Eight Years On – An Overview of the Belt and Road Initiative
An Overview of the Belt and Road Initiative in Singapore from a Legal Services and Insurance Perspective
The Belt and Road Initiative (BRI) is a global infrastructure development strategy initiated by China and seen as a signature project of Chinese President Xi Jinping that focuses on connectivity and cooperation. The BRI seeks to connect Asia with Africa and Europe via land (railways, pipelines) and maritime networks (e.g. ports) with the aim of improving regional integration, boosting international trade and stimulating economic growth – known in Chinese and formerly in English as One Belt One Road (一带一路 or OBOR), the strategy adopted by China in 2013 aimed to invest in nearly 70 countries and international organizations.
From a socio-economic perspective, the BRI is primarily a programme to fund infrastructure. Contrary to its nomenclature, the programme is not limited to specific corridors or the former “silk road”, but is global in its scope. The term amalgamates the concepts, the “Silk Road Economic Belt” and the “21st-Century Maritime Silk Road”, introduced by President Xi in 2013 which are the two major axes along which China proposed at the time to economically link Europe to China through countries across Eurasia and the Indian Ocean.
As of 3Q 2020, the total funding has been in the order of $50-100 billion per year where about two-thirds of the financing goes to power and transport. In January 2021, a World Bank report showed that the investment trends in the BRI Data for Chinese investments in 2020 in the 138 countries of the BRI was overall investments in the BRI of about US$47 billion. According to New China TV, as of January 2021, cooperation documents have been signed with or projects undertaken in 171 international organisations and countries.
From a socio-political perspective, the BRI aims to strengthen China’s connectivity with the world. It combines new and old projects, covers an expansive geographic scope, and includes efforts to strengthen hard infrastructure, soft infrastructure, and cultural ties; and may be said to contribute to the soft-power rise of China. BRI links the Asia-Pacific region and Europe, such as China, Russia, Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan along the silk road as well as the other observer states and dialogue partners. However, from China’s BRI investment report in the first half of 2021, it may be seen that its reach is extensive to such countries as Sierra Leone in sub-Saharan Africa to ASEAN including Singapore in South-East Asia.
The connectivity created by the initiative may be said to present Asia with new growth opportunities. With China’s support and investment in the infrastructure projects of countries along the “Belt and Road” route, China further opens its doors to the world and accelerate its development. Its vitality will likely impact on and bolster European growth. For Central Asia, BRI projects lends a healthy and promising forecast, allowing regional countries to increase connectivity, expand regional trade, and modernize obsolete transport infrastructure.
While the BRI and the cooperation it necessitates has achieved significant results in the areas of transport, trade facilitation, energy, and trade policy, clear challenges have also presented themselves. These are the lack of trade openness and other non-physical barriers, the scarcity of viable infrastructure opportunities and a well-planned road or infrastructure maintenance programme.
Roughly envisaged in an early World Bank report, BRI transport projects can expand trade, increase foreign investment, and lower trade costs. In a study in 2019, it was projected that if fully implemented, BRI transport projects could increase trade between 1.7 and 6.2 per cent for the world, increasing global real income by 0.7 to 2.9 per cent. This optimism was supported by a World Bank study that also projected that the BRI will increase the GDP of East Asian and Pacific developing countries by 2.6-3.9 per cent on average. However, whether these objectives were reached is difficult to assess owing largely to the impact of the COVID-19 pandemic on world economies and growth in 2019/2020.
But along with its socio-economic advantage comes potential negatives of the BRI. Several academic papers including from the World Bank have suggested that there may be potential environmental, social, and corruption risks associated with any large infrastructure projects. These could include biodiversity loss, and environmental degradation. In a study published in late 2019, a leading science journal predicted that the BRI could potentially introduce more than 800 alien invasive species into several countries along its many routes and developments, threatening their ecosystems. While the possibility remains, no studies conducted have concluded on any findings. But, in the age of climate change and a new awareness in the environmental impact of commerce and industry, these are now very live concerns for the BRI.
While other countries in Asia are beneficiaries of in-bound BRI flows, Singapore’s investment portfolio is out-bound – investing in the BRI in mainland China. Singapore is classified as a high-income country by the World Bank Group. Arguably, being an advanced developing economy, Singapore does not require external financing to develop its public infrastructure unlike many other Asian developing economies that have much to gain from Chinese investments.
