesses. Those with no operational experience are looking for experienced operational partners, for third-party logistics companies with an investment arm or with some investment banking, even if they have no in-country experience.
Firstly, you need to consider that in any case many of these frontier countries are challenging to operate in and invest in. On top of that, for very significant decisions taken by Chinese companies, almost everything is referred back to company headquarters in Beijing.
A general manager working with you in Jakarta, for example, is likely to have a decision-making limit of US$10-30mn. This means that you need to establish the right kind of connections in China as well as in the country where you are operating.
Global investors also need to be aware of how geopolitics can intersect the market, in particular in frontier markets.
How is the US-China trade war affecting the BRI?
We believe there is a bit of a stock-take going on in China, looking at what has worked and what hasn’t. So, we’re likely to see some changes coming up in the next few months as to how the BRI will operate going forward. This would have happened in any case as it is now one or two years since the first projects began to operate, although geopolitics may have brought this forward.
China’s economy grew by 6.5% in the year until the end of September; the slowest since the global financial crisis. How is this affecting the BRI?
My strong sense is that the slowdown is less likely to affect BRI projects than other Chinese investments, especially those with assets in the US, and given the implicit and in some cases explicit government guarantees that stand behind the BRI projects.
We have seen the internationalisation of Chinese firms over the past few years. There might be a slowdown in the short and medium term of investment flows, but we believe that in the long term the internationalisation of the Chinese economy will continue.
Cushman & Wakefield’s report Silk Road Rebirth: Gearing Up for the Belt and Road, examines the potential opportunities for investment by corporate real estate operators.