CHINA'S BELT & ROAD INITIATIVE - BUSINESS SWEDEN - WHAT'S IN IT FOR SWEDISH COMPANIES?
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BUSINESS SWEDEN CHINA’S BELT & ROAD INITIATIVE WHAT’S IN IT FOR SWEDISH COMPANIES?
INDEX FORTSÄTT SURFA EXECUTIVE SUMMARY.................................................................................................... 3 PÅ TILLVÄXTVÅGEN INTRODUCTION................................................................................................................. 4 About the report................................................................................................................ 5 Scope and limitations....................................................................................................... 5 MARKNADSINSIKT APRIL 2017 WHAT’S IN IT FOR CHINA? Driving forces behind the Belt and Road initiative................................................. 6 VISUALIZING THE BELT AND ROAD INITITIATIVE................................................. 8 BUILDING THE BELT AND ROAD State-owned enterprises key enablers...................................................................... 10 Financing the Belt and Road........................................................................................12 WHAT’S IN IT FOR SWEDISH COMPANIES.............................................................. 14 Business opportunities................................................................................................... 14 New transport networks – supply chain implications...........................................15 The BRI’s indirect impact on Swedish companies................................................. 17 RECOMMENDATIONS.....................................................................................................18 CONCLUSION.................................................................................................................... 20 Selected sources and recommended further reading..........................................23
EXECUTIVE SUMMARY
China’s Belt and Road Initiative (BRI) is likely to impact much of the global
playing field for trade and investment during the coming decades.
Its impact so far is most evident in the areas of transportation and energy,
with hundreds of ongoing projects or plans to build railways, highways, sea-
ports and energy infrastructure across a wide range of countries. The BRI’s total
project value likely exceeds $500 billion and around 100 countries are now part
of the initiative – a number that keeps growing.
The BRI is vast in its scale and ambition but often perceived as vague in its
purpose and scope. There is no official list of projects or even a list of BRI coun-
tries, and the initiative keeps growing and changing shape. This makes it hard
to navigate for individual companies. This report aims to help Swedish compa-
nies understand the BRI and its business implications. FREDRIK UDDENFELDT
Head of Government
The BRI’s driving forces include trade and energy. China depends on exports Affairs, Asia Pacific
to the US, the European Union, Japan and Korea, and seeks new markets in
its immediate and extended neighbourhood. The US-China trade conflict has
added further urgency to this ambition. At the same time, new pipelines and
ports will help secure China’s energy imports.
While denied by China, some countries claim that geopolitical ambitions
underpin the BRI. Regardless, the initiative has already complicated the rela-
tionship between some BRI countries and their traditional allies such as the
United States, the European Union, India and Australia.
The initiative will give rise to both business opportunities and logistical ben-
efits for Swedish companies operating in BRI countries.
Most BRI project have been carried out by Chinese contractors, who now
dominate global rankings with hundreds of thousands of employees and
impressive international project portfolios. Swedish companies’ business oppor-
tunities will mainly arise from partnerships with these companies, providing
equipment and services to the main contractors of BRI projects. DAVID HALLGREN
This report concludes that Swedish companies’ abilities to tap into these Trade Commissioner and
opportunities will depend on several internal factors – where coordination, Country Manager, China
communication, service and high-level commitment will be central to achieve
success. The vast scale of China’s global contractors presents unique challenges
even to the biggest Swedish companies.
Furthermore, Swedish companies operating in Belt and Road countries are
already experiencing some logistical benefits. Railways connecting China and
Europe are already in operation, as well as new railways in Eastern Africa. Rail- KEY CONTRIBUTORS TO
ways from China into South East Asia are under construction, and a growing THIS REPORT
Judy Zhao and
network of highways built by China may spur the demand for premium-seg- Yingying Ge, China
ment trucks and buses. Panakorn Dejthumrongwat,
In the longer run, the BRI is likely to impact trade flows, international Natis Johansson and
standards and BRI countries’ digital landscapes. It may also lead to intensified Ludvig Nylin, Thailand
and Laos
competition for Swedish companies on global markets, as the initiative is likely
Björn Savlid, Diem Anh Tran
to pave the way for more Chinese companies to explore foreign markets. and Hoai Le, Vietnam
BUSINESS SWEDEN | C H I N A’ S B E LT & R OA D I N I T I AT I V E | 3INTRODUCTION
“
During a 2013 visit to Kazakhstan, China’s President geo-economic vision for China’s transformation into
Xi Jinping proposed a Silk Road Economic Belt, a global superpower, or even more loosely as “globali-
stretching across the vast area from the Pacific Ocean zation with Chinese characteristics”. President Xi has
to the Baltic Sea. The initiative is both top-down and bottom-up. called the BRI a
One month later, in a speech to Indonesia’s parlia- The biggest projects are often initiated at the top “project of the
ment, the president laid out China’s vision for a 21st bilateral level, but most projects are neither centrally century” and it
was added to the
Century Maritime Silk Road. initiated nor managed. Several key projects were ini- Communist Par-
These two concepts – the Silk Road Economic tiated before the launch of the BRI, but later brought ty’s Constitution
Belt and the Maritime Silk Road – together became in under the BRI umbrella. Most large projects in 2017
the Belt and Road Initiative (BRI). have so far been delivered by Chinese state-owned
Since then, the BRI has expanded far beyond contractors.
Central Asia and South East Asia. Around 100 coun- The initiative is open-ended and has not been
tries on all continents apart from North America clearly defined – neither conceptually nor geograph-
have in some way endorsed or joined the initiative. ically – and it keeps growing and changing shape.
There is no official list of BRI countries, only unoffi- There is no central list of projects, nor any offi-
cial estimates based on public announcements rang- cial definition or criteria for what constitutes a BRI
ing from 60 to more than 130 countries. project.
The initiative consists of a huge set of largely inde-
pendent projects under the BRI banner – including
railways, highways, seaports, dry ports, telecommu- THE BELT AND ROAD AT A GLANCE
nications, as well as power generation and transmis-
sion – worth hundreds of billions of USD.
