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BELT AND ROAD INITIATIVE
A Strategic Pathway
Commissioned by
Sponsors:
| |
Disclaimer: This Report has been prepared by PwC for the NZ China Council and represents the views of the author. However, neither PwC, the NZ China Council, nor any contributor or sponsor represents or warrants the correctness or accuracy of the contents of the Report nor takes any responsibility to anyone that relies on the Report or any aspect of it. Anyone wishing to rely on the Report should make their own inquires and take their own advice. | Belt and Road Initiative - A Strategic Pathway | 2
FOREWORD by the Chair of the NZ China Council, Sir Don McKinnon
I am pleased to provide an introduction to this report on opportunities for New Zealand under China’s Belt and Road Initiative
(BRI) prepared by PwC.
The NZ China Council was established in 2012 as an independent organisation bringing together key stakeholders from
government, business and the wider community and dedicated to building strength and resilience into New Zealand’s
relationship with China.
BRI is an extraordinarily ambitious undertaking and one which continues to evolve. In commissioning this report, the Council
wished to achieve a number of objectives. First and foremost, we wanted to consider BRI from a New Zealand perspective and
to inform stakeholders of opportunities and any potential risks. Second, we wanted to contribute in a practical way to the
development of ideas and projects which could be advanced under the Memorandum of Arrangement (MoA), which the two
governments concluded during the visit of Chinese Premier Li Keqiang in March 2016: the MoA is an aspirational, non-binding
undertaking, which nevertheless signals New Zealand and China’s willingness to explore options for closer collaboration under
a BRI framework. And, lastly, we wanted to provide some further analytical underpinning for the work that needs to continue
to be done to grow New Zealand’s relationship with China at a time when many others are competing for the attention of an
emerging super-power.
The report tries to take a fresh, innovative and practical approach to the prospects for co-operation under BRI. We asked PwC
to focus in particular on opportunities to create greater connectivity between New Zealand, China and the 68 other BRI
participants. While BRI is perhaps best known for the large-scale infrastructure projects being undertaken in developing
countries along the Belt and Road, we believe New Zealand’s approach needs to reflect our comparative advantage, especially
given the limited size of New Zealand’s domestic infrastructure programme from a global perspective. This is not to say that
there are no opportunities in infrastructure – including potentially in supplying New Zealand services solutions in infrastructure
projects in third countries – but the focus of this report is firmly on connectivity.
The Council is very grateful to the sponsors of this project, whose logos appear on the cover. They have engaged in this project
because they see the analysis and, even more so, the discussions that will follow to be important for New Zealand.
Representatives of these organisations participated actively with PwC in a “diverge-converge” process, described in the report,
which evaluated a large number of possible activities against a set of criteria which highlighted above all relevance to both
countries, ease of implementation as well as reputational and other risks. The outcome was the eight activities grouped under
four categories in the areas of Trade Facilitation, New Zealand as a Conduit to South America, the Creative sector and
Innovation. These areas for future co-operation are not intended to be exhaustive, but illustrative of what could be developed.
We fully expect other potential areas to be uncovered as part of ongoing discussion that we hope will be generated around this
report.
The Council is also grateful to the Ministry of Foreign Affairs and Trade (MFAT) which provided both a significant grant towards
the completion of the report and useful background material and insights. The final report is issued on the authority of the
Council alone and should not be taken to represent the policy of the New Zealand Government.
As we continue to develop engagement with BRI it is important that we do so aware of potential risks and challenges, which
have been highlighted in a number of quarters and which are considered in the report, and in the light of New Zealand’s key
interests and deeply-held values.
The next steps for this report envisage the presentation of further relevant materials on the Council’s website as well as a
programme of outreach and consultation around New Zealand. We welcome feedback on the report and encourage its wide
dissemination and use as a starting point for further reflection and discussion.
We thank the report’s authors at PwC for their work and look forward to the continuing journey along the Belt and Road.
Sir Don McKinnon
Auckland, 1 March 2018
| Belt and Road Initiative - A Strategic Pathway |
EXECUTIVE SUMMARY
The Belt and Road Initiative (BRI) was In March 2017, New Zealand and China The changing nature of BRI means it is
announced in 20131 by Chinese President signed a Memorandum of Arrangement challenging to clearly define BRI and the
Xi Jinping who subsequently described it (MoA) under which the countries opportunities it presents. However what
as the “project of the century”.2 BRI undertook to explore ways of working is clear is that BRI is at the very core of
promotes closer ties between countries together in specified areas to expand China’s country to country relationships.
through development-led trade growth. trade and investment and to develop a Proactive engagement with BRI
This requires a massive infrastructure pathway for cooperation and exchanges demonstrates an understanding of the
construction programme complemented to support the BRI. importance of BRI to China. The breadth
by bilateral commitments covering trade and inclusiveness of BRI means that
and investment. BRI is also regarded as a The scale of the BRI is hugely ambitious. countries can decide for themselves the
The estimated cost of BRI projects is extent to which they engage with BRI.
significant geostrategic initiative, which
reflects China’s changing status as an expected to be approximately US
$2.5trillion over the next decade.5 Having signed the MoA New Zealand has
economic and military power.
signalled willingness to engage with BRI.
At the 19th National Congress of the BRI related infrastructure development is We must now determine the depth and
changing the flow of goods around the breadth of our engagement.
