MARSH REPORT August 2017

China’s Belt &

Road Initiative:
Opportunities and Risks for Singapore and ASEAN

Russia

Central Asia
Europe

Middle East China

Africa
ASEAN
MARSH REPORT August 2017

Authored by:

DR. YIMING SHEN

Senior Vice President
China Client Services
Marsh Singapore

2 Marsh
 MARSH REPORT August 2017

The Belt & Road (B&R) Initiative, a development “AIIB will only
strategy proposed by Chinese President Xi Jinping
that focuses on connectivity and cooperation – with an fund projects
investment of many billions in railway lines, pipelines, that are
and ports, could provide a boost for international trade
– and also for insurance.
economically
beneficial,
WHAT IS THE BELT environmentally
& ROAD INITIATIVE? sustainable,
The land-based “Silk Road – they all have a plan," one senior
Economic Belt” and the oceangoing executive for a multinational firm and socially
“Maritime Silk Road” will directly said during his recent visit to China.
affect 4.4 billion people with a
collective GDP of US$2 trillion.
"B&R is more than an initiative, it is acceptable.”
a way of life."

The strategy underlines China's Asian companies will get more

The bank possesses a capital
push to take a larger role in global opportunities as the Chinese
of US$100 billion, equivalent
affairs, and the desire to coordinate government, banks, and enterprises
to  2⁄3 of the capital of the Asian
manufacturing capacity with other invest in B&R countries, especially
Development Bank, and about half
countries. for infrastructure projects. Based
that of the World Bank.
on the Center for China and
At the Belt and Road Forum (BRF) Globalization (CCG) survey, most The Asian Development Bank
in Beijing on May 14- 15, 2017, Chinese companies venturing into Institute published a report in 2010
President Xi pledged to funnel overseas markets prefer to partner which said that the region requires
an additional RMB 100 billion with local enterprises in the host US$8 trillion to be invested in
(US$14.5 billion) into the Silk Road countries. Lack of talent, cultural infrastructure between 2010 to
Fund, while the China Development differences, and a lack of familiarity 2020, for the region to sustain
Bank and the Export-Import Bank with local regulations and policies economic development.
will set up new lending schemes of are the key limitations for Chinese
RMB250 billion (US$36.2 billion) firms operating on the global stage. ASEAN’s 10 countries are all
and RMB 130 billion (US$18.8 members of AIIB. Major economies
billion) respectively. AIIB that are not members include
Japan and the United States.
The most obvious winners from The Asian Infrastructure
China's new strategic move are Investment Bank (AIIB) is a new Mr. Jin Liqun, the President
bankers, construction companies, intergovernmental development of AIIB, said during the World
infrastructure investors, organization founded to bring Economic Forum in 2016, that
consultants, professional services countries together to address the “AIIB will only fund projects
firms, equity fund managers, massive infrastructure needs across that are economically beneficial,
and exporters. Asia. Being the first multilateral environmentally sustainable,
financial institution initiated and socially acceptable.”
Businesses need to understand the
by China and headquartered in
financial and economic implications During 2016, AIIB committed
Beijing, the objective of the AIIB
of a coordinated infrastructure a total of US$1.73 billion to nine
is to promote interconnectivity
spending program that spans up projects, among which six projects
and economic integration in Asia,
to 65 countries. were joint initiatives with other
and also to strengthen cooperation
between China and other Asian international lenders such as
"The manufacturing companies,
territories. As of May 31, 2017, the World Bank and the Asian
the equipment companies, the
the AIIB has 77 member states. Development Bank, achieving its
finance companies, the banks –
loan disbursement target of
they are all working to support B&R
US$1.2 billion for the first year.

China’s Belt & Road Initiative: Opportunities and Risks for Singapore and ASEAN 3
MARSH REPORT August 2017

FIGURE 1 2016 AIIB LENDING

AMOUNT
APPROVAL DATE COUNTRY PURPOSE CO-LENDERS
(US$ M)

Jun 24, 2016 Tajikistan Road Improvement 27.5 European bank for reconstruction and development

Jun 24, 2016 Bangladesh Power Distribution Lines 165.0 None

Asian development bank and united kingdom's department

Jun 24, 2016 Pakistan Motorway Construction 100.0
for international development

Jun 24, 2016 Indonesia Redevelopment Of Poor Districts 216.5 World Bank

Sep 27, 2016 Pakistan Hydropower Plant 300.0 World Bank

International finance corporation, the asian development bank

Sep 27, 2016 Myanmar Combined Cycle Gas Turbine Power Plant 20.0
and certain commercial lenders

Dec 8, 2016 Oman Railways 36.0 None

Dec 8, 2016 Oman Port Facilities 265.0 None

A number of other multilateral development banks including

Dec 21, 2016 Azerbaijan Gas Pipeline 600.0
the world bank and other commercial entities