There are no official data on the total amount of
projects and their value. A commonly mentioned fig-
ure is that the BRI will lead to investments exceed- 75%
OF KNOWN
60%
OF GLOBAL
30%
OF GLOBAL
ing $1 trillion but the origin of this number is ENERGY POPULATION GDP AND
unclear. RESOURCES TRADE
One way to measure actual project activity is by
looking at China’s loan portfolio in BRI countries.
Most key projects have been financed through gov-
ernment loans extended by China, totaling at least
$500 billion, through state-owned financial insti-
tutions such as China Development Bank and The
Export-Import Bank of China.
This number can be compared to the Asian
Development Bank’s assessment that the whole
Asia Pacific region needs infrastructure investments
exceeding $22.6 trillion through 2030.
The BRI is one of Xi Jinping’s key initiatives since
becoming president in 2013 and it is probably still
in an early phase. President Xi has called the BRI
a “project of the century” and it was added to the
Communist Party’s Constitution in 2017.
It is more than just a foreign policy concept or
a development strategy. It has been described as a
4 | BUSINESS SWEDEN | C H I N A’ S B E LT & R OA D I N I T I AT I V EThe Silk Road Economic Belt currently consists of ABOUT THE REPORT
six economic corridors, from South East Asia, South Even though Sweden is not a Belt and Road country,
Asia, Central Asia to North Asia, focusing mainly the initiative will impact most Swedish companies
on connectivity and energy. The Maritime Silk Road operating in BRI countries in several ways, directly
consists of a growing global network of seaports and indirectly.
built, managed or owned by China, for instance in This report aims to help Swedish companies nav-
Myanmar, Cambodia, Pakistan and Greece. Some igate the Belt and Road Initiative by exploring rele-
of these ports are in turn connected to the economic vant business opportunities, highlighting risks and
corridors that lead to China through new roads, rail- providing hands-on advice on how to approach spe-
ways and pipelines. These two geographical concepts cific opportunities and the contractors that carry out
do not cover all BRI activity, for instance in Africa Belt and Road projects. The report is based on inter-
and Latin America, where more and more countries views, field visits and desk research.
are joining the initiative. China is Sweden’s most important trading part-
The level of involvement among participating ner in Asia. Exports to China grew by 27 percent in
countries varies widely. South Korea has endorsed 2017 to almost 60 billion SEK, or 4.5 percent of Swe-
the initiative but has not agreed on any concrete pro- den’s total exports. China is on track to become a
jects. At the other end of the extreme, Pakistan is larger export market than the United States within
deeply involved in the BRI with the flagship $62 bil- 3–4 years.
lion China Pakistan Economic Corridor, which is Furthermore, when looking at the total sales of
transforming Pakistan’s transportation and energy Swedish companies in China – a broader measure
sectors. Smaller nations like Sri Lanka, Laos and sev- than exports – this figure now exceeds 350 billion
eral Pacific islands have already or will see signifi- SEK, i.e. around 10 percent of Swedish companies’
“
cant impact by Chinese BRI-related projects. Several global sales. Several big Swedish companies now
African nations are deeply involved, such as Dji- have China as their most important market globally.
bouti, Ethiopia and Kenya; almost three quarters of But China is not only important for the sake of its By coincidence
all African countries have joined the initiative. Many domestic market. Chinese companies are becoming a or not, China is
Eastern and Central European countries have also force to reckon with on the global market, especially growing its glo-
bal sphere of influ-
endorsed and joined the initiative. in Asia and Africa. Chinese companies are increas- ence through the
Key BRI projects may serve both commercial, ingly important for Swedish companies – either as BRI.
strategic and political purposes. customers, partners, investors or competitors – both
Some of the most strategic infrastructure pro- inside and outside of China.
jects aim to stimulate the flow of goods and secure Interacting with Chinese companies outside of
energy imports. New ports, roads and pipelines will China – as partners or competitors – is a new phe-
reduce the dependence on shipping routes through nomenon to many Swedish companies. The Belt and
Singapore, redirecting the flow of energy and goods Road Initiative is accelerating these trends, adding
to and from China. These projects are also meant to further urgency to Swedish companies’ need for a
spur economic growth in China’s neighborhood and structured and strategic approach to China and Chi-
create new markets amidst tension with the United nese companies – in China and outside of China.
States – China’s biggest export market.
The BRI has accelerated the internationaliza- SCOPE AND LIMITATIONS
tion of Chinese enterprises, who are exporting Chi- The main focus of this report is on the opportunities
nese know-how in infrastructure and energy. Chi- and implications of the Belt and Road Initiative for
nese state-owned companies now dominate rankings Swedish companies operating in China and Belt and
of global contractors. Road countries.
China denies that the BRI has any geopolitical It is not an exhaustive description of the entire
or strategic dimensions, but the initiative is already Belt and Road Initiative. The report does not cover
changing the geopolitical landscape of many regions. BRI-related activities in Sweden or its implications
Countries that are closely aligned with the BRI for the Swedish economy. The report and its rec-
are experiencing new dynamics in their relation- ommendations do not represent official Swedish
ship with China. BRI-related projects have a direct standpoints.
impact on local economies through the projects and
related financial flows, but also indirectly through
increased trade and political contact with China.
Some BRI projects have made partner nations signif-
icantly indebted to China.
By coincidence or not, China is growing its global
sphere of influence through the BRI.
BUSINESS SWEDEN | C H I N A’ S B E LT & R OA D I N I T I AT I V E | 5WHAT’S IN IT FOR CHINA?
DRIVING FORCES BEHIND BELT AND ROAD INITIATIVE
Understanding the driving forces behind the have more than doubled since 2013 – helped by a free
Belt and Road Initiative may be helpful when trade agreement and heavy investments in infrastruc-
approaching the BRI and identifying its impli- ture and energy, often built by Chinese contractors.
cations for individual companies. China has Increased cross-border trade may also promote
only motivated the Belt and Road Initiative in development in the relatively underdeveloped prov-
general and diplomatic terms – highlighting inces in West China. This is especially impor-
“peace, development, win-win cooperation tant in the case of Xinjiang, where the Communist
and mutual benefit”. However, the domestic Party views economic growth as part of their tool-
and international context in which the initia- box to prevent religious extremism. Xinjiang borders
tive was launched hints at some potential stra- Kazakhstan, Kyrgyzstan, Tajikistan, Afghanistan,
tegic considerations. Pakistan and India, and is a node for several key BRI
projects – including the China-Pakistan Economic
Corridor, China-Europe Railways, and gas pipelines
UNLEASHING GROWTH IN CHINA’S leading to Central Asia.