Communist Party of China held in Beijing
globe. These changes have the potential
in October 2017 the BRI was embedded
to impact on the flow of New Zealand’s Engaging with BRI gives us an opportunity
within the Chinese Constitution.3 This
trade into China. to protect our hard won and valuable
demonstrates the importance and
relationship with China, a relationship
permanence of BRI within the Chinese 69 countries and organisations have that may otherwise be at risk of
system. signed up to be a part of BRI.6 The vast “preference erosion” as China is likely to
majority of those countries have focused focus its resource and attention on
The growth in New Zealand’s trade and
investment with China has been critical to their attention on infrastructure. While countries that are fully engaged with the
infrastructure may eventually be a feature Belt and Road. We also need to be alert to
our relative economic prosperity since the
of BRI in New Zealand, our location and the implications of a fundamentally
Global Financial Crisis. China is New
advanced economy status creates an bilateral initiative, with China at the
Zealand’s largest trading partner in goods
and second largest trading partner when opportunity to examine alternative centre, for the region’s trade and
trade in services are included. The New approaches that may offer more economic architecture.
immediate and scalable potential and play
Zealand - China Free Trade Agreement
to New Zealand’s comparative The New Zealand China Council (NZCC)
(FTA) signed in 2008 was China’s first FTA
advantages. has commissioned this report to set out a
with a developed country.4 China is one of
range of options to expand New Zealand’s
the world’s fastest-growing economies BRI is dynamic and continues to evolve as “connectivity” with China and other
and its vast population and growing the priorities and interests of China and countries along the Belt and Road. The
middle class present huge potential for other Belt and Road countries change. It is options are not intended to be exhaustive
New Zealand. helpful to think of the Belt and Road but an illustrative indication of what could
Initiative as an evolving concept as be developed between New Zealand and
opposed to a tightly defined and rigid China working together under BRI.
project.
Engaging in such an ambitious and wide-
BRI has grown from its original
NZ – CHINA TWO infrastructure foundation to now
ranging initiative is not without risk.
Potential risks are identified in the report.
WAY TRADE GROWTH encompass a much broader vision,
including sectors such as health,
These need to be closely evaluated and
taken into account as New Zealand
education and digital. develops its engagement with BRI.
18% NZCC’s intention is to enable better
16% $23.2 billion
understanding of BRI and catalyse an
$8.2 billion informed discussion of the available
options open to New Zealand.
10%
China This will contribute to the development of
2007
6% +182% the working plan as foreshadowed by the
MoA and enable informed decisions
2017 among stakeholders around how New
Zealand engages with China’s Belt and
Road Initiative.
Chinese Exports as a % of NZ Exports
2007 2017
Source: Stats NZ data for the year ended March 17
Chinese Imports as a % of NZ Imports
PwC | Belt and Road Initiative - A Strategic Pathway | 3
EXECUTIVE SUMMARY
President Xi Jinping has said “The (Belt and Road) initiative will be open and inclusive, not exclusive ”7.The areas to which BRI
could apply are therefore broad and open to further expansion. The National Development and Reform Commission (NDRC)
has set out five coordination priorities to guide engagement with BRI.
THE FIVE BRI COORDINATION PRIORITIES8
POLICY COORDINATION
Promote intergovernmental cooperation 01
expanding shared interests, enhancing
mutual political trust and reaching new
04 PEOPLE-TO-PEOPLE BONDS
Promote deepening bilateral and
cooperation consensus. multilateral cooperation through
various exchanges along the Belt and
FACILITIES CONNECTIVITY Road. These include cultural and
Improve connectivity through construction
of transport, energy and communications
02 academic exchanges to increase links
between Belt and Road countries.
infrastructure and technical systems along
the Belt and Road. This includes promotion
of green and low-carbon infrastructure.
FINANCIAL INTEGRATION
UNIMPEDED TRADE Enhance co-ordination of monetary
Improve investment and trade facilitation in
all related countries, removing barriers and
03 05
policy, deepen multilateral and
bilateral financial co-operation and
setting up free trade agreements to create a expand the scope of local currency
sound business environment. settlement and currency exchange
In addition, cooperation should be along the BRI.
advanced in emerging industries and
mutual investment areas expanded.
Notice that only one (priority #2) of the five priorities relates directly to infrastructure.
GEOGRAPHICAL COVERAGE • The BRI countries have a combined population of 4.4
billion. To date, 69 countries (including New Zealand)
and organisations have signed up to be a part of the
BRI. Organisations such as the United Nations, the
World Bank and the International Monetary Fund are
taking an active role in BRI.6,9
• The core infrastructure elements of BRI are focused
on six major economic corridors and the 21st Century
Maritime Silk Road.
• While New Zealand has the chance to be on the 21st
Century Maritime Silk Road, our geographical
position means we are irrelevant to the vast majority
of BRI infrastructure.
• The BRI Forum held in Beijing in May 2017 provided a
“Britain is a natural partner for Beijing and “Chile is ready to be a bridge
platform for countries to use the evolving and
I welcome the BRI as a opportunity to country between Asia and Latin
flexible nature of BRI to signal a willingness to
strengthen these ties.”10 America.”11
participate even when they had not always been “on
Philip Hammond Michelle Bachelet the map”.
British Chancellor President of Chile
PwC | Belt and Road Initiative - A Strategic Pathway | 4
EXECUTIVE SUMMARY
PROCESS OVERVIEW
New Zealand’s geographical position does not preclude participation in the BRI: rather it places a premium on identifying
innovative ways to engage, building on the positive relationship we have developed with China. Fulfilling the NZCC’s brief for
this report required an open minded and inclusive approach to identifying engagement opportunities focusing on leveraging
the BRI to develop enhanced connectivity with China and other Belt and Road countries rather than infrastructure.
It was important that this report focused on a manageable number of ideas that can be further developed into executable
opportunities. A range of possible initiatives were identified using a diverge/converge approach, based around six assessment
criteria. The stakeholder group identified eight opportunities grouped into four categories that are summarised below.
DIVERGE CRITERIA CONVERGE
1. Aligned to NZ‘s
comparative 4. Reputational
advantage risk
2. Potential for
traction under 5. Benefits vs.
China’s BRI Costs
3. Value to NZ 6. Ease of
Inc. implementation
THE OUTCOME IS EIGHT OPPORTUNITIES GROUPED INTO FOUR CATEGORIES
1. TRADE FACILITATION Collaborating to help optimise trade 2. NEW ZEALAND AS A CONDUIT TO SOUTH AMERICA
facilitation under the BRI.
Enabling connectivity between South America and
China to facilitate the movement of people and
goods.
