Shared growth and collaboration over the five years on the Belt and Road: is China building a better world? ——EY releases the second issue of Navigator

Date: 13 Nov 2018

21 September 2018, Beijing – The year 2018 marks the fifth year since the Belt and Road Initiative (BRI) was put forward. Over the past five years, China and Belt and Road (B&R) economies have taken firm steps and achieved shared growth by transferring technologies, talent and ideas to build major projects with benefits shared by the globe. EY has released the second issue of Navigator – “Shared growth and collaboration over the five years on the Belt and Road: is China building a better world?”, which aims to help companies strike a balance between the investment in B&R countries and the benefits of the economy, the society and the environment, and incorporate corporate social responsibility (CSR) into their business strategies to achieve sustainable and healthy development and build a better working world.

With the optimization and upgrading of traditional industries and the rapid development of strategic emerging industries, China has entered a new economic phase of quality growth. EY finds that Chinese companies that are involved in the BRI have completed high-grade construction work in a timely manner and transferred competitive technologies to the host countries. Along with market expansion, Chinese companies are effectively fulfilling their CSR mandate, taking measures to balance economic, environmental and social benefits, while at the same time, seeking to maximize each and furthering sustainable development based on the principle of achieving shared growth through collaboration under the BRI.

“China is maintaining steady growth in B&R investment. In H1 2018, China’s outward non-financial direct investment along the route reached US$7.4 billion, up 12% YoY. By August 2018, China had invested US$28.9 billion in developing 82 overseas economic and trade cooperation zones along the route, attracting nearly 4,000 companies to move in. This also contributed US$2 billion of taxes to the host countries and has created 244,000 jobs,” said Loletta Chow, Global Leader of the EY China Overseas Investment Network (COIN) and EY B&R Taskforce Leader. “The statistics show that good progress has been made in all respects under the initiative. Engaging in local development along the route, Chinese enterprises are building a stronger international presence. Furthermore, Chinese enterprises’ commitment to CSR can help them establish an accountable corporate image overseas and enhance international influence and global competitiveness.”

The idea of achieving shared growth through discussion and collaboration drives vigorous development toward the Five Goals

The Five Goals are the core of the BRI. Policy coordination intends to boost economic policy coordination and regional cooperation along the route. By August 2018, China had signed 118 cooperation documents with 103 countries and international organizations on the B&R construction. Loletta Chow said: “Policy coordination ought to promote openness with sustainability. China is building an interconnected network with developing countries through the initiative to achieve mutual benefits and win-win cooperation in a complementary manner.”

As for facilities connectivity, Loletta Chow said: “As facility connectivity is the basis for cooperative development, infrastructure construction is the priority of the BRI. Currently, most of the projects are progressing steadily. By August 2018, China-Europe freight trains have made more than 10,000 journeys, reaching 15 countries and 43 cities in Europe. In H1 2018, China’s newly-signed contract value for EPC projects along the route amounted to US$47.8 billion, accounting for 45% of its total newly-signed contract value overseas, while China’s EPC turnover in B&R countries reached US$ 39 billion, up 18% YoY.” Moreover, Loletta Chow added: “Many projects employ local people in the construction process, which helps create job opportunities, promote economic growth and transfer advanced technologies and standards to achieve win-win cooperation.”

In terms of financial integration, Jared Liu, EY TAS Partner and EY B&R Taskforce Infrastructure and Project Finance Services Leader said: “Innovative ways should be explored for project investment and financing. Up to now, China has developed various forms of financial cooperation with B&R economies and relevant organizations as a diversified investment and financing platform has taken shape. Furthermore, China has strengthened cooperation with other international organizations and foreign-funded institutions. Over the past three years, Chinese-funded banks have participated in about 2,700 B&R projects, with a total credit value of US$400 billion and over US$200 billion worth of total loans issued. In addition, both domestic and overseas financial institutions are developing new financing models to meet the needs for funding from economies along the route by a variety of financial instruments and appropriate credit delivery.”