NEIGHBORHOOD
The Belt and Road Initiative will, if successful, help CONNECTIVITY AT THE CORE
stimulate trade between China and other countries “We Chinese often say that if you want to get rich, build
– especially with those in China’s immediate and roads first. Africa has for many years received certain
extended neighborhood. assistance from western countries but why couldn’t it
China’s top export markets today are the United achieve faster development? One important reason is the
States, the European Union, Japan and South Korea, underdevelopment of infrastructure.”
together accounting for almost 40 percent of China’s Deputy Foreign Minister Le Yucheng to the
exports. Exports to China’s closest neighbors are lag- Financial Times in September 2018
ging far behind, despite a combined population of
almost two billion people. Hard infrastructure assets have so far dominated the
China shares its land border with more countries Belt and Road Initiative, with roads, railways and
than any other nation. China’s 14 land neighbors ports that will help redirect and facilitate the flow of
include countries like Russia, Kazakhstan, Afghan- goods between China and the world.
istan, Pakistan, India and Myanmar. Most of these Railway connections between China and Europe
countries are underdeveloped with a limited pur- were non-existent ten years ago but are fully opera-
chasing power. Only three of them make the list tional today. These railways now transport a small
of China’s top 15 export markets – Vietnam, India but fast-growing share of goods that are shipped
and Russia – and only seven make the top 50 list. between these two distant parts of the Eurasian
Exports to Myanmar – population 53 million – are supercontinent
not much bigger than China’s exports to Sweden, A new network of roads and railways is under
“
over 10,000 kilometers away. China’s exports to the construction and negotiation in South East Asia.
United States are almost twice the size of its exports China is building Laos’ first major railway line,
to these 14 neighboring countries combined. as a first step of a long-term ambition to connect Railways now
With its strong manufacturing industry China Kunming in China with a large network of South transport a small
but fast-growing
is well positioned to quickly benefit when economic East Asian railways. Similarly, in Myanmar China share of goods
growth takes off in these countries. This has already has the ambition to build railways to a new deep- between Europe
happened in some cases. China’s exports to Pakistan sea port. and China.
6 | BUSINESS SWEDEN | C H I N A’ S B E LT & R OA D I N I T I AT I V EChina has built – and is operating – Africa’s first The pipeline will be able to transport 38 billion cubic
transnational electrified railway between Ethiopia meters per year and complements two existing oil
and Djibouti, where the railway leads to a port built pipelines that have the capacity to transport 600,000
and run by a Chinese company, as well as Kenya’s barrels of oil per day.
first standard-gauge railway between Mombasa and
Nairobi. GEOPOLITICAL OR NOT?
China’s global network of ports has grown stead- “The Belt and Road Initiative is neither a “Marshall
ily since the BRI was launched. COSCO and China Plan”, nor a geostrategic concept.”
Merchants Group – both state-owned – have spear- Wang Yi, State Councilor and Foreign Minister of China,
headed China’s international port investments. August 2018
COSCO operates and manages at least 274 berths at
35 ports worldwide and has major stakes in key ports The Chinese government denies that the Belt and
such as Euromax (Netherlands), Pireaus (Greece) and Road Initiative carries any geopolitical intentions,
Suez (Egypt). China Merchants Group has generally emphasizing that it aims to “build a community
focused on emerging markets. The company owns or with a shared future for mankind together with
operates at least 40 ports in 22 countries, including other countries around the globe”.
Nigeria, Sri Lanka, Togo and Djibouti. In the field of Another picture is painted by statements from gov-
port development, construction giant China Com- ernment-affiliated commentators and academics. For
munications Construction Corporation and its sub- instance, in a People’s Daily op-ed in 2014, the Central
sidiary China Harbour Engineering Company has Party School’s dean of international strategic studies
built more than 100 deep-water berths outside China. described how a Silk Road Economic Belt would ben-
efit China and partner nations not only economically,
SECURING ENERGY IMPORTS but that it would also help “expand China’s strategic
Many of the BRI’s connectivity projects specifically space and create a secure and stable neighborhood”
aim to facilitate China’s energy imports. China is the and that “solely relying on maritime routes for our
world’s biggest oil importer and around 90 percent trade of goods and energy imports carries certain secu-
of China’s oil imports pass through the Strait of rity risk”, while noting that growth in western China
Malacca outside Singapore. The strait is 2.4km wide would help prevent extremism and terrorism.
at its narrowest point and has a maximum depth of Other countries have also drawn geopolitical con-
25 meters – making it unnavigable for the ultra-large clusions. Many of the countries with heavy BRI
class of crude oil tankers. Apart from congestion involvement have strong traditional ties with other
issues, the region is also prone to risks of piracy regional or global powers, such as Sri Lanka and
and blockades. New ports and pipelines in China’s Nepal with India, Pacific island nations like Vanu-
neighborhood aim to reduce this dependency. atu and Tonga with Australia, Pakistan and the Phil-
Apart from oil, China’s demand for liquefied nat- ippines with the United States and Eastern and Cen-
ural gas (LNG) is growing rapidly. LNG imports tral European countries with the European Union.
grew by 51 percent in 2017 – making it the world’s China’s fast-growing footprint and influence in these
second biggest LNG importer – driven by efforts to countries has put pressure on those traditional ties.
reduce coal use and air pollution. 57 percent of LNG This dynamic is especially evident in the case of
supplies were imported in 2017, expected to grow to the United States. The BRI was launched one year
75 percent by 2020 through increased imports. after the Obama Administration announced the
In 2017, China and Myanmar finished construc- Pivot to Asia in 2012. The Pivot added fuel to Chinese
tion of a dual oil and gas pipeline between the port suspicions that the US aims to contain China’s rise,
of Kyaukpyu in Myanmar and South China. The oil with military, diplomatic and commercial means.