1.1 Biosecurity – 1.2 Customs 1.3 Hubbing -
Build on clearance – Establishing
3. CREATIVE Utilising New Zealand’s world
collaboration Work with BRI supply chain
SECTOR leading creative capabilities to
agreements countries to hubs in China or
develop creative properties that
already in place enhance customs elsewhere
can enhance people-to-people
to enhance clearance utilizing Belt and
links and cultural engagement.
biosecurity protocols. Road
efforts. infrastructure for
supply chain
benefits. 3.1 Creative properties 3.2 BRI Interactive 3.3 Epcot type
– Collaboration on the simulations – location based
generation of creative Collaboration to experience –
4. INNOVATION properties focused on produce a game New Zealand could
Utilising our innovative capability through increasing the simulation which is work to create a
research collaboration and commercialisation understanding of both engaging and center to showcase
links with China and across BRI. peoples and cultures informative. the cultural aspects
along the BRI. of each BRI country.
Following this report the NZCC has identified next steps including the development of web-based materials to assist understanding of BRI
and further consultation with stakeholders. Thank you to all those associated with this report who have invested considerable time and
resources to support this initial analysis and the conversation that will inevitably follow.
PwC | Belt and Road Initiative - A Strategic Pathway | 5
TABLE OF CONTENTS
EXECUTIVE SUMMARY 3
SECTION ONE - BRI background
BRI Background 8
Global Map 9
BRI Economic Corridors 10
Risk Considerations 12
Global BRI Connectivity Projects 13
Connectivity Case Study: Singapore 15
NZ – China Memorandum of Arrangement on Cooperation on the BRI 16
SECTION TWO – Developing a strategic pathway
Options Considered & Process 18
New Zealand Engagement Levels 19
1.1 Trade Facilitation – Biosecurity 20
1.2 Trade Facilitation – Customs Clearance 22
1.3 Trade Facilitation – Hubbing 24
2. New Zealand as a conduit to South America 26
3.1 Creative Sector – Creative Properties 28
3.2 Creative Sector – BRI Interactive Simulations 30
3.3 Creative Sector – “Epcot type” Location Based Experience 32
4. Innovation – Research Collaboration and Commercialisation 34
Conclusion and Next Steps 36
APPENDICES
Appendix A – End Notes 37
Appendix B – Useful Resources 39
PwC l |Belt and Road Initiative - A Strategic Pathway | 6
SECTION ONE
BRI background
PwC l |Belt and Road Initiative - A Strategic Pathway | 7
SECTION ONE SECTION TWO
Background Economic Global Case Study: MoA Process NZ Trade NZ as Creative Innovation Conclusion &
Corridors Connectivity Singapore Engagement Facilitation a conduit Sector Next Steps
Projects Levels to SA
BRI BACKGROUND
• The Belt and Road Initiative (BRI) • The NDRC is the lead government • Like the historical Silk Road, the
arose out of China’s “Go Out” policy body tasked with overseeing BRI. scope of the Belt and Road extends
focused on promoting outbound The International Cooperation beyond infrastructure and
Chinese Investment in overseas Centre (ICC) leads the international encompasses cultural exchange and
assets. cooperation under the BRI. people-to-people connections
exemplified by a wide range of
• BRI was described by President Xi • China’s economic interests activities from education exchanges
Jinping as the “project of the originally focused on increasing to health care programmes.
century” in 2014.2 demand for industrial construction
but has expanded to become an • China has stated that all countries in
• BRI is a regeneration of the ‘old Silk
ambitious globalisation programme the world are invited to be a part of
Road’, a network of trading routes the BRI. Many countries, including
aimed at boosting the flow of trade,
that connected China across Eurasia Britain10 and Chile11 have publicly
capital and services.
from the second century BC to the stated their intention to be a part of
end of the fourteenth century AD. • Historically trade has developed in BRI.
Silk and many other goods were response to rules based structures
exchanged across these land and such as multilateral trade • The NZCC believes that New
maritime routes. In addition to arguments. The BRI provides a Zealand’s strong and economically
tangible transport, the movement potential new stimulus whereby viable relationship with China is at
of people aided the transmission of trade could evoke a response to unconscious risk of “preference
culture, language, knowledge and infrastructure development that erosion” as China focuses on BRI
beliefs along the routes. maps out alternative trade routes. countries. Preference erosion
describes a situation whereby the
• Originally conceived as an • The BRI also holds strong favourable position with China that
infrastructure development international political currency as New Zealand has historically
programme along ancient trade shown by the c.1,200 people from benefited from would be eroded as
routes linking China and Eurasia, the over 100 countries who attended
a result of China focusing its
concept has broadened out the BRI Forum hosted by President resources and attention on other
considerably to include a vision of Xi Jinping in Beijing in May 2017. countries more fully engaged with
enhanced connectivity along both Attendees included 28 heads of the Belt and Road.
overland routes (‘the belt’) and state and government as well as
maritime lanes (‘the road’) linking other leading figures from • Having signed the Memorandum of
China, Africa, South East Asia, the organisations such as the UN, the Arrangement A and as a founding
Pacific and on to Latin America. World Bank and the IMF.12 member of the Asian Infrastructure
Investment Bank B, New Zealand is
well positioned to positively engage
with the BRI. This report is intended
to enable an informed discussion of
the alternatives available to New
Zealand.
The BRI covers
63%
Total trade between China and
69countries
other Belt and Road countries in
2014 - 2016 is approximately:9
of the world’s
population and
US$3trillion and organisations have
29%
signed up to the BRI.6
The BRI is predominantly
bilateral delivered through a
hub and spoke model.
of Global GDP.5
A: Refer to page 16 for a full description.
B: The AIIB is a multilateral finance institution founded by China to bring countries together to invest in sustainable infrastructure and other productive sectors. 13
PwC | Belt and Road Initiative - A Strategic Pathway | 8
SECTION ONE SECTION TWO
Background Economic Global Singapore MoA Process NZ Trade NZ as Film & Innovation Conclusion &
Corridors Connectivity Engagement Facilitation a conduit Entertainment Next Steps
Projects Levels to SA
01 The new Eurasia Land Bridge Economic Corridor
GLOBAL MAP 02 China-Mongolia-Russia Economic Corridor
03 China-Central Asia-West Asia Economic Corridor
The Belt & Road Initiative is being described through the lens of six 04 China-Pakistan Economic Corridor
main economic corridors and the 21st Century Maritime Silk Road.
