ASEAN and the Belt and Road Initiative
Connectivity Through Law and Commerce
Basil C Bitas
ASEAN and the Belt and Road Initiative – Connectivity through Law and Commerce is part of the Monograph Series of books published by Academy Publishing, a division of the Singapore Academy of Law which provides comprehensive analysis of current legal issues.
Unlike the other books in the series, which cover primarily legal analysis, this publication has adopted a multi-disciplinary approach by touching on legal, commercial and other aspects of Belt and Road Initiative (BRI) projects. The term BRI undoubtedly evokes complex emotions, in no small part due to the fact that it is hard to get one’s head around the implications of the BRI, given its scope and complexity. This publication fills the gap for a book that captures, using an ASEAN lens, the legal and commercial perspectives relevant to BRI cross-border investments, financing, risk management and dispute resolution.
The General Editor of the book, Basil C Bitas, is an experienced international attorney, former academic, and established contributor to this area of work. Basil started as a US lawyer, gaining experience as a partner in private practice and as an in-house legal counsel to a Swiss-based multinational company prior to spending time in academia. In recent years, he has worked with the SAL as a training consultant and the Hong Kong-based International Academy of the Belt and Road as an international research fellow, publishing on a range of issues, including comparative legal systems, legal convergence and their implications for both ASEAN integration and ASEAN’s relationship with the BRI. Together with those of the Editor, the book contains the views of a total of 12 senior professionals in relation to BRI.
The book is organised into 11 chapters, including helpful introductory and concluding chapters by the Editor that contextualize the discussions and distill the key points thereof. The comprehensive index, setting out the sub-topics within each chapter, helps the reader navigate the book easily.
Although the book was conceived prior to the COVID-19 pandemic, it is useful that the Editor and several of the contributors have dedicated space to a discussion of the pandemic and its implications for both the immediate and long-term prospects of the BRI. In fact, many would appreciate the Editor’s honesty in recognising that the “… short-term prospects for the BRI are somewhat bleak, standing in marked contrast to the optimistic tone and tenor reflected … BRI is at this juncture quasi-dormant”. That said, he postulates that the BRI retains a certain “structural resilience,” since it has been written into the Chinese constitution and remains President Xi’s flagship initiative. He believes that the COVID-induced pause to the BRI may create the conditions for a new and improved BRI once the short-term dislocations have abated. He also highlights the ongoing opportunities relating to the Digital and Health Silk Road components of the BRI. Many countries, including ASEAN, hope for this type of positive evolution, but with COVID-19 still ravaging the world, only time will tell.
The opening chapter and the closing chapter, the latter of which the Editor interestingly labels as an Epilogue and a Prologue, are joined with nine subject-specific chapters largely covering the following areas:
- International trade and investment
- Risk Management and Insurance
- Dispute resolution mechanisms, including Singapore International Commercial Court
- Project Finance and Public Private Partnerships
- Role of the Chinese State-Owned Enterprises (SOEs)
- Infrastructure, sustainability and governance
- Digital connectivity
Chapter 2 by Professor Locknie Hsu kicks off with the relevance of BRI-related trade and investment to Singapore and ASEAN. It goes beyond a mere description of investment activities, highlighting specific considerations and recent developments and trends, including ongoing US-China economic trade tensions. It offers some general views on the legal avenues for investor protection in BRI projects, which provide a good lead-in to the chapter on dispute resolution mechanisms in Chapters 4 and 5. It also highlights the digital BRI in the context of cross border data laws, providing the introduction to Chapter 10. Interestingly, Professor Hsu also urged law firms in ASEAN to go beyond their transaction-specific approach to maintain a broader understanding of the legal and policy changes impacting BRI projects in order to better advise their clients on such projects.
Chapter 3 by Shen Yiming highlights the importance of risk management and insurance in BRI projects. It elaborated on the six “success levers” for a bankable project including robust project documentation, thorough due diligence, presence of legal and economic resource, appropriate covenant and funding structure, well-structured concession rights and robust rights to payment. In a complex infrastructure project, these success levers need to be carefully considered and the allocation of risks to the appropriate parties are key to the success of a bankable project. The Chapter also explored the role of insurers in risk management and differentiated for the readers the different type of insurance, including general, construction and specialty insurance. It offers insights on the unique roles of Chinese insurers such as Sinosure and People’s Insurance Company of China in BRI Projects. Finally, the Chapter provides an overview on the financial arrangements and risks in some of the key ASEAN BRI projects including the Malaysian East Coast Rail Link. The topic of risk management is wide and touches all aspects of infrastructure project development. The Chapter captured the essence of risk management while offering case studies to elaborate these ideas.
The Dispute settlement options and the Potential role of the Singapore International Commercial Court written by Chan Leng Sun SC and Judge Quentin Loh in Chapters 4 and 5 respectively contain some overlap, but both Chapters when read together provide a good overview of all the dispute options for BRI. Recognising that BRI disputes could be between states, between a state and commercial enterprises or between commercial enterprises, Chapter 4 clearly explains the different dispute mechanisms as well as the implications of public international law on some of the disputes. These are areas which are typically well understood only by lawyers familiar with investor-state disputes and thus is a highly valuable read for anyone else who wants a good summary on this area. Judge Loh, who highlighted the features of the SICC and painstakingly described how SICC handled several international disputes in Chapter 5, gives the reader a good feel for the SICC as a potential dispute resolution option, operating as a “hybrid between the courts and arbitration’.