pipeline has the capacity to send 22 million tons of These suspicions have likely been cemented dur-
oil – the equivalent of 7 percent of China’s total oil ing the Trump Administration, with the trade con-
imports in 2016 – and the gas pipeline 12 billion cubic flict making it clear to China that reliance on US
meters. There are also plans to expand the port signif- trade carries significant risks. The Belt and Road Ini-
icantly, and to build roads and railways that go along- tiative may, if successful, help alleviate this depend-
side the pipeline, from the deep sea port into China. ence and strengthen China’s relations with coun-
In Central Asia, with its significant gas reserves, a tries where the US is a strategic competitor – such as
7000 km pipeline from Turkmenistan to China has Pakistan and Kenya.
enabled increased LNG imports. In 2017, 38.7 billion In other cases, the BRI has also contributed to
cubic meters of gas were imported from Central Asia. competition of a more benevolent kind. In South
China has also expressed interest to tap into the Turk- East Asia, political leaders routinely negotiate infra-
menistan–Afghanistan–Pakistan–India LNG pipeline. structure projects with both Japan and China, aim-
Russia is constructing a $55 billion gas pipeline ing to secure the best possible terms.
from Siberia to northern China, the biggest energy
project in Russia since the fall of the Soviet Union.
BUSINESS SWEDEN | C H I N A’ S B E LT & R OA D I N I T I AT I V E | 7VISUALIZING THE BELT AND ROAD
BRI hotspots and projects, China’s main export markets and
the world’s busiest shipping lanes.
$428
BILLION
$505 China’s exports
to the EU
BILLION
The US is by far
PAKISTAN
China’s biggest
a key BRI partner with the
export market $62 billion flagship China–
Pakistan Economic Corridor
(CPEC), which will heavily
impact Pakistan’s energy
and transport infrastructure.
Existing Planned/under construction AFRICA
Railroads an emerging BRI hotspot.
China has been active
Oil pipeline in East Africa, building
Gas pipeline landmark railways in Kenya,
Ethiopia and Djibouti.
Port
Silk Road Economit Belt
Major maritime routes*
Economic Corridor
Belt and Road Countries
* There are no official maps of the Maritime Silk Road. Instead of using
non-official approximations, we chose to illustrate the world’s busiest
shipping routes and how they relate to Chinese ports.
Export figures are for year 2017.
Sources: US Trade Representative, Eurostat, IMF and Ministry of
8 | C
Bommerce
U S I N E SofS China.
SWEDEN | C H I N A’ S B E LT & R OA D I N I T I AT I V E$240
BILLION
China’s combined
exports to its 14 land
neighbors – popula-
tion almost
2 billion
$267
BILLION
China’s exports
to Japan and
South Korea
CENTRAL ASIA
a key BRI beneficiary
through increased connec-
tivity through railways and
energy export to China.
SOUTH EAST ASIA
a BRI hotspot with seven
highly diverse countries
with different interests and
agendas, but with a shared
vision to connect Singapore
with China by high-speed
railways.
BUSINESS SWEDEN | C H I N A’ S B E LT & R OA D I N I T I AT I V E | 9BUILDING THE
BELT AND ROAD
STATE-OWNED ENTERPRISES ARE KEY ENABLERS
“SOEs are the market backbones. They have their In the field of power generation and transmission,
own plans and strategies for the Belt and Road drive, China’s domestic expansion of power infrastructure
in addition to the country’s overall blueprint for the led to the rise of companies like Power China (中国
initiative.” 电建) and Energy China (中国能建). Such state-owned
Xiao Yaqing, chairman of the State-Owned Assets companies now possess unique capabilities in fast-
“
Supervision and Administration Commission of the State paced and large-scale infrastructure construction.
Council, May 2017.
The Belt and Road Initiative resembles the Go
Out and the Go West policies in many ways and can BRI projects
State-owned enterprises (SOEs), especially infra- be seen as a continuation or combination of both have provided
structure and energy contractors, have so far played policies. Many of the BRI’s land-based infrastructure massive business
opportunities
a key role in the Belt and Road Initiative. But these projects – such as the China–Europe Railway links to state-owned
companies’ global ambitions did not start with and the China–Pakistan Economic Corridor – are contractors
the BRI. Ever since China launched the “Go Out” closely connected to economic development in Chi-
Policy (走出去) in 1999, the government has actively na’s central and western provinces.
strived to internationalize Chinese companies, espe- BRI projects have provided massive business
cially SOEs. One year later, in 2000, the government opportunities to major state-owned contractors, con-
launched the “Go West” policy (西部大开发) in order tributing to the Go Out policy.
to boost economic growth in 12 inland provinces and Most BRI projects are carried out by Chinese
regions in western China through massive infra- companies, either as turnkey contractors, or even
structure investments – mainly through SOEs. as operators and/or owners under variations of
The Go West policy, together with major nation- build-operate-transfer models or public-private part-
wide investments in highways and high-speed rail- nerships. According to the CSIS Reconnecting Asia
ways, led to an infrastructure expansion at a mas- database, 89 percent of BRI-related contracts have so
sive scale and speed – resulting in the world’s far been awarded to Chinese contractors. This can be
biggest networks of expressways and high-speed compared to infrastructure projects financed by mul-
railways. This also paved the way for cities like tilateral development banks, of which Chinese com-
Chongqing, Chengdu and Zhengzhou, rising from panies have historically won 29 percent of contracts
relative insignificance to become manufacturing – compared to 41 percent won by local firms.
and technology hubs. This translates into contracts worth hundreds of
This experience showed Chinese policymakers billions of USD. According to a New York Times
that credit-infused infrastructure investments can be survey, China has financed and built 203 bridges,
effective in promoting growth and reducing regional roads and railways, 199 power plants and 41 pipelines
inequality, providing a positive return on invest- outside of China over the past decade – paving the
ments while fulfilling political goals of connectivity way for the global growth of Chinese contractors.
