by Inframation News

Thailand's Department of Highways will meet with investors interested in the M6 and M81 motorway PPP projects on 31 January.

Project information will be released at the pre-tender meeting, with feedback from infrastructure investors as well as financial and legal firms being solicited ahead of the release of requests for proposal for the projects.

The scope of private financing for the M6 and M81 projects includes the design and construction of toll plazas and installation of toll collection and traffic control systems, at an estimated to cost USD 240m and USD 180m respectively.

The concessionaires will also be responsible for operation and maintenance over 30-year concession periods. They will receive availability payments while all toll-related revenues will go to the public sector under the PPP gross cost model.

The 196km M6 will start from Bangpa-in and the 96km M81 start from Bangyai, both located on the Eastern Bangkok Outer Ring Road.

Construction of the M6 and M81 is due to be completed in 2020. Registration for the 31 January meeting is here.

M7 expansion
The government is adding 32km to the M7 (from Pattaya to Map Ta Phut), also due for completion in 2020. ​​​​​​

At its first meeting of the year, Thailand's Cabinet yesterday approved a 75% hike in tolls on the existing Bangkok to Pattaya M7 motorway: from THB 60 (USD 1.85) to THB 105 for passenger cars and up to THB 170 and THB 245 for six and ten-wheeled vehicles. The government is converting the motorway to a closed system by blocking entry points between toll booths.

by James Marshall & Paul Culliford, Berwin Leighton Paisner

In any major tender procurement exercise, both fair procurement and competition law considerations are relevant. A recent decision by the Nepalese Government provides a timely example. Having reached an agreement with China’s Gezhouba Group in June to construct the $2.5bn, 1,200MW Budhi-Gandhaki hydroelectric plant, the Nepalese government subsequently scrapped the plans in November, amid criticisms over the tender process.

This example highlights the importance of complying with rules around open tendering. However, it is not just rules surrounding fair tendering that are relevant. With the continued expansion of competition law across Asia, particularly across the ASEAN Member States, competition law rules have an important part to play in the procurement and tendering process. Key jurisdictions such as China, Singapore, Malaysia and Hong Kong have active competition law regimes, and market participants need to be aware of their obligations under them.

Two key competition issues that could arise during a procurement process are:

• Bid Rigging: Most competition law regimes across Asia (and worldwide) classify bid rigging as illegal cartel conduct. Bid rigging refers to arrangements between competing bidders on bid terms in order to ensure a particular bidder wins. As well as tenderers needing to ensure they avoid any accusation of illegal bid rigging, procurers should be alert to potential bid rigging in the tenders they receive.
• Bidding Consortia and Joint Ventures: The establishment of joint ventures and consortia to submit bids can raise competition law issues. Depending on the terms of the joint venture and the level of integration between the joint venture parties, the joint venturers may need to consider anything from an analysis under competition law provisions that prohibit anticompetitive conduct to full merger clearance before executing the joint venture.

In addition, other competition law issues such as abuse of dominance (when either a procurer or a tenderer is in a dominant market position) and anticompetitive agreements may be relevant.

BLP’s Antitrust & Competition group advises clients on antitrust compliance globally, and would be happy to answer any questions you may have.

by Stefan Chapman, Berwin Leighton Paisner

With news of a consortium led by China’s CITIC announcing plans to acquire a 70% stake in the Kyauk Pyu port located in the western Rakhine state of Myanmar for an estimated US$7.2 bn (which includes the development of a Special Economic Zone ("SEZ") in Rakhine), we examine the challenges that foreign investors face investing in SEZs across the country.

A key goal of the opening up and liberalisation of the Myanmar economy has been to develop industries and grow the export potential of the country. Sitting on the crossroads of China, India and South East Asia, Myanmar is ideally situated to become a key regional manufacturing destination surrounded by large consumer markets.

China’s leaders in turn have ambitious plans for Myanmar as part of the Belt and Road initiative, having identified plans to develop dams, roads, ports and bridges across the country, as well the sharing of its latest technology, products and workplace talent.

The development of SEZs where investors with export orientated businesses can establish their manufacturing base has been identified by the Myanmar Government as a driver for attracting much needed investment. The Government is offering numerous incentives to businesses in operating in such SEZs including the provision of generous tax breaks and the streamlining of bureaucratic processes to simplify the regulatory hurdles.

