By Yanling Xu and Owen Haacke
Foreign businesses are adjusting their long-term China strategies as they evaluate how local governments implement the RMB 40 billion-backed national One Belt, One Road (OBOR) development policy. As provincial and city governments release additional details about project funding, companies are seeking project bids and reorienting their sales practices to align with OBOR objectives.
Aligning OBOR with local development goals
Provincial approaches to OBOR generally align with goals outlined in the local five-year plans. Many western provinces such as Guangxi and Xinjiang are promoting infrastructure construction and expanding trade opportunities. Eastern coastal cities and provinces, such as Shanghai, Fujian, and Guangdong, are reiterating commitments to openness and creating opportunities in advanced sectors such as financial services, shipping and logistics, infrastructure, and ecommerce.
Companies interested in participating in projects should consider which locales have OBOR policy goals that align with their business objectives. For example:
- Shanghai is focused on financial services, trade investments, and infrastructure construction, as well as encouraging cultural exchanges. Key policy highlights of the Shanghai OBOR plan include attracting foreign business by simplifying and streamlining the approval process for foreign investment enterprises, providing government incentives to foster the service sector, and encouraging multinational enterprises to diversify the functions of their regional headquarters in Shanghai.
- Fujian province is the core area of the Maritime Silk Road, the sea route of the OBOR that runs through important shipping channels to increase connections with Southeast Asian countries. Fujian’s OBOR plan promotes infrastructure construction to advance its shipping and logistics sectors.
- Guangdong province is also focused on the Maritime Silk Road, economic and trade cooperation, and ties with Hong Kong and Macao. The province is aiming to build world-class ports in Shenzhen, Zhuhai, Zhanjiang, Shantou, and Hong Kong, which will help support maritime trade with OBOR partners.
- Xi’an is positioned as the starting point of the Silk Road Economic Belt—the land-based “belt” of OBOR. The city is promoting transportation infrastructure, and accelerating the construction of an air freight port and international logistics parks. In 2015, Xi’an created the Silk Road Chamber of International Commerce to coordinate OBOR activities between industry and government.
- Xinjiang’s plan boosts economic cooperation with countries in Central Asia along OBOR by building infrastructure in the province. Xinjiang is accelerating the development of emerging industries such as ecommerce, the internet of things, cloud computing, and technology.
- Sichuan seeks to become China’s largest western transport and logistics hub. The province is building its second international airport in the capital city of Chengdu. Sichuan implemented reform policies to benefit domestic and foreign businesses, including the introduction of public-private partnership (PPP) methods. Similar to other programs, Sichuan will strengthen regional cooperation and actively integrate its OBOR plans with the Made in China 2025 initiative.
Policies to promote investment
Provincial governments support central government financing of OBOR projects with investment funds. Guangdong’s RMB 20 billion Silk Road Fund supports local firms investing overseas as part of the initiative. Jiangsu launched a local investment fund of RMB 3 billion to facilitate construction projects.
While some provinces are self-financing OBOR projects, a few have partnered with state-owned enterprises. Gansu province, for example, worked with China State Construction Engineering Corp. to set up a transportation fund of RMB 100 billion.
Global connection, local business
The political relationship between China and countries involved in a project can influence who wins the bid, according to US-China Business Council (USCBC) member companies. For instance, a Chinese, Pakistani, or other OBOR-based company is given stronger consideration for a project bid in Pakistan.
To win bids in OBOR countries, USCBC member companies suggested working with local partners to co-bid projects. To take advantage of other OBOR expansion opportunities, some companies are considering partnering with Chinese businesses already engaged in OBOR countries. Ways that international firms participate in and benefit from OBOR include:
- Providing financing Western companies can provide capital for Chinese companies doing business abroad. Although various institutions, such as the AIIB and the Silk Road Development Fund, assist domestic companies with financing for OBOR projects, several USCBC members have leveraged their capital to partner with Chinese companies on projects.
- Sharing global experience International experience and best practices for conducting global business position USCBC members to provide consulting services to Chinese business partners, including market intelligence, legal expertise, best practices, risk management, personnel training, and community engagement.
- Increasing visibility OBOR often serves as a theme at local trade and investment fairs, and seminars or panels are often held to help companies—domestic and foreign—understand how they can work together under this framework. Being visible and engaged at these functions is important to find project and sales opportunities.
- Licensing technology Companies operating in areas described as “non-sensitive” with regard to intellectual property report finding business opportunities in licensing lower-end technology to Chinese partners.
OBOR as part of company strategy
Although some USCBC member companies are looking for short-term project opportunities, they are also exploring ways to fit OBOR into long-term commercial strategies.
- Supply chain Companies are focusing on improving global supply chain efficiencies, particularly companies supplying OBOR countries and Europe. Some are exploring expansion into new local industry clusters in western OBOR hubs. Areas of particular interest include Sichuan, Xi’an, and Xinjiang, which are key points in the OBOR supply chain to Europe.
- Government affairs Companies have also been able to strengthen relationships by discussing local OBOR plans with provincial and municipal governments. For example, one company sits on a special advisory council to a major municipality where it can influence OBOR policy and establish itself as a trusted partner among local enterprises.