05 Bangladesh-China-India-Myanmar Economic Corridor
06 China-Indochina Peninsula Economic Corridor
07 21st Century Maritime Silk Road
Moscow Ulan-Ude
Hamburg Some of the economic corridors are relevant to New
Minsk
Duisberg Lodz Chita Zealand. For example the New Eurasia Land Bridge could
Rotterdam Melnik provide an alternative supply route for New Zealand
Pradubice Kazakhstan
Alashankou Ulaanbaatar produce to European markets. It could also bring greater
Venice Khorgas competition from European suppliers by improving their
Alamaty access to the Chinese market.
Urumqi
Istanbul Tashkent Bishek Dalian
Athens Ashgabat Kashgar
Beijing
Tehran Dushanbe Lianyungang
Lahore Lanzhou
Kunming Chaozhou
Cairo Nanning
Gwadar Karachi Fuzhou
Dhaka Guangzhou
Beihai
India Zhanjiang
Hanoi
Kolkata Haikou
Haipong
Mandalay
Djibouti
Ho Chi Minh
Colombo
Kuala Lumpur
Nairobi
NEW ZEALAND’S TOP TRADING PARTNERS
FOR THE YEAR ENDED MARCH 2017
Jakarta
1. Australia: $24.2b
Buenos Aires
Santiago
2. China: $23.2b NEW ZEALAND HAS THE FOLLOWING TRADE FACILIATION ARRANGEMENTS
IN PLACE
1. China FTA
3. European Union: $20.0b 2. Australia CER
3. AANZFTA (ASEAN Australia NZ FTA)
4. Malaysia FTA
4. USA: $16.2b 5. Singapore CEP
6. Thailand CEP
7. Hong Kong, China CEP
5. Japan: $7.6b New Zealand
8. P4 (Brunei Darussalam, Chile, Singapore and New Zealand)
9. Korea FTA
10. Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu on
Economic Cooperation (ANZTEC)
Source: South China Morning Post, Institute for the Analysis of Global Security, MFAT PwC l Belt and Road Initiative - A Strategic Pathway l 9SECTION ONE SECTION TWO
Background Economic Global Case Study: MoA Process NZ Trade NZ as Creative Innovation Conclusion &
Corridors Connectivity Singapore Engagement Facilitation a conduit Sector Next Steps
Projects Levels to SA
BRI ECONOMIC CORRIDORS
China has identified six key economic corridors and the 21st Century Maritime Silk road which
are shown on the previous map and summarised below
01 02 03
THE NEW EURASIAN THE CHINA-MONGOLIA- CHINA – CENTRAL AND
LAND BRIDGE RUSSIA ECONOMIC WEST ASIA ECONOMIC
(NELB) CORRIDOR (CMREC) CORRIDOR (CCWAEC)
The NELB links the Pacific to the CMREC is built on the foundation of the CCWAEC links China and the Arabian
Atlantic, from China’s coastal cities of “development of trilateral cooperation Peninsula. This mostly follows the
Lianyungang and Rizhao, to the between China, Russia and Mongolia” trajectory of the ancient Silk Road. It
Netherland’s Rotterdam and Belgium's signed in June 2016. This connects the starts in Xinjiang in Western China and
Antwerp. As at August 2017, 20 Chinese Chinese BRI, the Russian Trans-Eurasian joins five Central Asia countries
cities were connected to 15 European Belt and the Mongolian Steppe Route (Kazakhstan, Kyrgystan, Tajikistan,
cities by rail.14,15 More than 5,000 projects. One of the most significant Uzbekistan and Turkmenistan) in the
freight train journeys have been made projects is Amur Bridge which is due to journey to the Mediterranean coast and
since the start of the direct rail freight be completed in 2019, linking Arabian peninsula through Western
services in 2011.16 northernmost China with south-eastern Asia across Iran, Iraq and Turkey.17
Russia by a high speed railway.17
04 05 06
CHINA – PAKISTAN BANGLADESH–CHINA– CHINA – INDOCHINA
ECONOMIC CORRIDOR INDIA–MYANMAR PENINSULA ECONOMIC
(CPEC) ECONOMIC CORRIDOR CORRIDOR (CICPEC)
(BCIMEC)
CPEC’s 3,000-kilometre-long corridor BCIMEC is a hybrid land sea route CICPEC aims to connect eight major
starts from China's Kashgar and ends at connecting Kunming in Southern China, cities – Singapore, Kuala Lumpur,
Pakistan's Gwadar. It connects the Silk through Myanmar and Bangladesh to Bangkok, Phnom Penh, Ho Chi Minh
Road Economic Belt in the north and Kolkata in India. This corridor City, Vientiane, Hanoi and the Chinese
the 21st Century Maritime Silk Road in encompasses expressway, high-speed city of Nanning. Additional connectivity
the south. It is a trade network of rail link, air and water way connections nodes would be extended to the major
highways, railways, pipelines and as well as power transmission and oil economic hubs of Guangzhou and Hong
optical cables, and is a flagship project pipelines. The Kolkata and Kunming Kong, linking ten cities with a
under the Belt and Road Initiative. (K2K) highway and sea routes via the cumulative population of over 50
Notable projects are the Karakoram Kaladan multi-modal transit routes are million in the region.18
Highway and the Gwadar deep water almost completed.17
port.17
PwC | Belt and Road Initiative - A Strategic Pathway | 10SECTION ONE SECTION TWO
Background Economic Global Case Study: MoA Process NZ Trade NZ as Creative Innovation Conclusion &
Corridors Connectivity Singapore Engagement Facilitation a conduit Sector Next Steps
Projects Levels to SA
BRI ECONOMIC CORRIDORS (continued)
07
THE 21ST Century BEYOND THE ECONOMIC CORRIDORS
MARITIME
SILK ROAD
The BRI is inclusive not exclusive, as evidenced by some initiatives being initiated
This is the ‘road’ of the BRI connecting outside the key Belt and Road economic corridors.
regional waterways. The China-Indian
Ocean-Africa-Mediterranean Sea Blue
Economic passage will link the CICPEC LATIN AMERICA AFRICA
running westward from South China Sea • In November 2016, President Xi • China’s involvement with Africa has
to the Indian Ocean. This will connect Jinping visited Latin America and been expanding for some time.
the CPEC and the BCIMEC. A second encouraged these countries to join
blue economic passage connects China • Other than mining for natural
the BRI.