Seizing the opportunity to take advantage of these benefits developers from Japan, Thailand and China intend to develop large SEZs across Myanmar with projects respectively in Thilawa, Dawei and Kyaukphyu. Chinese developers are looking at the development of the Kyaukphyu SEZ as part of its Belt and Road initiative. While the Japanese developed Thilawa SEZ has started operating the other developments have encountered some difficulty in getting off the ground.
Negotiations on the Kyaukphyu SEZ, providing China direct access to the Indian Ocean, have been held up with negotiations revisiting Myanmar’s equity stake in the project, with it wanting to increase its stake from 15% to 30%, while uncertainty remains on how such an increased investment will be financed on the Myanmar side.

While this project demonstrates the great potential for investing in Myanmar it also showcases some of the considerations which foreign investors must consider in implementing their investments. A key consideration is acquiring the necessary land. Investors should carry out thorough due diligence on the potential land plot at an early stage of every investment.

A common issue in Myanmar is that the person claiming ownership of land may be different from the registered owner on the title documents. This is normally due to restrictions on transferring land or buyers wanting to avoid paying taxes. Rectifying the ownership position can be a time consuming and costly endeavor and can increase the risk of the investment. Another issue which frequently arises is that much of the land outside of commercial centers cannot be developed without a change of use procedure. The change of use procedure depends on the type of land, but in most cases it is a lengthy procedure with little certainty that at the end of the process that the change of use application will be approved.

Investors should also keep in mind that if they are making investments outside one of the SEZs, the Myanmar Investment Law will apply, which requires that any company leasing government land or building for more than 5 years needs to apply for an investment Permit and any foreign investor wanting to enter into a lease for more than a year will need a Land Rights Authorisation from the Myanmar Investment Commission.

With the development of Myanmar’s financial system still in its early stages, foreign investors looking for joint venture partners may find it difficult to find local partners with sufficient access to capital to make the investments required in developing capital intensive projects. Myanmar partners will normally be looking at making their contributions through other means such as providing by providing land, existing assets or other non-cash contributions. Debt financing of large projects will normally require offshore financing.

Identifying and engaging with the relevant authorities at an early stage to avoid subsequent delays in obtaining all the necessary approvals is vital to ensuring the smooth implementation of any investment.

While obstacles to investment remain, proper planning and addressing regulatory issues at an early stage will increase the chances of a smooth and successful investment in Myanmar.

By Mikael Weissmann - Senior Research Fellow, Swedish Institute of International Affairs; and Elin Rappe - Analyst and Programme Manager, Swedish Institute of International Affairs

Sweden and the Belt and Road Initiative

China is Sweden’s largest trading partner in Asia and a priority country in Sweden’s export strategy. Sweden exported to China worth SEK 46 billion in 2016 and its imports from China were worth SEK 59 billion. Bilateral exchanges between China and Sweden are now more frequent than ever. Swedish ministers are regular visitors to China and there have been several visits to Sweden by Chinese leaders of varying importance in recent years. Today, 10,000 Swedish companies are trading with China and more than 500 are established there. An increasing number of Chinese companies now invest in Sweden. Scientific and technological cooperation between the two countries has expanded to new areas such as bio-medicine, energy saving and environmental protection.

Thus, given China’s economic importance to Sweden, a large-scale initiative such as the BRI being promoted by Xi Jinping — domestically, the most powerful Chinese leader since Mao Zedong—might be expected to engender great interest among Swedish policymakers and the business community alike. Thus far, however, responses have been quiet and often cautious. Swedish stakeholders have displayed a tendency to wait and see how developments unfold before making a decision on how to react. At first, the significance of the project was unclear. At the beginning of 2015, however, the initiative took a big step forward when China devoted US$ 50 billion to the new Asian Infrastructure Investment Bank (AIIB) and allocated US$ 40 billion for a Silk Road Fund to finance investment. Sweden became a founding non-regional member of the AIIB, although it is somewhat indicative of Sweden’s cautious approach that it decided to join the bank on the last day on which it was possible to register.

The Silk Road Economic Belt, that part of the initiative most relevant to Sweden, is still in its early stages. So far, the focus has been mainly on China’s closest neighbourhood, with a particular emphasis on Central Asia. While it is clear that Chinese funding has been targeted at Central Asia, in later stages the aim is that the initiative will be more focused on Europe. China claims that the initiative has received a positive response from the 60 countries along the route as well as international organizations such as European Union (EU), the Association of South East Asian Nations (ASEAN), the Shanghai Cooperation Organization (SCO) and the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP).