It is quite obvious that the following in Asia as well, attracting over The CLDP, a company set up for
industry sectors will benefit directly 6,500 Chinese firms operating logistics planning, will develop
from B&R and AIIB: in Singapore. standards and best practices for the
transport and logistics industries.
• Railways and highways. Singapore will benefit from the B&R The DC is a logistics hub that caters
initiative by allowing businesses to different transport modes such
• Sea ports. to operate out of this trading and as river, rail, air, and road, said IE
investment hub, to tap on growth Singapore, a statutory board under
• Aviation.
opportunities in the Asian region. the Ministry of Trade and Industry
• Energy – Oil and gas Singapore has also established itself of the Singapore Government.
pipelines, power supply. as the second-leading offshore hub
for RMB trading. We expect to see The CCI, which commenced in
• Communications – Singapore’s status become more November 2015, is Singapore’s
Optical networks. prominent as the shipping and and China's third joint project,
aviation hub of Southeast Asia, after Suzhou Industrial Park and
in addition to witnessing an increase Tianjin Eco-City. It aims to help
OPPORTUNITIES in trade and personnel exchange drive growth in China's developing
across the region as a result of the western region by improving
FOR SINGAPORE construction and development Chongqing's transport and services
of infrastructure, such as ports, links to the region and beyond.
Since establishing diplomatic airports, and other facilities.
relations in 1990, Singapore and "The two projects raise Chongqing's
China have developed strong trade, Earlier this year, Singapore and status as a key inland logistics
finance, and investments links. China launched two new projects to hub for western China, and also
Trade and investment ties between expand Chongqing's transport links contribute to China's Belt and
the two countries grew steadily to Southeast Asia and Central Asia. Road initiative," an IE Singapore
over the years, and China became executive commented.
Known as the Chongqing Logistics
Singapore’s largest trading partner
Development Platform (CLDP)
in 2014, with bilateral trade in goods
and the Multi-Modal Distribution
reaching US$86 billion. In 2013,
and Connectivity Centre (DC), the
Singapore’s investment in China
two projects are borne out of the
reached US$7.23 billion, making it
Transport and Logistics Masterplan
China’s largest investor. Singapore
for the Chongqing Connectivity
is China’s top investment destination
Initiative (CCI).

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 MARSH REPORT August 2017

OPPORTUNITIES China is ASEAN’s largest trading

partner, with a trading volume
"The two
FOR ASEAN double the size of Japan-ASEAN
trade. However, Japan’s total projects raise
investment amount in ASEAN is
The Chinese government places a
strong emphasis on directing the
three times larger than China’s. It is Chongqing's
expected that China will increase its
Maritime Silk Road towards the
Association of South East Asian
investment in the region in the next
five years, to catch up with Japan’s.
status as a key
Nations (ASEAN). Even though
Southeast Asia is rich in resources,
inland logistics
it lacks construction funds to develop CHALLENGES hub for western
its infrastructure and suffers from
low levels of industrial development. AND RISKS China, and also
Hence, strengthening infrastructure
in ASEAN countries would allow However, the opportunities that
these resources to be tapped into. This the B&R initiative brings also contribute to
initiative strives to promote Chinese result in some risks and challenges.
capital and technological investment
into these ports, transport routes,
B&R will pass through diverse China's Belt
countries spanning Africa, Asia,
and other infrastructure in order to
improve the resource distribution,
and Europe, exposing participating
companies to political, credit, and
and Road
market integration, and allow for
better facilitation of trade and
security risks. Numerous countries
receiving Chinese financing already
initiative,"
investment within Southeast Asia. bear elevated debt levels and
B&R will weaken their sovereign
In high-speed rail, China has now credit position further. The Fitch
taken its expertise global. B&R will ratings agency warns that the
see it take that expertise into the creditworthiness of many countries
rail connection between China and along the B&R are rated as extremely
Southeast Asia. low. This significantly raises the risks
On November 1, 2016, China for Chinese banks that are financing
Communication Construction parts of the project. Moreover,
Company (CCCC) signed the business China’s growing regional influence
contract with Malaysia Rail Link will elevate geopolitical risks, as it
(MRL) for a railway project on the encroaches into India’s traditional
east coast of Peninsula Malaysia, with sphere of influence. We have already
a contract value of some 46 billion seen the recent confrontation
Malaysian ringgit. This is the largest between the two countries on their
overseas project signed by CCCC, as disputed border.
well as the largest economic and trade
cooperation project between China
and Malaysia so far.

