Vincent Lingga,
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The Baker & McKenzie report also warns that Chinese and Western companies are different in terms of culture, management models and operating styles. Also adding to the mix is the cobweb of local and international laws to which companies must comply — not to mention the full spectrum of political, security and economic risks.
Thomas Chan, head of the China Business Center, Hong Kong Polytechnic University, argued that the OBOR scheme was not supposed to be designed as a fixed blueprint but an open-ended initiative — because its implementation largely depends on bilateral deals between China and the countries along the OBOR route.
OBOR is primarily about connectivity, starting from physical connectivity to economic, social and cultural connectivity. It is not just about investment and trade.
With the world’s largest economies vying for influence, ASEAN economies could be in for great benefits. The region desperately needs the huge infrastructure spending that China is bringing.
The deeper integration that these mega-regional projects are expected to promote will also add momentum to the ASEAN Economic Community (AEC) and the vision of a single ASEAN market, panelists said.
These developments make for a more attractive investment destination; as Asia’s mega-regional trade and investment initiatives unfold, they create and deepen channels of connectivity in ASEAN and beyond. Greater connectivity in turn creates big opportunities for business.
Creating demand for heavy industries in China seems to be one of the objectives of the OBOR initiative. Improving physical connectivity via massive infrastructure investment will raise demand in certain industries and expand trade between China and participant countries.
As most of the countries covered under the OBOR are developing countries that need quality infrastructure, large investment will be made in infrastructure, which in turn will raise demand for products such as steel and cement. Certainly such demand orders will go to Chinese companies that have thus far been saddled with unutilized capacity due to a lack of demand.
Like what has been taking place in Indonesia, exports for infrastructure projects from Chinese companies to Indonesia have been mostly financed by Chinese institutions (like the New Silk Road Fund) and policy banks (like China Development Bank and China Exim-Bank) or the China-dominated multilateral financial institution such as the AIIB.
Indeed, what China needs from now on — as it faces what is being considered a “new normal” (lower) economic growth — is to give a boost to aggregate demand to sustain a growth rate of only 7 percent. Higher demand in these heavy industries will lead to higher production. China is likely to use its $4 trillion foreign-reserve power to finance such institutions and this in turn will strengthen the internationalization of the renminbi.
But as Teresita Sy-Coson, vice chair of the widely-diversified Philippine business group, SM Investment Corp., noted, it is alright for China to export its huge savings to other countries through infrastructure exports, which will also strengthen the internationalization of the renminbi.
By advancing renminbi-denominated loans or credit lines for projects importing Chinese goods as it has done in Indonesia, China would be able to broaden the international usage of its currency.
Vincent Lingga The writer is a senior editor of The Jakarta Post