Unimpeded trade cooperation helps create a platform for effective resource allocation under the initiative. In doing so, China is boosting trade liberalization and facilitation and further promoting open economy. In H1 2018, the import and export value between China and B&R countries totaled US$673.9 billion, up 18% YoY, representing 31% of total trade value. Jared Liu expects that China will remain to commit itself to the principle of openness and transparency to develop a better international commodity and service trading platform, and will work with other countries to build a more favorable business environment for the international market.

Last but not least, the people-to-people bond can establish a solid social foundation for the B&R construction. Jared Liu said: “In recent years, China has deepened cooperation with economies along the route in the fields of education, culture, technology, tourism and health care to promote personnel exchange, such as inter-government agreements on cultural exchange and cooperation, mutual-recognition of accreditation, student exchange as well as diversified cultural activities for enhanced mutual understanding. Up to now, China and 24 B&R countries have agreed on mutual-recognition of accreditation and the Chinese Government Scholarship-Silk Road Program supports at least additional 3,000 students from countries along the route every year.”

BRI presents great opportunity to drive CSR activities

“BRI represents a remarkable economic and investment opportunity but poses great uncertainty and latent risks as well,” said Jared Liu. “By fulfilling CSR, Chinese enterprises will gain acceptance from the local community, enhance their global competitiveness, reduce overseas investment risk and improve the image of China and Chinese enterprises as a whole. Meanwhile, CSR activities will help mitigate geopolitical risks while Chinese enterprises invest in the B&R economies. In the long run, CSR will also help Chinese enterprises internationalize, integrate into local communities and implement localization strategies.”

EY provides insights on how Chinese companies can achieve mutual benefits, win-win cooperation and sustainable development in the host countries by conducting in-depth interviews with various Chinese companies and incorporating their experiences in fulfilling CSR as well as the difficulties and challenges they faced when investing in the B&R economies.

- Shanghai Geoharbour Group mainly focuses on establishing technical cooperation with local companies to achieve technical output and seek to effectively avoid conflicts. It helps clients reduce infrastructure construction costs and enhance engineering efficiency in Vietnam, Singapore, Indonesia and Dubai with its competitive technology.

- During its “going out” process, Datang Group not only provides power supply for the economic and social development of the host country, but also actively trains local professionals, and seeks to protect the local ecological environment, realizing the mutual and sustainable development of overseas enterprises and the host countries.

- When participating in B&R construction, CCCC improves its CSR system and actively addresses relevant responsibilities overseas. Through the construction of the Kenyan Mombasa-Nairobi Standard Gauge Railway Project, CCCC has helped Kenya improve transport efficiency and reduce logistics costs, and thereby helping to drive Kenya’s economic growth.

- Through the construction of distributed power stations in Southeast Asia and other places, VPower has provided diversified energy solutions, effectively improving structural power shortages in countries such as Myanmar and Indonesia, and significantly promoting long-term planning such as local electrification and promoting social development and economic growth.

- By running the Belo Monte hydropower UHV transmission project in Brazil, which transmits northern clean hydropower to the south east area under heavy electrical load, State Grid has made effective improvement to the power supply in some parts of Brazil while endeavoring to promote the sustainable development of local society and raise people’s living standards.

“When ‘going out’, Chinese enterprises should not pursue economic interests unilaterally. Instead, they should undertake the responsibility for the environment and society to achieve sustainable development through a more active and mature way,” said Jared Liu. “Chinese enterprises should make full use of local resources to promote local employment and taxation improvement. At the same time, as foreign investors, Chinese enterprises should conduct sufficient communication with local stakeholders such as host governments and social groups, and respect the legal systems as well as cultural and social differences of different countries, so as to resolve investment risks and achieve a win-win situation.”

EY finds that nearly 90% of the 120 Chinese companies listed among the 2018 Fortune Global 500 list disclose CSR performance on a regular basis. As Loletta Chow said: “Under the impetus of the BRI, more and more Chinese companies will not only focus on economic returns, but also adjust themselves to local conditions, and strive to improve local economy, society and people's livelihood and achieve coordinated development of different countries. Looking forward, China will continue proving to the world that the initiative maintains its commitment to building and improving a more open and inclusive better world.”

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