James Harris, Mark Hu and Brue Schulberg in Chapter 6 provide insights into the BRI framework. It helps to demystify the approval process for a BRI project by identifying the roles and responsibilities of these stakeholders. In particular, the Chapter pointed out that there is no one single government authority that oversees BRI, there is no centralized framework and most of the issued policies and guidance to Chinese stakeholders are advisory in nature. As a result, it is very difficult to identify what constitute BRI. It also provided case studies of how typical BRI projects are structured and financed and highlighted how some of these structures can lead to challenges for the Chinese State-owned enterprises, banks and the host countries. As BRI evolves, the Chapter pointed out changes that have been made to the approach to BRI including an increased focus on environmental and social issues, risk management and addressing the “debt trap” concerns.
Chapter 7 offers a continuation from Chapter 6 as Lee Chau Ee provided an analysis of an important group of actors in BRI, the Chinese State-owned Enterprises (SOEs). The Chapter provides a historical background to modern China to help us understand the symbiotic relationship between the Chinese SOEs and the party line. It also provides an understanding of the evolution of SOEs and how they have started reform in 2019 to become “more competitive, innovative, influential and risk-resistant”. An important insight of Chapter 7 is an understanding of how SOEs must transform themselves from engineering, procurement and construction (EPC) contractor to infrastructure investors in order to participate in BRI projects. This shift in mindset and risk profile is especially challenging from the SOEs perspective, and often, SOEs are not willing to take on more than EPC risks. The Chapter rightly concluded that “it is a question of ownership … from the strategic and commercial responsibility to see out the project from cradle to grave”. The important take-away of this Chapter in our opinion is that the Chinese SOEs are not necessarily set up to execute BRI projects and they will need to learn from the lessons from prior BRI projects to transform themselves into commercial enterprises while balancing their political duties.
Jeremy Saw in Chapter 8 went beyond what might have been a conceptual discussion about sustainability and governance of BRI projects by highlighting several high profile projects as negative examples associated with BRI’s open-ended implementation and non-transparent standards. He seemed to concur with other reports that there was little evidence that the BRI is being used by China to purposefully manufacture “debt trap” scenarios for countries. Using the Joint Communique released at the Second Belt and Road Forum held in April 2019, he went on to examine how future projects should take into consideration core project governance and sustainability principles.
In Chapter 9, Jasper Wong detailed the participation of Chinese stakeholders in BRI projects. He cited several reasons for majority participation from Chinese stakeholders. One of the key reasons is the lack of financing capability of the local government, especially in developing nations in ASEAN. At the same time, Chinese SOEs are highly cost competitive in construction projects and are willing to approach the project financing under construction-financing-operations models. This has resulted in high Chinese participations. These are common features in BRI projects. The Chapter also analyzed data from World Bank to show that the lending from Chinese financial institutions is mainly funded by three types of interest schemes – fixed, variable and interest free. In particular fixed interest rates loan to low-income development countries are provided at median interest rate of 2 per cent with 20 year tenure which are very attractive compared to other options these countries have. Given the complexity and riskiness of BRI projects, the robustness of due diligence is called into question when such favorable lending terms are provided. The Chapter also analyzed case studies of high-profile projects to understand the bankability issues in these cases. It concluded with five perspectives that ASEAN countries could consider, including (i) an inter-governmental task force to assess demand for projects, (ii) standardization of technical requirements and evaluation methods, (iii) capitalizing on available ASEAN member state (e.g., Singapore) expertise, (iv) sharing the benefits of BRI projects with local economies, and (v) developing low carbon infrastructure.
Chapter 10 by Bryan Tan introduces BRI’s Digital Silk Road which is otherwise referred to as the DBRI. One may be forgiven for being unfamiliar with this term as the more formal programme for the DBRI was only proposed as late as 2017 at the First Belt and Road Forum for International Cooperation in Beijing. This has now evolved to cover areas such as e-commerce, artificial intelligence, fintech, e-sports, the digital economy, nanotechnology, and quantum computing, and to advance the development of big data, cloud computing and smart cities, building upon the physical BRI projects. China currently has leading companies in technology, e-commerce, artificial intelligence and fintech. One can just imagine how great the impact might be if their DBRI strategy were executed properly. If so, the DBRI will in future editions not be found in the penultimate chapter.
When writing a book review, one is obliged to approach the material with a critical eye. If there is one aspect of the book that could be improved, it is the fact that several of the subject-specific chapters begin with an overview of the BRI. It is understandable that each contributor felt that their chapter would be incomplete without some background write-up on the BRI and its history. However, once these chapters are combined into one contiguous publication, this approach can become repetitive and at times distracting for the reader. Perhaps it might make sense for these common introductory sections to be removed and streamlined in a future edition. However, this is but a minor criticism in the context of a valuable publication.
This book does not aim to be an in-depth study of any specific aspect of BRI projects. But for anyone in ASEAN who wishes to engage with the opportunities proffered by the BRI, this book offers an informative and practical guide to the opportunities and major challenges relating to the BRI. It is well-known that the BRI, over the long term, could enhance trade flows and investment into ASEAN, and improve transport and communication connectivity to Asia and the rest of the world. This book is therefore suitable for academics and policy makers, students of law, economics and politics, financing banks and supranational agencies, as well as ASEAN entrepreneurs who have an interest in the development and construction of, or investment in, BRI projects.