China’s Belt and Road Initiative (BRI) is an infrastructure development plan that will have global ramifications. It will affect connectivity and competition within and across markets for years to come. No country or sector is off-limits.
As China rolls out BRI projects across participating countries, MNCs will have opportunities to participate, directly or indirectly, as subcontractors. As well as the usual risks associated with projects in emerging markets, MNCs experience added risk that a Chinese partner could acquire your key technology and know-how, ultimately displacing you across your markets. Opportunities and risks also exist for MNCs not participating on projects. On the upside, additional infrastructure should improve margins, while also providing scope for increased revenues. However, on the downside, MNCs will likely come up against greater Chinese competition. All the while potentially facing an increased risk of the negative fallout associated with sovereign debt distress.
FrontierView recently launched The Lens, a weekly newsletter published by our Global Economics and Scenarios team to highlight developments and trends that will have the highest impact on business executives. Below is an excerpt from this week’s edition, “Belt and Road Initiative 2.0: Opportunity for multinationals.”
Key details
- The Chinese government created China’s Belt and Road Initiative (BRI) in 2013 as an effort to create efficient cross global transport networks. However, the initiative has been strongly criticized.
- However, the recent April BRI Summit resulted in newly pledged support from Italy. This marks the restart of a canceled BRI infrastructure project in Malaysia, and growth of global interest.
- The Summit also highlighted changes to the way the Chinese government will approach funding and managing BRI projects going forward. The government has a particular focus on financial sustainability.
Our view
The Chinese government will focus on increased transparency, greater financial sustainability (including involving public, private, and international institution players for some projects), and stricter project ROI analysis to improve the overall quality of BRI projects. These changes will work to avoid further political pushback and towards strengthening financial sustainability of SOEs, which dominate BRI project execution and are already heavily indebted.
Business implications
Multinational corporations may find that BRI projects with mixed funding are more attractive to non-Chinese suppliers. Contrast this with 100% Chinese state-owned banks. This opens up commercial opportunities for MNCs. Companies should explicitly seek out projects based on their funding structure, and partner with emerging-market governments to generate additional funding resources for potential BRI projects.
FrontierView clients: See our report on China’s Belt and Road Initiative