China’s Belt & Road Initiative: Opportunities and Risks for Singapore and ASEAN 5
MARSH REPORT August 2017

REASONS CHINESE FIRMS ARE ATTRACTED TO INVEST IN B&R MARKETS

40% 13%
RICH NATURAL LOW ASSET
RESOURCES PRICE

PREFERRED MEANS OF CAPITALIZING ON THE B&R INITIATIVE

58% 50% 39%

JOINT VENTURE WITH MERGERS AND EXPORTING PRODUCTS
LOCAL PARTNER ACQUISITIONS TO B&R MARKETS

WAYS CHINESE FIRMS PROTECT THEMSELVES FROM RISKS IN B&R MARKETS

67% 51% 51% 42%

WORK WITH CHINESE JOINT VENTURES WITH HIRE LOCAL PURCHASE OVERSEAS
EMBASSY, CHAMBERS, LOCAL ENTERPRISES STAFF INVESTMENT INSURANCE
OR ASSOCIATIONS

KEY CONCERNS FOR CHINESE ENTERPRISES INVESTING IN B&R MARKETS

36% 33% 31% 29% 29%

HIGH LOW LEVEL OF UNDEVELOPED LACK OF UNDEVELOPED
POLITICAL RISK DEVELOPMENT LEGAL SYSTEM FUNDING GOVERNANCE

KEY RISK CONCERNS FOR CHINESE COMPANIES INVESTING IN B&R MARKETS WITH WEAKER GOVERNANCE STRUCTURES

71% 71% 65% 59% 58%

CONTRACT CORRUPTION POLICY POLITICAL VIOLENCE NATIONALIZATION
FRUSTRATION IN GOVERNMENT CHANGES AND WAR
AGENCIES

Source: Center for China and Globalization (CCG)

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 MARSH REPORT August 2017

B&R could benefit many classes Chinese firms are learning quickly require a comprehensive insurance
of insurance. The more than 60 and their risk awareness and program covering a wide range of
countries that are to be connected insurance purchase behavior have risks. The Chinese government,
by land and sea, together with their been changing in the past few years. through the State-owned Assets
4.4 billion inhabitants, are for the In the past, insurance purchase was Supervision and Administration
most part developing markets a result of contract requirements Commission (SASAC), has also
with great economic potential. from US or European importers, issued guidelines governing State-
This could throw a new focus on or overseas project owners. Owned Enterprises’ (SOEs’) overseas
both Chinese and other insurance Chinese companies normally investments from an enterprise risk
markets concerned – particularly only paid attention to property management perspective. Many
in the area of marine insurance. loss, and they lacked proactivity failures in overseas investments
towards insurance purchase. As and lessons learned in the past few
For the insurance industry, they got exposed to regulatory years forced Chinese firms to elevate
according to Swiss Re estimates, and compliance requirements their risk awareness. International
B&R could translate to an estimated on insurance matters in the B&R insurance brokers and insurers also
commercial insurance premium markets, Chinese firms started play important roles in raising the
of US$10.6 billion in the Southeast to be more aware of the risk and risk awareness in China’s business
Asian region till 2030. In terms of insurance issues. For public- community. Today, Chinese firms
lines of insurance, this is broken listed companies, a robust risk and their Asian JV partners are
down to US$5.3 billion in Property, and insurance program is part of more proactive and mature in risk
US$3.9 billion in Engineering, good corporate governance. Many management and risk transfer. They
US$1.3 billion in Marine and stakeholders in large infrastructure are not only protecting their assets,
US$0.2 billion in Liability. projects (project owners, but also liabilities, people, and
contractors, and lenders) also returns on investment.

FIGURE 2 RISK MANAGEMENT ADVICE TO CHINESE COMPANIES

In conclusion, China says it

will invest US$4 trillion in
S BY
COMM
ER B&R countries (although it
SK CI
RI A has not given a timeframe for
E

that investment), a significant

L
TH

IN
F E R PA R T O F

SUR

proportion of which will

Operational Risk be in infrastructure such
ANCE

Legal Risk as roads, railways, and

airports. B&R will bring
NS

E SFER RISK
L
AN plenty of new opportunities
RA

S
B R
to Asian companies, and also
T
B
T

present great opportunities

A

CO

for the insurance sector.

MMERCI
R

Commercial Risk Natural Perils This is where international

insurance brokers and risk
U

advisors like Marsh are

AL
S

IN uniquely positioned to assist

both Chinese and other firms
N U SU
R

I N RANCE
in the B&R markets to assess
IS

risks and design effective and

K P ROT

Political Risk cost-efficient risk mitigation

R E

and transfer solutions.

SU

EC
O
N

T
I IO
N F S
O RM

China’s Belt & Road Initiative: Opportunities and Risks for Singapore and ASEAN 7
MARSH IS ONE OF THE MARSH & McLENNAN COMPANIES, TOGETHER WITH
GUY CARPENTER, MERCER, AND OLIVER WYMAN.

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