6 minute read 1 Apr 2019
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How international cooperation can be achieved along the Belt and Road

Third-party market cooperation is an innovative model for boosting construction and achieving mutually beneficial results through collaboration.

T
he world is facing the challenges of imbalanced global economic development, rising unilateralism, and protectionism. Against this backdrop, China’s Belt and Road Initiative (BRI) provides an innovative way that has increasingly become a key driver for economic globalization and regional integration.

Over the past five years, the BRI has received positive feedback, seen worldwide participation, and landed many large projects, as well as demonstrating China’s commitment and determination to enhance international cooperation. Key to this is third-party market cooperation, which played a fundamental role in linking China’s competitive production capacity with advanced technology from developed countries in order to address some of the pressing needs in developing countries.

Belt and Road Initiative

The BRI is a global development strategy that was launched by the Chinese government in 2013. During that year, Chinese President Xi Jinping visited Kazakhstan and Indonesia, where he promoted the initiative of jointly building the Silk Road Economic Belt and the 21st Century Maritime Silk Road. In March 2015, the Chinese government presented the vision “to construct a large unified market and make full use of both international and domestic markets, through cultural exchange and integration, to enhance mutual understanding and trust of member nations, ending up in an innovative pattern with capital inflow, talent pool, and technology database.” The five goals of policy coordination, unimpeded trade, facilities connectivity, financial integration, and people-to-people bonds were also presented, and a great deal of progress toward achieving these goals has since been achieved.

Third-party market cooperation

14

Countries had signed third-party market cooperation documents with China by the end of June 2019.

Opportunities of third-party market cooperation

Under the BRI, third-party market cooperation should be based on commercial principles and developed on a mutually beneficial premise that respects market rules, maintains a fair and competitive environment, and adheres to sustainable economic development.

China also aims to achieve international cooperation on production capacity that combines its industrial advantage with the advanced science and technology of developed countries. This optimizes the global allocation of resources and will advance the progress of developing countries.

Over the past five years, third-party market cooperation has become increasingly prominent as the construction of the Belt & Road (B&R) has gained momentum. By the end of June 2019, China had signed third-party market cooperation documents with 14 countries.

2018 Total trade value with B&R Countries

US$1.3 trillion

China’s overall trade value was US$4.6 trillion

Chinese enterprises and their peers in developed countries have been able to complement each other across a broad range of sectors including infrastructure, energy, environmental protection, and finance.

The following case studies exhibit the mutually beneficial third-party market cooperation between China and Japan, France, and the UK.

China and Japan: from competition to cooperation

Sino-Japanese relations have warmed since 2018, and the two countries have strengthened their relationship. Chinese and Japanese cooperation has played a role in driving social and economic progress for developing countries. Many B&R countries urgently need to develop infrastructure but face technological and financial challenges. Backed by strong government support, financial strength, and production capacity, China has been able to assist. Meanwhile, Japan’s rich overseas experience, advanced technology, and mature risk management have created an unrivaled partnership that has provided a mutually beneficial solution for developing countries, apart from China and Japan. 

Third-party market cooperation projects:

–      Nippon Express, Japan’s largest logistics company, has cooperated with China Railway to assist Japanese enterprises in China to carry out regular transport business in Central Asia and Europe with China-Europe freight trains. In September 2017, Nippon Express announced that it would cooperate with Kazakhstan's National Railway Corporation to provide joint rail and sea transportation linking Chinese and Japanese ports with those of Central Asia and Europe.

–      China Development Bank (CDB), Japan Bank for International Cooperation, Mizuho Financial Group, and Sumitomo Mitsui Banking Corporation have signed a joint loan agreement for infrastructure investment in third-party markets.

China and France: connecting Asia and Africa

France has a long history, rich experience, and close ties with Africa, especially in the continent’s French-speaking countries. African countries are rich in natural resources for traditional and renewable energy, and they have an urgent need to improve their infrastructure while France has leading technology in infrastructure and energy. Meanwhile, China has production capacity advantages, a renowned manufacturing base, and robust financial strength.

Third-party market cooperation has enabled Chinese companies to enter the African market. On the other hand, China can help French companies enter the Asian market, taking advantage of its location there.

Third-party market cooperation projects:

–         In November 2018, Bolloré Transport & Logistics and PowerChina jointly won the bid for the Ibom Port Project in Nigeria.

–         In March 2019, Schneider Electric signed a strategic cooperation agreement with PowerChina. The two parties will further expand their cooperation in the fields of power and electricity, water resources and the environment, infrastructure, and real estate. Meanwhile, Schneider Electric will assist equipment manufacturing enterprises.

 China and UK: breaking through barriers

In 2015, President Xi visited the UK and spoke about the willingness of the two countries to take part in third-party market cooperation, which is fully supported by both governments: “The development of third-party market cooperation between China and the UK is not only a great historic opportunity but has also garnered the support of both the Chinese and British governments, and their policies.” Looking ahead, there will be plenty of opportunities for Chinese and UK businesses to partner through the BRI. 

The development of third-party market cooperation between China and the UK is not only a historic opportunity, but has also garnered the support of both Chinese and British governments and policies
President Xi Jinping
President of the People's Republic of China

Third-party market cooperation projects:

–         In July 2015, China Communications Construction Company (CCCC) and Bangladesh signed an agreement for the construction of the Kanapuri River Tunnel, with a total investment of US$710 million and a total length of 3.5 kilometers. UK company Arup cooperated with CCCC to carry out research on the economic and technical feasibility of the tunnel.

–         As of January 2019, the China Securities Regulatory Commission (CSRC) approved Barclays Bank, China International Capital Corporation (UK), Haitong International Securities (UK), and CITIC CLSA Securities as UK cross-border global depositary receipt-conversion institutions, under the Shanghai-London stock connect program.

Risks and challenges

Collaboration throughout the BRI in terms of third-party market cooperation is both successful and challenging. As highlighted above, it has enabled cooperation among different countries to deepen and broaden across a range of areas, such as large investment projects, the construction of cooperation zones, and the integration of financial markets. However, according to research from the Hong Kong Trade Development Council (HKTDC), risks and challenges are inevitable against the backdrop of market volatility, political instability in certain countries, and the mismatches between supply and demand in different parts of the world.

An article in China Today highlights ongoing risks including a sluggish economic outlook, given the lingering effects of the global financial crisis, as well as growing sentiments of protectionism and anti-globalization. Some countries are focusing more on revitalizing their own economies in the form of bringing back manufacturing and harnessing significant amounts of capital from international corporations. Under these circumstances, tit-for-tac strategies in trade, currency, and commodity price are inevitable.

The innovative cooperation model presented above will enable Western countries to benefit by trading their advanced technologies and concepts for financial support and access to overseas demand. Third-party markets will enjoy competitive and cost-effective products, while China will benefit from entering more overseas markets in order to export its industrial capabilities.

The concept should help ease global economic challenges and provide new opportunities for all. 

Summary

The Belt and Road (BRI) initiative offers huge potential for third-party market cooperation. It is aligned to and is an effective enabler of the BRI’s principle of achieving shared growth through discussion and collaboration. Over the past five years, China has signed third-party market documents with 14 developed countries to identify new opportunities arising from economic globalization and explore new areas of cooperation through government and enterprise partnership.

About this article

By EY Greater China

Multidisciplinary professional services organization

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