One Belt, One Road investment opportunities

23 August 2017

Comprised of the Silk Road Economic Belt and 21st Century Maritime Silk Road, One Belt, One Road (OBOR) is a USD 4 trillion Chinese initiative aimed at developing integrated trade corridors across Asia, Europe, Africa and the Middle East. The initiative will see China expand domestic and overseas investment in transport, as well as the associated energy, power and industrial infrastructure required to strengthen trade links.

Officially encompassing 65 countries, OBOR was first mentioned by President Xi Jinping in September 2013, as he announced the Silk Road Economic Belt, which is focused on enhancing overland links. This was followed in October 2013, with the proposal of the 21st Century Maritime Silk Road, a sea-based route passing through Southeast Asia, Africa and the Middle East. 

Since then, China established the USD 40 billion Silk Road Fund in December 2014 to finance its initiatives. The introduction of the China-led USD 100 billion Asian Infrastructure Investment Bank (AIIB) in January 2016 has also supported the initiative, with investment in OBOR countries rising by 38.6% in 2016 to USD 18.93 billion. President Xi reaffirmed China’s commitment to OBOR in a May 2017 Silk Road summit, committing a further USD 78 billion in financing. Cooperation agreements have also been signed with 40 countries, including New Zealand and Madagascar in March 2017. 

Chinese companies will be the principal beneficiaries, given that OBOR is partly an attempt to relieve domestic overcapacity in steel, cement and other sectors.

Most lending under the initiative is conditional on the involvement of Chinese companies, whether in construction, operation of projects or supply of materials.

However, non- Chinese companies can also benefit. Local and international companies may seek to partner with Chinese firms on projects, whilst global financial services companies located in Singapore and Hong Kong will be a growing source of private capital and advisory services.

OBOR incorporates projects in diverse frontier markets, meaning that participating companies will be exposed to an array of risks in potentially unfamiliar operating environments. Security threats include political violence, terrorism, and kidnapping in countries such as Pakistan, Turkey and Myanmar. Moreover, non-payment and sovereign credit risks can be elevated as many countries receiving Chinese financing already bear elevated debt levels and OBOR will weaken their sovereign credit position further. Underdeveloped regulatory systems, structural economic weaknesses and weak judiciaries further elevate the risks to investors. 

Maritime Silk Road, One Belt

These risks can be addressed by political risk insurance which covers the following perils: expropriation including confiscation and nationalisation, selective discrimination, forced divestiture, forced abandonment, license cancellation, political violence and currency inconvertibility/exchange transfer embargo, as well as political violence, terrorism and sabotage insurance and kidnap-for-ransom insurance. 

This Risk Focus will outline the cross-sector opportunities and associated risks in a number of countries that are particularly benefitting from outbound Chinese investment, as well as countries that have been the subject of recent enquiries by JLT’s clients. The countries referenced are: Bangladesh, Indonesia, Kenya, Kazakhstan, Laos, Pakistan, Sri Lanka and Vietnam.

For further information, please visit the JLT Specialty limited website