HSBC: One Belt One Road Briefing Note

One Belt One Road is an infrastructure initiative conceived and promoted by the Chinese Government to connect more than 65 countries and 4.4 billion people worldwide corresponding to 40% of world GDP

In anticipation of the 14th and 15th May BRI Forum held in Beijing, China, which will see the active participation of the Italian Government represented by the Prime Minister Paolo Gentiloni, HSBC has published a prospect about the new Chinese government’s initiative and investment opportunities for European companies and countries.

One Belt One Road (OBOR) is an initiative conceived and promoted by the Chinese government in order to convey internal and external investment to the Dragon Country in a single large project that promotes greater collaboration and economic integration between countries along the historic trade routes. Launched in 2013 by Chinese President Xi Jinping, nowadays it involves more than 65 countries from Asia, the Middle East, Africa and Europe and 4.4 billion people around the world corresponding to 40% of world GDP.

The initiative promotes the realization of five macro objectives: policy coordination, facilities connectivity, unimpeded trade, financial integration and people-to-people bonds. To achieve these goals, the Asia Development Bank estimated that it would need about $ 26 trillion for the period from 2016 to 2030 – this is the expected duration of the project – and currently there is a wide gap between existing investments and those still needed. For example, the infrastructure investment gap equals 2.4% of projected GDP for the 5-year period 2016 to 2020.

As long as the first quarter of 2017, bilateral trade between countries increased by 26.2% – to USD 240 billion – on an annual basis thanks to agreements signed in support of the initiative and the number of new contracts increased by about 36% each year. Overall, in 2016 investment in projects involving the countries that joined the OBOR initiative has tripled according to data provided by the Ministry of the Chinese Economy (MOFCOM).

The analysis developed by HSBC has highlighted the investment opportunities that this initiative will generate for European businesses and countries for the next 20 years. One Belt One Road covers two routes and six economic corridors. The two trading routes involved are the Silk Road Economic Belt and the 21st Century Maritime Silk Road – respectively land-based and naval; each of them will incorporate three economic corridors that will lead to Europe, to the Arabian Peninsula, to the Middle East and Central Asia.

Although potential investment opportunities are very heterogeneous by sector and geographic location, HSBC has highlighted how they tend to focus on areas of strong economic interest for Chinese’s companies such as Thailand, Malaysia, Singapore and Indonesia, and sectors such as transport, energy, renewables and industrials through the creation of new and important railway networks, highways, pipelines and electricity networks. Just exploring the rail sector, more than 300-500 billion Renminbi investments are planned for the construction of approximately 15,000 km of high-speed railways. The initiative will therefore generate a strong demand for materials such as steel, aluminum and cement, and will also lead to a sharp increase in the quantity of transported material, thus affecting the logistics sector.

Nevertheless, the opportunities do not come only from the infrastructure side. By 2050 there will be 3 billion people joining the middle class in emerging markets entailing a huge explosion of service demand, including technology but also entertainment or healthcare.

HSBC’s analysis also points out that most of the projects are now at an early stage of planning and tendering and that is the reason why for European businesses and states this could be a perfect opportunity to join one of the largest economic initiatives in the world.