and national unity. Another way of measuring the global expan-
China’s massive expansion of domestic infrastruc- sion of Chinese contractors is looking at the com-
ture also paved the way for the rise of construction bined loan portfolio of China’s biggest banks in BRI
giants such as China State Construction Engineering countries, which now exceeds $500 billion. Since
Corporation (中建) and China Railway Group (中铁). these loans often come with the condition that the
10 | BUSINESS SWEDEN | C H I N A’ S B E LT & R OA D I N I T I AT I V EWORLD’S TOP 4 CONTRACTORS ALL CHINESE
Size reflects both huge home market and growing international footprint
CHANGE IN
COMPANY MAIN WORLD TOTAL INTERNATIONAL
INTERNATIONAL
SECTORS RANKING BY REVENUE FOOTPRINT**
FOOTPRINT
TOTAL REVENUE* $BILLION
2012–2017
China State Construction
1 145
CONSTRUCTION
Engineering Corporation TRANSPORT High
China Railway Group TRANSPORT 2 132 High
China Railway
Construction Corporation
TRANSPORT 3 102 High
China Communication
Construction Company
TRANSPORT 4 75 High
POWER
Power Construction
Corporation of China
TRANSPORT
CONSTRUCTION
6 46 High
N/A
Shanghai Construction
9 31
CONSTRUCTION
Group TRANSPORT Low
MINING
Metallurgical Corporation
of China
TRANSPORT
CONSTRUCTION
10 30 Medium
*Based on total global revenue **Based on revenue outside home country Source: enr, company websites, Business Sweden analysis
majority of the project’s value is sourced from China, are the company’s most important markets. CCCC’s
loan portfolios can be used to measure the actual size core business includes designing and building ports,
of China’s BRI project portfolio. highways and bridges, and is one of the world’s larg-
est dredging companies. The subsidiary China Har-
CONTRACTORS ENJOYING bor Engineering Company has been instrumental
STRONG GLOBAL GROWTH in many of China’s overseas port projects, includ-
Since 2012, the year before the BRI was launched, ing ports in Pakistan, Djibouti, Sri Lanka, Israel and
the seven largest Chinese contractors have on average Cameroon. CCCC also own a heavy machinery divi-
grown by 12 percent per year outside China. Ten sion, formerly known as ZPMC – one of the world’s
years ago, Chinese contractors were largely absent largest heavy-duty crane manufacturers.
from international rankings, but now occupy top China Railway Construction Corporation (中国
positions. 铁建, CRCC) has the enjoyed the fastest growth out-
“
As of 2017, the world’s four largest contractors side China among the major contractors. The com-
were all Chinese SOEs, all of them with a heavy pany’s revenue outside China has on average grown
transportation focus. Seven of the ten largest by 27 percent year-on-year since 2012. CRCC’s inter- Ten years ago,
are Chinese. Six out of these seven belong to the national milestones include the Istanbul–Ankara Chinese contractors
were largely absent
so-called national or central SOEs – the 96 com- High-speed railway, the Mekka–Medina High from international
panies that are directly managed and supervised by Speed Rail in Saudi Arabia and the 756 km Dji- rankings, but now
the State Council through the State-owned Assets bouti–Ethiopia Railway – Africa’s first fully elec- occupy top posi-
Supervision and Administration Commission, some- trified cross-border railway (through its subsidiary tions
times called ”national champions”. China Civil Engineering Construction Corpo-
The combined international revenue (i.e. outside ration). However, CRCC’s domestic revenue still
China) of China’s top seven contractors was almost accounts for 93 percent of total revenue, thanks to
$66 billion in 2017, compared to $25 billion in 2012. the still-ongoing railway expansion in China.
International revenue has also become increasingly Two contractors stand out in the field of power
important for the overall business: In 2013, the big- generation and transmission.
gest Chinese contractors earned 13 percent of their Energy China (中国能建) boasts the biggest num-
revenue outside China, on average. By 2017, that ber of overseas power contracts for any Chinese
number had grown to almost 24 percent, mostly contractor and is responsible for one-third of Chi-
driven by projects in Asia and Africa. na’s power contracts from abroad, focusing espe-
China Communication Construction Corporation cially on Pakistan, Bangladesh, Indonesia, the Phil-
(中国交建, CCCC) is the most internationally exposed ippines and Vietnam, but is also active in central
Chinese contractor. It is present in around 140 coun- and eastern Europe. It has received contracts worth
tries world-wide and generates one third of its total around 300 billion yuan ($43.7 billion) from coun-
revenue outside China. South East Asia and Africa tries and regions participating in the Belt and Road
BUSINESS SWEDEN | C H I N A’ S B E LT & R OA D I N I T I AT I V E | 11Yangshan Deep Sea Port in Shanghai. Photo: Wikipedia
Initiative from 2014. The company is building a $1.75 This has been the case in several African projects,
billion coal power plant in Vietnam. Its subsidiary such as the Djibouti–Ethiopia railway, which will
Gezhouba Group has more than 40,000 employees be run by CREC and CCECC until 2023, and in
alone, and is particularly active in South East Asia Kenya where CCCC currently runs the Mombasa–
and Africa. Nairobi railway.
Another key player is Power Construction Cor-
poration of China (中国电建), or PowerChina, which FINANCING THE BELT AND ROAD
was formed through a merger of several SOEs in In reports and official statements, BRI projects are
2011. PowerChina’s international revenue accounts often called “investments” which may be confused
for 26 percent of its total revenue. with equity investments into projects. Rather than
In some cases, Chinese companies take on a larger equity investments, most big projects so far have
role than being just contractors, also operating or mainly been financed through government loans
managing infrastructure assets after completion. extended by China to partner nations.
12 | BUSINESS SWEDEN | C H I N A’ S B E LT & R OA D I N I T I AT I V EOVER $500 BILLION IN BRI LOANS FROM 5 STATE-OWNED BANKS
$ 183 BILLION
China Development Bank’s outstanding loans for Belt and Road Projects
by end of 2017 – 55 percent of CDB’s total outstanding foreign loans
$ 118 BILLION
The Export-Import Bank of China’s total outstanding loans in Belt and
Road countries, by March 2018
Sources: CDB, Xinhua, Caixin
BRI
$ 225 BILLION
for 800 projects in outstanding BRI credits from China’s three main
state-owned banks (ICBC, BOC and CCB)
These credits have been made possible by Chi- Coast Rail Link and two gas pipelines. Construc-
na’s $3 trillion foreign currency reserve. The two tion had already started on the $20 billion rail link,
biggest financiers have been China’s two “policy the single biggest Belt and Road project, built by
banks” – China Development Bank (CDB) and The China Communications Construction Company
Export-Import Bank of China (Exim Bank) – fol- and mainly financed by a loan from The Export-Im-
lowed by three big state-owned conventional banks: port Bank of China.