Leveraging on its strong people’s connectivity to China, its geographical proximity and historical associations that contribute towards attracting a larger share of investments, ASEAN is in an advantageous position. ASEAN is also an important trading hub for Singapore, with opportunities to leverage itself in Global Value Chains. While the BRI expands in South-East Asia with a Chinese diplomatic footprint in ASEAN, Singapore lends itself in an active role in the BRI. Singapore’s strategy would be to draw from its key strength of being a reputable international financial hub known for its international banks, stable macro-economic conditions, stable government, and a clean business environment for investment and business dealings. Singapore is not only a world-classed financial centre but is the second largest Offshore Renminbi Hub after Hong Kong.
On 23 June 2021, the Minister for Foreign Affairs Dr Vivian Balakrishnan participated in the “Asia and Pacific High-Level Conference on Belt and Road Cooperation”, chaired by PRC State Councillor and Minister of Foreign Affairs Wang Yi. The Minister’s remarks touched on the importance of advancing economic integration and maintaining trade and investment flows by strengthening supply chain resilience, the role of the China-Singapore (Chongqing) Connectivity Initiative-New International Land-Sea Trade Corridor in fostering greater connectivity across and beyond the Belt and Road and commitment to sustainable development and support for the Paris Agreement. His remarks are a glimpse into the advantages of BRI and the challenges that the initiative faces. His remarks also touched on the particular topic of vaccine multilateralism and commitment to tackling the COVID-19 pandemic and future global health threats through international cooperation which is a clear barometer on the future concerns facing BRI.
Some key BRI projects include:
- China Singapore (Chongqing) Demonstration Initiative on Strategic Connectivity
- Chongqing Logistics Development Platform
- Multi-Modal distribution and Connectivity Centre
- International Land and Sea Trade Corridor
- Singapore Guangxi Integrated Logistics Park
The BRI provides new opportunities but carries attending legal risks. While reports vary, there are still no less than 100 countries along the Belt and Road, each with their respective legal systems, covering the common law system, the civil law system and the Islamic law system. The level of development and enforcement also varies to a great extent, without even accounting for the different legal infrastructure and landscape. This requires the countries to coordinate with each other in various aspects such as national strategies, policies, and legal system. As David Yu in his foreword in the Asian Legal Business puts it, “As a wide-ranging economic cooperation initiative, the development under the BRI needs to examine the differences in development goals and interests of participating countries, the level of development, and the differences in legal systems. Such differences affect all aspects of cross-border investment, including but not limited to infrastructure construction, trade and investment management, energy development, regional cooperation, labor, environmental protection, taxation and finance etc. Unawareness and uncertainty of local market rules and the requirements of local governments may bring unexpected legal risks to the relevant countries or enterprises involved in the cooperation. These risks will affect the safety of overseas investment funds, which is vital to the interests of investors”.
Adding to his statement, along with the differences and risks, also comes the opportunities for legal services in Singapore to capitalize on its advantageous position and play to its strengths as a regional disputes and mediation centers with a strong reputation and branding, in order to have greater participation and collaboration to cooperate in and to support BRI.
At the start of the year, the Monetary Authority of Singapore (MAS) published an advisory on the BRI Insurance Consortium. The body that MAS co-created with the insurance industry seeks to provide top-up capacity and specialised insurance coverage for BRI projects in Asia Pacific (APAC) ex-China where it aims to co-create new risk solutions with regional governments and the industry, and utilise these solutions on a pre-emptive basis to help governments and investors safeguard against key risks like natural catastrophes, construction risks and political risks. The BRI Insurance Consortium will initially focus on key lines of business that play to the specialty risk strengths of Singapore’s insurance markets, with a view to ultimately be a one-stop solution for both property & casualty (P&C) insurance, and other specialty insurance.
This is a carry-on implementation following a speech given by the then Minister for Trade and Industry (Trade), and Deputy Chairman, Monetary Authority of Singapore, Mr Lim Hng Kiang, at the 14th Singapore International Reinsurance Conference on 1 November 2017; and the aims and objectives were highlighted in his speech to the industry.