The real impact of the BRI on Sweden has been very limited. While the BRI has received more attention in the past year or two, as of late May 2016 the Swedish Foreign Ministry was unable to identify any BRI projects in Sweden. However, the Chinese Embassy uses a broader definition of a BRI project and at the same point identified Chinese attempts to bid for the construction of a Swedish high-speed railway and two private wind power projects as BRI projects. China also emphasizes the importance of building a connection between China and Sweden—or, on a larger scale, between Asia and Europe—and that these kinds of infrastructure projects would give rise to a “win-win situation”.

There are still some uncertainties about the execution of the high-speed railway, as well as some scepticism in Sweden about the idea of Chinese companies building such a railway.  However, China sees this as its most important BRI project in Sweden. Chinese companies have already registered in Sweden and are just waiting for the decision to proceed to be taken by the Swedish Parliament. China has no experience of building high-speed railways in developed countries and Chinese companies would like to acquire this experience and a reputation for having these competences, which would open many new doors.

China’s approach in Sweden

When discussing China’s strategy for promoting the concept of the BRI in Sweden, it is important to remember that Sweden is at the very end of the Belt Road, which means that it is obviously not one of the most important countries in the BRI context. The Swedish Foreign Ministry believes that the BRI could lead to business opportunities for Swedish companies, but that these will come in China or Central Asia rather than for companies operating in Sweden.

Diplomacy and business contacts are the tools used by China to promote the BRI in Sweden. China promotes the concept by raising it in its diplomatic meetings with the Foreign Ministry, Swedish government officials and Swedish companies. The Foreign Ministry of Sweden shares this view of the strategy used to promote the BRI. The Chinese Embassy in Stockholm has supported events on the BRI in Stockholm and made presentations to Swedish companies that have shown an interest in the Silk Road Initiative.

China’s promotion of the BRI in Sweden is targeted mainly at politicians. However, most of the BRI-related contacts in Sweden have been taking place between Chinese companies and various government agencies, such as the Swedish Transport Agency on the subject of the highspeed railway. In addition to business, Ambassador Chen Yuming has also mentioned the importance of student exchanges and increased cultural exchange between China and Sweden as important aspects of the BRI. However, when asked directly what China has done to actively engage Sweden in the BRI, a representative from the Chinese Embassy responded: “Not much frankly”.

China welcomed Sweden’s decision to become a founding member of the AIIB—but the fact that Sweden announced the decision on the last day that it was possible to register did not signal strong support for the Bank. Within the AIIB, China has not prioritized Sweden because it is a small country and because of its perceived lack of serious commitment. This should be contrasted with countries such as the United Kingdom, which was eager to register to become a co-founder of the AIIB and realized early on the importance of President Xi’s initiative.

Even though Sweden is not one of the most important countries for China in the Silk Road Initiative, China still sees great potential for increased cooperation if Sweden were to decide to engage more actively in the BRI. From China’s perspective, Sweden needs to join the infrastructure projects within the AIIB. According the Embassy, Chinese companies in Sweden want to cooperate more with Swedish companies, but so far the Swedes have been overcautious. There is particular interest in deepening cooperation with Sweden on high-tech manufacturing and emerging industries.

The Swedish response to the BRI

The Swedish governmental actors working on the BRI are mainly in the Foreign Ministry, Growth Analysis and the public-private partnership Business Sweden. The Ministry for Enterprise and Innovation [Näringsdepartementet] has not been actively involved in these questions, but there are signs that this has been changing as the BRI has gained more attention in the past year or so. For instance, the former Minister for Infrastructure, Anna Johansson, participated in the “Belt and Road Forum for International Cooperation” in Beijing in May 2017. Nonetheless, besides the Swedish companies in China, the Swedish Embassy in Beijing, Growth Analysis and Business Sweden still seem to be the three musketeers working on the BRI on the ground in China. Business Sweden’s office in Istanbul monitors the Silk Road Initiative in Central Asia, as does the Eastern Europe department of the Foreign Ministry in Stockholm. Together with Growth Analysis and Business Sweden, the Swedish Embassy in Beijing has organized various seminars on the AIIB. The embassy also regularly organizes visits to Chinese infrastructure projects for Swedish companies, together with Growth Analysis.

There are no formal agreements on the BRI between the governments of Sweden and China and there is no national strategy on the BRI. In fact, as late as a year ago there was scepticism in the Foreign Ministry about whether such a strategy was needed. The BRI was seen as an issue mainly to be handled locally by the embassy in Beijing. While there have been some signs that this perception is changing, Sweden is still far behind other countries. Many other European countries have acted much more swiftly to monitor developments and investigate the possible business opportunities arising from the BRI. Poland, for example, is lobbying to change the route of the Silk Road Economic Belt to go through its territory.