Industrial and Commercial Bank of China, Bank of Malaysia’s actions led to similar discussions in
China and China Construction Bank. some BRI nations such as Pakistan, where a new
These banks have been crucial enablers of the government is seemingly reevaluating some aspects
Belt and Road Initiative, financing the lion’s share of the China Pakistan Economic Corridor. In Myan-
of projects. Together, these five financial institutions mar the government is renegotiating and downsiz-
have $500 billion in outstanding BRI-related credit, ing a $7.5 billion deep-sea port project – a cost equiv-
exceeding by far the World Bank’s loan portfolio. alent to more than 10 percent of the country’s GDP.
There are no official and comprehensive data on Myanmar would have needed to take a $2–3 billion
the interest rates of these loans. A certain amount of loan from China Exim Bank for its minority stake in
loans have been made at concessionary rates (i.e. at the project.
subsidized or interest-free rates), but anecdotal evi- Seemingly in response to this criticism, a Chi-
dence and third-party reports suggest that many, or nese vice-minister of finance has been quoted to say
even most, loans carry market-based interest rates “The debt sustainability issue of Belt and Road (pro-
– which may be expensive for countries with a poor jects) is a complicated issue, but we will take care of
credit rating. it” adding that “China could optimize and diver-
Two China-based development banks, the Asian sify its Belt and Road debt financing with more for-
Infrastructure Investment Bank (AIIB) and the New eign direct investment, public-private partnerships,
Development Bank also play small but growing and equity investment, as opposed to commercial
roles. By March 2017, the AIIB had provided loans loans that could be more expensive.” Other official
totaling $1.7 billion to nine BRI projects. or semi-official statements, such as op-eds in People’s
BRI countries’ increasing debt has become one of Daily, have signaled an ambition to transition from
the more controversial aspects of the BRI. quantity to quality in BRI projects.
The United States, under the Trump Administra- The Silk Road Fund may be one way to transi-
tion, has been vocal in its criticism of some aspects of tion to other ways of financing. The fund was set up
the BRI, calling it “debt-trap diplomacy.” According in 2014 to fund BRI projects through capital invest-
to the Washington-based Center for Global Devel- ment into assets on a commercial basis, with a pri-
opment, some BRI nations are approaching danger- ority to BRI countries and projects. The Fund was
ous debt levels – some of which have openly ques- set up by CDB, partly with funds from China’s for-
tioned the BRI’s credit-based nature. eign currency reserve. By August 2018, the fund had
In August 2018, Malaysia’s newly elected prime invested $6.8 billion into 25 projects.
minister tentatively cancelled three projects: the East
BUSINESS SWEDEN | C H I N A’ S B E LT & R OA D I N I T I AT I V E | 13WHAT’S IN IT FOR
SWEDISH COMPANIES?
The Belt and Road Initiative will affect most significantly between industries and project types.
Swedish companies operating in BRI countries Our interviews show that contractors have a ten-
– either directly through business opportu- dency to use new premium equipment for overseas
nities arising from BRI projects or logistical projects, at least for projects deemed important.
benefits from new transportation links, or indi-
rectly through new macroeconomic and polit- CENTRALIZED VS DECENTRALIZED
ical dynamics in the wake of BRI countries’ EQUIPMENT PROCUREMENT
increased cooperation with China. Our site visits and interviews reveal a mixed picture
of contractor procurement behavior – depending on
the maturity of the local market, the specific sector,
BUSINESS OPPORTUNITIES and the company in question.
The number of Belt and Road-related investments When delivering projects in developing countries,
are large and growing, with the clear majority of Chinese contractors tend to bring with them whole-
contracts so far being awarded to Chinese contrac- sale project organizations – including engineers,
tors. But even if BRI projects were to become more workers and key material. Equipment is brought
“
open to foreign contractors, very few – if any – from China or elsewhere – depending on distance
Swedish companies have the capacity or the interest and costs.
to act as main contractor to build or operate infra- In developed markets, contractors are more likely Chinese con-
structure assets. to find local partners and equipment providers. In tractors’ expen-
diture on equip-
Instead, business opportunities for Swedish com- many cases, the local branch office sets up a project ment, technology
panies are mainly found in the business-to-busi- organization. Equipment is often purchased by the and services
ness (B2B) segment, as suppliers and partners to Chi- local project organization using advance payments represent the main
nese contractors. Total revenue among the ten largest from the client. The central procurement department addressable mar-
Chinese contractors exceeded $600 billion in 2017. is sometimes consulted when procurement decisions ket for Swedish
companies within
Of this, overseas revenue was $72 billion, a share that are made at the local level. BRI projects.
is growing. Looking beyond the ten largest compa- Many contractors have central procurement
nies, the overseas revenue of all Chinese contractors organizations in China, either at group-level head-
with an international presence exceeds $114 billion. quarters or the subsidiary’s headquarters in China.
The majority of that revenue is generated in Belt and Several of the biggest contractors are the result of
Road countries. mergers with different degrees of integration – and
Part of that revenue is used for capital expendi- varying degrees of procurement centralization. In
ture on equipment – such as mobile power plants, many cases there are signs of internal competition
drills, compressors, excavators, compactors, cranes, between subsidiaries.
loaders, trucks, and components for transport and China Railway Group (CREC 中国中铁) is a case
energy systems, segments where Swedish companies in point with 42 subsidiaries. Of these, 20 subsidiar-
are global leaders. ies are involved in infrastructure construction, most
Chinese contractors’ expenditure on equipment, of them with overseas operations. For instance, the
technology and services is the main addressable mar- Laos–China Railway is built by four different CREC
ket for Swedish companies within Belt and Road subsidiaries, such as China Railway No. 8 Engineer-
projects. The level of such expenditure may differ ing Group. Another major CREC subsidiary, China
14 | BUSINESS SWEDEN | C H I N A’ S B E LT & R OA D I N I T I AT I V EOVERSEAS REVENUE AND CAPITAL EXPENDITURE AMONG TOP FOUR
INFRASTRUCTURE CONTRACTORS IN 2017
Revenue outside Revenue outside Chi- Total capital expend-
China in 2017 (billion na as share of total iture, incl. in China
USD) revenue (billion USD)
China Communication 23 31 % 1.2
Construction Company
China State Construction 14 10 % 0.3
Engineering Corporation
China Railway Construction 7 7% 2.6
Corporation
China Railway Group 6 5% 1.4
Total 50 5.4
Source: ENR, annual reports
Railway Tunneling Group, has its own procurement companies also varies strongly. The following section
system. covers economic corridors of higher relevance.