– Oceania – South Pacific and a third resources, China’s main investment
blue economic passage is envisioned • China has free trade agreements have been in infrastructure.
leading up to Europe through the Arctic with Peru and Chile.17
• One project of note is the US$11bn
Ocean.19 More detail is yet to be • A feasibility study is underway construction of a 1,400km coastal
released but the second blue passage considering an east-west railway railway in Nigeria. This was led by
through the South Pacific could place across South America from Brazil to the China Civil Engineering
New Zealand on the 21st century Peru.20 Construction Corporation and the
Maritime Silk road. Federal Republic of Nigeria.17
• This would reduce the cost of
shipping raw materials but the
route is contentious due to the
potential ecological and
environmental impact.
The BRI has the potential to realise many opportunities for countries along the BRI
Enhanced multilateral Increased market access
cooperation
2. For countries along the economic
corridors, infrastructure linkage
As more countries engage around
a BRI platform this could open up 1. supports the potential for
development led trade i.e. improved
opportunities to enhance
multilateral structures. 3. infrastructure will be followed by trade
growth.
Travel time reduction Increased connection provides access
The development of new 6. to some poorly connected economies
connections between countries
provides, in some cases, a
4. Developing regions which currently
don’t have strong connections to
significant reduction in travel time neighbouring countries will benefit
and costs. from the expanded network BRI may
Security of supply 5. provide. This could provide
transformational opportunities for
certain geographical regions.
Increased connectivity through
the creation of economic Cultural exchange
corridors provides increased and
alternative access to primary Increased connectivity also applies in a
goods and labour. cultural sense, building stronger
connections across the BRI.
PwC | Belt and Road Initiative - A Strategic Pathway | 11SECTION ONE SECTION TWO
Background Economic Global Case Study: MoA Process NZ Trade NZ as Creative Innovation Conclusion &
Corridors Connectivity Singapore Engagement Facilitation a conduit Sector Next Steps
Projects Levels to SA
RISK CONSIDERATIONS
There are a number of significant challenges inherent in the Belt and Road that need to be
closely evaluated to ensure that New Zealand’s actions are in line with our best interests and
values.
Long term nature increases risk Political instability Infrastructure alignment
Many of the large scale projects will The BRI touches on a number of Standardising the ‘hard’
take time to build and require a long countries with a history of infrastructure along the Belt and
life to enable economic returns. political instability. Road is challenging, particularly
Some projects extend through areas where existing infrastructure
that are prone to geopolitical, already exists.
financial and operational risks.
2.
1.
Bilateral imbalance
10. 3. Security infrastructure
Elements of BRI infrastructure plans
The BRI is primarily bilateral,
have been viewed as having
with China as the dominant
partner at the centre. Given the 9. potential military uses that could
impact on the security of
scale advantage enjoyed by
neighbouring countries or regions.
China there is a risk of
imbalance in country to country
4.
arrangements.
8. 5.
Financial burden
7. Infrastructure maintenance
The ambitious scale of many BRI 6. Much of the infrastructure is being
projects risks creating a large
built in harsh or remote
financial burden on developing BRI
environments which may require a
countries who could find it
significant commitment to
challenging to meet loan obligations
maintaining each “link” in the chain.
and become financially exposed to
This is required to ensure an
the success of single projects.
effective and efficient long term
network.
Governance risks Risk to traditional relationships Perceived ‘competition’ with other
established trade routes
Some BRI countries do not have The BRI has been described as
expertise or a strong track encouraging “contested In addition to political and security
record in the governance multilateralism”21 with several challenges, the BRI may diminish the
required to ensure projects are countries such as Japan and Australia importance of existing trade routes.
viable and fiscally secure. adopting a cautious approach to This could discourage affected parties
participation. If New Zealand is seen from engaging positively with the BRI.
to be too forward leaning on BRI then
this could impact on some of New
Zealand’s traditional relationships.
PwC | Belt and Road Initiative - A Strategic Pathway | 12SECTION ONE SECTION TWO
Background Economic Global Case Study: MoA Process NZ Trade NZ as Creative Innovation Conclusion &
Corridors Connectivity Singapore Engagement Facilitation a conduit Sector Next Steps
Projects Levels to SA
GLOBAL BRI CONNECTIVITY PROJECTS
China is investing in non-infrastructure projects to achieve the BRI cooperation priorities as
shown by the selected examples below. BRI carries such strong political currency in China that
projects are increasingly being positioned under BRI to gain traction with related parties.