Please click to read the full report.

Export-Import Bank of China to fund completion of Padma Bridge Rail Link, a key conduit of the Belt and Road Initiative.

The Padma Bridge Rail Link: Carrying cars, trains and a nation's economic aspirations.

Later this month, the Export-Import Bank of China is expected to confirm its willingness to cover the US$300 million funding shortfall that has left the Padma Bridge Rail Link in development limbo over the past few months. As well as being a key element in Bangladesh's bid to radically overhaul its internal transport network, the 6.15km bridge is also seen as a prime conduit for the Belt and Road Initiative, China's massively ambitious international infrastructure development and trade facilitation programme.

First mooted in 1999, but not formally commissioned until 2006, the contract to develop the multi-purpose, 42-pillar, $3.69 billion bridge was awarded to China Railway Group, the Beijing-headquartered, state-owned construction company that is, arguably, the world's largest civil engineering conglomerate. As of October this year, progress on the project was said to be approaching the halfway mark.

Once completed, this multi-purpose, double-decker bridge will span the Padma River – actually the lower course of the Ganges, the world's third-largest river – connecting the Louhajong region, south of Dhaka, the Bangladeshi capital, with the districts of Munshiganj, Shariatpur and Madaripur. In addition to the rail link on its lower level, the bridge will also house a four-lane highway on its upper deck. When it comes online in late 2018, it will be the largest bridge in Bangladesh and the country's first fixed river crossing open to road traffic.

The bridge is a key component in the far larger Dhaka-Khulna Railway Project, itself an integral part of Bangladesh's grand strategy to improve access to the capital from the southwest of the country. It is also expected to boost Dhaka's ambitions to become a transport hub for passengers and freight in transit from the coastal areas of the country to its northern and eastern regions.

The railway itself is scheduled to be up and running by 2022 and will cut the travel time from Dhaka and Khulna, Bangladesh's third-largest city, to just three and a half hours, a significant reduction on the current journey time of seven hours or more. As well as installing 215km of upgraded track, 66 large and 244 small bridges have been constructed in order to bring the project to fruition, in addition to the building of 14 new stations and the redevelopment of six existing facilities.

The line itself will also feed into the Southern Corridor of the Trans-Asian Railway, a 14,080km rail route that will eventually run from Singapore to Turkey. One of the primary roles of the Dhaka-Khulna link will be to act as a rapid land transport conduit for goods in passage to and from the Mongla Port, the second-busiest marine cargo handling facility in Bangladesh. A further rail project will also see Dhaka linked to Payra, a new deep-sea port facility being developed in the south of the country.

For Bangladesh, the bridge and its subsequent rail links are just one of seven state-initiated mega development projects set to transform the country, broadening its economic base, upping its appeal for overseas investors, creating jobs and helping to alleviate the poverty that blights the lives of many of its citizens. Among the other key projects under way are the construction of a series of nuclear and coal-fired power-generation plants, upgrades to several of the country's sea ports and a new gas processing terminal.

From China's point of view, the Padma Bridge Rail Link forms part of the Bangladesh-China-India-Myanmar Economic Corridor (BCIM), a key BRI channel. Once completed, the 2,800km corridor will link Kolkata, the capital of the Indian state of West Bengal, with Kunming, the largest city in southwest China's Yunnan province, via Assam, Bangladesh, Manipur and Myanmar.

Geoff de Freitas, Special Correspondent, Dhaka

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By Asian Development Bank

Highlights

• Developing Asia will need to invest $26 trillion from 2016 to 2030, or $1.7 trillion per year, if the region is to maintain its growth momentum, eradicate poverty, and respond to climate change (climate-adjusted estimate). Without climate change mitigation and adaptation costs, $22.6 trillion will be needed, or $1.5 trillion per year (baseline estimate).

• Of the total climate-adjusted investment needs over 2016–2030, $14.7 trillion will be for power and $8.4 trillion for transport. Investments in telecommunications will reach $2.3 trillion, with water and sanitation costs at $800 billion over the period.

• East Asia will account for 61% of climate-adjusted investment needs through 2030. As a percentage of gross domestic product (GDP), however, the Pacific leads all other subregions, requiring investments valued at 9.1% of GDP. This is followed by South Asia at 8.8%, Central Asia at 7.8%, Southeast Asia at 5.7%, and East Asia at 5.2% of GDP.