China Communications Construction Com-
“
pany (CCCC) conducts most of its overseas business THE NEW EURASIAN LAND BRIDGE
through two major subsidiaries, China Harbor Engi- Railways between China and Europe
neering Company (中国港湾) and China Road and Ten years ago, there were no railway connections More than 6000
Bridge Corporation (中国路桥) – both with massive between China and Europe. Today, at least 56 Chi- trains made the
scale and likely a high degree of independence. On nese cities and 49 European cities in 15 countries are 12,000km voyage
in 2018
the machinery side, CCCC owns Shanghai Zhen- connected by railways – including major cities like
hua (also called ZPMC) – one of the world’s largest Chongqing, Chengdu, Zhengzhou and Duisburg,
crane makers. Hamburg and Warsaw.
The 12,000km voyage takes at least 14 days, which
is around 20 days shorter than for sea freight. More
NEW TRANSPORT NETWORKS than 6000 trains made the voyage in 2018 – almost
Supply chain implications double the amount in 2017.
The Belt and Road Initiative will help expand and Cost levels are considerably lower than for air
improve the transportation infrastructure of many freight – but in general higher than for sea freight. A
BRI nations. This may benefit Swedish companies survey among freight operators found that China–
that operate in the region – either through quicker Europe railways are now seen as more reliable in
transit times, lower logistical costs, opportunities to terms of punctuality and security than sea freight.
reach new markets or new supply chain possibilities. For companies with production sites in west-
Bigger networks of paved roads, especially interna- ern China, rail transport is an option to avoid land
tional highways, may also stimulate the demand for transport to China’s Pacific ports, reducing lead
premium trucks and intercity buses. times and emissions. This has been spearheaded by
Most of the BRI’s key infrastructure projects are electronics companies like HP and Foxconn, both
located along six economic corridors: with large manufacturing operations in China’s cen-
The New Eurasia Land Bridge Economic Corridor tral and western provinces.
Volvo Cars have shipped more than 11 thousand
China–Pakistan Economic Corridor S90 cars from its north China Daqing factory by
China–Indochina Peninsula Economic Corridor railways to Belgium. Each train carries 120 cars and
makes the 10,887km trip in 18 days, 28 days less than
Bangladesh–China–India–Myanmar sea transit, reducing CO2 emissions by one-third.
Economic Corridor The first freight train from Sweden to China was
The China–Mongolia–Russia Economic Corridor launched in September 2018, from Insjön in Dalarna
hina–Central Asia–West Asia Economic
C to Ganzhou in Jiangxi Province, carrying 900 tons
Corridor of timber across 14,000km in 19 days.
Demand is still slightly uneven, with Chi-
Some corridors have reached quite far in terms of na-bound trains from Europe generally carrying
completion, while others are still at the negotiating less freight, although the gap is narrowing. The rail-
or planning stages. Their relevance for Swedish ways still depend on government subsidies – mainly
BUSINESS SWEDEN | C H I N A’ S B E LT & R OA D I N I T I AT I V E | 15from provincial governments in central and western high-altitude conditions. However, BRI-related
China. Despite subsidies, freight costs are still pro- expenditure may add further pressure to Pakistan’s
hibitive for some industries. Russian sanctions are fiscal stability.
also a limiting factor: Russia prohibits the import
and transit of European food, making it impossible CHINA–INDOCHINA
to use railways for European food exports to China. PENINSULA ECONOMIC CORRIDOR
Swedish companies’ manufacturing operations The dream of railways from China to
are mainly in eastern China, and railways have Singapore
therefore so far been of limited significance. More South East Asia is a key Belt and Road region, both
over, many Swedish companies produce in China for commercial and strategic reasons. The region
for the local and regional market, rather than for includes some of the biggest BRI infrastructure
exports to Europe. For time-sensitive and high- projects – mainly railways and ports. The region
value shipments railway transport may be an attrac- differs from other BRI regions with its diversity –
tive option for both directions. The reduction of from Myanmar in the northwest to Singapore in the
emissions is another factor that favors rail transit – south. It is also the only BRI region where China has
at least when replacing air freight. If Russia’s food encountered significant competition from Japan and
sanctions are lifted, the Swedish food industry may South Korea, who are major investors in the region
benefit from railways – not only for export to China and active in infrastructure construction.
but also to Japan, where long shipment times and China has chosen a bilateral approach when
strict shelf-life restrictions have been a limiting fac- dealing with this diverse group of countries. This
tor for Swedish food exports. approach has yielded good results in Laos, where the
Road transport is also emerging as an option to Laos–China Railway will revolutionize Laos’ trans-
railways. The first Eurasian truck transit was made in port system. The railway is under construction and
November 2018, from the China–Kazakhstan border expected to be completed by 2021. The line will con-
to Poland in 13 days, reportedly at half the cost of air nect Kunming in China with Laos’ capital Vienti-
transport, and with considerable door-to-door time ane and reduce the travel time from 13–16 hours to
savings compared to rail transport. Regular oper- 3.5 hours. It is expected to carry six million passen-
ations are expected to start early 2019. If this trend gers and two million tons of goods in its first year of
continues this may benefit Swedish truck makers, operation.