TECHNOLOGY DIGITAL
TRANSFER SILK ROAD HEALTHCARE
CENTRES
• The international technology • In November 2017, Estonia and • In February 2017, the Chinese Red
transfer centre of Inner Mongolia China signed a Memorandum of Cross Foundation established the
was set up in Manzhouli in June Understanding on Strengthening Belt and Road Fraternity Fund. The
2016, connecting Mongolia with the Development of Digital Silk first use of funds delivered
Russia in areas of education, Road for Information Connectivity. treatment to 20 Afghanistan
culture, science and agriculture. This focuses on promoting of e- children with heart disease.28
This centre supports relationships commerce ecosystem development
• China and the World Health
with agencies in Southeast Asia through a number of applications
Organisation signed a
resulting in 53 technology such as logistics and trade
Memorandum of Understanding in
promotion projects.22 information connectivity and
May 2017 to jointly establish the
cooperation in fields such as smart
• In July 2017, China and Pakistan ‘Health Silk Road’. This includes
cities.25
attended the inauguration human resource exchanges and
ceremony of Pakistani sub-centre of • A business led association based in hospital alliances along the Belt and
China-South Asia Technology Brussels called “ChinaEU” fosters Road.29
Transfer Centre and signed two cooperation, trade and investment
agreements on cooperation for in digital products and services
science and technology.23 between Europe and China.26
• The State Council of China intends • In September 2017, the Online Silk
to build a basic national technology Road Convention of the China-Arab
transfer system by 2020. This States Expo 2017 focused on
includes enriching the technology international cooperation in the
transfer pool and launching more digital economy and the
international cooperation under the construction of a cyberspace silk
BRI.24 road. This includes cross border e-
commerce and smart city
development.27
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GLOBAL BRI CONNECTIVITY PROJECTS (continued)
TOURISM EDUCATION CUSTOMS
CLEARANCE
• In September 2017, China set up the • The Oxford Law Faculty hosted the • Within China, the general
World Tourism Alliance during the One Belt One Road Summit on 14 administration in Tianjin, Hothot
United Nations World Tourism September 2017. This was attended Customs, Manzhouli Customs,
Organisation General Assembly. by over 100 delegates from around Urumqi Customs signed a
This attracted 89 members from 29 the world. This summit launched memorandum of cooperation In
countries and regions, including Oxford’s “One Belt One Road September 2017 to strengthen
New Zealand, the United States, Programme” on 15 September. This coordination on customs clearance.
France, Germany, Japan, Australia, will be focused on researching Tianjin is the connecting point of the
Malaysia and Brazil.30 common legal, socio-legal, CMREC as well as the NELB
regulatory and framework issues corridors.36
• 2019 will be the China-New Zealand
concerning the BRI
Year of Tourism. The China National • China-Russia-Mongolia Customs
implementation.32
Tourism Administration will work Symposium on 14 June 2017 stated
with New Zealand officials to • China launched the University that countries have made progress
establish a focus for the year that Alliance of the Silk Road in 2015, in customs clearance cooperation
reflects the priorities and interests which connects 130 universities and and the 3M cooperation mechanism
of both countries.31 is coordinated by China’s Xian (i.e. mutual exchange of
Jiaotong University.33 information, mutual recognition of
customs control and mutual
• A new Silk Road Law School alliance
assistance of enforcement).37
was established in December 2015
between 20 Chinese and foreign law • In November 2017, China Customs
schools including Australia, Helsinki, has drafted an implementation
Delhi, Russia, Brazil, South Korea.34 guideline of Mutual Recognition for
Authorized Economic Operators
• China has also set up a Sino-Russia
(AEO) of the World Customs
university alliance in September
Organization (WCO). This has been
2017 with 40 Chinese universities
approved.38
and 20 Russian universities.35
• As at 13 November 2017, China
Customs has signed AEO mutual
recognition agreements with 34
countries and regions.39
PwC | Belt and Road Initiative - A Strategic Pathway | 14SECTION ONE SECTION TWO
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CONNECTIVITY CASE STUDY:
SINGAPORE
The PwC Report “Repaving the Ancient Silk Routes” showcases how Singapore is an example of
a small country, which is using its competitive advantage in the context of the BRI.17
• Singapore is the largest foreign exchange centre in Asia • Singapore already manages ~60% of infrastructure project
Pacific. finance transactions in Southeast Asia.
SINGAPORE HAS POSITIONED ITSELF AS THE GATEWAY TO THE SOUTH EAST ASIA REGION VIA
THE 21ST MARITIME SILK ROAD
• Business friendly
INFRASTRUCTURE FINANCING HUB
• Established network of business communities
Leverages its world class business environment which
• Economically open
supports facilitation of investments into SE Asia.
• Low tax regimes
• Absence of foreign exchange controls
• Diversified talent pool
• World class infrastructure
• Strong and independent legal system
INFRASTRUCTURE SUPPLY CHAIN DEPTH
Singapore has a growing ecosystem of participants across
the infrastructure supply chain. This provides
collaboration opportunities with Chinese companies in
the region.
KNOWLEDGE AND EXPERTISE EXCHANGE
Singapore has the skills in urban planning expertise to share
and complement China’s expansion.
BRI INVOLVEMENT TO DATE • Finance (>US$6bn of deals concluded in 2016).
Singapore and China have launched a joint • Aviation (Changi Airport will work with Chinese
project “Chongqing Connectivity Institute” authorities on the new Chongqing Jiang Bei
to focus on bilateral collaboration in the Airport).
following specified areas. • Transport and logistics (establishing a transport
and logistics hub in Chongqing).
• Information communications technology.
PwC | Belt and Road Initiative - A Strategic Pathway | 15SECTION ONE SECTION TWO
Background Economic Global Case Study: NZ – China Process NZ Trade NZ as Creative Innovation Conclusion &
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Projects Levels to SA
NEW ZEALAND-CHINA MEMORANDUM OF
ARRANGEMENT ON COOPERATION ON THE BRI
The Memorandum of Arrangement (MoA) on Strengthening Cooperation on the Belt and Road Initiative between the Government of
New Zealand and the Government of the People’s Republic of China was signed on 27th March 2017 in Wellington by Chairman of the
National Development and Reform Commission, H E He Lifeng, and Minister for Economic Development, Hon Simon Bridges.40
• The MoA is an enabling and non- • This strategic report is intended to • The BRI MoA links the New
binding document which provides provide ideas that can be further Zealand-China FTA upgrade and
both countries 18 months to create a explored and converted to the goal set in 2014 of growing
more specific bilateral action plan. actionable initiatives. two-way trade to $30billion by
2020 to the BRI.
AREAS OF COOPERATION “Through connectivity
and mutual learning
among the countries
along “the Belt and
Road”, and drawing on
the comparative
advantage and
contributions of the
01 POLICY COOPERATION participants and their
private sectors, the
participants will promote
through senior level dialogue on each other’s development the exchange and
strategies, plans and policies on a regular basis in line with each integration of goods,
country using their comparative advantage. technologies, capital and
personnel, push forward
coordinated economic,
social, environmental and
cultural development and
02 BILATERAL MUTUALLY BENEFICIAL COOPERATION
through pushing forward economic and trade cooperation, upgrading
common progress, and
promote dialogue and
fusion among
civilizations.”
our China-NZ FTA, expanding two-way investment flow, discussing
approaches to advance cooperation mechanisms and actively
New Zealand – China
conducting mutually beneficial cooperation in the fields of
Memorandum of
infrastructure, manufacturing, agricultural technologies, information
Arrangement
technology, clean energy, regulatory harmonisation, public financial
2017
management and trade facilitation.