• The $1.7 trillion annual estimate is more than double the $750 billion Asian Development Bank (ADB) estimated in 2009. The inclusion of climate-related investments is a major contributing factor. A more important factor is the continued rapid growth forecasted for the region, which generates new infrastructure demand. The inclusion of all 45 ADB member countries in developing Asia, compared to 32 in the 2009 report, and the use of 2015 prices versus 2008 prices also explain the increase.

• Currently, the region annually invests an estimated $881 billion in infrastructure (for 25 economies with adequate data, comprising 96% of the region’s population). The infrastructure investment gap—the difference between investment needs and current investment levels—equals 2.4% of projected GDP for the 5-year period from 2016 to 2020 when incorporating climate mitigation and adaptation costs.

• Without the People’s Republic of China (PRC), the gap for the remaining economies rises to a much higher 5% of their projected GDP. Fiscal reforms could generate additional revenues equivalent to 2% of GDP to bridge around 40% of the gap for these economies. For the private sector to fill the remaining 60% of the gap, or 3% of GDP, it would have to increase investments from about $63 billion today to as high as $250 billion a year over 2016–2020.

• Regulatory and institutional reforms are needed to make infrastructure more attractive to private investors and generate a pipeline of bankable projects for public–private partnerships (PPPs). Countries should implement PPP-related reforms such as enacting PPP laws, streamlining PPP procurement and bidding processes, introducing dispute resolution mechanisms, and establishing independent PPP government units. Deepening of capital markets is also needed to help channel the region’s substantial savings into productive infrastructure investment.

• Multilateral development banks (MDB) have financed an estimated 2.5% of infrastructure investments in developing Asia. Excluding the PRC and India, MDB contributions rise above 10%. A growing proportion of ADB finance is now going to private sector infrastructure projects. Beyond finance, ADB is playing an important role in Asia by sharing expertise and knowledge to identify, design, and implement good projects. ADB is scaling up operations, integrating more advanced and cleaner technology into projects, and streamlining procedures. ADB will also promote investment friendly policies and regulatory and institutional reforms.

This article was first published by the Asian Development Bank. Please click to read the full report.

Domestic structural and legislative changes within the region's most populous nation could have far wider implications.

Traditional Uzbakistani jewellery: A treasure lost to the wider world for more than 20 years.

The Uzbekistan jewellery sector is the latest to benefit from the largesse of Shavkat Mirziyoyev, the 60-year-old career politician who became the country's President in November last year. His most recent legislative initiative has seen import tariffs scrapped for jewellery equipment, raw materials, parts/components, and finished items. To crown it all, he has also abolished VAT on the sale of imported and domestically-produced jewellery until at least January 2020.

The move, however, didn't come about without one or two stipulations. Primarily, the government has specified that all of the additional revenue accruing to the industry on the back of these duty cuts must be re-invested in updating the sector's technological resources, with any remaining funds used as working capital, allowing manufacturers and exporters to up their output.

Assuming jewellery businesses adhere to their side of the deal, any such upgrade, coupled with the enhanced cash flow, could prove most timely. As well as boosting the domestic industry, Mirziyoyev's initiative has also opened up the market, with the end of its prohibitive import tariff regime suddenly making Uzbekistan's jewellery sector a tempting prospect for both overseas purchasers and investors, with Russia, Ukraine, China and Turkey seen as the most likely beneficiaries.

While the end of its offputtingly excessive levies may mark something of a new dawn for the country's jewellery trade, another earlier initiative is also set to make a substantial impact. Back in September, the country's 20-year-old policy of pegging the som – the local currency – to the US dollar at an artificially low rate was abandoned, while restrictions on the amount of foreign currency that businesses and ordinary Uzbekistanis could purchase were also removed.

This change was designed to end the country's two decades of virtual economic isolation, with would-be investors long-deterred by the unjustifiable exchange rate and the currency restrictions. It is now anticipated that Uzbekistan – the most populous country in formerly Soviet Central Asia – could see overseas investment levels return to the highs enjoyed prior to 1994, the year that Mirziyoyev's predecessor, Islam Karimov, introduced the fixed-rate currency exchange system.

As a sign of the importance of the jewellery industry within the country's newly liberalized economic regime, the Uzbekistan Jewellery Industry Association (Uzbekzargarsanoati) was launched by presidential decree late last month in Tashkent, the national capital. As well as taking on responsibility for preserving and enhancing the country's centuries-old traditional jewellery styles and craftsmanship, the body will also have a more contemporary mandate, which will see it charged with driving exports, overseeing overall quality standards and ensuring the industry's major players follow through on the government's call for a widespread technological upgrade.