who are competitive from a lifecycle and fuel-econ- The Laos–China railway line may eventually con-
omy perspective. nect with Thailand, also a BRI country. Thailand’s
long-term plan is to build a nationwide high-speed
CHINA–PAKISTAN rail network that extends to Malaysia, where a high-
“
ECONOMIC CORRIDOR speed railway network is planned and will eventu-
The $62 billion flagship project ally connect with Singapore – realizing the overall
Pakistan is a traditional ally of China and a close goal of railways between Singapore and Kunming in Given the signifi-
BRI partner. The $62 billion China–Pakistan Eco- China – a vision that all concerned countries share. cance of CPEC to
Pakistan, the pro-
nomic Corridor (CPEC) will have a significant It remains to be seen if Japanese or Chinese con- ject will directly or
impact on Pakistan’s transportation and energy tractors will be selected to construct the Thailand– indirectly affect all
infrastructure, and is financed through a combi- Malaysia and Malaysia–Singapore high-speed rail- Swedish compa-
nation of loans, investments and grants. By some way lines. The Kuala Lumpur–Singapore stretch will nies operating in
estimates, the value of the CPEC project portfolio in the best-case scenario be completed by 2031. Pakistan.
exceeds all FDI to Pakistan since 1970. Swedish companies operating in the region will
Energy projects make up almost half of the CPEC benefit from improved connectivity and lower trans-
budget, including eight coal power plants, three port costs. In the short or medium term, these effects
hydropower stations, seven wind farms and one solar will mostly be noticeable in Laos, where the new rail-
park – all meant to address Pakistan’s long-stand- way may be a game-changer – especially for com-
ing power shortage issues. CPEC also includes major panies shipping goods to China, such as forestry
projects to upgrade and expand Pakistan’s road and products.
railway networks. China has built a deep-sea port in
Gwadar, to be connected by railways and roads with LIMITED PROGRESS AND RELEVANCE
the rest of the country. IN OTHER BRI CORRIDORS
Given the significance of CPEC to Pakistan, the Two of the remaining corridors – one connecting
project will directly or indirectly affect all Swed- Russia, Mongolia and China, another connecting
ish companies operating in Pakistan. CPEC will China with India through Bangladesh and Myan-
help improve electricity supply and grid stability. mar – have not yet made significant progress. If
Improved roads and railways will reduce logistics successful, the Mongolian corridor has the potential
cost. Improved roads to China may provide oppor- to boost the country’s struggling mining industry,
tunities for high-end long-haul trucks suitable for which may benefit Swedish transport and mining
16 | BUSINESS SWEDEN | C H I N A’ S B E LT & R OA D I N I T I AT I V Eequipment companies. The India–China corridor is FREE-TRADE AGREEMENTS
yet to be embraced by India and has not made any One of the BRI’s explicit goals is to safeguard “unim-
significant progress. In the medium term, it may peded trade” and bilateral free-trade agreements are
help improve connectivity between China, Myan- often part of the toolbox when China engages with
mar and Bangladesh. If the corridor results in a BRI partners. China is negotiating at least 14 free-
better network of highways between the countries it trade agreements and conducting feasibility studies
may benefit Swedish truck and bus providers. for eight additional potential FTAs. The majority of
The final corridor, which connects China with these are with Belt and Road countries.
Turkey through the southern parts of Central Asia, is These agreements may have a significant impact
mainly focused on railway connectivity, but has not on the underlying economics of Swedish companies’
reached the same maturity as its northern neighbor supply chains by reducing the cost of trade between
and is of limited relevance to Swedish companies. China and the country in question. This may make
sourcing from other countries than China – such as
Sweden – less favorable than before and strengthen
A NEW ECONOMIC LANDSCAPE the position of competitors that produce in China.
ALONG THE BELT AND ROAD
Indirect impact on Swedish companies MACROECONOMIC BENEFITS
In many of the participating countries, the Belt AND RISKS
“
and Road Initiative is having an impact beyond the In smaller countries like Laos, BRI-related infra-
transport and energy sectors. For countries that are structure construction is having a noticeable impact
deeply involved, the BRI may impact the macroe- on economic growth. Among larger countries, Paki- The BRI may help
conomic environment, trade flows, standards and stan stands out with the $62 billion China–Pakistan strengthen the
global foothold
competition – areas that are relevant for Swedish Economic Corridor, which according to official of Chinese equip-
companies operating in these countries. statements is adding more than one percent GDP ment suppliers and
growth per year. lead to intensified
COMPETITION However, countries with large BRI project port- competition.
BRI-related business opportunities for equipment folios have also experienced sharply increasing debt
and service suppliers are available not only to for- levels. According to third-party reports, the default
eign companies, but also to Chinese competitors. risk of countries like Kenya, Djibouti, Laos and
Participating in BRI projects as suppliers to Chinese Pakistan has increased due to BRI-related lend-
contractors may be the first step for Chinese suppli- ing – in turn increasing the overall risk of operating
ers to internationalize their business, giving them in those countries. For further reading, please refer
reference projects and overseas experience. Therefore, to Business Sweden and the Embassy of Sweden’s
increased Chinese project activity in BRI countries report of the Belt and Road Initiative from a Sustain-
may increase the long-term foothold of Chinese ability Perspective.1
competitors.
THE DIGITAL SILK ROAD
STANDARDS The Digital Silk Road – the BRI’s cyberspace leg
The Chinese Government and Chinese companies – has so far played a relatively small role but its
are increasingly shaping standards as they become importance will grow. Countries with deep BRI
strong forces in BRI countries. China is active in involvement are likely to experience a larger Chinese
international standardization organizations and aims influence on their digitalization and digital infra-
to internationalize its domestic standards. This is structure. In Papua New Guinea, China is building
especially evident in the railway sector, where whole- the country’s fiber backbone, vastly expanding local
sale Chinese railway systems are brought to local Internet coverage; Similar projects are found in Paki-
markets – such as the Djibouti–Addis Ababa railway, stan. The BRI pay also pave the way for the interna-
which that was “constructed with Chinese technol- tional expansion of Chinese telecom operators. In
ogy and equipment according to China standard”. South East Asia, Chinese e-commerce players, such
This is likely to happen in more industries. As a as Alibaba–owned Lazada, will continue to expand –
result, Swedish companies will increasingly need paving the way for Chinese models for e-commerce.
to consider China’s national standards also outside
China. This is especially important for companies
whose products are part of infrastructure assets,
such as onboard railway equipment or energy-related
equipment, but less so for equipment that is used
only during the construction phase.
1
The full report is available here: https://bit.ly/2UjOd02
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