03 CULTURAL EXCHANGES
in the fields of education, tourism, local government, youth
and the screen sector. For example, using the Film and
Television Programmes Co-Production Agreement to advance
mutual learning and create a new situation in cultural
exchanges.
04 MULTILATERAL COOPERATION
through enhancement of international and regional mechanisms
including the UN, APEC, EAS, AIIB and PIF to promote the common
interests of both countries.
PwC | Belt and Road Initiative - A Strategic Pathway | 16SECTION TWO
Building a strategic pathway
PwC | Belt and Road Initiative - A Strategic Pathway | 17SECTION ONE SECTION TWO
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OPTIONS CONSIDERED AND PROCESS
• The NZCC in collaboration with project sponsors have commissioned this report to contribute ideas that can be further
explored during the 18 month time frame established in the MoA. The NZCC’s decision to focus on connectivity initiatives
allows this report to explore opportunities other than infrastructure through which New Zealand as a small trading nation
can engage in the BRI. This does not mean that infrastructure investment may not eventually be a feature of New Zealand’s
participation in BRI. Strengthening New Zealand’s overall engagement with BRI should be beneficial to any infrastructure
related developments.
• To capture a range of options through a diverge and converge process, a wide variety of initiatives that New Zealand could
pursue were collected and narrowed down by assessing them against the six criteria described below.
DIVERGE CONVERGE
Tourism Food security Trade facilitation
Trade facilitation Supply chain Energy exports New Zealand as a
conduit to South
America
Natural resources Cultural/sports Partnership in the
and food Pacific
Creative Sector
Education Virtual water
Innovation
THE INITIATIVES SELECTED FOR CONSIDERATION WERE EVALUATED AGAINST THE FOLLOWING SIX
CRITERIA
Aligned to NZ’s comparative advantage Potential for traction
NZ must have a top quartile position in the with China under BRI
potential area of cooperation. Engagement and interest from China in
implementing any of the proposed
initiatives will be critical to success.
Value to NZ Inc. Benefits vs costs
Each initiative must deliver benefit to NZ as Each initiative must have a value
a whole. This is more likely to be achieved proposition that has the potential to
through multilateral mechanisms. deliver net benefits.
Ease of implementation Reputational risk
The initiative must be feasibly NZ’s position as an internationally trusted
implementable with the resources and dependable partner must not be
available. compromised.
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NEW ZEALAND ENGAGEMENT LEVELS
The outcome of the process is eight initiatives under four categories. Each initiative has been
assessed against the specified criteria and presents a viable opportunity for New Zealand to
engage with the BRI. This report explores different levels of engagement for each initiative to
give options over the breadth and depth of potential engagement.
Trade
Facilitation
Collaborating to
Enhancing connectivity
help optimise Biosecurity
between China and South
trade facilitation
America to facilitate the
under the BRI.
New Zealand as a movement of people and
Custom clearance goods.
conduit to South
America
Hubbing
Utilising our innovative Creative Sector
capability through Innovation Creative Utilising New Zealand’s
research collaboration Research properties world leading creative
and commercialisation collaboration and capabilities to develop
links with China and commercialisation BRI Interactive creative properties that
across BRI. simulations can enhance people to
Epcot type people links and cultural
location based engagement.
experience
APPLICATION OF PROPOSED INITIATIVES TO THE FIVE BRI COOPERATION PRIORITIES
SET OUT BY CHINA’S NATIONAL DEVELOPMENT AND REFORM COMMISSION
The proposed initiatives are summarise above and the BRI cooperation priorities are described in full on page 4.
POLICY COORDINATION PEOPLE-TO-PEOPLE BONDS
FACILITIES CONNECTIVITY
FINANCIAL INTEGRATION
UNIMPEDED TRADE
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1.1 TRADE FACILITATION
BIOSECURITY
DESCRIPTION
Opportunity to apply New Zealand’s world class
• The BRI will result in both an expansion of existing trade biosecurity expertise to enhance BRI trading
flows and new routes for the movement of people and partners’ biosecurity, plant protection and food
goods. New Zealand has a world leading reputation in
safety.
both biosecurity processes and the associated scientific
knowledge.
• New Zealand can build on the collaboration agreements
and projects already in place to partner with China to NEW ZEALAND’S CAPABILITY
enhance biosecurity efforts.
• New Zealand has a world class biosecurity regime.
• An example of an existing project that could be extended
to China’s BRI is the Better Border Biosecurity Sentinel • New Zealand has a number of strong scientific links with
Plant Project. Its aim is to forecast and future proof New China. An example of this was the recent invitation to
Zealand native and agricultural ecosystems against plant New Zealand to host the 4th International Congress on
pests and diseases. This involves growing either Biological Invasions in 2021. All previous events have
expatriate native trees or crops of value to New Zealand been held in China and will cover applied research around
in overseas countries.41 marine, aquatic, animal, plant and insects.42
• The nature of biosecurity risks means that the greatest • As a result of Premier Li’s visit to New Zealand in March
benefit can be drawn from expanding collaboration 2017, a number of Agriculture related initiatives were
across multiple BRI countries. announced.43
• Multilateral aspects could include trilateral collaboration 1. New Zealand and China will establish a new
focused on biosecurity and biological invasion. Agriculture Growth Partnership.
2. Establish a Joint International Research Centre for
Food Science between AgResearch, COFCO Nutrition
and China Agricultural University.
3. Memorandum of Understanding signed between
AgResearch and the Institute of Plant Protection-
China Academy of Agricultural Sciences (IPP-CAAS)
focusing on biosecurity and plant protection
research cooperation.