The legislative, structural and technological changes set to reinvent the country's jewellery industry, however, are expected to have repercussions well beyond its borders. In fact, many within the business anticipate that Uzbekistan's re-emergence onto the wider economic scene could transform Central Asia's jewellery sector.

At present, the jewellery scene in the region is dominated by two particular players – Kazakhstan and Kyrgyzstan – both of which bring something entirely different to the market. Kazakhstan has a high proportion of affluent consumers, many of whom are keen jewellery purchasers, attributes that have seen the country develop an admirable distribution network, while also seeing it as home to the Esentai Mall, the region's only truly premium shopping destination.

By contrast, Kyrgyzstan has made itself equally important to the Central Asian jewellery trade by clearly establishing itself as the region's key re-export hub. Overall, the country has its extremely liberal business regime and its accompanying low import tariffs to thank for its strategic – and lucrative – re-exporting role.

Ironically, all of this jostling for position within the region may see many of the countries re-adopt the supplier/distributor roles they held some 2,000 years ago at the time of the classic Silk Road. With the Belt and Road Initiative – China's ambitious infrastructure development and trade facilitation programme, widely seen as the successor to this ancient trade route – set to snake its way through Central Asia and Eastern Europe, it could be most timely that such a venerable hierarchy is about to be restored.

Leonid Orlov, Moscow Consultant

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When President Xi outlined ambitious plans to transform China's economic base by 2050 at this year's National Congress in Beijing, his words had a particular significance for many of the businesses operating out of Hong Kong and Taiwan.

At this year's 19th National Congress of the Communist Party of China, the implementation of the Belt and Road Initiative (BRI) was designated as the country's number-one priority. In Taiwan, meanwhile, the New Southbound Policy, the territory's blueprint for its own economic development, has been accorded a similar status. Thankfully, a substantial number of the aims of the two programmes are closely aligned, with many seeing co-operation, rather than competition, as the way ahead, with Hong Kong potentially playing a key role in both of these developmental strategies.

During his own address to the Party Congress in October, China's President, Xi Jinping, outlined his vision for the country's economic development over the next 30 years. His words resonated particularly strongly in Hong Kong and Taiwan, with both territories potential beneficiaries of the mainland's expansive new era.

As part of his programme for transforming China into a moderately prosperous society in the short-term, as well as a contemporary superpower over the medium- to long-term, Xi outlined a two-stage development plan that would run from 2020 until about 2050. For the initial 2020-2035 phase, he emphasised the need for the country to build on its existing economic and technological strengths as it looked to become a global leader renowned for its innovative capabilities.

In terms of phase two, which he envisaged as running from 2035 to about 2050, he saw this as a period of national consolidation. In particular, he emphasised the importance of the country emerging as strong on the domestic front, while taking on a heightened international role.

In terms of concrete objectives, he renewed calls for the country to address five critical issues that threaten its economic development – the need to cut overcapacity, the problem of excess inventory, the requirement to deleverage, the issue of cost reduction and the obligation to eliminate any weak links in the overall production chain. In a similar vein, he highlighted the importance of improving the allocation of resources and maintaining quality, while striking the right balance between supply and demand.

Specifically addressing a number of industrial issues, Xi detailed the growing importance of the advanced manufacturing sector, as well as the need to fully integrate digital connectivity, big data, and artificial intelligence with the needs of the wider economy. Only through such cross-fertilisation, he maintained, could the full potential of a number of emerging sectors be fully realised, including green/low-carbon production and the sharing economy, while a number of existing resources – most notably supply chain management and staff recruitment/development – could also be successfully upgraded to meet the challenges of the digital era.

For many Taiwanese businesses focusing on the advanced manufacturing sector, Xi's words had a particular relevance. In recent years, as the mainland's production base has evolved in line with the aims of Made in China 2025 – the country's 10-year plan to embrace the opportunities offered by intelligent manufacturing – the nature of its commercial interaction with Taiwan has also undergone a fundamental change. While the relationship was once characterised by low-tech Taiwanese production being outsourced to the mainland, it has now shifted to being more of a horizontal alliance, with technological exchanges now commonplace on either side of the Strait – a development set to become more pronounced as Xi's economic masterplan comes to fruition.

