Following China’s inaugural Belt and Road Forum in Beijing last week, Warwick Long, Head of Commercial Banking, HSBC Channel Islands and Isle of Man, highlights the significant opportunities this offers the Channel Islands
Announced by President Xi Jinping at Davos in January, China’s inaugural Belt and Road Forum in Beijing this month came at an historic inflection point in the course of economic evolution and pointed to some considerable opportunities for us here in the Channel Islands.
The backdrop to the Forum was one of uncertainty. The new US administration is reversing past policies designed to increase global economic integration. The UK is trying to negotiate a new relationship with its continental partners in the EU. Recent elections in several countries have marked a political shift from the old order of left versus right to a new order of nationalist versus internationalist.
And as policymakers and negotiators wrestle with their new terms of engagement, trade is evolving too. Digital innovations, plus advances in logistics, are creating opportunities by opening new markets for businesses and challenging deeply entrenched operating models.
Whilst rapid increases in the complexity of global supply chains may have peaked, what we’re seeing is growing interest in inter- and intra-regional trade. China’s role in driving these flows is increasingly important, and nowhere is this role more visible than through the Belt and Road Initiative (BRI).
Trade links
By investing in rail, ports and power plants along centuries-old silk routes, China is seeking to stimulate cross-border trade. This isn’t just trade with China’s neighbours, but with regions as far afield as Europe, Africa and the Middle East – all regions that Guernsey and Jersey have significant interest and experience in.
The commercial benefits of this initiative are already becoming apparent. In the first nine months of 2016 alone, Chinese companies signed 4,000 engineering contracts under the BRI umbrella, with a combined value of nearly US$70bn.
China anticipates its trade with countries along the land ‘belt’ and marine ‘road’ will surpass USD$2.5trn annually in the next decade. One example of a project contributing to this growth is the China-Europe freight rail service, which has run more than 3,500 trains linking 27 Chinese cities to 11 European countries since it launched in 2011.
So why is this relevant to the Channel Islands? Quite simply, if we are quick enough to react and understand the initiative, the opportunities for our corporate and funds sectors here will be considerable. The exciting reality is that we do have the exact expertise here to tap into a hugely ambitious project.
Both Guernsey and Jersey have established strong connections with Greater China, positioning themselves as gateways to Europe for Asian investors and businesses, with Guernsey and Jersey Finance having representation in Hong Kong and Shanghai.
Industry and government representatives from the jurisdictions regularly visit China, with Jersey Finance hosting its Asia Roadshow in Hong Kong and Shanghai in June, and Guernsey Finance celebrating its first year in Hong Kong in September.
Payment currency
In addition, as HSBC’s RMB Internationalisation Survey 2016 showed, RMB has quickly become the world’s fifth most widely used payment currency. With London positioning itself as a European RMB hub and given Guernsey and Jersey’s close relationships with the UK and knowledge of the Far East, there is a real opportunity for them to be significant supportive players in this growing and exciting area.
These are early steps in what will be a multi-decade journey to realise BRI’s potential. China undoubtedly stands to benefit from this journey, but so do its Asian neighbours and trading partners further afield.
As emerging markets continue to develop and become consumer-driven economies, their expanding middle classes will demand a greater choice of goods as well as services like healthcare, education and travel. We forecast that about three billion people in today’s emerging markets will join the middle classes by 2030, a social change that will pull the centre of gravity of human consumption towards Asia.
Preparing for this growth, China has pledged to help Laos build a US$6bn railway linking Vientiane to China’s southern Yunnan province by 2020. Meanwhile, a 7,000km Singapore-Kunming Rail Link is already taking shape, and Beijing has won the contract to build Indonesia’s first high-speed rail link – a US$5.1bn, 150km project connecting Jakarta to Bandung, Indonesia’s third-largest city.
As well as promising to make the movement of people faster and cheaper, this infrastructure will help businesses too. Perishable foods, from New Zealand and Australian lamb to Filipino fruit, will be able to reach markets in Central Asia, Europe and the Middle East by land through China, potentially shaving precious time off their journey.
As a statement of intent, the BRI is ambitious and positive and Guernsey and Jersey should be alert to the exciting opportunities it could offer us.