PwC | Belt and Road Initiative - A Strategic Pathway | 20SECTION ONE SECTION TWO
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1.1 TRADE FACILITATION
BIOSECURITY (continued)
Potential for
Existing
Levels of engagement traction with Value to NZ Benefits vs Ease of Reputational
arrangements
China under Inc. costs implementation risk
with China
BRI
I. Working with Chinese
counterparts to develop a
co-ordinated inter-
department biosecurity
themed research
programme as found with Easy Low
Better Border Biosecurity.
II. Set up a joint
laboratory (either virtual
or in designated facilities
in each respective
country) for example with
AgResearch, Plant and
Food Research and Easy Low
China’s Institute of Plant
Projection (IPP) focused
on plant / animal
protection and
biosecurity.
III. Establish an enduring
framework to identify and
implement joint research
projects with Chinese Med Med
counterparts working in
the field of plant
protection and
biosecurity which could
be extended to include
multiple BRI countries.
AN EXAMPLE OF THE STRONG INDIRECT AMPLIFICATION
RESEARCH LINKS BETWEEN NEW An example of another potential
Innovation
ZEALAND AND CHINA: project:
• New methods to approach
• China’s IPP led a delegation visit to Tourism, biosecurity and pathways
biosecurity may arise out of joint
New Zealand in October 2017. This into NZ: identifying risks and
research efforts.
was headed by the IPP Director mitigation strategies. This will
General Prof. Zhou Xueping. allow better understanding of the
cultural aspects and motivations
• The delegation visited AgResearch
impacting biosecurity awareness
research facilities as well as
and compliance by Chinese
received presentations by Plant and
tourists.42
Food Research, Lincoln University
Bio-Protection Center and Better
Border Biosecurity.42
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1.2 TRADE FACILITATION
CUSTOMS CLEARANCE
DESCRIPTION
Opportunity to apply New Zealand’s customs
• To date, much of the focus for BRI has been on the expertise to ease movements of goods across
opportunities to build physical infrastructure. The value the BRI.
of that infrastructure is enhanced through maximising the
efficient movement of goods.
• New Zealand can work with China to help build capability NEW ZEALAND’S CAPABILITY
in other BRI countries to enhance customs clearance
protocols along the BRI. • New Zealand has become a very efficient trading partner
• This concept could encompass Joint Electric Verification with China. While opportunities for improvement will
systems, Mutual Recognition Arrangements, and could always remain, there are efficient protocols for exchange
enhance supply chain integrity. of information and certification of origin.
• Timely customs clearance is an important aspect for • New Zealand is a well regarded international counterpart.
efficient trade. • NZ Customs has a positive relationship with GACC.
• A large number of countries are engaged in the BRI and
increased access to these BRI economies could result in
resource constraints on General Administration of China
Customs (GACC).
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1.2 TRADE FACILITATION
CUSTOMS CLEARANCE (continued)
Potential for
Existing
traction with Value to NZ Benefits vs Ease of Reputational
Levels of engagement arrangements
China under Inc. costs implementation risk
with China
BRI
I. A one-off trilateral
project with a BRI
country utilising New
Zealand’s experience of
how to work efficiently
with China to help
enhance that country’s Easy Low
customs clearance with
China.
II. Structured bilateral
development and
Med
delivery across multiple
jurisdictions. Low
III. Establish a permanent
capacity building centre Hard
of excellence with Med
participation open to all
BRI countries.
CUSTOMS ARRANGEMENTS CURRENTLY INDIRECT AMPLIFICATION
IN PLACE Implementation consideration:
Trade
• As at 13 November 2017, China has Significant resources would need
• This would have a secondary effect
Authorised Economic Operator to be applied to create the capacity
in enhancing New Zealand’s trading
Mutual Recognition Agreements building centre for level three.
relationship with the engaged BRI
with 34 countries and regions
countries.
including the EU, New Zealand and
Singapore.38 • Multilateral engagement would
provide a platform for the
• China has 14 free trade agreements
standardisation of best practices
in place including the China-ASEAN
increasing harmonisation across
FTA and the Mainland and Hong
jurisdictions.
Kong Closer Economic and
Partnership Arrangement.44
• China has more FTAs currently in
negotiation.
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1.3 TRADE FACILITATION
HUBBING
DESCRIPTION
• Hubs are becoming key components of international Opportunity to develop hubs within the BRI
supply chains with benefits including speed to market, network to enhance supply chain connectivity
reduced working capital and efficiency in transport. and efficiency.
• Establishing hubs in China or elsewhere utilising Belt and
Road infrastructure will enhance the value of BRI assets.
• The efficiency and attractiveness of hubs could be
enhanced through pre-clearance of product that is NEW ZEALAND’S CAPABILITY
exported to a specific hub.
• New Zealand has experience working across jurisdictions
• The attractiveness of specific hub locations is driven by on hub locations and alternative hub structures.
the efficient transportation options to other major
markets either in-country or in neighbouring countries. • Fonterra has established a MPI certified hub in Singapore
to allow ease of access into South East Asia.
PwC | Belt and Road Initiative - A Strategic Pathway | 24SECTION ONE SECTION TWO
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1.3 TRADE FACILITATION
HUBBING (continued)
Potential for
Existing
Levels of engagement traction with Value to NZ Benefits vs Ease of Reputational
arrangements
China under Inc. costs implementation risk
with China
BRI
I. Explore opportunities
for hub locations in the
context of future
changes in trade flows
Easy Low
arising from BRI projects.
II. Expand Level I to
include the impact of
pre-clearance of inbound Med
products. Low
III. Expand Level II to
include the impact of Med
"non-manipulation" Med
agreements with other
jurisdictions.
EXISTING AGREEMENTS WITH CHINA INDIRECT AMPLIFICATION
Supply chain benefits:
• No New Zealand related hub has Trade
been established in China however An in market hub could extend to
• This would have a secondary effect
preclearance for fresh milk exists. accessing Europe using an
in enhancing New Zealand’s trading
alternative method of transport
relationship with the engaged BRI
e.g. pre-cleared products could be
countries. It would also open new
shipped to a hub in China and then
supply chain routes.
utilise a non-manipulation
agreement and efficient land
transport options to optimise
access to other markets.
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