June 2, 2017

The Belt and Road Forum on International Cooperation (BRF), recently concluded in Beijing on May 15, 2017, was hailed as a “successful, excellent, pragmatic and fruitful” event. It does seem so, given its high-profile attendance and impressive productivity. The list of major deliverables that the BRF has yielded includes more than 270 concrete results that have been categorized into 76 items. It covers all five key areas of the Belt and Road Initiative (BRI), namely connectivity, infrastructure, trade, finance, and people.

In his keynote speech at the BRF, Chinese President Xi Jinping also deliberated on the spirit, achievement, and his vision for the development of the BRI in an in-depth and all-round manner. From President Xi’s speech and the list of deliverables of the BRF, it is obvious that the BRI, initiated in 2013, has steadily progressed from concept to action plans and practice. However, with deepening cooperation between China and the countries along the Belt and Road, more needs to be done in institutional arrangement, policy chains concerning specific projects, risk assessment and control, as well as communication at different levels.

Institutional Arrangements

The implementation of the BRI needs various mechanisms as institutional support. China has made tremendous progress thus far. For example, in financing, China has taken the initiative to establish the Asia Infrastructure Investment Bank (AIIB), and has scaled up the USD 40 billion Silk Road Fund by another RMB 100 billion which is dedicated to support BRI projects. The China Development Bank and the Export-Import Bank of China will also set up special loan schemes of RMB 250 billion equivalent and RMB 130 billion equivalent respectively, so as to support Belt and Road cooperation.

In terms of policy coordination, China will set up the Research Center for Belt and Road Financial and Economic Development and the Facilitating Center for Building the Belt and Road to provide intellectual support, know-how, and policy instruments. However, with the deepening of BRI, it is foreseeable that more bilateral, multilateral, and regional mechanisms will be set up to facilitate the relevant goals. They should be carefully designed, coordinated and geared up to avoid unnecessary competition and even conflict, either among themselves, or with mechanisms outside the BRI framework. It is not clear yet which agency will take up such a role as the engineer- or coordinator-in-chief, or be specialized in coordinating issues in particular political and economic sectors or geographical regions.

Policy Chains

China has learned from the lessons of the past, such as the Tanzania-Zambia Railway in 1970s, that infrastructure is not a one-time investment. Instead, ongoing efforts need to be made to work with local governments and communities to ensure the continued good functioning, buy-in, and success of the projects. Thus, at its early stage, the BRI has focused on investment in and the construction of infrastructure megaprojects such as railroads, ports, industrial parks, and connectivity, including energy, telecommunications, and transportation. In some cases, after the projects have been completed and put to use, efforts have been extended towards the development of complementary facilities, policies, and mechanisms.

In addition, institutionalized support for existing communities as well as for new settlements near the projects or along their future economic artilleries is also key to the success of the infrastructure projects. China is well aware of the importance of local communities to the BRI. This is not only because their capacity building will be crucial to the proper and responsible operation of the projects, but also that their wellbeing is critical to the sustainable development of the Belt and Road region, and thus constitutes an essential part of ultimate success of the BRI. China’s commitment to micro social welfare projects — such as 100 “happy homes,” 100 poverty alleviation projects and 100 health care and rehabilitation projects for countries along the Belt and Road — is in line with this spirit.

However, this constitutes only a small part of a chain of policy or institutional packages. More needs to be done in the initiation, design and coordination of different scales of arrangement along the policy chain. In addition, Chinese companies and state actors at different levels need to learn to have more cooperation with non-state actors such as NGOs, private companies, and consulting firms. Chinese companies should be fully aware of their social and environmental responsibilities, and take the initiative to take them up.

Risk Assessment and Control

The main actors advancing the materialization of the BRI have so far been large Chinese enterprises, especially State-Owned Enterprises (SOEs). They usually have better financial and intellectual resources as well as the capacity for public relations and intelligence gathering. A lot of SOEs even have their own research institutes to support risk assessment and decision making. Yet, even for large enterprises and SOEs, it is not uncommon for them to have investment deadlocks or even to experience failure during the process of going global. For them, it is often a matter of trial and error to grasp the various potential risks in the host countries and to develop the needed solutions.

With further advancement of the BRI, however, an increasing number of small and medium sized enterprises (SMEs) will join the cohort in “going out.” Unlike the large enterprises and SOEs, big deadlocks and failures will simply be destructive for the SMEs. Decision-making and risk-assessment for the majority of SMEs have by far overly relied on publicly available sources, such as investment guidelines issued by the Chinese Ministry of Commerce, and risk assessment reports by big consulting firms.

The information provided in such sources is usually of macro-level economics, politics, the business environment, and the society of the destination countries. Generally speaking, there is a lack of tailored risk assessments and risk monitoring services to rely on. Law firms, professional consulting firms, and think-tanks from China and the destination countries could play a bigger role in risk assessment, monitoring and control. This sector still needs time to grow and mature.

Effective Communication

The importance of effective communication can never be overestimated. It is related to all key areas of connectivity under the BRI framework. This short commentary will focus on three aspects that Chinese investors should pay attention to. To start with, they need to learn from China’s failures in the past, especially that the success of an overseas project is more than just the destination country being in need of development and China being the most viable partner to meet this need. Instead, it involves complicated and sensitive issues such as how the different parties will be affected, how resources will be relocated, and how the benefits will be shared. In many cases, development is not prioritized if those concerns are not sufficiently addressed. Such communications should be thoroughly made, along with feasibility studies and risk assessments of each specific project.

Secondly, effective communication involves the two-way understanding between the communicator and the interlocutor, as well as clear messaging that ensures that both sides receive the messages as intended. Not only does the BRI cover a large variety of cultures, histories, religions, values, norms and customs, Chinese investors also lack grassroots understanding and this may lead to misperceptions, and vice versa. Moreover, the different ways to express the same message could lead the communicator and his/her target to be lost in translation.

Last but not the least, Chinese companies tend to rely mainly on communication with state actors such as the government and government-backed enterprises. However, in most of BRI countries where non-government actors play a larger role than their Chinese counterparts, Chinese investors need to engage more with them. These include the local communities, NGOs, and labor unions that may also have a say in the potential projects. As Zheng Gang, a business risk management expert of the Research Center under the State-owned Assets Supervision and Administration Commission of China’s State Council, has pointed out, in the past few years, many business crises were “directly related to social and cultural differences within the host countries as well as improper communication between a Chinese company and the local community, labor union and non-governmental environmental organization.”

To increase the social acceptability of particular projects and the BRI in general, reliable local partners, lawyers, consultants and PR agents may be part of the solution. But the most important thing that Chinese investors must understand is that localization is an on-going learning process, and that they must treat local communities not just as partners but also as business equals.

Yongxin Lin is Deputy Director of the Research Center for Maritime Silk Road at the National Institute for South China Sea Studies, Haikou, China. Xinyue Zhang is Deputy Director of the Division of International Exchanges at the same institute.

 

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