14 Sept 2016
Trade along the Belt and Road
Founded in 2015, the Silk Road Development Association was set up to promote a deeper understanding of China’s Belt and Road Initiative and assists companies in finding business partners along the Belt and Road. It also helps new-to-market SMEs that want to enter the Greater China region, where it mostly operates. Rem Tai, Chairman of the Silk Road Development Association and General Manager of Hong Kong-based Trans Global Express Ltd, offered insights on Belt and Road opportunities for SMEs in the logistics sector at an HKTDC seminar held in August.
What is the Belt and Road Initiative and how are projects funded?
The Belt and Road Initiative is based on a series of connections; these include connecting in terms of finance and economies, culturally as well as locally between different people. The Initiative comprises a sea and a land route by rail through northwestern China, exiting into Central Asia and eventually arriving in Europe in Germany and in Poland. Inter-state relations have a great effect on bilateral trade. The Initiative has several funding institutions, mostly administered by China, such as the Asian Infrastructure Development Bank and the Silk Road Fund, which is a separate US$40 billion infrastructure fund created by China to provide funding for projects related to development.
Apart from infrastructure, how else can the Initiative help to boost global trade?
The spotlight has been on construction projects such as railway and infrastructure investment. Little emphasis has been placed on the economic benefits brought about by capital harmonisation and greater connectivity between markets.
The Belt and Road Initiative will help foster renminbi internationalisation and promote wider renminbi circulation overseas. Products and services will be denominated in renminbi instead of the traditional US dollar or euro, helping to lower the risk of currency fluctuations.
Hong Kong is an international city where capital flows freely, attracting enterprises along the Belt and Road to raise funds in Hong Kong. Many companies including from Pakistan, Ukraine and India have shown interest in listing on the Hong Kong stock exchange.
Where are the opportunities for SME’s?
The Belt and Road has excellent logistics and business opportunities for Hong Kong and Chinese mainland SMEs to tap, as well as from recently signed free trade agreements. The Closer Economic Partnership Arrangement (CEPA) between Hong Kong and the mainland, and the Regional Comprehensive Economic Partnership Treaty (RCEP) between ASEAN and China, can benefit SMEs by eliminating tariffs on imported and exported goods. They include tea, wine and even sapphire from Sri Lanka, medicine and clothes from India, and local produce from the Xinjiang Hami region. SMEs can also take advantage of the Belt and Road to operate tours to Central Asian nations.
Xinjiang Hami is building a modernised logistics centre, while from Guangxi, people can easily access neighbouring Vietnam. The bordering Chinese city of Dongxing also has potential to be a base for rosewood imports. The free trade zones (FTZ) in the mainland, particularly the largest, the Nansha area in the Guangdong FTZ, has attracted many e-commerce businesses because of its e-retailer-friendly policies.
A number of e-commerce companies along the Belt and Road are keen to expand their online platforms, including Sri Lanka’s largest e-commerce operator Takas.lk, Indian-based Flipkart and Kaymu, which operates across Europe, Asia, Africa and the Middle East. SMEs could explore business opportunities in these platforms.
The relatively low labour costs in Bangladesh will benefit the textile and garment sector while their consumers also have great demand for low-cost mobile phones and smart devices.
Belt and Road opportunities extend to Europe, and I believe railway networks, such as the Chongqing-Duisburg, Chengdu-Lodz rail links, the new Urumqi high-speed rail transport hub, are good connections for SMEs to reach foreign markets. Countries in Central Asia are rapidly developing their infrastructure and improving connections. For example, direct flights now operate between Almaty in Kazakhstan and Hong Kong. Using connections and extensive transport networks is important for SMEs looking to expand or source items overseas.
What are the advantages Hong Kong offers for SMEs tapping Belt and Road opportunities?
Hong Kong is an efficient city with great logistics operations, a professionally operated port, a well-designed and efficient airport, and a strong rule of law. Hong Kong is also a city with a free economy, as well as a renminbi offshore trading centre. CEPA allows importing to China on a free trade basis and gives Hong Kong companies a step up over foreign investors.
Another advantage Hong Kong enjoys is being a part of the one country, two systems framework. Through this, Hong Kong, as part of China, benefits from free trade agreements struck with ASEAN countries such as RCEP. Hong Kong’s air-freight capacity is almost double that of most other airports, displacing Shanghai and Tokyo, making Hong Kong one of the world’s top air-freight locations, and in Asia.
The construction of the Hong Kong-Macau-Zhuhai Bridge is also a logistical advantage as it connects Hong Kong to the Pearl River Delta and the mainland. The establishment of the bridge enables more efficient connectivity between Zhuhai, Macau and Hong Kong, and can serve to increase transport links between the three cities.
Belt and Road