What is China’s Belt and Road Initiative?

What is China’s Belt and Road Initiative?

Patrick Daley, of Berwin Leighton Paisner (Hong Kong), explains what the Belt and Road Initiative is and why it matters to construction lawyers, outlines some of the difficulties encountered to-date (including issues around governing law) and considers what lies ahead

What is the Belt and Road Initiative?

The Belt and Road Initiative is an infrastructure development strategy initiated by the People’s Republic of China, focusing on the promotion and advancement of international connectivity and co-operation between China and the rest of Eurasia and bordering regions of Africa and Oceania.

The initiative is driven by China’s strategic desire to assume a bigger role in global affairs, to enhance its economic and political ties, to improve the infrastructure and supply chains on which it relies and to export the excess of its manufacturing and production capacity.

The name of the Initiative is intended to evoke the ancient Silk Road trade routes established during the Han dynasty of ancient China.

Why should construction lawyers take note of it?

The Belt and Road Initiative encompasses a broad range of development opportunities, including road, rail and port projects and the creation and expansion of power and communications networks in locations including Indonesia, Pakistan and Western Europe.

Since its inception, the initiative has created opportunities for funders, international consultants and professional service providers in the infrastructure space.

For construction lawyers, the initiative offers opportunities to advise on the full project lifecycle from preparing commercial documentation, project delivery and potential disputes.

What difficulties has it encountered?

From a legal perspective, one challenge for Belt and Road transactions is the choice of governing law.

Belt and Road projects will by necessity involve a complex web of different governing laws and jurisdictions, leading to potential conflicts in the event of a problem or dispute. Lawyers drafting the legal documents will need to address this issue, but it is unlikely that there will often be perfect solutions. To give just one example of the types of difficulties which will arise, local laws in certain jurisdictions may prevent or impede the enforcement of securities by financiers. As it stands, there is no easy solution to this issue and no one-size-fits-all framework for Belt and Road transactions.

Major tender procurement exercises arising out of the initiative will need to consider fair procurement and competition law issues. A decision made in 2017 by the Nepalese government highlights the importance of complying with rules around open tendering. 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.

Ongoing cultural issues specific to individual countries and regions, as well as the impacts on local communities where these projects are being built, need to be considered for each project individually. These considerations have the potential to advance or derail individual projects and should be carefully assessed and addressed.

How does the future look?

It has not been all smooth sailing along the Belt and Road. While infrastructure projects form the backbone of the initiative, the Belt and Road is viewed as a broader projection of China’s growing soft power—strengthening connectivity between China and the rest of the world, increasing reliance on Chinese capital and expertise across a large number of countries, growing its position as a global power and helping to fulfil President Xi’s ‘China dream’ of national rejuvenation.

China still has some way to go to ease the concerns of potential overseas partners over China’s real motives, and to answer questions as to whether nations hosting Belt and Road projects will derive sufficient benefit from this hugely ambitious development framework to counter the perceived political and economic costs.

For every successful project, other projects such as the Hambantota Port in Sri Lanka have been highlighted in the media as examples of using loans to gain influence around the world.

Time will tell whether any initial hurdles—be they financial, political or legal—can be overcome to enable the initiative to unlock its full potential to drive economic development across Asia, Africa and Europe.

Interviewed by Julian Sayarer. The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

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