The pilot commenced with two lines of business: Construction; and Project Cargo & Liability which were particularly relevant for Asia as it was envisaged that industrialization and infrastructure investments in the region would propel demand for insurance solutions to mitigate construction and project cargo risks.
With the stated aim of putting the Singapore insurance market at the forefront of providing a one-stop solution for infrastructure projects, including the BRI, two additional new lines of business, namely, political violence and political risk, were added in late 2019 in which insurers China Re and Chaucer together with Singapore-based Lloyd’s syndicates and insurers to establish a political violence facility with an initial capacity of USD250 million to insure against risks of political violence in countries along the BRI and to support the Asian infrastructure ecosystem in Singapore and the BRI Insurance Consortium. A political risk insurance facility with a total insurance capacity of USD700 million was established to insure infrastructure projects by protecting equity investments from traditional political risk perils such as confiscation, expropriation and nationalisation, and also currency inconvertibility and exchange transfer, as well as insure investors against risks of non-payment by parties to infrastructure projects, at the same time helping domestic governments benefit from deeper pools of liquidity and investor interest in their countries.
The Impact of the Pandemic
Finally, no article written in 2021 on industry, business and trade can be complete without a mention of the COVID-19 pandemic. With the uncertainties and complications caused by the pandemic, government lock-downs, the disruptions to supply chains, labour resources and restrictions to travel and international curbs on entry to project sites, this has severely impacted on the BRI and is a real cause of concern in the medium to long term. Not least, many projects within the BRI will face difficulty right at the outset on its viability because of issues with financial viability as lending banks take a conservative view and decide not to proceed with funding. Apart from this, existing projects will face performance restrictions, obstacles and delays brought about by pandemic regulations or restrictions. The over-arching concern for BRI is whether the stated goals and objective of BRI will or can come to fruition in the current and follow-on economic climate. Unfortunately, no amount of crystal ball gazing will provide an answer with certainty – as for the legal services and insurance industry, we will as always “hedge our bets and plan for the risk”.
Credits and Citations:
- “Three Opportunities and Three Risks of the Belt and Road Initiative”, 4 May 2018, Michelle Ruta, The Trade Post.
- Factsheet on Singapore’s Participation in Belt and Road Initiative (BRI) Forum in Xi’An, 11 May 2018, Ministry of Law, Singapore.
- The Belt and Road Are Calling, 30 April 2019, Singapore of Academy of Law.
- “Singapore, China ink deals on trade, Belt and Road projects”, 30 April 2019, The Straits Times.
- China’s Belt & Road Initiative: Opportunities and Risk for Singapore and ASEAN, Dr.Yiming Shen, Senior Vice President, China Client Services, Marsh Singapore, August 2017, Marsh Report.
- “BRI Beyond 2020: Embracing new routes and opportunities along the Belt and Road”, November 2019, Economist Corporate Network Report sponsored by Bakers & MacKenzie.
- “Guide to the Belt and Road Initiative 2019”, Asian Legal Business with foreword by David Yu, President of Shanghai Bar Association.
- World Bank Press Release No. 201, 18 June 2019.
- Keynote Address by Ms Indranee Rajah, Minister in the Prime Minister’s Office and Second Minister for Finance and Education at the 16th Singapore International Reinsurance Conference (SIRC) on 30 October 2019.
- “How big is China’s Belt and Road Initiative debt and what’s next”, 19 July 2020, The South China Morning Post.
- “Metamorphosis: Singapore as a Global Capital for Asian Risk Transfer” – Official Keynote Address by Mr Lim Hng Kiang, Minister for Trade and Industry (Trade), Deputy Chairman, Monetary Authority of Singapore, at the 14th Singapore International Reinsurance Conference on 1 November 2017.
- “Belt and Road Economics: Opportunities and Risks of Transport Corridors”, 18 June 2019, The World Bank Publication, Michele Ruta, Matias Herrera Dappe, Somik Lall, Chunlin Zhang, Cristina Constantinescu, Mathilde LeBrand, Alen Mulabdic, Erik Churchill.
- What are the benefits of Belt and Road Initiative?, 17 June 2020, Xinhua Silk Road Information Service.
Remarks by the Minister for Foreign Affairs Dr Vivian Balakrishnan at the Asia and Pacific High-Level Conference on Belt and Road Cooperation, 23 June 2021.