As well as his vision for the future of the manufacturing industries, Xi also outlined ambitious plans for the financial sector, an area where Hong Kong has globally acknowledged expertise. In particular, Xi signalled his commitment to further reforms of the overall financial system, while also seeking to enhance the capabilities of the financial-services sector, increase the proportion of direct financing and promote the development of a multi-level capital market. At the same time, he also pledged support for improving the dual-pillar monetary and macro-prudential policy regulatory framework, as well as indicating a need for further reforms to the interest-rate market and improvements to the financial supervision system. Overall, though, he reminded delegates of the paramount importance of avoiding systemic financial risks.

Xi's emphasis on market supervision and risk control within the mainland financial sector has been seen as representing a real opportunity for Hong Kong. While many financial institutions in Shanghai or Beijing, for instance, will be obliged to take a slow and steady approach to market liberalisation, Hong Kong will be free to move at a more accelerated pace, seeing it perfectly positioned to act as an intermediary for any mainland businesses considering overseas expansion, while also confirming its own status as one of the world's leading financial centres.

Overall, this will chime well with another priority highlighted by Xi in his address to Congress – the need for mainland enterprises to both expand abroad and to play their part in transferring skills and technology back to the country's manufacturing base, the so-called "going out" and "bringing in" doctrines. These policies were given greater import in light of both the President's headline commitment to the BRI and the accelerated free-trade pilot-zone programme currently underway at 11 key locations across China.

Since the BRI programme was first mooted in 2013, Hong Kong has played a key role in making this grand vision of international infrastructure development and trade facilitation a practical reality. In particular, its globally renowned professional services base – especially with regard to finance, legal compliance and risk analysis – has been at the forefront of many of the complex negotiations that have paved the way for the BRI's most ambitious construction projects. With the BRI remaining the centrepiece of China's long-term economic development programme, Hong Kong is guaranteed a seat at the top table when it comes to delivering the initiative's wide-reaching objectives.

As for Taiwan, its New Southbound Policy has clear synergy with the BRI. While the mainland's infrastructure-development programme rolls out across a wide number of territories, many of them are also being targeted by Taiwan. The mainland initiative, though, is focused on financing/managing major infrastructure projects, while also negotiating streamlined bilateral trade terms. By contrast, Taiwan is looking to encourage its manufacturers to directly invest in such countries, with the aim of nurturing the production capabilities of many of these underdeveloped nations.

In light of all of this, it can be seen that Taiwan and Hong Kong – although clearly not intended to be the primary beneficiaries of the mainland's largesse – can expect an array of collateral windfalls as the mainland looks to realise many of its mid-21st century ambitions.

Robert Kang, Special Correspondent, Taipei

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By Chris Devonshire-Ellis, the Founding Partner and Chairman of Dezan Shira & Associates

With both China and Russia gearing up for overseas rail and Arctic shipping potential to Europe, positive moves to accept and accommodate improved rail links are being taken in the Baltics. Russia has recently signaled its desire to extend and redevelop passenger rail services from St. Petersburg to Berlin in a route that sees cross-border travel through Latvia, Lithuania, the Western Russian enclave of Kaliningrad, and through Poland.

Estonia, to the north-east, has also been discussing improvements with Russia concerning both road and rail connectivity, with the Deputy Minister of Transport of the Russian Federation Sergey Aristov stating in April that Estonia and Russia have reached an agreement regarding the re-establishing of their cooperation in transportation. Aristov was reported as saying the discussions were “very positive.” Estonia was represented by Ahti Kuningas, deputy secretary general for transport at the Ministry of Economic Affairs and Communications, Priit Rohumaa, chairman of the supervisory board of Estonian Railways, and the Estonian Ambassador to Russia Arti Hilpus. According to Ambassador Hilpas, discussions revolved around the potential for high speed links and Russian/Estonian highway collaborations.

These developments are partially geared to accentuate the increasing amount of Chinese freight trains arriving in Europe via Kazakhstan and Russia, and to allow both Chinese and Russia trade access too and obtain supplies from the Baltics. At present, much of the rail traffic enters the EU into Poland via Belarus, further south, leaving the Baltics and Nordic nations out of the loop. Chinese-European freight is seeing a 100 percent increase this year, compared to 2016, with 1,000 freight trains expected to make the journey during 2017. Such growth rates are only expected to continue. Coming Europe’s way are Chinese electronics, going the other – are valuable and perishable European consumables.

Getting the Baltics configured into this trade, both from the mutual access perspective as well as services provision, is also inspiring some serious infrastructure developments. Both Estonia and Finland are discussing the possibility of connecting to each other via a 90 km, Helsinki-Tallinn undersea tunnel. A one-way journey would take just 30 minutes, as opposed to an effective 3 hour (including airport time) trip to take the 60 minute Turboprop, and the 2 hours by ferry.

