Belt and Road Initiative: UK’s Post-Brexit Promised Land?1st Jun 2017
‘As China drives forward the Belt and Road Initiative from the East,’ the Chancellor, Philip Hammond, said in a speech at the Beijing Summit on 14 May 2017, ‘we in Britain are a natural partner in the West’. The UK’s readiness to work with other partners in the initiative was echoed by an interview with the Chinese Ambassador to the UK. The question is, what exactly are these opportunities?
As a practising barrister who knows where Atkin Chambers’ expertise lies within the construction, infrastructure, energy and IT/telecommunications sectors in the UK and abroad, I see the potential for direct involvement in the numerous cross-border Belt and Road projects in the years to come, whether at the advisory stage or in a dispute requiring international mediation/arbitration. The geographical scope of the initiative is all the more interesting in the light of my background as a native Hongkonger and Chinese-speaker.
Background of the initiative
Inspired by the ancient Silk Road, the Belt and Road Initiative is arguably the most ambitious development project to this date, premised on $900 billion worth of large-scale construction of infrastructure (both planned and underway) connecting Asia, Africa and Europe.
Whilst ‘there is still a lot of confusion’ about what the initiative entails (as Peter Cai from Australia’s Lowy Institute said to the Guardian recently), according to the official action plan, the initiative consists of:
- The Silk Road Economic Belt – this refers to ‘a new Eurasian Land Bridge and developing China-Mongolia-Russia, China-Central Asia-West Asia and China-Indochina Peninsula economic corridors’; and
- The 21st Century Maritime Silk Road – rather confusingly, the road is not on land, but represents the maritime routes connecting various new ports in China, Africa and the Mediterranean.
A chance to shine post-Brexit?
With all the potential challenges of Brexit and the likely impact on future involvement in European projects, the allure of opportunities for the UK construction/infrastructure industry in the Belt and Road initiative is obvious. It is estimated that Asia’s infrastructure needs will require $26 trillion of investment out to 2030 and it is clear that a lion share of the investments and resources will have to come from China’s partners.
The optimism has been bolstered by all the pomp and ceremony of the Summit, which was attended by heads of state/government from 29 countries, and was said to have crystallised into ‘consensus’ and ‘signed agreements’ with 68 countries and international organisations. China’s President Xi has repeatedly stressed that the initiative is open and inclusive to all.
Does all this tally with reality? A PwC report earlier in the year suggested that there had been an average 4.6% GDP growth across the Belt and Road region, with a considerable potential for significant growth in the construction of power utilities and rail networks.
These are positive signs for the direct and close involvement of the UK construction industry in the Belt and Road projects, which in turn requires the services provided by the legal profession – in terms of contract drafting, contract management, and dispute resolution.
Risks and scepticism
It is noteworthy, however, that most of the Belt and Road projects so far have been fuelled by investment from the governments (particularly China) – the Asia Infrastructure Investment Bank has interestingly taken the backseat.
This financial model puts immense strain on the public purse in the countries involved and is not necessarily sustainable for such an ambitious initiative. The challenge is certainly not lost on the Chinese government, and indeed, the People’s Bank of China has urgently asked for an ‘international capital pool’ to plug a $26 trillion funding gap with.
Although China has just pledged to invest a further £14.5 billion in the Silk Road Fund, studies have shown that ‘Chinese investment in the initiative has slowed’ in the first three months of 2017, according to the Financial Times.
It is also easy to lose sight of direct competition from the Chinese construction industry, whose construction revenue from the Belt and Road region has been continuously increasing. This is coupled with competition from other cities such as Hong Kong, which naturally considers itself to be a ‘preferred destination’ for capital flowing to and from the mainland.
EU Member States like France, Germany and (for now) the UK have so far refused to endorse China’s trade plan at the Summit, due to concerns about economic and environmental sustainability and fairness of the tender process. Clearly, more work and discussions are necessary before the UK can fully immerse itself into the initiative.
Nevertheless, the potential opportunities which the initiative offers to post-Brexit Britain are up for grabs. In particular, three points should be borne in mind:
- The Belt and Road Initiative will inevitably require foreign investment and technical expertise. As the Chancellor pointed out, ‘we have the skills and capability in London to make infrastructure projects attractive to private investors’, and the construction industry can also offer the necessary expertise in technically challenging projects.
- The projects inevitably involve complex contractual arrangements and terms which the parties are not necessarily familiar with, as recently noted in the South China Morning Post. The risks of project failure and disputes about contractual interpretation are real, which is where London’s contentious and non-contentious lawyers come in, especially if cross-border contracts are governed by English law and/or provide for international mediation/arbitration.
- If other EU member states remain lukewarm to the initiative, the UK will be in a distinctly advantaged position to work with China and the other Belt and Road partners. As Professor Kerry Brown of King’s College London observed, ‘while exiting the EU might be the worst foreign policy decision has made in modern times, as far as energising engagement with China goes, it might be for the best’.
The next Belt and Road Summit will be held in 2019, coinciding with the current deadline for the Brexit negotiations. In the lead-up to 2019, it is important that the UK construction industry and legal profession watch this space and capitalise on the opportunities which may arise, in order to stand ourselves in good stead for the post-Brexit world.
As for myself, being a Chinese-speaking barrister practising in London, the prospect of future involvement in projects and/or disputes so close to my hometown is distinctly fascinating, and the landscape will become more and more interesting as further projects are rolled out.
In later issues, the Brexit Bulletin will look more closely at some of the projects planned or underway in the Belt and Road Initiative, as well as the potential legal challenges parties may face.
Mathias’ practice covers all areas of Chambers’ work, including construction, engineering and infrastructure, energy and utilities, information technology, and professional negligence. In addition to these specialist areas, he has gained experience in a wide range of commercial disputes, including cases on fraud, insurance, assignment, subrogation, and conflicts of law. Mathias is also the winner of the SCL Hudson Prize 2015 for his essay entitled ‘Shylock’s Construction Law: the Brave New Life of Liquidated Damages?’.
As a native of Hong Kong, Mathias is fluent in both Cantonese and Mandarin, and he is therefore able to take instructions for cases involving Chinese-speaking parties and Chinese documentation in Hong Kong, Mainland China, Singapore and other jurisdictions.