Helsinki and Tallinn jointly represent an economic area populated by 1.5 million people, and there is active inter-city movement of people for work and leisure as well as freight traffic. Last year, Tallinn processed 10 million port visitors, with Helsinki reporting 11.5 million marine passengers passing through. Traffic between the two port cities in particular saw major growth last year and tens of thousands embark on work-related trips between the two cities weekly. The EU-funded studies, which are being undertaken by a consortium of interested businesses, are expected to produce initial feasibility results later in the year. These are to include cost-benefit analyses and impact assessments for both the rail and marine options, how the undersea tunnel can be technically implemented, and price tag determinants for construction, maintenance, and rail traffic. It will also sketch out the project’s main features, including location of routes, stations, and rolling stock depots.

These are part of Rail Baltica, a greenfield rail transport infrastructure project intended to integrate the Baltic States in the European rail network. The project includes five European Union countries – Poland, Lithuania, Latvia, Estonia, and Finland. It will connect Helsinki, Tallinn, Pärnu, Riga, Panevežys, Kaunas, Vilnius, and Warsaw, and is expected to be completed by 2026.

Russia is not part of this grouping, as it is not an EU nation. Nonetheless, bilateral discussions between Russian Railways and the same group of nations have been and continue to take place. An example is the Kouvola Rail Forum taking place in Finland this September. The program specifically deals with the Eurasian Land Bridge, China rail, and Finnish-Russian rail connectivity, which has been upgraded in recent years to almost wholly electrified routes.

The Taiwanese electronics business MIPRO recently won a €22.3m contract awarded by the Finnish Transport Agency (Liikennevirasto) for the renewal of signalling systems at Niirala, Kotolahti-Mussalo, and Vainkkala marshalling yards in eastern Finland, which connect directly with Russia and the Russian Railway and highway network, although these require some development on both sides. However, both Finland and Russia recognize this, and are taking steps to integrate technological systems such as the introduction of RFID remote identifier systems. These in particular, offer potential benefits along the entire supply chain – from customers and operators to handlers and border authorities, benefiting China, Russia, and EU customers and smoothing over the entire supply chain.

Finland has also been discussing the potential for a US$3.4 billion “Arctic Corridor” that would connect Northern Europe with Russia, China, and Arctic Ocean deep-water ports. The idea is being pitched by a group of Finnish academics and business leaders, and would connect the city of Rovaniemi in northern Finland with the Norwegian port of Kirkenes on the Barents Sea. Ships could move goods from China as well as oil and gas from Arctic fields in Russia westward along the Northern Sea Route to Kirkenes. Cargo would be offloaded to the railway and sent southward through rail connections to Scandinavia, Helsinki, the Baltic states, and the rest of Europe. The Chinese routes for this are explained in the article “China’s Maritime Arctic Silk Road On Ice”.

“The Arctic Corridor project sees OBOR as very important as it provides an alternative to connect Asia with the Arctic and Europe.” said Timo Lohi, a spokesman for the Arctic Corridor project. Lohi also notes that Kirkenes in Norway is the closest Western port to Asia. Kirkenes Port is also ice-free, allowing the use of larger vessels and saving on ice-breaking costs.

These developments, tucked away into North-Eastern Europe, seem a long way from China when viewed on traditional flat maps. However, this is the top of the world, and distances are actually shorter than they appear. A direct flight from Helsinki to Beijing for example takes just 6 hours.

It should be remembered that Finland is a major gateway into Russia and also offers mutual access to China for electronics, as well as high quality Finnish goods to China. The same applies to the Baltic nations of Estonia, Latvia, and Lithuania, with Estonia especially having tied itself to developing China trade services as well as being a viable rail and sea port. While much of this depends upon the acceptance of Russia, and Russian Rail operators in the Baltics, a politically tricky subject at present, should military and security concerns be put to rest, the Baltics region can become a major player in future Chinese and Russian regional trade. Regional manufacturers should be looking at adjusting quality consumer products to Chinese tastes, and especially the sustainable, yet exotic (such as Nordic meats and fish) in addition to high quality clothing and other consumables. The services industries and development funds in particular, in everything related to transportation, warehousing, logistics, and related IT within the region should be keeping an eye on these possibilities. The EU’s next major capital city as concerns OBOR and influence may well be Helsinki.

This article was first published on Silk Road Briefing. Please click to read the full report.

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